billion of chinese goods. chinese equity at their lowest level since 2016. lost liquidity, recalibrating a world run by fed hawks and doves from the ecb and boj. and new pain, no gain, em equities sink, yields rise. is this time really different? david: welcome to "bloomberg daybreak." i'm david west and with alix steel. it is the world cup. this is himin, speaking at the opening of the world cup. saudi arabia versus russia. look at the hand gestures. russia won 5-0. you can see him saying, what are you doing to us? alix: vladimir putin saying, we are just better. they totally crushed them. david: this is not customer

tennis. this is, we will be you no matter what. alix: did it feed into oil conversations. pump more oil, because we are better at soccer. risk off tone on this friday. s&p futures down by about 11 points. euro-dollar is up. still heading to be the worst week for the euro since november of 2016. a monster fall yesterday, but nonetheless it feels trade wars could be winning out today. spread, and this does not seem far-fetched. 1%.e down by 3/10 of questions on how much opec and russia may pump. david: bloomberg first take. michael mccain is here. -- michael mckee in his here. and the tariffs.

we will put up a chart that shows the extent to which we are importing chinese goods. we have the white bars going across commodity to $500 billion. the red line is $50 billion, to show how little that is. , what will itriff do? >> it will not do much in the macro economy, but everybody wants to know, which products is donald trump actually targeting, because in those areas you will see an effect. if he targets things that were on the initial list, 1300 products the u.s. is choosing from, a lot of them are intermediate inputs. the peterson institute said about 85% where things that go into things that are manufactured, so the pain could be broadly felt. that is even without china imposing their own retaliatory tariffs. the chinese foreign ministry today said, yes, we will strike back. alix: it was a justin carr

because and commodities, oil getting hit, but it is actually soft commodities like soybeans -- >> you do know to be a soybean farmer. alix: no, you do not. blue, soybeans. features moving all over. >> it depends where you are. if you are in brazil, it could be a good day for you. for have been climbing, so china it might be more expensive for them to buy soybeans from brazil in lieu of the united states, so an interesting dynamic. u.s. farmers are in the crosshairs. thet is a mistake administration is making in thinking that china pays the tariffs. the company's antenna do not pay the tariffs, the consumers who pay the tariffs pay the added price. we look at this and the country vision to inflation is not going to be that big, but it is going to hit people depending on what you buy. if chinese clothing is sanction,

people who do not have a lot of money to shop at walmart will be paying more for clothes. david: so maybe today it is tariffs, but this week it has been the tightening of the fed. ecb saying we are going to get out of quantitative easing. i found this chart interesting. the top line shows the united q3.es, q1, q2, the bottom line is global inflation. and you can see it really starting to move. this is before the ecb says we are not going to buy anymore before the end of the year. are we really taken liquidity out of the global marketplace? >> a little bit of liquidity, not very much. the question is, how much is demanded and has been affected by qe. there are arguments over that. what this shows is we have not gotten inflation from all the bond buying, and there is a whole academic debate now about whether qe in the united states

has actually done anything. maybe it put a floor under situations, but it did not do what the central bank thought it would do. it helped a lot in the beginning, but the other portions did not really act. a diminishing return, the chart clearly shows that. say that this is trade issues, but i really feel like it is something more. come inside the bloomberg. this is the 10 year been spread. -- bund spread. this tells a story. , the movement today definitely stems more from what is going on with the central bank in japan, lowering inflation expectations, and a dovish tilt for the european central bank, which could equities, but mario draghi is confirming the fears about the european economy. i want to say, we are seeing synchronized growth, we are

frankly seen the ecb take charge. the tone they are setting is the time that the u.s. market is following, even though the u.s. central bank is more hawkish, it readeen a decidedly dovish into the market today. alix: it is like, they killed it. david: it is the data coming from china. alix: you can see it reflected in our third story, emerging markets. you can see what i'm talking about, the top line the global bond yields, they are climbing higher. the middle panel is emfx, it is moving lower. and this is basically what you were alluding to. >> yesterday was the worst possible combination for emerging markets. you had a strengthening dollar, the weakening euro, you had a more hawkish federal reserve, raising rates, we see actual signs of inflation in the u.s., while inflation elsewhere is starting to dim. and argentina, meanwhile, a

trouble spot. all of a sudden their central banker resigns unexpectedly and a new and steps in. they seem to have no control whatsoever. david: a rough patch there. pretty tough time. >> that is the understatement of the year. but it just sort of underscores all this. david: might it be that in fact the fiscal authorities were right to inject a lot of money, given what we are talking about, maybe we need the u.s. to prolong the growth pattern for the rest of the world. >> only if the u.s. does not get out of control on the other side. there has not been a need for fiscal stimulus, it is only just now hitting. the u.s. was growing at a rapid pace anyway, the question now is do we overheat because we cannot find the resources to keep up with the additional stimulus that goes into the economy. and if we're going to put tariffs on the rest of the world, we are not doing anybody any favors, we are working

against ourselves because it will go back to the fact that consumers here pay the tariffs. the thing that is important about emerging markets, this is not 1997. you have to differentiate. we are looking at these averages in those em charts you are showing, and we have some idiosyncratic countries like argentina better are affecting everybody, but it does not mean the whole world is affected and it does not mean the contagion that we saw in the past. alix: thank you so much michael mckee and lisa abramowicz. i like the orange pants. >> wall street -- [laughter] alix: coming up, the u.s. and china, tensions heating up. we will talk to steven wieting. this is bloomberg. ♪

>> this is "bloomberg daybreak." emma: some of president trump's confidants want him to pardon michael milken. bloomberg has learned that the pardon is backed by steve mnuchin, anthony scaramucci, and his son-in-law, garrett -- jared kushner. he has spent 22 months in prison. shares of rolls-royce are soaring today. should help it exceeded target of 1.3 billion dollars in free cash flow by 2020. rolls-royce expects that will allow it to increase dividends. and glencore is about the test relations with the u.s. government. royaltys miner wilbur w -- will review royalty payments. they had cut ties with -- after

alleged corruption. the company is not saying if the as. treasury has given commitment that it will not but in sanctions of its own. alix: president trump is said to have approved tariffs on $50 billion of foreign goods to china. a spokesperson says if the u.s. rolls out protectionist measures that harm china's interest, then we will respond immediately to safeguard our rights and interests. joining us from hong kong is our chief economic asia correspondent, thank you for staying up late. what kind of response can we expect from china? >> good morning. as they china has been consistent from the beginning, they said they are willing to they have alsoar, said it they will retaliate in kind. we will see how they respond.

previously, they want they would go after agricultural imports from the u.s. and they would target u.s. investment in china. here.are huge companies so they could respond with tariff barriers and nontariff barriers. i think there will be a prompt response at a beijing. -- out of beijing. alix: the qualcomm bid for nxp was just approved yesterday by chinese regulars, so how does that make sense when the tariffs are coming and is there risk in that? >> that is a for observation. ztequalcomm transaction, is separate, this all became muddled in the trade dispute and negotiations. we have what appears to be approvals on the chinese side. it will have to wait and see whether their response includes reneging on that.

if that was to happen, it would show that we are going down attractive trade pursuits. it looks like we are heading toward a new phase and attend has made it clear that they will strike back. alix: enda, thank you very much. david: stocks moved down today on reports that the u.s. may be getting ready to impose tariffs on an additional $100 billion in china. what does this mean for economic growth? we welcome steven wieting, citigroup global chief investment strategist. welcome back. so our universe about the projection for growth, given you hear that china will retaliate and we are getting ready for another $100 billion? steven: i think there is a wide range of possible outcomes. if this was $300 billion of at 25%eral trade being -- -- the impact relative to the

u.s. economy is still relatively small, but it is only a starting point for any analysis. the thing we need to be clear about is, you mentioned mike mckee in the last session, that there are others who will benefit from this abroad. markets are trading -- treating this as a zero-sum loss for everybody. and you will see u.s. trade competitors take advantage of any losses that we have between country to country. growth trade around the world is about $40 trillion, only about 11% of the trade is going to be crossing the u.s. borders. so i think markets again are looking at this in some respects, it is not pricing in a worst-case outcome, but they are bracing for impact. and there will be impact, it is likely to be somewhat negative. david: i have a quote from your most recent report, you have a chart here about the citigroup -- going down, but growth

continuing. you see the white line on the right, that is the surprise index, orange is the growth rate. steven: that is the reality, just like last year and the year before you can see these rounds in which we have a short-term economic data disappoint markets to forecasts, often extrapolate that into a full-year outlook. so in some cases, most recently with the case of europe, we are seeing very severe downside economic surprises, but the absolute growth rate has been positive, and the divergence with united states in many respects has been overstated. the point is, we do not want to take the short-term indicators, this is what the central bankers are doing, the reason they feel more comfortable is they see few things inhibiting the rise in input around the world, and trade is one of those negatives we have to weigh against that, but these types of surprises are routine growth scares. alix: let's take a look at a

report from yesterday. the near-term outlook for the u.s. economy is one of strong growth and job creation, however, despite good near-term prospects, a number of vulnerabilities are being built up for the medium-term. and part it is the fiscal's to most, we see a lot of calls for 2019, 2020, possible recession. what do you think? steven: it is a reasonable timeframe for us to think it will be stretching at that point. we hear a tremendous amount of concern about the ability to find labor, you can take a look at the unfilled job openings, and the workers right now looking for work. we are starting that from a period of low inflation, wage growth is accelerating, but it is lower than any point in the weakest points in the economic cycle. david: secretary mnuchin responded and said, no, they

have it wrong. we will keep growing. but there theory, i am curious about how you react to this, because we are to have a tougher time getting labor, because we have given incentives for capital investment, we will have a lot of investment, growth, and it will extend the growth further, are they wrong? steven: i think that we are looking at the likelihood of stronger investment, therefore stronger productivity growth, but you are coming off of 40 year lows on productivity growth. to say we one of her get a cyclical setback because of that true incentive to expand, i do not think that that is going to be likely here. but i do think that the supply-side incentives have improved, domestic production is going to be more competitive now with a competitive international tax rate, but these things alone do not prevent setbacks in the economy, but i get it. if you want to think about how markets will perform in 18 and

19, we could very likely grow all the way through 2019, even at low unemployment rates. for the u.s., we think earnings arising very rapidly. they are close to 20% for the year. we did 24% for the first quarter. we can accommodate some slowdown. but with that valuations are compressing, because of what is happening at the federal reserve, and the fact is we have tripled earnings off of the lows. so this is a full recovery in the united states and we are willing to fully allocate to u.s. equities for next 12-18 months. because earnings are rising rapidly and it is helping us compress valuations. alix: ok. steven is sticking with us. more pain after the central bank moves from the fed. we will discuss that next. this is bloomberg. ♪

alix: a rough week for emerging

markets. take a look at the asset classes. the top panel is the global spread for em bonds. yields moving higher overall. you also see the middle panel is sincegetting hit, lowest december 2017. and equities also sliding this week. still with us, steven wieting. the bull case is this time it is different. the bear case is you will have a stronger dollar and markets could be in trouble. steven: slide it back longer than six months and it changes the perspective quite a bit. the bull case is emerging-market equities have had a quarter of return of u.s. equities. alix: this is five years. steven: this is better in terms of the longer-term chart. you think about where valuations are, 40% valuation discount to the u.s. the last time we saw this it was the tech bubble of 1999, and we

had the asian financial crisis at the same time, which is a true financial crisis. regional gdp contracted 13% in asia. now what we see, problems with argentina and turkey, these are markets on the equity side, about 1% of em equity, or the frontier markets. you think about the fixed income side, they are much more substantial. these are not the places the focus. brazil, the fixed income side, it is not argentina or turkey. china is not these countries either come in terms of the outlook for their growth. we see a different kind of china this time around. david: how much you refer to china and how much is represented by argentina and turkey, is china really driving em at this point? steven: on the equity point, it is much more in the driver seat. with the technology companies in china, maybe we are looking at two hemispheres of the world

where the u.s. technology dominates the west and it faces regulatory issues and growth restraints, these things, and china is dominated the east and can probably expand beyond the borders of china there. technology companies driving emerging markets, that is not what it is supposed to be about, it is supposed to be iron ore. things like this. it is not a commodities story anymore, it is about actual development, it is about innovation, that is driving a good part of the china market. now, this will be related to the chinese tariffs, you will see the market take a step back because of that, but who is going to pay for this, it could be the consumers. alix: but the imf warned on market risk, not because of the fed, but because of stimulus. they said that shift in physical u.s. policy could precipitate a market reversal of capital flows, particularly to emerging markets, adding to upward

pressure on the dollar in worsening global imbalances. we are already starting to see the symptoms of these spillover effects in other countries and we have seen the data rollover a little bit in china, now you put trade on top of it. steven: the deal in china can, i think there is weakness likely to generate a policy reversal inside of china, especially of the tariffs will be enacted as well. china is not about rapid economic growth. it truly is about having some discipline in investment and innovation. their ability with savings levels at $3 trillion internally generated, that is six times more than savings inside the united states, so their capacity to endure through shocks will prove strong. it could scare markets, it could generate opportunities. looking at the united states, this is interesting, because foreign participation in the u.s. bond market has been stable to diminishing. hedging costs are one issue, but specifically on unhedged

investors, the u.s. budget deficits are growing and in some respects in the united states, we are tried to pull in capital, and other times in the past, think about the late 1990's, it was pushing its way in. it was a powerful move in the u.s. dollar. the u.s. dollar is lower than it was in early 2017 at this point, so we need to look back at those charts. alix: ok, steven wieting sticking with us. saudi arabia and russia signal that there could be more oil on the way. petrie.be here with tom this is bloomberg. ♪

alix: this is "bloomberg daybreak." the tone is risk off. take a look at the equity markets, s&p futures down by 10 points, euro-dollar is up by 2/10 of 1% you do with think the

risk of would help the dollar, but it seems to be in some ways about trade. and the euro had a big slide yesterday, worst week since november of 2016. it is all about buying bonds anywhere you look, particularly in italy, with the spread at 36 basis points, where we are trading, 24 basis points for the 5-30 spread. you can see it in the bund yields, down two basis points. soybeans are off 1.5%, that is a china story, that is a retaliation story, do they want to pay more for soybeans from brazil? we will figure it out. david: i think brazil has had a drought, trouble producing. alix: and infrastructure issues. david: soybeans are a commodity, right? so let's figure out what is going on outside the business world. emma chandra has the first word news. emma: the competition over trade

between the u.s. and china is about to get worse. bloomberg has learned president trump has approved tariffs on chinese goods worth about $50 billion. china says it plans to retaliate. the tariffs focus on technology, where china wants to establish itself as a leader. and former trump campaign chairman paul manafort could go to jail as early as today. a judge will decide whether he agrees with the special counsel's arguments that paul manafort try to tamper with witnesses while under house arrest. paul manafort is accused of money laundering and acting as an unregistered foreign agent of ukraine. talks between the u.k. and european union get messy, but one option could be put on a brexit. bloomberg has learned that senior officials have informally discussed whether the u.k. might need to stay in the bloc past the deadline. negation nations are at a standstill -- the negotiations

are at a standstill. global news, 24 hours a day on air and on tictoc, powered by over 2700 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. david? david: after the fed raised rates on wednesday, the ecb said yesterday that their own qe would be coming to an end. yesterday, a warning about the consequences, saying the liquidity with the tightening could be leading to global recession by 2020. the with us is steven wieting of citigroup. i will ask you about this. let's pull up a chart. it shows qe in the united states, pink, yellow and blue. and what is happening with the balance sheet, and global inflation, that is before the ecb coming up, so should we be worried about global liquidity with the banks dialing back? steven wieting they are dialing -- steven: they are dialing back and asset purchases will mean that real savings will be

required to fund governments. that is a shift in asset allocations. the u.s. treasury will be financed. that is why we when i have years as strong as 2017, where we had 20% or so returns on the equities. these are baby steps. we have to remember in those qe periods you showed, at first the fed was purchasing high risk assets that the private sector did not want to finance, when they ended they were buying treasuries that everybody was buying, so this is very asymmetric to go with the easing steps. david: is mario draghi catching up with jay powell? steven: he is, but both are moving in the direction of tightening. mario draghi seems more effective at sounding dovish in the prospects, than powell. the has learned to be able to ease well with words, holding off on future tightening. if you think about this, go year ahead, honestly the federal

reserve will be closer to the end of its tightening cycle and the ecb will just be beginning. global recessions, bear in mind, it was 2009, before that it was world war ii before the book of the world economy was going at the same time. recessions tend to be regional. the u.s. will have impact on the rest of the world, but even that is beyond probably 2019. alix: you can see it reflected in the treasury bund spread, almost 260 basis points. the trade going in, you would actually be shorting bunds and you will see the spread narrowed, and that in no way has played out. steven: we would not put the money to work in the bund market. this is not necessarily winning trades, when central banks can purchase these assets. what i think about mostly is the u.s. has a premium yield to the rest of the world. for u.s. investors, that is

giving us a relative opportunity, especially in missable bonds, and -- municipal bonds, and the rest of the world is saying, i would like to get a piece of that. if you want to do that on a currency hedge basis, you will get less than the german bund yield. the u.s. has its bond market a little bit in isolation. some investors are coming in, but the u.s. has not been easy to attract foreign savings, even with these higher yields. alix: give me a broader asset allocation in how you navigate this. steven: the most important thing is to be as diversified as possible. our equity overweight, four percentage points globally, had been 8 if you went back five years ago. it was very focused five years ago on the u.s., on strengthening the u.s. dollar. the dollar rallied from 2011 into early 2017. now it is leaving a lot of markets behind.

where there is a premium valuation of the united states, you have an incomplete recovery. the earnings levels outside of the united states have not even reached 2007 levels yet, so the room to grow, not the growth rate, but the room to grow -- many international markets are very favorable. so we will concentrate there, without taking anything away from u.s. equities. in global bond markets, stay away from germany, stay away from italy, stay away from japan, these are markets where the yields are so incredibly low you do not have to have that. you have a capacity to invest in other places. alix: stay with us, we want to bring in tom petrie. russia crushed saudi arabia in the world cup, but the saudis could take the lead with the opec meeting next week. the oil minister said, the output increase is inevitable. he's that come to an agreement that satisfies the market, and i think it will be a reasonable in a moderate agreement, but nothing outlandish. tom joining us on the phone.

tom, you have advised saudi arabia. do have a sense as to what reasonable increase in output is going to mean? tom: i suspect it is going to be an increase in the hundreds of thousands of barrels a day, not one million a day. advocates have been an by increasing by about 300,000, i think it will be more like 500,000 or 600,000, more in the direction of what russia has been advocating. it is an important acknowledgment of what is going on with nigeria and venezuela in terms of shortfalls. alix: if you look at what russia wants, they could be reaching for more, 1.5 million barrels a day potentially as well. i will redo this chart. it is total crude production from opec, we are taking a look at the cuts that started in 2016 and the saudis potentially want to revert back to that in three

months. tom: what i suspect is they will come to an agreement that involves a level short of that, but a willingness to continue to monitor the situation. if the problems in venezuela and globalre continue, and demand holds up, then i think that the willingness that they -- perhaps two steps in the course of this year, could be the compromise solution. alix: and how contentious the meeting will be, to reflect that we have the fiscal price for many of the opec countries from the imf this year. how contentious do you expect it to be based on the price that these countries really needed to be further budget -- for their budget? tom: i cannot see the chart, there is.

basically -- there it is. basically, that will be a problem, but saudi arabia has more votes than anyone else in with the alliance they have with russia, at this point at least, i think they will make the final decision. and i do not think it will be as contentious as it might appear, because they are moving in the right direction and they are accommodating that at the same time that without explicitly acknowledging the tweets of president trump, they are also doing something that should dampen the upside risks in price for a while yet. david: when you look at your portfolio you projections for growth, what do you need oil to be to deliver on growths? steven: the oil price is often the dividing mind between who grows, what sector and where. theatastrophic low in 1920's, people thought consumer boom, but the benefits for the

consumers are very wide and thin. the problems for the producers are highly concentrated. these are familiar ranges. 115, we, that we were were 145 in 2008 and it did not cause a margin -- mortgage crisis. these are levels in which is a solid growth in energy related investment. it probably will contain an upside. it is a fairly full recovery in the oil price at this point. but i can get really means a lot side, whichest should see strong production growth. alix: it is good to see you, steven wieting. it also tom petrie, thank you. good to catch up with you. david: open for business? investors look at north korea's untapped assets, but is the risk worth of the return, or the return with the risk? we will discuss that.

and you can tune into her colleagues tom keene and jonathan ferro. then lisa abramowicz will be joining from 9:00 a.m. until 10 a clock a.m. -- 10:00 a.m. this is bloomberg. ♪

emma: this is "bloomberg daybreak." coming up, the former u.s. ambassador to china, gary locke. ♪ now to your bloomberg business flash. qualcomm has cleared the last hurdle for its takeover of the chipmaker. bloomberg has led the chinese

regulators have okayed the deal. means they can lessen dependence on slower markets for smartphones. and bring in the pressure to rebels who want to -- racking up his 10th quarter of growth. it has been turned into one of the most reliable performers by cutting costs and prices. and shares rising to a record high in the largest i.t. company. almost $2.4 billion of shares for a buyback, representing 2% of the equity capital. now up 34% this year for tata. alix: thank you. we are turning to the businessweek beat, where we look at stories featured in the latest issue of business week. first up, the land of opportunity. investors looking at the

untapped assets of north korea, but some say it is a graveyard of foreign investment. and buy bonds, bury coal. closing plants is an expensive process and regulators are looking at ways to pay the bill. groceries to your door in britain, thriving as online shopping technology is being sold overseas. david: joining us is carol massar. welcome. start with investing in north korea. there is a great piece this week, although the president may have gotten to this first. let's hear what he says. >> they have great beaches. you see that when they are exploding the canons into the ocean. i look at that, wouldn't that make a great condo behind. instead of doing that, you could have the best hotels in the world right there. david: his idea is different from what you discuss in business week. >> we have had a great meeting between the north korean leader and president trump, and we do not know where it will go in terms of diplomatic efforts and

denuclearization, but everybody is one a -- is wondering, what is the business story? it has been closed off since 2006 because of sanctions employed by the united nations, because of the nuclear efforts in north korea. keep in mind, it is not an easy environment. and it has been troubled before. volvo is still waiting get payment on cars it shipped back in the 1970's. david: but the message from the magazine refers to the raw materials. >> ok, so that is what donald trump is talking about. ite is the positive, there is considered to be about $6 trillion in untapped minerals, we are talking about materials. and also looking at maybe energy assets, potentially there as well. there is also a younger workforce in japan, south korea and other places, that they want

to tap into. so that is the positive. the negatives are you often have the rule of law thrown out. alix: oil companies are really not ok. with the rule of law. >> think about investments. you put them any country and when the country becomes too profitable, that is when the regime says, we have to slow this down. alix: ok, let's get to the second story, which is all about coal. we have the nuclear and coal plants across the u.s. and of the story isn't it is actually really rate -- and the story is it is actually really expensive to retire them. >> despite what the president says about bringing back the coal jobs, they are being shut down, another 20 will be shut down this year, another 30 gigawatts by 2025. they are being shut down. you have spoken with executives, they are shutting them down because we've cheaper alternatives. consideringare

a little interest bond issue to help shut them down. there would be a surcharge for customers, exactly, but they are thinking that ultimately customers will pay for it anyway to shut them down. they are saying, let's expedite the process and move everybody to a cheaper alternative, then ultimately they will save in the long run. environmentalists say, wait, we are paying these folks who've contributed to pollution, we are paying them not extra money to shut down? david: this could be the way to get it done. it is a pragmatic thing, but who cares, they need to shut down. >> you show the map, you can see the trend line, they are being shut down. david: old energy to new ways of buying groceries. online grocery shopping. the u.k. is way ahead of us. >> 7% of folks are buying groceries online, four times larger than in the u.s. in the u.k.

there is a great story that takes a look at this company, they have been around for almost 20 years, started by goldman sachs' investment banker. 20 years ago he said, there was not the technology and software. we spent about $1 billion doing this to get a big boost, thank you kroger, who ended up buying 6% of the company. to get back to when you had amazon buying whole foods, the whole industry woke up. david: the anniversary is today, just today. ado a big boost. >> it has quadrupled since last fall. the supermarket industry thought, we will be fine, we will be fine and maybe on groceries will be one or two percentage points. amazon is saying, a whole different ballgame. david: it will be tech sooner or later. alix: they cannot get in order

for me right. >> or when amazon gets involved. david: that is exactly right. thank you, carol massar. you can find these stories in the latest issue of bloomberg businessweek, catch commentary and analysis every weekend. and coming up, a pardon for the king of junk. of donaldt confidence trump pushing for a pardon from michael milk and. -- michael milken. alix: check out gtv , interact with us directly. this is bloomberg. ♪

david: those around the president urging him to pardon michael milken. a former managing director at morgan stanley called michael muller can's prosecution a period run amok.

and the bond pioneer pled guilty to security tax violations. he served two years, then he founded the milken institute. quite a story. we are welcoming jason kelly to talk about this. isi will to you that this going to be one of the most read stories. you can take it to the bank. there are a lot of superlatives you can't go around michael milk and, he is one of the most important financiers in the history of wall street. you go back to the 1980's, he effectively invented a junk-bond -- david: and serious academics on his side have said he created instruction. destruction.ated x he was the king, from his shaped desk in los angeles. the visuals on this are amazing

and people remember this time. may also remember it was one of the most dramatic falls in the history of u.s. business an d global business. alix: the majority of traders at goldman sachs are just out of college, so walk us through the 1980's and why this is a huge turnaround. >> briefly, the junk-bond becomes the financing the equal of choice for corporate takeovers and michael milken is at the center of that. ultimately, they go out of business, michael goes to jail, as david mentioned, for securities fraud and tax fraud. and he is prosecuted. this comes around again, more recently, by none other than rudy giuliani, who has been in the headlines lately. so michael gets out of jail. and then, another superlative, probably create the most powerful second act in wall street history by funding cancer

research, prostate cancer research specifically, and creating this davos of the west. everybody comes together at the beverly hilton,, every year, to talk about not just business, but how to cure cancer, the environment, it is a who's who and michael is at the center of it. david: it has sponsored really serious medical research and he has made a difference in the world. he was a victim of prostate cancer himself. >> one of the ways he has rehabilitated himself is he is the guy that if you are a powerful person, usually a powerful man, he is the guy that you call and he will put you in touch with the best doctors. alix: so the pardoning of michael is not necessarily anything new. other traders have been convicted. but my question is, if he is parted, can he run other other people's money? >> he is still banned from the

security's industry. optics really about the largely, i believe, but we have very powerful people behind it. it has not gone through before, but rudy giuliani, who is in the president's circle right now is advocating for this, jared kushner, and it would not be a story about wall street without anthony scaramucci. david: of course. the president has certainly made part of my adjusting. coming up, we -- made pardons more interesting. coming up, we are going to be speaking with gary locke. live from new york, this is bloomberg. ♪

>> let the games begin. lost liquidity. markets are -- recalibrate. divergence taking central stage. rise as trade and inflation threaten emerging markets. is this time different? >> welcome. we are waiting for the tariffs which may come out any minute. >> we made it to friday. david: we are not done yet. we have these tariffs. china may come back right away with their own. alix: we are seeing some risk off.

beginning a little bit of relief , bond buying across the board. we're losing a little bit of steam. crude holding study. let's get an idea of what is making headlines outside of his notice. -- outside of business. president trump's latest move to change trade. grade tariffs. it is not clear when the tips -- it is not clear when the tariffs will go into effect. a man of work to go to jail as early as today. at man-of-war could go to jail as early as today.

he's accused of money laundering. of japan is falling behind its global peers. downgraded inflation. step with is out of measures taken by central banks in the u.s. and europe. powered by more than 2700 journalists and analysts in more than 120 countries. you.: thank the big news now is the tariffs we are waiting for out of washington. they may reduce the number of items on the list am a focus on take quite a bit. to retaliate. >> the u.s. is implementing a 25% tariff on chinese imports. we have the headline now.

i am waiting for more specifics. list.y have just the you have to cross-reference with those actually are. the 2025y do include plan. >> this was the plan to dominate industries. a lot of them high-tech. the president put out a list of 1300 products in april and narrowed those 28 or 900 focused on the tech area. we don't know exactly what they are looking at. flap of tv's, centrifuges, things that go into other products that would help. we are waiting for that to be cross-reference. 50 billion, and the chinese have said they would retaliate quickly. we could have a couple of hours of trade wars underway. john, we want to welcome

he was a deputy united states trade representative. you have been involved in this. what the likely results are. >> the 50 billion will go into place. there were some changes to the list based on comments companies submitted. there was some adjustments made. it should be the opening gambit. china will respond. back of the be the presidents court as to whether go ahead with additional tariffs. a list has been developed of 100 billion. i would expect the president will be looking closely at that list. ,avid: if they do move forward

they are preparing a list, where does this in? >> we do not know honestly. the president is inclined towards terrorist because there are long-standing issues with china. the president's conclusion was the u.s. did not have enough .everage to get china to tariffs provide that leverage. china is going to respond with their own tariffs. that will be a back-and-forth. we should assume it is game on for a while. comingnother headline out, the u.s. will pursue more tariffs in china retaliates. if we want to see how that goes. the tariffs have not actually gone into effect. they have just announced it.

have last-minute negotiations and would not go into effect? >> that is unlikely. i would assume the tariffs would go into effect in 15 days. that is typical. some of the new items on the list that were swapped out, there will be a common time. those tariffs will not go into effect right away. the products on the original list that have stayed on the list will likely go into effect this month. >> the administration may hold back on some of these to see what chinese reaction is. it may be these are phased-in over time. we have not gotten the list yet.

that would have to go through the process. those would not go into effect until september. david: this is under the section no one intellectual property with respect to china. china has said they want support the rest of the world to go after the united states. are we vulnerable to litigation? >> unquestionably there will be litigation around these tariffs. litigation with regard to steel and aluminum tariffs. they have also made clear that they will not wait for the outcome of that litigation. they themselves with the europeans, the chinese are moving ahead with their own retaliation. you were the deputy united states trade representative. before that, you were general counsel. what have you seen?

232 is more rare. as aoes this play out practical matter? provide leverage. it is been a long time since 301 tariffs have been in place. we are in a new terrain. we do not know. the president feels the u.s. has not had sufficient leverage to get china to move away from some of its industrial policies he believes hurt americans, and tariffs provide that. we will see how it goes back-and-forth. they ultimately will be a settlement. trade wars like all wars, someone sues for peace. we do not know when that will occur. david: we are getting some market movement from boeing and

caterpillar. another question is how europeans will react. china is saying come over with us. with the have problems intellectual property menus. >> they do. they were upset the president did not want to work with them. they put everyone together to put pressure on the chinese. it isn't clear with a are going to come back on this. in the short run they will stay neutral. -- they are focused on the possibility the president wants to put tariffs on a automakers. avid: if you're representing company, what do you do? i assume you have been in their young with the department of -- i assume you have been in their deal with the department of justice. >> companies did that and made

the case to the department that the terrorists would hurt u.s. jobs. therefore have a perverse result. companies should take advantage of the processes to comment on these tariffshat hurt china and u.s. manufacturers. thed: you referred to 1980's and early 1990's with those proceedings. it is all about manufacturing and goods. the world has moved to services. if you look at china, their balance of trade is coming close to balanced. there is a certain nostalgia with regard to manufacturing with regard to the steel industry and the auto industry. what has changed since the

1980's and 1990's, we have a global supply chain. that is causing problems with these tariffs. the administration may think theyare hurting china, but are actually hurting u.s. manufacturers. that is what is different today versus 20, 30 years ago. >> this would hit the asian trading partners of china worse than the chinese because china assembles products made in other countries, particularly in asia. there is going to be fallout around asia. we will see what reaction those countries have. like south korea is the worst performing currency today. thank you both very much. a quick check on the market. we are off the lows of the session when it comes to equities. risk off tone continues. particularly banks are getting

it. classes, holding steady, nothing serious. weakerlar still continuing to hold on to those gains. the curve continues to flatten. 24 basis points. boeing getting hit on the trade headlines. soybeans as well. we are going to bring you updated headlines as they cross. coming up, we will talk about .hat story this is bloomberg. ♪

alix: the u.s. announced the target list of chinese goods.

here is what we have. in light of china's theft of intellectual property, the united states will implement a 25% tariff on $50 billion of goods from china. that includes related to goods made in china to dominate the high-tech industries that will drive future growth for china but hurt growth for the united states and many other countries. united states can no longer tolerate losing through unfair practices. what do you do as a market participant? both of you, welcome. the other part of the story is china will come out with their own list. and president trump says we will come back with you if you retaliate. how do you deal with that? >> this was booked as a really big deal.

there is north korea, the ecb. the market was muted. i think there is a huge opportunity with volatility not being that high since the february strike. something as simple as options on an index is reasonable now because those metrics we look at still quite low. alix: more headlines. we know more information read it will include 1100 product lines that total $50 billion. it also says the first set of china tariffs will start on july 6 and the list consists of two sets. the first set will start july 6 and cover $34 billion. >> that is because they added some products. commente to have a period for that. i'm assuming.

alix: if you were looking to protect yourself, how would you? >> the stock market has rallied here. s&p 500 by 8% over the last two, 2.5% months. concern about central bank activity and the tariffs, that will probably allow the market to hit a summer air pocket which we have been anticipating. the near-term thing is to raise cash, lock in some profits. there is a longer-term story here. that all of what we are seeing here is just negotiating between these two countries. united states is running a basis. on a merchandise that accounts for about 2% of gdp. the administration would like to see that reduced. to 150, $200 billion.

, that negotiation, this is ugly and uncomfortable. we will see a smaller manufacturing deficit with china by the end of the process and everyone will feel better. david: we are getting more clarity out of the u.s. trade representative. it is to tranches. presumably products included in the first notice. another $16 billion in the second wave. they added some things. 2025 --lated to the by buy china 2025. alix: you mentioned volatility has been low, but what has changed his correlations. and lookto take this

at volatility. they have decoupled. is there a way to play a weakening correlation in the middle of weakening volatility? >> typically when markets go down, correlations increase in terms of less ability to stock pick. when it issued into 30 your stocks become correlated on the downside. in terms of decoupling in the bond market, absolutely. there ways to play that through hyg versus s&p underlie her. the main point from options is we have this huge spike where everyone remembers it but we come back muted again. we are coming into a summer doldrums. i see a number of different risk factors. if you think there is a reality of that occurring the option prices are too cheap.

alix: thank you. stay with us. more coming up on trade. david: could the proposed tariffs throw a wrench into qualcomm's acquisition? this is bloomberg. ♪

david: watching several stories -- givenh an analysis what is going on with china we have to talk about qualcomm -- nxp.ndex be been a deal has political football between the united states and china for some time. that is what qualcomm believes. there are reasons for antitrust authorities to look at that combination.

it is ironic because qualcomm has blamed u.s. china tensions for holding up this merger. qualcomm is also benefiting from tensions because it squashed this hostile takeover. qualcomm has been on each side of this divide. david: is the chinese approval or two trade relations cte? there is a perception there is a quid pro quo. >> there is this perception the zte,crack down on cte -- that held up this for qualcomm. that is certainly the belief. as i mentioned there are legitimate reasons for authorities to take a look at this combination. we will see what happens.

they are clearly reacting like this increased u.s. china tensions, or renewed u.s. china tensions on tariffs are going to jeopardize the deal. alix: good point. the stock is down 2%. qualcomm is up. i want to bring in phil orlando. have been crushing it. started already. if you take a step back, growth by techdriven valuations dramatically outperformed value stocks by 25 percentage points. the likes of which we have only seen five times in the last 40 years. neutral intech to march, elevated energy, financial services and

industrials which we felt were fundamentally well-positioned in part because there was this risk factor with tech hanging over it. what is happening today, what we did not reject that, the risk factor was certainly -- predict that the risk factor was certainly there. the techat ghosts sector overall. it is a shift from smartphones to smart cars. >> right. qualcomm is trying to find its next act. it has found success from the popularity of smartphones. it is likely qualcomm technology is in your smart phone or it owns the licensing rights. smartphone growth is slowing. qualcomm is trying to find out what is next. cars are now becoming the computers of the future. qualcomm wants a play in that. alix: you've a sticking with us.

concerningaking news hna staying with china. conglomerate that has been loading up on debt and buying a bunch of companies. $93 billion of debt. they are worried about a liquidity issue. hna is selling a lot of assets. $93 billion debt load. david: because china told them to. you need to dial back according to china. pain oneling even more the tariffs as well as divergence in central banks. we will discuss, next. this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. alix: this is bloomberg daybreak. we are following to create headlines as they continue to tumble out here. here is what we know. there are two groups to the terrace we're looking at here. eight hundred 18

products. that will go into effect july 6. the second wave will be $16 billion on 284 new products. they have to be subject to public hearings first. those include more high-tech -- that willling affect made in china 2025. president trump will retaliate if china retaliates as well. david: china says they do not want a trade but they will retaliate if products going back the other way. the trade deals they have an effect no longer have an effect. i don't know what that applies to. know if thaton't is included. they have warned before, if you oppose these tariffs we are not going to have these trade talks anymore. alix: or the dte. david: china is responding quickly. if china does respond president trump has said they will come back again. fairlyeadlines moving

quickly. i want to take a market check. off 180 four points. futures off by 20 points. european stocks, banks getting hit harder. ecb story.e of an in the currency market it is , and modestly sell the dollar off the highs of the session here, up by 10.5%. it is a safe haven bid in any bond market now. down by three basis points. italy leading the charge. you are buying but now you have a tiny flatness of the curve. it was worth that just a few minutes ago. soybeans are front and center. those prices are off by 2%.

president trump is speaking now. we are getting a headline. if he says something about this week will bring it to you. talking with the broader effects of this trade war, what effects it might have on emerging markets in the asian region. we had -- some of the countries are not china so much as other asian countries that manufacture parts that get put together in china. this may have affected beyond china proper. focus on the currency aspect of this. you look at the dollar euro. us given thense to fact u.s. economy was strengthening and our central bank was removing and changing

interest rates. has actually started to play out this year. the relationship tends to be an inverse one. that has had an impact on emerging markets. additionally you have fundamental pressures. for those reasons we have been underway emerging markets. he is saying president xi is a friend but so much of our secrets are stolen by china. alix: a rhetoric will continue. i want to point out over the last year the top panel here is what is happening and emerging-market bonds. the highest we have seen. the middle park it -- middle

pocket, equities. what you do here? >> there was a big differentiation between volatility and emerging markets. there he lowty relative to its emerging-market towner parts. people are skeptical now. if we start, things will devolve quickly. to our point about correlation you go from correlation of one fast. i think we can see volatility spike quickly. >> president trump said the trade war was started many years ago or the u.s. lost. trade losses are not going to

happen anymore. he is not backing off. >> if you want to hedge against this risk, you did not make any money. losing.t you wound out how do you manage that? >> it has been painful. hop of options are selling loss. that is the only thing that has made money. it is not that they do not know the risks that come with that. david: are they going to be right sooner or later? they had north korea this week. central-bank action this week. we'll you get volatility? >> it sometimes comes by surprise. the other thing is sustainability. to that is any reality happening the option prices on something like a u.s. under liar are inexpensive when it comes to the rest of the world.

>> at some point you will see a pickup and volatility. is that your queue to get defensive? >> es. defensive means raising some cash, rotating into treasuries. to 3%.he yield moved up going into the undervalued defensive stocks. which have dramatically underperformed the growth aspects of the market. there is a defensive aspect where you can stay long in the equity market and protect yourself in a rising environment. >> volatility, if you were in low volatility, it is the biggest volatility risk? because so much money is in there? great point. >> that has been interesting.

lowball staples is your counterparty. it is one of the most expensive the sectors. one of the reasons is, what we have been arguing is, there may be a new volatility regime. amazon is doing everything a companynal staples would. i think there should just be an overall higher level of volatility. it is no longer your defensive safe play people assume it is. you are seeing that priced in. alix: what is the safe haven? >> it would probably be relative to the sectors like staples. alix: thank you for helping us. amy, capital markets. let's recap these headlines. we have president trump speaking

on fox business about his relationship with president g of of china.i he use the word trade war. he said a trade war was started many years ago. now the trade representative is also speaking. he says he hopes tariffs do not lead to rash chinese reaction. going to impose tariffs on an equal number of goods right away. they use the word trade war. we are not going to be pushed around, is centrally. -- essentially. like justin trudeau. alix: we were talking about the way china would be more conciliatory. there are two groups of tariffs we are looking at. products, the second is 16 billion. that is new products based on tech.

china affected at buy 2025. president trump assures us that himd leaders wished a happy birthday to the more on our big story. locke, he will be joining us next. lisa will be joining tom today from 9:00 to 10:00. live from new york, this is bloomberg. ♪

>> this is bloomberg daybreak.

coming up, balance of power. jim jordan come republican from .hio ahead more equity futures moving on that news. we have specific industries hit by these tariffs. has been digging through the details. what we know as of now? >> it is basically most of the off,, they took some stuff a category of jets, the basic industrial parts that go into the waves. bulldozers, shovels are on the list.

you have to look at ge. there are things that are going to be subject to terrorist. the parts that go into them, there is the whole product. the automatic teller machines for example. a lot of this is going to affect manufacturers who can't necessarily, who have to pay up. david: is it too soon to get a sense on if this will increase the price or will it shift production? some people could ramp up production of some of those parts. >> there are some people. but we have seen is many products are not made here. the equipment to make them are not made here.

that is the difficulty for them. the biggest factory is an and -- is actually in canada. idea of what is the new products? >> we understand it is high-tech equipment. is thee products, that next list to go through. >> thank you. , from positions of ,he u.s. position of china joining us on the television today. >> my pleasure to be with you.

we have china is going to respond. >> i am sure they feel frustrated. delegation in d.c. in which the administration announced that would be a suspension of these tariffs and the chinese would commit to buying more made usa goods and products. the secretary of commerce was in china, affirming that. now all things are off. i am sure they are frustrated. they will retaliate. they have already said they will. export ofhurt the made in usa goods and services. that will be a job killer. david: did the chinese have a good sense of what china wants? anything you do, sometimes we

technologyall about and property. >> most american companies are more concerned about the transfer of u.s. technology. most say the trade deficit really is a totally different matter. we have a trade surplus with canada. that are some tariffs high against u.s. goods. america imposes high tariffs on canadian goods. we have a trade surplus with canada. frustrated.ling frustrated. as your reporters indicated, chinese goods coming into the united states, a lot of these things are not available in a many and will raise eric -- american manufacturing. either around the world or reducing their profitability.

hurting the growth of the u.s. economy, not enabling those companies to pass on the tax cut's to their employees. , imposing these tariffs will probably hurt american companies more than the chinese. the chinese do not have buy american soybeans. they do not have to buy boeing airplanes. there is a backlog. five or six years from now those orders will be dwindling. this is going to hurt american companies. david: i want to get to the relative pain. hurt thesaid it will u.s. worse than china. the price will go up. that affect the

chinese who ate a lot of soybeans? soybeans for the production of oil. they use a lot of oil in their cooking. there is a rising middle class. i think they can absorb this. a lot of the heavy manufacturing that will be subject to tariffs, are also available elsewhere around the world. many of the chinese products that are subjected to these high tariffs, they are no other sources available in america. it is going to hurt american companies. higher.e fiat is moving your point of making it more expensive.

i wanted to get your take. and have manufacturing supplies, what am i doing today? manufacturing a facility you are probably better off. to preserve the chinese market, so they don't have to engage in transportation. i would be worried the chinese may retaliate. they may make it more difficult to expand. they probably want you there. it provides jobs for the chinese people. with the joint ventures they are learning technology. you have been involved in negotiations with the chinese. supporters of the president say calm down, this is a negotiation.

is this a good way to get out? we have not gotten out of them before. >> we have gotten some things out of them. a bilateral investment treaty that would have reduced the tariffs and address these issues of forced technology. so many sectors of the chinese economy are off-limits to foreign investment. the u.s. economy is relatively open. that will get the attention of the chinese. we need to work with our allies. we are squaring off imposing tariffs on them. if america was concerned about the flooding of the world

afters, why are we going the state -- steel and aluminum of eu? if we are concerned about the flooding from china. we ought to be working in concert with our allies. not against them. .e should impose the same cloud have to require computing firms like amazon or , orosoft to have servers join with a local partner in china, with the odd to impose the same restrictions. there are ways to address these issues. david: thank you for spending time with us. alix: coming up, the market

reaction. it is going to be aerospace, tech, industrial machinery. more on that, next. the charts that we looked at. this is bloomberg. ♪

--6 tariffs and market reaction. $50 billion worth of goods from china. part of it is nuclear reactors. on 1800 tariffs going products. , subject tod batch public hearings. aerospace, automobiles, you can see the effect on individual

stocks. under armour also. nike getting hit. i wanted to focus on the particular commodity. over 3%. aluminum, also cotton. that will buy -- that will be there. >> i think they are going to. are going to do a tit-for-tat retaliation. >> they are one to tell us exactly what it is. they said it is one to be soybeans. alix: hedging this risk has been hard. markets, thee double whammy of fact over the

last 48 hours, trade going into the weekend, why would you want to take in? david: better than what we can get with china or canada. how did we get in this situation? alix: forget the dairy taxes. we are going to take you to tax for that. coming up, research shows that tough trade talk doesn't hurt the market. the market seems to disagree this morning. down off 200 points. you want to buy the bonds as yields move lower. this is bloomberg. ♪

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amanda: vote --jonathan: i'm jonathan ferro. 30 minutes to the start of trading. welcome to the open. ♪

jonathan: president trump targeting $50 billion of chinese goods, china preparing a response. an optimistic fed chair, jay powell defending the dollar towards the 2018 hike injecting more pain into emerging markets where a huge imf outline seemingly isn't enough to defend argentina. 30 minutes away from the opening bell this friday morning, future softer, down 15 points. the euro's mast yesterday, a small recovery back through 116 -- $1.16 on the u.s. dollar, fields to do 91. slaps tariffs on $50 billion of chinese imports and retaliatorycing tariffs. global leaders weigh in on trade tensions.