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

--ultimately be have a lot of volatility but the trend is still intact. alix: there was a really bullish report on oil saying that the

base case is one million barrels per oil a day, but net it would only be 500,000 barrels more per day because of what we are losing from venezuela and iran. >> right. i think overlaying all of this is donald trump's comments, his thoughts on oil prices. he obviously thinks they are too high, and he viscerally thinks that opec is controlling things and he would like to inject some moderating influence on prices. jason: i want to stay without geopolitical angle, because clearly you cannot extricate oil from the broader political landscape. russia has a very strong voice here. what is the backdrop politically? >> it's an interesting dynamic, right? we're -- obviously donald trump and others are talkiut the russian collusion issue, meanwhile he's asking for an increase in supply, which the russians support.

it's an interesting dynamic. i don't think they are related. 'll tell you where it is influenced, $2.89 per gallon. imagine what it will be if opec didn't cut into the market around the midterms. talk about political. >> how does that play into the broader consumer sentiment in the markets? >> i think you have to get gas prices much higher. historically, you have to have a significant move to eliminate the consumer story. away the tax benefits that consumers get in the u.s., but it's not enough, i think, to derail the cost of progress. gas prices were pretty high last month, retail sales went off the charts relative to most expectations. until you get closer to $350, $400 per gallon, it's not a big

deal, but it is eating away at the excess income created by the tax policy. jason: one thing that hasn't quite played to consumers yet, though it may, is a trade war, skirmish -- alix: are we allowed to say "war?" jason: the battle lines are being drawn. >> i have no problem calling it a war. it certainly is. the next step is in donald trump's court. if the chinese retaliate, i'm going to retaliate. it's clearly a battle of wills. people need to remember that the chinese don't have the perspective of weeks and months, they have centuries of perspective. my own feeling is they will wait this out. anything donald trump has, they will meet. jason: have we started to see the markets factor this in? >> we have, for the last three months, start to factor in some

sort of trade war. it's difficult to determine if it's china or canada or mexico. what you have seen over the last several months is volatility in the on a specific sector. cks, evenhe tech sto the health care companies are experiencing an extraordinary level of volatility, and a lot of that is related to trade. frankly, $50 million here and $50 million in china is what we have so far, so your aggregate impact is really small, .2% of gdp here and in china. on the s&p 500, it is even less. china represents less than 5% of ultimate sales for u.s. companies. there's a lot of importers of products from china, but oil companies will be less impacted by this that higher commodity prices. you have to take your spots carefully, but you can find an impact. weon: here at bloomberg,

talkut $50 billion per year. alix: let's take our third story of the day, market reaction. you are seeing a decline in futures across the board. what i find interesting, though , is that traders are still selling vol. what will make that change? >> fascinating, isn't it? what we have seen so far is a characstic shift in volatility. last year it was this persistent deceleration. there weren't even any spikes in volatility. this year it is little volatility with increasing spikes. we are seeing the spikes occur, but positioning is relatively difficult. it's characteristic of the market that is moving into its later stages and a market that is now trading more sensitively to policy. so what you see is in the intra-earnings season, when you don't have a season, they are

more sensitive to policy, and that is where we are right now. alix: that leads me to the dollar. 94 --llar index is around will that be a safe haven at any point? will we see a react to a presidential tweet? >> i don't personally have a read on that, but i do think that donald trump's policy initiatives are roiling the market and the perception of just where the economy, where the u.s. policy is going. the immigration issue is a perfect example. it's completely unclear where donald trump stands on this child separation issue. that -- it's not directly related to the markets, but it has an impact on the clarity of policy. alix: fairpoint. thank you both. and coming up, more on the risk of sentiment taking hold in the market. we will discuss with the wells

fargo global market strategist. are small caps be the place you want to be? this is bloomberg. ♪

♪ >> this is "bloomberg daybreak." in germany, there's been a high-profile arrest of the volkswagen investigation. the ceo of the audi unit has been taken into custody. prosecutors say he was arrested among concerns he might have tampered with evidence. in the u.k., consumer and business lenders have agreed to buy virgin money for $2.3

billion. it represents a 19% premium to their closing price may 4. the combined company will have about $106 billion in assets. and shares of norwegian air are surging today. this comes as the ceo says his airline has been in talks with the discount carrier. that raises the possibility of a bidding war. compared to british airways, iag has taken a stake in the region. and that's your bloomberg business flash. alix: thank you. next move? -- focused on the agricultural sector, and investors try to understand the consequences. >> they are sort of like cockroaches, there's never just one, and they tend to proliferate and add cost into the system. this is problematic in other ways to encourage and improve the trade balance rather than going through tariffs, but the

real trick is, if we are forced to stick with this, if we will take a strong stance in the u.s. and say these are terrorists and we have to hold by it, we have to be prepared for the economic consequence. >> there were tactical delays for one reason or another, but i think trump has wanted to go down this road for a long time, and now they have an opportunity. >> the chinese don't import enough u.s. goods to hit 150 which means you have to hit them elsewhere. since china has quite severe nontariff barriers, that means the ones they would put in next would have to be louder, meaner, and showy. >> this is effective saber rattling. this is trade policy for the twitter era. soundbite,fantastic tough on china, imposing tariffs , in china won't be much

effective. markets are in risk off mode as result. futures off by 17 points, dollar-yen weaker with the yen coming in being hit. the vix is also picking up steam. joining us now is the global market strategist at wells was wethe conversation want to see the specifics -- that we have specifics. what do you d >> there's not much you can do at this point. the escalation is the real risk here and it's a big bet for investors to play trade war here , much better off playing a stronger probability of continued growth in the economy and earnings here in this country. alix that's exactly what investors look like they are doing. this is small cap versus large-cap on a global basis,

small caps outperforming, and i wonder how much of that is a trade war. there was the safe bet? >> it has been all year is small caps. we recommend that as a hedge for investors who are curious and concerned about tariff problems. they have really had such a great run. we think there are better investment opportunities elsewhere. if you need that hedge. jason: we were hearing from gina adams, saying that the markets have been concern for several months, waiting for a specific. is your phone ringing more at this point? we got toward the end of last week and some of the specifics were coming up. how worried are your clients? >> not much at this point, but they were a lot louder in march and april. there's been a consensus that well this is just a negotiating tactic, it is risky. it's not just a negotiating tactic on the part of the

administration. at the same time, you have to go a lot further to get a trade war, and we are a long way from that. alix: so why are investors still selling volatility? >> well, they're not sure about a lot of things. 25% earnings growth in the forced quarter, how do you top that? and is earnings of slow to 10% or 15%, then investors start thinking -- have stocks hit their peak? there is a lot of volatility, gina in the previous segment pointed out that you get these pockets, vacuums of information between earnings season. that's where we are right now. the market is prone to be choppy at this point. you just have to look ahead. jason: how do you balance between domestic and developed markets in the emerging markets at this point? does it change your calculus when you have trade tensions? >> we like the u.s. still. we like it just from a growth perspective, from the tax

perspective. there has been some question about how strong earnings 10 be in emerging economies because of the strength of the hero. u.s. first, developed second, emerging third. alix: $19 billion was taken out of emerging markets, the most since 2008. do you feel like that is a risk off trade thing, or are we trying to recalibrate the loss of liquidity? >> i think it is more the latter than the former.

those cars could still see a price increase. do you have to start playing this on a company by company, sector by sector basis? >> yeah, investors will do that. we are probably more worried about the potential trade disputes involving autos with europe. jason: why is that? >> there is so much more trade involving europe and autos. but you are right, you have to start thinking about individual sectors. at this point, we still like the industrials as an overight in our overall portfolio allocation. alix: you mentioned industrials, but chemicals, aerospace, agriculture -- what would you do with those sectors? >> with those kind of sectors, investors should be afraid to and and choose for now

don't get too narrowly focused. the economy is still doing well and we could have some infrastructure programs later this year or early next year. we did have breaking news earlier this year related to the auto sector. the diesel cheating scandal that has been plaguing volkswagen for almost three years has reach the next level. audi's ceo was arrested today in connection with the scandal, making him the highest profile target and throwing into question his future at the automaker. joining us now, bloomberg's european autos reporter. great to be with you, thanks for joining us. so tell us what happened. bring us up-to-date. >> yeah, absolutely. pretty much what you were saying. this morning we got the news who has beentadler

at the helm since 2007 was arrested. the reporter was saying he was arrested in his house. while there has been a number of arrests both here and in the u.s., he is definitely the most high-ranking official to meet that fate today. it's interesting to point out that he sits on volkswagen's supervisory board, holding a lot of sway within the group at that level. volkswagen has taken the narrative back a little bit. there was a cover story not too long ago talking about the moves they had made within their ranks. does this come as a surprise? how much longer do people feel like this will play out for volkswagen? time's not the first allegations against stadler have surfaced.

it has been building over the past few months. so far, volkswagen has at every say of the way gone by to as long as there is no fresh evidence they are not inclined to remove him. operationally, like the cover story said, things have turned a corner for volkswagen and the company itself and aside from the ongoing legal troubles they have been on an upward trajectory and putting important factors in and doing quite well. jason: elizabeth, thank you. i want to go back to paul christopher. when you heard about that, how much did the ongoing scandal factor in, as you were talking to customers and thinking about how to price in such drama, shall we say? >> this particular case -- there

was an issue a couple years ago -- but to reporters point, folks like it has done some things and in terms of client calls that is a dive down. the focus should be in the overall economic improvement, synchronized positive recovery around the world, still in place, still going on. that has to factor against smaller factors like tariffs from china on automobiles, or scandals on particular companies. alix: thank you. paul christopher, wells fargo. coming up, it's the great opec debate. how much to cut? we will break it down at the opec meeting. this is bloomberg. ♪ two, down, back up!

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1%.rise, off by over in other asset classes, the dollar can't really decide if it's going to be a safe haven or risk off currency. euro-dollar flat. some are starting to revise down there euro-dollar forecast. we have not seen that kind of rotation out of u.s. assets. flatten, 36 to basis points is how we trade with a little volatility picking up at the opec meeting coming in the next few days. jason: a lot to talk about in the market. but first, let's get an update on what's making headlines outside the business world. emma chandra is here with the first word. >> in germany, the political future of angela merkel is on the line. the coalition is at odds over immigration. the interior minister has issued an ultimatum overturning back migrants of germany. it is one of three in the coalition.

she does have the backing a senior members of her own christian democratic union. meanwhile in the u.s., democrats have ramped up their attacks on president trump's policy of separating immigrant children from parents across the mexican border illegally. several lawmakers traveled to texas to look into a walmart that has been turned into a detention center for 1500 boys. the administration called it a deterrent to illegal immigration. colombia, the next president will be a pro business lawyer who wants to modify part of the landmark peace process. he 154% of the vote in the runoff. he has called for a cut in corporate taxes, but is difficult at a time when colombia is struggling to hold onto an investment grade credit rating. global news, 24 hours a day, powered by over 2700 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. alix: how many times have you heard that -- emerging market with a pro business leader?

all right. in the commodity market, opec is shifting up to be one of the toughest meetingd years. opec members are discussing a compromised agreement that would raise oil production over the next few months. joining us now on the phone from vienna's hobby or plus, -- is hobby your blogs. what's the word on the ground? [indiscernible] so for what we know is that [indiscernible] is compromised, they don't want a production increase. they are asking for a relatively large production increase. are talkingembers about something between 300,000 and 600,000 barrels per day. that would be less than what the market was expecting only a week

ago. alix: that is why we are seeing oil ps come off the low. the question is, what are saudis options? can they block a formal communique? do they accept it and sheet, publish their own statement? they don't want to go this direction? untill, we need to wait the meeting, there were a lot of times when people come to an agreement and at the end of the day we see some countries decide not to support that will. we can go ahead and increase with enough countries outside iran and go ahead. we saw that have been in vienna on a similar situation. alix: thank you. jason ? jason: the u.s. and china trade

escalates, beijing quickly retaliating over the weekend president trump's announcement on tariffs. two detailed lists of products on which tariffs will be collected now form the core of the conflict the between the world's largest economies. joining us now, our bloomberg agricultural market specialist, and a manager harden farms, a seventh generation family farm located in indiana. he joins us from colorado springs, colorado. i want to start with you. there were a lot of superlatives around soybeans. we were talking about this earlier this morning. it's amazing that this is really right at the center of this dispute. >> it is one of the biggest things we export to china. china,hird row goes to it is our one spot where we are winning a little bit with china

and that is where we will see the retaliation. we've seen a lot of market volatility off this, prices have dropped severely and we are looking at a lot of wild price gyration coming into the period of risk for corn and soybeans. jason: i was also fascinated that not only all of that but there is a hog play, because soybeans ultimately feed -- >> exactly. corn and soybeans are in animal feed. it is going to effect throughout the food chain and will also hurt farming income and it is already depressed. mr. harden, you are basically a family farm in avon, which is an indiana. you raise about 12,000 market hubs per year and cultivate 2300

acres of corn and soybeans. how does this increase affect your business? it has say that so far ,een very negative overall obviously there's a lot of dynamics in play, the soybeans we produce are used as feed for so while we have seen some improvement to our cash flow position by the fact that soybean produces have dropped it is stillicantly, withak outlook for us depressed futures prices going forward for the rest of the year. jason: what do you do about that? day-to-day, to

make sure you are doing the right thing economically for your farm, and for your customers? obviously, as a farmer and a producer of commodities, we are in a fairly competitive market so it is kind of hard for us to do risk protection so normally we would use the futures market but obviously with the amount of uncertainty that we are looking trade,g forward with futures prices all the way out 2019 which makes it hard for a producer to hedge and lock-in any kind of advantage in .he market right now

we are in a mode where we are trying to strictly control costs and a lot of our costs are things we can't control like we are trying to hold the line on things like repairs. unfortunately one of the things people don't think about, agriculture is very reliant on green bins and replacement flooring. seen,he tariffs we have the inputs go up. some planneded modifications and that we had slated for our falities. alix: sterling, the conversation, what prices are showing is that china will buy less soybeans but if you come inside the bloomberg this will decipher -- china buys the most soybeans from the u.s. and brazil.

the white bar is the import from the u.s., blue from brazil. will china be able to make up what it needs from brazil? >> overtime. this will be a process as we see more production coming out of brazil. near-term they want to be, and the demand won't necessarily go away. with the demand is not something that can fluctuate that quickly. the big fear i have for u.s. agriculture is china investing in infrastructure elsewhere and all of a sudden we have lost this customer because we have to expect china to protect them from security. jason: what we heard from mr. those aree farmer, real business decisions he is having to make, i would imagine he's not alone -- play that out. if he's not able to take advantage of the futures market, what does that look like? and whatses depression

will end up in the farm economy, heard liquidations, if you can get the right prices you will have to move into the marketnd see retail prices drop with prices escalating back for corn and soybeans. bit farmers hedge a little but most have things on at the right prices. farm margins were not very good either. there wasn't a lot of incentive to do much. alix: it really outlines where the broader issue is going forward. if you are selling your product to china, are you looking for a new market for that product now? where is it going to be? industry is the low cost producer of pork around the world. ourselves asty the best product.

industry goingan through an expansion mode and gearing up because a couple years ago we saw new markets coming online potentially with the transpacific partnership. incomes are rising, people are looking to consume more protein. the president took that off the table. trade in general is a bit of a tough spot right now, canada and mexico are two of the biggest and our trade relations with those two countries are not the greatest right now. there's a lot of trepidation out there in farm country right now about what the future holds. jason: thank you so much. sterling smith and dave harden

on the phone with us. quote,up, bitcoin has a, "range of shortcomings." why the cryptocurrency isn't ready for prime time. today, you can tune in to our colleagues, tom keene and jon ferro, in new york. benton fox joins the conversation. "bloomberg surveillance" can be heard in new york, boston, the bay area, washington, and on sirius xm. ♪

♪ >> this is "bloomberg daybreak."

coming up, carlos gutierrez, former commerce secretary a national trade council chair. ♪ >> now to your bloomberg business flash. private equity firm cerberus capital is close to a deal to buy worldwide flight services. bloomberg has learned the company could be valued at about $1.4 billion. worldwide flight services is owned by another private equity firm. has agreed toer buy arizona mining for $1.3 billion. flagship project in the u.s. and has a 50% premium. it was a record-breaking weekend for disney at the box office. "incredible's 2:" had the best ever opening for an animated film, taking away some of the

sting from their last "star wars" movie, which underperformed. and that's your bloomberg business flash. alix: i was so excited for "incredible 2," i can't even tell you. [laughter] alix: we have some breaking news for you that has to do with europe. german chancellor angela merkel -- has said she has found a solution to the refugee debate, according to two reports. this was all the talk over europe this weekend, merkel fighting for her survival of the two conservative factions beating up against each other on the refugee crisis. jason: it felt like this was a fragility that had solidified over the past few months. obviously with the elections last fall there were a lot of existential questions on whether she could hang on. she had, and now here we are

with the big questions. it seems like, based on that headline, that things seem to be stabilizing a little bit. it also shows you how well merkel will be able to hold onto power. an argument that this is a big win for the interior minister. they have very different ideas. one is shown the border down and the other is not at all that extreme. jason: there are obviously a lot of issues merkel is facing. i think back to that picture we saw from the g7, where she is standing over president trump, trying to figure out whether the g7 remains the g7. all their cars are imported to the u.s. let's speaking of cars, take a look at a company story with analysis from bloomberg

opinion. brooks automation. -- brock sullivan. general motors is said to be weighing options for the self driving unit. this has been in the news of late, having to do with softbank. this is gm really driving forward. alix: it is. and this really makes sense. they are looking at an ipo, spinoff, or tracking. we have seen these old school, traditional companies realize that they need to invest if they want to be competitive going forward. in the case of gnu have a history -- it would remove a lot of weight but if you talk about would still be able

to benefit from that growth story and would still have that future in self driving technology to talk to investors without all the negatives. jason: they are a bit ahead. you get the sense that gm has an edge. >> i was struck thinking about this, because they purchased it in 2016, it was $1 billion all , ford also made a $1 billion acquisition with itself driving technology field, and it is still very significant. if you look at the stock prices over five years, three years, one year, you really see that laggard status. alix: it doesn't hurt that softbank put $900 million into crude. it's the right time to do something like this. jason: and arguably, the world's most important investors. >> that started the clock. theyank has the option,

can convert their state into gm stocks and that starts this whole ball rolling of when you could see this become a standalone company. alix: thank you very much. if you are at the bloomberg terminal, you can check out tv , click on our charts and graphics. you can scroll through all decide to check it out. this is bloomberg. ♪

♪ alix: we turn now to wall street beat. jason is so excited. a new report released over the weekend, cryptocurrency is not ready for mainstream, and could bring the internet to a halt. banking on branson. purchasing virgin money holdings for a $2.3 billion deal. finally, williams on the job. the first day for john williams as he enters his new role as the new york fed president. jason: joining us now is none

other than had hammond, our bloomberg deals reporter. how are things? >> good. i was golfing yesterday. jason: so let's start with bitcoin. this is such a great story. that going to break the internet. >> bitcoin will never make the mainstream, as well, according to bis. they say it uses too mucher, if it gets to a certain sca it would break the internet, drain all the power. and even just the energy required to do the mining, it uses more energy than switzerland. alix: it is insane. >> it's not sustainable, not a growth model. jason: you have regulators who have some very, very big questions around this, as well.

the koreans, the japanese. the u.s. still hasn't quite figured it out. others have embraced it, but in one of those awkward hugs. blockchain a bitcoin can be challenging, which brings us to our next story, which has nothing to do with bitcoin. branson's virgin money will be bought for $2.3 billion. we never see banking m&a. when i saw this this morning, that part was listed. it's a rare thing. sellout of the virgin american airline business two years ago. it's interesting. in the u.k., much like in the u.s., you have dominant retail banks and this is a move to

become a smaller but nonetheless more significant play. it will be subscale, but a better subscale. so with richard branson is a rockstar to entrepreneurs, the president of the new york federal reserve -- that sends the wrong message. [laughter] jason: his first day on the job. the new york fed is a closely watched organization to say the least. dudley is going, tim geithner was in that position back in the day, 10 or 12 years ago during the financial crisis. how excited or not excited our people about john williams? >> i think much of what we know he has been going to do is well telegraphed. this move has been socialized for weeks and weeks. but people are excited. whenever anyone steps up to a job, it is a moment in time. everything that happens from now on will be on him.

in at a fascinating time for financial markets, according to some people at the bottom of the eight setting. it's going to be inte see how they navigate it. jason: it's the sort of thing you have to worry about. alix: banks are trying to deal with their trading platform. thank you very much. we will have more on central banks throughout the week. on wednesday, powers that in mario draghi will be speaking alongside his counterpart in the red, the boj, rba. more next on trade. this is bloomberg. ♪ retail.

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output hike is up to 6000 barrels of oil a day. iran talks tough about a gosia once more production. china strikes back and a list of u.s. goods in the hot seat as the u.s. targets tech and china targets agriculture. the next move is on president trump. markets shaky on trade war jitters in emerging markets, corn investors pulling the most money since 2008. -- foreign investors join the most money since 2008. david westin is off today. jason, good to see you. >> great to be here. >> what is the read on the street here at bloomberg? >> we just got out of our 7:30 meeting. i wasn't physically there. i just read it. i used the bloomberg terminal to figure it out. a lot of what we are talking about is things you mentioned at , tariffs,rade, china

markets. as i looked at what people are reading and what bloomberg customers are reading. the family separation story that was all over the news all ekend, that hit a recent spike. there is also a fascinating story that is getting a lot of readership about bloomberg making another run at new york and trying to figure out how it works with the administration here in new york city. itimpacted the taxicab industry. anyone who rides around this citya lot to look at. the audi ceo being arrested as part of the vw scandal. it is a happy monday. >> how you digest all of that. down 19 points around the lows of the session. writes that the

market for quick they are in denial, they know their job is to go up with a look ill without looking bad. e best quote of torning for me. the euro-dollar gaining a little more. the dollar seems confused as to whether it is a risk off or risk on currency. a to at 35 basis points as a continues to grind flatter. oil getting a nice bite, up by over 1%. >> i love the idea of a confused dollar. i am picturing a little dollar bill running around bumping into things. >> bitcoin deficits, safe haven, i don't know where to go. >> it is time for your morning breeze. a busy week ahead starting today. central banks are meeting for the ecb annual forum in central portugal. we are watching decisions from the supreme court as the high court in the united states racist to rule on some of the biggest cases this term before the end of june. board meets, fox's to discuss the comcast offer.

disney still in the mix. on thursday the bank of england announces its rate decision. on friday opec ministers meet in vienna. move, u.s.. china unveiling a list of american products subject to higher tariffs, focusing on agricultural sector. investors try to understand the consequences. >> they are like cockroaches, there is never just one and they tend to proliferate and add cost into the system. this is problematic. there may be other ways to encourage or improve the trade balance rather than going through tariffs. the real trick is, if we are forced to stick with this, if we are going to take a strong stance and say we are going to hold by these tariffs have to be prepared for economic consequences. >> i think this is always in the works. i think there were tactical delays, but i think trump has wanted to go down this road

for a long time and we will see how it plays out. don't importe enough u.s. goods to hit 150, that made you have to hit them elsewhere. since china has quite severe nontariff barriers, the ones they play next w to be louder, meaner, and shelley. this will create a major escalation. >> this is ineffective saber rattling. it makes a fantastic soundbite, we are top on china and imposing tariffs on $36 billion of product. china is not going to be that affected nor are soybean farmers in the u.s.. >> markets to reflect that risk off mode. as you look at what happened on friday it was all about buying the defensive and saw the cyclical. energy materials and tech are leading the selloff of the s&p. ,oining me is aswhin alankar global head of allocation and risk management.

what do you do? >> excellent question, good morning. fewou were saying just a minutes ago there is a lot going on in the markets today. it is no longer a one-dimensional market, it is a imsional market. it is ever more difficult to answer what is going on in the markets today than any time over the last 10 years. over the last 10 years it was about central-bank activity. understanding what central banks were telling you and success was simply following the central bank. today it is much more than just central-bank activity. it leads us to believe something interesting is going on. that has to do with the butterfly effect. we believe the state of the capital market today is structurally consistent with the butterfly effect, which is the underlying the system high and chaos therein. what it tells you is that chaos

theory. -- chaos very. a small change in initial conditions and lead to drastic differences in outcomes. we have seen small pieces of information are leading to huge reaction by investors which are ultimately leading to very drasasset prices. saw that with the flareup in italy where you had some of the largest moves on record in the fixed income market. he sought early on in february where you had the largest move intraday in the volatility markets. what is happening today is the fragility in the market is not fundamental, it is not structural from a real economy perspective, but the fragility in the markets has to do with investors's psyche. .> ash, thanks for that i want to drill down on trade. you talk about specifics and

getting more details and information. how is the market digesting and how are you digesting this specifics around the trade for that is breaking out between the u.s. and china? , certainly the risk of a trade war has increase in probability from just a few weeks ago. let's fundamentally think, who is going to win and who is going to lose if a trade war comes about? what does the u.s. provide? , all elserovides equal, intellectual property to the rest of the world. it is hard to find a substitute for intellectual property. it is very easy to find a substitute f made in china versus made in the u.s. from a manufacturing perspective but not from an intellectual property perspective. if al-blown trade -- full-blown trade war does unfold the u.s. stands to win.

everyone will lose. who will lose the most, emerging markets. emerging markets, if you look at who provides the most or contributes the most to the global value chain, it is emerging markets. emerging markets stand to be the most affected in a negative way by a trade war, but relative to the rest of the world, the u.s. should stand quite good. >> is that sell emerging markets and by u.s.? -- buy u.s.? we see a strong u.s. dollar and weaker emerging markets countries. strengthng does that in the u.s. last? we hear all the time about how we are in the eighth inning of this cycle. how worried are you that that is coming to an end soon? >> we are not worried. we do see fundamentally the u.s., on macro, very attractive.

u.s. consumers are strong, u.s. corporate is strong, balance sheets are strong in the u.s.. taking afed, whilst step back from monetary accommodation, financial conditions are still stimulated. real rates in the u.s. are still very low. >> what is interesting is that the small cap keeps outperforming. we talk about that when it comes to the -- >> is that a function of if you are going to be entering a trade war and central-bank withdrawing liquidity you want to be in domestic oriented sectors no matter where you are on the globe? >> exactly.

if a trade war starts you want to allocate to those investments which are the least sensitive to global trade. that is small caps. >> aswhin alankar of janus capital management. you are sticking with us. what i find interesting is that as passive money is coming out of etf's and volatility is quitting on the sidelines, you are not seeing money come into active trades. >> the active guys have been saying a long time, just wait we are coming back. they are not coming back yet. thef the cell volatility is trade for hedge funds, how does volatility make you any money? >> we will see. you mentioned hedge funds. they saying our moment is coming, some of them are starting to show some better results. it is the have's and have not. . this week asdebate they decide how much more oil to

add into the markets. this is bloomberg. ♪

>> this is bloomberg daybreak. and germany there has been a high profile arrest. volkswagen says the ceo of its audi unit has been taken into custody. prosecutors say he was arrested because of concerns you might tamper with evidence. and the u.k., consumer and business lender cyb g has agreed to buy richard branson's virgin money in an all stock deal. that represents a 19% premium to virgin money's closing price. the combined company will have about $106 billion in assets. shares of norwegian air shuttle are surging today. live than the ceo says harold --

the loop sends a -- that raises the possibility of a bidding war. iag has taken a stake in norwegian and is interested in making couple offer. >> opec's summit this week is shaping up to be one of its toughest meeting in years. members are assessing a compromise that would see in oil production increased between 300,000 600,000 barrels of oil a day. joining us now is stewart wallace, bloomberg's executive editor for energy and commodities. walk us through how we got to a compromise. >> i am not sure we do have a compromise. we have another four days of talks before the meeting proper. there is a long way to go. how we got to the situation right now is that you have russia and saudi arabia at one slightly different reasons for wanting to increase

production. one is to bring down prices to lydia and for venezuela and iraq very you have the have-nots, they don't have spare capacity. would like higher prices. they're reaping rewards, why on earth would they give it up. their balance in their budgets t as they can. why would you give that away to the richest nation on earth? they have a point -- they may have a point. countries like saudi arabia and its allies saying, we need to do something and we can't let the market run by itself. we are, for $80 a barrel and it will go higher unless we act. a long way to go. >> goldman had a report out this morning, a 41 page report outlining how bullish they are on oil. if such increases by one million barrels of oil a day. once you back out iran and venezuela the addition is only net 450,000 barrels of oil. are we going to be in a situation where they increase

output and we are so going to be in a tighter, deficit market? >> it certainly seems to be heading that way. the great unknown is how far venezuela production comes up. if you look at the last several courses it has been quite dramatic, more dramatic than anyone was expecting. can venezuela stabilize production? can you have similar stability in nigeria and iran? great unknown because no one knows how harsh those sanctions are going to be. you can look at history but that was a different administration. the tone this time seems harsher. you won't know until the end of the year how many iranian barrels, the market. it will be quite a few. >> i am so glad you brought that up about iran and its place here and the sanctions. now more than ever it feels like geopolitical weight is sitting on this opec meeting. how much is that play into the conversations that you guys and

your reporters are having on the sidelines? how much are they looking to washington, london, tehran, and moscow, or sides of the political aspect of this? >> that is spot on, jason. it is all about geopolitics. if you think about saudi arabia, it is starting for the first time in a long time -- this should be a moment of triumph for saudi arabia. it is facing does go problems come i didn't to keep the u.s. on site for diplomatic reasons, it also want to the ipo. that is pulling them in opposite directions. it brings them back to the compromise position. same with most opec members. it is partly about oil prices and partly about opec policy, is not geopolitics and who has influence -- it is about geopolitics and who has influence in the middle east. russia had not made inroads into

the middle east before but now they have. how much is president trump looming in the opec meetings? we don't want to see cave-ins, president trump when he complains about oil -- exactly. obvious are some of them do point out in private that the makings of the heil oil prices are partly the response of -- higher oil prices are partly the responsibility of the white house. that is one element. the second element is this. increase production, bring prices down, maybe just enough to keep them there with a balanced book. also just enough to show willingness towards the u.s.. >> stewart wallace, the hardest

working executive editor at bloomberg. >> he doesn't get to go to vienna. uncool. >> still with us is aswhin alankar of janus capital management. you just heard what our colleague said about opec, how does that play through the markets? do you dostor, what with all of these different aspects of this dramatic opec meeting? >> the key to what he says is much more than just about opec, it is more about oil. there are a lot of factors playing a role, what of the sanctions going to be like? what difficult to assess the true consequence of the opec meeting is. let's focus on certainty. this goes back to what i was saying earlier about chaos theory and the butterfly effect. let's focus on certainty. what is easier in my opinion to understand is what is going on

in the currency markets. we see a stronger u.s. dollar. if the dollar does strengthen, that will be a headwind to commodities including oil. don't see oil taking off here, regardless of what happened at the opec meeting or collapsing. we do believe the mantra going forward may continue to be, buying on the dip for selling on the spike. that has been the opportunistic trade over the past several years. we believe capitalizing on those opportunities, as warren buffett said, if there is blood on the street step in. we can separate the winners from the losers. >> aswhin alankar of janus capital management, thank you. the heads of the world central banks gather to meet at sintra in portugal. how much eating and drifting do you think happens there?

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>> central bankers and finance leaders are gathering for the ecb's annual forum in central portugal. policies are outlining their plans to prop stimulus. $19 billion was drained from emerging markets equities, the worst since 2008. joining us from frankfurt is janet rando, the bloomberg news european economy reported. what can we hear this weekend is there anything that will give more certainty to emerging-market investors? >> everybody is heading to sintra and the meeting could not come at a more interesting time.

the fed raised interest rates last week for the second time this year. mario draghi, the ecb president, talked about how the centrbank t purchases by the end of the year. all of those officials getting together in sintra talking about price and wage setting in the advanced economy is surely going to be interesting. >> tell us about this meeting, is this one of those were they say some sort of things on the stage and they make some proclamations, but the real action happens in the barsd restaurants? how are these guys interacting at this point in time, given this backdrop? truck -- sintra, you can compare the atmosphere to the jackson hole conference of happens.

there is a lot of debate and talk on the sidelines. -- they willst surely compare notes. with economists and academics come a certain number of reporters as well. by the end of the conference they will have a very good view over where they all are, where the individual central banks are heading, not that they coordinate policies, but they do talk and they do compare notes on where the global economy is heading. >> thank you very much. coming up this week we have conversation. on wednesday at the ecb form in seen truck -- sintra mario speaker lloyd blankfein will also be joining

us at 12:00 p.m. new york time for a sit down on how -- what i find fascinating up his interview is it will come at an opportunity on. if you're a big wall street banker, what are you thinking? it is exactly as you say, central bankers have had a lot to say of late. the fed presidents have had a lot to say. from theot heard a lot big bankers like lloyd blankfein or jamie dimon. >> you have to put money to work in the economy and make decisions about loans. coming up is a tit-for-tat trade war on the horizon? , atalked to carlos gutierrez former u.s. commerce secretary. this is bloomberg. ♪

>> happy monday. this is bloomberg daybreak. i am alix steel. risk off. dow jones futures up a triple digits. followin falling.

we see the trade rltering into the upper marke by almost 1.5%. a puzzling story in the euro-dollar market. 116 is how we print. the dollar was stronger as you had some risks off field coming into the currency market. then you had angela merkel excepting a two-week deadline over tougher immigration policies set by her interior ,inister who heads up the csu the other half of the conservative coalition government. there were questions this weekend over whether or not angela merkel can sustain her leadership. here in the u.s., flat. 35 basis point is how we print. little pickup and volatility. brent up 1%. the vix is only at 13 and selling vol is the trick for you make money. -- is the onlyan place where you can make money. >> it is very confusing.

the euro-dollar bumping around, confuse. >> you like the confuse dollar. --confuse dollar per confused dollar. >> angela merkel is trying to diffuse a crisis of immigration policy that threatens her government. she has agreed to a deadline set by one of the parts of her coalition. the german interior minister once to strike a europewide agreement over refugees. if there is no deal he will reject certain refugees a german borders. in the u.s., democrats have ramped up their attacks on president trump's policy separating immigrant children from parents who cross the mexican border illegally. several lawmakers travel to texas to tour a former walmart turned into a detention center. in colombia, the next president will be a pro business lawyer

who wants to modify part of a landmark peace process with marxist carella's he 154% of a 54% of a vote. colombia is struggling to hold onto its investment grade credit rating. global news 24 hours a day powered by more than 2700 journalists and analysts in more than one of the 20 countries. i am emma chandra. >> the u.s. and china trade showdown escalated over the weekend when beijing retaliated president trump's announcement that he would put tariffs on $35 billion of chinese imports. details of chinese restrictions on u.s. imports will follow next week. joining us now is carlos gutierrez, the cochairman of albright stonebridge. he served astly u.s. commerce secretary under president george w. bush and was

the former ceo of kellogg company. a guy who knows about both sides of this. secretary gutierrez, good to have you with us. >> thank you, good to be here. >> you are, what does this look like? you get this order from the president to make some historic decisions and put them into action, how does this work? deal.s is a very big whetherre talking about we are going to be in a trade whether a trade war is coming. make no doubt, the trade war is here. we are in a trade war. i am surprised it has taken the market so long to recognize that. this has started and it is going to continue. we have the tariffs on aluminum and steel, the 301 tariffs will be announced specifically they will be put in place on july the sixth.

that is another key date. we are into this. this has started. i think we need to be thinking about, how do you get out of a trade war once you start it. >> how would you get out of it? what would you do? >> there are a couple of scenarios. i doubt if we are going to see a surrender ceremony where someone signs away their trade policy. abelieve there needs to be discussion about how systems, different systems can coexist. we have a different system than china. a lot of similarities, but there is a difference in how they approach the economy. i think we are going to have to figure out a way of coexisting in harmony together in the future instead of trying to make china look like the u.s. or the u.s. look like china. that is going to be the big challenge.

that could end up working in favor of china in the sense that we say we recognize we have two different systems. >> a lot of rhetoric has been made that these are just the opening bids. president trump comes out swinging and it is a negotiation tactic. can we call that a negotiating tactic or has this evolved into something different? >> there are still tactics being played. that is going to continue. the tariffs on steel and aluminum, those are real. the investigation going on in autos is real. the terms that will come out on july 6, that is real. -- if he pushes forward and backs down, he is going to have credit -- lose credibility and the u.s. will lose credibility.

every move is potentially treacherous. this thing has started and it is going toxpand beyond trade and go into the investment arena. where we can invest in china and where the chinese can invest in the u.s.. this is not good for our economy or the world's economy. , let'sn that reality have you put on your other former hat, as a ceo of a major global corporation. what do you do? industry you the are in, but what we are telling clients is, be patient as much as you can be. don't panic. don't make a strategic move if you don't have to. there may be some industries where they have to start moving around supply chains that have been built over years. some industries where you can still wait it out, where you can still make some tactical

decisions but not make the big moves that will change the way the future.for some of these could be tactics. things are changing every week. this is not going to be -- companies that can stick it out will have a benefit. if you have to move, move now. i would prefer plan b and wait as long as possible. >> as a ceo given everything you said, presumably you are looking at an economy that feels pretty good right now? especially in the united states. if you're having to put off some of the strategic decisions and go to a plan b, does that threaten the broader economic growth or even earnings growth at a particular company? >> yes. earnings growth will be impacted simply because robert aerials or higher.

materials are raw higher. imports that come in from china, 60% of those are imported by u.s. multinationals or u.s. companies who use them as input so they can export better ps for the domestic market. we are applying tariffs on u.s. companies. that is going to backfire. it will hit u.s. earnings and hit u.s. employment. importantly, it is going to drive inflation in the u.s.. article over the weekend sank semi-conductor companies will pay a tax on their own semi conductors. mr. secretary, i want to talk capx trend.der regions ofifferent the u.s. in terms of future capital investment over the next six months. all you need to know is the right-hand side which the shows them all going lower. what is the biggest hurdle you see that a ceo faces?

>> i would say uncertainty. if you look at some specifics and look at some substance steel and aluminum have gone up in price. if you are going to build a plant in the u.s., it is going to be more costly today than it would have been a year ago. that hurts investment. it is the uncertainty. ceoswe are telling people, is, don't panic, be patient. that also applies to capital investment. thele are not making investments they would like to make until they find out how this is going to all shake out. that is halting economic activity. >> i sayhis only half jokingly, imagine a scenario where as a former ceo you are lobbying the former commerce secretary, you, what is he saying to you? is a believeross

as many people in the administration are. he has instructions for the president -- from the president, he is there to serve the president. he is doing his job. there are folks who believe that this is the way to go. it is hard to imagine that rationally you can get here. there are people like robert lighthizer who was here in the 80's and he thinks all these trade agreements have been bad. the irony is, if you add up all the trade agreements we have done since light hiser was in the government, we have a surplus. 40% of our exp go to countries with whom we have a free-trade agreement. the reality is, we don't have a free-trade agreement with china. we have to be careful. this isn't a simplistic problem, it is not one-dimensional. i think we're looking at it in a

very one-dimensional way and regrettably it is going to backfire. >> multidimensional seems to be one of the words of the day. >> in the 80's you had hair, right jason? >> a little bit more. former --ierrez former commerce secretary and ceo of call-up. it is shaping up to be the biggest week for ipo's since september. we will hear from robert suisse' headredit of american ecm. you can tune into our colleagues jon ferro in new york over on our radio station. tim fossil and the conversation from 95 to 10 and five. bloomberg surveillance can be heard in new york, boston, the bay area, and washington dc and across the u.s. on sirius xm. this is bloomberg. ♪

>> this is bloomberg daybreak. i am emma chandra. coming up later today. goldman sachs former executive board member at the ecb. now to your bloomberg business flash. private equity firm cerberus capital is close to a deal to buy a air cargo service. the company to the diet of $1.4 billion. worldwide flight services is owned by platinum equity. mining south32 has

agreed to buy arizona mining. the deal will get south32 a silver project in the u.s.. the deal represents a 50% premium to arizona mining's close on friday. there is talk of a compromise in the battle over raising opec oil production. bloomberg has relearned the cartel is discussing an increase of up to 600,000 barrels a day. -- opec meetst it this week in vienna. that is your business flash. >> staying on oil. what will happen to oil equities on an opec move? i want to show you the bloomberg terminal. the white line is oil equities. the yellow line is the oil price. the orange line is what wti prices will be in december of 2014. a much better barometer of where oil equities are headed. ,utting us is robert santangelo cohead of credit suisse's america ecm.

what do you make of the undeerrmance of equities? >> i think your graphic nailed it. thefocus has been on duration and sustainability of oil price. longer-term and midterm oil price has not performed the same. even though equities will be volatile about moves in the front month, over a longer term they will track more the strength of the curve over multiple years. >> if you're going to be bullish oil, part of the scenario is that venezuela and iran oil have to come up so much, shall will be able to do it because they have the bottlenecks in the permian, and we have a surpris cap -- supply gap. do you feel like that will happen and when will that be prices?d in longer-term >> i don't>> have a strong view of oil over the next six months. as you look out over time, from my perspective it is a good bet to look at the middle and longer ends of the curve toward for the

front months are. i think that will be bullish for equities. i think the equities here are attractively valued versus most forecasts where oil will be over the midterm. >> our ideas getting sidelined in oil prices? -- our ipo's getting sidelined in oil prices? is happening most significantly in the sectors that are performing the best. consumer, andgy, a lot of biotech's. those performances have been more average. >> let's drill into that. we are joined by lizzie fortier who runs our deals coverage in new york. lizzie, a big week coming up for ipos. wife is happening now? -- why is this happening now? >> we are talking about a number of ipos coming in. we have 10 listings for this

week in the u.s., the highest number since november. the average price they are racing is under 100 million. you are missing some of the bigger, flash, big-money ideas. what is behind all of this? >> it would be good for our business. it has been a good year versus historical averages. there is naturally af and flow to when the volume comes to market. if you look at it this year we are trending at about $30 billion. we are on pace to be at our biggest year in five years. it has been a good year, there have been some good ideas. what we have seen is, some of -- growthygrowth the names and the ipo calendars are investors are accessing growth as opposed to yield. >> we had a graphic that shows health care ideas coming into

the market. lizzy, when you look at the breakdown of ideas by sector, walk me through what sectors are still seeing ideas a what are starting to see some being pulled etc. >> we had some decent activity in the financial sector. what has been interesting is what has been happening geographically. we had a big listing in europe china froms, one in foxconn, the biggest u.s. idea has only raised 3 billion. it was a spinoff from an insurance company, a big number but not one of those flashy techniques. this time last year we had snap and that was the name of everyone's lives. lips.everyone's >> does i fear not have the cachet to exit -- are there other ways to monetize it? >> you have seen the private market get more sophisticated

and reach into late stage companies to a greater degree. i think it is because they are actually are very highly al you and highly sought after. they are finding public like valuations as private companies and spending a next year or two private. you see it increase in tech ideas and i think it will accelerate. >> we also saw, even in the business flash there come a couple of private equity trades. server is picking up a company from another private equity fi it feels like a secondary trade is happening at this point in the cycle, maybe more than we might see. >> secondary, you been sponsored a sponsor? -- mean sponsor to sponsor? the ipo market has to compete with the m&a market. typically sponsor names might have more leverage and rising rates present a headwind that the equity markets gauge less comfortably. >> we have seen some ideas being

pulled. a couple of weeks ago i sought article and that i have to get rob on. what do you at should eat that too? is it name specific, the private market, or macro? >> the market generally goes through this photo where we look at -- period where we look at macros and earnings. we had a lot of excitement and now we are turning back to macros. over the next weeks we will -- once we get through opec we will look at more earnings. trade will fade a little bit into the background. it will be a more earnings driven market for the next four weeks following that. what you are seeing in the ipo market is a bifurcation. growth is getting well bid. some technology companies have done extraordinarily well. we have even lost and post validation of an ipo pricing to m&a.

seller growth companies or companies with significant leverage are being forced to accept the discount and some people are not ready to accept that discount. >> i hear opec and ipo and all i think is iran cover it -- robert santangelo, always good to catch up with you. what we are watching. trade fallout and disney's next move. you can check into gtb go and go and check out all the charts we have been using. ♪

>> trump says the meeting was fantastic. >> what we are watching, soybeans and disney.

let's start with soybeans. this is what i'm watching. this chart is the premium of brazilian soybean export prices. drawing your attention to the right-hand side of the chart, that big spike. by less soybeans because of a higher tariff they have to pay, do they go to brazil and pay up to buy from them? i question that because there was a trucker strike. it is not only do they have the prodtion but can they get the soybeans to export. >> this is really the perfect story. i am amazed by all i have learned this morning about soybeans. so many superlatives, brazil, everything. >> what i am watching is comcast corp. making a $65 billion bid for the same 21st century fox asset that disney wants to buy for about $52 billion. meeting on wednesday, a lot will be decided. disney will have some time to come back and there may be a

bidding war. this is spurred in part by the justice department losing its case last week over at&t and time warner. people are eager to do big deals. this is one that really could change the face of content. netflix looms out into all conversations here. we will see. >> and the debt market if comcast wins. talk about some big issues. that wraps up bloomberg daybreak: americas. jason, thank you for joining us. ,oming up on bloomberg markets this is bloomberg. ♪

>> from new york city, i'm jonathan farrow. 30 minutes until the start of trading. is the countdown to the open.

fun fun -- jonathan: u.s.-china frick shuns buildings. political tensions rising in europe. risk add version creeping into global equity. the treasury curve continuing to crumble for the flattest level since 2007. leaving some policymakers on edge. opec, russia pushing for a big supply boost. iran opposing any increase. in the markets, mid monday morning, shaping up as follows. we're down by about .6%. a very subtle bit comes into the treasury market. 10-year yold five basis points to 219 on a 10-year. threat after trade word and concerns over protection continuing to spread. is it really impact fundamentals? >> this is trade policy for the twitter era. >> we don't see how the trade tensions disrupting the momentum we have here. >>