♪ >> mario's moment. president draghi prepares to address the central bank in central portugal. we will bring you his speech live. trade dispute casualties. china vows to retaliate after president targets another $200 billion in tariffs. european stocks fall asia sharply lower. tesla's internal conflict. the electric carmaker says it has been hit with extension -- with extensive and damaging sabotage the hands of an ex-employee. ♪ >> welcome to "surveillance." i'm nejra cehic in london.

there is a risk off tone in the markets, perhaps driven around the increasing trade tensions between the u.s. and china. europe lowerer, for a third day. we are seeing a little bit of selling in the euro against the dollar. this could be to do with risk off, but we are closely watching this as we hear from mario draghi in portugal. trading, where we are the yen outperforming against the dollar. safe havens generally have been quite bid, gold higher, but the 10 year treasury yield is down, 2.87% is where we are trading, at a three-week low. coming up on "surveillance," we talk trade with the indonesian finance minister at 11:00 a.m. u.k. time. shortly after midday, back to the ecb forum in portugal for an interview with belgium's central bank governor. at 4:00 p.m., the deputy

governor of the south african reserve bank. the first, let's get -- but first, let's get the first word news. >> china has vowed to retaliate against u.s. companies after donald trump threatened to place tariffs on another $200 billion of chinese imports. in an immediate rebuke, they said they would retaliate with strong countermeasures. earlier, u.s. secretary of state launched a strongly worded attack on china. >> we are taking a really hard line on tactics that harm america, whether that is threatening our technology leadership, international property theft, forced technology transfer, we are ensuring that we protect american property. everyone knows china is the main perpetrator. it's at an unprecedented level. >> u.s. oil has dropped below $66 per barrel. that's what traders assessed over an output increase, as well

as escalating trade tensions between the world's biggest economies. oneprint understands -- is the table. it's an attempt to bridge the gap between russia's bid and iraq and venezuela. u.k. prime minister theresa may phase is another nice edge vote in the house of commons, after she was defeated on her brexit legislation in the house of lords. lawmakers in the unelected upper house backed an amendment to ensure "meaningful vote" on any brexit vote, or on what to do if there is no deal. former u.s. treasury secretary larry summers was warned that other companies are badly equipped for another recession, economically and politically. he told bloomberg at the ecb for this entry portugal that they --uld not raise inflation the also addressed the potential impact of a trade war between the u.s. and china. likely to beis not

large enough that its direct effects damaged the economy, but effectschological, it increasing uncertainty, it could be very serious, and we're certainly giving later in the cycle. >> and oprah winfrey has launched another milestone. the media's vogel fortune hit a record $4 billion, making her the first black female on the bloomberg billionaires index. rah's wealth has increased $427 million this year, thanks largely to the performance of weight watchers, in which she owns a stake. global news, 24 hours a day, powered by over 2700 journalists and analysts in more than 120 countries. i'm kailey leinz. this is bloomberg. >> thank you. mario draghi is about to give his keynote address at the ecb poor of in portugal -- the ecb forum in portugal after setting

course to raise rates last week, announcing that asset purchases will be phased out. we have headlines coming out from the text of the speech. draghi saying that uncertainty permeates the economic outlook and risks include persistent, heightened market volatility. matt miller is all over this, and he is at the event for us. matt, great to see you. this year looking very different already to last year, where we saw mario draghi. >> yeah, absolutely. last year, mario draghi gave us a lot of surprises after the ecb meeting in estonia, which was relatively boring. this year, on the other hand, we have an incredibly exciting central-bank meeting in latvia earlier this week, and he gave us a lot of surprises there. he gave us a lot of surprises in really moved markets.

you see the euro fall from 1.17 to 1.15 on that one day last week. those surprises i don't think will be here at centra, but we will hear more of why they took that dovish approach, to push the interest rate hike out to after the summer of next year, and what they expect to do if we do get more of the uncertainty that draghi is worried about. >> yeah, and matt, more comments coming through from a prepared speech, saying that significant monetary accommodation is still needed. the interpretation in the market from that meeting in riga was that it was a dovish taper. we also have other central bankers in centra, not just mario draghi. overall, is the view that the world is still awash with easy money? >> yeah. keep in mind, it wasn't just

the dovish taper, but an extension and a dovish taper. they were supposed to end their bond purchasing program in september and pushed out to december. plus, they promised not to raise interest rates until after the summer of 2019. september and pushed out to december. they've really given the market a lot more in terms of forward guidance than the market was expecting, and as we just heard from the bank -- the central bank of ireland governor phillip laid, they do feel their quantitative easing policy and their extremely low negative interest rates have really helped add to european gdp. >> yeah. more lines coming through from the prepared speech, saying that the ecb needs to be patient in determining the timing of the hike. item want to put you on this, but is there anything that could come from draghi that would be really surprising today,

something you are particularly looking out for? >> well, it'll be interesting to hear what he has to say on that issue, especially in light of larry summers's speech yesterday, saying that central toks should really wait cultivate growth, keeping monetary policy accommodative and not worrying about overshooting on the inflation. that's a worry that mario draghi probably wishes he had. they don't expect to have their inflation target next year, or indeed the year after. but what they will want to do is to continue focusing on something that is not their key metric, and that his employment. the question of the phillips curve is going to come into play. that is something larry summers was talking about yesterday. he thinks it's better to boost growth in focus on unemployment than to worry about inflation, and mario draghi yesterday, watching the speech, seemed to be nodding his head in

agreement. >> matt miller in centra, portugal. let's hear from our guest host. the head of multi-asset at royal london asset management. good to see you, trevor. you drew the short straw while matt is in singapore. so draghi due to speak any moment now. are you expecting anything surprising? i'm hearing he's taking to the podium right about now. >> from all the central bankers, we are expecting to hear -- gradual is the word. >> i will have to stop you -- mario draghi beginning his speech. let's listen in. >> but uncertainty permeates the economic outlook. recently, there have been questions about the durability of the growth outlook. and, as we will discuss over the next two days, the crisis has presented us with new issues and fresh challenges in

understanding the wage in christ in process -- the wage and price set in process. monetary the ecb's policy as outlined at last week's press conference, progress toward a sustained in -- aan in inflation sustained adjustment in inflation has been stable so far. with longer-term inflation expectations well anchored, the underlying strength of the euro area economy and the continuing degree of monetary accommodation provides grounds to be confident that as a stained convergence of inflation towards us will continue in the period ahead, and will be maintained even after a gradual winding down of our net asset purchases. but this requires monetary policy in the euro area to remain patient, and persistent, and prudent.

let me review the recent economic developments. growth in euro area turned out stronger than we had anticipated. the growth rate in the fourth quarter was the fastest to indicate. that in 2018, growth has moderated -- but in 2018, growth has moderated and has so far come in below expectations. in the latest, it has been revised down by 0.3%. questionsrompted some about the sustainability of the ongoing ask pension, which is unusual in such an early stage of the cycle. in historical terms, the current growth theory is comparatively short in length and small in size. since 1975, there have been five

growth phases in euro area -- the average duration from trout quarters, withne gdp increasing by 21% over that period. the current expansion has, to date, lasted just 20 quarters, and gdp is less than 10% above the trough. to determine whether the moderation has any bearing on medium-term growth, we distinguish between its underlying drivers. in part, of the moderation is related to supply-side factors. some of these are temporary in nature and have already subsided, such as the cold weather, cold winter weather, the large parts of the euro area. there may also be broader supply factors at play. in particular, there are increasing signs that capacity

constraints are starting to bind in some countries and sectors. capacity stands above its long-term average the euro area and in all large economies. the question is how much and how quickly terms will be able to increase supply to relieve these limits. adjustment is already taking place in the labor market. the labor force participation rate in the euro area has risen byadjustment is already taking place in the labor 1.5% since td now stands at an all-time high. businesses have been actively trying to expand capacity by increasing labor influence, employment has risen by 8.4 million since mid-2013 and is growing in nearly every euro area economy. been a jobdeed recovery.

compared with the previous growth phases going back to 1975, the contribution of labor to growth has been the highest on record, accounting for almost half of average annual growth. but the flip side of rising labor utilization has been the lack of capital deepening. whereas capital deepening contributed at least 0.6 percent to annual growth in all previous growth phases, its contributions to the current phase is approximately zero. this could explain why signs of capacity restraints are now emerging. growth has largely been achieved by applying more labor to existing capital. firms should increasingly turn to capital to lift capacity, and this is a process that has already begun, as business investment has picked up, and now stands above its precrisis

level. certainly, the conditions are in place to further foster investment, including improving profitability and support in financial conditions. this is in line with the latest european commission forecast for potential output, which projects an increasing contribution for capital and a decrease from labor over the coming years. all this suggests that the supply-side factors we are currently seeing are likely to only unwind over the near-term. it is likely to develop on the demand side. underlying on the metals of the euro area remains dollar. domestic row been -- domestic demand is robust and it's a

virtuous circle between employment and consumption still in place. this may reflect a pullback from the very strong performance of last year, as well as temporary factors in our main trading partners. undeniable is that uncertainty surrounding the growth outlook has recently increased. outlookside risk to the comes from three main sources that try to increase global protectionism granted by the imposition of steel and aluminum tariffs by the united states, rising oil prices triggered by geopolitical risks in the middle east, and the possibilities for persistent high financial market volatility. set against this, there are

risks to the upside, spinning mainly from the fiscal expansion in the united states and more in the medium-term from likely fiscal expansions in several countries in the euro area. continue to monitor these developments closely, but for now, i'm her growth expectations for the medium-term remain essentially unchanged, and we view the risks around that outlook as broadly balanced. policy, the key issue is how growth feeds into wages and inflation. it is well-known that the reactionary inflation dynamics to accelerating growth has been typically low in recent years, as i have discussed elsewhere, and here last year. there are a variety of factors that could explain this, ranging

from miss measurement to a changing relationship. has injected quite some uncertainty into understanding and forecasting wage dynamics, which persist today. blochere are signs that is now diminishing, and that the relationship is slowly reasserting itself. slack, suchres of as broad and headline unemployment, appeared to give a similar picture of lessening and spare capacity, although there is still high unemployment in all specific groups and wages. in keeping with this, the unexplained residuals in the standard wage felix curve for the euro area gradually reduce, and growth is beginning to pick up. compensation for employees has

lifted from its trough in mid-2016, and is now growing at 1.9%. so far, the increase has been mainly explained by the wage drift component, which stands to react faster to cyclical improvements in the labor markets. but annual growth and negotiated wages have already started to move upwards. wageng ahead, recent agreements and germany and other large countries like france and spain point to a continuation of these wage dynamics. there are signs that the restraint in public sector growth, which had in the past thrived on aggregate wage growth, is starting to relax. we are seeing an increasing domestic costs pressure along the pricing chain. domestic producer price inflation for no food consumer

goods is growing at the highest rate since february, 2015. producer price inflation in the services sector, where wages represent around 40% of cost, also picked up. that said, higher wage growth doesn't mechanically translate into higher inflation. even if wages continue to rise as we expect, we cannot exclude that structural factors beyond the central bank's control might hamper the transmission of wages into consumer prices. for example, more intense competition through globalization or e-commerce might act to compress margins. at present, we don't see much evidence that such factors have affected inflation in the euro area. that inflation expectations remain well anchored. here, we are seeing positive signs.

for example, the latest ecb survey of professional forecasters shows longer-term inflation expectations is stable at 1.9%. so overall, there is growing evidence that broad-based economic growth is beginning to generate positive pricing dynamics, but uncertainty arising from economic developments lingers throughout the various stages of this process. imply for ourhis monetary policy? the have set out three conditions that must be met for purchases to end. we need to see the convergence of inflation towards our aim over the medium-term. we need to have sufficient confidence that this convergence will be realized. and the inflation path needs to show resilience, and be

self-sustaining, without additional net purchases. assessing these conditions is a forward-looking exercise, because the full effects of monetary policy are felt only after long lapse. we have to rely on our projections, the probability distributions surrounding them, and the extent to which they depend on monetary policy action. in terms of convergence, the latest projections seeing headline inflation reaching 1. 7% in each of the next three years. inflation, excluding food and energy, tripled underlying price pressures, is expected to climb to even higher levels over the same horizon. these are the leaders in a series of projections which foresee inflation converging

over a policy relevant medium-term horizon. importantly, over the course of the past year, there convergence and the held firm, timing of when we expect to attain our objective doesn't appear to have receded further into the future. inflation ise in also rising on the business of two indicators we have been using to assess the probability of inflation convergence. the first is our own internal estimates of the distribution of future inflation outcome. constructed a measure that combines the implied inflation distributions from a variety of sources. euro systems stock projections, model-based estimates, market-based measures of expectations, and surveys such as espf.

these sources are then waited by their historical ability to accurately forecast inflation. that aggregate probability of distribution, of two-year ahead inflation expectations, has evolved in three dimensions that provide confidence that inflation adjustment is sustainable. the mean of the distribution has increased, the dispersion of the distribution has narrowed, and the downward skew has declined. second, we have been monitoring a range of measures of underlying inflation, including model-based statistical measures such as what we refer as the pcc ci. inflationf underlying typically provide early information at the rate at which inflation is stabilized, once all the noise that is affecting

current observers has faded away. inflation has shown a clear upward trend, the improvement in wage growth, domestic producer prices, and inflation expectations gives us more confidence as resource utilization continues to tighten, underlying inflation will eventually begin to rise. finally, market pricing provides some comfort on the resilience of an nation to the anticipated gradual ending of asset purchases. in place in expect -- inflation expectations are influenced not only by economic fundamentals and the cumulative impact of our past policies, but also by market expectations of future policy settings, including net asset purchases. week,of our meeting last

the medium market expectations for net purchases beyond september, 2018 was small. it follows that the contributions to our inflation outlook for next acted future net purchases was also modest. assessment,of this last week, the governing council concluded that progress toward a sustained adjustment in inflation has been substantial so far. as we announced we anticipate 2018,fter september, subject incoming data confirming our medium-term inflation outlook, we will reduce the monthly case of the net -- the monthly pace of the net asset purchases until the end of december this year, and then and net purchases. while a knology the increasing uncertainty, shows that we are confident that

the projected convergence in the path of inflation will occur with sufficient probability without further net additions to our stimulus. the economy and the inflation process are developing an underlying strength that was previously absent. as a result, monetary policy can accompany the economic recovery. but the projected convergence remains reliant on the substantial, cumulative impact of past policies, which are locked into the supportive financial conditions present today. significant monetary policy conditions are still needed to support the further buildup of domestic price pressures and headline inflation developments over the medium-term. decisiont, unanimous

insurers that the necessary monetary policy support remains in place. this support has a number of elements, including the net asset purchases until the end of the year, a sizable stock of acquired assets, and the associated re-investments, and our enhanced forward guidance on a key ecb interest rate. reflect thes also desire of the governing council to retain the ability to react to potential future shocks, to ensure the sustained convergence of inflation to our medium-term name. -- medium-term aim. they emphasize key elements of contingency into our forward guidance. by clearly specifying and communicating our reaction function, we are able to act in a consistent and predictable

fashion. reducein this way helps any market uncertainty that might arise concerning our future action. let me restate our recent decisions on our policy instrument. nd of, are anticipated e asset purchases is subject to incoming data, confirming the medium-term inflation outlook. can always beapp used in case contingencies materialize that we do not currently foresee. announced that we intend to maintain our policy of reinvesting the principal payments from maturing securities purchased under the asset purchase program for an extended time after the end of net purchases. case, it's another

element of optionality, and for as long as necessary, to maintain favorable liquidity conditions and an ample degree of monetary accommodation. conveyed our expectation to the key ecb interest rates will remain at their present levels at least through the summer of 2019 and again, optionality for as long as necessary to make sure the evolution of inflation is aligned with our current expectations of a sustained adjustment path. this enhanced forward guidance clearly signals we will remain patient in determining the time of the first rate rise, and will take a gradual approach to adjusting policy thereafter. the path a very short-term interest rates implicit in the

term structure of today's money market interest rates probably reflects these principles. watchesated in the ecb conference earlier this year, after the end of net asset purchases, the main tool for shaping policy stance will become the path of our key policy rates and the forward guidance about their likely evolution. stated that wee stand ready to adjust all of our instruments as appropriate to make sure inflation continues to move towards our medium-term goal of inflation close to 2%. adjustments to our instruments would remain predictable, and they will proceed at a gradual pace that is most appropriate for inflation convergence to

accountate, taking into continued uncertainty in the economy. in short, monetary policy in the euro area, this will not surprise you, will remain patient, persistent, and prudent. thank you. [applause] >> that was mario draghi giving his keynote speech at the central bank foreign -- forum in sintra, portugal. let's recap what he said with trevor from royal london. let's compare notes. one of the things that stuck out to me was mario draghi emphasizing monetary policy still accommodative. >> he said what i expected him to say. the word gradual. a lot of graduals htere --

there. the tightening will be gradual. facesl see if the ecb rates prematurely and they will snuff out capitals mending from the cycle which means you will get more wage pressures and more inflation, not good for anyone. he is trying to tread a thin line, saying, there is a tightening path ahead but not yet appeared -- not yet. he said there were uncertainty about growth outlook and we have a change forecasts for now, which sounds like there is a dovish tilt. fact did talk about the that they're trying to let the market know the main policy tool will become rage death rates rather than the balance sheet and what does that mean in terms of assessing risk and recess at in the eurozone? >> it is tricky because you would think, everything else equal, if you do not run down the balance sheet, interest rates have to go higher. you have two ways of tightening

all see, qe -- quantitative tightening and interest rate rises come he says interest rate rises is the way they will do it but in reality it will be a long and drawn out process. , itaking you to the euro mention the market reaction, a different one if i could show you this chart up last year with on yields in the euro's fight and we have seen the euro weaker in this session. extended losses just a little bit. are we at fair value on euro-dollar? >> i have no idea, i think the euro will go lower because of low economic growth. the uncertainty about growth he referred to was not in the u.s., the u.s. is still strong and capital spending is picking up because of the tax cuts and fiscal stimulus. in europe and china, you see weaker activity. as a result, not surprising the euro will reverse strength

against the dollar last year. nejra: mario draghi in terms of market prices endorse market pricing of the ecb rate pass. -- path. did that take drama out of sintra? markets on board with what ecb is doing? >> i do not think it was intended to be dramatic, the speech. the delivery and content was as expected, meant to be, let's kick all of the tires. i do not think it was noteworthy. try to say this is been a short business cycle and he talked about 30 one quarters being the average expansion in the euro versus this one being only 20, five years. in america, the second longest substantial on record. euro started late. it will be the end of u.s. business expansion which is likely to pull europe back in recession and his private -- it has been a long business cycle

and we are in the last art of it. -- part of it. we are likely to see the u.s. full everyone down. nejra: what risk does that leave for the ecb if the u.s. is late in the cycle and already seeing a huge divergence? >> in a sense, it could help get the growth picture looking ok for the time being because the u.s. is strong and the dollar is strong which will help european exporters. what will determine where europe is setting is whether china stimulates its economy because there was no real european think thepeople strength of the uptrend last year but domestic credit was tepid and it was all about exports to the u.s. and china. if china gets its mojo back, and the u.s. is still strong, more to go in the cycle. not clear inflation is under control and further to go. more about the exports from

europe that domestic policy, which is not doing much. draghiinflation, mario came out in support of the phillips curve during the speech, particularly in the eurozone come is alive well in the eurozone? trevor: it varies from country to country. he talked about downside risk from trade war's, potential geopolitical risk pushing oil prices up but did not mention italy. the euro crisis is beginning to return to us, which often happens when growth stalls. another source of risk, differences between countries and germany phillips curve is working and wages are rising rapidly. armany every day is getting massive invisible benefit from being single currency and low interest rates and a weak currency. italy and the south of europe does not benefit and they need fiscal transfers. this is something that was not

addressed in the speech by mario draghi appeared -- mario draghi. nejra: up next, trading blows, president trump targets tariffs on $230 in chinese imports, live in beijing with the latest. this is bloomberg. ♪

is "bloomberg surveillance." beijing has out to retaliate on president trump's tariffs on $200 billion of chinese imports. it deepens the trade dispute between the world's two biggest economies and triggers a global setup of risky assets and a flight to havens. summers said the

psychological effects of a trade war could be more important than the real effects. is not likely to be large enough to have direct effects damaging the economy but it the psychological effect of facts and uncertainty and that could be serious. we are getting later in the cycle of escalation. nejra: joining us now is our china correspondent tom mackenzie. how does china plan to respond to this latest tariff salvo from donald trump? it has limited options compared to the u.s. when it comes to tariffs. tom: the scales are tilted in the u.s. favor when it comes to tariffs because the u.s. imports with of goodslion from china versus $150 billion if you go with the imf number on u.s. exports to china.

they cannot go toe to tell with the u.s. when it comes to tariffs. they may increase the duties they propose regarding the first $50 billion worth of retaliatory measures. they propose tariffs of 25% or duties up 25% and those could be increased. other measures, we are for from businesses in china, involve unofficial measures. for example, stepping up inspections imports and delaying licensing, putting hurdles in place for u.s. businesses operating in the chinese market to try to pressure them and pressure their bottom line. some of the measures are starting to take effect and people are concerned. china could also initiate a boycott of u.s. one of and we weaken-- we did me -- the yuan. the chinese have tools but at

the tariff market they cannot match the u.s. and they are looking at $450 billion worth of tariffs on chinese goods, almost on the -- all the chinese exports to the us and the chinese hope the pressures from american farmers and consumers and corporate will lead to some kind of change between now and july 6. that is looking unlikely. july 6 this when things start to kick off. nejra: a question of who will blink first. thank you to tom mackenzie in beijing. us.or is with we will talking with someone from ubs yesterday and they said we are not going to a full-blown trade war, trade will just shift around the globe. , is it morehe case from a portfolio management perspective of relocating risk rather than taking risk off the table? trevor: it is a bit of both.

as with many parts of the donald trump policy, this is misguided. he thinks trade is a zero sum game and of china just china exports from america, america loses, the flipside is china is supporting u.s. dollars through its capital and dollars flowing back into america from chinese investors. helping keep interest rates and mortgage rates down. inflationary for americans to slap tariffs and it hurts american growth and could push interest rates up and makes things more expensive for u.s. consumers. it is a risk negative at the margins. at the same time, you have other factors like the trump tax cuts. it is not very straightforward. it adds to the general mood of being late cycle and we will see more bursts of volatility. nejra: risk negative, what does that mean for the dollar?

some say it would strengthen the dollar and other say it would weaken it? >> main focus on the dollar is the central banks and the fed is focused, their growth is looking good and wages are starting to rise. as a result, dollar will go higher. at times, the dollar can be a safe haven. general risk, dollar is a safe haven currency, risk so bad. the fed from hiking rates and turnaround the dollar can be week. -- weak. the risk and terms of trade spats does not in the u.s. cycle. nejra: what does this mean for emerging markets? a double where me from emerging markets, the general risk off means money outflows from em, and if you get the strengthening dollar, until you reach the point a good start to be negative if the fed holds off on tightening, is that the double whammy? trevor: we have a slowing china

and a strong dollar, a bad combination. emerging markets in aggregate, many countries, export commodities, the import dollars. they are dollar financed and as a result, you do not want to see commodity prices struggling while the dollar is strong. commodity prices have not we can at the moment -- weakened at the moment, if we see a stagflationary picture over the summer, it could be increased risk for emerging markets and we will be underway emerging as a runs. concerned about europe. european banks in -- and massive windows and dollars to trade financing in asia. they have managed to do dollar lending because of large dollar deposits from u.s. corporate and they are taking that money back home. -- tovable we will see try to get ecb dollars to help european banks if the slowdown intensifies.

the interesting thing is, most victims of u.s. tightening our non-american. ask, thewas about to increase in the trade is the could lead to underweight emerging markets, concerned about europe, are you positive on u.s. as a -- assets? trevor: we are, economy a strong and interest rates at the same level as inflation targets and you would expect real interest rates, fed funds minus inflation to be at least 2% before a recession starts. none of the interest rates are hurting at the moment. u.s. seems to be doing pretty well which helps the positive view on global risk assets. you get worries about the trade spats and other things spoiling the short-term. nejra: we have seen the small caps outperform the s&p 500, are they the safest bet? >> they tend to be volatile and they risk trade. nejra: and a trade war?

trevor: maybe. i would hesitate because of the makeup varies between large caps on small caps. theimmediately obvious winners and losers from the trade war's. nejra: what is the cleanest way to play trade tensions or a trade war, through equities, fixed income, avoiding caps currencies? you need to involve currencies -- trevor: a clean way to profit neither from the trade war happening or not happening. it is one of a series of sources of geopolitical risk of uncertainty and the best way to deal with that is, when there is a panic, a severe panic and you see the victim volatility spiking high, be a buyer and not a seller. if the first reaction of markets is to overreact. buy during the panic some might not during the recovers, that is what we have been doing and is a

trading range of the summer, during the panic to buy and during the rallies you like that. -- during the rallies you might not. -- lighting up. nejra: elon musk says a disgruntled employee broke into their operating system and sent data to third parties. details next. and coming up -- wednesday at the ecb forum, mario draghi speaks alongside his counterparts from the fed, boj, moderated by our head of economics, watch it live on bloomberg tv, radio, and on live go. this is bloomberg. ♪

nejra: economics, finance, politics, i am nejra cehic in london and this is bloomberg surveillance. tesla has been hit with extensive sabotage by an employee. elon musk told staff a disgruntled worker broke into the company's manufacturing operating system and sent highly sensitive data to unknown third parties. tesla is conducting an investigation into the matter,

quitting whether the employee was acting alone, or with any outside organization. joining us is our executive editor for global business. trevor is still with us. jackie, fill you, us in on what we know so far? jackie: elon musk sent a message to his staff on sunday night saying that, there was a monday mail lighting a fire in the factory and that was preceded by the sun that you mail liking the fact there is a potential saboteur in the company who did not get a promotion and was taking action. changing the code on the operating system and exporting huge quantities of data outside the company. nejra: this is at a bad time for the company. jackie: this month, they are trying to ramp up production of 5000 model 3 units per week to

get their profit goal. we are well into june. they want to meet the targets by the end of june and it is a sensitive time for them. nejra: about a comment from elon musk who said there are a long list of organizations that want tesla two. come he said if they are willing -- to die, and he says maybe they are willing to cheat the other ways besides emissions. what did he mean? jackie: he feels he is getting it from all sides, if not from oil and gas companies, other companies like the short-sellers on wall street, who he blames for convalescing for getting to him. only the paranoid survive. this is probably part of that. nejra: trevor, on the tech sector more broadly, i have a chart showing that, according to blackrock, s&p 500 tech stocks look reasonably valued,

particularly comparing them to the time of the tech bubble. , the ratioh stocks premium for the s&p 500 significantly lower than during the tech bubble. are they reasonably guide? trevor: you could set -- valuable? trevor: you could say reasonably. many say about the strength of the technology sector wages justified, sales strong, multiple years of expanding their markets. the tech sector is ok, economically sensitive sector. if i were worried about the u.s. economy slowing down, i would be more worried. , ifay see valuations go up this is a long business cycle, if there is weakness -- if the weakness around the world allows inflation to ebb and we have interest rates staying low the next two years, three years, liquidity will want to chase the good stories and that is what we will see in tech. too early to say game over for

tech, a strong fundamental story and the possibility in the evaluations -- that evaluations could go higher. nejra: things attract you more? trevor: more focused on the consumer trends. then industrial trends. nejra: jackie simmons, and trevor from royal london asset management, thank you. "bloomberg surveillance" continues, guy johnson and tom keene will talk to the indonesian finance minister at 11:00 a.m. u.k. time. this is bloomberg. ♪

tom: markets recalibrate, slower economic growth, president trump

escalate the trade war? wanting to levy tariffs on all chinese imports, the chinese call it blackmail. equity futures off the announcement they plunge, dow futures down nearly 400 points. yen and dollar are stronger. murderers and thieves and so amonglse, many fears separated families at the mexican border. this is "bloomberg surveillance." i am tom keene and guy johnson is in for francine lacqua the news flow in america is extraordinary. last night, what an escalation in the amount of the terror in the trade war -- tariffs in the trade war. guy: why our markets now reacting? something that is different than before, we have been rapidly ratcheting higher, why does it

generate this market reaction? tom: we have a real acceleration and i would suggest going from 50 billion to 200 billion, but also about tariffs. that is the amount of goods, not the size of the tariffs that would come out of the study of future terrorist. let's get to the first -- future tariffs. let's get to the first word news. >> oil prices -- west texas intermediate fell by $66 per barrel, opec aiming for a modest production food in a bid to bridge the gap between the russian push for a big gain and iran insisted that no change is needed. the cartel meets this week. british prime minister theresa may faces a close vote on brexit in the house of commons is weak, defeated on key legislation in the house of lords last night. nonelectedn the upper house approved a

meaningful vote for parliament on any brexit deal reached with the eu. some lawmakers are trying to prevent the brexit scenario that is this is fear. kim jong-un is in beijing where he will brief the chinese president about his meeting with president trump. it is his third trip to china since march and he will ask for their backing about the nuclear rising the korean peninsula. both parties are calling on the donald trump administration to end the separation of families caught tried to enter the country legally. democrats have seized on the issue and amending the migrant families be kept together. some republicans have joined in and the administration says the separations are required by law. three matches on tap in the world cup, columbia versus japan, and russia versus egypt. england begin its campaign for the cup with a thrilling win over tunisia. harry kane one it with a header -- won it with a header.

global news 24 hours a day, on air and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you. guy johnson, explain the english victory, what does it mean for england after all of the years of struggle for the old regime. a new set of players, wasn't it? guy: yes, a group of players who came up through a system that may be allows us to interchange more easily. we left it late. in the game. every journey starts with a single step. i think we need to finish second in the group because if you win, if germany continues to struggle , and we win our group, we will point resilient. not thrilled -- play brazil. not thrilled with that. tom: with the many shots of england against tunisia, a great

set of tunisia goalies or england could not put the ball in the net? guy: let's go with the former. running.f and i did not think the second half was a great game of football until the last couple of minutes. , a quieter day at the world cup. not quite on the data check. we will do more throughout of "surveillance." dow futures -365, over -420 minutes ago. curve flattening, a risk off feel. the euro is weaker. popping to the vix 14.27. yen and dollar stronger. an interesting set of em weakness feared death weakness. -- weakness.

candidate is weaker at turkish lira with new weakness. the let's talk about what top stories in europe, we have a stoxx 600 trading down 9/10 of 1% and the german market is weaker than most and most exposed gear toward the straight -- trade story. bund,d the german interesting to see gold not moving that much to the upside at this point. turkish lira is under pressure. the more recent move in the turkish lira was starting with the land which got hammered yesterday -- rand which got hammered yesterday. maybe that could be a risky trade this weekend in the elections. an asymmetric story around that for the lira. tom: emerging markets, jpmorgan emerging-market index.

where we are from the election in the united states, the donald trump with a weaker emf stronger dollar. a long-term trend is strong em. off a cliff is the only way, this is showing the plunge in em. one of the ideas is the tariffs. it is always important to hear from lauren summers -- larry summers, the former secretary of treasury on the trade war. we need to hear from them at sintra. here is larry summers. >> trade war is not likely to be large enough for direct effects damage the economy, but profoundly, but the psychological effects, affects increasing uncertainty could be serious. we are certainly getting later in a cycle of escalation. tom: the news flow is extraordinary.

we talk about trade with thomas mckenzie in beijing. respond before the tariffs are put in place, or do they get out in front of this and respond? as mr. lighthizer studies with consumer products to go after? >> interesting question, the first tariffs announced on friday, $50 billion, china said they would put in place the same number of terrorists -- tariffs. now, china will forcefully react to that. they cannot go toe to toe with the u.s. because it imports far less, $150 billion versus the u.s. which imports about $500 billion. do the measures china will take, given that scenario, they could put pressure on the corporate's in china. i spokealready heard,

to sources at a major american investment bank looking for the advantage of the market opening, they are very concerned the businesses will be impacted as a result of this. we spoke to the china-u.s. business council head and he said members are being impacted by things like licensing applications being held up, inspections at ports, those are playing out from china. other tools from china. point guards of u.s. products that we are not. july 6 is when things could escalate. tom: i look at the simplistic macroeconomics and the attacks on american consumers, and an implied weaker economic growth in china. where is chinese gdp now, chinese economic growth, where would it be given 200 plus -- $250 billion of goods under

tariffs? >> they are still forecasting, -- thenese, between 6.5 data we have seen out of china in the last few weeks is softening. a surprise in the retail number. today, injecting $30 billion in terms of medium-term lending. that is the most that has been injected in june in a month. since december of 2016. there is support from the pboc. once an area may be they offer up subsidies, sheltered the businesses, they may stick up infrastructure spending. a more complex scenario given we expect a slowdown in the second half, combined with the $250 billion, could be more in tariffs. difficult for the chinese but they think they have a political considerations of the u.s., they think they are in a strong

position despite headwinds. that is a conflict. it seems the u.s. considers, giving the strength, they can weather the storm and we heard that from the council of economic affairs chief economic advisor to donald trump. this is a source of tension between beijing and washington and difficult to see how it is resolved. guy: the european companies benefit from this? >> they could. if you look at companies like boeing, which relies on chinese for sales, a question as to whether china and state-owned in lines start to switch up to airbus. it seems many sales are based in , that is a potential unlikely scenario, that they could play around with those orders. bmw exports a large number of its cars from the u.s. market to china. adversely asacted

a result of this. potentially there is room for european corporate to benefit. commodity suppliers as well. soybean producer in brazil, maybe things are looking brighter because china is trying to diversify the supplies away from u.s. soybean. difficult to figure out the winners at this stage in the game. some of the european corporate maybe looking at opportunities. guy: tom mackenzie joining us from beijing, thank you. let's talk to our next guest. max kettner of commerce make cross asset strategies. -- commerzbank. why is it this turn of the wheel, bringing tension higher? we are in a situation where we see markets getting spooked, what has changed? max: it is much more concrete all of a sudden. when you look at what happened in the last three months, four

months, always the risk scenario. all of a sudden it goes from a risk, something we can protect against that you have to figure out the probability of that happening, there was this story where you have to figure out what the probability is. now, we are in an environment where it is out of a tail risk into something more concrete and moving towards a base case scenario. that is something spooking markets. if i am selling out of emerging markets, getting spooked about what is happening with the trade story and factoring that into my market portfolios, where do i hide? we have noticed in the market is the outperforming in the russell, small, domestically oriented stocks are outperforming. the russell outperforms. you are seeing it in europe as well. where do i hide?

if not small caps, where else? max: global equity patrol, yes, that is an option. you need to realize that, if you have -- you are banking on the small-cap outperformance because of tariffs, you are saying the dollar goes up, when the dollar is rising, small caps outperforming because they are more domestically focused and benefit from the dollar strength , at least not getting hurt as much as board export sensitive large caps. part of the story is an fx story. will bank on further outperformance of small caps versus large caps, there are two stories. i am protecting myself against tariffs and long dollar. if you are on global equity portfolios and no place to hide, we have seen over the last 18 months, the items in the portfolios have outperformed

quite drastically. that is in europe and japan and in the u.s. part is a broader cyclical element of the portfolio that is outperforming. if we see that today and a story coming through to the markets in the next coming weeks and months , there is a basis, particularly in cyclical equity markets, europe, japan, going into different staples, real estate, utilities, you name it. guy: max kettner joining us from commerzbank. coming up, john mickelthwait has a conversation with the -- with lloyd blankfein live from the economic club of new york at level par p.m. in new york at 5:00 p.m. in london. this is bloomberg. ♪

"bloomberg surveillance." guy johnson and i are looking at markets. showing -33 on the s&p futures and dow futures are -359. yen is stronger and dollar is stronger. next screen. dollar canada and turkey showing cross weakness of em and other currencies. i am walking a blended em -- watching a blended em index. on the political front, germany and angela merkel, and in the united states, perspective from james hertling in london but has met many a year in his united states as we look at the issue of migration, immigration. max kettner of commerzbank is

with us. country uses that phrase migration, maybe they say immigrants, one says immigration and there are the different keys. in thehe same as germany united states as this debate? >> good morning, tom. the dynamics are different. the political contours are similar but in the united states , what is happening, donald trump has broken a lot of china -- shattered norms. where he is going and what has a lot of people -- not i large people -- non-ideological people, first ladies, you look at the words of the statue of liberty, huddled masses yearning to be free, he is messing with that. that gets under people's skin in fundamental ways. across party lines. remains more of a

partisan battle. tom: in germany, there seems to be a timeline, where are we through this week with angela merkel and the national debate? essentially, they agree to disagree and to stop the dispute for a couple of weeks until the eu summit at the end of next week. trying to get some sort of i lateral deal with the eu countries -- bilateral deal with the eu countries. there is a populist new government in italy, the spanish government today call for a humane policy on migration. the president of france and in germany, it is looking like a flash that will reach a peak towards the end of next week. this a margaret thatcher

moment for angela merkel? that is not an easy question to answer. if you mean her party will bring her down in a back room stabbing in the back, i would say no. first of all, there are a number of people, the young, more conservative people in her own party without a doubt who would like to get rid of her. austria with the young chancellor, with a more hard-line policy on migration. hungry,:. nevertheless, those driving this, they are profoundly parochial with good regional elections in october and that is all they are concerned about. i do not think they would regard

it as in their interest to bring national instability. max, you are from bavaria. what does it look like from that perspective? from where you come from? of bavaria and the rest of germany is fascinating. it has a long history that has generated a number of different outcomes. let's put it that way. when you talk to people at home, what do they say about how different germany feels to bavaria right now and help bavaria feels different from germany? ,f angela merkel is replaced issue replaced by a bavarian? -- is she replaced by a bavarian? willwe'll angela merkel --

angela merkel be replaced by a bavarian, probably not, we have a strong minister in the 1980's and 1980's who was the big bavarian physically and metaphorically. even if he did not manage to get into chancellorship. hard to see a bavarian going in there. the key point, we have elections in bavaria. from is a self confidence the christian social union in bavaria, there will be no governing by ourselves. for most of bavarian history and germany's history since the mid-1940's, that was true. only not true once. the problem is, with a more right-wing party gaining share in bavaria as well, particularly in the last general elections, the fear is that basically it has to go much more right-wing

to recapture the votes. you basically here a lot of people saying, we have to switch more right-wing. somethingssibly not only restricted to bavaria of a global thing. right-wing alternative -- alternative right-wing parties are moving the discussion and moving the democratic movements more right-wing. democratic party's have been forced to be pushed out more right-wing. tom: these are sensitive issues, which constituency dust angela merkel need the most right now -- does angela merkel needy most right now? max: her own, you do not have a lot of people that could follow. when you look, since 2000, when she stepped in as the chairwoman of the party, she has gotten rid of most of the people that were opposing her.

was a very vocal person on the finance ministry, she managed to get rid of them. they love conservative forces that were ousted. -- a lot of conservative forces that were ousted. there are young people who could potentially be taking over. that is more a theme for the next 10 years. but we have right now is an environment where angela merkel has to think about transition plans. she has to think about who is coming next. if we have the bavarians leaving the coalition like they did in the --0's, you will have the eu dropping below 30%. the bavarian party as its own has 6.5%. cdu would be the somewhere .6%, 27%. 7%.6%, tony

-- 27%. we have a lot more fraction in german politics. that ultimately will not go well for european integration. guy: the french and germans are meeting today. on that point, where does that meeting today go? if you are macron and look at germany, what do you see and what do you expect to come out of this? can you exact a price out of angela merkel, or is it that nothing will happen and that is bad news for the french leadership? >> it is not that nothing will happen but macron will do everything you can to support gokel because if she were to and whoever replaced or would be a weaker leader, we would have far less expedients. -- it wouldsibly

possibly be from the more conservative wing of the party, not the one that wanted -- to reset of europe -- kick grease out of the euro. i would say thank you but no thank you to run. -- ,ac -- macron. some euro area reforms, not all that macron wants. hertling in london, thank you, max kettner will stay with us. coming up, a conversation with the finance minister of indonesia, the emerging-market story front and center. this is bloomberg. ♪

guy: guy johnson in london, tom keene in new york. a busy morning for the markets. let's take a look at what is happening. this is the story.

see, downas you can now. the european markets were significantly more on offer earlier. we are continuing to the german ten-year. -- we are continuing to see that did add to the german ten-year. the rand really under pressure on nonetheless -- over the last 24 hours. really struggling with the global macro backdrop. employeetled tesla since highly since the data to unknown third parties -- sent highly sensitive data to unknown third parties. larry summers says maintaining sound growth and getting full employment will be the top

banks, notcentral guarding against inflation. our most read stories on the terminal, the value of european etf's that are changing hands. that is according to europe's largest trade or -- trader. china has vowed to retaliate against president trump's threats of tariffs. let's get a bloomberg "first word news" update. >> the trade dispute between the world to give two largest economies is getting worse. beijing called the move extreme

pressure and blackmail. that.s. is targeting goods are produced in china. indexs benchmark stock fell. the president agreed to alter the 1953 armistice halting the korean war if north korea agrees to give up its nuclear weapons. that is according to secretary of state mike pompeo. the armistice would be replaced by a so-called peace mechanism. former u.s. treasury secretary larry summers says central banks are badly equipped for the next session. he says central bank should be wary of rates just because inflation is running slightly above targets. oprah winfrey just hit another milestone. she is now one of the world's 500 richest people. for fortune hit $4 billion yesterday. that makes her the first black african-american -- that makes

for the first black female on the bloomberg billionaires index. global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. bloomberg. guy: thank you. speaking just over an hour ago , mario draghium says the central bank has to take its time when it comes to lifting interest rates. >> list -- this enhanced forward guidance sends clear signals that we will be patient in determining the timing of the first rate rise and take a gradual approach to adjusting policy thereafter. guy: joining us now from the ,orum, luigi zingales university of chicago finance professor. i understand it was 39 degrees yesterday, but mario draghi is

playing it cool. when do you think we will see the first interest rate hike from the ecb? luigi: if i have to interpret what he said, it is probably not for a year. room to what the circumstances name, -- circumstances mean. he is going to be patient, persistent and prudent, so i don't expect him to increase interest rates anytime soon. how far do you think the ecb will get in raising rates before it has to start thinking about cutting? how much powder do you think the ecb will have going into the

next --? luigi: it depends a lot on when the downturn will come. the most serious issue is we are seeing some softening and mario draghi spoke about this. we are seeing something that is a bit strange in this cycle, so there are some contingency factors. i think the big concern is what happens in the global situation, especially international trade. inhink this will put the ecb a bind, in a difficult situation. we will look to trade in our next section, but the fact be an immense to messaging of control by the we aren, by mr. draghi,

in control, we know what we are doing. do you buy it? are these central banks really in control right now? luigi: excellent point. i think they are in control of what they can control which is monetary policy with some limits. they cannot control trade, they cannot control political issues and those seem to be the big shocks coming up. it would probably be driven by -- we cannot expect them to control politics and i think they know that. tom: what are you listening for? it is one of the most interesting conferences of the year. when you got off the plane and you got in your helicopter and you went to sentra, what is the thing you are listening for in portugal? angi: no helicopter, just

uber. thedes that, i listen about disappearing curve and i thought it was quite interesting because they search hard to find the curve and surprise surprise, they find it in house prices. it seems house prices are very sensitive to the cycle and wages are not, which raises the question of why wages are not. it seems specific of the market for wages and maybe there is not enough power on this side of labor. tom: max kettner also with us. you and i are stuck in studio. how does this link in? how do we link in ecb officials and world officials meeting into the real world of market action? that is two very important

points that luigi just made. when we look at inflation, we have been discussing when will the inflation pick up over the last 8, 9 years. when you look at some of the forecasts of the ecb and the bank, it is going to approach 2% of the next 12 to 18 months and it just never happened. do we really understand what is driving inflation right now? on the academic side, there were a couple really interesting papers the last two years where they said it is global factors that drive inflation right now. they're getting much more interconnected. that is much more global. how that plays in the markets, when you look at the escalation -- it links it in that way and

it is global factors, then a trade war would also be affecting the u.s. economy and the chinese economy but thinking about where some of the chinese goods are actually produced like south korea and japan. that will depress global value chains and that will also depress inflation, probably some of the liquidity drainage on a global perspective, that is .till a long way to go guy: larry summers says we should not be worried about shouldn't be worried about right coming -- running the economy hot. the global economy will not withstand another downturn in a good way. does larry summers have a point when he is thinking about the way the central banks are overreacting right now?

a point inink he has saying it is going to be very dangerous if we have a big recession today because we are running out of calls. i think today, most people will 4%,e that a target of 3% or there is nothing magic about 2% except it is a even number. the point that central bankers are very conservative, they are too afraid to move that target because they are afraid of what this will imply. little doubt that if we were to decide today, we would not decide for 2%. luigi zingales and max

kettner both sticking with us. coming up tomorrow at instant -- in sintra, mario draghi and the fed. that conversation moderated by bloomberg. you can watch it live on bloomberg television or listen to it on bloomberg radio. this is bloomberg. ♪

tom: markets moved last night. guy johnson in london, i am tom keene in new york. a quick check with equity markets. guy johnson mentioned the african rand. dow futures negative 356.

futures, curve flattening as well. stronger yen, stronger dollar. solidx moving out to a 14. i mentioned canada, turkey, everything taking it on the chin versus the yen and dollar. kettner with us is max and joining us now, following madonna to portugal is luigi zingales. madonna and america, the giant of entertainment. zingalesra and luigi following on the trail. how is portugal doing? within the southern expanse, we have talked about italy, a little bit about spain and

barcelona. how is portugal doing? luigi: in soccer, it is doing very well. besides that, i think economically, it is doing much better. they went through a very tough time, a program with guidelines but they are coming out of this expansion of fiscal and i wishs a pickup italy had the same prospects as portugal these days. tom: as you know, the idea of economics is to do more microeconomics and that is the analysis of substitution effects. tradebstitution effect of is if president trump goes on a trade war, somebody else will step in and pick up the trade. will europe step in and be advantaged by the trump tariffs?

luigi: i think it could, but honestly i think these days, we are so interrelated that it is not some game where somebody gains at the expense of somebody else. i think we might all lose and if this trade war escalates, we run the risk of losing on all fronts , in the u.s., in europe, in china. i think it would be very costly for everyone. guy: does europe lose more? europe, by not being at the table almost, dealing with its other issues, but it does not have that single voice it can take to the table. does europe in the being the big loser in all of this? i think you said the magic word. they don't have a common position. we talk about europe and the euro.

when it comes to trade policy, there should be a common trait policy but everyone tries to get an advantage. i think germany clearly has a strong interest in allying with china because they have a huge amount of trade going on, but they don't want to lose their u.s. export market. a lot of it in between a rock and a hard place. they can play strategically and squeeze in or they can be crushed between the stronger sides. max, 2017 was about buying the euro. 2018 feels like a very different place. why as a non-eurozone investor what i buy eurozone assets right now? max: it is different from an fx perspective. i was buying europe because i thought there was going to be more integration, less political expectationis the

of the ecb raising rates at one point, very not so shallow exit from qe, all of these aspects are really off the table right now, so we are not really talking about integration anymore, a very aggressive exit from qe. there is not really much of a basis for non--- for non-euro investors. i think it is particularly because people are still long european equities. becauses getting hurt people expect so much from europe. it is more a confidence thing rather than the actual numbers. of x percentause of gdp. confidence has been building up since may 2017. what isfessor zingales,

the imf's mandate to help china? sense inke some president trump, if they can make him reason. i can see that president trump has some reasons to try to realign the balance of trade, but i don't think the way he is going about it makes any sense. maybe it is just a political ploy, to play to the base but strategically, the negotiation is not make any sense. what the imf and the wto are going to do is try to make president trump reason. guy: luigi, think you very much. enjoy the rest of the forum.

luigi zingales of the university of chicago. max kettner of commerzbank is going to be sticking around. is what you can punch and to pull out all the amazing charts. this is bloomberg. ♪

guy: welcome back. 53 minutes past the hour. tom keene in new york, guy johnson in london. to the currency world, but it is not ready for prime time. it may never be. ilk are 2 -- our too unstable and the subject to -- and subject to too much manipulation. galia benartzi of bancor network here to discuss this. the globalkind of

central bank and it is throwing a lot of shade on the bitcoin world right now. galia: thank you for having me. this is such an ink -- interesting and exciting topic. fundamentally from a technology perspective, the underlying blockchain today cannot process the kind of volume that the central bank is processing. it is justified in that sense. these technologies are developing extremely rapidly. we see things like the bank or orquidity -- the banci liquidity network expanding. that is quite a big timeframe, so are we at the beginning? when do you expect financials to

start using blockchain quite seriously because i think there was a comment that came through from the ripple founder and he said we are quite a long way away from that and i am interested where you think we get to that critical point, that similarity moment for blockchain. galia: it is a big range of time and a big financial industry we are talking about migrating from an existing system to a potentially new system. development,n the but we also see exterior -- experiments like commerzbank just settled international elements on the blockchain earlier today. the rate of acceleration is also happening faster than we have ever seen before. i would expect within a year, we will have multiple companies running the transactions on blockchain's. -- on blockchains. what is a fair value for bitcoin? galia: that is a loaded question.

bitcoinexciting about and the other cryptocurrencies that are coming online is that we have an opportunity to reprogram what is fair and how prices are determined. prices are determined algorithmically. we agree on prices which we know introduce flaws of human manipulation. tom: galia benartzi with bancor network, in support of where bitcoin is at. max kettner, thank you so much. huge news flow in america, this is bloomberg.

tom: markets recalibrate for

slower economic growth as president trump escalates the trade war. he threatens to leverage tariffs on china. chinese call it blackmail. the yen and dollar are stronger. watch,ident trump's murderers and thieves and so much else, many fears of the separated families. this is bloomberg surveillance. tom keene in new york, guy johnson in london in for -- in for francine lacqua. we see it in the market reaction last night. the latest turn, ratcheting higher on the trade story. storye seen the risk spreading out from equities into other asset classes. commodities under pressure.

it is going to be interesting to see, whether or not the market kind of takes it another notch. europe is stabilizing. tom: some good conversation to -- vincentsight and reinhart will join us and kevin cirilli as well. right now, your "first word news." sebastian: the trade dispute between the world's largest economies is getting worse. china vows to retaliate as president trump threatens tariff s on another $200 billion of chinese imports. the u.s. is not targeting goods finished in china, produced in south korea, and taiwan. u.s. futures are lower. theresa may mr. tour -- faces another vote on brexit and house of commons this week.

some lawmakers are trying to prevent a no deal brexit scenario that businesses fear the most. kim jong-un is in beijing were he is expected to brief china's president about his meeting with president trump. it is his third trip to china since march. is likely to ask for regime acting -- he is likely to ask a regime backing. lawmakers are calling for president trump to end the separation of families accused of crossing of the country illegally. they are demanding a migrant families be kept together. some republicans have joined in. in the world cup in russia, three matches on tap today. england began its campaign for tunisia.ver

global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: i recommend you not go to wcup to see where i place. i am in last place. guy johnson chilling with jonathan ferro. what did you learn from england? guy: the setup is probably as good as you can expect it to be. a structure, a plan in place. game management, southgate getting a big ticket the box -- take of the box -- tick of the box. tom: futures improve over the last two hours.

dow futures -300. curve flattening, a risk off field, worldwide. you mentioned a weaker canada and turkish lira. mario am wondering -- draghi looking to extend this idea that the first rate hike could be flexible when it comes to the ending of qa -- of qe. european stocks i think are stabilizing. i wonder if it is because of the euro going down and european stocks stabilizing. with all the risk off, gold seems to be catching that much of a bid and keep an eye on the rand. it was the rand yesterday, the turkish lira could be next. tom: we will watch.

let me show the em. a presidential election over here. a stronger em and this plunge here. this is a large chart and i have a new acceleration of weaker em currency. do you have a bloomberg for us in london? guy: where do you hide in this kind of a market? trade is going to be one of the dominant themes. where do you seek safety? we are watching very carefully, the spread widening out between the performance of the russell and the s&p. ,ay be small and mid-cap stocks the domestic focus could be the place to go. tom: very good. we need a brief right now but before we get to kevin cirilli, let's hear from the former secretary of treasury of the

united states, that is lawrence summers. here he is in sintra, portugal. summer:s -- sec. summers: it is -- it's psychological effects, increasing uncertainty, it could be very serious and we are certainly getting later in a cycle of escalation. tom: right now, kevin cirilli in washington. we could talk to you for two hours and still be going at 10:00 this morning. did the president act last night over anger of the united states senate and a chinese company? kevin: that is part of it but more broadly, the president is saying he is not going to back down in terms of the ongoing trade escalation with the chinese.

a team of economists have said this is going to shave .2% of gdp growth off the u.s. as well as china. that really offsets the growth that the tax reform package that passed several months ago. that said, i don't think the president is going to hear criticism from around the world. it is going to have to come from republicans who are up in midterm elections who are nervous about the supply chain. the president is heading to capitol hill and is going to be facing questions on trade. tom: your big value add is your granularity of each congressional district the president trump has support from. when you look at the sum total of where we are, trade and the border issues and immigration as core and theit is people around his core constituency, how are they reacting in the last 48 hours? kevin: the core voters are behind the president in terms of immigration and trade.

the donors are not with him on either issue and they are especially not with him on the issue of trade. the actual law members and lawmakers are not with him on the issue of trade because they see the impact it would have on their supply chains. is constituents are in that where this tension, where you have the ceo level against him on trade and the worker level who feels that they trust the president and that he is going to negotiate a better deal. guy: let me add another element into the back. a different narrative coming from the shop floor. sensitivity of the president to those in the stock market. if the stock market falls aggressively, how will that ripple into policymaking? kevin: that is a good question. the president has really chronicled polls and stock prices and has said publicly that folks in the stock market have been able to make money as

a result of 50 regulatory policies. if you were to start to -- if you were to start to see a reaction in the market, you might see a situation where the president might recalibrate but we have not seen that as of now. thatlet's look at an mmr senator mccain among others would be familiar with. the modern trading system was a brainchild of fdr's secretary of prosperouselieved trade among nations was an essential element in building an enduring peace. theitting atrocities at border, attacking the rule of all, insulting them a credit leaders while praising thugs and breaking of trade agreements are all about ending american exceptionalism. sit in the blur of washington, how close are we to those big visions of ending american exceptionalism?

is it a one-off with the president or can this and are -- can this endure? america isink exceptional and the president is advocating for his trade policies and i do think that the republican party is divided in terms of whether or not to thisrt those policies and is far from over with negotiations with china. what has been so difficult is that there is not a clearly articulated endpoint with regard to negotiations which has made it very difficult to gauge where we are at in the process of the negotiation. i don't think that this is a particular point. tom: it will be an eventful day in washington. vincent reinhart with this from standish. coming up, a really important conversation. the finance minister of indonesia. sri mulyani indrawati.

she is an economist, she is exceptional and she will join us in moments. this is bloomberg. ♪

tom: bloomberg surveillance from london and new york. guy johnson in for francine lacqua. this is without question our interview of the day. it was the interview of the day before the president's comments last night. it is even more so. she is on the rim of the south china sea. she is on the rim of the pacific. indonesia's finance minister, sri mulyani indrawati. at the university of

illinois and her public service to her indonesia. she is also the former managing director of the world bank. minister, i think of your work in illinois and another graduate from illinois, the new vice-chairman of the fed, there are core economics to what is going on right now. what is your can -- what is your singular concern about the unilateral actions of the president? sri mulyani: the most important aslication of the policy well as the rhetoric by the president is creating uncertainty about what kind of mechanism internationally and globally, in terms of how countries can discuss and agree when they have a dispute. is degree of uncertainty

costing a lot in terms of the absentee of a mechanism. this is creating a downside risk even more. entered 2018, we were quite optimistic about the global economy situation. quarter, the first created a lot of uncertainty, not only in the form of trade but also in the form of the federal reserve normalization. in this case, we are very concerned that many countries, especially emerging countries cannot i just well enough or fast enough with this kind of environment they are facing. that can create an environment for the global economy to have a downside risk. it is something that is a real challenge for many countries that they hope they can actually progress and economic

development in their own country by having trade and improving their own domestic policy in order for them to be able to create prosperity for all. tom: if we look at indonesia and the sheer mass of the people, if we look at the malaysian peninsula and look at the cultural history of dealing with the chinese, how do you expect indonesia, singapore, vietnam and the others to react to a new china, given what america is doing? the relationship with china is actually evolving where china is becoming more and more powerful. they are creating both trade as well as investment. that creates growth .ossibilities

also many other countries in africa and latin america. many emerging countries can becausefrom this crisis they are exporting to china. at the same time, china is also expanding through their investments by building infrastructure as well as investing in many developing countries. the recent concern regarding the but chinaf depth -- who changes their policy in terms of engaging in the global economy with many developing countries.

when we discuss climate change, they actually become a very active player. but fora very welcome china to become a global player, they know that they have to be ready to show leadership, which is what they are doing, a good example of how we are able to create a player in the global economy in which all will abide with the rules and adjust things on their domestic policy into one global policy. when the size of the economy is you're expected to become a leader and a global player which is to behave according to the global role. this is what china is trying to show and that is creating quite a lot of good benefit from many countries.

if china is going to dominate ethicale is also some ethnicity with some countries that are going to be very sensitive, but this is going to be changed -- a changing global environment in which china is going to present themselves to become a global player in many countries have to adjust to that. guy: you have been on the east coast of the united states and you have talked to bond investors there. you talk to -- you have talked to on market -- bond investors here. we have seen the fed step up and deliver a rate hike, talk about more hikes coming. we have seen the ecb talk about walking away from its qe program. emerging markets as a result have had a fairly tough time during the intervening period. when you talk to those

investors, do you have to convince them to hang in there? did you have to be particularly convincing this time around to make sure they stuck in? sri mulyani: that is a good point. many emerging countries prefer the normalization of monetary policy in the united states. also in the ecb, they are normal.y becoming this is something that has already been communicated for quite some time. indonesia, with the three-time increasing rates for the federal reserve, we actually stayed calm. tom: are -- guy: are you staying calm now?

countries areany adjusting to this more hawkish or they say they are going to increase more than three times or four times and that is going to be something that is going to happen. many developing countries have ,o adjust with this new normal in which the world is going to operate with less liquidity and a higher rate. policy is being guided by of every prudent and civil -- very prudent principle. this year, we're going to have 2.19, which is much more than last year. when i discussed with bondholders what we present to the fact about indonesia as an emerging country with not what we and --

call easy policy like extending fiscal deficits but we are doing it the hard way by reforming our investment policy by building infrastructure. it will create better productivity, better business environments, that are doing business indicators. guy: did you get the sense that they were going to stick with you or did you think that there is this approach from u.s. investors and investors in london that are saying we are done? the flows out of emerging markets are dramatic right now. sri mulyani: the most important for a country like us is not to discriminate. there are many emerging countries in this case.

policy has been meddling with many different policy objectives. ourselvespresenting as a country that is well governed, well mannered with sound policy. presentwe would like to many bondholders and that is something that we will anchor -- tom: you have a huge sense of history on this region. how are we prepared for the exogenous shocks where ems to relive another 1998 -- where e.m. has to relive another 1998? 1998, many of the countries had a totally different situation.

they are all adopting more flexibility. current account deficits in indonesia is much less than the policy level. some other countries like malaysia and taiwan have -- tom: i'm going to give you high credit for the stability of the indonesian currency over the last weeks. it has been remarkable to see that leadership by you within emerging markets. list to get to do through these trying times? what is the indonesian distinction to get through 2018? sri mulyani: i think we're going the economy isat going to be consistent with the performance. we are not going to create

performance but base it on structural strength. this is what the government is trying to do. , we now know that emerging markets -- emerging countries are exposed by this central-bank policy as well as trade and fiscal policy. the dynamic.ange fiscal policy is going to be as well as monetary policy which is going to be what the central bank governor is saying, frontloading much more ahead of the curve so that we are going to create more confidence. we're going to increase growth through our structure policy, improving investment policy, reading a better business environment so both domestic and international players will see

that indonesia is a big market and is an advantage for them to come to indonesia. tom: we have to leave it there. thank you so much, sri mulyani indrawati indonesia's minister of finance. joining us briefly is vincent reinhart of standish. this is a wonderful time to speak to vincent reinhart. you just heard a lead minister of an emerging market currency. these are butterflies flapping. how flapping or the butterflies at 1600 pennsylvania avenue for emerging markets? tradet: any discussion of has got to be concerning. have -- if yous look over the last decade, which

was the country with the most rapid growth? the same country that has had the most rapid growth in exports. trade concerns hit both sides. also uncertainties, deadweight loss on all business decision-making, so there is an impediment on advanced and emerging economies until we settle these issues. tom: i look at how this affects central banks. you studied this on your watch at cypress. will the major central banks blink when they see the e.m. realities of currency depreciation? vincent: it is always different in the trenches. tom: well said. vincent: you've got to be concerned about financial volatility.

i would say that for the federal reserve, they have not quite gotten their head around the idea that the rest of the world is bigger than it used to be. that is not reflected in all their models. i worry the extent to which this would take some time for volatility in emerging markets is -- emerging-market strains. for now, the federal reserve seems on track to tighten at every opportunity they have. i am worried about the ecb. may have talked about flexibility about starting the renormalization of monetary policy, but he has a brick wall and that is his retirement. he is going to want to start raising rates for he leaves to set that press event -- precedent.

how do you think the economic cycles work together? the fed is normalizing policy. at some point, it is going to invert the curve. i would be curious on your views on that. do you think draghi can start raising rates? it is interesting, the word we have not been saying very much recently, but was all the rage back in the spring, particularly when you think of the imf, synchronous. we were all talking about synchronous global expansion where advanced economies were all growing above trend and all about at the same rate. central banks could had for the exit door -- could head for the

exit door. it would not put any strains on financial markets and we are beginning to think about medium and long-term pressures on the dollar and we find -- we growth has disappointed in europe, the expansion doesn't look as synchronous and we are worried about central banks being out of step. it will be taught for president desk startto stock re-normalizing policy. is furthernt the fed ahead and that's a force for dollar up reprint -- dollar mayeciation, mario draghi support these more forcefully than he did great tom: we will see where that goes to. , a perfect dayt

to have with us. here is sebastian. americans would have to pay more for smart phones, tv's in toys if america desk if president trump carried out -- if president trump carried out his latest threats. if beijing doesn't -- china calls the move extreme pressure and blackmail and is threatening to retaliate. u.s. futures are lower. an apparent promise from president trump with kim jong-un, the president agreed to alter the armistice holding the korean war if north korea agrees to give up its nuclear weapons. summers warns the biggest economies are badly equipped for the next recession. he spoke at the foreman portugal and said federal banks should be wary of raising interest rates.

talk show and media mogul oprah winfrey hit another milestone. she is in the world's 500 richest people. she is the first black female entrepreneur on the bloomberg billionaires index. 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. >> thank you very much. the issue of europe and the ecb. speaking this morning at the forum, mario draghi said the central bank has to its time when lifting interest rates. we willclearly signals remain patient in determining the timing of the first rate rise and we think a gradual approach to a -- to adjusting policy after. live for user is

now. was that an even more dovish draghi? matt: in a sense it was because he said not only will they rely on interest rate and forward guidance as their policy tool but they will adjust those in a predictable way. he was assuring the market that the two are on the same track. and they will say on the same .rack going forward >> in terms of what that means going forward, understanding what the ecb is likely to the liver, what talking about in terms of the gap between the ecb and that ending qe and actually raising rates? what kind of conclusions are you drawing.

matt: a lot of people including your previous guest how draw conclusion first that mario draghi is going to want to raise rates at least one time before the end of his term. it will happen basically after the summer of 2019 and not much further after because he will be done in november. but you will then, do it gradually. he will do what people are saying here is not be so concerned about inflation. but focus more on boosting employment and trying to get inflation through the slow and shallow phillips curve to start picking up. tom: i'm glad you mentioned unemployment because there's a perception europe is better now. is the labor economy front and center?

matt: it isn't. larry summers try to put it labor market is not one of the ecb's mandates. it's only mandate is price stability. summers suggested other central banks and he was hinting at the him asking directly at he said it last night, but they still don't consider the labor market as one of their mandates. they are focused on price ability. the way they want to use labor markets is boost inflation to get a closer to their target of almost but under 2%. tom: matt miller with more reports throughout the day as well. boston asinhart in well. to continue you this discussion. we saw the trade dynamic last night. the shock and all of 200 billion

and a 10% tariff. distill reinhart microeconomics. what you focused on within the complexity dynamics of trade response? vincent: the first thing is to not get over excited because this is the art of the deal midstream. it is difficult to sort out how much is bluster and how much will get delivered. at the end of the day trade will be more expensive. there will be less trade. it is an adverse aggregate supply shock to the economy. prices are higher. quantities a little lower. but wes important to us are still a close enough economy that is a modest hit. tom: marcus, others aren't. trade matters to a number of countries, including germany as well. what is the effect of europe on what we see in this announcement?

marcus: we know europe is next. it's easier for the u.s. to focus on china, they get the message across loud and clear. the effect for the u.s. is relatively limited and the effect particularly on germany will be huge. this is a much wider geopolitical game. is not really about trade, it's all about the whole geopolitical balance of power with president trump is constantly pushing on the buttons. that, we've been talking about mario draghi. he talked this morning about downside risks, to those get bigger and bigger? marcus: it's not the body language of the central bank wants to raise rates before they leave.

markets read forever, they can't read longer than six months. data can change so much. and is loosing the u.k. as well, production has taken a bit of a debt. things are softening. this is not just about where qe and the council felt there were, economic data is not coming through. has the ability to raise rates once or twice during this cycle, what is left in the toolbox once we get to the next recession? a number of conversations i'm having about is europe ready for , that chart will be going vertical right now and i am wondering whether or not we

need to be rethinking the ecb toolbox, the central bank is incredibly innovative. what is left? a couple issues. you raise the issue in the previous segment about the probability of recession. i don't worry about the inverted yield curve, i worry about the fact the federal reserve envisions itself overshooting its long-run goal for the nominal federal funds rate. in 2019 and 2020 they see inflation overshooting and intend to raise the nominal funds right now at least above what they think it's right level in the long run. that will be tough to pull off and that is a recession risk for late 19, early 2020. i would like to make one observation and that is i understand mario draghi's body language was nothing but dovish. but janet yellen's was nothing but dovish and she raised rates

three times last year. putting in restraint at all for press conferences and meetings last year. she was setting a precedent for a successor. gradual small increases well telegraphed. central bankers care about precedent, mario draghi has to care about what his successor does. he wants to get the idea on the table the you raise rates slowly. what does a successor have in the toolkit when it comes time to fight recession, the answer is not a lot. they've use their balance sheet, they have tried their experiment with negative deposit rates and it was really a pass on the banking system. so they will hope the euro depreciates as much as possible that is the core engine for financial stimulus.

so we need u.s. growth. the ability to influence either european growth or stimulate european inflation is inevitable. despite a 4.5 6 trillion balance sheet. they have thrown everything at it and they are struggling. they've had a bit of growth but it's been very expensive bought growth. vincent reinhart, thank you so much. coming up tomorrow, stephanie flanders with a lot of central bank monetary theorists dealing with a theory coming out of washington and the trump administration. on bloomberg, please stay with us. this is bloomberg. ♪ this is bloomberg. ♪

tom: we bring you overnight wisdom as we can from late-night presidential statements. guy johnson and tom keene with you. 200 billion of goods represents over a third of likely 2018 imports of china. they will consume more consumer goods. it's a drag on growth on both sides of the pacific. is every emt i see official we speak to managing the message on em currency depreciation.

what does that depreciation signal to you? >> it signals more strength for , it spirals more out of control is the currency -- if the currency weakens too much they will have to put up interest rates to defend them. we've been down there before. is this gets more out of control than two the economies affected and a loss in emerging markets. byy were already worried occupations of fed rate hikes. this just adds to that concern. lookwhat do you monitor to at a general effect of this em depreciation? every day there is no individual story on south africa, on turkey and such. thatis the market monitor uses to test the em angst?

ofwe have data on flows out equity markets and bond markets which are a bigger deal when money starts flying out of fixed income across emerging markets. in east -- in each case it's idiosyncratic. biggest summerlike brazil with a line should be here. it's only going one step too far because the environment is changed in washington and that changes the level of interest rates. ,hey are each idiosyncratic politics in turkey and brazil, then floating through the issues we have in china. the common theme is the combination of the flattening u.s. curve. and that isf trade what makes -- across the peas.

and maybe finally the popular emerging markets are the ones most hit in the last -- they are just getting squeezed now. guy: i'm not sure mexico is that popular, but we will talk about that in a moment. he had tentacles reached out, he understood how that worked. who in the jay powell fed listens to what happens on the international stage? >> i'm not entirely sure. that i'm sureed jay powell listens to what's happening on the stage. there is no one as internationally oriented than springs to mind as a stan fischer at the moment. guy: so therefore the implication of that is what?

that the fed could push too far for the rest the world? >> the fed could continue to push too far. although let's observe the 10-year note has failed again and again to really break above so the market is getting pushed too much. my biggest concern is that if u.s. equity indices continue to ,e relatively invulnerable because is lots of good thing still happening in the tech sector of the united dates, that downgrades the influence of international effects. in terms of where -- how it feeds and concerns of the fed. certainly that makes you wonder how far you have to go before you get a repeat of the turnaround after the taper tantrum in emerging markets. the other concern is by widening out the goods that could be affected, there is an increase in the very strong likelihood this pushes up prices in the

united states a lot. then the fed is in a bind and has a price problem at the same time. that just puts the fed in a corner with respect to anything else. tom: how do i make money on this? itthere a trade in yen if make sense? is there a way to make money there? >> i don't think you should go out in the morning without a yen in your back pocket now. these of the currencies that will continue to do well. at this escalates. i don't of it's a trade. tom: thank you so much. greatly appreciate it. bloomberg surveillance, guy johnson and the entire team in

new york, this is an important interview tomorrow. solomon, co-coo of goldman sachs. this is bloomberg. ♪ ♪

,om: bloomberg surveillance macro issues and trade issues. very quietly this morning with a lot of other financials. deutsche bank has rolled over. maybe the worst chart in the world, this would be my chart on trend. marcus is with us. we needed update on the financial effect of all this macroeconomic blather. this is not good for deutsche bank, is it? marcus: a positive yield curve would be quite helpful for it and it's not going to get one for least 15 months or longer. as far as deutsche, it's fundamental problem is the model

doesn't make money. they need growth. tom: on the date calendar of into july, how do you right side as you go into year-end? i would suggest of all the macro news, there is new urgency to get the ducks in order into autumn. marcus: i don't think it will be much of a bonus in that sense. they've got a much closer attention to detail going back ,o the basics with what they do but what else can they do? guy: giving by wednesday night the u.k. will be in a situation where they can -- the hard brexit? marcus: i think the government can win this. a sprinkle of fairy dust will come to keep just the government. there is no more fairy dust

to be handed out. marcus: there's always one or two things that can be done. in that sense i think she will just about win it. is it only bides time it, it does not solve a situation. they are pushing and pushing. great to see you this morning, marcus. thanks for sticking around. i've had a really busy morning. it's been a busy morning, you still have that morning to go through. tom: we will see it with an --roving tape worried improving tape.

an important conversation, i will be there in new york. with mr.r in chief blankfein of goldman sachs talking about the future of the firm. lloyd blankfein talking about the future of global wall street. from the economic club of new york today. futures at -32. .he yen stronger this morning weaker. it is a hot and/or steamy new york. this is bloomberg. ♪ bloomberg. ♪

david: president trump orders an

additional 200 billion dollars in tariffs. china says the u.s. is losing its senses and promises to retaliate. asossible trade war looms emerging markets suffer the consequences. what the central banker to do. meet, central bankers president draghi says they will be -- welcome to bloomberg daybreak, i'm david westin. alix steel is off today. >> great to be here and never a dull moment. -- julia: let's look to the markets in the interim. more tariffs as an instant hit to risk sentiment. stocks europe 600 up by 7/10 of 1%.