francine: china is poised to match tariffs. could it be a full on trade war? the german chancellor's political future is on the line. ron says to other opec members .ill join it oil trades lower for a second day before the meeting. welcome to bloomberg surveillance. i'm francine lacqua.

trade of the top of the agenda and it's given impetus to most of the markets. down some 0%. u.s. futures also pointing to a lower start. crude is down 1.4%. there's a lot of tension. our reporters are on the ground to figure out exactly who wants what. we've seen quite a lot of pushback from the original agreement we heard about. extra barrels of oil on the market. 1.1575.lar is we are waiting for china's next move. merkel's -- we talk merkel's future. speaking about the managing director of alex partners. stark.'t miss juergen

he is a former ecb board member. let's get straight to the first world news. g's crisis over migration policy enters a critical phase this week with the chancellor and her political future on the line. ripples being felt across europe. merkel met with senior members of her party to plan the heronse to the ultimatum by official. iraq says venezuela and will join it in blocking the attempt by saudi and russia to increase oil production. the two biggest producers want to relax limits. considers allies may

an increase of up to 1.5 million barrels a day. the uk's prime minister faces a crunch week over brexit. some lawmakers are saying they would move to oust her if parliament votes this week to give itself the ability to force her back to the negotiating table rather than allowing britain to leave with no deal. she is under pressure on how she plans to fund in hs spending. -- nhs in hs spending spending. >> we have to fund that money. that will be through the brexit dividend. in japan, three people have been confirmed dead and no must 100 injured after a strong earthquake in osaka. it was the strongest since records began measuring osaka.

of japan's manufacturing heartland's. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. the u.s. and china are on the verge of a trade war. tojing quickly responding trump's plan of tariffs on chinese imports. our guests joins us with more. what do we know china will do and what are they hoping to achieve? the broad strategy seems to be this. they want to go toe to toe with the u.s. so they are seeing is not week that not -- but don't want to be seen as the aggressor. china wants to exact a political price from these trade tariffs

and they want to push the pain on the rust belt in the u.s.. it's the first round of tariffs that china will propose. are $.25 duties on about $34 billion of u.s. goods, largely soybeans, corn, wheat. the second amount -- the second after will take place july and will focus on things like coal, oil, and gas. china bought about $40 million of u.s.: 2017 and it's the third-largest customer when it comes to crude exports. that seems to be the chinese position for now. they say they don't want to trade war but they are ready to engage the u.s. tit-for-tat. who in the u.s. will

be hit the most? you really focus is in on the farm states. if you look at soybeans, just this one example, china buys almost one third of all the soybeans that the u.s. exports. they have been trying to diversify away from that supply and buying more from brazil but certainly those soybean producers in the u.s. are likely to be a loser as a result of this. the coal sector and also oil. that's an era -- that's an area trump is trying to revive. tesla and forward which sell and produce cars for china. those two companies could be squeezed as well. you have boeing. boeing is a big winner. could see some state airlines change their orders. we saw boeings said -- share prices being squeezed.

there are a number of different players in the u.s. market that could see the pain. china thinks it's a bette position. what is also becoming clear in china is that they are increasingly committed to reducing the deficit. and workdo that towards market opening but it comes to that industrial policy around technology and they say it's not up at this stage. francine: thanks so much. join us as paul donovan. the chief global economist at etf management. we hear about a possible $100 billion and the u.s. treasury is going to the same process but for cars. where does this end? like any good economist, we start by defining the terms. what is a trade war? it's when you have a policy that

produces real trades of gdp. this is not going to do that. this is actually probably moving us away from the risk of a trade war because what is happening here, president trump has announced tariffs which are a tax on consumers but at the same time he announced ones that will minimize the effect on consumers. you do this, it's an ineffective policy. china will sell you less to the united states and other countries will sell more to the united dates. china will sell more elsewhere in other countries will sell less elsewhere. we are just shuffling global trade. like saberhis seems rattling and you don't know where it ends. paul: it's very ineffective saber rattling. its trade policy for the twitter era. it makes a fantastic soundbite. china is not actually going to

be that much affected nor soybean farmers in the united states. sell to china to but they will sell to people previously buying from brazil. retaliation from china is quite minimal because the chinese understand the impact is quite small. paul: it's all global commodities. the one exception is the cars. there is an impact. else, all of the stuff, these are global products in the global market. we are just moving stuff around. is that why the markets are pretty cool about this? paul: i suppose so. you have a certain amount of friction in the short term as people scramble to rearrange the supply chain. maybe three or six months worth of disruption. markets will take it fairly

passively because is not a major economic impact and as long as we don't escalate, that's the thing. francine: how do you escalate? targetu.s. were to german cars, is that significant? paul: it starts to become so. remember, it's not a global trade war. it's a u.s. versus the rest of the world. the big difference between now the 1930's is the u.s. is imposing restrictions on europe but europe is insane the going to impose restrictions on countries other than the u.s.. it's just the u.s. cutting themselves off. the u.s. is a largearket and it is a negative economic impulse but it's a lot less negative than the chaos that we've seen in multilateral trading disputes in the past. francine: if it doesn't make

much of a difference, why are they doing this? it's the politics. the politics of this is fantastic. tariffnt trump signs a surrounded by steelworkers and the policy doesn't do anything but people think he's making america great again. appeal to aing to very specific electoral base ahead of the midterm elections. other countries like china and the european union need to be seen to not roll over in the face of this sort of thing. they need to appeal to their own electors and say we are standing up to defend you. that's why we do this rather farcical set of meaningless tariff announcements. francine: does the market

ignored because it doesn't have that much substance? deficit --.s. trade deficit is likely to go up d not down. that's not going to change as a result of this. k you would only start to see significant impact on currencies if we go to the next stage. worry that the chinese are going to retaliate by selling treasuries. francine: we'll talk about that later on. thank you, paul donovan. next,ry opec meg expected this week with iran leading a rebellion against saudi plans to boost output. we will preview that. this is bloomberg. ♪

francine: economics, finance,

politics. i am francine lacqua in london. let's get to a bloomberg business flash. keiley: british consumer and business lender cyb g has agreed to merge with virgin money. premium.% and cso willn retain their current position. french telecom ceo will stand trial for moral harassment a decade after a wave of suicides coincided with the restructuring he led. many others have also been charged with moral harassment or abetting moral harassment area -- abetting moral harassment.

the bank of international settlements has blasted cryptocurrencies saying they never become part of mainstream finance and it ended economic reports -- and it opened up reports that say they are too unstable, use too much electricity, and allow too much fraud. that's the bloomberg business flash. francine: thank you so much. oil is trading lower for a second day. saudi arabia and russia prepare for a clash. the countries want to produce output buddy ron says venezuela and iraq will jointly block the proposal when opec and its allies meet in vienna. they are also considering tariffs on oil. donovan.s paul he is still with us.

when it comes to editorial jument, what options are the left for saudi arabia and russia if they want to go ahead with increasing production? >> it looks like they have three options. two of them have very specific precedent. they block the communique from the group as a whole and they find themselves a coalition within impact -- opec that is prepared to put out a separate statement with a new production policy. you can then walked out of the meeting. lots of precedent for that. option number three is the preferred option which is you stick to the agreement avenue immediately cheat on the quotas and there is a long, noble tradition of doing that. if you're going to have production increase in the way does it matter the way it is done? stuart: i think it matters to

how you characterize opec. is it a unified body and a solid block? end up in disarray which it seemso be the way they are going now. we can the markets and the ability of opec to do anything. the market right now believes more barrels or come into the market and several months and there is recent evidence for it. what does it mean for consumers? stuart: theoretically, it means lower prices. in the u.s., we were creeping back up to three dollars a gallon for u.s. gasoline and that psychologically is very important. we will expect that to come down a little bit further so it should begin news for taxation is the main part. francine: you look at oil prices more than trade concerns. paul: yes. if you look at the dollar, oil

is priced in dollars so you need dollars to buy oil. price of oil goes up, what you will find is there is an increase in demand for dollars and one of the reason why -- reasons why the dollar has bounced back is $20 a barrel of oil in increased demand. if we see the oil price that doesn't mean absolutely that the dollar goes down but removes one of the sources of some or for the dollar that we have been seeing over the course of the last several months. it also play on central bank inflation expectations? most central banks ignore the oil price for this not summon you can control. officially it's in the ecb payet but they don't attention to things like that. we are seeing central banks that are generally looking through. that risingisks is

oil prices would be to rising wages and that something a central bank would react to. if oil prices will come down a little bit, expectations will be disproportionately affected and therefore wage pressures may moderate somewhat. you could argue if russia and saudi go out it or just cheat on it, could you say it's the end of opec as a cartel? and in you have a new cartel with russia and the shale producers and saudi? stuart: i don't think so. opec as a group has gone through many problems including a war between two of the numbers. it survived all those things. does this deplorable -- does this look worked in the -- does this look worse than that? no.

i think all members realize it's in their best interest to stay together. will russia ever joint opec is a fully fledged member? stuart: it seems unlikely. wanta doesn't necessarily to. it's there when it suits it. francine: once your precaution and you look at opec or show producers? -- or shale producers? paul: we are basically looking for the oil price to be around where we are today on average for the remainder of this year. from an economic point of view, that becomes fairly neutral. the price shock starts to dissipate relatively quickly. if we do see more production coming on stream and some moderation of the oil price further down, that gives a bit of a boost to consumer

expectations overall. francine: is there a sweet price? i know there's a million components and stakeholders but is there -- is very price that doesn't hurt emerging-market consumption? it's a complicated issue because as the price goes up, people become more efficient. we've seen that. back over the last 40 years, every time we get an oil price increase there's another round of energy efficiency the comes through. there's an interesting debate here. is the price higher to encourage efficiency or lower to boost spending? there are several days worth of discussion in that question alone. francine: when you look at the divergence rate, this is the big story so they are much more dovish than expected. margine ecb look at the

or the impact of a german economy through the trade wars of they look more at the price of oil? paul: i would argue that the ecb was in more dovish than expected, the president was. is, it wasa whole exactly what they said they would. he's in charge of a rather large committee and is on his way out. convinced that the ecb in reality is owing to be especially dovish. they willdo you think raise rates between summer of 2019? paul: no i think they'll raise in that summer which is largely what was expected. reserve, i think, is doing what most economists expected. thatwe need to remember is

the u.s. is further advance in its economic cycle and its inflation pressures are stronger than they are in europe. they have an unnecessary deficit finance fiscal stimulus on top so you would expect the federal reserve to be more aggressive in its policy. not more restrictive but more aggressive to stay neutral. i think that's largely what we have. they are both trying to maintain fairly neutral position. what tsipras will impact on the german economy? do you see russia and saudi -- this is the big surprise. the fact that they are sticking together and are so close. does it have geopolitical implications? stuart: i think it does. it's going to be enormously important to both of them but they have many other interests. if you look at the diplomacy that particularly saudi arabia has been doing, they've been doing very well. russia has made inroads in the middle east in a way they haven't been in decades.

those two things means there are still on friendly terms. after the soccer match, lots of shaking of hands. i would warned that russia tends to go its own way when pastor birch. if you are the german economy, how worried are you? possible tariffs on cars. paul: that i think is a concern. symbolicsector is apart from anything else. if you go down that route is different from the other taxes that have been imposed so far. those are largely on things that can be substituted but cars are quite specific. if it's more expensive to buy a german-made car, you may well then choose an american model or whatever.

it's just the u.s. that is doing this. is it right -- is linked to the market or the price of oil? stuart: a bit of everything. can they get away at the right venue and the right price. francine: thank you so much. both of our guests. paul donovan stays with us. up next, merkel's migration isis. it reaches a critical phase as her polish and harder issues an ultimatum. we speak to one coalition partner next. this is bloomberg. ♪ what's a gig of data?

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of international sentiment which says cryptocurrencies are too unstable and are subject to too much. germany's migration crisis deepens. a standoff with the interior minister with ripples being felt across europe. on the bloomberg terminal over the past few hours, london saw prices fall the most since the beginning of the year as the capital market falls behind the rest of the country. c members are ready to block the russian and saudi arabian proposal to increase oil production at this week's meeting. china and u.s. moved to the brink of trade war. paul is our guest host. we covered quite a lot. the merkel story, the trade tensions. do you look at bitcoin? paul: onlywe covered quite a lo. for entertainment value. its economic value is nil or

slightly negative. the bubble is slowly deflating. the world enthusiasm is going to disappear. these are not currencies and they are never going to be currencies. blockchain, absolutely. the underlying technology, that can be adapted in many sorts of ways. it is like the internet bubble. slap blockchain onto the title. cryptocurrencies are not going to work as currencies. the problems with these things is they are clearly designed by people who are mathematically brilliant. these people know nothing at all about economics. that is obvious. because you have something where the supply can only go up, it can never go down. if supply does not go down, what happens when demand goes down? if you cannot reduce supply, you know what happens to the value. this is disastrous. francine: thank you so much,somw

up on, on bitcoin. les get to the first word news. iraqigh: venezuela and will join the saudi led proposal to increase oil production. has succeededpact in living crude prices. the biggest producers launching as soon as next month. russia says opec and its allies may consider up to 1.5 million barrels a day increase. the u.k. finance ministeracing a crunch during brexit. vote to give itself the ability to force her back in negotiating table rather than allowing britain to leave the eu with no deal. she is under pressure with how she plans to fund nhs spending with government claims of a so-called brexit dividend being widely discredited. there will be

about 600 million pounds a week in cash going into the nhs. we have to fund that. that money. it will be through the brexit dividend. >> in japan, three people have been confirmed dead and almost 100 injured after a strong earthquake. it was the strongest quake to hit the city since records began in 1923. it struck in one of japan's main manufacturing heartland's, home to companies such as panasonic and nintendo. global news 24ours a day on air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much. german chancellor angela merkel's political future is underlying. she is planning her response and

ultimatum from her coalition partners, which is demanding migrants be turned away from the german boarder. can angela merkel navigate this crisis? join n is a member of the federal court and member of the european parliament and deputy chair of the european affairs committee. thank you so much for joining us. how does this end? will angela merkel have to sack the minister or will they have to find a compromise? elmar: i think they will try to get a compromise. in some time, to a half weeks time, the summit of the european leaders, the european council and hope by that stage, they will havesed. it might be the line of compromise for the moment. francine: we know that the chancellor is trying to get some kind of eu deal on migration.

what would such a deal actually look like? elmar: you have many deals. ofause of the agreements european arrangement with other countries, 90% less migrants in europe than three years ago. we have strengthened our cooperation. program trying to resolve the migration question. more burden sharing, but also a way countries like italy will increa in outside border controls. the outside borders of the european union which makes it to have control.

francine: what would be the consequences for europe as a whole if germany you know unilaterally closed its borders? elmar: germany is one of the biggest countries. all of us know we can deal with this migration question because thehe situation of syria, incredible situation in africa. together can we find the root causes of migration. it would be shortsighted to break that -- shortsht interest because upcoming elections in bavaria. francine: will angela merkel be able to survive this? doesn't she have sufficient support in the union for what she believes in? think there could be

further progress in the european union. the summit in two weeks time. she has big support in her own party. that there could be such a -- the partnership between the democratic party's which was always the main reason for stability in germany. francine: a final question. do you believe the chancellor will survive this? willis should become weakened by this -- will she become weakened by this? elmar: i am sure she will survive it. things happen every time, but my impression today is she will survive this situation. francine: thank you so much for joining us, elmar brok member

of, cdu's federal board. still with us is paul donovan. we talked about the european central bank, the german economy and whether it peaked because of possible trade tariffs on cars, but how does the political situation impact german economics, if at all? paul: in the near term, in the cycle, frankly, not at all. consumer,s a german going to change their decision to buy a flatscreen decision on the back of this decision? i don't think so. are companies going to change their investment plants? because of this. longer-term, there are some interesting questions. if we are taking a five year plus view, germany's problem is it's rapidly aging population and migration is one way to resolve that. another way to resolve that is productivity but productivity

depends on a flexible society which depends on minimizing prejudice. the tone of politics which is moving more towards prejudice politics and questions of migration do raise questions over the medium-term, but financial markets tend not to get too worried about trend race approach. economists are worried about that rather than the markets. i don't think you will see a huge issue overall. francine: have we be underestimating the problems that migration is having politically? with the election of macron, everything is fine in europe and wean move on. migration is definitely the kind of center. you see it spilling over into germany. paul: i don't think economists necessarily have underestimated it. francine: markets. paul: the markets perhaps naturally underestimate it because they don't care that much in the short-term.

it is a delicate balancing act. most economists are worried about the tone of politics. it is not migration alone. and what that might be doing to the medium-term prospects of flexibility and productivity. in the short-term, i don't think markets necessarily have underestimated migration issues. they might be underestimating political noise and the potential for perhaps surprises to come out. it is not just in europe , we have the midterms in the united states. we have the interminably tedious divorce proceedings between the u.k. anti-e.u. -- and the eu. francine: we understand we have a red sticky on thbloomberg terminal which means it is a piece of news you cannot afford to miss. opec is set to discuss output hike of 300,000 to 600,000 barrels a day. i don't know if we do have the

price of oil. let's bring it up if we do, otherwise i have a good chart looking at the amount of rigs back on. you can see at the moment not moving much when it comes to brent. a little bit on the downside. 64.65. see crude oil, we will get back to that, back germany and talk brexit next. still to come, alex partners managing director joins us on the germany and talk brexit sho. we will talk turnaround companies. we will talk brexit on whether he sees more opportunities in the u.k. this is bloomberg. ♪

♪ francine: this is bloomberg surveillance. i'm francine lacqua. we just got some breaking news on opec. an acrimonious meeting in vienna on wednesday is what we are expecting. they are said to be discussing output hike of 300,000 to 600,000 barrels a day. we spoke to the iraqi representative who said they would veto it. they could do three things -- either russia and saudi say forget this, we are walking out. they could comply but raise output. the third solution is to not sign the communique at all. it will be interesting, acrimonious and fund to cover. we will bring you the latest.

you can see crude brent down a touch. theresa may's battle with her lawmakers within her own party warned privately they can move to oust her. parliament wants to get the ability to force her back to the negotiating table. she is also under pressure over how she plans to fund nhs spending with government claims of the so-called brexit dividend being widely discredited. what does this mean for u.k. assets and the pound? join -- joining us now is stefano aversa, a manager at alixpartners. we still have paulwe still have. paul, stefano, is due to the show so i will ask him the difficult questions. does prime minister theresa may survive this? do we start modeling a new referendum or is this fiction? paul: it is fiction.

it is relatively unlikely the party will try to oust theresa may. not least because the boundary commission which draws of the constituents of the u.k. is due to present this report on new constituencies in september to parliament. that will address and rebalance. the bias in favor of the labour party. conservatives have a strong interest in getting this boatgh, not rocking the ahead of the next federal election. you can conduct the election. the other thing is boat ahead of the next federal election. nobody else wants this job, not now. we can't go to the eu partners and say we know there is a hard deadline at the end of march -- we would like it do not happen anyway. we leave at the end of the much. this nonsense that parliament will negotiate instead, the u.k. does not have negotiations. the u.k. leaves.

the only thing we are arguing about is the details behind that. i don't think there is support for a second referendum. it is very interesting there is some report on term, there is no support in the u.k. for rerunning the referendum we had. this is not france. you do not keep asking the questions into you get the answer youwhen you look at -- yu turnaround companies. are you turning toyou do not kee questions into you get the answer you want. francine: that is a little below the punchline. that is ok. more distressed companies you can make a big deal on in the u.k.? stefano: i would say to some extent, yes, because companies that are motated to investments are already softening. consumer confidence is still relatively high and if you look at the gdp, still on the pretty high side. we don't see that in consumer staples, but we have seen that in construction, real estate,

and we see corporate's refraining from investments at the moment. fr: when is the iportunity -- let's say, cannot know if the bank of afford, but if it is more difficult to afford, but is more difficult to fund, is that where you see more opportunities in the u.k.? o more after brexitr? we think more after brexit. the corporate world in general -- between the situation where in and. was out, was possibly going to be out and opt in, the difference will be very minor. it is what everybody is expecting and hopefully it will be a soft brexit. it is still a significant chance that things will not go so smoothly. for sure, there will be at least -- everybody expects much more than six months or nine months of uncertainty. francine: where do you see the fault lines in the u.k. economy?

i imagine when you look at the weaknesses, they are near each other whether you are a global economist or biof -- buyout form. paul: i think in the near term, absolutely. the weaknesses, when you have trade regulation or if you are dependent on the eu. it starts a shift and it is more about the opportunities rather than the problems, over the longer term. cause ais the exit will drop in the trend rates of u.k. tor --in the shirt short-term. but it is how the u.k. adapts and changes that will matter. do we change the immigration policy to allow more immigration from outside theshort-term. but it is how the u.k. adapts eu, for example? do we tried to liberalize and produce the regulation that has perhaps became an obstacle to rapid change in the u.k. economy? francine: could the u.k. also cut taxes? could the u.k. become ireland?

paul: we have to be a little bit careful here. eu, for20 billion using a nonet brexit dividend, so havto find money for that. then, net will probably cost us to leave the eu in the short-term. we have to fund that. now you want to cut taxes as well? i have to do fantastic things with growth. francine: you are a numbers man. paul: i don't think we can achieve that realistically in the near term. francine: you say construction is under pressure, retail is holding up ok, is there an industry where people will go more under? is construction one of them? stefano: construction is going to be one of them, but retail certainly is already starting to suffer from some extent. it will suffer in certain areas. actually, retail as a sector is suffering all of the world. it is not just the brexit related issue. it is a worldwide trend. not only because of e-commerce,

but because of fast-moving brand recognition and so on. for example, just from the beginning, we saw about 20 bankruptcies in u.k. and about 12 in the u.s.. several that are in retail. toys "r" us, particularly specialist retailers. francine: i want to ask you whether product or a specific space. thank you for joining us, paul donovan. stefano aversa stays with us because we want to look at the opportunities in distressed companies. for almost 40 years some alixpartners has been turning around corporate scott intel times and has pioneered a series of innovative processes. stefano, you mentioned toys "r" us. toys "r" us -- i'm a mother, i go to toys "r" us, all right

used to and it was never the right price. do you buyout companies because it is a tough time or companies that do not sell what people want to buy? stefano: just a clarification work very closely with buyout buy outs, but not ourselves. the concept of specialist retailers overall, especially toys, it is a company that is very difficult to sustain. look at books, there is only one left, barnes & noble in the u.s. everybody else left the market. look at gadget. same story. look at electronics. is a very retailer tough environment to be in. everywhere in the world, particularly in mature markets mainly because of e-commerce. francine: amazon, right? are people going to go out of the business people who cannot rival amazon, and how do you

rival amazon? stefano: it is very hard. it is so much more convenient, so much more choice and people elsewhereng time rather than going in the mall looking at thousands of products and walking thousands of miles all over the world. i think it is so much better out there for some specific products. francine: there is a lot of talk about the future of technology, the kinds of space that will be buying and shopping. i guess constructing buildings in 10 to 15 years. will there be a has not been challenged that you are looking at? stefano: you look at the big trend which is technology in general. if you think about all the world of automation and artificial intelligence, we used to talk about robotics and the impact in automotive or mechanical industry. there and haslly

been happening for many years. impacting ourally sectors more in the white color from the previous base pairs -- previous space. low-level employment that can be automated. what was before off shoring and as a place to reduce low-level actually these jobs are just disappearing. therefore, we see change in technology, particularly -- francine: we are getting some breaking news out of vw, volkswagen. volkswagen has just confirmed the chief executive of audi -- we just got news on that -- it is having an impact on the vw

share price. you can see vw 1% currently. we will keep on top of that decedent why he was arrested and whether he remains on bail or methinlike that. we will keep an eye on that. another question of want to ask you, we see a lot more activist shareholders. if this were to happen to a company that you were advising, what kind of advice would you give to the chief executive? stefano: activists have more and .ore important role not necessarily a negative role. activist many types of investors and private investors. they tend to challenge the company. sometimes actually bringing good ideas, sometimes not. the first advice with his do listen to them very carefully because they might have very interesting ideas to create for the company.

planecond is to have a that is at least as good as they have because you need to convince investors that not only you are a good management and a good board but you have good ideas and know how to implement them. francine: thank you so much for coming on. i hope this is one of the first of many interviews. stefano aversa. we are getting some breaking news from vw confirming the arrest of the chief executive of audi. in the last couple of minutes, we heard of an opec compromise. the cartel is said to discuss increasing oil output between 300,000 and 600,000 barrels a day. this is bloomberg. tom keene is next with me. ♪

francine: in hope of compromise, a cartel is set to discussing output between

300,000 and 600,000 barrels a day. european stocks and u.s. futures are lower as china is poised to match trump's tariffs. could it be a prelude for a full-on trade war? and merkel's migration crisis, her political future is on the line as she nave gates an ultimate frum her coalition partner. good morning, everyone. this is "surveillance." i'm francine lacqua in london. tom keene is in new york. there's a big meeting going on later in the week. we think it's going to be acrimonious. and we have the nice group saying they're thinking of increasing output 300,000 to 600,000 barrels a day. tom: supply and demand with oil, i know javier will be in vienna leading our coverage as well, francine. i'd also note, as you mentioned with chancellor merkel, what an extraordinary weekend for immigration across the world. just really, really extraordinary to see the debate in germany and the united

states. francine: yeah, and italy, don't forget. tom: italy, as well, yes. francine: now here's first the n germany, the political fure of chance more merkel is on the line. merkel's coalition is at odds over migration policy. the interior minister has ordered migrants turd aw from the border in direct contradiction of merkel's policy. it's likely to give her a two-week deadline to arrange the return of migrants to the country they live, and this could lead to merkel's fall n. japan, an earthquake has killed at least three sandeem injured more than 200. the quake struck in the country's industrial heartland and had a magnitude of up 6.1. factories stopped production. in colombia, the next president will be a pro-business lawyer who wants to modify part of a landmark peace process. he won 54% of the vote in a runoff. he's called for a cut in

corporate taxes, but that may be difficult in a time when colombia is struggling to hold on to its investment rating. central bank says that bitcoin may never be ready for primetime. the bank for international settlement says the currencies are too unstable and subject to too much manipulation and fraud to serve as bona fide medium of exchange. it called the decentralized nature a fundamental flaw rather than a key strength. and in the world cup, england played its first match, taking on tunisia. the other two games are sweden versus south korea, and belgium versus panama. you can find everythi you need about the world cup on the bloomberg terminal. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you. data check right now, that begins with the world cup. jason, get up here right now. this is an outrage, francine lacqua. our celebrity rankings here at

bloomberg down to the bottom here. tom keene, francine la. francine: i know, tom. united in failure. makes us closer, tom, as a unit. tom: this is an outrage. jon ferro.is we were equally lousy. what a fun weekend. i really had a lot of fun with it. jon told me about the highlights, where i can go to youtube and watch 90 seconds of football. francine: my husband watches it. tom: pass, pass, more passing, passing. francine: we try watch it in italian so they go goooooal! tom: let's say this with a data check. futures negative, dow futures negative. what's important is the further flattening, this is a huge

deal, 35.85, we show a chart on that here in a bit. out of the next screen, and the v.i.x. showing it. an argentinian peso can't get out of the way. madam lagarde has to be having a view on argentina this week. francine? francine: yeah, i wonder what her bracket is like. i'm looking at my data boorksd i'm doing a lot of geo politics, tom. euro sterling, a little bit weak for both because of the political turmoil, overall thoughts, a lot of markets are concerned about trade, political risks are stacking up in europe, and then oil paring some of the losses before a key opec meeting this week. dollar and treasury both gaining, and v.w., we understand from v.w., the audi chief executive has been taken

into german custody. he's been arrested, so we'll get plenty more on that hroughout the day. tom: this is an extraordinary chart. this is one of our themes for "surveillance" today. this is back 30 years. down here, the recession of an inverted yield curve. we're nowhere near that, but boy, are we getting there quickly, with 35 basis points, and this drop here, this is a chart, an abrupt flattening of the yield curve with a two-year yield moving up, while the 10-year does not. francine? francine: tom, i almost did oil, but the last minute i decided to switch it out for euro pound. brexit is certainly back at the forefront, perhaps it's a monday, and later the week on whether they support theresa may with this amendment and what's important is that the prime minister now is trying to woo skeptics with this difficult defend cash. if you speak to congress and

say, well, where is the brexit dividend? well 2023, the u.k. may have to pay into the e.u., so whether you have the tax hike, it's something we're debating right here on "bloomberg surveillance." back to the u.s. andna they're on the verge of a trade war with beijing quickly retaliating to president trump's announcement of tariffs on $50 billion worth of chinese imports. us now from the cne capital with more. first of all, what will the chinese do, and what do they try to achieve in all of this? reporter: they're going to impose tariffs from july 6 on $34 billion worth of u.s. goods. these are 25% duties, and they're largely, the first round of tariffs from china, focused on the agricultural, but also the auto sector as well. then they've got a second list of tariffs they could initiate after the july 6 date. that is $16 billion worth of goods, and that is more

squarely focused on the commodities, so things like coal and oil. just a bit of context, china bought about $400 million worth of u.s. coal last year, the third largest buyer of u.s. crude. now, there is a period of time between now and july 6 when this could be resolved, but from the people we've been speaking to, the odds of that seem pretty slim at this stage. tom: in the tit for tat game, how much room does china have to extend this out? if we go back and forth, do they have a lot of room, a lot of head room to do further tariffs? reporter: so at least on the surface they don't have as much room as the u.s., simply because they only import about $130 billion worth of u.s. goods every year, but the approximately $500 billion the u.s. bought from china. what they might do, and they've got a playbook they must dust off they used against the likes of association, is start to take actions on the investment.

so whether that's holding goods up or restricting from licensing or even raiding offices on tax charges, those kind of things, when you talk to the american cers of commerce, that is the key concern. and theny got things like boycotts of u.s. goods that are potentially on the docket as well, and even restrictions on e travels to the u.s. in terms of visa. that seems further down the line. it china is thinking that can stomach this tension more easily than the u.s. can. francine: thank you so much, tom mckenzie, our china correspondent. joining us now, the chief investment officer for international fixed income at j.p. morgan asset management, and the head of f.x. strategy at cibc. thank you so much for joining us. if you look at the trade, you can either take the view that desperate world growth, you say this is kind of tit for tat, $50 billion, forget about it, because it's redistributing trade instead of hurting trade

globally. nick: at the moment, it's the tit for tat. at the moment, the context of global growth aren't actually that massive, but i guess the risk is it escalates. you know, let's be honest, the numbers get bigger and big we are each month that we go through, but one way to look at it at the moment, when you look at the impact it's having on growth and inflation, actually very, very muted so far. francine: jeremy? jeremy: agree. of course we couldn't downplay the risk of an escalation, but in terms of the current context, it is very manageable. what we would say, we entered the year with global growth in we tty good position, would have synchronized growth, but that's he is can a late. there's a little bit of concern, but overall, i think we need to keep it in context. tom: there's a grind to a stronger dollar. what is the catalyst to have the dollar break out the new strength to really get above

where it's been over the last number of quarters? jeremy: it's true we have seen the dollar making good strides over the course of the last few weeks. you can argue the dollar was really oversold in terms of the end of the first quarter and the beginning of the second quarter. the question is, what's, as you say, what's going to take us higher. in a sense, you need to see further uncertainty in terms of the other global players, so i think markets will take a rather dimmer view of the prospects of interest rates being hiked in the eurozone. but i think ultimately you probably need to see confirmation that the u.s. growth trajectory is going to remain very elevated, and that risk of seeing further escalation or an acceleration in terms of the tightening from a ject are you, and i think we need to see it higher. that probably goes against that for the moment. tom: what is j.p. morgan doing in reframing for july? what are the tweaks that j.p. morgan is doing?

nick: so when you look at that broad market thrust, and with some of the dislocation w've seen, very much it's credit marks that still stand out to actually particular until europe, one of the worst performing markets we've seen so far. the european high yield now has the highest spread even in u.s. high yield. tom: nick gartside with us from j.p. morgan this morning, and jeremy stretch. lots more to talk about here. any number of themes as well, of course, bloomberg radio will do that as well. the e.c.b. forum this week, and a conversation this afternoon with lawrence summers, a former secretary of treasury. that will be timely, to say the least. please stay with us worldwide. this is bloomberg. ♪

sebastian: let's get to bloomberg business flash. in germany, there's been an arrest in the chief investigation. volkswagen says the.o. of its audi unit has been taken into custody. last week, rupert stadler was named a suspect in the case. in the u.k., consumer and business lender cybg has agreed to buy vir anyone money in an all-stock deal. that represents a 19% premium to virgin money's closing price on may 4 when an approach was first made. the combined company will have about $106 billion in assets. an australian miner has agreed to buy arizona mining for $1.3 billion. the deal will give them a lead in zinc in the u.s. it represents a 50% premium to arizona mining's close on

friday. that's the bloomberg business flash. tom, francine? francine: thank you so much. joining us is now bloomberg's energy and commodities executive, and still with us, jeremy stretch and nick gartside. opec members, we understand, are discussing an agreement that would see an increase between 300,000 to 600,000 barrels a day over the next few months. this is according to our great reporters on the ground and our bloomberg sources. if you look at the market reaction, it went up a touch, then down a touch. were we expecting more? >> no, i think that's about right. it is clearly a lower number than some of the opec agreement talked about, russia has been talking about maybe one, 1.5 million barrels. i think that's why you saw that spike. of course, we have the comments from iran over the weekend saying they're going veto anything that's put forward so. those two are playing off against each other, but there's caution that comes in, because ultimately iran can block this deal.

francine: again, run us through the three options right now saudi and russia have. do they get everyone else on board? do they say yes? what are they options? stuart: i think right now, they're still holding out for a compromise agreement, which would get unanimity. iran's comments would suggest that they will block it, and whatever the compromise is, but again, a couple of days before they get to that point, so again, there's a compromise. so they go back to the opec tradition of just cheating. or they can have their own group with an opec and same production targets. it can get really, really messy. tom: do we know what the til price of crude is? is that like a mystery? do they make it up? how do we do that? stuart: it depends, a, who you are, and b, their interests. when it come to the -- they have valuation, you're looking at $100,000 plus oil at least, and for some time f. you're

looking at the relationship with the u.s., they probably want something like 70 to 80, or maybe even lower, depending on the retail gas price is in the u.s. f. you're talking to the allies in the gulf, it's going to be a little bit higher. they need higher just to balance their budget. and so it depends what day you ask and who you ask. tom: does the world cup change this? does the image stop here one of these days in the opec meeting while everyone watches saudi arabia lose 10-0? stuart: i would hope not. i mean, i can't say. there's an awful lot of people. there's an awful lot of tv's. but i think when it comes down to the ministers, they realize they have a few days to at least keep the illusion within the group. remember, it's a group that's been very fractious over the years, but survived a lot of challenges. i was asked this earlier. i don't think this group collapses based on the problems they face today. they've had far worse than this. francine: jeremy decided he's not working if theirs a big match on, and he supports france. we're in good company.

on a serious note, if you look at the dollar moves, they would be more dictated by the price of oil than possibly anything else. jeremy: there's certainly an impact in that particular context. ink terms of the oil price speckp, we need to consider the inflation, and that's an important die natural and i can that comes back to the fed story in that particular context. i think that's where there's interest. to him nick do, i overweight snoil what do die? meeting 29, is a where stuart wallace will be with our team, but what do i do with oil equities? are you overweight? nick: no, we're neutral when you look at oil equities, and i think stuart said it. it's six to one and half a dozen the other, in terms of the trajectory for the oil price going forward.

tom: very good. nick gartside with us today. stuart wallace, thank you so much. seriously, folks, this can be a snooze. it's not going to be a snooze this time. we're going to come back to mr. stretch and mr. gartside. an important conversation, and well-timed, mary lovely of the peterson institute. this will be an important conversation, any number of themes to discuss here, immiation front and center. stay with us worldwide this monday. this is bloomberg. ♪

tom: good morning, everyone. we are having a good conversation to get the week going with nicholas gartside and jeremy stretch. and on with us is a discussion never seen the diverge answer e cross the atlantic as we've seen it. bring up a chart right now. real simple here. the inflation adjusted fed funds target rate, so this is the u.s. sector chart, and nick gartside, it is amazing to me how a rate increase in the united states, how much more room chairman powell has to move higher. what happens to the europe dynamic when chairman powell does two or three more rate increases? nick: in the interim, it gets wider, in terms of the gap between the u.s. and europe, but the reality also is that

the risk is europe hikes earlier rather than later now. when you look at headline inflation in europe, it's very close to the e.c.b.'s target. if you think of the trajectory of growth in europe, it fires to be stronger, not weaker. europe has a very poor first quarter. the risk is stronger. so when you look at price for the e.c.b., the risk is actually, there's no reason they can't move into june of next year. tom: you've got the flow to the u.s., maybe even higher rates. jeremy stretch, it comes down to the call, it's a substantially weaker euro, even back to a parity watch. what would it take to drive euro weaker? jere i'm certainly somewhat surprised to hear the word parity watch in any -- tom: exactly, it's not there, is it? engineer jeremy: it is not. i'm not one to argue we should

be not seeing parity. i think we are going to see the euro head being lower, and that isn't our core view. i would agree with nick, i think the risks are that the e.c.b. acted tighter earlier, but if the euro is to really cheapen up, i think it probably needs to see a continuation of political risks in the eurozone. that's, of course, one of the reasons why the euro really struggled in the early part of 2017 because of political risks. so i think those need to further move up the market's radar screen. and i think also, the expected rebound in activity after that weak first quarter also needs to fail to be seen, so we need to see data proving to be rather disappointing. we need to see political risks starting to come back in. and then we will see investors starting to give back some of hose still albeit smaller euro long, as evidenced in the market. francine: is this a divergence, euro versus fed play? jeremy: i'm not sure it is. i think the market is generally

relatively well priced for where the market going. i don't think you'll see a significant acceleration. i think in the context of the e.c.b., i think there is a risk that markets are underplaying the prospective tightening i no 19. now that we're starting to see the process into 2019, i think that needs to be kept in context. francine: all right, thank you both, nick gart and jeremy stretch. both staying with us. coming up this wednesday, president mario draghi speaks alongside the d.o.j. and r.b.a. all that have moderated by our bloomberg head of economics. watch it live on bloomberg tv radio and live go. ♪

francine: this is "bloomberg surveillance." tom and francine from london and new york. let's check in on what's trend ago cross the bloomberg universe. bitcoin could break the

internet, which says crypto currencies are too unstable and are subject to too much manipulation. on bloomberg.com, angela merkel's political career is at risk, as germany's migration crisis deepens. she faces a standoff with her interior minister with ripples being felt across europe and our most read stories over the past few hours n. third place, london house prices falling the most since the beginning of the year, as the property market continues to lag behind the rest of the country. in second place, iran says three opec members are ready to block the russian and saudi arabia proposal to increase oil production at this week's meeting. the most read, china and the u.s. move to the brink of trade war. find out more on that on the bloomberg terminal. now let's get to the bloomberg first news. here's sebastian. there's a discussion about an increase of up to 600,000 barrels of oil over the next few days.

iran doesn't want an increase. there's hope it may go for a modest boost. opec meets this week in vienna. in germany, there's been been an arrest in the diesel investigation. the last week, rupert stadler was named a suspect in the case. democrats have wrapped up their attacks on president trump's policy of separating immigrant children from parents who cross the mexican border illegally. several lawmakers traveled to texas to tour a former wal-mart that's been turned into a detention center for 1,500 boisms the trump administration calls the policy a deterrent to illegal immigration. and in golf, brooks koepka won the u.s. open for the second year in a row. koepka finished one shot ahead of tommy fleetwood of england at shinnecock hills in new rk no one had won two opens in a row in almost three decades. global news 24 hours hours a day and otwitter by more than 2700 journal sandizz analysts no more than 120 countries.

this is bloomberg. tom, francine? tom: just a quick note, buried by the world cup, an enjoyable u.s.pen. it snuck occupy me. there weren't a lot of big names. these are names within golf are well known. but i wanted to do a shot out to tommy fleetwood from england, who was there with his 2-year-old, baby in his arms, and he came in second or third place. it was really wonderful to see tommy fleetwood from england do so well at the american u.s. open. francine: yeah, it is. it's always nice when foreigners do well abroad. now, the brexit battle, tom, comes to a head in the u.k. parliament yet again today with clashes that could decide how much power legislators get to shape the final deal. some lawmakers within theresa may's own party are warning privately they could move to oust her. that's if parliament votes this week to give itself the ability to force her back to the negotiating table rather than allowing britain to lead the u.k. with no deal.

still with us here, head of f.x. strategy at cibc, nick gartside, and j.p. morgan asset management. nick, when you look at the brexit concern, every week we say, look, theresa may is under pressure, but actual it will seems impossible almost impossible for the conservatives, to ouster because who would want the job, and it's clean what they would win. what does that mean? nick: you're right. i think it's much ado about nothing. when you look at the history of british politics, i'm reminded of the major governments in the 1990's. the reality was a government with a tiny majority and no majority can survive. it's likely that theresa may follows that. so when you think in terms of currencies, actually sterling is doing ok relative to the euro. relative to the euro, sterling is a little stronger. euro dollar is a bit different. but clearly the dominant force is the euro move as opposed to

the sterling move. jeremy: i think it's interesting that obviously theresa may is under intense political pressure and has been ever since she failed to win the majority in the election last year in particular. she's doing a very difficult task, and trees trying to play indicate two wars sides of her own party. whether she can hold that together through this week is debatable i think. but having said that, is that going to precip at a time the end of the government? i don't think it does, for the exact same reason, who would want to trigger a leadership election at this particular point? one suspects the government will continue to limp on, political auority continues to drain away, and i think that for me does cause some consternation about the valuation of sterling, because if you add that political uncertainty to the risks of the bank of england being forced to hold rates at current levels through the end of the year, that suggests that sterling should be cheaper. francine: do you look at cable or euro pound? jeremy: in the context of cable, you need to think about

the rate differentials, which are going to be moving further in favor of the u.s. over the u.k. so i think that does see cable going back to the 131 area. in terms of euro sterling, i think that does trade higher, and i would be much happier if we were trading tom: i love your comments on john major, a different time and place. if that's your constituted any history, how does prime minister may ex-at this indicate herself from the political warfare of the conservative party? nick: it's ultimately about just kicking that can down the road, and i've lost track of the number of weeks where it's a vote, where it's the final negotiation. the reality is it isn't any of that. so that's likely to be kicked further down the road, and these negotiations aren't over till they're over. so you're into 2019 for that and then probably a whole transition arrangement. and at the moment, it's being

pushed very much towards a softer brexit. you could argue that's sterling positive, not negative. tom: who says 2019 is rigid? i mean, can't decide what to do with that and the other thing. why are they going to decide in six months, eight months, 12 jeremy: i think that's exactly right. if you think of a transition period of a minimum of a couple of years, you can extend that, if not longer. tom: jeremy stretch, give us the sterling call here. nick is telling us we're going to go up and down depending on the politics. what is the sterling call at cibc? nick: i think that's true. i think we are going to go with the politics, but also, that underlines the influence those political risks have on the bank of england. i think the market, which is priced on a 50-50 basis in terms of an august rate hike, i think that probability is far too high, and if you look at the underlying dynamics, you can argue if there's a soft brexit, that might be sterling

positive. there is this debate of business investment in the current environment, concerns about consumer spending, ness in the housing market. i think the market is overplaying the probability of a rate hike from the bank of england. that i think needs to be taken lower, and i think accordingly, that will see sterling trading a little cheaper, and i think in terms of the positioning, i think the market is probably a little bit too long sterling in current valuations. francine: what would move if it's on valuations not where it should be? jeremy: i think of the context of valuations or looking at the dynamics. then i think euro sterling should be at least a couple of figures higher, and sterling really does look a little bit overvalued on the basis of the fundamental as well as the political risks. tom: continue on here, kevin sir ellie on immigration, huge uproar that we saw, not only in germany, but the united states. we'll continue with mr. gartside and stretch here. good conversation on the

markets. your morning briefing, you need tv day, you need it on a monday even worse. bob and karen, hard to believe, but their world cup sbract actually better than mine. hard to believe. coast to coast, bloomberg daybreak, bloomberg radio. worldwide, this is bloomberg. ♪

francine: this is "bloomberg surveillance." tom and francine from london and new york. germany's crisis over its migration policy is entering a critical phase. german chancellor angela merkel is meeting with senior members of the christian union.

at issue is an ultimatum to toughen migrant policy. for more on that, let's speak with bloomberg's german government reporter from berlin. as always, thank you for joining us. how will this end? an angela merkel survive this? >> well, i think she will stick to her position definitely. she won't be able to move into the direction a lot. it will depend really on her interior minister, what he's doing next. francine: ok, but can merkel sack him, or will they have to find a compromise? arne: yes, i think if he carries through his plan, she will have to sack him. and it actually could happen today. he result of her sacking him would be that the corporation between the christian democrats and the about a varian party

would probably end, and at that moment she would lose her majority in parliament. tom: it's get ago loft play in the u.s. twitter feed this morning. what is the german press saying about this? what is the distinction when you read the german media over this debate? arne: well, i think everybody agrees it's certainly mark ill's most serious crisis in her 13-year-long term. and i think many would say even if she survives it, she will be really badly damaged. francine: all right, arne, thank you so much, our german government reporter. engineer scommee nick are still with us. jeremy, if you look at the implications of closed borders from germany, the political upheaval that we find, which is also immigration, what does it mean for e.c.b. policy? do they need to at least look at it on the margins?

jeremy: i think they look at it on the margins, but the e.c.b.'s policy relates to primarily inflation, and that's their benchmark. as i mentioned earlier, i think the inflation forecasts they produce last week is inconsistent with language, but in a sense, that underlines some of the difficulty of the governing council has in terms of reconciling the hawks and doves, and clearly the doves may well be arguing that there are other externalities which are causing uncertainties, which needs to be for the e.c.b. policy decision. nick: i separate the politics here from the economics. so the politics is clearly moving across europe, not just germany in a certain direction. but when you look at the economics, the impact of that is actually pretty limited. and when you look at those economics, the risk actually is probably slightly stronger growth and slightly stronger inflation. to him nick, when we look at the dynamic on inflation, it seems to be so critical right

now, we can follow that into real wages, the distinction as well..k. real wages and is the inflation staying contained? does inflation stay contained through this year? nick: no, it probably rises actually to the upside. one of the shifts we've seen this year, it's tentative, but wage inflation is starting to return. you see that very much in the united states. critically, you start to see that a little bit in the eurozone. as unemplot rates have gone down, we're starting to see the very early stages of wage growth you see it in most spectacular fashion when you look at germany and some of the wage increases that german trade unions have negotiated. tom: this is really, really important, these dynamics. jeremy, to me i'm flabbergasted by the headline last week that mario draghi will elect to give us monetary policy after the summer of 2019. i mean, it's extraordinary,

original headline. how did you change your call off of that one single headline? jeremy: i think it is very interesting. i think there's a degree of underlying inconsistency. what will they produce in terms of forecasts, but clearly the context of that e.c.b. rhetoric , we have been forced to reconsider euro-dollar profile, just to take a little bit of that euro out of the equation, because we were anticipating the eurozone and the e.c.b. will be driving up rates a little earlier than we are currently assuming, but still the risks the e.c.b. will be forced to act before the summer of next year, so certainly before the end of the august period. but i ink it has been a case that it is causing some consternation, want just for us, but also the people on the street in terms of the language the e.c.b. put in place, and we need to see how it can be potentially put back, and it will be interesting in that regard. tom: tie that together. it's exactly where i wanted to

do. nick gartside, tie together here the central bank dialogue, the inflation dialogue, where you're saying higher inflion as well, to poor people sitting on a podium debating where we're going. what are you gngo look for? last time around, it made global headlines. nick: so the reality is the e.c.b., like any central bank, it wants optionality, and it's now created that. because the market expectation isn't moving in let's say the full of 2019. what they can do is really give us a check list. and what should be on that check list, the trajectory of economic growth is a slowdown we've seen a correction or reversal. we think a correction, and you look at inflation. tom: you nailed it. i totally agree about the desire for optionality. did mario draghi limit his degrees of freedom by extending out his interest rate path to late summer 2019? nick: no, he increased it.

tom: how? nick: because he can bring that forward. if it's no, we'll move rates in june of next year, six months after q.e., it's a very, very rigid time frame. now he's got the optionality, and it's very dependent. the e.c.b. can very much argue we're going earlier because data has surprised to the upside, not the downside. francine: jeremy, is it dangerous we're also waiting so interest rates can be hiked in europe, you know, summer 2019, when we also have a replacement for mario dragh jeremy: that just adds to the complications as we see people joinings for position after mr. draghi. but i don't think it complicates the decision making process. ultimate it will comes down to that e.c.b. governing council, and how they put together their various viewpoints and opinions over the period. i think the context of what we were talking about, about a check list of variables, and in a sense, when we talk about central bank policy being data

dependent, we've become so conditioned in terms of being hand held in terms of the directionality of policy. but i think the changing of the guard of the e.c.b. i don't think will influence the rate decision unduly. frape thank you, both, zphick jeremy. coming up tomorrow on bloomberg tv and radio, we speak with lloyd blankfein. that's tomorrow, 3:00 p.m. in new york. that's 5:00 p.m. in london. this is bloomberg. ♪

francine: this is "bloomberg surveillance." tom and francine from london and new york. tom, let's get straight to the bloomberg business flash here london. shares are surging today, lufthansa is in discount talks. that raises the possibility of a bidding war. the parent of british airways,

i.a.g., has taken a stake in norwegian and is interested in a full offer. cerberus capital is in na deal. bloomberg has learned the company could be valued at about $1.4 billion. worldwide flight services owned by another firm. and it was a record-breaking weekend for disney. "incredibles 2" had the best ever opening for an animated film. that takes away some of the sting from disney's last "star wars" movie, which has underperformed. and that's the bloomberg business flash. francine, tom? tom: thank you so much. ed robinson with us right now. bitcoin, i want to bring up a chart, and, of course, a world traveler like you knows about the platt river in nebraska. the platt river is literally working off of indian and french, and that's what bitcoin looks like from 20,000 down to 6,000. it's just meandering along.

it's not the best technical art i've seen, but over in the lower right corner is the further dropoff. ed, it's just a meandering. where are we meandering to? where is the misery going work out? ed: well, leading experts in the cryptocurrency space and investors i've been talking to are talking about bitcoin entering another period of nuclear winter. by that, they don't mean a meltdown, but rather, just a ry flat, long period of no dynamism inside the price. this happened back in the 2015 time frame. you look at that, and bitcoin was flat for quite a long time. and so it could be that, you know, if these experts are right, that's where the market is headed for a few quarters to come. tom: i want to show this here. this is what changed the dialogue this weekend. ed robinson, you can't see it on tv or radio, i get it. but all you got to know is this

is what the bank of international settlements does. wonky out wicked, papers, and in this case, it's one seft withering attacks on bitcoin. ed robinson, what is your takeway wonky from the b.i.s.? ed: i found the b.i.s. report to actually be as wonky as it was, there was real passion in it. i mean, whoever the researcher is who wrote this report felt very strongly about their findings. their findings were one of the most withering indictments i've seen of the entire cryptocurrency proposition. i mean, they cited environmental issues. they cited the speed of processing issues. they cited store value. they cited it doesn't work as a currency. i mean, they went down the list, and really unpacked a lot of criticism on bitcoin, and even on block chain, which is often kind of broken out as the positive thing that's going to come o of this. francine: ed, what will it become, bitcoin?

we talk about the technology, and we've always talked about it, but does it morph into something, or by every day that goes by, it just seems less likely? ed: i think the technology lives on as software. it lives on as powerful databaseare. that seems to have kind of crossed an important inflexion point. i think it also, it looks like it does become an asset class, but the question becomes how big? does it become an asset class on the order of stocks, bonds, f.x., which is the great dream of bitcoin enthusiasts, or does it become really more an esoteric, much smaller, fringy asset class? francine: ok, which one do you think it will somebody do you find that in six months? is it going to take longer? ed: there's two things to watch for. number one, is there any kind of comprehensive approach from regulators? do they actually come out and say this is what we categorize crypto to be, and this is how it should be regulated? secondly, watch the e.t.f. space. if an e.t.f. comes out on crypto, that would be an

inflexion point. tom: ed robinson, thank you so much. i hardly look at the bank of international settlement study. i'll wander through that this week and maybe come up with some wisdom. but i really like what ed robinson said there, particularly abo the environmental standpoint, about the number, the energy, almost the they remember dynamics of bitcoin production seems to be, as we've said all along, something of a fiction. bitcoin, 6,400 n. our next hour, an important conversation inflation and tariffs. kevin cirilli with us as well. ♪

tom: this morning, there's further curve flattening. the dollar stronger after a 4% make america great again

economy, is a recession possible? for chancellor merkel, for president trump, there's no other issue, it is immigration. give me your tired, your poor, separate the children from repuicans, they descend into d mexico, well, they stunned germany. this afternoon, england will ry to slip by tunisia. we're tied for last place in the office pool. good morning, everyone. "bloomberg surveillance." live from our world headquarters in new york, i am tom keene. with me, francine lacqua. you should note, jon ferro just emailed me. he has a doctor's appointment at 1:45 this afternoon. francine: mark barton, the only one beating jon ferro in his bracket, and tom, look, we'll get it back. i think we both have france winning. as long as france wins, we're in the money. we also need to look at opec,

tom. tom: we'll look at opec as well. want to say that ferro, 1:45, england-tunisia somehow related to his doctor's appointment as well. the world will stop. even opec will stop for england-tunisia, 2:00 p. this afternoon. sebastian will look at that. here is our first word news. reporter: tom, francine, thank you. in germany, there's been a high-profile arrest in the diesel emissions cheating investigation. volkswagen says the c.e.o. of its audi unit, rupert stadler, was taken into custody. he was arrested over concern he might tamper with evidence. in germany, the political future of angela merkel is on the line. er coalition is at odds over migration policy. the party is one of three in merkel's coalition, and merkel does have the backing of senior members of her own christian democratic union. in japan, an earthquake has

killed at least three people and injured more than 200. the quake struck in the country's industrial heartland and had a magnitude of 6.1. trains and subways halted, and many factories stopped production. in colombia, the next president will be a pro-business lawyer who wants to modify part of a landmark peace process with martinvillee. he won 54% of the vote in a runoff. he called for a cut in corporate taxes, but that may be difficult at a time when colombia is struggling to hold on to its investment grade credit rating. global news 24 hours a day on air and twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thanks so much. let's do it right now. not much movement in oil off of opec. futures negative. dow futures negative. curve flattening, actually flatter an hour ago. we'll talk about that. there's west texas, down

fractionally. the v.i.x., 12. off to a 13 level. dollar strength, up near 95 on d.x.y. and i put in argentiniano, which can'get out of its way. francine: this is what i'm looking at. overall, there's a little bit of bit to the market. opec set to debate a hike. that's having an impact on where the price of oil is, and then euro-dollar, 115.97. i'm looking at pound. there's a little bit more to do, of course, with brexit and the vote today, and then on to the commons on wednesday. tom: we've been looking in the previous hour, angela merkel and the challenges of immigration and migration within germany. in america, it is a different debate. here is the first lady, laura bush, writing in "the washington post." our government should not in the business of warehousing children in converted box stores, reminiscent of the

japanese american internment camps of world war ii. and then mrs. bush, i moved away from washington almost a decading about, the i know there are good people at all levels of government who can do better. there's the key phrase, "who can do better," echos president obama. seven cirilli joins us now, our chief washington correspondent. this is lose, lose, lose for everybody. let us start with congress. what do mcconnell and ryan do to extricate themselves from this disaster? kevin: they have to somehow address some legislative package this week, but quite frankly, they've had years to get this done, both republicans and democrats. the tension between the centrist republican party, as well as the ultrarepublicans, it was on full display. when i was in singapore, i interviewed from singapore. they had yet to come to an agreement. that agreement could come at the first half of this week, but i don't see right now how they're ever going to get to

some cohesiveness on this. and this is -- this has sparked -- we just heard from the former first lady this. has sparked national outrage, as it rightly should. tom: trade, we knew the polarities of 1600 pennsylvania avenue. who is pro immigration? who is ante, as the first lady says, dividing them at the boreder? who's the pro-immigration voice in the white house? kevin: well, i think right now in terms of the centrist, more moderate voice in the white house, in terms of immigration policy, i'm not sure there's a face of it. steven miller, the protege of steve bannon, is someone who has advocated for a long time to have much more, you know, ultraconservative advocacy on the issue of immigration. he was a former senior immigration aide to then-senator jeff sessions before jeff sessions joined the administration. so it's the same old, same old. but again, moving forward, this is something that president

trump campaigned on. and he said last week in that marathon press conference from the white house north lawn he does not like seeing these families ripped apart, and he teement blame democrats, but this is a republican-controlled congress and a republican-controlled administration. they have to get something done. politically speaking, quickly, evangelicals aren't behind this. evangelicals aren't behind ripping families apart. tom: within this is the to-do list for this week. you're the pro in washington. what are you going to be looking at? what's the date calendar on children and parents separated monday, tuesday, wednesday, thursday, friday this week? kevin: they haveo get this done. they have to pass some type of legislation that would get this done. this is a retiring speaker of the house who knows that this is a legacy-building issue. on the flip side, this is also a power vacuum in terms of who will replace speaker paul ryan. this is a test in that regard. beyond the politics, this is so beyond politics, and this is just about basic human deccy,

of separating kids from their parents. francine: does it have an impact on the midterm? kevin: it absolutely does, and that's a great question. just over the weekend, you had a centrist democrat from north dakota introducing legislation that would address the immigration issue. clearly she's trying to position herself as someone of a more moderate who's trying to get things done. later today at the white house, a frep west virginia will meet with president trump. look, you know, this has severe implications in terms of how centrist, sandreps democrats, campaign ahead of the midterms. because again, in states like michigan, wisconsin, and pennsylvania, the swing voter are looking at this and all polls suggest they don't like the policy of separating kids from their families. francine: all right, kevin,

what can you tell us on trade? kevin: trade, there's a new economic report out that suggests there would be a .2% reduction in g.d.p. for china, as well as the united states, should this come through with regards to back and forth on trade policy. the president positive posing $50 billion in new tariffs. that has implications on agricultural states, but also oil, also gulf of mexico oil that could impact texas. senator ted cruz is up for re-election. he isn't going to like that at all. tom: let's go back to the first lady, as we spoke of mrs. bush in her op-ed in "the washington post." mrs. trump has also spoken out, i believe on cnn as well. can she be an important voice in this debate in the coming 48 hours? kevin: yes, absolutely, because right now if you look at all polls, it would suggest that the first lady, melania trump, is without question the most popular person right now within president trump's administration, whether you agree with him or disagree with him. tom: very good.

kevin cirilli, thank you. with us right now is neil dutta, a renaissance macro, known for writing lengthy reports, and then also piercing two and through-sentence misive that is go out, boom, and they hit your inbox, and you're forced to read them. they're brilliant. you nailed tariff inflation last week. you said appliances up, chinese washing machines are going to cost us a lot of inflation growth. will there be other emails like that from neil dutta? is the tariff inflation going to follow rn? neil: it looks that way. i mean, certainly it doesn't happen immediately. i mean, it was a couple of months after the tariffs on washing machines were announced that you actually began to see more meaningful up tick in washing machines. but it's also important to keep in mind, tom, that, you know, we're talking about things in what we call core commodities, consumer price inflation, which, you know, represents

less than a third, i believe, of overall c.p.i. inflation. so, you know, in washing machines, even smaller, still, you're talking about less than, you know -- tom: yeah, but my next question, do they coalesce into a meaningful inflation? granted, whiskey inflation is going to be a really serious issue, but the answer is they sum up, don't they? neil: they do sum up, but i would say at the margin you're talking about at most a couple of tenths to core consumer prices. for me, ultimately inflation comes down to a household budget constraint, right? if wages are advancing, and, you know, the prices for some goods are rising more quickly than wages, wages will cut back on those goods, and, you know, we have money to spend elsewhere. so to me it's all about relative shifting. francine: all right, but neil, on the global basis, does trade get hurt or does trade get redistributed?

neil: so i mean, i think this is sort of the nasty little secret. i mean, i would characterize -- i mean, this trade policy that you're seeing is port of, you know, smart but dumb. i mean, in the sense that obviously the benefits of trade are wide spread, but, you know, the costs are very localized, and obviously with protectionism, it's the opposite, right? the benefits are localized and the costs are widespread. you know, i think the nasty little secret is that trading heasularit has been declining for years. it used to be that in the 1990's and 2000's, trade would grow about twice as quickly as industrial production globally. nothe relationship is one for one, so you've had what we call trading elasticity declining, so companies are moving back to their home markets. you've had more normalization of wages levels across developed and emerging markets. you know, that's one resulted of that has been less trade. so i think, you know, and

that's why you see him. kevin mentioned how it was .2 to g.d.p. you know, all this sort of trade stuff that we're seeing, .2 of g.d.p. ok. i mean, is that going to keep the u.s. unemployment situation from changing in the aggregate? probably not. tom: we'll look at the interest rate diversion across the atlantic. i want to point out, mike allen just published an axios a scathing statement on the immigration story. coming up later, maybe the theme will come up with lawrence summers, former president of harvard university, former treasury secretary as well. larry summers, at 4:00 p.m. hour today. stay with us worldwide. this is bloomberg. ♪

reporter: let's get the bloomberg business flash. in the u.k., consumer and business lenders cybg has agreed to buy vir minimum money for $2.3 billion in an all stock deal. that represents 19% premium to virgin money's closing price on may 4 when an approach was first made. the combined company will have about $106 billion in assets. shares of norwegian air are surging today. the c.e.o. says his airline is in takeover talks with the discount carrier. that raises the possibility of a bidding war. the parents of british airways has taken a stake in norwegian. and australian miner has agreed to buy arizona mining for $1.3 billion. the deal will give a lead in projects in the u.s. the deal represents a 50% premium to arizona mining's closing on friday. and that's a bloomberg business flash. tom, francine?

francine: thank you so much. opec members are set to be discussing a compromise agreement. sources have told bloomberg it would see an oil production increase of between 300,000 and 600,000 barrels a day over the next few months. for more, bloomberg's team leader for european oil joins us. james, good morning. great to have you on the program. when you think about the market reaction, when this nice lile bloomberg scoop came out, was the market expecting more of an increase? james: that's what the price reaction sufplgs the russians have been talking about a million and a half increase potentially, shared between the members. i think an increase of that size in the face of opposition, it was always going to be difficult. the compromise clearly they're moving towards a smaller, traders are clely anticipating a bit more coming back to the market. francine: how difficult is this going to be? are they going to try to get everyone on board so they do

what we want? james: it seems they're moving in that way. they're making an effort to get the other mobes board, despite the saudi minister saying last week it's inevitable they will deliver the extra oil that president trump has been asking for. but opec always prefers, no matter how tough their internal fightsre, to do everytng by consen not to break the unity. but it seems them really well in times of lower prices to have unity to come together. they don't to want damage that. tom: we've made note of my lousy world cup bracket. part of iran doing better than well in the world cup. coming on fr iran, from iraq, and frankly, from vebs wail? how do they fold into this vienna meeting? james: the problem opec has to deal with now, for years it's been dealing with the shale, the biggest problem. venezuela's oil industry is just collapsing, as there's bad

news there. as we know, iran has been hit again with renew american sanctions. it's not clear how much of that is in the market, but it could be a substantial amount. tom: that's the uncertainty that's out there. do you have any confidence in the vector or the certainty of what oil does off of these meetings? james: i wish i did. it's all going to depend on the comments from ministers. most are arriving tomorrow. we should have -- iraq will be a key member. iranians have been speaking to them so far, saying they're opposed to any increase. it's possible they may be the weak link in the group of three countries that are opposing, so i would take a close look at what iraq is saying, a close look at comments from the iranian minister himself. so far it's been lower level officials voicing the opposition. tom: what about demand? james: demand growth is very strong. and it's supposed to -- the latest forecast is for solid

growth next year, too. the big risk to demand growth is obviously the possibility of a trade war, and that's also the fact that opec'sns. the dang is that if it promises huge increase, and this trad wesque la, they could end up overflying the market, crashing prices. francine: would russia ever be part of opec? james: some members would like that in opec. they're half in, half out. i think they perhaps have more leverage than the threat of breaking up and leaving was great if her you're not bound inside. francine: james, that's the kind of exactly game theory we're trying to figure out. james herron, our team leader for oil. tom, coming up, we have plenty more. we look at markets, also on "bloomberg surveillance" radio, a conversation with the former secretary of commerce. that's at 8:00 a.m. in new york. that's 1:00 p.m. in london. and this is bloomberg. ♪

tom: welcome on a monday. francine lacqua and tom keene, we're enjoying our last-place world cup bracket position this morning. with us, neil dutta. we'll check out for england at 2:00 p.m. as well. here's the chart right now. we've shown this too many times. the real fed funds target rate, this is a huge deal of what it is and is not doing. here the dots are in here sort of. and what's interesting here is to get out to here. do you just presume in 2020,

2021, if we get back to some form of normative, positive, is that just an assumption? neil: i think the fed is telling us we'll probably get there. tom: that's one thing. telling us is different than, like, thinking about what the economy is really going to do, and are we going to get there. neil: to me, all sftsdz just about productivity. if wuctprivet, to me, if productivity picks up over the next several years, then, you know, that will resolve a lot of questions i think that are facing the capital markets today. you know, why is the yield curve so flat? why are wages not as strong? you know, what's the level of terminal rates? what is our star? if productivity picks up faster than what we've seen, those questions get answered. tom: then the chairman of president trump's council of economic advisors, does make america great again spur g.d.p. growth? does that begin to feed into productivity? can economic output actually

bring up productivity? neil: well, i think so. i think that there's some potential for this notion that if we're at unemployment long enough, over time that forces companies to find different ways of seeking out efficiencies with their existing workforce. but, you know, little known fact, tom, nonfarm business productivity has been growing now for eight consecutive quarters. and, you know, over that time, it's been growing slightly around 1.5%. it looks like the second quarter we're going to see pretty solid productivity growth. because g.d.p. is tracking 4%, and total hours worked over the quarter up about two. if you're growing 1.5% to 2% for productivity on a sustained basis, then the yield curve is not only too flat, but estimates of neutral interest rates and longer run terminal rates are too low. francine: neil, what happens to dollar? neil: i mean, i think what's driving the dollar right now,y had some slippage of momentum

in europe. and that was a big reason why the dollar was so soft last year. but also, i mean, the u.s. economic data, i mean, if you look at your own bloomberg economic surprise index, that's basically been positive all year. so you have the prospect for more upward risions to u.s. g. growth,nd potentially some flattening out of the euphoria in the rest of the world, and that's going to put the dollar higher, which is what we've seen. tom: neil did you tta with us here with good conversation there on that mixture of inflation and dollar dynamic. coming up tomorrow on bloomberg, lloyd blankfein. ♪

francine: tom and francine from london and new york. this is "bloomberg surveillance." tom, we'll get to the world cup, we'll get to markets, and, of course, politics in a second. but first, let's get straight to the first word news here in

london. here's sebastian. reporter: there's talk of a compromise in a battle over bloombg learned they'rction. discussing an increase up to 600,000 barrels a day over the next few days. iran doesn't want any increase at all, but there's hope that it may go for a modest boost. opec meets this week in vienna. british prime minister theresa may faces a battle over brexit in parliament today. some warn they could move to oust her. the issue is whether parliament will give itself the ability t force may back to the negotiating table rather than allow the u.k. to leave the e.u. with no deal. democrats have ramped up their attacks on president trump's policy of separating immigrant children from parents who cross the mexican border illegally. several lawmakers traveled to texas to tour a former wal-mart that was turned into a detention center for 1,500 boys. the trump administration called it a deterrent to illegal immigration. and in golf, brooks koepka won the u.s. open for the second year in a row. koepka finished one shot ahead

of tommy fleetwood of england at shinnecock hills golf club in new york. no one had won two opens in a row in almost three decades. england played its first match today in the world cup taking on tunisia. the other two games are sweden versus south korea and belgium agt panama. you can find everything you need on the bloomberg terminal. global news 24 hours a day, air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. tom: seb, thanks so much. it is on tariffs, it is on industries, whics it's a tat. ation, a tit for what was happening a few weeks ago? of course, what will happen in the summer and autumn? mary lovely is from the peterson institute also syracuse university, and joins us today. professor, wonderful to have you with us. what is the next tit foretat you are looking at? mary: well, we're certainly

looking at the current chinese retaliation, which, of course, those tariff lines have been announced. we're able to start to look at what the chinese will hit. and then, of course, president trump has already mentioned that he will retaliate to the retaliation. so we're looking to see when that comes and if it comes, and perhaps the beginning of a trade war between the two largest economies in the world. tom: part of your academics is cities and regional planning, the impact upon our cities. how will these tariffs affect -- i get the idea they're going to target a senator. they're going to target a congressman. will they target cities? mary: no, i think the largest will be felt in agricultural areas, more rural districts. of course, there will be some cities that are hit because there's some share of autos, and also cities are important links to rural areas. so if we have pork producers who are hit, it's going to affect everybody who's in that

supply chain. francine: mary, what will be the other side? what will china try to achieve with their counter tariffs? mary: well, the u.s. tariffs will mainly on multinational trade between the two countries. so our tariffs, u.s. tariffs, hit supply chain, multinational supply chains. with its list, china is signaling very strongly it is not going to hit multinational supply chains, that it's still open for business, that it's still going to be a great place to put part of your supply chain. so i think they're really signaling to the rest of the world, as well as trying to extract some pain here in the u.s. for what they view as unfair targeting. francine: do you think this is a redistribution of trade, or does it actually hit global trade? mary: well, it hits global trade for sure, but there will

be a redistribution of trade as individual multinationals adjust their supply chain to the tariffs, which eventually are imposed. we're still at the early failses. we don't know what the end level of tariffs will be. the u.s. tariffs are 25%. that's a very high tax. and it will lead to readjustment in the supply chain. just looking at the chinese tariffs, if the chinese are, for example, going to tax our so i beenes or pork, you can see that they will begin to purchase those from alternative countries. tom: part of this is a study of the history 6 it. i would think of professor irwin from dartmouth who has looked at the changes over decades. how is this tariff war, how is this tit for tat different than what we've seen in previous battles? mary: of course, most of the previous battles were held before we had the world trade

organization. so, really, since the end of world war ii, this is the largest dustup that we've seen. another important difference is that most of the conflict has been between countrieshi are allies or military dependents of the united states. so we can look, for example, to the 1980's and our conflicts with japan over automobile imports. it's very different when we're looking at a country which really is dependent on us in some way, either economically, military or both. tom: neil dutta with us. this is what katherine talked about, the interesting linkage between china and us is almost dysfunction, this co-dependency with china. how do you see that? neil: i think clearly this is going to result in some short-term reverberations through the markets, and, you know, readjustment of supply

chain. you know, that being said, i think it's also important to keep in mind, the u.s. in its own right is a very large free trade zone, right? so, you know, you have free movement of goods of people within the country, and we produce cars in the south, and we make steel in the midwest, and, you know, i think look, my own view is that trade elasticity has been declining now for years, and this is the point that we've been keeping. if you look at most of the estimates to what this is going to do to g.d.p. growth in the u.s., you could manager -- you could make the argument it's due to the stimulus we put in place starting late last year. tom: i want to go to one of the things you are truly an expert in, and thais the intellectual transfer between the united states and china. there's a big deal with this in the new book "the third revolution." you're the expert on solar academic dynamics. are we doing a brain drain back to china? is the bottom line is we're taking our intellectual capacity and it's going back

over to china? how do you respond to that when you hear it from people concerned? mary: well, there certainly is going to be some leakage or drainage back to china. that's just the reality. i mean, we know even from the military realm that we cannot lock our borders to the leakage what we have to do is be smart about how we protect it and understand that some of it is going to move. i don't think the current moves are very smart. for example, we would do well to keep the smartest minds here in the united states. we would do better to protect our assets here at home. i think we also see that many corporations have transferred technology voluntarily. we need to ask why is that happening? how can we benefit from it? instead i think we've taken this view that we're a large economy, we can probably afford to be isolated. i don't agree with that. we're about 20% of the global

economy. there's that means 80% outside. that world will move on. they'll move on as we saw with the trance pacific partnership. they'll move on without us am we need to be there. we need to be using our intellectual property to its maximum benefit. so, for example, if you have an invention, if the government somehow makes it hard for you to share that globally through a very large market, it's a sense a taking of your property. so i think we need to be very careful how we proceed from here on. francine: all right, but mary lovely, how does the trump administration look at this? do they recalibrate what they're trying to do after the midterm election, or is it just a policy they want to pursue? mayor ji, i'm not sure how they're looking at it, except to say that when we looked at the changes in the tariff lines that they're hitting between the initial announcement of tariffs on china and the announcement on friday of the so-called finalist, we see that

they really doubled down on taxing supply chain trade. so i think they have the view they can bring those jobs back. i think that's a very important thing for this administration. and yet i think that in the sense, unrealistic, that there are much more productive ways to increase productivity in the u.s. we have to guard our intellectual property. that's really a different issue. i don't see these tariffs as that at all. our approach to tom: this has been valuable. mary lovely, thank you so much, she's with the peterson institute. neil dutta of renaissance macro with us. and we'll come back with an important chart as well. your morning brief on bloomberg radio coast to coast. bob moon, karen with a good monday brief. that on bloomberg radio. please stay with us worldwide. this is bloomberg. ♪

reporter: let's get to the bloomberg business flash. cerberus capital is close to a deal to buy air cargo handler worldwide flight services. bloomberg has learned the company could be valued at about $1.4 billion. worldwidflight services owned by another company. shareholders at thyssenkrupp are skeptical to combine european steel operations. bloomberg has learned they've discussed voting against the proposal at a board meeting as early as next week. they want management to improve the deal after a slump in profits made it less attractive. and it was a record-breaking weekend for disney at the box office. "the incredibles 2" had the best ever opening for an animated film, taking in $180

million. that takes away some of the sting from disney's latest "star wars" movie, which has underperformed. and that's the bloomberg usiness flash. francine: there's an ultimatum set by the interior minister to toughen migrant policy. he has called for a state of about a var i can't to pittly collect border checks. that's according to b.p.a. for more on that, let's speak to the germany bureau chief. chad, what are the options that angela merkel has? does she sack him or find a compromise? chad: hi, francine. we're waiting for dueling press conferences from scommer chancellor merkel in just over an hour's time. it will be interesting to see what the chancellor does. we don't actually know at this point exactly what he's going to propose, although german media suggests he is going to

try to thread the needle here. and on the one hand, nouns tougher policies, but also to say that he will give chance her merkel some time to try and find a european-wide solution, which is what the chancellor has said that she wants to do. she could, in fact, sack him today, although that would certainly set up a crisis within the coalition government that includes merkel's party, and then the social democrats. so it could be that she decides to wait and do some talking with her european partners. she's meeting with the italian prime minister this evening here in berlin and with mr. macron, the french president, tomorrow here in berlin. the options are open for her, and we're waiting to see what happens in these dueling press conferences in just over an hour's time. francine: what exactly is at stake here? you mentioned the italian prime minister. italy wants to close the borders so they don't get the migrants, but wants an open bored sorry the migrant go through the rest of europe.

is it europe that's at stake, or is it angela merkel's political career at stake? chad: well, i think it's a bit of both, francine. chancellor merkel has said it ishe unity of the european union that's at stake, but, of course, it is her future at stake as well, if the christian union pull out of her coalition. they no longer have a majority. she could, of course, try to carry on with the minority government. that hasn't been done in germany, and zpwiths the chancellor has previously said she wouldn't want to do if given the option. tom: we focus on about a var i can't, which i'm -- we focus on bavaria, which is south of germany. what does the rest of germany want? what do they want in eastern germany, the baltic? is it unified or are there nuances? chad: you're exactly right. there are nuances there, and it has to do with germany, bavaria, excuse me, their

geographic location. most of the entry points into germany from the south, where most of these my rants are into, are through bavaria. the stream that has come into germany has come primarily through this state. of course, immigrants have been sort of dispersed throughout germany, but it's really bavaria that has felt the brunt, and that is why they have been the ones to be most vocal here. and they're facing an he flexion bavaria, we shouldn't forget as well, in october, and they're very concerned about the populist party gaining even re support in that state election. tom: germany doesn't want them. now italy doesn't want them. so i guess they're going to end up 200 miles south of barcelona in spine and valencia. is that the right path that i'm seeing? chad: well, that seems to be the direction that it's going in, although, you know, at some point, spain, you would argue that they're going to also

close their bored if her this continues, and that is what the chancellor keeps arguing, that if everyone closes their border, the problem just multiplies, and so she's pushing for a european-wide solution. there is an e.u. summit that is scheduled for two weeks' time. it was previously scheduled where they're likely now discuss this crisis, and we've heard some murmurrings there may be meetings in the next two weeks to try to come to some sort of european-wide resolution. as you know, this crisis has been going on for several years here, and to this point, there has not been any real effort, particularly european states do not want to let in more immigrants. so it's difficult to see how now they're going to find a solution in the next few weeks. francine: chad, fine they resolve this, how much political capital with angela merkel actually afford to spend? chad: the issue for her, if she were not to sack the interior

minister and he moves forward on this unilaterally, of course she ends up being very weakened through this process, because then it allows other ministers to potentially also ignore what the chancellor is saying. so's in a very difficult position here, and at the same time, needing to keep the interior minister's party within the government in order to keep that majority in the parliament. tom: chad thomas, thank you very much, very, very happyful with a briefing on one of the major immigration stories that are out there, and in the u.s., really front and center today and through the week. we're going to continue. graph tv go. it's a really important place to get a morning briefing, and the bonus round, you get to steal the graph. you can take the spread. you can take log bitcoin and dazzle them as you talk world cup soccer. this is bloomberg. ♪

tom: oh, single best chart. you can do that on a monday. we're not going to look at w cup go. his is the single best chart

there, an outrage as we're in last place. this is good to do. this is service sector inflation, which everybody knows, francine, in america, and goods inflation, which has been goods deflation for five glorious years. of course, we have inflation pickup here, neil. but what's really, really interesting to me, do we actually return to some form of goods inflation? to me, that's the quiet story into next year. neil: well, sure, core goods inflation has been deflating at a slower rate. i guess the question is, if you ever do get into positive territory, how long do you stay there? because the dollar has been going up recently. tom: the dollar compensates for that. neil: and we know that a lot of core goods, those are imported products. so if the dollar is strengthening, that puts more downside pressure on core goods inflation s that's certainly something to consider. at the same time, keep an eye on rental inflation. the nature of what's going on

in the housing market, tom, is changing so. if you have, you know, renters moving to homeownership, that creates a challenge for landlords, which may need to start cutting sandrents providing more concessions. tom: this is why we love having you up, the distinguishyness of how we measure housing inflation within our data. do you trust it, or do you believe it, or is it simply our best guess of "rental inflation?" neil: well, i mean, it's imputive, which i think is a way of saying that it's a guess. tom: yeah, francine, my father's day gift this weekend was imputive as well. francine: what you know i got you for father's day? a couple of charts. they're pretty good. tom: well, thank you. francine: you're welcome. neil, when you look at the dollar strength, how much does the price of oil actually move the dollar? neil: i mean, i think tt it all goes from the same place, right? i don't like reasoning from our price change. the dollar is going up because

the u.s. economy is getting stronger relative to the rest of the world, and oil prices are up, more recently i think because of certain supply-related concerns. but generally speaking, the global economy is in a much healthier place than a couple of years ago, and that improvement is what's driven oil prices higher. so it's important not to reason from a price change. francine: ok, what if the trade war or trade tensions actually ends up with china selling treasuries? a, what's the possibility of that, and does that mean a significant repricing in treasuries? neil: no, i don't buy into that. i mean, they've been moving away from dollar-denominated currencies for years. so we've had quantitative tightening for a long time now, and that hasn't been the primary drer of why yields have gone up. yields have gone up primarily because real yields have been going up, and they've been going up, again, because the u.s. economy is getting stronger. tom: you've been kill other

supporting a more robust american economic growth. is this because of president trump, or are we getting more robust economic growth outside of the president's efforts? neil: i think it's largely because of things outside of the president's efforts. i mean, the u.s.ve started really sometime in the middle of 2016. tom: before the election. neil: right, with the global economy. now, the u.s. economy does enjoy a number of factors that the rest of the world does not. we have a strong housing market recovery underway. you know, all this sort of talk about how millennials don't to want live in the suburbs. well, theories are now being blown out of the water, and we're seeing that, you know, single family residential real estate is coming back. we know inventories in the u.s. are till too low. we know nonresidential construction is going to go up to service a lot of these new households that are being formed. so as i say, the u.s. has a number of positive factors going for it that the rest of the world does not. and, you know, that's why we're

bullish u.s. equities and bullish the u.s. dollar. tom: thank you so much. always valuable. congratulations on the inflation analysis over the last couple of weeks with the tariff that is we have. we'll continue with mr. dutta on bloomberg radio. with jon ferro doing better in the world cup poll than the order, the rankings. francine: tom and i suck at football. tom: well, i don't even know what a draw is. francine: united in failure. tom: i'll let you know across all of our bloomberg paths. mr. farro with a doctor's appointment at 1:45 this afternoon. this is bloomberg. ♪

♪ francine: the opec games begin.

opec rolled out an output hike, iran talks about blocking a deal with russia. oil volatility hikes up. china strikes back. china unveils its list of u.s. foods in the hot seat. china targets