>> the country says u.s. tariffs will backfire, hurting america and damaging the world economy. $34 billion in duties are set to go into effect. secretaryminister's davis is set to reject mays new custom plan. kennedy cabinet come to a agreement or is the proposal already dead? glencore announces a billion-dollar program after it was hit by a u.s. department of justice probe.

welcome to surveillance, i'm nejra cehic in london. the markets.n on when it comes to equities, it was the asian markets that there a broad on the other side, you are seeing the stoxx 600 higher. carmakers have been leading those gains on reports that u.s. envoys have been meeting with german carmakers. u.s. stock and bond markets reopening after the independence day holiday welcome back to americans. -- the euro has also been in the session, and we have been keeping a close eye on the u.s.. slightly weaker against the dollar. that fix it. thislk a lot of china hour. we are also keeping an eye on

glencore, up 4% after the announcement of that share buyback. the shares are still down following that u.s. doj corruption probe. coming up, we talked global markets and investments. later, we get calls on the pound, and even later, we are joined by the former white house communications director. but get the bloomberg first word news. proposalromise brexit aims to unite warring ministers has set to be rejected by their chief negotiator. david davis has risen to make to tell her her new ideas are unworkable. that is according to a personal eu,erson familiar with the and will have to refocus on what once in his relationship. they'll have both tax cuts and a universal basic income, in a

move to show financial markets the coalition is not backing down. speaking to bloomberg, the finance minister said the two measures need to go hand-in-hand to change the system. he also set the time they have come for an agreement at the european level on excluding investments from the deficit calculation, allowing further budgetary space. ecb policymakers are an easy that investors are not setting on a interest rate hike. they tell bloomberg the move is actually on the cards in september, though any decision on rates will depend on the economic outlook at the time. move climbedember to 80%, from less than 70 following a report. the u.k. says to more people have been poisoned in southern england with the nerve agent, the same substance use in march to attack the former russian spy and his daughter. the latest victims fell unconscious on saturday, nine miles from where they were was and remain critically ill in hospital's.

after the independence day holiday, trading resumed. or features moved to a higher open. it, here areissed pictures of our boston pops were spectacular. day,l news, 24 hours a powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. nejra: thanks so much. china says it will not bow to threats and will have to fight back if the u.s. goes ahead and imposes tariffs, according to china's commerce minister, who says u.s. tariffs on 30 $4 billion will not only hurt china but the u.s. and the rest of the world. that is because the majority of those goods are produced by foreign companies, including americans. joining us is our american correspondent. tom, some of whom we have learned today. really, the message is

this, we are not backing down. that is the message, they set look, we will not be the first ones to pull the trigger of the tariffs, but equally, we will fight back. saying the u.s. is on the brink of a trade war. as you say, that this is a self-defeating measure. according to their measures, around 60% of the products being targeted are actually manufactured and produced by foreign companies, including u.s. firms. also, criticizing protectionism saying it would affect the global trading system and trying to paint this picture of the u.s. as an outlier trying to only it weigh on trade. did we learn anything about the timing of the imposition of tariffs? the timing is still murky.

what we are likely to see is that about midday china time, those u.s. tariffs, 20 5% on about $34 billion worth of goods will kick it. then immediately, you'll get a response on an equal number. both sides have got an additional billions that could be imposed at a later stage, and trump has said he would potentially look at retaliating on an additional $200 billion worth of chinese imports. that is the state of play in terms of tomorrow and going forward. it does seem now that we are seeing both sides digging in, neither looking to back down. of course, trump is looking ahead to the midterms, and it seems the administration wants to draw blood and china does not want to be seen to act down -- back down. nejra: thank you so much. let's keep the conversation on trade. joining us for the hour is

director of research at to nail. -- this firm. ahead, could that be the start of a new and dangerous phase in a potential trade war? >> it could be, and we knew this was coming. we knew that the chinese were going to react. the question would be, as commented earlier, the point of , is it just the first step or if we have a pause trump has indicated he wants to read it up and the chinese have remained belligerent. theynteresting thing is had a consensus about outside. this week, we had senior chinese officials in brussels tried to commit europeans to issue a joint statement. it is unlikely to have.

so the chinese, they're playing on a variety of fronts. nejra: speaking of the chinese, there is a great story saying that officials and academics are starting to wonder whether xi hasents she -- misjudged the mood. do you see signs they will back down? wolfango: no. looking at the timeline and the majestic -- domestic agenda, they can go for the long game. the president is strong, consolidated. the strongest leader since mao, he can take the hit in the short-term and take the long game. trump is in a different position with the midterms coming. so i do not see them backing down anytime soon. it is in their interest to keep this going, as long as the message is not particularly constructive. nejra: does that mean tensions

will keep ramping up? would be the best case scenario, where after the midterms, we see a pause, the two sides reaching out and maybe with the help of other partners, trying to have a deal. bitter, i think we are set for an uncertain global trade environment. all right. let's bring in another guest, joining us from zurich is michael stroke, -- strobe. we saw some losses in asian equity markets overnight, presumably on concerns around trade tensions. what is your outlook on risk assets, particularly equities as we head into this new phase of the trade discussions? michael: our outlook is still constructive. to sitadvising clients

through this, look through it and take it seriously. we are long equities as well. i see, for example, and also emerging markets. struck -- stock of this and the trajectory of positive growth. we have seen investors be very negative, and i would see that as an opportunity. risk? how are you hedging we are long on the general, but we put our positions into switzerland, the u.k., and equities in general. we are prepared to sit through these positions in the face of this volatility.

i will say that this cyclical bull market year is getting more and more mature, and that investors need to put other positions into their portfolios to begin hedging and take different returns. the potential of escalation, a further tightening of monetary policy that would apprise the -- surprise people. nejra: that goes back to my question of hedging risk whether from trade tensions or tightening policy. as i said, we are constructive on growth. we have seen a slowdown in the first half of this year from a high. that has taken people by surprise.

we have not been terribly surprised about it. you have sort of had this month , if you will, negative shocks to the outlook that has kept equities that in our view. but in our view, it looks better than the first half. nejra: are chinese equities and opportunities, given the job we have seen, into a bear market? michael: i would hold back on that for the moment. and just get more solid data in particular. there are two things that maybe playing into this. on the one hand, we have seen a rollover of growth momentum. they have in this environment stayed strong. that has hurt emerging markets

and it seems like they are on a softer path, driven by consumption and consumer demand. that's needs to settle before we could feel ok, that this is the time to go back. both stay with us. next, some ecb policymakers are said to be uneasy that investors are not betting on a rate hike until the tournament -- december 2019. we discuss that next. this is bloomberg. ♪

nejra: economics, finance, and politics. this is "bloomberg surveillance." i'm nejra cehic in london.

some ecb policymakers are said to be uneasy that investors are not betting on a rate hike until december 2019. sources told bloomberg that a move is in the cards. investors lifted the chance of a september rate move to 80%, up from less than 70. update us on what you have been hearing. just to give you a bit of background, the ecb outlined guidance on interest rates in june, and at the time, the language it used was ambiguous. it said they would keep rates at their current levels through next summer. that has gotten investors thinking what does that actually mean? mean september, october,

that it is the earliest point they would consider hiking rates? at the same time, we have had a lot of a dovish rhetoric from policymakers since june meeting. the forum was all about trade risk, all about sluggish inflation. and so, markets have been pricing the-later in the year. what we are hearing now is some officials are concerned about this. because they want to leave options open. nejra: what does this mean for conversations on the ecb governing council going forward? i know we have seen some repricing already. mind that this was some officials, we have always had a healthy debate between the hawks and doves on the council. we are also talking about something happening in 12-18 months.

so perhaps, we might see a situation where you have some tryingls coming out and to emphasize that the next fall could still be an option. at the same time, these are early days, they want to wait and see how the economy evolves. nejra: thank you so much, to bloomberg's ecb reporter caroline -- carolynn. holiday week, but with fed data out of today, the u.s. economy is still taking center stage. investors keep an eye out for what officials discussed at last month's fomc meeting, including the risks of trade tensions, stronger dollar, and a flattening yield curve. what does this mean for markets? --ll with us is mark's michael and will say go -- wo lfango.

are investors getting the central bank divergence story right? if you look at euro-dollar. michael: we do not think so. but this is more driven by the outlook on the european side than the u.s. side. our sense is investors are under appreciating the growth potential in europe and that the ecb, if anything, would be moving earlier than what seems to be in the market. they have practically been priced out until the third quarter of next year. we would be more optimistic about european growth and the ecb moving a little earlier. we see thee have is euro strengthening as a consequence of that, and one of our less conflicted views is that you

should underway european equities. nejra: underweight european equities. as we look ahead, what will you be focusing on? anything we might hear about the neutral rate? that would be one thing to look after. we will be looking at two things. all, the fed outlook for the drop in the unemployment rate. and any sense of if we have approached the bottom on that's. the second big elephant in the room is how much inflation will be fed tolerate before they become hawkish on rates. our sense is we are not there yet, but we are carefully watching. nejra: let me bring you in. theyurse it, another thing

have to take into account is is ramping up of trade tensions. concerned about the potential- for global policymakers to respond to trade threats versus the financial crisis? wolfango: i do not think there is much capacity to respond in the short-term. agendaust look at the the eu brexit, parliamentary elections, the commission, draghi leaving, whether merkel cap last -- can last. of policymakers to come out with a constructive solution and an accommodating step is a very small. disruptors more of a rather than a pacifying force if

you take a 12-18 month deal, basically. the unpredictability some are calling it from the u.s. administration, is that leading a global power vacuum that could be filled by angela merkel or somebody else? wolfango: i don't think anybody can fill that vacuum. we have seen this for some time. it is not a question of trump, the u.s. has been retrenching for some time. it is not as interested in playing the global role they have been playing. the problem is, we have no alternative candidate. in terms of firepower, china could be one, but politically they are not interested. we are in this sort of limbo. and at times, there were other opportunities. when you look at the eu side, they see retrenching as an opportunity in terms of striking free-trade deals. we have seen canada, singapore, now a deal with australia and

new zealand. it is not just a negative story across the board, we need to pay more attention to specific individual country stories. nejra: michael, let me get your view on fixed income. the 10 year seeing treasury yield remain suppressed on trade tensions. but if you bring in the central bank tightening into the mix, where do yields go locally -- globally? up.ael: we see them mildly we do not see them moving sharply. down on thee come backs of these trade tensions. and we would still encourage investors to seek other sources within fixed income.

markets, into emerging even though they are taking a beating on the back of the strong dollar and the interest rates in the u.s. in general. still see them moving beyond the 3% on a 12 month horizon. constructive on any particular part of the curve? yes, we are short duration versus benchmarks. zone. into the 3-5 years rewardsnot getting much for getting longer-term risk on the curve, and therefore, it pays to sit at the middle of this curve. and to just be comfortable on a 3-5-year horizon, you will actually get the same. is the yield curve going

to continue flattening and possibly invert anytime soon? michael: that is the likely scenario. whereve a fiscal outcome in the next 12-18 months, you will see the effects of the tax reform play out. and that it will sort of peter away. you have a fed that is strongly intent on getting rates at the short end up. the yield curve could indeed inverse. that would be a sign for will,ors to be, if you choosing perhaps more defensive side. taking more hedges into their portfolio that protects them from not just a short, but to move them away from this direction of growth trade we have seen.

general, just to be cycle to notthe give you much more than where we are now. nejra: briefly, is the dollar going to strengthen this year -- continue to strengthen this year? michael: we do not think so. we think it has become too strong on the backs of these general tensions trade. our view is that the dollar should we can, -- nejra: thank you. they stay with us. 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. nejra: welcome to our weekly brexit show. let's get the bloomberg brexit bulletin. >> earlier this week, the former leader nigel farage rebuffed allegations he had a financial

interest in the pounds movement in the wake of rises -- brexit. this is a myth the accusation that he allowed millions to move in the collapse. >> i had no interest in that day. my only best wasn't thousand pounds on the nose. i had no other financial interest on that evening whatsoever. >> u.k. companies are at breaking points over the lack of clarity on prices and are slowing down investments. that is the warning from the companies main business lobby groups. saying they have made limited progress on only some of the issues where businesses need clarity. britain's biggest carmaker is warning a brexit's without frictionless assets would jeopardize more than $100 billion over the next five years.

they say extra costs and delays in the supply chain would also caught -- cut profits. just 20 banks have applied for a license to operate in the european union to receive approval before brexit. according to the ecb's supervisory board, they are in talks with 50 financial over retaining the so-called passport that breadth and access. but they have not submitted applications by june, a deadline they need to meet before brexit. that is your brexit bulletin. this is bloomberg. nejra: thanks so much. is fighting to win backing for her plan, but a proposal has been rejected by her chief negotiator who called the plan unworkable. that is according to bloomberg sources, and comes ahead of the meeting of ministers at her auntry retreat to agree on blueprint for britain's future

trading relationship. foley and now is jane david merritt. still with us, our guest. david, how significant is the someone bop. ?s it just one of many david: we have been here before. we had people threatening to resign, though he walked back. we have had many members of theresa may's cabinet threatening various things. what is important to remember is none of them have actually resigned. if you think about her progress throughout this torturous process, we have been inching along, step-by-step, and compromise have been reached. and she is still in position. we have some people outside the cabinet threatening a leadership contest, it has not happened yet.

we have to see what the proposals are and what happens tomorrow. but don't rule out mrs. may. her, she has managed to keep her ministers and cabinets on her side throughout the rest of us, and we will have see the outcome of the meeting. bear in mind, all of these details needs to get some sort of reaction from the european side. it is really not clear whether any of this will be acceptable to the commission or not. so really, britain's cabinet fighting amongst self, but ultimately, the proposal will be thrown out when it comes to your. -- europe. nejra: what can we expect out of that meeting? wolfango: and i think they are asking merkel to not reject whatever is going to come out of the meeting. it will be a eventually rejected. for once, they are right.

it is unworkable. the meeting is about british domestics. may, finally confronting the oak, if we want to put in that way. and trying to put together these revised custom partnerships. but the moment at which this will land in brussels, it will be rejected. or the condition imposed will be so onerous and there is no way she can sell it. so it is more of the same. two years after the referendum, this cabinet is still debating amongst itself about brexit. that is where we are. nejra: so what can she propose that brussels will accept? they keep saying they need more clarity, but what should that look like? wolfango: the question, first of all, is what she can propose that keeps it where she is in office and keep the. that is the real struggle.

from brussels, the message has been clear. is aest case scenario canada deal, with equivalents for the financial sector. and then, a backstop for northern ireland. the eu position is very clear. the question is how to disentangle yourself from that and british politics at the same time. nejra: the phrase unworkable has come up a couple of times with both david and wolfango. jane, let me ask you, how is this workable? jane: the fact is, this is deja vu. if there was an obvious solution, we would know it by now. it is really unclear how to fix this, it remains a major puzzle.

of the for sterling, one things that is surprising is that it has not in -- been more. the uncertainty is huge. we are approaching this deadline, got past what was meant to be a medium-term deadline, the june summit. there was no compromise with westminster about that plan. a deal was meant to be done, and clearly, no deal is there. and we have not had that much volatility. i expect that in awful lot of people are waiting on the sidelines. it is very difficult to make investment decisions when you have this degree of uncertain. think that thing from land rover speaks in essence for what people are saying. a huge amount of uncertainty. how can they make business decisions with this uncertainty hanging over. nejra: i showed a great chart of eurosterling volatility being suppressed.

you can find it on the gt the library. library. is part of it also that investors are assuming that at the end of the day, it will all be result? -- resolved? a lot of people have thought that there might be a last-minute compromise, because the idea of a cliff edge raise it is horrible. to be fair, the closer we get, the more difficult it is to believe. and the risk that we get something nasty has to be on the back of most people's minds. and something people are working towards, in many cases, a worst-case scenario. they're trying to put together contingency plans. nejra: david, what sort of headlight might we wake up to on monday morning? stick i'm not going to

out my neck on this, it is so unpredictable. so many times, we have said this as theutch moment, but deadline approaches, we are getting very close to the point where we have to have at least a withdrawal agreement in place. otherwise, everything is off next march. so there do have to be decisions made, but all along this process, we thought we were nearly there and then he can has been to down the road. perhaps, that is where we will be. everybody backing away from the precipice in terms of the cabinets, coming out in some wording every one feels they can get behind, and the ball is thrown to the european commissions court, which as we said, may throat straight back -- throw it straight back. nejra: i wonder if that will be a theme. not just brexit, but trade.

thank you so much to david merritt. stay with us.ngo plenty coming up. britain's biggest carmaker has warned against a deal that threatens investment. and glencore announces a billion dollars share buyback days after a government investigation. this is bloomberg. ♪.

nejra: welcome back to our weekly brexit show. britain's biggest carmaker has warned a bad deal could jeopardize as much as 18 million pounds in the next five years.

jaguar also said delays could cut the company's profits by 1.2 billion pounds a year. still with us are our guests. your conversations with business executives, what is the feeling you are getting about brexit? ftse, concern, concrete decisions about investment? ftse,go: frustration, uncertainty, and people postponing their decisions. but there is a feeling the timeline is getting tighter. we still have no clarity on what the u.k. wants. is not only about the deal, but the future relationship. we have not heard anything at all about what the relationship will be beyond 2020. it means businesses out of there are looking for a sense of direction.

people are prepared for the worst case scenario. authorities are being told to prepare for a bad scenario. unsurprising, given that we are three months away from the deadline. march 2018 is not that far away. and still, here we have a cabinets that is deeply divided about key parts of a potential deal. nejra: you were making this point earlier as well about investors preparing for a worst-case scenario. we are seeing more and more companies come out with similar comments to what we have heard. what implications does this have for the boe? jane: ultimately, if we look about what they have been saying , for a while, if we look at their surveys, investment is up over the last year or so as we have had good world growth. and when you have had good

growth, it'll float your boat. but what other officials have said is that investment is not as strong as it would be otherwise, because of the depressive impact of the uncertainty. that is the concern. going back to what the bank of england said in september is investments not only have negative implications for growth , but implications for inflation potential. if we do not get the investment, we are likely to hit capacity constraints, which is inflationary. the implication of some dude investments is lower growth potential and higher inflation potential. that might mean the bank of england is forced to be more hawkish, despite the level growth environment. nejra: if so, is that and then done for the year? difficult to see how

the bank of england would have height uncertainty right until the end of the year. i think they do want to hike interest rates, but certainly they want to normalize rates, because the side effects. yes, they want to. i think they are hoping for the data. if it is strong enough, they will go in august. but that is difficult for them to do something in november or february if this uncertainty persists. wolfango: i totally agree. if they are waiting for clarity, good luck to him. i don't think they will see much at all and we will have to go to deadlines, october, most likely. a deal will be a december deal, and in three months for the various eu countries to approve the deal. this deadline is not worth it.

we have been wasting a huge amount of time since march this year i'm a tough to me that one. the pressure will be there, on thens are ready, but u.k. side, i think it will still take some time to formulate a compromise that can be sold to both sides of the cap. -- cabinets. so let's get ready to crunch time. nejra: we have seen these yields move higher earlier this week from comments. of course, they have voted for rate hikes in the past three meetings. go?e do these yields again, i think we need to work out what the bank of england will do. yesterday, and the breakdown of the data was encouraging.

we did see some movement on the money markets on the back of it. i think the market is not convinced of and august interest rate hike. data, ifget stronger the chances of that strengthened for august, that will have the implication. but we need to see the data. ,ith the political uncertainty there is a massive cloud of uncertainty over the bank of england. nejra: thank you so much for joining us today, jane foley. .nd wolfango up next, glencore announces a billion dollars share buyback, just days after a doj investigation. this is bloomberg. ♪

nejra: economics, finance, and politics. this is "bloomberg surveillance." london -- it in

cehic. change -- nejra some farms are switching from me to insects and studies show it can be better for the environment and yields a similar amount of voting. sounds crazy, not sure if i'm ready to make that switch. , italy ismberg.com starting a sweeping new economic program. the new finance minister says the plan will include tax cuts and universal basic income. and our most read stories. glencoreplace, announces it will buy back as much as $1 billion. group has lost a key executive. and, ecb policymakers are uneasy that investors are not adding on an interest rate hike until december 2019.

to find out more, let's get the bloomberg business flash. >> praxair has agreed to sell assets to japan. the move is part of an effort to win regulatory approval to create the world's largest industrial gas supply. via a proposed $45 billion merger. jaguar is warning that a brexit deal would jeopardize more than 100 billion dollars in investments. they say extra costs and delays in the supply chain would also cut profits by one and a half billion per year. business up for grabs offer the demise of toys "r" us, amazon is going conventional with plans to publish a holiday toy catalog. the guide will be mailed to hundreds and at whole foods. that is the bloomberg business flash.

glencore is to buy back as much as one billion dollars of shares, which may soothe investor confidence after they were hit by a u.s. government probe. this as goldman sachs says the trade war will pose a small threats to raw materials. let's bring in our managing editor for energy and commodities. will, we have seen these shares rally and the buyback must seen as a bit of a relief. will: the timing is important. ony had a difficult day tuesday when they announced the doj was investigating them or money laundering. this is sending a signal they think the share reaction was to they are going to spend the company's money to buy the back, so it is welcome. nejra: welcome for today, but what about ahead?

be it is impact may read in the market as yes they have money to do this. they are generating lots of cash and may have record profits in 2018. and other mining companies have similarly, but it may limits movement. determinetart to their strategy, making them less likely to do deals. nejra: let's turn for the broader commodities space. the bloomberg commodity index had its worst job in june. so they say it is now time to buy, even on soybeans. it is across a broad spectrum of raw materials. will: they have had a bullish call on commodities for the year. [laughter] so far, it has not been a good one. but they are clearly not backing

away, they say this prevents opportunity for investors to get into commodities. there are lots of people who do not take such a sanguine view. morgan stanley has had no doubt say it could have a big impact on commodity prices and flows, and the australian government want it was a risk for the -- theian slowdown slowdown in china was a risk for the australian come on -- economy. some are saying trump tweets are driving oil prices, not opec. where does it all go from here? will: good question. trump is clearly determined to be seen to force opec. he has forced the saudis to change their oil policy. they have switched from a bullish position, saying the

global economy could take higher oil prices, to raising production. so far, it is not working. there are two reasons, you can see from iran's response that they are ratcheting up political tensions. highlighted fact that if they do increase production, the world has very little spare capacity. so investors are starting to worry about the possibility about a supply short. our managing editor for energy and commodities. bloomberg surveillance continues in the next hour. our hosts will be talking to commerzbank strategist. this is bloomberg. ♪

♪ tom: this morning, markets are on yields higher.

will draghi need to raise rates sooner than 2019? oil is up 180%. president trump getting in the habit of lecturing saudi arabia. letting us of firecrackers. don't do this at home. this is the day after fourth of july, "bloomberg surveillance" in new york. anna edwards is in london today. francine lacqua is off. primest meeting between minister may and chancellor merkel. she will get if any signals as to what kind of customs deal is doable with the eu? her party can't agree with him themselves.

a thursdayget briefing with our first word news. .ere's taylor riggs taylor: two people in critical condition after a poisoning. the trump administration plans to begin imposing tariffs on $34 billion of chinese products tomorrow. the u.s. says it is responding to the theft of american intellectual property. beijing is vowing to retaliate immediately. the president tweeted opec is doing little to reduce gasoline costs. oil prices are holding near

three-year highs. thailand, rescuers trying to drain water from a flooded cave before they can extract 12 boys and their soccer coach. right now the only way out of the cave is diving. as you mentioned, the americans celebrated the country's 242nd birthday last night in traditional style. across the nation, fireworks exploded in the sky. boston,play comes from where bloomberg provided exclusive coverage of the boston pops fireworks spectacular. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. anna: thank you very much. let's get the latest from the bank of england is that music fades into the distance. very nice. ,e are getting update from sca

publishing a paper on the subject of cyberattacks. u.k. banksls cyberattacks are incoming. tom: there it is, the future of cybersecurity. let's do a data check. there's some real interest out there today. 78 with curve flattening, now solidly below 30 basis points on the spread. 15.48. dollar ambiguous today. i showed mexican peso off of the election. the: i'm going to linger on top line of this one, the auto sector up by 3.3% in today's theing session, underlining

role for dialogue in trans-elect trade off of the back of reports that carmakers in germany have been talking to the u.s. ambassadors in germany. the euro getting a boost from that her data out of german factories. tom: further up the you'll -- ,urther up the yield curve normal is a band like this. all you have to know is a relative curve flattening. is way highereld than the 10 year yield. we've really come down nicely almost back down to where we were at the beginning of the financial crisis. we are seeing back and curve flattening of a major order. anna: i had the pleasure of speaking to the hsbc bondage you were earlier on. guruso -- hsbc bond earlier on.

tighter financial conditions are where my bloomberg chart goes to. let's talk about china. china certainly won't bow to willts or blackmail, and have to fight back if the united states goes ahead and imposes to the, according spokesman for china's commerce ministry. now from beijing is our china correspondent tom mackenzie. we saw the commerce ministry really trying to underline the point it wouldn't just be chinese businesses hurt by these tariffs, but u.s. businesses as well, and they did the numbers on that. reporter: they said that around 60% -- run around 60% of those tariffs are being manufactured by americans, so the chinese say this would be

example of the u.s. causing itself pain, as well as its trading allies. you can look at the likes of taiwan and south korea as well. really this was a message from commerce ministry and foreign ministry later on in the day, saying we will not capitulate. china saying it won't be the first one to pull the trigger, but equally would fight back and pushing back against this protectionist sentiment out of the trump administration. really china trying to portray outlier and an outlier administration trying to bully its way on trade. anna: underline for us the timing of all of this. , july 6 now marked in everyone's calendars as a day where we could see the trump administration imposing tariffs on chinese imports, and then china responds directly after, perhaps. china has made it

clear it is going to respond almost immediately after those tariffs kick in. the timing from the u.s. side is not exactly clear. the indication we've had so far as they will kick in essentially around midday china time, midnight in the u.s. of course, the trump administration has said it would retaliate cannot potentially looking at an additional $200 billion of tariffs. that is the state of play tomorrow, and then further down the line. many would say that the better approach for the administration would be to work with the likes of the european union, the irony being that the premier is headed to the eu this week to push back on actions against the u.s.. tom: what is the state of play of the chinese economy? we have a number of interviews modeling out a much slower chinese economy, where they finally break under 6% down to

some lower economic growth. is that the backdrop for president xi? reporter: there is certainly concern. we are hearing that from voices here on the ground about the slowdown in china. certainly the data points seem to suggest at the very least you will see a marginal easing off. there is theid, government target of 6.5% for the end of 2018. rarely do they miss that target. whether you believe the numbers or not is a different question. they do still have tools that their disposal. fondling of credit, particularly to the small and medium-sized enterprises. there are other tools at their disposal to try and ease these. the export sector, which would be in the firing line of these tariffs, plays a smaller role than it once did. yes, a marginal slowdown makes it a more complex

background for china's policymakers as they face up to these trade tensions. anna: thank you very much, tom mackenzie come up bloomberg's correspondent in beijing. --x -- with a, guest: i think the decisive question will not really be july 6, and thereafter everything will either be fine or dismal. i think the question it is is this going to sit around for the coming months? this is a story that has been with us for three months already. it is unlikely we see any sort of backing down. , the decisive thing is

not $44 billion or the 60% of .his for me, the decisive thing is really is this going to stick around, and what is the direction of all of this. then i have to ask myself, what can we do? what is the direction of it? since february we haven't had any direction. we've been trading in the reign of -- in the range of 5%. i think treasuries make sense. we still overweight treasuries on a portfolio context because what you do see, you see u.s. economy in the second quarter roaring pretty strongly. strugglinge really with the 3% level. from that perspective, when you look at the second half of the year, we can actually see perhaps a little bit of normalization of growth. little moreerhaps a

support for treasuries. treasurieson probably make sense. in a singlethink digit or double-digit world, the equity market in the united states up 12%, is that where we are? max overall, the total return potential is pretty limited -- overall, the total return potential is pretty limited. yes, the levels of yields are somewhat distorted by central banks and massive qe programs over the last couple of years, andultimately corporates economic actors, they don't really care what is the source of the distortion, the source of

where yield curves are going. ultimately they care about whether they can still borrow, whether banks can still lend. we do get so late into the cycle right now that total return potential in equities is getting really limited. withvery good, max kettner us. jobs day tomorrow in the united states. without question, my interview of the day in the next hour, and edwards i will speak with robert edwards -- anna edwards and i will speak with robert kaplan. this is bloomberg.

♪ this is "bloomberg surveillance." the american company has agreed to sell european assets for $5 billion. praxair is trying to sue over a proposed takeover of germany's lindahl. u.s. officials have demanded documents from glencore related to possible money-laundering and corruption. a tragedy has deepened the turmoil at struggling chinese conglomerate a today -- conglomerate hna.

hna has been selling billions of dollars in assets. the company could not generate enough profit last year to pay interest expenses. that is your bloomberg business flash. anna: thank you very much. some ecb policymakers are said to be uneasy that investors aren't betting on a rate hik e until december 2019. the euro raised earlier losses on that report in yesterday's session, and investors lifted the chances of a december rate moved to 80%, up from less than 70%. positive german data has also lifted the euro. kettner. back to max why split hairs about 2019 when it is such a long way off? max: that is a very good

question. aboutacro guy, if i think they are going from -42 -30 toher in september -- -40 -30, perhaps we can talk about this for an hour. this is not really great news. this is still very much within the sort of0000000 -- the sort of000000000000000000000000000000 -- within that range, there are durations such as we see right now, but also it might mean we go from 116 to 118, but it does not change the overall direction. anna: do factory numbers out of germany excite you? we had numbers that were positive for the first time this year the month of may. is that moving the dialogue germany?

i think what you have seen over the last two weeks, we seem first positive surprises -- we've seen the first positive surprises in the eurozone. there's been this relentless streak of negative macro surprises that is slowly coming to an end. we still need confirmation for that, but it looks like perhaps we are actually getting there where markets have become too pessimistic on eurozone growth expectations. we do see positive surprises. i still think we are not quite there yet. i still think q3 will be a little bit of a struggle. tom: commerzbank has lived negative interest rates. what have negative interest rates meant for broad society was in europe? max: i think it is particularly cumbersome for banks that are more retail focused compared to get early in the eurozone --

retail focused, particularly in the eurozone. if you don't see rates moving, if you don't see slightly steeper curves, bank stocks don't really make sense is a real basis for performance. for broader society, it basically tells us when you look at real estate, for example, in germany, you can see where the money is going. into not really going consumption. people are borrowing money to buy houses. i wouldn't call it a bubble, but it is really boiling at the moment. tom: thank you so much. this is a terrific briefing coming off of the sort of haphazard start the second half of this year. again, jobs day tomorrow. your job is to tune in at 12:00 noon. mr. scaramucci will stop by on

how they communicate at the white house. rumor has it david westin will get a briefing on the new york mets, 14 gives behind. scaramucci will figure that out. this is bloomberg.

♪ this is "bloomberg surveillance." turmoil has deepened that hna group, the chinese conglomerate that has been selling billions of dollars in assets to stay afloat after its number two

executive died while touring southeastern france. one of china's most indebted companies, is undergoing restructuring. bring us up-to-date. a companythis is that, as you mentioned, has been selling off billions in assets and trying to work itself out from under a massive pile of debt. this came out of nowhere, this death announcement from france yesterday, and really took the entire company by surprise, as well as all of us. thehave to imagine that management is currently dealing with the grief surrounding that death, but it is doing that at a time that come as you mentioned, is very urgent for the company. they have numerous major assets that have been put on the block that they said they would like

, soell and are in progress this has to be a big block to the efforts to immediately sell those. this is a company that was struggling day by day to negotiate these types of sales. there was a report in the press this morning that they are using one of their luxury residence in hong kong as collateral for a loan. they are getting every asset they can and putting it on the block, and then this comes along and happens. this, he was a gentleman. does the government replace him? dave: i think that is not something we would see as likely to happen. hasgovernment obviously recently agreed to work with hna

to help them raise money. that happened last month. it was a very important meeting they had, including meetings on hainan island regarding the company's finances. that had been part of the problem, there was a perception the government had been stepping away and trying to distance itself from the company, and that made some of the makers skittish and made it harder for them to raise money. anna: thank you very much. thanks to bloomberg's asia conglomerate dave mccombs. coming up on "bloomberg markets," the former secretary of commerce at 12:00 p.m. in new york. this is bloomberg. retail.

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

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. ♪ anna: it is 10:29 in london. i'm anna edwards in london, with york.ene in new

this is a devilish story for breakfast. some farms are switching from me to insects. apparently -- switching from meat to insects. is to start a sweeping new economic program with its upcoming budget. the company's new finance minister says the plan will .nclude tax cuts and onto our most read story on the bloomberg terminal, glencore announcing it will buy back as much as $1 billion of its own shares. hna group has lost a key executive who died in southern france. we got the details moments ago .rom our tokyo correspondent

let's get the bloomberg first word news update. here's taylor riggs. taylor: german carmakers are making the case against tariffs on the trump and -- tariffs by the trump administration. they argued that imposing tariffs on imported cars will cause irreparable damage to global business. british prime minister theresa may is trying to keep her divided cabinet together and unblock the stalled brexit talks. she is proposing a compromise plan for a trade deal with the european union. ay's goal is to bridge the divide between leaders in her party. mentioned, the new populist government in italy wants to show financial markets it is not backing away from its agenda. finance minister tells

bloomberg's first budget will tackle tax cuts and universal basic income. italian bond markets were initially rocked when the populist coalition took power. special counsel robert mueller is getting reinforcements to expand his investigation into russian election meddling. bloomberg has learned that mueller is making more use of career prosecutors from the justice department, as well as fbi agents. that is a sign he may be laying the groundwork to eventually handoff parts of the probe. -- parts of the probe. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thanks so much. in the heat of the summer, it is the great oil debate. we've got two smart guests on our london desk, but first a presidential tweet. there's been a number on the evil of the opec cartel.

up.prices are "this must be a two-way street. reduce pricing now!" that is from the president. william kennedy in london, max kettner joining from commerce bank as well. what in gods name is going on between the president, saudi arabia, and the cartel? >> in some ways the president is being quite successful. what he has managed as recently a spring, saudis were happy to see prices go higher and that the global economy could cope with higher prices. then after trump started tweeting about opec, they

changed. it hasn't lowered prices, and i think there are two reasons for that. one, we've had a lot of disruption of where. the ventas -- disruption elsewhere. the venezuelan oil industry continues to collapse. the market is becoming concerned that is saudi arabia produces all of its oil, where is the spare capacity to shocks in the future? tom: let's look at the chart right now. --do an inflation adjustment want to do an inflation adjustment. it is a 200 day moving average on brent crude. in your view, is that 200 day moving average at $68 a barrel expensive? is the president right that oil is rich?

will: he probably isn't. the main reason is that his other policy on oil is to impose very tough sanctions on iran. the market has got to deal and adjust to the fact that if you follow through on that and insists that american allies don't buy any irradiance -- any , he's trying to have it both ways. but at the same time, his stance on iran gives every reason to buy. iranian opec governor have driven tweets the prices up by at least $10 a barrel. please stop it. otherwise it will go even higher." that's pretty clear on who they blame. will: yes, and. i'm sure that will certainly work iran is in a very -- and i'm sure that will certainly

work. iran is in a very weak position here. iran's exports will fall. economically that will be a huge shift of money towards saudi arabia, who end up in a position where they are producing a lot more oil at prices that seem pretty set around the $80 a barrel mark. issues in venezuela and other places, to they raise prices, or do prices fall from here? max: i think they can, but practically i think this is will probably remain where they are. what you do see right now, we are only talking about opec. we are only talking about the supply side. if using about oil prices in the last six months, the only discussion been about supply. no one is ever talking about demand.

we are in an environment where you see negative growth surprises, the notion of globally synchronized growth being increasingly questioned. it looks like 2018 might just be the year of normalization like we've had to this entire cycle. is that actually materializes, the demand growth forecasts have to be revived a little bit lower. lower oil prices make a lot more sense. one thing with regard to what tom said is $68 expensive, i think economically it is not really the level. economically, the decisive thing is year-over-year effect because that is what influences inflation expectations. tom: didn't we do this in real time, folks? we are making it up as we go on "surveillance." will kennedy, i did this just for you. bring up this chart.

this is real brent 200 day moving average. i'm going to paint this up a little bit. this is how cheap oil is. as max mentioned, $68 a barrel. presentbrent crude in $2018, so the 111 moving average here is actually up in today's dollars about $118 a barrel. i look at this chart, and i'm sorry, oil inflation adjusted is dirt cheap. and i right? will: that's right. historically, these remained relatively low prices, especially compared with that shale up to 2014 were forced opec to change course. we haven't talked about shale as much recently, but that of torse will be very important

see where prices go closer to historical norms. that is more production coming, but some people think the ability to get oil out of additional markets will be another factor that determines how that chess develops. anna: i was just reading a report out of iran saying that they could stop exporting --aight to paul moose exporting. will: they could try. it is likely to this it is unlikely to be more than bluster -- it is unlikely to be more than bluster. i don't think anyone is really thinking about anything so serious in the short term, at least. tom: thank you so much. greatly appreciated. real perspective here. we will get that chart out on social media here in a bit. next kettner with us -- max

kettner with us from commerce bank as well. robert kaplan with us. really looking forward to that interview. in washington after the red sox swept the nationals three games.

♪ anna: this is "bloomberg surveillance." let's talk u.k. politics. negotiator's top david davis has called her plan

-- as britain's biggest carmaker has warned against a bad brexit deal. without frictionless access to the eu, investments in the u.k. could be jeopardized. , maxng us, davis merritt kettner still with us. david, good morning to you. let's talk about to resume as she goes into a room with her cabinet members who are divided. big names coming out and warning of the consequences of the hardest form of brexit. uar bucket about the impact on their shares, warning about the consequences. if you look at what she's been doing with these proposals and what is actually in this plan, it is inching towards a softer version of brexit. in that respect, businesses will probably be at least a little reassured by that.

we've got to get the agreement of the cabinet at this meeting tomorrow, and increasingly this thing has to go over to europe. what do they have to say? is any of this example -- is any of this acceptable to the european commission? this afternoon she is meeting an sure thisel to won't be thrown right back at the british when they meet with the european union. extent it is pointless to come to an agreement as it will not be acceptable. will she get any clues from merkel? will have to see. have complained throughout this whole process that they are negotiating amongst themselves. they will no doubt be pleased to get some firm proposals. may be of that they won't rejected out like -- reject it outright.

maybe it is a position they can start negotiations from. tom: in the heat of july, let us go back to first principles. who does the united kingdom speak to? do they speak to brussels, or do they speak to chancellor merkel, or this chancellor merkel told brussels what to do, or does brussels tell chancellor merkel what to do? which is it? david: the strategy for the british has been to try to reach out to individual governments because a lot of the countries have different views on what they see as brexit meaning and what their priorities should be. the europeans have been rather this, and united in they have been deferring this, d they have been deferring to the chief negotiator and working through the european commission. so far the british strategy has been a bit more divide and rule, the europeans have been clumping together. the possibility of a no deal brexit looming, that is very bad for britain, but also very bad

for places like ireland and the netherlands that have a very close relationship. ay went toy ms. m speak to the dutch prime minister yesterday and will speak to ms. merkel today. anna: max, we will get your thoughts in a moment. we have the bank of england governor making his speech in the northeast of england in the city of newcastle, saying the u.k. economy is evolving as expected in the month of may. he says there are tentative signs the traits that it -- the trade spat is hurting global that globalstating tightening will be needed. what is this doing to markets? you can see him making the speech there. we've got these headlines crossing the bloomberg now. the pound against the dollar carney saysmark tighter policy will be needed.

tom, in a part of the country, the northeast of and let come a very central to this brexit conversation because of the role they played in the league vote on that night. tom: what is important about this, and i talked about this a few times, is his study of how do you diffuse the prosperity of london out across the united kingdom. david, give us an update. going?that is there a better distribution of economic growth in the united kingdom to other climes from london? david: we are not getting any data on that. i think the latest economic data is showing broadly the slowdown we had earlier this year related to the bad weather, there's been a tick up again. we had strong services data. just have to walk around london. it doesn't look like we are in

the grips of a slowdown here. but come back to that comments from jaguar and some of the manufacturers and i think about some of the investments in parts of the united kingdom. ,hose parts will be worried some of the carmaking areas in the midlands and the north. for them the stakes are higher. studies show that if we get a hard brexit, it will be the region's of the u.k. that suffer the most. london will continue with its economic growth ardsley on scale -- growth largely on scale. project from the left government in the u.k. is to invest in the north, and many draw links between a lack of investment outside london and the brexit vote. let's get to max kettner. davidll the stronger data was mentioning out of the u.k. over the last couple of days. surprising stuff. where do you stand on u.k.

assets at the moment? max: what you actually can see is we had a were bit of -- we had a bit of relentless negative surprises in the u.k. since the start of the year. that has changed over the last three to four weeks. throughout the entire data complex, we currently see positive surprises from the u.k.. somewhat surprisingly that hasn't spilled over into the short end of the yield curve. you see that very much correlated global effect come into the treasury picture, not relate to the domestic u.k. picture. that is something that can still bite us very quickly. we could move in a parallel years.two years and 10 on the sterling front, i think what is really decisive is will we see a genuine right hike? that is where i am somewhat in

the middle. sterling still has to react to the streak of possibly positive surprises on the data front we see right now, but actually be decisive question then, if we do get a high hike in august or perhaps later. does he sound like a man who really wants to hike in august? do they sound like a group of people, despite the move, that really want to hike? max: generally i think they accept they have to because they of 2009ing in sort crisis style, and we are very far away from that. we are not talking about can the economy actually weather a rate hike increase. what we have to ask ourselves now, we have to increase our arsenal the next recession. they actually have to get to accept we will have to get rid

of a little bit of monetary policy accommodation. tom: what is the mystery that commerzbank sees in the united kingdom economy? i think i got a pretty good handle on what that is in the united eights. -- inn the united states the united states. dynamic?export-import max: i think it is mostly in export-import dynamic. as we've heard from carney as well, we heard the first signs that global trade is spilling over into lower investments. you actually do see some of the surveys, not as good as they were six months ago, and that is spilling over across the globe. the same thingy not only in the eurozone, but also in the u.k. happening. tom: within this, david, is the political struggle.

this parliament give a whit what carney says? something he any statements chairman powell would make. ats parliament have any liknk all to the bank of inland? -- the bank of england? the brexiteers accused him of talking down the british economy, and warning come of a -- warning, but everything he's pretty good has and out including -- has panned out, including the shock after brexit. i think he is closely monitoring the interest rate development and the economy. that really comes to the heart of the question of brexit and what it means to britain's future in the world. anna: max, when you look at the

path ahead in brexit negotiations, where do you see the most risk? 2019?t all build to does it all of like it will come down to the wire? max: i think that is probably the case. what links it to the discussion we had in the beginning about trade and the conflict between the u.s. and china, the decisive assets, is this going to continue, or do we see some chance in two months for a decadent agreement, and thereafter we can only judge by economic standards and not political standards? the likelihood of that is very limited. ae boe cannot engage in genuine rate hike path. for me, that is a sell. if we go below 130, that doesn't make much sense because that

probably means too much dollar strength, and that will drag on the economy as a whole. it is probably going to be as much is a discussion on the political front. no real definite agreement. that also translates into some sort of volatile agreement. anna: if there is something in the period running up to march of next year that takes us to in precipice and we end up some sort of chaotic situation, it is interesting to see whether that will be negotiations across the channel or response to those in westminster. will it be a fallout in europe that flags a big red light, or will it be the reaction of the labour party. will the labour party refused to back anything, triggering some kind of election in the u.k.? the threat of the election brings us back to how we started this and the way that ms. may's government has behaved.

maybe that is why we will not see some resignations. that is her strength, that is why she's sat around so many times when we talked about her demise, and still she is here. tom: governor carney in newcastle to the north of england. i want to move on to whether the president will shake governor carney's hand when he visits london next week. there's an uproar about meeting with the queen. the mayor of sheffield said mr. trump is not welcome. what is reporting of bloomberg news in london now that the -- in london and how the president will be greeted? david: information so far is that he's not actually going to be in london, and that is the fear of some of the demonstrations that could meet us here best that could meet him here -- that could meet him here. then he will be heading to scotland and spending some time on his golf course of their. we can certainly expect some ine protests around that

scotland, so it is going to be a very controversial visit. the labour party has been very clear about their opposition to it. the mayor of london, him too, but they are keeping it fairly under wraps at the moment. guy: maybe it will be -- tom: maybe it will be in season four or five of "the crown." thank you for your briefing this morning. my interview of the day, if not the week, in the next hour. anna edwards and i was big with robert kaplan -- will speak with robert kaplan. he is fantastic on the pacific rim. he has my book of the summer. stay with us.

♪ tom: markets are risk on, curve flattening. we consider the doom and gloom.

earnings season is upon us. if it is tuesday, it must be belgium. mr. putin prepares. will the president? good morning. this is "bloomberg surveillance." i am tom keene in new york. francine lacqua off for the day. governor carney speaking in newcastle right now. the back drop is a sluggish u.k. economy, isn't it? >> it is, apart from the services and gdp data of late. they were revised down. he is making these points. governor carney making a speech at a business summit, saying

tighter policy will be needed. tom: it will be interesting to say the least. lots to talk about. right now, first word news. british police say to people in critical condition were exposed to the same nerve agent used to poison a former russians five. it took place in southern england. if theties are not sure couple was targeted or the poisoning was accidental. less than a day before a trade conflict between the u.s. and china is expected to get worse. the trump administration will impose tariffs on $34 billion of chinese products tomorrow. beijing is vowing to retaliate immediately. president trump is turning up the heat on opec. the cartelnt tweeted is doing little to reduce

gasoline costs. he said, if anything, opec is driving prices higher, while the u.s. defends many of its members. in thailand, rescuers are trying to drain water from a flooded cave before they can extract 12 boys and their soccer coach. right now the only way out is diving. americans celebrated their countries 242nd birthday in traditional style last night. fireworks exploded across the nation. boston was where bloomberg provided exclusive coverage of the boston pops fireworks spectacular. 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. tom: thank you so much. manyurve flattening and signals.

w futures up, 128. curve stable right now. lots of people talk about strong euro. oil with a lift. in, flattening out the yield curve. the mexican peso, because we care. germane care about carmakers with the threat of tariffs on a trans-atlantic basis. headlines earlier out of germany that suggested german automakers have been talking to the u.s. ambassador to germany. the carlyle group confirming talks with the ambassador. that sector trading higher. at the bottom, the pound was trading higher. flattening, not the

vanilla 2-10 spread. how about farther out the yield curve? here is the norm going back a illionan years -- zer years. angst, angst, back to normal, back to normal on that curve flattening. guru i spoke to the bond at hsbc. we talked about two-tens and what he sees on the horizon for the u.s. economy, a slow-motion credit crunch. he said there are a few signs of this. it adds up to what he calls a slow-motion credit crunch. is thisstration of that financial conditions index heading higher. tom: very good. always more than a few things to speak with with kevin cirilli.

op-ed, georgep an will and the washington post. ll, a democrat. i'm not sure where he went. says the one-day meeting was for the u.s. a world series of unforced errors, the greatest diplomatic coup for north korea since 1950. this innocent abroad is stretching toward a meeting with a cold-eyed russian who is continuing to dismantle ukraine. he is probably looking ahead to ratcheting up pressure on lithuania, latvia, and estonia. is there any preparation, kevin? seniorseveral administration officials have begun laying the groundwork for that meeting with vladimir putin

and president trump on july 16. look, i think a lot of folks are drawing the comparison the between the meeting in singapore and the upcoming meeting in helsinki. i think we should note that on there are the midterm elections and other issues, but are the national security perspective of the u.s. involvement in a host of regions around the world, as well as the energy sector. we have seen the president 's tweets in terms of the energy sector. tom: what do people you speak with say when these meetings are one on one only with translators? we saw that with north korea. will we see a one on one with putin with no one there to record what history says?

kevin: we don't know. witheeting in singapore translators, there was questioningnd folks whether or not president trump would be able to have the ability to stay on message. following that meeting, those same people said the president did handle himself by staying on message. if you look at that being the comparison model point, they would seemingly have an ability to do that in a weekend a half. anna: i had a couple of conversations with investors telling me that if we saw the president back away from his threat to impose tariffs on chinese imports, they were trying to estimate what that would do to risk assets. what are the chances the president changes his mind on trade and does not impose those

import tariffs tomorrow? gtv it looks kevin: it looks like the president will be moving ahead with the first round of tariffs. china has said they will not pull the first punch on a trade war and they would just respond to what ever the white house is doing. that there was some signaling earlier this week about the president's , but heion with the wto would need congressional approval to do that, and even the president himself backed off to reporters at the white house earlier this week when he said they are not looking to do that right away. tom: very good. , chief washington correspondent. we are thrilled to bring you gina martin adams with bloomberg intelligence. we do this because i can't

believe the wall of doom and interneticles, essays, , strategy, the world coming to an end as we know it, so we will parachute in miss martin adams with his. bring up this chart. lehman low.s the the world is coming to an end, again, again, again. we are getting this malaise here. is it the same script as before, or is there something different this time? >> the only thing different is we are further advanced in the economic cycle. tom: bring up the chart again. come on. that is the story. >> that is the only story, frankly. it is another correction within a longer-term uptrend. each correction, the bears come out in full force and born this

is a next 2008-2009. frankly, the economic conditions are stable, and the earnings outlook is vastly different. tom: this is where i want to go. bloomberg intelligence, you look at companies. i get that. what are you seeing sector to sector, industry group to industry group, down the income stream. >> it is fast growth. second quarter coming specifically, 20% growth year on year in every single sector, cyclicals surpassing defensive's. growth, but excluding energy, 20% growth for s&p 500 companies. it is broad and consistent. sales growth is accelerating, which dismisses the bear points. there is not a lot of evidence in that.

sales acceleration is consistent throughout the index. it supports the longer-term optimistic stand. i think the market right now is struggling through an environment in which monetary away some ofing the punch bowl that reinflate it arek prices, but earnings taking up the slack. anna: we talked about financial conditions earlier on. one investor this week with saying it is challenging to find places to hide from the trade story. when you're looking across your universe where are you telling people to hide? is it small caps, domestic place? tom: there is the doom and gloom from anna edwards. i think most people have gone into small caps this year as one play on trade.

an area that has been left out of the conversation are mid-cap stocks. the small caps got overinflated and of dollar sensitive and due for a breather, but mid-cap is a place that has not done well and may do better. tom: we will come back in touch on this with gina martin adams. we have that important article on mr. mueller. mr. mueller going to outside prosecutorial talent to move forward in his investigation. i will get that out on social as well. up, my interview of the day with robert kaplan of eurasia group. we consider the return of marco polo. robert kaplan on china and the pacific rim. this is bloomberg. ♪ ♪

>> let's get your bloomberg business flash. another step aimed at winning regulatory approval for the world's largest industrial gas supply. foras agreed to sell assets $5.9 billion. sooth anti-trust concerns. shares toill buy back reassure investors spooked by word the justice department is investigating the traitor. u.s. officials have demanded documents related to possible money-laundering and corruption. a tragedy has deep in the

turmoil at hna. the cochairman fell to his death while in southeast france. he was 57. hna has been selling billions of dollars in assets to stay afloat. the company could not generate enough profit last year to pay interest. that is your bloomberg business flash. tom: one of the facts we know is is one of the core thoughts is earnings start with revenue. we consider earnings season with gina martin adams. the income statements dynamic, a little balance sheet, but it starts with revenue. i go back to the honeywell headline nine months ago with 8% organic growth. is that what we will see?

6%the s&p 500 is closer to organic growth. that is very strong. the last five years on average have been lower, 3% to 5%, so 6% is strong. those estimates this year have only moved higher. back in january, it was not expected to be this strong him and so we have seen expectations move higher. aren't corporate officers focused on cost reduction? >> a couple of reasons. there is this underlying skepticism on the part of corporate managers. they are not as willing to part with the cash as they used to be. they are cautious in the plowing capital. operating margins are expected to be very high. produce paid to

results, so operating margins are expected to rise for 10 of 11 sectors. to be fair, capital spending is expected to accelerate at a double-digit pace. they are parting with cash, but also relatively conservative. anna: in terms of this earnings season, where are we going to see companies proving their stock have been oversold globally? >> there is one sector that diverting to us as fundamentals and technicals and the price has deteriorated substantially while expectations are still high, and that is industrials. you have seen a tremendous beating down of shares in response to trade concerns and rising commodity prices at large. that sector to me has the most

opportunity to prove the consensus wrong. the rest of the sectors have held up well. technology has held up well in the face of rising risks between the u.s. and china. the financials have not done particularly well, but i don't see a lot of trade risks pushing into financials. it is about industrials. earnings expectations are still holding up well. it is too early to expect trade in earningsw up season, and that could provide an opportunity in that sector. anna: thank you. gina martin adam stays with us here. ating up, anthony scaramucci 12:00 p.m. new york, 5:00 p.m. london. what will he say about the president's thought processes? that could be interesting. this is bloomberg. ♪ loomberg. ♪

anna: good morning. i am anna edwards with tom keene in new york. theresa may's top negotiator has rejected her customs plan, according to bloomberg sources. the move comes ahead of a cabinet meeting with ministers on friday. may will try to reach an agreement on the trading relationship with the european union. britain's carmaker has warned

against the bad brexit deal. investments would be jeopardized unless the deal was frictionless. mark carney is still speaking in newcastle. side needs european to do more to prepare for brexit. in's start with mark carney his address. jaguar warning about brexit. >> they are putting some numbers on these threats, talking about a huge amount of investment that is under threat if we have a bad brexit deal with lots of trade barriers between britain and the european union. what mrs. may is proposing and mr. davis seems to have rejected is inching towards the softer end of the brexit curve. some of this rhetoric might strengthen mrs. may's hand in

negotiating with her cabinet. toa: they are used dismissing this as fear, aren't they? >> they are. strength of the feeling in the cabinet. there is a lot of anger provoke .y this brinksmanship they accuse these companies of performing that. it is important to remember what the europeans will think about this has britain continues to argue amongst itself. mrs. may is off to germany this afternoon. regardless of what mr. davis thinks, if she can get angela merkel to say this is a starting point, she will come back to that meeting with a strengthened hand. tom: thank you so much for those comments as governor carney speaks in the north.

gina martin adams this with us. coming up, a timely interview with robert kaplan. yes, mr.plan on china, trump, but robert kaplan on the dynamics of the south china sea. please still with us. urijah to the persian gulf, this is bloomberg. ♪ eurasia to the persian gulf, this is bloomberg. ♪ >> i'm using data from social media and techniques such as machine learning to help. resiliencehaving the -- ♪

tom: bloomberg surveillance. anna edwards in london. i am tom keene in new york. your thursday news briefing. here's taylor riggs. german carmakers making

the case against tariffs to the trump administration. volkswagen, bmw, and mercy it is daimler -- and mercedes daimler said it will cause irreparable damage to global business. the new populist government in italy wants to show markets it is not backing away from its agenda. the finance minister told bloomberg its first budget will tackle tax cuts and universal basic income. italian markets were rocked when the populace coalition to power. the trump administration's point man on north korea wants details on how kim jong-un plans to give up his nuclear arsenal. makes his third trip to north korea tomorrow. there are concerns that since the summit with president trump, kim has not been serious about denuclearization. robert mueller getting

hisforcements to expand investigation into russian election meddling. careeraking use of prosecutors from the justice department and fbi agents. that is the sign he may be leading the groundwork to handoff part of the probe. 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. tom: very good. thank you so much. kennedy andis will gina martin adams. we have robert kaplan coming on in a bit. you to inform our audience of the amount of oil, opec oil, that has to wonder through the locker straits -- the straits. it is the great unknown americans don't understand.

>> the strait of hormuz in the persian gulf is the key bottleneck for oil, saudi, it is all going through that waterway. tom: it is over to asia. it has to go through there. it is critical real estate, isn't it? , between right indonesia, malaysia, singapore. economies of asia, china, japan, south korea. anna: we have been carrying this , the iranian saying they could stop oil going to the straits of hormuz. trump, even brain though he would reject that. >> it is a rhetorical battle between the president and the

regime in tehran. wouldrength to hormuz, it -- straits of hormuz, it would be a blow to the economy. fleetve an entire u.s. inside the gulf based in bahrain . they could not allow this to happen. happen, because it would be a provocative act. anna: profile vacation -- provocation only. any wobbles in the demand story as of yet? >> not huge. there has been some talk in recent weeks that there will be some revisions downwards. we have had three years of strong oil demand growth. people expect that to come off himrade tensions escalate if we get a slowdown in china. that would impact demand, but i don't think people are seeing

anything significant enough to revise their outlook. it could happen. tom: gina martin adams, if you could talk about oil. found theire they price here at $70 a barrel? >> it seems so. the demand story is underreported. we are concerned about geopolitical issues impacting supply, and that has been the predominant discussion, but demand is accelerating rapidly. that is what is driving growth for oil. the other thing to consider with the oil majors in the u.s. is there is a true lack of capital investment. they are pulling back and being very conservative. rapidly,re expanding and they are deploying that cash to shareholders instead of spending money on sourcing new product. these stocks are behaving differently than in the past. they are becoming somewhat defensive in an environment that

is accelerating. they are different than they were two years ago. very powerful driver of s&p 500 prices. tom: thank you for the perspective today. let me tell you about your morning briefing. daybreak, you can do that on bloomberg radio, series 119 -- sirius radio 119. this is bloomberg. ♪ is bloomberg. ♪

anna: this is "bloomberg surveillance." let's get the bloomberg

business flash. boeing on the verge of a deal with embraer. are in the final stages of negotiations. there are reports a joint venture controlled by boeing would absorb a line of regional planes. goldman sachs says forget about a trade war. now is the time to buy commodities. the economic impact from sanctions is small and they are forecasting a 10% return on commodities over the next year. that theey warns prospect of a trade war between the u.s. and china has already economy. global he spoke today in newcastle, england. >> the tariffs that have been announced thus far will double the average bilateral turf rates, and could raise u.s. tariffs at the heart of this

issue. it is something not seen in over half a century. there were tentative signs this trading environment may be dampening activity. >> that is your bloomberg business flash. tom: thank you so much. it is my book of the summer. with huge success, robert kaplan's "the return of marco polo's world." , throw tell you enough this on your kindle and you will be wiser than the president of united states on eurasia, the pacific rim. robert, let's do geography. bring up the map. the idea here of china. we all know that. the rest of us are having a martini in shanghai.

kaplan is not. china.ot in west he is over here in western pakistan. what would you tell president trump why he needs to focus on western pakistan. >> where the circle is on the map is southwestern pakistan, where the chinese have article a state-of-the-art port, which they plan to connect through andstan to western china, the chinese are planning to .uild a fast naval base do20-30 years, if we don't our alliance building correctly, the chinese may be able to dominate militarily the persian gulf. agree on the size of the navy, and the administration

showing the flag worldwide? >> i think we could. 300ave a navy that is warships. trump wants 355. that is beyond their capacity. ships have to be serviced, bill. just keeping up the number 300 will be a great challenge because a lot of our ships will be decommissioned over the next 10-15 years. a 300-worship maybe that is layered out, not just the western pacific, but the indian aean, making use of oman, quite and ally, but low-key, and other places, we would have distribution across the indo pacific. tom: bring up the map one more time. here is oman.

how is our relationship? you want an obama or trump relationship with iran? >> at this point i think an obama relationship would be wiser. orma tried to warm up ties the-conflict our nuclear situation with iran, but without reassuring allies like saudi arabia and israel. that was the mistake, the missing part of the obama policy, but the trump policy is to essentially be aggressive without going anywhere, while alienating the europeans and difficultg it more for iran to politically evolve internally. what will determine the future of iran is nothing we do very much. iran's very complex 80

million-people population and all the political forces within withine her what we -- that have been hurt by what we are doing. tom: let me bring in and edwards. anna: good morning. you mentioned the american administration else its alliances -- builds its , is thes correctly trump administration building its alliances correctly, within the persian gulf or more broadly? >> no, it is not. the trump administration is dismantling our alliances. the first step of alliance , theing is reassuring evolution of permanence that you will always be there for your allies. that is a very moral proposition. i don't mean in a moralistic or humanitarian way. i mean it in the sense that our

word can be trusted over the long-term. only when that happens can we get our allies to raise up their defense budget, to cooperate with tariffs or trade or if united states signals that it will not be there for our allies, the ultimate reality will be that germany, for instance, may have note choice but to move closer to russia. anna: yes, indeed. the u.k. has reservations about the trump-putin meeting coming. what could be discussed? what could be the outcome be between those two gentlemen? >> the meeting with putin? anna: in helsinki. >> here is the problem. trump has lavished praise on kim suffocating,runs a

totalitarian, proliferating regime. he has humiliated our democratic allies in europe, and so now the danger is that he will lavished praise on putin. lavishing praise on an adversary or rival is ok provided you have already reassured your allies. it is all about context. the context is completely missing. anything good trump they say about putin in order to merely be a light will be read the wrong way. is landmuch about this and water. you have made a study of this. we look at russia as a landmass, a southern few they have always been worried about, but as george will wright's, estonia, latvia, the baltic states, and

that involves water. ,ell us about the baltic states but most importantly the president's naïveté about this. >> the greater baltic sea basin is a bit too narrow for submarines -- not for submarines come but for aircraft carriers. send ant necessarily aircraft carrier strike group into the baltic sea, but you can have destroyers, submarines, etc. here is the problem with the baltic sea, in 2012, president obama withdrew of a grade combat team. that is thousands of troops. signalult of that was to a mission accomplished moment. that led partially to the ukrainian crisis, russia moving into ukraine. at the moment, russia could win

a short, sharp war in the baltic sea basin, meaning moving troops into the eastern part of estonia or latvia, then declaring a o couldire before nat get there. have a history of crimea as a sars outpost. theyhose three states, are a sars are soviet outpost? >> it is more ambiguous. the baltic states only came under the direct control of the soviet union at the beginning of world war ii. ukraine, which includes crimea, is where the russian empire began in the ninth century, so ukraine has real emotional, historical appeal to russians, the baltic states are slightly more and the u.s..

you have to think of putin as a soviet man. for him reconstituting the empire which he is trying to do, is reconstituting in some subtle form the former soviet union which means the baltic states, ukraine. zoneans having a buffer right through to central europe. anna: we are talking about european union countries. that is a dynamic. , eurasia group. gina martin adams stays with us. with the charts we use on our show. .tv you can save them for your own research and reference. this is bloomberg. ♪ reference. this is bloomberg. ♪

tom: and edwards in london. i am tom keene in new york. i will be in london next week. the president will be wandering through london, belgium,

glasgow. i will not be playing golf with the president in scotland. how will the president to in scotland? anna: i don't know how he would do with the protesters. tom: let's get right to this chart. i did this for singapore-u.s. for capita, south korea per capita gdp, and way down here are growing china and north korea fairly visible. that is part of the northern kaplann span that robert wrote about. marco polo to not get to japan, did he? >> no, but central iran, central asia, throughout china, and all through the indian ocean. tom: we interviewed the former central bank governors of kazakhstan the other day. what about the land road? >> it is a bit underrated.

we don't face china in the future. we face the new chinese empire, which is similar to the old chinese empire of the high middle ages because of the land, transportation, oil, gas corridor that the chinese have been building across central asia to link china with iran. that is the real goal of one belt, one road, to link china with iran. this big noble point to china, and then you have routes into europe. anna: the europeans have been trying to get involved in belt in those be involved investment programs the chinese are bringing about their. how should the u.s. be involved in belt and road, if at all? >> the only answer to belt and road for the united states is

because geography matters, and the united states is on the other side of the world. the only thing the united states can do, this is an old cliché am building,order strengthening our alliances throughout western europe, the western pacific come the indian ocean, india, south asia, also central asia, so we have an alternative model that can interact with what china is doing. geopolitical contest, we may win the western hemisphere, but china eventually comes to dominate the greater eurasia at the expense of russia. is trump the one who maintains some u.s. influence in that part of the world? >> yes.

the south china sea, here is the problem. it is like the caribbean for us. because it is china's home waters, they inherently have the advantage as they use one micro step after the other, like slowly dripping water, to take over. -- only hope is an ally in an alliance. expressed inhis international investment, gina? it is an interesting question. >> most of these countries in the middle east in particular are not investable countries. pakistan has a small amount in the emerging market index. saudi arabia has just entered the emerging market index. the real center will be on turkey. if you look at the progress on the map, you go through iran and enter your through turkey, and

turkey has a lot of geopolitical turmoil related to government infrastructure that is impacting the investment landscape and dragging down emerging market securities. it is a big part of the story. tom: we will leave it there. adams, thank you for joining us. robert kaplan, congratulations. acrosst will be read atlantic by a few people on air force one? we will see. it is an important discussion on immigration. the former secretary of commerce of the 12:00 hour. this is bloomberg. ♪

♪ david: brace for impact, chinese

up, 34down, the yuan billion dollars of chinese imports and the likelihood of retaliation. worried that the market misunderstood mario draghi. how tight can it get? with unemployment as low as it has been in 17 years, tomorrow's willarms payroll report show 195,000 jobs added. the question is will wages pick up as well. steel is off today. it was quite a show yesterday. i won't swear a state of the whole time, but look at this. this is amazing. it was spectacular. julia: