francine: deutsche bank downgraded. the new chief executive tells staff there are no reasons to be discouraged. governments come together as spain is set to fall apart. and brussels bites back. as trump metal tariffs come into force. ♪ welcome to bloomberg surveillance. markets, relative

calm compared to what we saw in asia overnight. i would suggest there are four may stories you need to be watching out for. first of all, the u.s. job reports a little later on, so watch out for that u.s. 10 year yield. and euro-dollar stabilizing on the back of it. 1.16 will be moving on the back of trade tensions, whether those escalate or is there more retaliation. they will also move on the back of the u.s. job numbers. the stoxx 600 will move on the back of what happens in italy. on the corporate story, it's all about deutsche bank, and the stock was at its lowest yesterday. today it also got downgraded by s&p. the chief executive, first of all, saying there is no worry about the underlying fundamentals for the bank. will be freaked out, we

fix this, but investors may take this a leg lower. we will have analysis, market analysis, and all of the top stories from james foley. and also, a little bit of an expert when it comes to all things italian will join us. still to come, nigel wilson. it will be interesting to talk to him about monetary follows -- policy. that exclusive interview coming up. let's get straight to the bloomberg first review. are set toparties sweep to power with a program set to fiscal expansion. with noofessor political experience is due to be sworn in as prime minister, along with his cabinet. the government was put together after three months of negotiation with five stars luigi demaio and the five-star

league -- the anti-immigration league. the eu conference tit-for-tat penalties. commerce secretary announced duties on steel and aluminum on grounds of national security. the eu says they will retaliate immediately. next go has said donald trump has quote shot himself in the foot, while canada says it is an affront to their long-standing partnership. prime minister headed for a defeat in a vote of no-confidence. they will vote this morning, and opposition parties are joining forces against them. they have the backing of two antiestablishment groups and a cut alone in party, another catalonian party and the basque nationalists are also set to vote against him. president of the st. louis fed says the central bank should stop normalizing rates until there is evidence inflation is

taking up. he may become as without exclusive interview in tokyo. sure that faster gdp growth by itself is going to indicate inflation is going up any faster than it has. global news, 24 hours a day. powered by more than 127 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much. we are getting some breaking news out of freddie and fannie. this is something i haven't said for a while. what we understand is that the u.s. has opened a criminal investigation into whether traders manipulated prices and the $550 billion markets. this is according to people familiar with the matter. we will keep a close eye, but for the moment, it seems a

little backward looking. let's say a look at the risks in the markets today. italy's populist five-star movement and league will take power later in a spectacular reversal of fortunes that brings to end three months of political deadlock. and spain, corruption revelations have caught up with the prime minister. he did not turn up to parliament for the afternoon session, as one-party after another declared their support or a no-confidence motion. proposeays they will two point 8 billion euros of retaliatory tariffs after the trump administration said they would hit brussels with duties on steel and aluminum. joining us is guests from across europe. is the spanish prime minister now gone? >> he is. no question about it.

i'm speaking to lawmakers who are telling me he knows it and has come to terms with the idea he will be voted out. it is unprecedented, no prime minister has ever been unseated by parliament and i want to tell you, he is a no show. and staffis empty says he will only show up minutes before a vote that will take place in an hour. no question, he will be voted out and replaced by the socialist leader. what are the biggest challenges for the italian government. is it a done deal that they will be confirmed, and how long can it last? the government is going to be sworn in at 4 p.m., just 20 minutes walk from where we are now. the biggest challenges, as you say, they face a confidence vote next week and that's when we will note that this is a done deal. the biggest challenges are bringing together so many

different parties. forh 80 -- 11 to push reform and wants to ask the eu for support. they don't have a lot of money to do this. quickly, i will give you some favor on the ground. one newspaper is calling it a clown show, another calling it the populists are in government. richard, let's get to you in brussels. if you look at the trade, will the eu retaliate significantly? >> they will. the eu response has really run the gamut from befuddlement to anger. with the eu commission president saying yesterday that he is lost when it comes to donald trump. but they eu will strike back around 2.8 billion euros worth

of american imports. those could take place as soon as this month. they will hit products including motorcycles, bourbon, and are targeting republican heavy districts. we expect that to happen soon in the eu. they could file a complaint with the wto anytime now. francine: thanks so much. of course, we will get back to our other correspondence in rome and madrid. we are getting breaking news out of fear chrysler, their chief executive saying they will have a next cash position at the end of june. they have really steered the merger between fiat and chrysler and are now trying to figure out the next step. let's go back to europe, to the risk out there. joining us for the hour, jane foley and alberto.

thank you both for joining us. looking at trade, spain, italy. what is the biggest risk for currency markets. i think it is trade. clearly, italy is all about the budget but trade is a global issue. there are ramifications for world growth, not just for this year or the next year, but the long-term. i think there is an interesting angle here, germany versus the rest of the eu. if you look at the u.s. treasury, their report that points out some of those currency manipulators, they were pinpointing germany and looking at its services, advising in germany to do something to increase domestic demand. trump has an issue with all countries that run a trade surpluses. that's germany, not france. this issue about tariffs being

slapped on the eu, it creates an issue. is the rest of europe going to turn on germany? it is quite interesting to see if a which will be driven some of the european economic partners. francine: and of course, this comes at a time where we don't know how about the italian government will last or what comes next in spain, whether the socialist can last more than six months. generally, we are going from last year's environment of global goldilocks to this year wheresynchronize growth, the u.s. is accelerating and the rest of the world is behind. we think this will continue, translate into a stronger dollar. it will also translate into more pressures within europe and for germany to spend more and for other countries to enter progrowth policies.

we have still a lot of youth unemployment and italy, spain, and greece. what is missing is progrowth policies. then it all comes down to germany, which gains around 250 billion euros per year from the exchange rate and from funding a negative yield. this will be the question for europe, they're going through a tough time. i want to ask you about europe in a second, but first, is italy now eurosceptic? >> it is going to be antagonistic. even though the cabinet has been reshuffled, there is still a tendency to blame europe. what we need to focus on is not the risk of euro exit but the fiscal spending plans.

they are still very large and there is son funding plant. giving universal basic income and reducing flat taxes will cost more than the money raised. so it is corrected to have some pressure towards fiscal easing at this time to prolong recovery, and the u.s. has done. but the amounts are two large compared to what they can afford. francine: if you look at figures yesterday, they were stronger than expected, which might give mario draghi some ammunition. but then you see the trade wars, the populist uprising in southern europe, can he do anything this year? there is this issue about supply. we would argue that from this perspective, he perhaps has to. , i thinkhe argument is

you are quite right, given the political backdrop and the issues about the budget and the consensus on trade and how that impacts growth, i think his rhetoric will remain dovish. he has been all year. on that point of view of interest rate hikes, we were of the view that they would not be able to hike into the three before september at the very earliest. irrespective of the uptick in inflation, i think the argument still stands. francine: do you agree? concern is that some central banks may have missed the exit train. the u.s. is bringing back growth to america and with adjustments to trade agreements, and the fed is able to normalize policy but we are not sure the ecb and boj to withstand another

slowdown in growth into-three years. so yes, we are going to have tapering of qe, but i'm not sure about interest rate hikes, unless there is a change in core european countries fiscal policy. francine: thank you both for joining us. jane foley and alberto gallo stay with us. plenty coming up, including deutsche bank, their credit rating cut by s and p, and the latest blow for chief executive christian sewing. we are joined by a representative from the institute for economic affairs. this is bloomberg. ♪.

♪ francine: this is bloomberg surveillance. let's get straight to new york with the bloomberg business flash. learned the has u.s. has opened a criminal investigation into whether traders and it related places in .he market for corporate bonds the probe shows that investigation by the obama administration are continuing under donald trump. the obama administration secured billions of dollars in settlement. ceo has stepped down after concerns about accounting practices and corporate governance. he will be replaced by the cso. last week's short seller blue or

questionedsend -- their actions. that's the bloomberg business flash. francine. francine: thanks so much. bank's credit rating has been dumped by s&p in another blow to christian sewing. it was downgraded to a minus after reports that american regulators have put u.s. operations on the list of problem banks. stock is trading higher after closing at a record low. us from frankfurt is the vice president of the shareholder advisory. always, thanks for making some time to speak to us. i think we spoke to you on the 25th of may, and last time, you told us the new deutsche bank executive has the right strategy.

the still think that is true? klaus: yes. i still think that christian sewing is the right man and have the right strategy. you should not forget that these are problems of the past, and he has to sort these problems. he was absolutely right when he informed the shareholders at last week's meeting that deutsche bank is still having serious problems, especially in the u.s. investment. and as we see right now, that was true what he was saying, and that absolutely right especially christian and his colleagues are concentrating on the problems in the united. francine: looking at the share price of deutsche bank, it cannot be easy for a lot of your members to have exposure to deutsche bank looking at these tarts. -- charts.

what do they need to stop this slide in share price? thing the most important that he and his colleagues need is time. shareholders have to give this time. they cannot expect any wonders overnight for example. christian sewing is working on at the same time. he is trying to cut the cost of the bank, to reorganize the u.s. ,nvestment is this -- business he has merged possible bank and deutsche bank retail. he is working on several problems at the same time. i would like to point out the actual u.s.

problems deutsche bank has are not so significant as they are so important as they seem on the first of you. that the essence of of three entities concerned this u.s. authorities action are below 10 percent of the overall balance sheet of deutsche bank groups. real,s not concern a let's say, a real problem or big area of the bank. you are: i understand saying the executive needs time, legacy problems. but why own deutsche bank and not something else. pardon me, the line was that. whycine: the question is, would you own this bank when shares keep falling and not by another bank as a shareholder?

klaus: that is a good question. if you are already invested in deutsche bank, you should not sell the shares right now. that share price won't go down any further. won't fall down under let's say eight euros. sense to sellke shares right now. i think it makes more sense to buy shares right now, because a reorganization is in process, and if you trusting christian sewing in his new team, give him time, you can really by deutsche bank shares. it is still the largest bank in germany. one of the largest banks in europe. it is very important for german , i amics and industry

convinced that deutsche bank will get better and its share price will increase in the next 6-12 months. do youe: final question, think commerce and deutsche bank should merge. is if you problem merge two banks which have both problems, you haven't solved any problems but you double problems. this is a very difficult question you are asking. i think a full merger does not make any real sense and does not create any value. it may be that cooperation in several business areas will make but i am very skeptical concerning a full merger. francine: thank you so much. the vice president of shareholder advisory dsw. joining us is an robinson,

bloomberg senior writer. retail.

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lawmakers due to vote on the no-confidence vote in parliament. opposition groups have already pledged that socialist leader the support he needs to take over as premier. looking at live pictures. that means it could stabilize the markets a little bit, especially as we try to figure out this new government. is the very latest in spain and look at the latest in italy with the new government. economics, finance, and politics, this is bloomberg surveillance. a full roundup of what we are talking about. trade, u.s. jobs data, and the possible impact on the market

and central-bank policy. let's get straight to new york. italy's populist five-star movement are set to sweep power with a program for fiscal expansion. , a law professor with no experience, is set to be sworn in. the government was put together after three months of negotiation, which found the five-star and anti-immigration league threatening early election. europe proposes tit-for-tat penalties. wilbur ross announced the duties on steel and aluminum for the european union, mexico, and canada, on the grounds of national security. go has said donald trump himself in the foot of canada says they are an affront to a long-standing ship. -- partnership.

been cut byk has one notch from triple b plus 28 minus. a-.o this comes after reports that them onulators have put a list of problem banks. the white house says they expect a north korean delegation to visit washington. donald trump will meet a north korean delegation led by former spy chief after several weeks of tumultuous diplomacy, any maybeon on the summit announced then. and the president of the st. louis fed has said the central bank should stop normalizing rates until there is evidence inflation picking up. he made the comments at an exclusive interview with bloomberg. >> i am not sure that faster gdp growth by itself is going to

indicate inflation will move up any faster than it has. day innews, 24 hours a more than 120 countries. this is bloomberg. are getting quite a lot of breaking news out of spain so let's get to it. the prime minister is addressing parliament as we speak. this is what we know. that sanchezaid will be the new prime minister. we are still expecting the vote to happen in half an hour. so what we understand, of course, is that the crisis got the better of the prime minister. that theetty clear opposition parties were in favor of a no-confidence vote. again, what is unclear to me and asked we will get to our guest, is whether the prime minister has actually resigned or whether he is just assuming he will lose that no-confidence vote.

let's get straight to our guests, alberto gallo and jane foley. iferto, do the markets care he resigns or is pushed out? it is easier if he resigns with a successor rather than having uncertainty. however, the coalition we are likely to see is not really a populist coalition. it will be more pro-spending, support fiscal easing, with a centerleft majority. but we would not call that a populist government as in other countries. spain is in good fundamental shape, growing, going ahead on reforms. youth unemployment is still very high, but what they need is progrowth measures. these have been overlooked for a long time, with a focus on debt

ratios, austerity, etc.. we are in an environment where populism is growing, and until we see some progrowth measures, that will be the case. for spain, it is not a big problem. francine: jane, does it make a difference? jane: probably not at all. . would agree the markets are not going to get an optimal solution, the government will be week and probably won't get much through parliament. but it is a different ball game that italy. as you have heard, the politicians are not as extreme, and spain have its banking sector, the market is comfortable and confident with the growth. it's not as worried about spain as it is with italy. it is interesting how if they do get progress mathers through, it will be very interesting in recent years. governmentpulist

initiating a lot of progress measures and it has brought growth. from that point of view, a lot of the skeptics have been proved wrong. i have this bloomberg terminal looking at the spanish and italian 10 year yields. yieldn see that spreading and you can see it over the last two days, getting a little less drastic. madrid, wetraight to were just hearing that pedro sanchez is set to be the new prime minister. and that the spanish motion will take place at 11 a.m.. but has the prime minister of effectively resigned? >> good morning. for a minute, a lot of confusion. gone all he has been morning and then asked to take

the stand your there was confusion. resigns, it was his final option to stay in government for a little longer and call an election. maybe the outcome would be different. now, he understands the plan is to just say goodbye and he has conceded. session, and nasty pedro sanchez, he will be in government but it will be got -- difficult to stay in power with just 85 seats. it has been incredibly nasty. for pedro sanchez, this might be the easy bit. staying in government a lot harder. francine: how long do people give this government? >> that's an excellent question, francine. as pedro sanchez said, if i get

the government, i plan on staying for a short while and then go to elections. look at polls, spaniards don't want a socialist government, they want elections. his tone shifted, saying if you want a government you want them to stay in power. so it is a big? . "?" sources are telling me good luck to him. they had a lot more seeds and it was very dam hard. we understand that he is a socialist but wants to keep those projects in place. that could give him a year in power. if they wanted a year in power, they are not happy that he could stay for two years and the question is how do you get anything done even if you have the budget with just 85 seats.

that might be a concern for investors and judging by the tone of today's debate, that will be really hard too. we are talking about the impact on euro and ecb policy. is this the euro crisis coming back? are we just making too many references to pretty ugly years? i would argue that the cracks in the euro's fiscal coherence was always there. last year, we have this goldilocks scenario really strong growth. i really, the french election, it helps 2-iron over the cracks. andth does a lot of things focuses attention away from some of those reform, fiscal issues. but they were always there. we can go back to the comments we have had repeatedly from ecb president draghi who has always

said governments need to do the structural reform. what growth and low interest rates do is it buys the government time. right now, those cracks are coming to the surface again. francine: greek crisis or muscle memory? alberto: there is a lot of debt in the world. overhangs have not disappeared even though we have been through this. of low interest rate. the same time, they have created issues. , some makinglity more than others. rethink the next years are going to be more challenging for investors. some central banks will not be able to hike rates. some european countries will find themselves with too much debt, greece, portugal, italy, spain. and we are looking at new strategies.

today we are launching a new strategy to focus on the tail and protecting investors from this overhang of debt across europe and the emerging markets. francine: we have not touched on the dollar. do we care that much about the employment figure if the fed is also looking at trade? jane: again, that is interesting. of the fedone officials overnight suggesting that so far trade has not had an and act on growth. but we know this is about the future. , whatms of the u.s. data is interesting is the guidance. is anticipating quite strongly and interest rate hike -- height -- hike.

in a way, i think the fed won't do it. they have been given a free lunch on the market won't be worried. but going forward, what is it going to do. how will they respond to these issues? we have not seen that many increases in earnings. they have been stagnant. again, there are lots of arguments saying be careful, though slowly. but it is almost irrespective of the data to say we will get that hike in june. alberto: unfortunately, i think the fed will keep hiking. eventually, this can pose a risk to various countries which are in weaker condition. we have already seen weakest emerging-market countries having issues. we could see larger ones like brazil or mexico having issues as well. eventually, this could backfire on u.s. growth, which means that

like in every fed hiking cycle, initially you have these smaller bubbles popping but you could have a bigger one. major country or the u.s. high-yield market. eventually, this will slow down the fed. but before that, we will probably have more volatility. francine: but that would be something like turkey? standalone and self-inflicted, or does it come from dollar strength? alberto: we have seen turkey and argentina which have large cap deficits. they are trying to do reforms but it is facing headwinds. in turkey, we have had short-term progrowth measures. the market is saying these are two isolated cases. what we are seeing is that the five resell issuers

or mexico, both of which face elections this year, and in italy and spain. these events may seem idiosyncratic, but if you add they are symptoms of an environment where rates are getting higher and financial conditions will tighten. when that happens, the fed will have to slow down, but before that, we think the fed will ignore these headwinds. francine: thank you both for joining us. james foley and alberto gallo both stay with us. stay with us for the reaction to the european political saga. exclusiveou interviews and we will also talk with the u.k. chancellor of the exchequer. this is bloomberg.

♪ francine: this is 'bloomberg: surveillance." italy's populist parties have swept to power in a spectacular reversal of fortune that brings to an end three months of deadlock. they're prime minister will be sworn in this afternoon, with the league and five star serving as deputy. what does a populist and government mean for your areas stability? is a news from rome guest. francesco, great to speak to you.

you also know this new finance minister. what can you tell us about him? is he a eurosceptic? he is not. of tax there is talk cuts on income taxation, he would make sure it is balanced with a consumption taxation. economist,ust a good he has a deep knowledge of public administration and knows the italian public finances inside and out. we take itow should when we understand the new finance minister wants to rethink the relationship of , and also other countries relationship with european institutions?

well, considering the dominant narrative in this is ary, what we now have government that is a euro reformist government, but not a euro revolutionary government. this is a government that thinks they can be a loyal member of the eu and the euro, but is uncomfortable with fiscal architecture. but wants to behave by the book. what i think that everybody was fearful about was to have whobody in the eu and euro would not even discuss things and would simply break away. this is certainly not what we have now, we have a pretty balanced government.

you have experienced people. you have people who are also euro files. the ministers,of that is certainly a great friend of the eu. , we have a euro reformist government, nothing worse. if you look at the italian bond yields, they are down sharply, stocks are up. so you could argue that we have that tail risk removed. however, how long do we think this government last? you have two groups that are fundamentally from different spheres. ideologically, they are different, different values. francesco: yes and no. -- cater toeate different geographies.

the league is based in the north whereas five star gets their vote in the south. whether they stay together or not, it depends on very much on how the minister of finance sets the agenda. them to do the reforms in a balanced way and to find a nice way to sequence of the reforms. so that both the league and five star are comfortable. let me also bring in alberto gallo who has been following your situation closely. how do they finance these things they have promised, to fulfill the promises they have pledged during the campaign? and what needs to go up in italy? alberto: on paper, it looks relatively balanced. the government will find hurdles when it comes to implementing some of their plans. fundingcular,

citizenship income and reducing taxes to a flat rate will mean hiking taxes elsewhere. we think that, eventually, if the numbers stay be same on flat taxes, you may have to do a wealth tax. you can in way vision this is to make a wealth transfer from the haves and old to the younger people. to have a big deficit, which at the moment, bp yields don't like. so there will be hurdles. francesco, are they big enough hurdles? well, i would not overly focus on the headlines. what is important is whether they kick in 100% from the very beginning or whether these are gladwell reforms.

not everything simultaneously in the first place. let me also say about the as anse of basic income, incremental reform, it is something that is just an add-on on top of previously existing subsidies and is fiscally problematic. if you see it as part of a comprehensive read form, it may not necessarily be fiscally problematic. thank you so much for joining us. one of the few people who actually knows the new finance minister. we move on to trade. that eu says they will retaliate against washington after u.s. tariffs came into force. they are said to impose 2.8 billion euros in duties.

they have previously suggested that they will target consumer, agricultural, and consumer products in republican constituencies. joining us now is the director of international trade at the institute for economic affairs. thank you very much for joining us. it seems it is pretty significantly escalating, are we not talking about a trade war? >> i think it will escalate, but we have been here before. steel tariffs were imposed by the bush administration, and even in the reagan thenistration, we had what trump administration is likely to be seeking. the countries exempted from this tariff like south korea and others have basically agreed to limit their exports to the u.s.. francine: is is this different because everyone is outraged? >> well they were outraged previously. francine: this feels different,

and i'm am i wrong. while the target has been china distortions. they first did this, the french and the germans sort of split. the french want to go off on chinese distortions and help the u.s. on that front, the germans wanted industrial goods trade agreements with the u.s., to revive the ttip. so a lot of different dynamics going on here. what i think you are likely to the eu.etaliation from a lot of gamesmanship, brinksmanship. there is a midterm congressional election, the house is very split. i think the republicans will probably retain the house but only just. it means it is the perfect time to retaliate, because you can target a very specific and situate sees.

-- constituencies. that is why a representative from the ways and means committees said he wanted the administration explained their tactics. what about markets that have the most to lose? have the ones that most toulouse are the ones that have trade with the u.s.. i think the deal with south korea is quite interesting. they were telling south korea they had to import more u.s. standards the safety here were not going to be south korea, they would be u.s. three i think that sends a signal to japan who says look, we don't have tariffs on cards. do, yousaid yes you have tariffs in the form of higher safety barriers. so the policies and countries most at risk are those big traders. china, japan, germany, and india. india is in that list now.

they had not been previously, and now the country has to watch themselves. francine: you are giving the u.s. a hard time. how do you negotiate or deal with the trump administration? shanker: i think you negotiate like they do. francine: that means going hard. shanker: going hard. retaliation with respect to particular congressional constituencies but they have also talked about wto action. different about this than the previous steel actions is that this has been done under a national security law. there is a wto national security exemption. case, eu does bring a they will have to say it is a national security exemption and it will be tested in the wto, a good thing to do anyway. in 20 seconds, is there anyone the president listens to, that can actually call the president and say please go back? people arethink

trying to do that but you need to have a fairly strong set of things in you are doing in retaliation. francine: so there is not a special relationship? i think there are special interests, but relationships are less relevant in this area. one of the things the president is trying to do is to bring a coalition together on dealing with china distortions and market distortions. the countries that are able to do that, to actively deal with those country issues, are the ones you listen to. and he is in the u.k. on july 13 so that is a good opportunity. francine: that he so much for joining us. jay foley joining us for the hour and thanks again to alberto gallo. in the meantime, we also need to do a corporate check on deutsche

bank, because the bank has been cut in the last hour and a half. that's just the latest blow for the new chief executive officer christian sewing. that means he suffered a fresh setback in his efforts to reinvigorate europe's largest investment bank. keep an eye on that. today it is graining 3%. continuessurveillance , tom keene joins me in new york and we will focus the conversation on spain, on italy. some beautiful pictures out of because he him and will ask about trading policy from nigel wilson. ♪

francine: deutsche bank downgrades as lender stocks rise.

they say there is no reason to be discouraged. set to be the next prime minister in italy, the populist government due to the sworn in. brussels fights back while -- $3 three billion of imports in response to trump tariffs. what a week. what a friday. there is the retaliation to the trade tariffs, italy and spain, deutsche bank, and the fault line for traders is the u.s. jobs numbers coming out. 8:30.e have jobs at we have some coverage in spain. newport news moments ago out of spain. francine: we understand the prime minister has resigned. the confidence about going on as

we speak -- vote going on as we speak. >> president trump has escalated a standoff with canada triggered by u.s. tariffs on steel and aluminum. justin trudeau says nafta talks collapsed when vice president mike pence existed any no agreement have a sunset clause. law officials will make it official today, they will boot prime minister rajoy out of office in spain. he has conceded in a short speech. that sets the stage for the socialist leader to take the position with the support of some catalan separatists. challengingsion european roles. have spookeders

markets with a program that includes tax cuts and a spending spree with a guaranteed income for the poor. the trump administration has not backed up investigations that began under the obama justice department. the u.s. has opened a criminal probe into whether criminal traits were made fannie mae and freddie mac. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you. let's get right to the data. futures up nine. it has been an interesting week. i will call it a week of turn after the drama on italy. next screen. the vix up 17. the resilient equity markets. deutsche bank matters. that is in euros.

9.42. off the carnage yesterday better, but really not that much better. brent crude at $78 a barrel. francine: this is what i am looking at, stocks rising. it has been a tumultuous week in which political developments in europe and escalating trade tensions have roiled the markets. treasuries are edging a little lower, and the dollar seems to be a little study. risk on move taking hold. we have a change of government in italy and spain. tom: i want to do one story on deutsche bank. thank you to our team for great coverage yesterday as that story broke in the u.s. and fdic. earlier today, a ratings reduction. this is the chart. this is deutsche bank versus bnp paribas normalized back to the financial crisis in 2007.

they are bundled together in losses in 2012. that is the real divide between the french juggernaut up it goes, and deutsche bank just simply cannot get it done. negatived to see 87% from 2007. francine: i like that chart. if you are an employee or client, you don't like that chart. it does tell you the story. we spoke to a shareholder, and he said let's give this chief executive more time. i am proud of this chart. i've been trying to look at it for the last two weeks, and finally it makes sense. this chart matters because the spread between italian yield and spanish yield. one week ago, it was all about the italian risk. now the socialist led opposition is basically ousting the prime minister, mariano rajoy.

he finished a short speech in parliament moments ago. on bloomberg. us lawmakers are set to vote on a no-confidence movement starting out. alreadyon groups have pledged the socialist group the support they need for taking over as primary. how long do these governments last? both seem to be cobbled together with parties that don't necessarily reflect their views, and it is unclear if we go back to the polls or will have new governments in four to five months. tom: the entering prime minister, mr. sanchez, is a phd in economics. that is a good place to start. we have somebody that can certainly be grounded on the important aspects of the distinct spanish economy and its place in europe.

francine: i'm not sure, unless you get a phd in politics. in economicsa phd gives you the kind of wild west politics we are seeing across the world. tom: let's do this now. let us consider a german bank. deutsche bank with the bombshell off the announcement yesterday of the u.s. fdic saying it is a troubled bank, and the s&p with a rating reduction from a level level. what is your observation about the urgency for mr. savings? the urgency is different now than it was 48 hours ago, right? wildcardkind of a because he was already under pressure when he started, and

everything he has done so far has not reached the market at all. almost every day the bank gets we even further, which somehow like this because the situation in the u.s. is year.ning since almost a it puts even more pressure on talking because they don't care any longer. from where you sit, and we would understand in america that a troubled bank like this with its massive size would have a lot of attention from government institutions, how is the german government reacting to the price decline of the shares and the

s&p news? are they actively involved on the floors of deutsche bank in germany and london? >> they are actively involved. it will not take much longer until our watchdog and the financial ministry in berlin will force deutsche bank to replace the head of the supervisory board. that is the main problem. everything the last six or seven years has been wrong, and this guy needs to be replaced him and his is not an issue of deutsche bank anymore but this financial market in germany. every other bank, even in countries that are in a worse situation than germany are doing better. francine: when you look at the concerns for deutsche bank, should they merge with commerzbank?

>> not at all. blocked commerzbank for five to 10 years from doing business. what we see in the background on a european scale, joint ventures and activities, you know, the biggest problem is there is no single major european bank that is as strong as your banks in the usa and some banks in asia. we need european players, not ritish, spanish, b players. credit suisse or something like that can that would make sense. -- like that, that would make sense. francine: thank you very much. joining us for more on deutsche

bank is marcus ashworth, a bloomberg opinion columnist. we talk to you about the periphery concerns. do you understand what deutsche bank wants to the? -- be? >> i don't think it knows itself. its business plan is to not make money at the moment. disappointment all around because savings himself said he is sick and tired of hearing bad news. as an employee, all you have heard is bad news. be interesting point your previous guesstimate is it is just that this bank does not make enough money. it is cutting costs. it is trying to get out of all. that theith him chairman needs to go. the new guy as ceo probably needs more time.

if you look back to 2016 and look at theirnds, yields compared to equity prices, equities are low, the bonds or not. deutsche bank is not going bust. enough money.ng it is not worth as much as it was. rerating.ereading. -- some time. bonds reacting completely different to equity. this may be legacy issues, which is what some of the biggest shareholders are saying. why would you own deutsche bank and not bnp paribas? it is trying to get out of investment banking and the states. that is where it has made inroads, and it is not going

well. it is trying to go back to core markets to make money. the problem is germany is a very competitive banking system, and it is hard to see where they can make money. they are pulling back from investment banking, which is a growth area, because they are overextended. they still have too much investment banking compared to traditional making. it is hard as simple as that. tom: we have a super summary on bloomberg today. in a talk about goldman sachs analysts with near the old phrase from years ago in every crisis, which is counterparty risk aversion. this is a huge deal. are we at that critical to point point where counterparties working with deutsche bank have an aversion? >> i don't think so. it is not making any money. it is not going to go bust.

it is evident that phase. rulehange to the volcker is a place where they could be an interesting bet in the future. they can make money by taking risk. domestically, it's focus is on a situation where it cannot make much money. rates are negative in germany. tom: it is important to end on that point. coming up, jobs day. we love doing this on jobs they, trying to give you smart conversations. bill gross in the news. he got hammered a few days ago. we will speak to him about price down, yield up. it is bill gross on the american economy at 8:30.

this is bloomberg. ♪

>> this is "bloomberg surveillance." let's get to the bloomberg business flash. in australia, three major banks face a criminal prosecution. australia and new zealand banking group and which bank and citigroup are facing cartel charges. all three banks deny any wrongdoing. over atic victory household brand name. he issued a detailed rebuttal about the company's accounting and corporate performance. shares rose the most in five

years. the commodities business has come back to life at goldman sachs. goldman made more money in the sector in the first four months of the year than it did in all of 2017. its net revenues last year dropped 75% to the lowest in its history as a public company. francine: let's take a look at the risks in the markets. we are taking the pulse in europe and madrid. we will have the latest on the spanish no-confidence vote. regime more on the new set to take over in italy and how the eu plans to respond on u.s. tariffs. we basically have a new person in charge in spain, is that right? the vote is just happening now. we are moments away from the

final results, but there will be no surprises. rajoy has already conceded. spain is turning left. we will get a new prime minister socialist leader. be movinghez will into office. the road ahead looks shaky. this will be a very weak government. francine: we also have a new government in italy that will be sworn in at 4:00 p.m. rome time. how will the relationship be union?e european >> as long as they get that confidence vote next week, they will take the stage. likeve establishment ministers that are known to the european union. then again we have this finance who wrote recently last

that questioned italy and the european union, calling into question mario draghi and he says the euro is your personal. they will have to -- irreversible. they will have to get along. they will have to decide what they want as a collective administration to throw to the people. francine: richard, you are looking at trade tensions. how much will europe retaliate? cannot make the u.s. administration change tack? may. very well the european trade minister will soon.ublic comments the eu has indicated that it plans to immediately go ahead with plans to be wto and to

impose its him tariffs on 2.8 billion euros of american products. we hope to get more details on that later today. francine: thank you all very much. joining us for the hour is carson. when you look at europe. two months ago, this economy could do no wrong. they are now hit by tariffs, and germany will be affected, and we don't know how long the spanish and italian governments will last. >> the underlying story is massive political change. massive realignment of the political space that has been in the making for a wild. whatever the numbers looked like a couple weeks ago, that process has been ongoing and is not stopping. tom: i want you to define the distinction and difference between populism in italy and spain and populism and hungry.

on what youred perspective is on what populism needs in these different nations. >> what we are seeing in spain and italy if you put them next to each other is this massive political change, this realignment of the party political sphere. if you look at spain, you have a center-right party embroiled in correction, a centerleft party that files a vote of no-confidence, and political change takes the form that a new liberal alternative might as well when that election. that is different to the change we are seeing italy where we have these two eurosceptic parties teaming up and making lots of noise vis-a-vis the eu. changery of political can take many different forms. that is important from the

market perspective to differentiate. germany respond to these different populisms and these 50-50 votes and coalitions? >> first of all, germany has its own problem with populism. fd doing very well in the last elections. if you look at markle in office since 2005, it is going to be the same as before, wait and see. certain marketat reactions with the work, but it is not the case tim and we have the excessive debt procedure in the european union. then we have this poisonous offer of a rescue for members that are off to that is not going to be a proactive approach from the german side. what does it mean for brexit, and what does it

mean the italian economy? they need to fund the things they promised voters. lastt's start on the point. wrapping all of this stuff into legislation and implementing it by the end of the year is going to be difficult. how long is that government going to last? i think there is a good chance we will go to elections next spring. let's see how big this is actually going to be? brexit, if the european side has the move, then the answer is only incrementally closer integration. i think that works in a fundamentally different direction than what we are seeing on the brexit side. francine: will we ever get a plaza accord when it comes to trade? sanctions,lso put

and then they muddled through. >> they have to retaliate. with the eu will announce today is largely symbolic retaliation. berlin his product that. they will say this is the right thing to do. wherer we reached a stage the eu actually wants to near what the u.s. is doing on aluminum and still, we are far off there. paris and berlin are not on the same page. tom: it is job stay in america. i am focused -- jobs day in america. i am focused on it. would you discuss the polarity on employment in germany versus 30% unemployment for youth in italy. they are 400 miles apart. >> the underlying story, the

imbalances we see in the eurozone and the problem of integrated monetary policy but no progress whatsoever towards closer integration between economic policy and fiscal policy, you name it. macron is pushing in that direction, but the german wait and see. we will be going with this political upheaval. francine: what does that mean for the banking union and capital markets union? >> it is dead in the water in the sense that we are looking at a lot of populism in southern europe. that is pulling governments in southern europe in one direction. you have populism in northern europe, including germany. sweden is going to elections later this year. that makes it difficult to agree on the northern side to greater risk sharing. francine: thank you. later today, we will bring you

an exclusive conversation with european secretary of the exchequer. we will talk about brexit negotiations. there is a school thought that populism in southern europe and brussels thinks we cannot give the u.k. a better deal, eurowise it impacts future skepticism. to the bloomberg heading end of a tumultuous week in which escalating trade tensions are roiling the markets. we are looking at the change of the prime minister in spain. ♪

francine: this is "bloomberg surveillance." let's check in on what is trending across the bloomberg universe. find out why donald trump's net

declined $100 million over the past year. we are talking tariffs. find out why the canadian prime minister is taking off the gloves. our most read stories over the past few hours, in third place city in deutsche bank face cartel charges. movementive-star prepares to sweep to power, and more on deutsche bank as the s&p global ratings agency cuts the credit rating of the lender. has triggeredrump a standoff with canada. the president warned justin trudeau that any renegotiation of nafta must be a fair deal, or there will be no deal at all. the u.s. is it is imposing tariffs on national security

grounds. the canadian defense minister calls that insulting. >> to have anyone in the u.s. administration say that canada is a national security risk is absurd because of that relationship. the one thing i can say is that relationship is not good to change. it has been built over time. >> canada has retaliated, slapping tariffs on american made water cycles, whiskey, and orange juice. talks of a possible summit between u.s. and north korea shift to the white house today. mike pompeo said real progress was made in new york. he is carrying a president for the -- letter for the president from kim jong-un. according to a memo obtained by a move aimed at

.xtending coal plant life global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much. spanish lawmakers have just finished the vote, and it is to oust prime minister mariano rajoy to make room for pedro sanchez. rajoy arrived about 10 minutes before the vote, speaking before conceding defeat. it is now official. the vote from spanish lawmakers mean that prime minister mariano rajoy has been ousted, and pedro sanchez is the new premier. will some of the smaller parties regret not forming an alliance with the social party, which they said will create trouble to

get power or to stop the socialists from consolidating power? how long does this new government last? tom: i would agree on the fragility of the new government could that is what our experts -- government. that is what our experts suggest. the search for growth much worldwide, whether it was yesterday china predicting 6% growth down to 3% growth or what we saw with mr. trump in america and what you see with every nation every day in europe, nothing more than the search for growth leading to fragile coalitions. francine: the search for growth, but also the search for how to stop the tariffs. mnuchinetary steve receiving an earful yesterday after the trump administration imposed these steel and aluminum duties.

joining us for the next half-hour is nigel wilson, chief executive of legal and general group. they seek to protect investors from the impact of brexit by opening an office in dublin. great to have you. we have so much to talk about. the news flow is absolutely terrific. what does it mean for your clients and business? nigel: not a lot is the true answer to that. global growth is going to be 3.5% to 4%. the chinese economy, people have been predicting the hardline on china for 20 years, and it is not. every visit to china, i am always impressed by the progress they are making. they are investing in real assets. people underestimate the chinese ability to grow their economy. similar to the u.s., their economy is doing well. it is great to see more investment. economy is going to be very resilient for the next two years.

francine: do you just ignore these trade wars? it is escalating. you see the rhetoric, what is going on, why is the u.s. doing this unilaterally? that must have an impact on growth worldwide. nigel: i disagree. these are minor skirmishes at the moment. people are trying to protect physical industries. the steel industry is a difficult industry. tons produces 830 million of steel. the u.k. produces less than 1% of that. we are tiny and that context. it is difficult for us to survive in those industries anymore. there are other industries we can do a great job in. francine: what about cars? we understand the u.s. is thinking of targeting foreign cars. nigel: that may happen.

who produces cars where is an interesting question. tona is figuring out how export bmw's back to germany. it is an interconnected global economy. that is one of the reasons it has been growing. it is only contagion risk where we see economies falling across the world. that will only happen if there is a short-term spike in u.s. interest rates as a consequence of what happens. otherwise, there will be a lot of noise, political noise. the italian government has changed once every year for about 60 years. the spanish government also. have.s., u.k., and germany very stable political systems all in all. at theu learned this massachusetts institute of technology, which is that economic policy does not work in

a vacuum. did we see mr. trump bombing us mercantilist theory? do powell and draghi have to react to what we are seeing on our television screen now? nigel: i think they have been very responsible. what we have seen from central banks has been very responsible in the last 10 years. in the last 20 years, portuguese bonds have outperformed the s&p 500. we have seen extraordinary things happen as a consequence interference in a positive way. you can borrow more money from more people. financing is still very cheap. there are lots of great ideas going on. there are industries and jobs being created.

-- new industries and jobs being created. they cannot stand back and in nothing. hopefully it is a scrimmage. we don't want the skirmish to be a war. a trade war is very different. it is not going to change the world's economic growth, however big things will change economic growth. tom: we welcome your worldwide this morning on radio worldwide and on bloomberg television looking at the spanish parliament and their new prime minister pedro sanchez. mariano rajoy is out. we want to bring up this chart. very quickly, i don't want to overplay this, but with a negative yield on spanish two-year, we are lower negative yield and higher price.

rather lower yield, i will get it right, higher price. knowledge, but it is good to see the bloomberg show the reaction to this moment in spain. with all this, you have got to get business done. the goal and general -- legal and general talks to a lot of different businesses. where is business certainty now? nigel: across europe, we have under invested. investment in the infrastructure and fabric of economies is fine behind -- falling behind china in particular. all of the noise in the economy, which is difficult to interpret, is resulting in underinvestment. in america is rising. -- capex in america's rising.

animal spirits are high. in the u.k., we need more animal spirits and more politicians to lean in and encourage economic growth rather than create economic uncertainty with all different courses of economic action. francine: where are you seeing the animal spirits? are certain industry groups being impacted the most? beijing orou go to london or san francisco and walk around the university's, everybody wants to be jack ma, steve jobs. it is very easy to set up businesses. startups are popping up all over the place. we don't need to pay ceos more. moreed to pay young people

by getting people working in growth is this is and not -- not dying adnd industries. francine: you heard that. pay young people more. we have a great conversation coming up with the u.k. chancellor of the exchequer. that is at 4:00 p.m. u.k. time. this is bloomberg. ♪ is bloomberg. ♪

francine: this is "bloomberg surveillance."

for kind of combination bloomberg surveillance. tom is in new york. we have a lot of news. you look at the new governments in spain and italy, and then we go on to the u.s. and tariff tensions ahead of the u.s. jobs report. on, buthave a lot going front and center is the tariffs. a lot has been written on this. they affect spain is there new prime minister is selected, mr. sanchez. in my right to say more socialist than rajoy? is that a safe, dumb american statement? francine: that is a safe statement. you have to look at the smaller parties that are not in government and did not support mr. sanchez. they gave a no-confidence vote, but the money question is whether this government can hold

for more than five to six months? a similar question for italy. tom: good. there have been a lot of voices over the last 24 hours, one of them is the president of the st. louis federal reserve. here he is with catherine hayes. >> i'm not sure that gdp growth by itself is going to indicate inflation is going to move up any faster than it has in the past. that june 13ery of fed meeting will be most interesting. you have a live meeting, that meeting june 13. nigel wilson is on set. atis chief executive officer legal and general group. where are we on economic growth? onave had about 14 opinions

american growth. how is your doing? -- europe doing? nigel: they are just muddling through. technology is a great sector to look at. of the top 20 firms in technology in the world, half are in the u.s., and the other half are in china. europe has excluded itself from the really high growth sectors that are dominating the economy. we have missed the ball on infrastructure investment. the u.s. has ignored it. of all these political shenanigans that have been going on for the last 10 years in europe, we need to focus on how to grow. we will only grow if we truly invest in the economies. you made the point earlier about youth unemployment across

europe. it is way too high. we have to solve these problems, which is creating massive disillusionment and political fragmentation across europe, which is inherently unstable and that for investment. these issues -- bad for investment. these issues need addressing. the politicians involved, with the exception of germany, have such a short term cannot this that they are constantly changing. in america, everybody believes in the capitalist model. it works. it works not for everyone, which is part of the problem but it works for a lot of people. in europe, it is not working anywhere near as well, and we are falling behind relatively. we are irrelevant to many of the debates. the trade tariffs europe have on america will have no impacting

on the thinking of american politicians. tom: we want to get to this, one of the headline items is your choice of setting up a dublin operation. describe that process that legal and general group. what did you go through to make that decision? nigel: can i just put that in context. we may be setting up a dublin operation that could have four people, six people, or 10. we have other projects in the u.k. that are creating thousands and thousands of jobs, which never get any coverage whatsoever. the coverage you get is very biased in the terms of the news. tom: francine, he is taking a shot at us. francine: not talking about bloomberg. other media. nigel: not talking about bloomberg at all. everyone has made the assumption that we have a big office in dublin.

.hat is not just true we are happy to lean into your. -- europe. were $12, our funds billion, increasing our business almost five times. we are confident about what we can do. europeannvest in infrastructure because we see that as a long-term opportunity to invest in real assets and growth. you need a sound political backdrop to do that. that is what we don't cap across most europe. herewe will ca continue on a busy friday. coming up, the council on foreign relations, this is an important interview for everyone outside the steel and industries. trade, theoins us on

president, and 1680. join us. this is bloomberg. ♪ s is bloomberg. ♪

francine: this is "bloomberg surveillance."

i am francine lacqua in london. tom keene in new york. we talk about what it means for investors around the world and what it means for insurance and reinsurance companies and asset managers. let's get back to nigel wilson, legal and general group executive officer. i have a chart on negative rates. do you have a chart? old school, tom is on it. central banks, is it time for them to normalize? because of what has been happening since the financial crisis. made 2.3st year we billion in profit. the signal has been very good. we have been investing in the real economy and real rates of return.the investment on

government bonds across the world are very risk-averse. we need to get people investing in the real economy again. if that happens, you get young people back to work, pay them more money, and you get people buying into the political and economic system, which should be delivering great results for everyone, but at the moment it is not. had mr. greco, we in from zurich financial. i'm sure they are a good competitor of yours. assumptiontual changed? as an insurer of last resort, 10,have options out seven, 20, and 40 years. have your assumptions change from where they were two to five years ago? nigel: that is absolutely the case. we have seen more opportunities

for investing outside of government bonds and into the real economy. we have better returns on our prospects. asset returns have gone up, and liabilities have shrunk. an insurance company perspective, that is a good place to be in. we have more cash to invest. we want a political backdrop, which allows us to invest because there is some degree of certainty. that is why the economies we favor are the u.k. and the united states. they are the easiest places to do business. tom: thank you. nigel wilson, perfect guest for today. up,ave jobs reports coming and far more important is the news in italy and spain. +eutsche bank with a bbb rating.

that is expected i guess, but there it is. francine: expected because of legacy issues from the past. deutsche bank is up today, but it is still below 9.50. yesterday, it was below the 10 year psychological level. we will go to deutsche bank and a lot of these referee european countries next. tom: stay with us on bloomberg television and on bloomberg radio. bill gross will join us. we are thrilled to bring tom porcelli of rbc capital markets on america's lack of wage growth. stay with us. ♪

tom: this morning, a bbb plus deutsche bank, goldman sachs analyst suggests "party risk of

version is a tangible risk." the trump trade war is a war from the 16 80's, all responding to first mercantilist. it is jobs day. where is the wage growth? less inflation. good morning. this is "bloomberg surveillance." live from new york and in london, francine lacqua. extraordinary news. i want to focus on the immediate news, which is a new government in spain. government inw spain after the vote of confidence. we have a new prime minister, pedro sanchez. we have a populist government in italy. huge news this morning. please stay with us over the

many hours. on jobs day in america, a first work briefing in london. has escalatedrump a standoff with canada, triggered by u.s. tariffs on steel and aluminum. the president warned justin trudeau that renegotiation with nafta must be assertive. nafta talks collapsed when vice president michael pence insisted a new agreement have a cause. booted outal, rajoy of office. he left a no-confidence vote in parliament. a junets the scene for -- sanchez. italy has a fiscal expansion that challenges european union rules. populist leaders have spooked markets with tax cuts and a spending spree.

begin to the poor. the trump administration investigation into reading and the justice department. a criminal probe open on whether trade was manipulated into freddie mae and freddie mac. global news 24 hours a day, online and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. tom: thank you so much. equities, bonds, commodities. challenges in the bond market. yield curve 44 basis points, a nonevent through the week. euro a bit of. bit. a at the markets with 14.71, a big at move way deutsche bank

9.48. francine, you're talking deutsche bank. stocks headed for a positive and for a tumultuous week. we saw political developments in the europe and escalating trade tensions spooking markets. today, things that to normal. treasury edging lower. focus shifted to u.s. jobs. deutsche bank is up on today's trade. of 2007k to the summer think of the french open. deutsche bank and you get to 2012, they have challenges through the beginning of the crisis and there is the great separation. it is stunning. the white line is deutsche bank with an 87% loss back to 2007.

those are vectors going into different directions. longere: ramallah is no prime minister of spain. he was defeated on friday -- joyallah is no longer -- ro is it no longer prime minister of spain. he was defeated on friday. anding at risk in europe the two most risky countries, if you look at what happened, germany has the strongest economy in europe. that will be the most hit by tariffs on steel. been anhas extraordinary 24 hours for anybody who studies trade. it is a stork moment. catherine rempel of the washington post wrote a terrific

essay. here is my morning must-read. i put this out on twitter. read the entire essay. these trade policies bear an uncanny resemblance to classical mercantilism. trait is zero-sum. she goes on to say it is um.itive som and the president turns out to be a terrible mercantilist. the american revolution new if you're trying to use tariffs to break -- boost trade surplus, you wanted to do finished goods cotton.inputs like that from a nether time and place. it is a superb essay. kevin cirilli is with us today. tit for tat. i guess they will ban rolling rock or put a tariff on it for yingling beer. will we see more tit for tat

today from our good allies? we are going to. there are reports european countries are going to respond to this. we should note the broader contest. for european countries on raising tariff imports for steel and aluminum are no longer owing to occur. negotiations are also seemingly deteriorating with president trump saying reportedly of mr. is a sunset clause with canada, he does not if therenegotiation -- is not a sunset clause with canada, he does not want a renegotiation. i talked to steve bannon this morning and he praised this as saying that "finally the president is dropping the hammer on these countries." this will evolve. as we head into the midterms, there may be an argument in the

white house. francine: if you see strong retaliation from europe and theda on states that have most in the u.s., if sanction and retaliation is strong enough, does the trump administration back down? other i talked to conservative republicans who are very concerned about the commodities back and forth. look no further than what the president announced of using section 232 on increasing tariffs on auto imports. that drew swift condemnation from even to party conservatives. many are impacted by these factories in their districts. this is really a very local issue in many ways on a global front, simply because in states like ohio, for example and wo states that the president carry, many are impacted.

i talked to administration sources who say take a deep breath and let's see the finalized version of the trade talks and this is just negotiations we are watching. tom: kevin cirilli, thank you so much. purcell heis thomas of rbc capital markets. we will talk later in the hour with tom porcelli. we have to go to trade 101 paired after rempel in the washington post says it is a 680 president. is he living three centuries that? you can make that argument. if we bring it back to what we are dealing with today, we have gone through some of the math to try to understand what it would be worth for a full trade war where he -- trade war. full tradeabout a war, isolated, have percent is not bad. tom: yesterday he did not

isolate us. on the after our allies national security angle. the bottom line is, this begins to some of, right? tom p.: a half percent is just china. what we then said was if you extend it beyond that and it comes a global trade event, the starting point for the conversation is recession. we are betting people, right? i do not think we go down that path. that is the right framework to think about. tom: let's come back with tom porcelli. people as wem of get towards 8:30. on trade, our interview of the day, we are thrilled to bring you in edward alden on the council on foreign relations. his definitive recent book on trade is a must-read. ted alden on the president's

tariffs. stay with us worldwide. this is bloomberg. ♪

francine: this is "bloomberg surveillance." spanish lawmakers have ousted rajoy. -- mariano he was overwhelmed by the drumbeat of corruption revelations that has grown throughout his seven years in office. joining us now is man well as while he- manuel escoberi. how long can this new government last? >> thank you so much should for

the questions and the opportunity. i think we are just arriving. moment, the only thing we know is that these terms are these.ng to exhaust francine: will be the priority is for the party and the new government? manuel: important for us will be to keep stability. it will be a market concern. there are three reasons.

as everybody knows, the three parties will oppose the government. we are pro-european union. the second reason is with stability for economy, didn't the budgetimplement by the majority. and even if wee didn't agree with the budget, for the sake of the majority in congress and the stake of stability, will something by the end of the year. we need the budget for the new year. the third reason, in my opinion, is that everybody knows in the spain and europe that the social

democracy of the socialist party is a pro-european party. fulfilling our promises and duties for the european union. francine: the banking system is in better shape. and also the foundation for economic rebound that is in its fifth year. how will your party and how will that seems euro skeptic deal with that? what you're asking if there is going to be new orientation and the central banking in spain? is that it? francine: i was asking you how

you would deal with the italian government. for us, i would say that is the main reason of concern in europe. we have to help italy through this situation. the european central bank is going to help italy. the mechanism in europe and wait are deciding to ensure that no country in europe can go into a situation of crisis. europeansat we as will help.

there is still doubt about that. tom: good morning. within this is the idea of spain, which has been a wonderful sense of a stability for all of europe. is the stability that spain brings jeopardized today? manuel: not at all. years of life in spain, the socialist democratic spanish has notound the country only generated growth but also social integration and stability . we fill our obligations in europe. record of being

a pharmacist -- a reformist party. we will manage the problems with social integration with italy. the next european summit will focus on completing the banking union. what should your stance with spanish banking unions be? we should go forward with this. , threatening the euro important foris to start construction of

europe. we will work not only with the commission but also with our colleagues in the social democratic parties around europe in order to continue. that things are sorry.ng to be so -- i'm what i was saying was that those three parts will be fulfilling -- will not be fulfilled in one year. we will work toward them. francine: thank you so much. that is the spain social party economic advisor pick we are -- advisor.y

we are very grateful to him. situation, weical are joined with a professor. what is the number-one thing the prime minister now needs to get done? i think the main thing the country needs to do is give italians and markets a little bit of clarity. platform has the been technically incorrect things. the italian population wants to know what is going to happen in the future in the italian government. francine: do we worry they will have to increase if they continue with pledges? to give money back to some of the voters. will vat have to go up? that depends on how

fast they will settle an agreement. the crisis in italy shows that both sides have movement and are willing to compromise. the second version of the political government is much last populist it and aggressive than the one before. markets are responding to demand. that changesget are coming to italy. there are more technical figures in the economy. there is continued economics. they are continuing with other national organizations. little where we will see

troubles or big troubles and will we be able to lead the path of growth? will they be able to get along? how long will this government last? rosamaria: it is a very difficult question. it is the five-star movement and they are captive and committed and strong. there is a strong overlapping. this crisis has shown they are very much willing to compromise in order to gain power. i don't think they will have trouble getting along. they have strong personalities. is howll be important they want to implement. on one side and, there were

their was also promise of expansion of social welfare. we will see. tom: announcer: from our studios in new york city, this is "charlie rose -- much.ria, thank you very you set down to years ago and studied this mystery. you and i know it is wages and benefits. that is what matters. we are finally getting nominal wage growth, right? tom p.: yes we are. viewaway the philosophical on how much wages should have run, and when you do that, there has been a pretty nice run in wages. we look at average earnings, and

we looked at that be for -- before. we're at a 2.6 pace. it has risen. it may not have risen as much as people had wanted. tom: this may be my chart of the year. porcellill this the chart. toe are the good times, up taking the eci wages and benefits and subtract 3%, which i will success -- suggest is the wages. here is the lift. it to you have confidence we can get back to the golden decade of 2003 2 2004? 2003 two would say -- 2004? tom p.: i would not say we are

getting back, but it suggest there is still room to run. from our perspective, not only have wages built, but there is pipeline wages. tom: what did the tax legislation do? when you originally did this come he did not have that attack -- tax legislation. tom p.: it is additive from a growth perspective. tom: topline wage growth? tom p.: topline growth. tom: topline gdp? .om p.: it is additive the channel will flow mostly through consumer, at least in year one. we have built that in. i would be clear, i would not say that is necessarily a narrative changer. tom: the vector is in the right direction.

if you are powell, do you stick with the three or four rate raises? tom p.: yes we do. everything that was unfolded in the u.s. is supportive of our view. tom: for this year, and that get you to next year and that did you more. tom p.: yes, will get more next year. we should come back to this idea. in every single meeting, it seems like everyone is latching onto the negatives that linger. tom: that is because the red sox are in first place. tom purcell he with us. -- tom porcelli with us. this is bloomberg. ♪ what's a gig of data?

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and with millions of wifi hotspots included, you'll pay less for data. it's a new kind of network designed to save you money. click, call or visit a store today. francine: this is "bloomberg surveillance." tom and francine. a fresh setback in efforts to

reinvigorate europe's largest investment bank. s&p has cut the downgrade. joining us is bloomberg's managing editor. .he stock price is gaining yesterday it was at the lowest ever. there is concern it is on a list of banks that the u.s. authorities are watching. it was downgraded by s&p and we do not know how morales. what would you focus on as an investor? is tough atround the banks. it is difficult for staff to put aside the bad news. investors will look at the metric and point to how stable and solid the bank is. they are probably looking at .iquidity

it is close to 200 billion euros the last time in a similar situation in 2016. comfortably from eight liquidity standpoint. the other is capital. with a off of the table higher ratio. importantit is rather for our viewers and listeners to understand equity has gone down. if you are a creditor, you have not done too bad in deutsche bank. elisa: that is another point telling you that things are different than what they were in 2016. having said that, the challenge givens pretty at large the undertaking and restructuring. they are the big players and they have artie done. tom: look at where we are with deutsche bank.

the question everybody wants to it. is -- get to what is holding them back? you step back in time a little bit. aside a and setting series of legal issues that were quite costly for the bank here that was a priority. tore was also a priority have controls at the bank. important.s so in our article today under your leadership, we talk about goldman sachs analysts who we really -- who worry about the real world and risk. this is about trust. reallyis the trust eroding now n real-time? elisa: i was going to get to

that. a counterparty risk has deteriorated for deutsche bank. it less appealing than some peers. it undermines revenue. that is what they need to resolve and put a line under the declining revenue. if you look at the liquidity that they are pointing to, that paints a very different picture to what the bank is facing in 2016. francine: thank you so much. the "firsttraight to word news. here is sebastian. sebastian: president trump in a standoff with canada triggered by u.s. tariffs on steel and aluminum. the us-1 justin trudeau that nafta must be a fair deal or they will be no deal. the u.s. says it will impose tariffs. the defense minister calls that

insulting. >> to have anyone in the u.s. administration say that canada is a national security wrist for steel is a -- security risk for steel is absurd. been over a long time a hard-fought battle. sebastian: canada has retaliated with tariffs on whiskey and orange juice. talks on a summit between u.s. and north korea shift to the white house today. mike pompeo said progress was made in new york when he met with a delegation led with a former spy chief. the trump administration preparing for an intervention into markets. the government would use emergency authority to order

buying electricity. global news 24 hours a day, online and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. ♪ report.nk you for that this is my interview of the day on trade. edward alden at the council on foreign relations owns the franchise of clear thinking on trades. he has written blistering notes over the last notes. mr. purcell he is with us. porcelli is with us. complexlassic microeconomics of trade. all you need to know on tv and lossess -- dead weight make things difficult for common sense.

what is the dead weight loss to president trump from these actions? ted: that is a great question. i do not think we know the exact economic numbers yet, but they will be big losses in a lot of states he cares about. if you look at the retaliation measures from europe, canada, and mexico, they are aimed at the states that voted for trump. you will have manufacturers in those places that are steel and aluminum buyers. they will hurt. even had the steel workers saying don't go after the canadians. they are our friends. he is pretty isolated on this. he has picked a fight with a lot of different people, including his republican allies in congress. tom: what do the republicans need to do? one at the hoover institution, they agree completely polarized that this is bad policy. what do rational republicans do

to not arrest or staunch this policy, but get it to a good outcome? ted: i think they will have a very difficult time. in theory, congress controls foreign commerce. over the decades, it has delegated most authority to be president. tom: do they take it back? ted: you are talking about super majorities in the house and senate. believe theyy who can muster super majorities. will do what they are doing, which is complain from the sideline. how much pressure can business growing and how much chicken farmers bring? is there a market reaction that starts -- much pressure can a farmers bring? is there a market reaction that starts the president thinking? if tariffs aree: brought that hurt certain states by canada.

will the trump administration scale that? ted: these guys really believe this stuff. you know borrow -- peter navarro has a piece that says it will be great for the heartland. there is a new aluminum plant opening in kentucky. these are places with high unemployment. the president believes that and thinks this is an economic winner. it is going to take a lot of significant pressure to change his mind on this. i production is the tariffs will stay in place for a long time. go back to the chicken wars of the early 1960's where tariffs were in place. this will not be a quick resolution. francine: will the trump administration to the same for car sales? ted: we will see. they have launched a national security investigation into autos.

will say there is a security risk. -- some will say there is a security risk. that is another one of the things, as i potential sanctions. that place finally comes to head. there are a lot of things juggling. tom porcelli jump in here. we are now fully on a slippery slope. some say this was just pandering and that trump was trying to make good on a campaign promise. do you think we are down the slippery slope and there is no return? ted: i am not saying there is no return, but we are on the slip rate slope. it was like the -- slippery slope. we have had a series of threats

on nafta and china and nothing has been done here in as of today, there has been a lot done and there is reaction. it does not necessarily mean it escalates to the next level, but we are in a trade conflict we haven't seen in decades. tom: i am going to fold and a brilliant essay in the washington post. this is failure to adjust. this is a difficult, challenging read. it is a wonderful read. it is ted alden on trade. everyone should read to get smarter on this. catherine rempel makes a wonderful distinction of mercantilism of finished goods versus mercantilism of non-finished goods, of import goods. it is sort of like cotton. do not do the mmr right now, but bring it up so we can show it. ted, this idea of finished goods

versus imports. the president is doing this all wrong, right? ted: there is no question here and you don't have to go back to 1680. domestic.mustered -- we live in global supply chains. all the manufacturers in the u.s. are dependent on imports from different sources. you look at the retaliation risk drawn from china, really shooting ourselves in the foot. in therts manufacturers united states. it is harder to use the tariff tool effectively. even though it was 30 years ago during the u.s.-japan trade battles, it is interconnected this. tom: what is your advice to chancellor merkel? you do a junket in germany and make speeches and have a cup of coffee with the chancellor, what do tell her? no choicehave

politically but to retaliate. you stop there and then you try to go forward with a series of positive initiatives and encourage the u.s. to engage in the wto and push trade negotiation argument. work with allies to try to persuade the u.s. to get back on board. it is not going to be easy because the trump administration isn't terribly interested. you have to couple retaliation with a forward-looking trade issue. of anhat are the chances accord for trade? the ones that involved a worldwide scale. that could be discouraging for world growth. ted: the chances of that are very weak at the moment. it could be discouraging for world growth. markets are not showing that particularly. there is a potential for escalation and uncertainty. there is not a lot of leadership right now.

everyone said the leadership will wane, but no one thought it would end in -- and this abruptly. the rest of the world is -- end this abruptly. the world is reacting. tom: -- francine: thank you so much edward alden and tom with us.is staying we are getting breaking news with the new prime minister of spain. he will be officially sworn in and a couple of days -- sworn in, in a couple of days. he is saying he wants to transform and modernize his country and he has to build consensus for governing on the european side. maderday comments were about the italian working hours committedying he is

to working with the new italian government. this is bloomberg. ♪

>> this is "bloomberg surveillance." let's get "first word news. businessget your flash. haveche bank and citigroup a share sale. the banks deny wrongdoing. contract talks with an employee union. raise wages toto themepark workers. union officials have not responded. labor.n for organized

technicians at the boeing factory in south carolina voted for a sub targeting unit. 787's.ild that is the "bloomberg business flash." tom: tom porcelli with us on jobs day. we planned to speak with alan krueger of princeton university. he is the nation's expert on the dynamics of the minimum wage. it is something that walmart cares about. our taylor riggs is at the walmart and your meetings and joins us from bentonville, arkansas. the minimum wage is what this is all about. what percentage of 2.3 million bodies at walmart are involved with the minimum wage debate? interesting. with thousands lined up out here. the minimum wage debate on $11

an hour was brought up wednesday. it was voted down wednesday, but they increased it to $11 earlier this year. they highlight some of the other benefits they have improved, like the parental leave. on wednesday, they did another rollout of new benefits on tuition fronts. for a dollar a day they can go to college and they will get an associates degree and bachelor's degree at three nonprofit universities. they highlighted the fact that they are making other changes as well. they are proud of the increased to $11 an hour and they made earlier this year. maybe they have to increase that more in the future. they are proud of the progress they have made. they have been here since 4:00 a.m. and 5:00 a.m. even in the humidity. the big business meeting was

wednesday. today is more of a party day. we will see how it turns out. francine: what are they worried about? taylor: in terms of the minimum wage, is that what you mean? francine: in general. they are painting a positive picture. there are offering college subsidies. walmart is to be a concern because they over expanded. they painted a rosy picture of what are the areas of stress? francine: amazon -- taylor: amazon has to be the big concern. no other company like walmart can do the store with big rush is an online pickup and curbside delivery they have done as well as the online residents. some of the -- online presence. .lso jet.com they say amazon is a worry, but they are well-positioned they

feel. they want to come out ahead here. francine: i wonder whether they will talk about trade tensions. taylor, thank you for great reporting. later today, our exclusive interview with the new chancellor at 11:00 a.m. in new york. we'll ask him about trade tensions, brexit, and italy and spain. this is bloomberg. ♪

tom: jobs day. good morning. and twock to jobs day white david eisenhower -- dwight david eisenhower. us.porcelli with unemployment under 4%. 1950's,ght back to the to a time of nirvana. why don't we feel the nirvana of pleasantville? we are seeing nirvana in the consumer sentiment.

briefly touch it. different story paid level of confidence in just the economy is starting a stronger economy and it is registering on main street. that raises very interesting questions for the midterms. the old adage and the strong economy, voters tend to reword the incumbents. conventional thinking is that we get a huge democratic opposition way in december. big our questions raised that we may be smaller. help wanted the sign dynamics? what is the backstory? if you look at labor differential, people are telling you they feel good about the labor backdrop or not. you are at a cycle high or a 20

year high. about theling good labor backdrop in general. from our perspective, and you have a chart up which is interesting, if you overlay the labor differential on that, it suggests room to improve your we are at 3.9% on unemployment. from our view, it certainly seems that getting in the mid-threes this year is not unexpected at all. do we care about all of this? if trade tensions escalate, it is going to hit the economy, am i wrong? this tells us the administration can afford to be more blunt and aggressive in terms of trade policies given the inherent stability in the economy right now. it is very hard to not an economy that is growing above trend and with the unemployment rate below neutral to knock it off its perch.

this gives the administration room for a bit more swagger as they engage in trade talks. tom: we will see. distributed. capitalelli will assist markets customers. .hank you both we have a lot of important guests as we go to jobs growth. huge news in europe. right now, eyes on spain. spain with a new government. this is bloomberg. ♪

♪ >> allies strike back.

lasha, mexico, and the eu out at the u.s. theets rebound ahead of american jobs report. sick and tired of bad news. christian sewing tries to cheer up his staff saying there is no reason to be discouraged. daybreak. to it is big news. jobs day. alix: you have a populist and a socialist government now in europe and the markets do not seem to care. david: two governments have changed, italy and spain. the first time in spain, a prime minister has been ousted by a no-confidence vote as sanchez comes into play. david: