feed with china to the brink with more tariffs. china vows to fight back. rattled markets. s&p futures with their biggest drop in weeks. pay up. president trump tells nato allies to pony up their share for defense spending as alliance leaders gather for a brussels summit. david: welcome to "bloomberg daybreak." i'm david westin, finally back with alix steel. this guy is going on vacation, which he never takes. david: i'm sure president trump will give us a this guy is goinn headlines. alix: if you mail me about email me aboutmal politics while you are away -- dow jones off by triple digits. what is the safe haven?

the market seems to be saying the safe haven has been dollar, but even dollar-yen is up .2%. does that reverse? the 2-10 spread continues to flatten, the lowest since 2007. brent getting hit, off by 2%. that is more of a supply issue, more coming online in libya. david: let's turn that right now -- u.s.-china trade relations only got worse yesterday when the president announced he's going to impose additional tariffs on refrigerators, freezers, televisions -- joining enda curran.kong, give us a sense of what the reaction in china is. enda: a pretty strong reaction out of beijing today. the latest move was shocking,

totally unacceptable. the accused the u.s. of bullying and they promised to retaliate. what they stop short of was listing specific details on how they will respond and where they will impose tariffs in retaliation. we are still waiting on the details. david: thank you so much for your reporting today over in hong kong. are joined by peggy collins and marty schenker . we want to start with that trait story. -- trade story. this is what the trade representative said. unfortunately, china has not changed its behavior that puts the future of the u.s. at risk. china has begun to retaliate against u.s. products. there's no justification for such action. he's not backing down from a

president trump is not backing down. marty: they are doing it and it's exactly what donald trump said he was going to do. the markets clearly didn't think it would come to this. this could be a really long battle. there's no indication of discussions going on, which is unsettling to the market. peggy: unsettling, yes, but the are-time effects -- we starting to hear more about the inflation pass through as well. -- have tariffs on seafood the consumer goods part of this is the thing that people are starting to become concerned about. how fast will it hurt people's pocketbooks? we had the corporate tax cut. the question is, how much of these added costs will american businesses pass on to the consumers? we are in the amazon world, right? consumers have seen prices go down to a shocking degree for some people.

will this be something that people haven't seen in a long time? for $9.99.2500 book this confuses me. you look at gold, the 10 year, dollar-yen, none are behaving like a typical safe haven. why? peggy: people are basically saying to themselves overall, we are seeing good economic growth and the numbers are still relatively strong in the u.s. we are heading into earning season for companies over the next few weeks. there's this idea that we are feeling good as an economy. how much will this drag on where things go from here? the thing to watch is the fed. will they start to back off some of their pretty bullish comments so far and start to think of themselves -- to themselves, wait, will businesses retract on r&d?

what will that mean in terms of raising rates? david: president trump over at the nato summit in brussels. he just arrived. we expected some conflicts, but he didn't wait until the meetings started. listen to them and the director general of nato before the meeting. >> the country is getting its energy from -- you want protection. together in dealing with russia, we are stronger. >> you are just making russia richer. natoring the cold war, allies were trading with russia -- there been disagreements about -- >> i think energy is a whole different story. david: that is the premeeting. that is in front of cameras. marty: it is pretty

extraordinary. it's always been recognized that germany and germany's reliance on russian energy is a strategic disadvantage. donald trump is not wrong in the sense that the germans depend on energy from russia, especially since they shut down their nuclear program. when he says they are spending money on energy and giving russia that revenue, he has a point. no american president has ever given voice to that. david: what is the solution? alix: same thing with china. point, there's a trade surplus there, but how do you go about doing that? there's no other option. david: we've got a lot of natural gas. enda: but then you have to build the pipelines -- alix: but then you have to build the pipelines and the import terminals.

there are structural issues in the economy. david: everyone is sort of alliesed -- we have nato and the meeting with vladimir putin on the other hand. dealing with a fractured alliance with nato and an ambiguous relationship with russia. peggy: we don't know yet. in some ways, trump is predictable. he is saying this is what i'm going to do and he's doing it. minute to minute, he's quite unpredictable. nato has been around since the 1940's. it has been a force in the world. that starts to fracture, will rattle the markets because uncertainty is something investors alike. -- don't like. alix: thank you both very much.

check out all the charts throughout the show. coming up, more on the market reaction to the latest shots chinain the u.s. and bubbling the trade war. this is bloomberg. ♪

david: the united states took another step in escalating trade disputes with china yesterday lighthizer announced

additional tariffs on chinese imports. washington,ow from john veroneau, covington & burling partner. he says there's a 10% on $200 billion in additional imports. when could they impose tariffs? john: there will be a notice and over the next two months and the tariffs could go into effect as early as september. been a deputye special trigger percent of -- trade representative. have we ever used this on this amount of goods? john: no, we are in new terrain. robert lighthizer is

following through -- he said he would up the game. that's what he's doing with this notice release last night. david: this is a 10% tariff. does that give them some headroom so if china does come back and retaliate further, they could simply up the tariff on the $200 billion they are talking about? john: yes, that's right. the list is 6000 products or more. since the list of products to be added is getting smaller, the headroom is provided by increase in the tariffs from 10% to 25% if further retaliation is necessary. david: there's a lot of consumer goods in this one, which is unlike what we've had before. we put up a chart with what happened with washing machines

when we imposed those tariffs back in january. point, producers will pass these costs to consumers. been this point, there's some negotiation between different parts of the manufacturing stream. at some point, consumers are going to feel it. it's just a matter of time before that happens. david: your job was to negotiate. are there any negotiations going on right now? there don't appear to be active negotiations underway. strategy isration's to do certain things, mainly tariffs, to create leverage. so when they do sit down, the u.s. is negotiating from a position of strength. david: do we believe that's working? john: we don't yet. it's worth considering that perhaps the administration's

goal isn't to use tariffs as leverage but simply to protect u.s. market and to achieve a disentangling of the u.s. and chinese economy. that theory would be consistent with some of the statements the president has said in the campaign and in his presidency. david: thank you for your time today. that's john veroneau of covington & burling. alix: in the midst of all that, what's happening in the market? it is decidedly risk off, but the safe haven bids aren't going anywhere. joining us now is shannon saccocia of boston private wealth cio. why are they not performing as such? shannon: there's two things happening. we have seen this move toward growth. some of those safe haven stock stocks don'tnt -- represent the growth and momentum factors that have outperformed. of investorsicence

to move to move toward those stocks because they haven't performed well over the last couple of years. we've seen this move over the thoseive or six years to defensive names. those have been performed. investors are unclear if they will perform well. alix: the violent rotation of financials and utilities, it was about financials and then, boom, it was about utilities. shannon: we are really looking forward to earnings season. we will get a lot of clarity around how companies are feeling about potential impacts of the trade war. we will be able to see those comments from them. from our perspective, economically, there isn't a lot of rationale to move away from the things that have performed well.

we will see some of these gyrations. if you think about a rising rate environment, why would you want to buy utilities right now? david: is there a different form of defenses in that small cap? shannon: absolutely. we are starting to see a bit of a rotation out of small caps over the last week or so. people think maybe that trade has come too far, too fast. think about tax reform and a lack of exposure to the dollar and a perceived lack of exposure to tariffs, people think we jumped into that trade a little too hard. you will see that pullback over the next few weeks. alix: you brought up earnings. its is earnings confidence, upward guidance outpacing downward guidance at a record level. the rhetoric yesterday on the show was that earnings will trump trade. will that still holds today? -- hold today? shannon: the earnings will be

good, but some of that messaging perhaps will wait the enthusiasm. if these cfos come out and say earnings are great, we are happy with where our companies stand financially but the second half of the year could be aiffy if fallsade war stuff through -- david: if you get ceos expressing some hesitation about making decisions on hiring, that will affect the numbers. shannon: that's what we are concerned about. if these companies come out and say i think we are insulated, we don't have a lot of exposure to the potential tariffs as they been announced so far, you will see those companies positively respond. alix: take a look at earnings expectations per sector, its energy, tech, financials and materials -- those will be very

exposed to any kind of trade war. if you are going to play earnings numbers, you will want to play cyclicals. what are you supposed to do? shannon: at this point in the economic cycle, we all want to buy those reflationary sectors and be exposed to the cyclical play. they areow that overexposed to cyclicals right now. they're are concerned about that in their portfolio overall. david: shannon saccocia of boston private wealth will be sticking with us. coming up, media buying binge. withll discuss it all brian wieser, pivotal research senior analyst. this is bloomberg. ♪

emma: this is "bloomberg daybreak."

burberry waiting for its new leadership to advise the brand. latestfell 5% after the quarterly earnings report. the burberry ceo has been on the job for a year now. jetblue making a big bet on airbus' newest claim, ordering 60 jets. get ae is expected to discount. new c series.he airbus to control of that program last week. deutsche bank trying to win more business with dealmakers. the ceo and other senior managers have been meeting with leaders of large american private equity firms. that is your bloomberg business flash. david: it has become an

international bidding war involving four different companies. 21st century fox raising its bid sky it percentage of doesn't own. .e welcome brian wieser he has a stellar rating on disney and a hold on fox. shannon saccocia of boston private wealth is still with us. brian, welcome. let's take the developments today. comcastts bid against -- is this the end of it? so.n: i don't think so. it's like a game of chicken at this point. all parties a tempting to inflict damage on the other side while getting the best out of this. it's really confusing in terms of where the value is.

david: you put up the numbers for how much is being bid -- whose money is it? if disney buys fox, will they have to foot the bill? brian: yes, if they are successful. if you are fox and you are successful on disney's behalf, if comcast ends up with the fox,, they end up paying which would give disney more cash to make the acquisition -- there's so many ifs to this. david: let's go back to the disney-comcast fight over the fox asset. disney had upt, its offer by a big margin -- upped its offer by a big margin. brian: comcast could up its bid.

dealthere's this notable of the sale of -- they have big public debt out there. that's going to be a business that will hopefully provide disney with some cash, assuming it sells at a high price. there's so many moving parts to this. david: there was a lot of speculation that they are gathering in sun valley. brian: the timing is difficult to identify. the main thing is getting into the heads of these individuals around this is the hardest thing. you don't know how high they are willing to go. for disney, it is lose-lose. either they win the business and they overpay or they don't get it and they don't get the synergies they are counting on. neither of these are good outcomes for them except for the

long time horizon where strategically, they are making a great call. alix: do you like media stocks? shannon: we actually sold our disney position a couple of months ago. we were concerned about the old media and their ability to compete against the typical new-media, social media in which most people are getting their content now. it is expensive. somebody is going to pay too much for this set of assets. we like comcast. we are owners of comcast, but we are concerned about the current negotiations. we are certainly concerned about the sky deal. this seems like a lot of gamesmanship. for us, i would say we are inclined to stay away from most old media until we see this rash of mergers settle out. there will be clear winners and losers here. david: i spent a lot of time

working for bob iger. i wouldn't count him out. brian wieser of pivotal research group and shannon saccocia of boston private wealth. president trump meeting with nato leaders in brussels, part of the welcoming ceremony. there he is shaking hands with stoltenberg -- jens stoltenberg. we will see how this develops -- we will keep covering this. there he is, justin trudeau of canada. up, live fromng bloomberg. ♪

>> dr. angela merkel. david: we are looking right now at chancellor angela merkel of germany walking into the nato meeting in brussels, greeting the secretary-general of nato,

jens stoltenberg. we saw justin trudeau just before we went away. this is a ritual now as they all come in and meet the director general. alix: what a bizarre thing. the leaders are lined up there? how long is it going to take? david: how awkward you feel walking across that stage? alix: it's like the red carpet but you are not wearing anything interesting. we will be watching for that. the market is decidedly risk off, the dow down by triple digits. s&p off by .7%. you're getting hit particularly hard, the dax in particular. you have financials, you have materials, you have technology all struggling over in europe. other asset classes finding a hard time -- having a hard time

finding that's a payment. the dollar-yen is up despite the yen being a safe haven of choice. yields only down by one basis point. weakd a week and sloppy -- and sloppy three-year option yesterday -- auction yesterday. crude off by .6%. all commodities getting hit very hard. crude is moving on its own thing, there's libya supply coming back on, but the industrial metals getting wiped out today. chandra is here with the first word news. emma: china is bowing to fight back against president trump's latest threat on tariffs. the u.s. pushed ahead with plans to impose tariffs on an additional $200 billion of chinese products. this includes television components and record raiders. china calls the move totally

acceptable and plans to retaliate. conservative lawmakers in the u.k. opposed to theresa may's brexit plan considering a radical move that could bring down her government. left,ave only one choice to vote down the final agreement when it comes to parliament for approval. that could lead to an early general election. president trump in brussels, where he took aim at germany just before the start of the nato summit. the president called germany a captive of russia because of its support for the gas pipeline. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. david: it really is a big week for president trump. the u.s. president attends the nato summit today in brussels.

on friday, he heads to the u.k. to meet with theresa may and queen elizabeth and then, it is on to helsinki for a meeting with russian president putin. explain the scene right now. >> good morning, david. we have president trump set to arrive, he's there on the other side of the building -- we saw the motorcade coming down earlier. he was here last year for his inaugural opening at the brand-new nato building. already, it has been quite contentious. president trump spent this morning going after germany, attacking them for the pipeline. we've also heard rhetoric from poland, they've been quite critical, seeing it as a security concern.

the pipeline is set to begin planning this summer. it's more pressure he's putting on his allies and it comes down to defense spending. he wants allies to spend 2% of their gdp on defense. right now, the only ones up to par are the united kingdom, estonia, poland and greece. david: annmarie hordern reporting all day from brussels. president trump's turn to come up and greet jens stoltenberg. alix: a little frosty. we just saw president erdogan come in. alix: is it alphabetical by country? david: i don't know. we want to continue on this discussion of nato.

president trump has made it clear what he wants. he wants all 29 countries to meet their long-term commitments to spending 2% of gdp on defense. .e welcome now bill faries we will keep watching as the leaders come in. explain to us this 2% limit. the president is very impatient to get there. when they originally adopted this, it wasn't going to be right away. bill: this a merged in the wake of the european financial crisis several years ago when the u.s. was frustrated with overall nato spending. they got nato members to agree that they would reach this 2% of gdp threshold by mid-2020's. it is still six or seven years away. donald trump has been frustrated with that pace. he thinks countries should ramp up spending much more quickly. david: already, president trump

has targeted germany. how far does germany have to go? germany is one of the lower spenders at 1.24%. if you put it in that wouldctive, donald trump like to see germany double its defense spending within a short period of time. angela merkel has a lot of domestic pressures to deal with. there's no domestic support for that kind of boost in defense spending. she has promised to raise it gradually and is committed to that 2% target long-term. it's not something that will happen in the next couple of years. david: bill faries reporting from washington. thank you so much, bill. president trump's european trip is book ended with nato on the front end and a meeting with

president putin on the other. we are joined by nina khrushcheva. we will play this a bit. a country is getting its energy from the country you want protection against. this --e stronger >> you are just making russia richer. >> even during the cold war, nato allies were trading with russia. there were disagreements about what arrangements -- >> trade is wonderful. energy is a whole different story. david: we don't often see that frank exchange. is the president right?

nina: the president is right in havese that germany does great energy relations with russia and continues to have them. the pipelineing to going under the baltic sea, connecting germany and russia. right. sense, he's what i find quite interesting, we are at the nato summit, a military summit. stoltenbergact that has brought up the cold war -- they have a better chance to stand against russia and trump is very divide and conquer. wrong -- we show how dependent areas of europe

are on natural gas. some areas need 100% of their gas from russia. factually, he's not actually wrong in that could what is a good -- in that. what is the solution there? nina: if germany doesn't get it from russia, it can get it somewhere else. the u.s. is trying to sell its own liquid gas, which is more expensive. germany and europe makes a decision which one to buy -- the reason i find this whole exchange interesting, for me , trump is setting himself against everyone else, it's also if he has alame

cordial meeting with vladimir putin, he can say, wait a minute, i'm not the one to blame here because we have germany having this kind of economic relationship -- it's ok there but not ok for me? it's beenditionally, thought that uniting with our allies is a more effective way to deal with russia.is displaying into vladimir putin this playing into vladimir putin's hand? shannon: absolutely -- nina: absolutely. pu division, we know , he sees anter opening and he goes in. europe or natoat has, it plays into putin's

hand. david: what does this say about ukraine?ke crimea, has president trump given up on those issues? nina: i think he has. most in crimea speak russian. berlin mayor potent -- vladimir , i wouldn't equate him to -- then geopolitical ukrainian president is going to be part of the summit. what really happens with the relationship, there is no unity in europe. russianat when they say

allies are concerned -- where are those western allies that are so concerned? this is a big challenge against putin. alix: come on. you can totally do that. david: thank you so much for being here. up, blackstone's next buyout. this is bloomberg. ♪

emma: this is "bloomberg daybreak." i'm emma chandra.

coming up in the next hour, tim oath,ong, ceo of live from sun valley. now, you are bloomberg business flash. president trump delaying scheduled price increases -- he that pfizer should be ashamed of the move -- he said that pfizer should be ashamed of the move. regulators and new came a fine in the u-- regulators .k. may fine facebook for the cambridge analytica scandal. alix: now, we turn to the wall street beat.

blackstone seeking $20 billion for its next fund. credit where credit is due, goldman tripled its credit portfolio this year. now, wall street wants to emulate. and the reckoning for wall , the mistreating a cultural shift on the street -- demonstrating a cultural shift on the street. david: joining us now, jason kelly. let's start with blackstone. >> you knew we had to talk about this. david: how much money is sitting out there right now? >> it's incredible. there's roughly $1 trillion that needs to be put to work. blackstone is only a third of the way through their last fund. there's a sense that they are in a bit of a hurry to take advantage of the fact that people are still willing to give money right now at this point in the cycle.

they will have to put a lot of money to work. david: the valuations may be high. if there's a downturn come in will be hard to get the money. -- if there's a downturn, it will be hard to get the money. >> exactly. alix: there's even more money you can play with. >> exactly. theysee this $1 trillion, see blackstone going for $20 billion plus again. david: they used to be number four. they are now number nine. do they see the regulators? we are going to put a lot of money out in high-yield, risky moves. >> their point. -- fairpoint. they need to get in on those deals even if it's just arranging -- even if it's not arranging financing. david: they may not be at risk.

>> exactly. alix: let's talk goldman sachs. they tripled the volume of new credit portfolio trades, buying and selling large blocks of a $20 billionw business from $7 million last year. -- $7 billion last year. andt's very complicated there's all these things about opera's participants -- authorized participants. in the credit space, etf's have become much more important. david: huge business and just getting bigger. i talk to executives at top banks, they've highlighted the next crisis to come from etf's. on thet story is focused

bro coulter. -- culture. a broker from credit suisse and complaints -- >> this is largely about aggressive behavior. it is less about sexual harassment. this is more just being a jerk, being a bullet, apparently -- being a bully, apparently. alix: that can be harassment. >> what credit suisse is saying is we acted as quickly as we could come out we had to investigate -- as we could, we had to investigate. in the case of this fellow and credit suisse -- at credit suisse, there was a pattern, apparently. david: a lot of stuff was tolerated in the past. alix: we are talking about a

senior banker over at credit suisse. there are some reports that behind the scenes, there were some stops and starts. it wasn't as clean-cut as we might think. >> this is not going away. david: there's always the cover-up, not the crime. -- it's always the cover-up, that the crime. -- it's always the cover-up, not the crime. alix: opec seeing enough rival supply to meet oil demand growth in 2019. those supplies are growing the most in five years next year. byy say oil demand will rise -- with non-opec supply. wonder, if you have rival supply meeting demand growth, what does that wind up cutsing for opec

and opec re-pumping? notd: going away from $80, toward $80. president trump walking with president erdogan of turkey. much more coming up from bloomberg. ♪

david: a shot of the family photo being arranged in brussels. these are 29 leaders of nato countries with jens stoltenberg, the director general. we've seen president hear or the

turkey, justin trump has a more serious expression on his face. alix: mr. trump really front and center there. he was walking in with mr. e rdogan. , russia-u.s. relationship when it comes to energy and natural gas and oil, it will be interesting -- david: there was a time there was no question why nato existed, to defend europe and the west against the soviet union. now, when there's so many dealings with russia, they are at worst frenemies.

why are we together? we don't have this threat that once existed after world war ii. alix: when it comes to what you need from each other, it's real. you have germany moving into wind and solar, for sure. you need something to fill that and that something happens to be guess. gas. --id: he sees an opportunity when you have that kind of dissension within western europe, there's an opportunity for putin to send troops into ukraine. they were sanctions -- alix: they are still building the pipeline to get gas from russia to germany. basically, opec seeing strong

non-opec supply coming next year. that supply would be enough to meet demand. where does that wind up leaving saudi arabia's spare capacity? where will that leave them next year if brazil can make up for that? david: you have some real curtailment of production. alix: right, but if we can do it, where does that leave the market situation? coming up, lisa erickson of u.s. bank wealth management will be joining us. this is bloomberg. ♪

alix: upping the ante. president trump pushing the

trade feud with china to the brink. china vows to fight back. rattled markets. s&p futures headed for the biggest drop in weeks. pay up. president trump tells nato allies to pony up their share for defense spending as alliance leaders gather for a brussels summit. you are looking live at the family photo of world leaders at the summit gets underway. kind of awkward. david: welcome to "bloomberg daybreak." i'm david westin, here with alix steel. one of the most interesting nato meetings i can remember. president trump will go to england and then a meeting with putin, setting up a lot of drama. alix: this is not just you go there and state your case and go home. there is a debate going on there.

david: they are trying to get europe closer together. they have the italian budget after this. alix: in the backdrop, there's some tariff issues when it comes to china and the u.s.. lower.nd european stocks .2%.r-yen is up by the only thing you would be wanting to buy today, the dollar. the 2-10 spread plans to an 11 year low -- plans to an 11 year low -- flattens to an 11 year low. metals getting slashed all day. david: on friday, the president has to the u.k. to meet with prime minister theresa may and queen elizabeth. then, it's on to helsinki for a meeting with vladimir putin.

-- annmarie is in brussels. when do they have the meetings over there? annmarie: that will be right after this. there will be a bilateral between merkel and trump, which we are looking forward to considering what trump had to say this morning about germany, really attacking them and going after the german pipeline from russia, which is set to begin plans this summer. it is very much around the corner. the polish government has also expressed some concerns. we have the secretary-general speaking now, giving these opening remarks. he met with trump early this morning. in terms of messaging, he is saying he wants more out of allies. when it comes down to the numbers and what's happening on

the ground, the u.s. is doing its share -- defense spending has been boosted by 40% under trump. trump is putting pressure on allies to meet that 2% target they agreed they would reach by 2020. 2% of gdp going to defense. the only ones besides the u.s. hitting the target, u.k., estonia, greece and poland. david: what does he want? -- doesela merkel know angela merkel know what president trump wants? annmarie: you can never tell what exactly the president wants. he is trying to make the point -- after this, he goes to the united kingdom and then this with president

vladimir putin in helsinki. he's making a point to the world and really to germany, you are doing this deal with russia for oil and gas to go directly to germany, there's already a pipeline that goes be a ukraine the same time, at convincing us to stay with the nato when you are not even spending the 2% target. nato was founded to deter the likes of vladimir putin and eastern front. david: we are watching the 29 leaders at nato headquarters in brussels. back andtenberg came they are having a candid photo. alix: less awkward. stoltenberg and trump don't seem to like standing next to each

other. president trump goes into those meetings today making clear what all 29 countries to meet their long-term commitments to spend 2% of their gdp on defense. he has a way to go. only five countries including the u.s. and great britain are complying right now. .oining us now, heather conley walk us through what will be a win for president trump when it comes to defense spending. start, hee has a good has a win. we've seen a significant increase in defense spending, we have half of the nato allies to meet that target by 2024. it is a good story. europe has to do more. the president is right on that. having said that, you can't destroy your alliance on your way to the goal.

with his comments this morning and what we now believe i know will be a difficult g7 summit he's blaming nato itself well trying to meet that 2%. david: we continue to watch the proceedings over at nato headquarters in brussels. some sort of flyover going on. orthis a matter of defense commerce for president trump? is this a way for him to get people to buy more military equipment from the u.s.? heather: the president has brought in economics, the trade disparity, the tariffs on aluminum and steel -- he has co-mingled those with a tw the %

defense spending. u.s.is all about the wanting to sell lng to europe. is it about commerce or defense? we need to keep these separate. we need nato strong and unified and europe increasing their defense spending and deterring against transatlantic threats, whether they come from the south and isis or the east and russia. the president is bringing all these issues together. to what point is this to week in europe -- weaken europe? n'st is in president puti wish list. alix: what are the actual options? lng, there's going to be a market -- if you have gas cheaper from russia, you will

get it from russia. that's how you make a market. does president trump had at his disposal in these negotiations? -- have at his disposal in these negotiations? heather: molecules move freely in this environment. the structure is geared very differently. poland and lithuania in an attempt to diversify their energy from russia have received u.s. lng. there are points of energy diversification. again, let's focus on the need for unity. we just had two months ago a nerve gas poisoning on nato territory. we've expelled russian diplomat's. -- russian diplomats.

president trump is having a problem understanding that russia is an adversary. that's why europeans send forces to iraq and afghanistan to support u.s. forces. a common purpose to defeat those that would try to divide the alliance. david: thank you for being with us today. going into of nato the headquarters to begin their meetings. you see prime minister may of united kingdom -- the united kingdom. president comes as the rule be more tariffs on another $200 billion of chinese goods. china vows to hit back. live from new york, this is bloomberg. ♪

david: the united states took another step in escalating trade tensions with china yesterday with robert lighthizer announcing additional tariffs on $200 billion of chinese imports. joining us from washington is rufus yerxa, former deputy director general of the the wto. --ms like a fairly serious you know robert lighthizer well. unfortunately, china has not changed its behavior. behavior that puts the u.s. at risk. china retaliates against u.s.

products. it is china misbehaving because they won't change their ways. are we right? are lots of things that we want to see change in china. the question becomes how do we best get them to focus on what they need to do and to work with us in trying to reach some accommodation. that is not going to happen simply by virtue of retaliation, counter retaliation. at some point, this battle has to stop and the two sides have to start talking about it. i don't think the u.s. has done enough of a job outlining for china what it considers an acceptable deal on these issues and what they want china to do. on the other hand, i don't think chinese -- the chinese have been very responsive. we are caught in the middle of all of this, watching tariffs go

up, retaliation, counter retaliation, now probably counter counter retaliation by china. that creates huge uncertainty for business. the problem-term, is how do you adjust to these rapidly changing tariffs. in the longer term, will they become permanent? will the u.s. and china have a real breach in their relationship or will we get a deal that creates better circumstances for trade and investment between the u.s. and china? david: you've been involved in a number of these negotiations. there aren't any official negotiations going on at a high level between the u.s. and china. are there back channels yet? even if you are putting pressure on the other side, you want to give them some escape route. if you go that way, this will get better for you. annmarie: it's extremely important -- rufus: it's

extremely important that governments, even if they are fighting on the official front, that they have something going on in the background that enables them at some point to declare a cease-fire and start working with each other. i cannot speak for the administration. i don't know if they have that back channel working. i don't know what might be happening between the two. we certainly hope there's some dialogue going on. both sides aren't going to knowledge that -- acknowledge that, they are posturing, but we will have to see. alix: we've seen a divergence in terms of how countries deal with the company is being affected. china will be backstopping soybean companies -- on the

flipside, you have harley davidson saying they will have to move their plant because of tariffs. what can we expect from the government's to help -- governments to help reassure businesses when the headlines are dragging them down? rufus: i don't know if there's much that can be done to insulate business from escalating tariffs. obviously, the government can offer some kind of assistance. there's been talk about us toviding some assistance farmers who might be losing their market. the level of trade involved here, you can't compensate people for literally hundreds of billions of dollars in trade damage. i think in the end, the most important thing is for the thatistration to recognize tariffs are not a permanent solution for anyone.

there's a reason we've been working to get rid of tariffs in the world over the last 70 years. if it is used as an instrument to compel negotiation, that is one thing. we have tremendous concern that this is not going to result in a positive outcome or positive agreement and we will end up with higher tariffs, which will hurt u.s. consumers. that of these new tariffs are being announced by the administration, they won't go into effect immediately. if they do, they had a lot of consumer products -- hit a lot of consumer products. they don't necessarily solve the problem. if they were to stay in place costs torm, it raises our community -- economy, we become a less effective trading nation. we export $2.2 trillion in goods

and services. we are exporting automobiles to china. it is a big market for the u.s. auto industry. there's a lot of concern here about with these things become permanent dashwood these things become permanent -- would these things become permanent. we are going in the opposite direction with a lot of our trading partners, making matters worse. , the: that is rufus yerxa nation national foreign trade cl president. president trump wants to get defense spending up. there's angela merkel, one of the people with the most at stake. shaving -- your shaving brush will be subject --

badger hair was on that list. he sees a trade war as just a warm-up for the next financial crisis, telling bloomberg we are in uncharted territory. >> we are in uncharted waters. the previous administration embraced freedom of trade, the wto and all these other agreements, multilateral agreements. trump is going in the opposite direction. he wants bilateral agreements. is lisaill with us erickson of u.s. bank wealth management. it feels like the market is agreeing with mark mobius today. where do you find safety? lisa: it is a difficult environment. more tariffs on a

larger proportion of our trade with china could potentially be a concern for the market. if you look at the ultimate economic impact, it is on two ends. one is the inflation price increase from the tariffs themselves, the other would be on the growth end. with a higher pricing and uncertainty, there will be reduction in growth rate. it is difficult to say where the safe havens are. if you look at the impact on the major asset classes, you've got potentially rising inflation and lower rates. that's not great for either of them. if the fed becomes a bit more dovish, that may offset, but you still have the overall impact. it will depend on the specific nature of the tariffs that take place, where that may cause pricing increases on specific

commodities, for example. alix: right. shaving brushes, for example, as well. and feels like one of the safe havens today will be the dollar. how long do you feel the dollar can be a safe haven in this macro backdrop? lisa: there's been a number of factors propelling the dollar. the fact that u.s. growth has continued to remain solid while we are seeing greater signs of softening in europe and japan as well as the emerging-market. in addition, you have the fed clearly in tightening mode. while there's talk of potential tightening, certainly the other regions of the globe are behind the fed in terms of their monetary cycle. the difficulty becomes predicting future moves and inrency -- and currency --

currency. currency moves are difficult to predict. if the u.s. remains in that growth trend, that will be supportive of the dollar. these things are very difficult to predict. david: you said that that has been somewhat in a tightening mode. if there really is inflation triggered by these broad tariffs, doesn't that increase the tightening? what is the risk that we might have a policy error here? lisa: absolutely. you are right. the fed hasand, that dual mandate of trying to maintain growth but keeping inflation, so a lot of it will depend on how this balances out. that does increase the risk of the fed becoming more hawkish. what you saw in this last statement is the bend is more towards the hawkish side. alix: we want to turn to oil

now. oil prices getting hit, brent off by 2% before, but wti getting hit as well. non-opec rival supply meeting demand -- joining us now, stuart wallace. what is this impact for oil? >> it's a reinforcement of this idea that opec has been trying to get out -- there's not going to be a shortage. this reinforces that idea that there's no need to panic, no need to tweet anymore if you are the u.s. president. alix: what does that mean for the alliance between saudi arabia and russia? as far as russia is

concerned, they will pump as many barrels as they can. this is a good price for them. they havearabia, geopolitical concerns that come into play. on mentally -- fundamentally, they are going back to their traditional role. they seem determined to do it. alix: in june, they said they pumped four and thousand barrels a day -- 400,000 barrels a day. what will be the impact in oil prices? >> that list tells you everything you need to know. it will be a tough job. it is a moving target. there's only so fast they can act.

in terms of the speed at which the market reacts to that -- that list of countries tells you everything you need to know about the return of volatility and how hard it will be to manage that situation. alix: lisa, for you, do you like energy stocks here? lisa: we don't comment on specific sectors. belief ised -- our the rise in energy prices is a risk to the market. while our base case for inflation overall is moderate just given that the economy is more in a moderate growth mode and we are not seeing signs of pickup in inflation, i think the upside risk is for a spike in and potentially rising wage growth to bring that upside surprise in inflation.

alix: stuart wallace and lisa erickson of u.s. bank wealth management sticking with us. 132%, that is the earnings growth we will see in the second quarter according to analysts. david: energy is leading, right? in recent months at least. alix: at some point, that will wind up running out. speaking of reflation, inflation, we have june cpi numbers coming up after the break. as we had to break, -- head to break, live images of the nato summit. this is bloomberg. ♪

alix: this is bloomberg daybreak. we are minutes from the cpi data. we are looking at a risk off day.

points,s futures off 40 but off the low of the session. in other asset classes, it is a buy the dollar story. the vix modestly higher. the 10 year yield goes nowhere, into the options, after the wishy-washy three-year option yesterday. those numbers coming out here, if you take a look -- producer price index, you back out food and energy, higher than estimated, 2.8%, so up for the month of june higher than estimates. final demand year on year also coming in stronger, 3.4%. on a month on month basis, the jump is 0.3%. a higher jump no matter where you look at it, sequentially or based on estimates. we have been talking about where the inflation is. we have been seeing it in producer prices, not yet as strong and consumer prices. the question is, when does that change? david: any pricing power at all,

this might be a whiff of inflation. president trump is walking into the room now for meetings. we are watching the screen. but it will come. -- the companies cannot afford to ignore the increase in the price of inputs without passing it on at some point. alix: this is the biggest increase we have seen and wholesale -- in wholesale prices since 2011. a lot came from the cost of services have really accelerated. david: tariffs are not going to help us. alix: you can probably blame them for some of the feedthrough. let's look at michael caroli of j.p. morgan securities. oli of j.p. morgan securities. what do you make of cpi, backing out food and energy? michael: definitely firmer than we were looking for. we have seen ppi run stronger than cpi for a little bit now.

we would expect that to eventually flow through to hire consumer price inflation. for juneet that number tomorrow, but so far, we have not seen that pressure. we do think pressures are building. tariffs are not going to help. have to look at what was announced last night for the impact. that is going to add to some of the pressures in the ppi and other sources of inflation. alix: talk about that feedthrough. we have a chart i am excited to get through. inside the bloomberg it is talking about u.s. laundry equipment prices. bear with me for a second. we have seen a big jump, the highest since 2012. that is because of tariffs. how long does it take for a tariff to feedthrough on the producer level and then feedthrough on the consumer level? michael: with that logic, it is kind of a microcosm, because it is a small part of the cpi basket, that we did see that flowed through pretty quickly once those tariffs were put in place, into the ppi. what we have seen so far has

been pretty small in magnitude, but some small items, we can use as a test case, what it means for inflation. it shows a pretty quickly, actually. we are going to have to think about what we saw last night, and how that may affect consumer price inflation in the coming months. david: lisa, if you are an investor, how important is in placement -- is inflation as you allocate your folio? if it is, what do you do? lisa: we have been watching the inflation numbers pretty closely. the reason why is certainly it is a key component in the pricing for all the key asset classes. we have been watching the trend. while we have been expecting it been moderate, we have expecting some increases, which we have been seeing. the key has been, are we going to see an upside surprise and that number is to mark that is what we have them monitor -- been monitoring for.

ppi has been running higher than cpi.nd it is not surprising the number is coming and higher. flow through to how that impacts the markets is, we begin to see the preponderance of evidence coming through on inflation, really data higher, and economic indicating strength that would propel inflation even higher. i think this is certainly a flash point to keep in mind. what we will want to continue to see is how the reports on cpi higher, as well as the next wage game and pce report. david: we continue to watch in brussels as the nato leaders meet. there is president trump in the center of the screen. they are about to start meetings. prime minister theresa may has just arrived. this is not just price of inputs. it is also wage pressure. are we seeing wage pressure

starting to affect earnings? generally, the wage pressure has been moderate and below consensus expectations. we saw that in the last jobs report. i think our expectation is that we will continue to see some continued increase in wage growth. certainly, we have a very tight labor situation. but overall, at moderate and solid levels, as opposed to overheating levels. the reason why we believe in more of that goldilocks scenario is simply, if you look at what is going on in the backdrop in the economy, the economy here in the u.s. remains very strong, but there are not signs of overheating. if you look at recent economic indicators, they are coming off the highs. that theicating economy is moderating and keeping at a good pace on its own. our thought is that the wage growth level will continue to come in at a good level, but we will see can -- some increases over time. alix: our focus on president

trump in brussels at the nato summit. michael, you were bringing up what we heard from the u.s. yesterday when it comes to china. we have what some economists have dubbed "the chart of the century." we pulled of the consumer goods we might get from china, like toys, household appliances, apparel, tv's. all the prices have been trending down as trade barriers had been released over the last few decades. when the trade barriers come back up, what is going to be the inflation path? michael: it is going to depend on a few things. the value of the dollar, there has been some offset to the tariffs from a stronger dollar and a weaker yuan. that being said, we probably will see some pass through from import prices into consumer prices. some of the weakness in consumer good prices is on a very long horizon, due to the fact that productivity in the manufacturing sector generally than theerently

service sector. i do not think this will totally reverse the long-run trend. it will have a little upper pressure on prices. alix: but we do need wages to keep up with that. if prices increase and the wages cannot keep up, where does that wind up leaving the fed? talked abouts, we this earlier, have been accelerating, a gradual acceleration. we're not seeing signs that pressure in the labor market is easing. yesterday, we saw that quits are near all-time highs. people are getting more confident in the labor market. in terms of the fed, they are on a very gradual quarterly path. we think that continues in part because the growth backdrop is also remaining very strong. we are looking at a second-quarter gdp number around 4%. we are seeing great momentum heading into the third quarter, and fiscal stimulus has yet to kick in, in federal government spending. with growth remaining above trend, it will be difficult for the fed at least this year to go on a pause.

growth is above trend and unemployment is well below estimates. we have them rate, hiking again in september and next year. alix: we see the dynamic when it comes to earnings versus trade. s&p is off the load of the session. as data rolls out -- lisa, you look at earnings expectations for different sectors, it is all about energy, materials, tech. -- that is where the growth is going to be. will earnings be enough to offset trade problems? lisa: we are cautiously optimistic overall on the u.s. equity market, and the primary reason is what you are talking about, the earnings and the backdrop of macro fundamentals supporting that. about,as we have talked the earnings outlook is very good. it is 20% for the second quarter, as well as the expectation for the full year of

2018. when you look at the dashboard of economic indicators, our troy terry liquid show that over -- our proprietary look would show that over 2/3 are over performing. there are some offsets to that. earlier in the show, we were talking about trade wars, geopolitical risks in play. in addition, the earnings comps are going to become more difficult. our proprietary measure is showing the s&p 500 on trailing data in the highest quintile of its historical trend. of thoseith all earnings, they are a good support, but overall, we would be more cautiously optimistic, more neutral in our stance on the s&p 500. feroli and lisa erickson, thank you for being with us today. let's get an update on headlines outside the business world.

emma chandra is here with first word news. vowing to fight back against president trump recent threat on tariffs. the u.s. pushed ahead with plans to impose tariffs on 200 billion dollars in chinese products. it released a list that includes television components, .efrigerators china calls they move totally unacceptable and best to retaliate. brussels,trump is in where he took aim at germany just before the start of the nato summit. the president called germany a captive of russia because of its support for a multibillion-dollar gas pipeline he says nato should be looking into. in thailand, the dozen boys who were trapped in a flooded cave for 18 days are described as being in good health. a thai official said the boys lost weight during the ordeal, but they and their coach took care of themselves. all 13 are now recovering in hospital. will news 24 hours a day, on air morewitter, powered by

than 27 hundred journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. up, how should a company react when the president fires a tweet directly at it? we discuss that next with the former ge head of communications, deirdre latour. ♪

emma: this is bloomberg daybreak. coming up later today on bloomberg markets, balance of power. former u.s. assistant secretary of defense. this is bloomberg.

david: in geopolitics and in business, how the message is communicated can be as important as the substance of what is being communicated. we see that as the trump administration tries to communicate where it is heading with confrontational trade policies and as u.s. companies respond to a president inclined to call them out by name on twitter. we welcome someone whose career has been working with top-level business leadership into munich hitting with shareholders, employees, government, and the world at large. the realtor was chief communications officer for wasral -- deirdre latour chief communications officer for general electric. today, we had the announcement of potential tariffs coming out yesterday from mr. light heiser. talking to the president, what advised to give him? deirdre: from the business sector, you will see a lot of

companies, a tsunami of companies, will speak out against the trade policy. this will be new for this white house. there has been a lot of anxiety about going against the white house. you saw the chamber of commerce, you saw bmw's saying this week they are going to move production outside south carolina -- david: gm coming out. deirdre: obviously, you have the harley situation. you are going to see a large group. there is a machinery company in wisconsin that has 40 employees that as of the last few weeks thinks they might go out of business. big businesses can handle any of this, but small companies are going to struggle. david: a medium-sized business -- harley davidson -- let's trek through exactly what happened. there was a time president trump was closely aligned -- his brand was aligned with the harley davidson brand. motorcycles came to the inauguration. there was a time harley davidson decided that was not a good idea

, because they are getting retaliated against with tariffs. they released a statement to indicate new tariffs are not the it onlypreference, and has one option to maintain a viable business presence. it seems like a reasonable position. the president did not like that very much. deirdre: the mistake i think harley made from a reputation standpoint is associating to closely with the white house and the first place. any company in today's world, you have to be suspect of going -- even though at the time it seemed like a good idea to go to the white house and be in the good graces. in the long run, you have to be wary of that. the reality is harley is such a strong brand -- they have had a tough year. the stock has had a tough year. they need to do what is right for the company. the harley owners are really going to buy them anyway, i think. alix: to your point, trump tweeted after that decision -- surprising harley davidson would be the first to wave the white

flag. i fought hard for them. what did they do now, after that kind of tweet? deirdre: i do not think they do anything. the president's tweets for businesses are irrelevant. this is the secret that is not talked about. it does not mean it does not create anxiety, a ton of anxiety. but the cycle is so fast, everything moves so fast -- journalists are fact checking at a pace that is incredible, and companies can communicate directly with consumers. have patience and courage. they go with their strategy and talk to the riders and explain. david: let's take a different example, pfizer. the president came out last week with a fairly harsh tweet about drug prices. said pfizer and others should be ashamed that they have raised drug prices for no reason. they are merely taking advantage of the poor and others unable to defend themselves, while giving bargain break and -- basin prices to companies in europe. isrdre: what pfizer did

brilliant because it does not matter to them that much. they announced a major restructuring today. that is what the company is focused on. roll back the prices to where they were, and that is fine for them. that drug issue is so personal and such a bad reputation issue for the drug companies, it does not do that much for pfizer. the -- doesntains the tweet really matter in the long run? move, you havea some wiggle room, wait for the trump tweeted, rollback to where you were from the beginning, and call it a day? deirdre: the drug situation is so specific and personal. it is people's health and the cost of gloves -- of drugs is exorbitant. look at jeff bezos in amazon. they say nothing. they write it out. the post office issue, the tax issue, the amazon, washington post -- they have said nothing.

they are just writing it out. they are an incredibly strong brand. in most cases, that is what companies should be doing. tesla, yesterday, the company said they are deeply committed to the chinese market and look forward to building more cars for customers. they plan to make 100,000 cars a year. we conflated that with tariffs. is that accurate? deirdre: partially, but tesla has no choice. markets the biggest ev in the year. this is a company that operated at a loss and's 2003. i have seen this firsthand. being a global company, you have to go local. every company has their own version of "make america great again." they want you to build a factory and employ chinese people. he is doing what he has to do for access in the market. the challenge for the tesla andd is, the brand is elon, he has what i would call a

preschool communications strategy. you talk bad about me, and i am going to go on the playground and push you and throw things. i am talking about elon musk. david: i thought you were talking about the president of the united states. deirdre: you could conflate. [laughter] alix: did not seem to make a difference for the election, or for tesla. maybe on the margins. thank you so much, deirdre elector. eirdre drill a tour -- die latour, former ge communication strategist. david: the president said, i am always thinking about our farmers. soybeans fell. farmers have been doing poorly for 15 years. trade barriers and tariffs have been destroying their business and i will open things up better than ever before, but it cannot go to quickly. i am fighting for a level playing field. it might be in anticipation of midterm elections. a lot of soybean farmers are pretty nervous about what

president trump doing and chinese reaction. alix: i do not quite understand that. china buys the most soybeans from the u.s., than anywhere else in the world. troublere having getting it out. there are potential crop issues, so they cannot make up the supply. i do not understand how that is going to work out. david: i am not sure if it is, but his basic point is, not my fault your having a tough time. i will make it better for you. i am not sure how that works that he makes it at her. better. it alix: futures as we go into the open. michael o'rourke will join us with his trade on today. ♪

s&p futures are heading further biggest drops in two weeks on trade scares. higher inflation in the u.s. as well. joining us on the phone is jones tradingke,

-- jonestrading chief market strategist. what do you do? michael: it is not a surprise the administration wants to potentially add 200 billion tariffs. friday got through tariffs, reciprocal tariffs between china and the u.s. the market had a nice rally off of that. now, the headlines are turned. weid: how much of this is, hope it will not happen? he said he was going to talk about $250 billion in total, and it looks like he is headed in that direction, and it is 10% he has put on. he says if china does anymore, he will go up from there. michael: david, that is the interesting part. we do see these tariffs enacted at the end of the summer, we will be -- we will have tariffs on half of the imports from china, approximately $500 billion worth of goods. the president threatened an

additional $300 billion after those $200 billion. you are looking at a situation where almost everything that has been -- everything imported from china would have a tariff on it if we continue down this path. you get to the point where it really starts to hurt u.s. companies and products that are created over there. them: potentially it hurts not only because of the price, but also the uncertainty. it has so made products involved, if you are making decisions about capital investment, hiring, unger term stands, increasingly, you do not know what the rules are. exactly, a major problem. when you think about the size of our trade deficit with china, $375 billion, that is under 2% of gdp. we have an almost $20 trillion economy. as you know, you want to create this type of uncertainty for such a small number relative to the size of the economy? i think we should be thinking about potential for economic growth in this company, which is

consumer driven, rather than picking winners and losers on a product byproduct basis. i think it is very dangerous. alix: michael o'rourke, really good to get your perspective as we head to the cash open. the question becomes, what do you buy? earlier this morning, it was about the dollar. the dollar has rolled over a bit. where is your safe haven? it is hard when you have less clarity. david: what is the 10 year doing? alix: nothing. going into those auctions, nada. david: normally, you would go to bonds. alix: i will be joined by subadra rajappa. ♪ 2, down. back up.

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be included with xfinity internet. which could save you hundreds of dollars a year. it's a new kind of network designed to save you money. click, call or visit a store today. from new york: city, i am alix steel. this is the countdown to the open.

coming up, global equities selling off as president trump threatens an additional $200 billion in tariffs and china vows to strike that. inflation comes in hot. commodities caught in the trading crosshairs. oil, act, and metal thinking. andraising its -- oil, ag, metal sinking. fox raising its bid for comcast. it was a stronger dollar story. the safe haven bid has come out of the market somewhat after the inflation headline, and headlines crossing about the ecb and when it might hike. the 10 year yield goes nowhere. the three year yield option yesterday, not so great area what will happen -- not so great. what will happen as indirect buyers show up?