oil prices rise as trump calls for allies to stop by from iran, and u.s. stockpiles. trouble in china, the yuan follows for its 10th straight day. they sink deo bear markets. simmering trade tensions, as investors await the white house to take a less confrontational tone on curbing chinese investments. good morning, everyone. welcome to "bloomberg

surveillance." these are your markets, you can see the stoxx 600 down. i am looking at the industry groups here in europe, and most of them are on the way down. looking at u.s. futures, they are also lower. andess a lot of people traders are trying to grapple with this escalating trade tension tweedy worlds biggest economic powers. building on gains after the u.s. stepped up pressure on iran. crude oil, $70. and that u.n., 109.74. this is what chinese shares are doing. again, a lot of pressure on the yuan, of course, leads to the h shares. we will have a full debrief. oil, weing up, we talk

talk iran, we talk opec. a little later on, we talk trade tensions with the global head of research at blackrock. this afternoon, we hear exclusively from the grk prime minister. first, let's get straight to first word news. >> president trump signals he may take a less confrontational path towards curbing chinese investments in american technologies. his comments appeared to align with steve mnuchin's approach, potentially will live on a u.s. committee that scrutinizes foreign acquisitions. canada is preparing a new measures to prevent a potential flood of steel imports, seeking to avoid u.s. tariffs. that is according to sources spoken to bloomberg. it is said to be a combination

of tariffs aimed at certain countries, including china. meanwhile, the eu is considering similar measures, which could be imposed next month. this is an investigation that will probably take us to the end of the year for us to get the full picture. as you say, we are seriously contemplating additional investments in place, maybe mid july. exactly what form that would take is still under discussion. spain's foreign minister says the eu's biggest countries will block any attempt by the u.k. to combine single market ownership with immigration curbs after brexit. we were told some smaller european countries when cepted, buthe powerful ones includgeany and france not. and do not miss our exclusive interview with the prime minister of greece. we bring you that 2 p.m. london time. federal judge has ordered the

trump administration to reunite immigrants children who were separated from their families at u.s. border ross and -- crossings and to detain from separating families. and to those who accept asylum. is judge says the ruling needed in spite of president trump's recent executive order. global news, 24 hours a day, and on tictoc, powered by more than 2700 journalists and analysts in more than 120 countries. aylor riggs. this is bloomberg. francine: thanks, taylor. the u.s. said to be pushing allies to end all imports of iranian oil. crude jumped on the news and there will not be any discussion of waivers or extension. ministerto iran's oil and he said the islamic republic will need to find some other way

to work with partners despite u.s. pressure. difficultythem have because after pressure of the united states for money , foanort insurance. buyho hasn't stopped by -- ing? shell stopped. >> how are you working with your partners? are they asking for waivers? >> i don't believe they can receive waivers. is there a workaround iran can do to continue selling to your customers that exempts them from basically getting in the crossfire is of u.s. sanctions? every day, the admin u.s.

administration ensures one new regulation. we have prepared ourselves for the worst. francine: so, what next for the price of oil. when you look at the price of oilurrently, how much more pressure is there going to be on the price given the u.s. rhetoric? i think there will be a lot of pressure. right now, there's still some overhead which we are clearing off, because we had really high u.s. export. once that clears up, you are looking at substantial pressure. there is no reason we could not change it to the 90's or even higher by your end, given the volume we are talking about that could be lost. francine: let me bring you over to my chart, which is basically looking at saudi arabia planning

to pump a record amount of crude. markets thats the if they do increase production there will not be enough spare capacity? amrita: that is it that is part of the problem. saudi arabia is putting out different numbers every hour, almost. 10.6 became 10.8, became 11. said, even if we assume iranian experts are not going to go to zero, we don't think it will, it should be about a million barrels a day. that is still a drop of about 1.6 millions from a may levels. saudi arabia can only increase by one sustainably. it basically leaves us with no spare capacity, at a time when iran is not the only issue. nigeria,n, anglia, there are lots of issues everywhere in the world. what more can saudi arabia do?

francine: let me also bring in our other host, head -- guest, from blackrock. how do you look at the oil conundrum? if the oil price goes higher, it is against what the u.s. wants and what the trump administration has indicated it is asking of opec. is there anything they can do for its to not go to high? they can try to prevent it, but there are dynamics. hand, sanctions are being imposed and are pushing in one direction. i think the broader story here is that at some point, we are in a world where it is not a game changer. but, it might matter for the outlook for the u.s.. yet, but ishere where the u.s. administration might start to think about the

implications at home. francine: does oil come in a range? what is your forecast? think the problem we are going to face is that it just depends on how strictly the u.s. in forces -- and forces these -- enforces these. this much, we will absolutely spike above $100. there is a risk that there is going to be an xp are release -- zpr release. because they do not want gas above that amount before the midterms. but they still don't want it to be enough to stem. yes, you will bring on the neutral zone, potentially. russia will pump macs, but it's just not enough oil around. again, if the enforcement is

strict. francine: what role can russia play in all of this? amrita: i think russia will increase production. they have a substantial amount of spare capacity. again, it takes time. in the near term, with risk being normalized, probably around 250,000 barrels a day. next year, they can bring on more. remember, russia cannot do much in the winter months. between november and february, their production usually flatlands. after that, they can grow again. implyne: how does this that impact inflation expectations? this is a material change compared to where we were a year ago. this is adding to the momentum and narrative. central bankers will be looking and thinking at core inflation. i do not see second rounds being

best material. it is not a key story for central bankers, but is changing the narrative around inflation. francine: final question, are , eithercting anything from the trump administration, or unilateral action from the opec members or russia? or will they wait a week to see how this plays out in the market? amrita: in some ways, they have already used up their bullets. we have had every bearish headline. saudi going to 11 million, neutral zone restarting, we will do whatever it takes. i think that is part of the problem. up, then this it headline comes, that is why i think prices will go up potentially. ,ike i said, not straight away but if that were to happen, i think people will buy the dip. francine: are you looking at

technical levels? if it goes above 72, does it automatically go back up? lk us through the market functions. i think generally, there will be some technical resistance around these levels, which there always is. speaking, once these levels are clear, there are a lot of long-term buyers. around theutious meeting, they're not quite sure what the numbers will be. like you said at the beginning, now that it is out in the open, once those technical levels are reached, you will get a substantial uptick in prices. francine: thank you so much, chief oil analyst at energy aspects. , plentyh surveillance coming up, inclung nice. president trump says he favors less confrontation with china, but stocks in shanghai are still

feeling lingering worries. and of course, our exclusive interview with the prime minister of greece. we bring you that at 2 p.m. london time on tv and bloombergtv and the radio. . this is bloomberg. ♪

francine: economics, finance, and politics. this is "bloomberg surveillance." let's get straight to the bloomberg business flash. francine, the world's biggest seller of liquefied natural gas is investing $20 billion in america's oil and gas field. at a time when rival exporters are also expanding.

speaking to bloomberg, the ceo of qatar petroleum said investments will be made over five years and spoke over his partnerships. the time between qatar and thu.s. and their partnership with us is very solid. this partnership risin 30'srvive to the mid-20 with the contract we had in place today. >> to well-known hedge fund managers have joined a growing chorus of investors predicting an end to the decade old rally in asset prices. they are comparing the turmoil in may to the end of the dot-com bubble. in a letter to clients, some have an invoked memories of the financial crisis of 2008. in recent years, betting on a crash has been a painful strategy as the world's central banks bought assets to prop up

markets. views on used car prices are weighing on the shares of rental car giants. that as have cautioned glut of secondhand cars coming off leases will undermine the value of their fleet. asir shares drop as much 12%, adding to this year's losses. the rental companies also face competition from ridesharing services. that is your bloomberg business flash. francine: thanks. let's talk china markets and an accelerating slump in the yuan is stoking fears that policymakers are less willing to temper the currencies of decline. this comes as the economy slows i missed trade battles. ago, the u.n. was serving as an anchor for emerging economies. the turnaround has evoked for the devaluation of

2018 -- 2018, as china watchers discount the idea of depreciation being used as a policy tool. what is next for the chinese markets? aill with us is our guest and professor of economics and international affairs. thank you, jeremy, for coming on. u.n., couldk at the it used as a trade policy tool? jeremy: i think it is part of the equation. where, over context the last many years, there has been pressure on china to move towards a more market determined exchange rate. to move in that direction has changed materially, and now we are getting trade actions moving in a different direction. it is part of the equation. at the same time, it is very

much in the mind of the markets and the chinese authorities. it is not a tool you can easily control. once you open that question, how do you manage outflows? i do not think this will be an active tool, but in a context where some devaluation can be happening, i do not think they are massively worried. francine: let's look at my chart. you can see this depreciation. first of all, have you know if there is a depreciation on the part of the chinese? have we found a floor? jean: these are difficult to pin down. but in some ways, you can argue that given the growth we have yuan was not, the underappreciated, maybe even over appreciated.

so there is a fundamental logic for some movements down the yuan. is that think the issue it is difficult to keep the store closed once you open it. francine: the concern is that even if they think it should weekend, they would not want to spark capital outflows if there is such fear. yeah, and what is so disheartening is that you know how this starts, you do not know how and-- it ends. the process is indeed related to market forces, what is important is that the political ramifications bring us, more often than not, in uncharted waters. this is disheartening for students of history, because we know where this takes us usually. it takes us to a vicious cycle, and once you are in its, it is very hard to pull out. of respect for

those trying to take a look at this and figure out where the floor is. for me, the interesting signal is what will authorities in china and u.s.ontain this? francine: what do we know about how the trump administration works? we saw confrontation, escalation, and then usually, scaling back. today, thew signs of president saying he is worried about technology. but what does history tell us? we have never been here before with this kind of u.s. president. jeremy: is difficult to say. it is true that he has always pulled back from the brink. especially when his aides have started to put in front of him all of the issues. what i am very stressed by, for instance, is the harley davidson issue. he is basically attacking a u.s. firm, yet again.

telling them that if they go to thailand you will be taxed like never before. part of the issue is how do you get him to stop? this is a basic promise made to his political base that firmly believes the u.s. can win a trade war and it is very hard to foresee how he pulls out and stops this. perhaps he organizes a great summit with his friend president she of china -- xi of china. but we are not grounded in economic reality with this administration. francine: what does it mean for a head of research like yourself? a possiblemodel trade war tension, and what it does to world growth? here,to segue from jeremy this is more than a trade war. many more considerations and then adjust. the about trade.

-- the ban just about trade -- t han just abou trade. it about strategic interest and competition more broadly. when you ask about how they operate, it is more than just trump. there are many actors trying to achieve their objectives. i say that because when you price in the market expectations, it is not only about tariffs applied to one there, but itrts is a broader impacts. we have already started to see companies in the u.s., the surveys and so on, starting to mention trade by -- why they are in more than a wait and see mode.

more than tariffs, it is about the behavioral response. we have been in a world where we were trying to kick up animal spirits. that is clearly moving in the other direction. francine: is there concern with the markets? -- is it because it comes from the leader of the free world, people can't believe it? canle don't think that this really happen, that could hurt global growth to the point of a recession. i do not think we are there yet, and we are seeing some action. if you look at them by themselves and in the context of history, it is a tick up in protection very measures, a drop in the sea going in the other direction. it is the beginning. the important point is that continents matter a lot, and we could see that turning more -- and well, world

the point is, if we do not have a framework of what they are trying to achieve, i think that is the danger. it is more of a headwind rather than a turning point, but it is significant. jeremy: very much agree. on the security side, there is a specific dossier on cte -- zte, a firm that has been accused by authorities of spying on the u.s., and yet president trump seems adamant on basi pulling sanctions off the company. so even on the security issues, andou look for consistency into the real questions of diplomatic and security issues, it is hard to find consistent. , think you are right diplomatically saying that there is a whole infrastructure around trump and he cannot decide all by himself, without a doubt. , whentally, it struck me

the u.s., canada, and mexico get together and decide they will organize the world cup, it is interesting how integration is happening through other means. regionly, helping this find another roadmap beyond the rhetoric. what is really striking is how do we get out of this with this president who seems to be saying a then b. both stay with us. up next, the last one of your. -- black swan of europe. kutty toppling of angela merkel be the next event for the region? this is bloomberg.

francine: economics, finance, and politics. this is "bloomberg surveillance." i am francine lacqua. let's check in on what is trending across bloomberg on tictoc. signals het trump

favors less confrontation with china when it comes to investments insensitive american technologies. he made on a community that scrutinizes foreign acquisitions. at the heart of the uk's productivity problems, according to a think tank. has beenls expansion driven by rising employment and hours rather than efficient. and are most read stories. in third place, or emerging markets are slipping, morgan stanley sees a rolling bear market that will eventually pass even high-quality u.s. stocks. in second place, eight slump in china amidst fears that policymakers are less willing to temper the decline as the country faces a trade battle. and, many hedge funds are struggling to make money and rely on complex algorithms to navigalobal markets, but have they been caught up by rising volatility?

those are our most read stories. let's get straight to bloomberg first word news. >> president trump signals he may take a less confrontational path towards curbing chinese investments insensi american technologies. his comments appear to align with steve mnuchin's approach, potentially rely on a u.s. committee that scrutinizes foreign acquisitions for national security risk. new measuresparing to prevent a potential flood of steel imports from global producers, seeking to avoid u.s. tariffs. that is according to sources who have spoken to bloomberg. the measures are accommodation of quotas and tariffs aimed at certain countries including china. meanwhile, the eu is considering similar measures to ward off steel dumping. this is an investigation that will probably take until the end of the year before we get the full picture.

but, as you say, we are seriously contemplating provisionalres and, i would say mid july, we would have those measures. exactly what form it would take is under discussion. >> saudi arabia plans to pump a record amount of crude. the statehas learned oil company wants to boost production to about 10.8 million barrels a day. surged as wti crude the u.s. said they would press allies to cut imports from iran to zero by november. spain's foreign minister says the eu's biggest countries will block the uk's attempt at a single markets. they said some smaller countries would accept it, but the most powerful ones, including germany and france, would not. and do not miss our sleeves of interview with the prime minister of greece.

we bring you that 2 p.m. london time. prices grew low in june, their weakest pace in five years. that's according to data from a lender which shows monthly reports of prices rose -- are down 2.4% in may. economic subdued it activity and squeezed household budgets are keeping a cap on-demand. twitterews on tictoc on in more than a hundred 20 countries, i'm taylor riggs, this is bloomberg. francine: thanks so much. and her allies failed to resolve a dispute over migration at a meeting yesterday. the pressure is mounting on the german chancellor who has until the end of the month to tighten borders and avoid a rebellion. , it could deprive

her of her majority removing merkel from the help. so how much threat with the ouster posed to regional stability? still with us are our guests. thank you both for sticking around. , what are thetics chances of merkel not surviving the next 12 months? jeremy: she is pretty weak already. the chances are high. the past 24 months have taught me that possible does notan a certainty, so i want to be very careful about my political predictions. she is undeniably week. --weak. this is creating even more of the sense that we are in uncharted waters. germany has played a leadership role and markle seem to be eternal. when trump got elected, she was meant to be the leader of the free world. this is disappointing.

what is even more disappointing is that ever since brexit and we saw all of these populist waves hit europe, we were in a position where we expected, somehow, the great political vision. nobody is giving that. macron.l, not francine: do you think that they will just tighten the borders of every will see the project -- the impact on the european project? what are the chances of a closed border europe? jeremy: there is political demand for that. absent a vision of the eu, i the europeanmagine establishment, out of cowardice or a better way to satisfy the toctorate, perhaps in a way our entry of populist parties even further in europe, to basically go for that. will be a that there form of political courage to go back to the drawing board.

at a time when the americans are becoming isolationist and protectionist, at a time when china has a roadmap for the world, one we might not subscribe to, but it is crystal clear, there must be a european voice. otherwise, it drifts into irrelevance. this meanwhat does for the european project at the european central banks? this is something, it's not raining, no massive storm on the economic front, he gives a window of opportunity. there is a need for a bold step. we have seen the italian development puts a big spotlight on what might happen. the possibility of vicious circles in europe that have not been resolved.

that was a massive reminder that as the markets start to read price of those risks and address them, they will need to be a significant step. unfortunately, we do not expect an important step this week and i think the european story, until the pressure comes, you will not see the steps. what means for markets, uncertainty is higher, more risk being priced in italy and elsewhere, i think this is a repricing. not something that will fade. , you couldurope argue, was the big story of 2017. better than expected economically. is this it for european growth, has peaked? does it have further to go? was a combination of an upswing on the economic side, and at the same time, a positive narrative with the french election.

i think it builds up to a constructive story. i think both sides of the story are being questioned. word --th that is less worrying. the fundamentals are more constructive. that is why i say it is not raining. there is an opportunity to build on that. but the populist side of things can start to play into its. that if angela merkel is weakened, could somebody step in? i am a muster president macron would love to. francine: but can he? jeremy: exactly. remember the headlines? the man who can save the world if he can save france first. it seems to me that either it is

that or a coalition of eastern european countries not have an eu tradition and are probably far more bothered by the immigration tensions then building a strong eu. it will be generational, but macron has potentially that momentum. he is tackling some reforms that all of his predecessors tried and miserably failed. leverage, has the that form of momentum that aligns with angela merkel that she might be looking for in these hard times. fails, anderkel somebody far less european, or more eurosceptic, i think all bets are off. i do not think macron will be able to do this by himself. francine: what does this mean for european assets? the currency but also equities? broadly speaking, there

are a couple of factors. the situation which is creating uncertainty, reflected in the currency. we at blackrock have been more neutral on european assets since the last few months at a -- as a result. the other driver is that the ecb is part of the picture. we think markets have been geared hawkish. ecb, which is not justified by the economic fundamentals, i think we have confirmation of that. it is displaying in the euro as well. we have a repricing of the euro on the back of the ecb decision. we haven't even started on trading about the ecb president, depending on everything that happens politically. does europe move depending on whether it is german or someone from the smaller countries?

expectation ofan by the will be affected evolution, depending if it is a german pick or another. in that context, we should expect the euro to be reflecting those expectations. but i think we are now in a that we should not be expecting much change. the narrative will move before that, but i think we have a runway ahead of us where i do not think the ecb story changes much. francine: talking about risk premium in italy, how do you see it evil thing given the populist there and the fact that league is rising significantly? what is interesting was onealy is that it of the next dominoes to fall, so to speak.

they were, after time, the big promise for europe, even before macro. -- macron. issue, there this is a consensus amongst economists that free trade benefits everyone. but the costs are very concentrated on a small group of people. now we realize that if we do not concentrate on these people, the populist wave comes in. it is what we're seeing in europe and italy. that if we areis going to get guy fused gains over time that can be wiped off the map, perhaps we have to be rethinking globalization. that is a challenge for italy, the french, the eu as a whole. we see the importance of structural reforms as us having to make substantial efforts to compensate the losers of globalization and the people who

convinced them that there really is another way that a populist approach to the issues. francine: thank you so much, president of economics at hfc paris. john -- jeans, from blackrock stays with us. back, devising measures to prevent a flood of steel imports. and we talked a little more trade from the canadian angle. and don't miss our solicitor interview with the prime minister of greece. we bring you that interview from 2 p.m. london time. this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's get straight to new york with the bloomberg business flash. seller ofld's biggest liquefied natural gas is investing $20 billion in america's oil and gas field, at a time when rival u.s. exporters are also expanding. speaking to bloomberg, the ceo of qatar petroleum says the investments will be made over five years and spoke about his partnerships. >> the time between qatar and the u.s. and the partnership they have with us as companies is very solid. this whole partnership is going to survive until the mid-20 30's with the contract we have in place. and we are growing. well-known hedge fund

managers have joined a growing chorus of investors, predicting an end to the rally and asset rises. are comparing the turmoil in may to the end of the dot-com bubble. clients, somer to have invoked memories of the financial crisis of 2008. in recent years, betting on a crash has been a painful strategy, as the central banks bought assets to prop up markets. largest bank, germany's lender faces years of restructuring. the firm's annual internal survey shows that 57% of employees are committed to the lender. that is unchanged since last year, following years of decline. that sentiment has been tested by three straight annual losses and a series of management changes. is loosening its ban on

cryptocurrency, partially reversing the policy put in place in january. virtual coins like bitcoin will now be allowed once facebook can ensure users are not getting jammed. -- scammed. but ads for other risky products will remain locked. and the meltdown in bitcoin is proving contagious. say more than 80% of about 1500 digital coin have fallen in price. morell, they have lost than 40% of the value in 2018. professor says they are a non-rational social movement. the east coast is less intuitive than the west coast. silicon valley is really into it. this to me shows that this is not a rational response to new information. it is a social movement, an

epidemic of enthusiasm. it is a speculative bubble. >> that is your bloomberg business flash. francine: thanks, taylor. canada is preparing measures to prevent a potential flood of steel imports, seeking to avoid u.s. tariffs. willsay justin trudeau impose a combination of quotas and levees aimed at certain countries, including china. they come along canadian counterterrorist on u.s. steel, aluminum, and other products, set to kick in july 1. how much does this intensify the fallout of donald trump's trade fight? our guest is still with us, the previous deputy governor of the bank of canada. first of all, this is an ally. how should they be looking at this, what should the bank of canada do, if anything? the: on the first point,

trade front, this is an ally. at the same time, we had allied together at the g7 not that long ago, and that dynamic of allies has a different meaning now. what is happening right now and what we have been discussing is a massive story for canada. canada is a small, open economy, relying heavily on trade. heavily exposed to the u.s., in particular. we have been working for many years to move away and diversified partners. story. a massive the integrated global supply chain matters for canada. in that context, they cannot stay passive. a 50nk they are in situation, both politically, and in managing the situation. that cannotprovide stay passive, the canadians are respecting that.

i think canada has been trying and evench that announced they would be preparinis measure, but they allowed for consultation. . but clearly, the action is not happening. francine: they are helped by the price of oil, right? over all fronts, the price of oil will help some parts of canada in terms of economic activity. but we need to see how persistent this increase of oil is. so maybe as a slight positive. overall, the trade story is pretty important. there is potentially a positive story, which is that nafta negotiations have been dragging. and what we are seeing now is an escalation in the hope of getting resolution from both sides. the we still do not know, so

this is tricky. head of research, is there anything you think forecasts are getting wrong? putting research into productivity or underlying strength or weakness of the chinese economy? something that could show the next financial crisis? in terms of big questions to see how things will of all and the next turning point, one tricky thing is we know credit cycles and financial vulnerabilities buildup over periods of volatile -- modern volatility -- moderate volatility. one way we know is to look at startups, getting a sense of leverage in the financial system. the problem is that leverage has been moving out of traditional places.

and it is more difficult to measure and compare. the one hand, looking at where we are in terms of banking leverage, compared to other cycles, we are in a constructive position. nothing we have seen before. francine: is that where it would stem from? or is there a danger that we are overthinking and regulating the banks, and the next crisis will come from something completely different? jean: i think we know it will likely not come from the bank. the next question is where is it? looking at it, it is not like there is no sign of excessive leverage. asset prices have been doing well. is a debate about how much you can explain the fundamentals, but i think a good part of it is in line with the recovery we are seeing. asset prices are adjusted, and reflecting a risk premium.

from our perspective, it is more limited in some areas and not systemic. but this is the big question and we are spending a lot of time on. francine: how do you view china? china is important for the world, and what will happen is massive. we see the near-term outlook as being pretty constructive. it is decelerate. we see moving towards less quality, more quantity. down, butbers going it has been surprising on the upside. data is still constructive and we see steady growth over the near-term. the concern is not in terms of momentum, which we see as positive and supportive of a constructive backup. trade andn is more the yuan that we have been discussing. that could trigger a bigger

adjustments that is not in place in terms of economics but could be disrupting what has been a good story otherwise. francine: i know we touched on it at first, but how do you quantify whether this really escalate or whether it is just a tweetablele win -- win? i think 2015 was driven in large part by the lack of understanding of the framework of the chinese operations. they have invested a loss to rebuild credibility and establish a framework the market can understand. i think they see disrupti that is being extremely costly. while they will be responding, potentially aggressively, to the , and the yuan might depreciate, i think they will be very worried about injecting in the markets the story arnd the

valuation. francine: thanks, as always. bloomberg surveillance continues in the next hour. tom keene joins the in new york, do not miss our exclusive interview with the prime minister of greece a little later on. we bring you that from 2 p.m. london time. we will also go through your market action. we have one of the biggest investors and lenders and what to ask himrade, equities, and whether they will continue returns. tom and i are back in a couple minutes. this is bloomberg. ♪ what's a gig of data?

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and with millions of wifi hotspots included, you'll pay less for data. it's a new kind of network designed to save you money. click, call or visit a store today. francine: trouble in china. the one falls for its 10th

straight day. tensions.trade investors await clarity from the takes ause as trump less confrontational tone on curbing chinese investments in the tech space. crude climbs as trump calls on allies to stop buying from iran and prices fall -- is "bloomberg surveillance." i'm francine lacqua in london. tom keene is in new york. we look at what some of the market and asset classes are doing and we turn onto the trade war and find out what this means for germany. tom: deutsche bank under nine euros per share. i gets my attention. francine: we will have plenty more on deutsche bank. more out is up because bonuses have increased. let's get straight to the bloomberg first word news. here is taylor riggs.

president trump has signaled he may take a less confrontational path to curbing chinese investment. trump's comment appeared to align with steve mnuchin's onroach, potentially relying a u.s. committee that scrutinizes foreign acquisitions for national security rests. saudi arabia plans to pump a record amount of crude next month. bloomberg has learned the state oil company wants to produce -- wants to increase production and allied -- in july. press allieswould to cut its import from iran by zero. bloomberg will be speaking with the ceo of bp. eu countries will block any attempt by the u.k. the combined single market membership with

immigration curbs after brexit. told bloomberg that smaller european countries would powerful, but the most ones, including germany and france, would not. do not miss our exclusive interview with the prime minister of greece. action,'s world cup another two groups reached their conclusion. both brazil and germany are playing. argentina graduated from the group stage. nigeria1 win against means they can finally start planning against their knockout campaign. they meet france on saturday. obal news -- global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am taylor riggs. this is bloomberg. tom: let's get right to the

markets. theyes deteriorating as happened last hour. s&p futures -22, dow futures -20. curve flattening is substantial. i will show a chart on that in a bit. americanh the left, oil $71 per share. i also notice the 30 year bond 0.66.3%, german two year you on continues to hold out to a 6.61. we have shown this chart many times. no big news here. curve flattening. here is a linear trend.

this is an elegant prop. down to 32 basis points. what is interesting with the trump election over here is the many rationalizations. the best research is out of deutsche bank. ofy've done a superb job showing how the balance sheets of the banks is affecting curve flattening. it is very complicated economic in fixed incomes rationalizations but the idea is that even though the curve is at 30 two it is not as flat as it would seem because of those balance sheets. francine: when my data check comes up, traders trying to figure out exactly what this escalated global trade tensions means for the world's biggest economic powers. building on gains is oil

the u.s. is stepping up pressure on iran. i am also looking at chinese shares extending a decline and what -- isigure out doing. it is flying -- it is finding a floor. this brings me to my chart of the hour. if you look at the resilience, it is waiting compared to its trade partner. a lot of people are tried to figure out of some of the weakness we saw is a trade tool. it is not clear exactly what that means. as you see from my chart, and accelerated slump in yuan. chinas as the economy in seems to have gotten a little bit less well than expected.

joining us to talk more about johnncy from copenhagen is . yuan to beevaluation u more competitive? >> that is everybody's question. this move has been large. the previous regime of trying to show stability was actually a strong yuan across the board. this could be an element of exchange over trade. the rapidity of the move has been remarkable by the actual low six we are to the 6.60.60's -- below we are sitting on our hands about what the signal is. is this some initial shot across

the bow in a devaluation move? doesn't: if the yuan find a floor, is it going to trigger capital outflows? they've enacted a regime of strict capital control. china has good control over the exchange rate. this move is something they have allowed to happen. the question is will they allow it to continue to happen and it should happen if it is a floating currency, it should be 15% to 20% lower. the question is whether the authority's intentions, not what is the market value of the yuan. tom: what will drive the stronger dollar? , this is a good set of math on currencies versus long-term dollar weakness and a dollar left recently.

what will be the catalyst to make dollar break out to new strength? we have seen a stronger dollar already but we need to have a continuation of this the of fed tightening. we are seeing pain on emerging markets. the latest is china's reaction to this. we have political dysfunction risks in europe. i think the yen is doing quite well, may be resilient to a stronger dollar. i think the dollar rally is in late innings if you're talking against the yen, against the euro. what china wants to do is quite separate from the dollar picture. lots ofare speaking to individuals about substantially weaker yen. why are they wrong? john: if you look at the implications of the trade war from here, if you will see a stronger dollar you will see the fed continue to tighten and you

should see dollar-yen had higher. the negative focus on trade could look on criticism of central-bank policy,ch is aimed squarely at the currencies. trade war's from the trump one of you are about a weaker dollar. the dollar shod be weaker and these currencies should be stronger. affected on aalso fundamental basis by massive structural deficits. right now it is a dollar liquidity problem. a bit of the fed tightening as well. longer-term, the dollar s be much weaker. francine: thank you so much. john hardy. global's, state street chief officer, we will ask him what it means for his equities. we will talk trade and possibly exit. -- and possibly brexit. this is bloomberg.

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taylor: this is bloomberg surveillance, i am taylor riggs. the world's biggest seller of liquefied natural gas is investing in america's natural gas field when rival investors are alsoding. speaking to bloomberg, the ceo says investments will be made over five years. he also spoke about the partnerships he has in the country. the tie between qatar and the u.s. and the partnership they have with u.s. companies is very solid. the partnership is going to survive to the 20 30's with the contracts we have in place today.

taylor: facebook is losing its ban on cryptocurrency ads, loosening the policy that was put in place in january. content that promotes virtual coin such as bitcoin will be allowed once facebook is sure users are not getting scammed. read -- hasalth has released its first list of the world' 25 richest families --ed on data compiled by the the source of wife is -- the source of wealth is scarred -- is startling. you can read the full story on the bloomberg terminal and website and you can access lots more data on the bloomberg. that is your bloomberg business flash. let's continue the trade conversation as markets remain sensitive to escalated global trade tensions between the world's biggest economic

powers. is now the time to take on risk? let's turn to our guest, the chief investment officer of state street global advisors. the concern is that markets do not know how to price e war or that you take too much risk off the table and nothing happens or on the contrary that you are complacent and something ugly happens. also learninge how the trump administration deals with the rest of the world. so far they have done what they have said they're going to do, but there have a spin some damping down of activity. it is easy at the top levels to say what will happen. but the bottom-up level, very challenging. francine: what does it mean on how much risk you take on the market? richard: we are overweight in equities. we are mindful of the fact that is an assumption that we will have -- we will not have a completely untrammeled trade war. backke in but we scale

that somewhat. if you look at u.s. equities, what is the concern, that they are giving back to shareholders. if trade escalates, how much are you looking at the industries being hit? richard: there is an industry level and a cap level. it makes small caps look more attractive. the u.s. is a closed economy. to the extent earnings will be affected, but not to the extent -- we are those more overweight in emerging markets both on the debt and the equity side. the dollar is a threat to that position, but if you rolled back the clock and look at the last time the dollar strengthened, a lot of the scare stories did not transpire. volatility has gone up and we have to adjust to that. tom: i believe cash is an asset this week.

for you guys, is cash something to be valued? richard: certainly there is more of a carry trade that is creeping back into talk of the foreign-exchange markets. our position does not involve holding cash as a hedge at the moment. for bonds underweight and that would include cash to finances overweight risk positions. tom: given the announcement of general electric yesterday, is everything being sped up? i heard yesterday that mr. flannery is working at faster speed. is that going to be the tone for the next years, everybody is going to do things faster? richard: a lot of things are speeding up. the cap x we are seeing in the u.s. is also accompanied by how .ension funds can be optimized

think boards are looking at m&a. that is caused people to look closely at what their business model can be. francine: how are you adapting and adjusting your business model to that? not talk aboutd state street's business model but in terms of our investment strategy, that needs to be adapted. we have looked at how r&d affects future performance and found that of normal expenditure on r&d is a driver of future returns. those are the factors that we found interesting. that perhaps we would not have considered five or 10 years ago. you look iten economic forecasts or economic models, what do you think is lacking. is there something economists are getting wrong? populations have been

affected adversely by things on the face of it that are good for the global economy. that has led to the pressure from politicians to start winding back those policies. protectionism is one of them. discussions about immigration is another. i think people have been wrongfooted by the fact that things of not played out as well as they thought for the population. francine: it is not priced into the markets. what is priced into the markets? richard: some things are price to do the market. you look at sterling, that is pricing in an unfavorable outcome from brexit perspective. i think the dollar strength is reaction to trade protectionism. uncertain geopolitical things are not priced in. market debt they probably are, but in developed markets not so much. us through theth

hour this morning. merkel andchancellor migration in europe. on thertant conversation emotion and reality of the polling on migration in europe. this is bloomberg. ♪

tom: "bloomberg surveillance." francine lacqua in london. i am tom keene in new york. right now, what i know for 220 7000 people took the cfa exam this past saturday. they all want to work for rick lacaille at state street. are there going to be any jobs ?n london for these people let's get an update on mifid ii. is anybody going to be left standing in 2020? siderd: i think the buy has had to adapt and choose how it will spend its money. that has not been an easy adjustment, but i think the principle behind mifid is a smart one.

the value of research is still high. the question is how you can attract -- how you can extract value and measure it effectively and make smart decisions about paying for it. think there will be a thriving research industry. the value of getting it right is high. sell side, if there are 15 people covering a company in england, take british petroleum, 15 people are covering british petroleum, in two years will we have five people covering british petroleum? richard: i cannot make a prediction like that. like all elements of finance, you need to differentiate. about big question data, artificial intelligence and how that might make the market more micro efficient. some might be specialists in doing that.

some might be longer horizon analysts. i think there is a spectrum of approaches people on the sell side and why side -- and buy side. i think people are sharpening that pencil more and thinking how can i really differentiate. francine: if you look at the investment landscape overall, are people going to go back more to active investing instead of passive investing because of the changing nature that you are talking about? richard: the value proposition for indexing is still strong. that is often the bedrock of people's portfolios. active management has had to become more active, concentrated, and more differentiated. there may be focus on ai, big systematic ande other investors may be working more on the long-term. that is giving investors a lot

more choice. they can have systematic returns at a medium cost or they can have much more concentrated portfolios that have longer-term insights in them. francine: thank you so much. rick stays with us. coming up, an exclusive conversation with the greek prime minister. that is 9:00 in new york. angela merkel's future. that interview coming up on bloomberg. you can watch that on bloomberg , bloomberg tv, and bloomberg radio. this is bloomberg. ♪

francine: this is "bloomberg urveillance."

we should be getting headlines from the bank of england. we get to those as soon as they break. it is the semiannual financial stability report we should be getting headlines from the bank of. we will talk about that and talk t it means for pound and what it means for the bank of england governor, mark carney. mark carney is due to speak at , a half anin london hour from now, on the financial stability report. watchingy were bloomberg surveillance, the boelines are crossing the that the global risks are material and increasing. they are looking at not only brexit but also global trade. boelet's see if i'm getting ane headlines. looking -- if you look at the banks, the countercyclical capital buffer remains at 1%. the bank of england report saying that banks do not need

any extra capital to cover the brexit risk and are also saying if you look at brexit aside, are standard. let's get back to rick of state street global advisors. it seems pretty benign. the bank of england commenting in the financial stability review, saying if you leave brexit to one side they are not worried. what to do with brexit if we do not know what form brexit will look like. richard: i guess the brexit affected somewhat priced into sterling. the sterling side is probably in good shape to withstand some economic challenges from brexit. the disruption of the actual business of the bank itself is a different matter. people have been planning for a harder brexit and i think the comment made that there is an underestimate of banks plans is true. i think people have thought this through. boe also

personal and corporate debt is well below 2008 levels. if there is a metric that you are a look at to give us a picture of what the boe is looking at, is it how much credit card debt or is there something else? is that an idea of what brexit could mean for consumption? historically the issue is housing challenges, variable interest rate, mortgages that after an problems as -- problems for mortgage holders and that has never really rebounded on the banking sector. that is clearly one of the risks that is out there. thatrexit risk compounds and may result in the bank of england keeping interest rates low for a while. tom: maybe we will get a statement by mark carney like mario draghi where he is not raising rates until 2019, 2021. we will see. right now we need a morning news

briefing in new york. taylor: a 28-year-old former organizer senator bernie sands has the longtime representative joe crowley in a stunning primary victory in new york city. she raised 1/10 as much money as the incumbent and now becomes the standard bearer in the ongoing struggle over the parties identity. mitt romney has won his party's senate primary race. a federal judge ordered the trump administration to reunite immigrant children who were separated from their families at u.s. border crossings and refrain from detaining parents without their children. the ruling applies to families crossing into the country illegally between checkpoints and to those request asylum at border crossings. in. home prices have slowed june, dropping to its weakest pace in five years.

that is according to data from nationwide building society. monthly reports shows prices have risen 2% in june. that is down from may. squeezed household budgets are keeping a cap on-demand. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. angela merkel and her allies failed to resolve a dispute over migration. angela merkel is looking to a meeting for european leaders in tighten to help her security at the eu's outer borders. ,oining us now is nina schick director of rescues and goebel -- of rescues and -- of rasmusse n global.

see angelaally merkel leaving in the next 18 months? nina: she is tremendously weakened. it is a question of will we see her leaving next week. what she has done internally is promised her bavarian sister policy that she will put measures to the european union to strengthen the quota sharing, to strengthen the eu's external , i do, and if she fails not think she will get anything at that summit, then they will pull the trigger. the question is will they -- the question is will the csu actually do that. there is polling that if they would run nationwide, they would come in second. it would be dismantling merkel's party. the issue of migration is hugely contentious, not only in germany that also in europe. francine: overall, could we see a europe with closed burgers --

with closed borders? we are seeing the same rhetoric from italy. nina: this is an issue which threatens to break down the eu which i have not seen even at the height of the eurozone crisis. what italy and other countries are saying is they will unilaterally close their borders and not allow people to come to their shores. what merkel is doing, and she is trying to protect her legacy while doing this, is no european country should unilaterally act like that, because if that would happen some of the great successes of the european union would dismantle. she is trying to push for a unified reaction from the eu. tom: you have a massive advantage. it helps when you're running a polar shop where the leader is the -- a polling shop where the leader is a former prime minister of denmark. i'm sure he lived it in denmark through his political life.

our people telling polling things that are different than they going to the voting boowh are you getting one line in migration from immigrants, refugees, and then they do something else in the booth? everybody understands this is one of the biggest issues facing europe. politicians have not been able to react to this in an effective way. is first thing to do differentiate between legal migration, asylum-seekers, immigrants, refugees, economic migrants. what we see from our polls, we just ran a huge global poll. people feel the system is not working for them. you see this discontent strongly in democratic countries. part of the problem -- and if you take germany and is the -- germany as an example -- when merkel allowed a million people to come into the country,

obviously for historical reasons this was at first seen as a popular view in germany. that has subsided since then. the feeling people have is that there is no control. the leaders of the liberal and centrist parties are not able to get a hand on this and you see the rise of populist parties. you see migration being the leading force with many populist parties. tom: if you go to germany and you look at the centrist party, they have to deal with the marginal vote on the far right. i do not know what the provinces are on the east side of germany or down in beccaria -- down in bavaria. push of the anti-migration person in germany ? are they going to gather support? be complacent of merkel to think this would not be an issue that would divide her electric -- her electorate.

the bavarian sister party is threatening to leave the union. they have been together since the second world war. let's not forget they are facing regional elections in october and it looks like the far right anti-immigrant party is going to sweep up support their. they have that in mind. you also have the liberal pro-market party which is also going to the right. this is something we see in european politics across many countries, from austria to italy to germany. i think people like angela merkel cannot afford to be complacent. as i said when we first started discussing this, this is the issue that could break down the eu. francine: how should markets view this? we used to talk about the euro project. now it is this immigration project, it is much more difficult for markets to get a handle on. richard: i think markets would

be favorable to a more liberal migration policy. globally, that is clearly beneficial from an economic perspective. if it did not happen, that would not be terrible. what seems to happen is the worst of all worlds, which is you end up with political instability which might cause other economic damage of various sorts creeping up. at the end of the day, you also have the risk that people will be disappointed. to stop want immigration, but practically speaking it may not actually stop anybody. the idea of a completely enclosed border is hard to achieve. when people realize it is not being achieved, the political angst moves on in a way that could be damaging to markets. francine: does this influence european central bank policy? richard: i would be surprised if you could drop a link directly. i think they probably have more important risk issues on their

mind. francine: such as? richard: such as the unresolved nature of the european project. the fact that you do not have fiscal union and you have quite differential growth rates within the eurozone reemerging. coreave overheating in the but a degree of care and maintenance that is required for the periphery. this has been wonderful. much,chick, thank you so and rick with state street global advisors. we have a lot to talk about here . lots to speak to on trade. kevin cirilli with us as well. on radio, noah feldman will join us. we are excited to have the professor with us after that historic trump v hawaii decision. this is bloomberg. ♪

francine: this is bloomberg surveillance. let's check in on what is trending across the bloomberg universe. president trump has signaled he favors less confrontation with china when it comes to investments in american technology. he may rely on a committee that scrutinizes foreign acquisitions for security risks. on bloomberg.com, london is at the heart of the uk's productivity problems. that is according to a think tank which says the capital's expansion has been driven by rising unemployment rather than efficiency improvement. our most read stories on the bloomberg terminal -- in third

place, emerging markets across the world are slipping. morgan stanley seeing a rolling bear market. in second place, a slump in the is stoking feels that policy makers are less willing to temper the currency used to klein. this is the country faces a trade battle with the u.s.. in first place, many hedge funds are struggling to make money this year. they rely on complex algorithms but have been cut out with rising volatility. you can find out more on the bloomberg terminal. tom: let me look at a chart. this is a backstory, maybe not the headline story. back tort is normalized the summer of 2015, the european tanks stocks index. a blended index of european banking and deutsche bank. we had a move down 70% since

2015. richard lacaille is with us. , we all rationalize it but there is a point where you have to act. we go under nine euros today on deutsche bank. which institutioep in? is it government or ecb? the ecb certainly regulators will ensure that banks do not call damage to the wider economy by focusing on liquidity, capital, all of the things that are critical in ensuring that is the case. so, they may raise the cost of banks and the capital and liquidity markets may go up and that could have an impact on the shareholders. shareholders are interested in stability, but in the end they want long-term earnings growth. the focused on the business model and the changing

environment is important. in europe, you have had an unfavorable economic backdrop as well. tom: thank you for that answer. you are talking about competitors in banking at state street global. richard lacaille, the elephant in the room is global interest rates. we talked to economists who rationalize negative interest rates. people like you and people like -- have to deal with the reality of negative interest rates tick by tick. banking down 30% since 2015 because of negative interest rates and what economists are doing? richard: negative interest rates will have been one of the ingredients. maybe europe has not recovered from a cyclical perspective. that is another important ingredient for european banks stocks.

the first order issue will be the yield curve and the ability to generate net income. our clients face different problems. when yields are low they have to find a way of improving their returns. they do so by chasing high spread assets. although the economic backdrop is weak, it has been strong enough to support a lot of credit fundamentals that people have also chased. the banks are also facing a need in europe to consolidate further to get control of costs. francine: what does that mean going forward? does that state as it is, as you just described it? richard: when there is an opportunity to consolidate, because fragmented markets and costs are higher than they should be. that is a benefit overall because it will drive economic growth because it will free up more capital. francine: what is in a bubble

right now if you look at asset lasses or you look at certain types within an asset class, if you worry about the bubble bursting? richard: i'm not going to use , but excesses in high-yield markets are coming back. our team are concerned. thatnk there is concern there is a lot of money chasing spread and this has allowed themselveso finance in a way that is exhibiting a lack of discipline. francine: thank you so much. richard lacaille, global straight street advisor. coming up at 6:00, a former bp adviser. we'll be talking to him about trade and some of the volatility out there. this is bloomberg. ♪ e. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." views on used car prices are waning on hurts and avis budget group.

a glut of secondhand cars and sport utility vehicle's coming off will undermine the value of their fleet. current shares dropped as much as 12% yesterday, adding to this year's losses. the rental company also face competition from ridesharing services. jaguar land rover is building an electric vehicle in china. the automaker is looking to manufacture a similar model to the gas powered compact suv, which it manufactures with a chinese partner. a company executives has details will be disclosed within a year. that is your bloomberg business flash. francine: let's talk japan. today we heard from the bank of japan deputy governor saying he was paying close attention to the downside of the stimulus five years after aggressive monetary policy that is struggling to hold inflation and even half of the targeted rate.

let's get back to richard lacaille of global straight street advisors -- global state street advisors. you worry about the side effects of all this extra stimulus in japan? richard: not only in japan but elsewhere. you cannot s all of the constraints and meet the executive. the side effects are a trade-off that is not been made deliberately. it is important to knowledge the trade-off and side effects rather than ignore them. what have you learned from the what have youne: learned from the japan incident on what europe should do? richard: i guess the important lesson is you may not achieve the inflation objective you set out to achieve, that you can still have economic growth and that is what we are seeing in japan. gdpt employment trends and per head looking reasonable. the inflation target has not been met. how dissatisfied are you with that?

that is the question for bcp and for policymakers to reset the target. francine: is there a danger that europe becomes like japan? richard: europe has a much more complex set of problems. the democratic is similar but the opportunity to improve is not the same as japan. female participation in japan in the workforce has been going up. they be that lever is available in some country in europe. tom: how does europe avoid some of the cultural and demographic challenges of japan? richard: i challenge that premise that japan has sclerosis . if you look at it from an investor lens, i do not think you seek sclerosis at all. you see a lot of change. if you want back the chop -- wind back the clock to euro

sclerosis that was followed by renewal in germany. i think that may be overdue in some quarters of europe and i think that may provide for the next leg of growth. the democratic's are similar. in that case you have an economy driven by demographics that are getting worse. tom: the demographics are always keep. richard lacaille, we thank you so much, this is brilliant. richard lacaille, with global advisors. coming up, heavens are the immigration wars in america. up, kevin cirilli on the immigration wars in america. this is bloomberg. ♪ two, down, back up!

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there are many battles within the trade war. the art of strategy with china. justice kennedy and the conservatives. writtender the 92 pages on trump v hawaii. we are live from our world headquarters in new york. i am tom keene in new york. francine, we are waiting for governor carney and the financial stability report. how stable is the united kingdom? francine: he is about to do a statement. we have the headlines half an hour ago. it is pretty stable. you leavele if brexit. picture ofng out the an economy without knowing what brexit looks like. don't talk about

brexit, the outlook is stable. it will be interesting to listen &a to listen to what market participants are worried about. tom: i would guess that john brown has an opinion on brexit. what would you say? francine: i think he does. we will ask him. , theank of england stability report stepping up the pressure on the eu to remove the threat brexit purchased to trillions of pounds of derivative contracts. they say deq needs to give sayity on what it means -- the eu needs to give clarity on what it means. tom: i would note the news yesterday that bank of america london to arom small city in france.

morning news briefing. here is taylor riggs. taylor: a 28-year-old former inanizer for bernie sanders a stunning primary victory in new york city. 1/10 as much money as the incumbent. he now becomes the standardbearer and the ongoing struggle over the parties identity. romney has won his primary race. saudi arabia plans to combat a record amount of crude next month. the state oil company wants to boost production in july 2 10.8 million barrels a day. the of uti surged -- surged above $70 per barrel. says's foreign minister

eu's biggest countries will block attempts by the u.k. to combine single market membership with immigration curbs after brexit. he told bloomberg smaller european countries would accept it, but the most powerful ones would not. don't miss our exclusive interview with the prime minister of greece 2:00 p.m. andon time on tv bloomberg television. in world cup action, brazil and germany playing. argentina graduate from the group stage with their 2-1 win against nigeria. the south american site can start planning out for the not knockout campaign. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries.

tom: thank you so much. nice recovery the markets. now negativego, eight. oil above $71 a barrel. at next screen with the vix 17. yields,negative german negative one basis point move. , they are managing it weaker. there is no other way to put it. francine: that is one of our top stories. thated to look at the fact the stock market dropping feels like a global selloff. traders are trying to figure out when this trade war will end. havens are capitalizing on that

risk off trade. oil building on gains after the u.s. stepped up curbs on iran. tom: there is no one who has the quest like john brown. his father was with anglo persian oil. he has been with the standard oil company of ohio a few years ago, then a modest career over 3-4 years. he did not jump around too much. he is the former force and chief executive officer of bp. lord brown joining us this morning. for through the brown family must be extraordinary. this is not the first trade war we have seen. what did you learn from the previous trade wars?there are not only winners >> and a lot of people lose. directorfor the first general of the wto, peter

sutherland. he was saying to me when they negotiated this is the beginning of the future and we should never go backwards because the consumer always loses. i watch these trade war's and remind myself of what people say. tom: there was a small of her called the atlantic charter at the beginning of fall were to. -- beginning of world war ii. do you look at the tensions in america, particularly from the president, as a one-off we can there a new, or is permanence to this tension that leads to a trade war? >> i would like to think that it and flow and there will be changes in which this public negotiation and the tit-for-tat is taking place. it is not fashionable to talk about globalization now,

and globalization has left a lot of people stranded because people did not stay in touch with what was happening to everybody. globalization has given us some tricky great advances and we need to remind ourselves of those advances, bringing people out of poverty, creating cheaper goods and services. these are important things we should think about for the future. francine: do you think globalization, capitalism needs to be rethought, or will it be rethought automatically because of these trade tensions? now wills happening require us to rethink what we do and globalization. we need it, but we have to make sure people don't pay an intolerable price for it by being disenfranchised from what they see has sort of global elite running the world not in their benefit. what does it mean for

the politicians? i don't know whether the trump administration is changing the way of diplomacy and there is a feeling in the market that this is trade negotiations, scaremongering, but nothing too ugly will come out of this possible trade war. >> i think it is too early to tell. most experts on a panel i was cheering set the first tariffs wouldn't make any difference. step-by-step we see something different unfolding. it is too early to tell whether it will make a permanent difference. clearly there are lots of unintended consequences. do backfire on the country that imposes them, as we can see in various parts of the world now. tom: part of the physics of this is supply and demand, the micro theory of trade, newtonian

mechanics and stuff, for big multinationals, do things get gummed up? do the engine slow down trying to budget out a trade war? >> very definitely. , goodsu build something and services come from all parts of the world. the supply chain is a very costs change, timescales change. a lot of things happen. for example, in the european sphere, goods for major building , so ifom mainland europe you change that relationship, you change something else in that microcosm. do? what will big oil they just have to hunker down. >> big oil is dealing with a ,lobal commodity, gas and oil

at least gas on the margin. see thishey will through. it on affect them that much, unless there are some extraordinary tariffs based on energy, which i don't think is yet on the cards. what does the aggressive stance from the trump administration mean for global oil markets. capacityenough spare to replace those lost iranian barrels? >> the last time there with sanctions on iran we lost between one and 1.5 million barrels a day. there appears to be enough capacity. there is little constraint at the moment because you can't get all the oil that could be produced in the permian out because there is not enough pipeline capacity, but there is still capacity around. whether it will be tested in the beingerm with venezuela

in big difficulties, i ran off off theet -- iran in libya,me attacks more oil of the market. some of that will come back, that there probably needs to be some extra work done outside the u.s. to keep supply in the long run at the level needed. francine: will thse allieserves in telling not to buy iranian oil they see the price of oil go up? >> it is a question that can't be answered. so far, their supplies, which will keep price moderate, what you are seeing in wti is the closing of the differential with brent. it was somewhat wide because of supply patterns primarily in the united states, so you are seeing wti change its relationship with

brent, but the price has been at a higher level than i would expect, but it looks like it will stay there for a while. i can't see it blowing out for the time being. tom: we will continue with lord browne with us through the half hour. maybe we will talk migration and immigration dynamics as well. union credit is with us. lookingorward to that conversation. kevin cirilli will join us. we will have more on that important supreme court decision, trump the hawaii. -- fee hawaii. this is bloomberg. ♪ ♪

tom: very good.

"bloomberg surveillance" this morning. let me put up the new york post. red alert. socialism alert. out by the new york post, of course. election.nt sanderswho knows bernie won. he had a good evening in new york city. discuss. taylor: she is a 28-year-old who defeated the 10-year incumbent who was in line to succeed house minority leader nancy pelosi. she is way to the left, a socialist democrat, someone incredibly progressive. the new york times writing she

had echoes of trump in her primary campaign. she spoke to the far left in the bronx whom feel misunderstood and she spoke in passionate political terms. the centrist democrat losing. resident trump basking in theglory, saying congressman should have been more respectful to him. will it mean for democrats and how do they had just? is there any sense of a centrist democrat view this morning? what are they going to do nationally? >> this is the tension emerging. we have been talking about it for months, senator, let harris versus senator elizabeth warren. you have a centrist versus a progressive . the fight for the soul of the democratic party is just beginning. senator warren sending out a fundraising email last night

after these victories, saying she will keep on trying to fund raise with groups like moveon.org. we are on the cusp of a new election cycle, but some warning signs, populist warning signs, last night in the bronx. trump of does mr. do forward of the supreme court decision? how does he leverage that huge victory? calling it one of the best days in president trump's presidency in terms of political capital. this is a president who got a win from a conservative supreme court. a win in washington is a win. tom: another merger. a mechanicsng company. this is a larger transaction. an $11 billion

transaction. more on that through the morning. browne from bp and his service to the tate museum and other institutions in the united kingdom. joining us is the chief u.s. economist for unicredit. i want to push back with your european heritage to the migration crisis. we can bring in lord browne on this. it won't go away. it has consumed europe and america. >> yes, it is. the number of refugees has come down. the debate we see in europe and because of thel 2015-2016 decision by angela merkel to let refugees into germany, and integration is tricky. the numbers have come down

dramatically, so if we had not , ie this one time period think the immigration debate would be easier. i think it is healthy and necessary that we have the discussion because we as with many other things in the european union, we need european solutions rather than one country talking to another. it may be the next step forward sometimes nothis pleasant debate, but we need to come up with a better solution. when you lord browne, look at trade tensions, europe, monetary policy, is there a region you worry about more than others? probably quite a few. they change from day to day. i worry about the relationships between the u.s. and china. i think that has to be something

that has to look to the long-term. these relationships need to be dealt properly on the basis of people, trade, science, and technology, all of which can happen and were happening sometime in the past. francine: where will the next recession come from? i know this is the impossible question, but if you look at the concerns about trade, the financial crisis we have all lived through, where could it stem from? i don't know whether it is a country, region, or sector. >> i suppose it could stem from a big policy mistake. ,he thing that would do it obviously we are getting growth in the emerging markets. that is to on making sure their debt is secure, so that has to happen. if there were some amazing change to the macroeconomic

factors and interest rates, that would do it. do, we as all brits worry about brexit, whether the cost of that will set back the u.k. in a way which is permanent rather than temporary. i think that is to be watched very carefully. all we are seeing at the moment is the anatomy of hardball negotiation, so tough to see quite which way this is going to go at the moment. tom: that is where i wanted to go. lord browne mentions permanent. where are you on u.s. gdp right now? 4%? >> we have been more skeptic. you are on "bloomberg surveillance" worldwide. second twofor the

the fourth quarter, less than 3% growth. we stick to that, but different courtly pattern. tom: the major debate is to lord comment, a terminal value we are driving toward. are these central bankers dealing with a terminal value lower than is politically acceptable? >> in interest rates? tom: in gdp. >> it is not a central banks decision to determine the terminal value. , welong-term growth rate were talking about demographics in the previous session, and productivity. that drives the long-term trend of the economy. the central bank's job is to estimate where this true, unobservable value is. that is not what politicians want. we have talked about 3% to 4% growth for effort -- forever.

we have to accept that long-term growth is lower than it used to be because of demographics. we can try to be felt . tensions because we know one of the big advantages of international trade is increased productivity. not think the easiest and safest way would be to invest in education, but we have been talking about it for some time and it is not happening. , how do: lord browne you see the prospect of the saudi aramco ipo this year or early next year? >> i am sure there will be some form of sale of a portion of saudi aramco in a market. it is unclear which market and with all this preparation i in certain they will do something. as i understand it, it takes a little bit of a leaf out of the privatizations in the u.k. under mrs. thatcher, which is to get

exposure to investors, allows people to become more productive because they have to be more accountable for what they do, but which markets and how come i think it is unclear at moment. francine: you think the deal will happen? you don't see an ipo being completely postponed? >> i am reluctant to use the word ipo. there will be a sale of some sort of securities. that is clear. how that happens, i don't know. francine: what do you see outside iran is the biggest risk to the oil market right now? is thereggest risk will be a general complacency, that investment is not needed to bring on new sources of oil. the oil industry has been through one of its many good the badgs where

work people have done, exploration and that sort of thing, has come out of the market. the question is will activity pick up in the right way to invest enough money to keep supplies forthcoming? dent on excess capacity in the middle east, dependent on production in the shale basins, and very dependent on russia too,'s of diversification needs to take place. we need to make sure these reserves are developed. it is not just oil. it is natural gas, which is the longest surviving hydrocarbon in my view. francine: thank you for your .ime, lord browne we will have to come back very soon. in the meantime, we are listening to governor mark carney. the boe stepped up pressure on the european union to remove the

threat that brexit poses to pound-derivative contracts. the boe noted in a report that the u.k. has announced steps towards a solution, including a pledge to grant interim permissions if necessary, but highlighting that the eu has not reciprocated, so there is pressure on the eu to do so. the boe has been sounding the alert afte about the issue of cross-border contracts. this is bloomberg. ♪

tom: "bloomberg surveillance" from london, new york. good morning. first word news. taylor riggs. taylor: the boe has stepped up

pressure on the eu on derivative contracts. unless the eu puts in place temporary workarounds, firms could find themselves unable to service contracts from derivatives to insurance policies. the u.k. central-bank highlighted the issue in its financial stability report. 29 trillion towns of unclear derivative contracts are at risk. you can watch the news on yource on live terminal. an organizer for senator bernie longtimeas beaten a representative in a stunning primary victory in new york city. 1/10 as much money as the incumbent now becomes the standardbearer bearer in the struggle over the party's identity. romney has won his party's senate primary race. itin's foreign minister says

u.k.block attempts by the to combined single market membership with immigration curbs. some smaller european countries would accept it, but germany and france would not. don't miss our exclusive interview with the prime minister of greece from 2:00 p.m. london time on tv and bloomberg television. uber has won a 15-month probationary license to operate in london after convincing a court it has shaken off its gung ho attitude of the past. the judge criticized what she called the previous management's desire to grow the business "come what may." 18-months than the approval the company originally sought. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg.

thanks so much. we are advantage to have one of the jewels of the legal racket, bloomberg supreme court reporter. he clerked for judge kaufman out of baltimore and spent time at harvard law school. wonderful to have few with us on this historic day. i want to go what went to zeitgeist across the nation yesterday, a bloomberg opinion column summed up some of the emotion. the worst decision since the the courtase when upheld the internment of japanese americans during world war ii. these efforts are far too little to say the court, or kennedy, from the judgment of history, which will be harsh. chief justice roberts also takes the opportunity to announce that it "was gravely wrong the day it was decided and has been

overruled in the court of history." will this decision stay or stick, or will it the overruled? we are looking at noah feldman's classic book. years to happen two five years down the road? >> this court has stone staying power -- some staying power. the court did not seem like it had trouble with this case. chief justice roberts and other conservatives gave the president broad discretion to limit who could come into the country. theyid the claim he violated the constitution, we will not deeply second-guess his national security judgments. the legitimate national security interest was enough. tom: out of chicago, a wonderful book on impeachment. pages, theon the 92 opinions, chief roberts

repudiated it. justice kennedy's words are pathetic. i thought this was fascinating, justice breyer's quite commitment to reason-giving and the rule of law, it has a claim to stand among the most distinguished dissenting opinions in the history of the supreme court. what did he say? >> there were two dissents. sotomayor,m justice saying it was a lot like the previous decision. justice breyer was focused on the practicalities. he said the big problem he had was the system is supposed to have an ability to get case waivers for people pose any have, national security threat, who have an urgent need to get into the country for medical care or something like that. he said it is not clear to me that system is working and

anybody has given guidance to consular officers on how to let people apply for case-by-case waivers. he wanted to kick the case back toer court and make sure the system works. tom: will that happen? the essence of the legal moment, roe v. wade in 1973, what happens operationally tomorrow or in 2022 off of trump v. hawaii? >> operationally the administration has brought discretion. justice breyer and justice kagan are two of the justices who looked for ways to compromise and bring in some conservative colleagues, but they did not. the majority opinion says the president has broad discretion, and they were not willing to force the administration to

defend itself in terms of how it is allowing those individual waivers. , are we hearing that president trump may add more countries? >> so, it is within his power to do that. and take countries off. they have party taken chad off. that was part of the selling point. this is not a frigid ban. it doesn't disappear unless the president takes an active step. certainly has the potential to embolden the white house and the president on all sorts of immigration matters and border matters. he looks at something and says i have the power to add additional countries, he would have legal justification. tom: this was published seconds ago. he calls polarization nation and

notes in the primaries that the liberals did well. what is the significance in your world to a 6-3 court. kennedy retires, whatever. i get that. what is for you the distinction feel -- from 5-4286-3 feel? 286-3 >> there are issues where justice kennedy sides with the issues. those presidents would suddenly be in jeopardy. roe v.e would be in jeopardy if president trump got to nominate a successor to justice kennedy. this would be a conservative majority that would in all likelihood be here as far as the eye can see. there is not a lot of potential for liberals to shift of record back. very much.you

i appreciate the early morning activity. he was working on this historic taylor:. -- historic trump v. hawaii. bra hase legislative been at work, and that would be an expanded deficit. it is something we have not talked about, this fiscal vector we are on right now. when does it become news again? >> it is amazing if you look at the projected path of the u.s. deficit which nobody is talking about. not in the u.s., i was in europe last week. one of the first topics after trade and soccer was the u.s. deficit. it itopic in debate. back to your question, we have to talk about a budget soon. the bipartisan budget act passed

in february, if that is a blueprint, then there is not much of a problem to pass it. the u.s. deficit is projected to 5% of gdp for the next five years with an unemployment rate of 4%. tom: francine, you are doing so well in the world cup poll. germany-korea, this is the layout. >> 3-0. tom: 3-0? >> yeah. tom: ok. >> mi on record? tom: you are on record. -- >> am i on record? tom: you are on record. francine: in the meantime, let me bring you up-to-date with the banking sector. at, is what i am looking pressure on the banking sector, sending the bank index to its weakest level since 2016. deutsche bank shares, trading

under the 2016 reckitt intraday low. -- record intraday low. this is bloomberg. ♪

>> this is "bloomberg surveillance." let's get the bloomberg business flash. well-known hedge fund managers have joined a growing chorus predicting an end to the decade-old rally in asset prices. one is comparing the turmoil in may to the end of the dot com bubble. invoked memories of the financial crisis of 2008.

in recent years, betting on a crash has been a painful strategy as central banks bought assets to prop up markets. dimming views on used car prices are weighing on rental giants. cautioned the glut of second hand and suvs coming off leases will undermine the value of their fleet. z shares dropped yesterday, adding to losses. the companies are facing competition from ridesharing surfaces. its firsthas released list of the world's 25 richest families based on data compiled by the billionaires index. varied,ce of wealth is and it's scale is startling, adding up to more than the market cap of apple or all deposits held by citigroup. you can read the full story on the bloomberg terminal.

that is your bloomberg business flash. francine: thank you so much. alliesmerkel an her csu failed to resolve the dispute over migration. the crisis risks tearing apart their long-standing alliance, threatening the coalition government in the head of europe's largest economy. is looking to meet european union leaders in brussels securityto help her on and help at the borders. we were talking before about immigration and how angela merkel deals with it. ,f angela merkel were to go this would have huge consequences for the european monetary union, huge consequences over what the ecb should do. >> i am not so sure. i do not expect her to go. morerday there were some

conciliatory- tones. if that is the case, there is better than a 60% chance the coalition will stay together. if that view is wrong an get , weelections in germany have to have the same debate after the election when it took so long to form a grand coalition. my view is it is unfortunate we take a momentum out of a potential german-french initiative to reform europe, but the german government, whoever runs it, will ultimately be pro-european, pretty much in the center of the political spectrum. apart from noise and short-term volatility, i don't think the outcome really has huge implications for the course of the eurozone, european monetary policy and all that. at the in that the day, there

will always be a majority to continue the pro-european politics. you can be pro-europe and have pro-european politics and be against immigration, right? immigration,ainst what does that mean for borders? as soon as you have closed orders coverage you can't be pro-european. >> germany is not against immigration. the discussion in germany is thel the legacy of 2015-2016 period, which has been stretching the country. in one year, almost one million refugees were let in, and that is a challenge. the situation has normalized. it is about integrating these refugees. mentioned it before, i strongly believe that europe

needs to come up with a better hand-european solution to this -european -- pan solution to this and needs to seek solutions to protect the borders, who comes in and who does not. it is always open to people in tod, but you need to be able somehow control the flow, maybe outside of europe rather than when people have already entered the union. it is important we have the discussion in europe right now. tom: francine: the rhetoric i am hearing from italy is much more aggressive than what you are portray in. >> we started talking about germany. italy, we have a new government morecame in with a populist tone. i think the rhetoric has changed and we are moving towards the

center, a more pragmatic approach, but italy is one of the border states and one of the biggest entry points for refugees, so maybe there is a town in italy that is different. it is understandable, but it is part of it was so we have to come up with a fair alcation of refugees through europe. tom: immigrants are young. germany needs young. u.s. needs young. what does young due to our economic growth? >> potential growth, like the labor force, the declining growth of the labor force, productivity increases. i just checked the statistics of refugees in germany. 50% are younger than 25. tom: is that good or bad for germany? >> that is perfect. many are well educated. if they are not, you have the time to educate them. once they are ready to enter the ther force, they increase

dynamic of the labor force, and that is good for your potential growth. you are totally right. ,hat is exactly what we need and almost all advanced economies. francine: thank you so much. you will be staying with us. mark carney warning that time is running out and the threat that brexit poses to trillions of contracts, stepping up on the eu to act. he is still giving his news conference on the stability report. we will bring you any breaking news we have. for terminal users, you can listen to governor carney by typing live . this is bloomberg. ♪

,"m: "bloomberg surveillance" francine lacqua with the better bracket than i have. chart ona single best

steel arbitrage. price of midwest, , theolled, coiled steel blue line is the average price. we saw this with appliances. chart on this. these are hockey stick moves of higher prices. >> that is textbook economics at work. the terrorists, who is paying the price? always the domestic consumer. it is not the final consumer, but companies. goods deflation is coming up to almost inflation again, right? >> cpi is getting close to 3% without this. steve prices do not move the needle much. that is why the trump administration picked it. it is a symbolic fight.

25 percentariff of and steel prices have gone up 50%. if you look at other exchanges in northern europe or china, steel prices have not moved. it is a perfect example of textbook economics at work. the price is being paid by u.s. users of steel, which by the way employee many more employees than steel and aluminum producing industries. francine: do you see china -- one thing we have been trying to figure out is renminbi has gone down so much. is this a tactic for china to devalue, to hurt the u.s.? >> you had a guest on monday. tom: who? >> he talked about renminbi as well. right now it looks like the bank of china, the pboc, is trying to

lean against this move. it is really driven by fundamentals. when the u.s. makes chinese gomore expensive, is not inconvenient for china if the currency weakens. tom: this is critical. factorse compensating within the three-make it system when you have a trade war? does currency compensate, rates compensate, the curve compensate, or not? >> it partly offsets the blow. it depends on how deep we go into this trade tension or trade war. it helps a little bit. even this renminbi move right now, low single percentage points and the tariffs are higher, but it takes a little off the pressure, but does not off said it totally. tom: this is wonderful. comments again for the

on germany and europe on these political events as well. we will continue the conversation. tell me he is doing better in the world cup than i am. he has told me that for the last 10 days. i was wrong. , it just cup is just keeps gothe worl' end. i'm waiting for to end as well. there is the data check, yen, renminbi weaker. bitcoin can well, maybe a little bit as well. please stay with us through the day. this is bloomberg. ♪ retail.

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wants less confrontation with china. china orders news outlets not to mention made in china 2025. deeper into a bear market, is a trait or the economy? deutsche bank touches a record intraday l, the longest losing streak ever. managers warn of impending market doom. david: welcome to "bloomberg daybreak." great to have you back. alix: i made the plane with two minutes to spare. david: you brought caution with you. alix: i guess i did. david: mr. carney saying tariffs aren't so bad, but it may affect business confidence. alix: it is cautious carney again. how many rate hikes this time? in the markets, caution when it comes to u.s. equities.