>> italy falls on concerns that the finance minister may be forced to step down. trump trespasses, the president ways into the debate criticizing the effect. , raisingturns speculation about pboc intervention. stocks surge in shanghai. nejra: welcome to "surveillance." let's check in on the markets. stocks aren't doing much. what i should have put up there

is the italian 10 year yield, because we are seeing it to move higher. meanwhile, the offshore yuan, as you can see, stabilizing a little bit. saw a move past 6.8 for the first time in a year. questions over whether the invisible hand of the pboc has influenced market. we're going to talk a lot about the yuan coming up. and copper correlation, you can see in rebounding, whereas meanwhile, commodities dropped territory.tion coming up, we be speaking to the union group chairman at 930 this morning london time. director joinsg us at 11 a.m.. a lots to talk about when it comes to the dollar, treasuries, and president trump. in later today, we discuss geopolitical risk with the

sterling professor of economics at yale university. for now, let's get news. taylor: as you mentioned, italian bonds have fallen on ,oncerns the finance minister who has brought a relative call, maybe forced to step down. short and a bonds which have for most of the brunt, led the decline. that is after it was reported that the country's populist leader reunited in a battle over nominations for the leadership of state lender. central bank has weakened its daily rate for the currency by the most in two years. the people's bank of china weekend by 9/10 of 1% to $6.7614. due to speculation, and have what that helped make the yuan the worst performer in the past month.

the u.k. reassures the borders between ireland's will remain open. on the second of a two-day visit to northern ireland, theresa may says the notion of a hard border is almost inconceivable. this, as she urges the eu to accept her proposal. minister faces a no-confidence vote in parliament later today. to his alliance is the first challenge for any indian administration in 15 years. while the ruling coalition is expected to easily defeat the motion, the outcome will reveal which group has been more successful at polling smaller and nonaligned parties into its goal. global news, 24 hours a day. powered by more than 2,700 journalists in more than 120 countries. this is bloomberg. nejra: thank you so much,

taylor. trump has criticized the fed rate hike, saying he is not thrilled. they have been raised five time since he took office. the white house traditionally does not comment on monetary policy. he also created a stir by inviting the russian president to a summit, after the uproar trump caused after their first meeting in helsinki when he sided with putin. how the national intelligence director reacted when he was told about the invitation. >> some breaking news. on white house has announced twitter that vladimir putin is coming to the white house in the fall. >> say that again? [laughter] vladimir putin -- >> yeah, yeah. ok. [laughter] that's going to be special. [laughter] the announcement andrea

referenced earlier said putin was at invited this fall. were you aware of that? >> based on my reaction, i was not aware. nejra: joining us as our guest of the hour is the cohead of fx and rate strategy at ubs. you, i know you are both laughing along with the soundbites. but i do have some serious headlines. is always open to proposals to meet with the u.s., and obviously, say they should revive for and defense minister talks. let's get to politics in a moment, but first to president trump. we saw some dollar weakness earlier, it has stabilized now. fed trump say what the should be doing with policy mean the fed is more likely to stay its course? there are a few things to discuss.

let me start with the administration policy. there is this academic notion that the dollar will rise to offset the impact of tariffs. that has been the consensus for a year now. it is actually the opposite. you do not start a trade conflict to end up with a stronger dollar. past, when they impose such measures, you have long dollar weakness following. that is one thing to keep in mind and to put these notions in context. when it comes to the fed, what they do will be linked to economic data, rather than politics. the i would say is that market has priced, for a wild now, a little uncertainty around the fed delivery. --delivering.

in our case, we mentioned that the market is almost always pricing the fed in full. the measures that have been announced will have an impact on growth, even if that is small. and basically, our economists have removed one-from their expectations. the market is not pricing at ,his stage any kind of downside with respect to have the economy could react and how that could influence the fed. nejra: if you look at longer rates, is the markets announcing -- pricing the end of the cycle? actually, the market is pricing that they will land at endhigher end at the higher of possibility of rates. it is pricing that well. it is pricing very little of the risk. nejra: what does that mean for the dollar? tactically, there might

be a bit of dollar strength, particularly against parts of asia. out,trategically, one year i think it is likely the dollar is close to its peak. what is crucial for the dollar is not so much what is going on in the u.s.. we have written about this. it is mostly about what will happen outside. the market has priced significant growth damage outside of the u.s. in europe, china, etc. very there, you have different policy sets. as base case is that expectations recover, that will have a bigger impact on the dollar. and the dollar will start weakening in the 6-12 months ahead. nejra: got it. so where would you be looking to play the dollar against what's in particular? i think there are many

kinds of ways you can think of harvesting in the em. particularly, ones that have delivered high real rates. we bullish on mexico, even before the election. and i think that makes sense as an example. ,ou can't think of euro proxies which have a little more positive carry, as opposed to the euro. out,ugh the euro could be given the politics and brexit. asian, some to parts of g10 in asia up here to be on the cheap side, like new zealand. and that makes sense. where it would not be necessarily shorting would be against places where the policy is even more hawkish. just want to ask you about curve flattening.

we talk so much about it in the u.s.. but it is happening in the u.k. and india. does that play into your strategy? themos: absolutely. there flattening has been correlated with the softer dollar. is ai would say is that it very different thing for the u.s. than other places. in other places, it is driven by the fact that growth expectations have come down. is mostly a case of front end rates rising and long rates being anchored a global factors. in one of her final remarks, made a statement about that. that forase case is these reasons, the curve will flatten further, inverse, and potentially more than past cycles. basically, the long and is distorted and the front end will rise. nejra: great, thank you so much. stay with us, of course.

and stay with surveillance. 20 coming up, including metals. foriscuss how the ticket tat could hit demand for raw materials. and the yuan a racist declines after the central banks weakened its reference rate. rate declines after central bank weakens its reference rate. this is bloomberg. ♪

nejra: economics, finance, and politics. this is "bloomberg surveillance." let's get the bloomberg business flash from new york. taylor: microsoft's forecasts have cheered investors. theyey provided evidence

can increase cloud sales and squeeze more profit while cutting into amazon's massive industry lead. profit and revenue since last month exceeded analyst estimates , as did its projection for cloud sales. softbank's vision fund is seeking to invest almost a billion dollars in china's group. as it seeks a stay in the world's most valuable ai start of. art up.art up -- st the details could still change, but they have declined to comment. and a representative did not immediately respond to a request for comment. a major expansion into content, with a $1 million rims to buy the operation. the second big purchase by the swedish telecom monopoly. the acquisition follows a $2.6 a businessl to buy

in norway to take on the country's largest operator telenor. that is your bloomberg business flash. nejra: thanks, so much. italian bonds have fallen over concerns the finance minister might step down. our guest is still with us. if i take a look at the reaction in the rates market, you are seeing that 10 year yield up some five basis point, the two-year yield up, the euro unchanged. and --at differential really say it all? us, this is one of the two main factors that worries us with respect to our europe you, which is bullish. and with brexit. what is the case is that the endgame for italy is probably not a bad one. , iteconomics are recovering

has slacked, and there is a long process of healing to be priced into assets. but the path there is not necessarily a lean year one -- linear one. you could see some volatility. we think this is a risk to hedge , rather than a risk on base case, but it is a risk we are worried about. basically, isay, that the kind of debates you are how youn these items, go into debates about big fiscal plans that were announced and they are challenging, to some extent, fiscal stability. good moment to a bring up this abundant spread. -- bund spread. his future thrown into doubt. if you were to go, how far could this blowout? again, this is the

immediate reaction. we are at the lower end of the spread. the market is very volatile, very liquid. you could rise to the middle part of that spread range. is what i would say matters more than just individuals is basically whether the signal from the two main participants in the government is one where they basically want to ride the next few quarters into the government, governor reasonably, take advantage of the economic recovery. spend at ease some economic pressures, or whether they want goingd a reason to create into elections, and potentially creates a bit of a worry about how they would deal with a situation, the budget situation.

you know, going forward. nejra: how much upside is there to the euro from here? italy comes upt with a reasonable budget solution, risks come down, some kind of reasonable work with brexit tensions, the market is pricing very, very low levels of interest rates. for a long time, negative rates. the impact on the euro should be asymmetric. end of next by the year, you could see 1.3, which seems quite far. but in this setup, it is achievable. obviously, we have to go through these signposts and be comfortable with those. nejra: we were talking about the fed earlier. you were saying the markets are not pricing to the ecb in the

same way they are pricing the fed. what does that mean for this at the moment? themos: they are very low on yield. both on european rights and also the long end. it is very low. our estimates, assuming some of normalization, assuming some path of adjustment and rates, these funds -- bonds, it is not going to happen. treasuries, to where yield does fair, it is not slightly on the high side from a medium-term perspective. european yields are low. nejra: thank you for joining us this morning. new round of trade war tensions sent metals markets into a tailspin. but we are seeing salvation for copper after the yuan rebounded.

are to tell us more is our commodities reporter. mark, this season. we saw the commodity index going into correction territory. what are the technical and fundamental signals telling us in terms of a rebound? mark: technicals first. after such a severe move, there will be lots of short-term money in the market. chasing prices lower. if we have a few days of stability, we can see that unwind, then you could say the move looks excessive, just on a technical basis, it really has been quite severe. for example, we have moved on a position where from mid-june, prices were at four-year highs, 7300. moving down to 6300 today. that has been the most severe sustained drop since november 2015.

from a fundamental point of view, the main driver has been the escalation of the trade war and increasingly, a real focus on how that is going to impact of the chinese economy. nejra: got it. i've got a chart for you. moving in tandem, i got hillary clarke to make this for me. the correlation between offshore yuan and copper. we have seen that play out. if you are a copper trader, should he be watching what the yuan is doing? themos: absolutely. and that is a lesson. if you are a copper trader, the becausecrucial, particularly with the chinese government allowing the currency to trade a little more freely, it being in the special drawing thets in the imf basket, real price of raw materials for chinese buyers is crucial to the strength of demand and likely

the strength of imports into china. so what we are seeing is the commodities of china depend on the outside world for copper, zinc, etc., and are really getting punished as the yuan weakens. it raises the cost for buyers inside china and is, i think, a crucial thing for traders to be watching. the price action suggests they are. nejra: we talked about industrial metals, tell me what is going on with gold. it's not a safe haven. themos: it isn't. the market is really languishing. there is an existential crisis, whoink, for some of those expected prices to be running higher in an environment where there are lots of concerns about geopolitical risk and so on. i think it is trading in the same way that, if you take some

of the other precious metals that have stronger links to industrial amends, they have been hit hard. and i think gold is suffering there. in a rising rate environment, there is a question about yield and so. -- so on. nejra: got it. commodity currencies. how are you looking at them. it, and what is interesting is that year to date, oil is higher by double-digit savages, whereas copper is not. so how is that factor into your currencies? elements.ere are two the underlying assets and the currency in terms of metals and commodities, i think it is important to understand that part of this correlation you have discussed reflects the fact that china, for a year now, has been tightening policy. and people are starting to worry this will feed into the data.

as we had a couple months of softer data. what i would say is that the authorities have recently sent a signal that they are willing to push on the downside. to steal your thunder, but we talking the yuan later. [laughter] carry on. enough.fair they should be supportive, to some degree. there is also the rebalancing of the economy, which is bad for some metals. and in the case of copper, it is not that bad. long-term, it implies bigger demand for cars and copper. when it comes to commodity bigencies, you have had a departure between the currency and the underlying commodity. it has underperformed commodities. currency,ct to oil there are idiosyncratic cases of pockets of weakness.

there are some problems to be thought about with the respective evaluation. with respect to metals currencies, i think the market has been overly optimistic about growth. it has priced out the potential for hikes. and the economies are doing better. the rise in interest rates in the u.s., global growth worries, and the fact you had more risk aversion, has weighed on these currencies. environment, there would be pockets of strength to be couple -- three couple -- re couple. nejra: is that a canary in the coal mine for global growth? themos: no. it has respected -- reflected some softening. overall, even though our approval global forecasts on the back of the trade war's have been scaled down, the overall

path for growth is a good one. and the markets may be coming now a little too pessimistic. nejra: let's get a quick check of the markets. our guest stays with us. with an talking about metals, but looking at equities, we have not seen a huge amount of movement. the real action is in the 10 year yield for italy, which has risen some five basis points. in fact, the front end has moved even more. you see stocks moving sideways. and the yuan stabilized after weakness, and copper rebounding after commodities in general heading into correction territory. chairman, union group joins us to talk about trade's and what it means for south america. this is bloomberg. ♪ retail.

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no, it isrd, a plane, the see comics new streaming service. the offer aasing year before disney is due to release a competing platform. theresa may will reaffirm her pledge to keep the border of ireland open. this is during her visit to the region. and our most read stories on bloomberg over the past few hours. jpmorgan sees a record-breaking bull market run until 2020. and second, trump fed bashing could backfire. and top, trumps uproar around helsinki summit with another meeting with putin. niskanen first word news with taylor riggs. italian bonds have fallen amidst concerns that the may be forceder to step down. short and i italian bonds, which border most of the brunt of political uncertainty, leading decline. it was reported

the country's populist leaders were united against the minister over nominations for the leadership of the state lenders. and china, the central bank has weakened its rate by the most in two years. by 9/10 of 1%nd to 6.7671 per dollar. authorities are sanctioning the losses by not intervening and have helped make the yuan the worst performer amongst more than 30 major currencies in the past month. the indian prime minister faces a no-confidence vote in parliament later today. the key test of modi's alliance is the first such challenge for any administration in 15 years. while the ruling coalition is expected to easily defeat the motion, the outcome will reveal which group has been more successful at polling smaller

and nonaligned parties into the fold. global news, 24 hours a day. powered by more than 2,700 journalists in more than 120 countries. this is bloomberg. nejra: thanks so much. detractors say there is no somer in a trade war, but south american countries are now looking to capitalize on the competition between the world's two largest economy. --ning us now is one sartori a group from based in latin america. and our guest is still with us. great to see you come up banks flying in and joining us here. we talked about trade war's, the line height is that there are no winners, just different degrees of losers. is that the case? juan: depends where you position

yourself. it is a war between three blocks, really. asia, north america, and europe. they are all targeting each other, but some areas like south america could benefit from some of those mutual conflicts. nejra: how? juan: some examples. the u.s. put strong targets on agricultural goods, for example china. suddenly, brazil is exporting soybeans to china with a huge competitive advantage. if you look at agriculture in brazil, they are benefiting from a much lower local currency. so lower costs. are setting a new markets against the national one, which is asia, with better conditions. seeing is to know how to get involved into this political fight, but how can it

benefit from the new landscape of trade and commercial relationships that is the new normal in this situation. i hear is other thing that global supply chains are complicated. you said some countries are already benefiting. how quickly can they adjust to any shift in the global trade picture? juan: in the case of commodities, talking here the large commodities, whether metal or agriculture, these are just almost a daily. you have decisions being made in instant cases, where sometimes a boat turns around in the middle of the ocean. when conditions shift on the day because of currencies are prices. that will be even faster than before, because we have seen all the variables, commodity prices, before tend to be a given. and they are now a moving part.

so everybody will be able to have more opportunity, as long as they are acting fast enough. nejra: how does the strength of the dollar affect this? juan: definitely not good. when i see the negative part for latin america, higher interest rates are definitely a problem for us. the higher dollar and commodities are a problem for us. and although the growth situation is ok, looking at most countries, they are still growing slowly but they are not in a bad situation. but when you put that together, it is difficult to make an investment case. to this and maybe something to mention is that the political aspect is not helping. for example, argentina. ago, i wasone year pitching argentina here on bloomberg, saying what a great opportunity.

access to capital markets, a country with potential. three weeks ago, they're calling the imf to get emergency loans, back into a situation that would never happen. nejra: yeah. you make strategic investments at union group. i do not what to think of latin america as a homogenous block. so what is your strategy in that continent? what areas the stay away from? juan: we go from a series of filters, from a macro point of view and that specific opportunities. but there are countries we like and do not like. in general, in latin america, the political situation is something to watch for. you see it today with brazil, nicaragua, changing over a couple of months from something with stability to a big problematic situation. aszil has a situation uncertain as ever.

the leader, and asked military person from 40 years ago. so it is difficult to foresee what will happen, and difficult to make long-term commitments in terms of private equity investments. we tend to work in the middle. some countries like colombia, uguay, who what -- ur are doing ok and have interesting opportunities. but we are trying to find a much more attractive investment opportunity in terms of price. right now, everything happening around the world has made us look for something cheap. because uncertainty has definitely ungreased. obviously, that is coming from the u.s. and everybody reacting to it. ,ejra: with all the uncertainty i am wondering why you have chosen now about the moment to think about an ipo. we are talking about this

exchange. it is a vehicle which has cash to make an acquisition. so we are not listing a company. we are preparing a vehicle, because we think an opportunity may come. usually, that is the result of uncertainty, of problems, blood in the street, as some say. so we are setting up to pick up some opportunities in a moment of uncertainty. nejra: what might that opportunity look like? i would say a company that is referenced in its industry. good, ween things are will have a very high valuation and impossible to acquire. they may need deleveraging, new capital, and it is more difficult to get the public market. so this vehicle in particular is a great opportunity. the cash is already raised.

when it is a good time to invest, usually it is a bad time to raise capital. but at the same time, there are business characteristics that whatever happens in this crazy world is going to survive in order to raise up valuations. nejra: any names you can give us? juan: no, of course not. i would get in trouble. [laughter] nejra: what a pleasure, thank you for joining us. founder and executive chairman of union group. border control, theresa may attempts to reassure there will not be hard border after brexit. can she convince the eu to accept your plan for a free trade area? we talk about that next, this is bloomberg. ♪

nejra: this is "bloomberg surveillance." u.n. wiped out a retreat following pboc intervention. they have weakened the rate by the most in two years, now has fallen some 8%. talking about the yuan there. we saw some weakness, and since then, it has stabilized. does it look like the invisible hand of the pboc? see if theis hard to invisible hand pushes the button. what i would say is they do have some flexibility. to allow the currency to move.

obviously, it had not reflect that broader dollar strength, and now, it is doing so. to it is also starting reflect the prospect of a slower economy. that is what is causing a scare in global markets. there is a limit to all of this. by the fact the dollar is not going to be trending from here. and by the fact that, obviously, it is not in the best interest of chinese authorities to create a situation where they get outflows like they had a couple years ago. again, this is something that has surprised many, including ourselves. it has moved more than we thought, but at the end of the day, something that will stabilize eventually. nejra: is there a level that starts to concern you? or is it just the speed? level, because it

depends on why we have reached that level. if, for some reason, the euro is 1.1, then you expect to see currencies adjust. but i think the rate at which it moves, and whether it correlates currencies,ajor they are both we are looking at. nejra: you talked about the risk of outflows. is there a way the yuan can ,ontinue weakening for how long and that china can still control outflows? past, they have shown they can control that quite well. but it comes at a cost. with further controls in terms of the capital side. which is not what they want in terms of the broader trajectory. speaking, china has

this very different approach to policy. the tightening, the asset side but they are also allowing loan growth in the dynamic parts of the economy. and you have seen that in the data. oft has different kinds implications at different times. at this point, the weaker currency doesn't bode well with a slightly easier tone into the overall policy. if that starts to conflict because of capital outflows, obviously the setup will adjust. what needs to happen for alarm bells to ring? first of all, 2015 was a much more china related and idiosyncratic case. let me put two points across. , iffirst is that, back then you survey people about how the economy would look, today they would tell you the economy would

grow. then, people were saying you need an unsustainable amount of credit growth to produce that 5% growth. today, you have seen a large a slowdown in overall credit for the economy, but economy holding a high rate of growth, which is a deeply different mix of policies. economically, it doesn't seem we are there. if you start to see metals, a-shares, things in the currency move, without anything triggering that. it might be a signal something is going on that we are missing. nejra: all right. our guest essays with us. for now, let's get the bloomberg business flash. microsoft earnings forecasts have cheered investors as they provide evidence the company can increase cloud sales and squeeze more profit from the area, while cutting into

amazon's massively. -- massively. profits exceeded estimates, as did its projection for cloud sales. softbank is seeking to invest almost one billion in china as it seeks a stake in the world's most valuable ai startup. bloomberg understands that they are still finalizing terms of the deal and the details could still change. both organizations have declined to comment. the telecommunications group is making a major expansion. it is the second big purchase this week by the swedish telecom monopoly. the acquisition follows a $2.6 billion deal on tuesday to buy a business in norway, to take on the country's largest operator telenor on its own turf. that is your business flash.

nejra: thanks so much. let's focus on asia. malaysia says most of the missing money is gone for good, but still hopes to recover 30%. speaking exclusively to bloomberg, the finance minister said the total amount links to corruption could be more than $12 billion. she spoke to our chief correspondent and kuala lumpur. i will make a conservative estimate. around 10%. perhaps up to 30%. of whatery least, 10% they have stolen. paying 50nd, we are billion. u.s. dollars.ion

.o if we can get 30% at the very least, 10%. and as i said, that is still not sufficient. but why only 10%? what are you hearing? we could not locate or trace where the money went. and what they purchased when they bought. we cannot trace them. trace, therecan are questions of ownership, due process. and different national jurisdictions. there's also a question of cost. the expensesng all incurred, how much is left? >> might he wants a clawback

from other players, like jpmorgan, which were involved in the transactions? >> we have to assess that in terms of their duty. goldman sachs is very clear. jpmorgan tells me way to look at it. i think there needs to be some clarity first. i do not want to make pre-judgments. >> is it fair to say you are not exploring other banks and their involvement? first, we have to identify not only the wrongdoings, but you have got to focus. later, you see the accessories, so to speak. down, you can kneel

should not be looking further than what we can achieve. nejra: that was the malaysian finance ministers speaking to bloomberg. theresa may will reaffirm her pledge to avoid a hard border in ireland. on a visit in northern ireland, she will say the notion is inconceivable and will urge the eu to accept her proposal. meanwhile, there is trouble in westminster, where mays chief with is facing calls to quit amidst accusations of cheating to win a crucial vote. let's bring back our guest. approaching the summer recess, is there going to be much directionality on the politics side of things? themos: there is a chance the drop extends. the way we have thought about the pound, how we discussed it with investors, is that the pound is a currency that has, in the best case, some stability

ahead. but it has a big left tail as well. it has a tricky external balance situation, which exposes it to being exposed should something go back. and our economist has written a note around that. the events of the last few weeks, if anything, have made the risk of a disorderly brexit more likely. to the extent that probability is higher, the exchange rate, given the downside risk, needs to reprice that higher probability of a bigger downside. and that could lead to the currency weaker. -- weakening. nejra: how much weaker? i talked to our reporter who did a survey and said that in the event of a no deal, which they say is only 20%, we could see

sterling dropped some 8%, it could hit 1.20, some even said 1.16. in terms of in terms of the exchange rate of the pound against the euro, i think a move to something like 95 plus is not out of the question in a moderate downside scenario, basically. nejra: all right. we have been in a range of 87 for a while. yeah, yeah. what would it take for it take for its hit that level? we need a sense that we are going to a place where, particularly, the surpluses of the economy are put into question medium-term. the capital inflows into the

u.k. have supported the infrastructure market and can come to a stop. and those happening in a short period of time. without giving in the economy the move to rebalance. if those happen at the same time, you could see those moving quickly. obviously, a signpost of that is to what extent the politics will create for investors. nejra: and look, it is not all about politics. let me take you to the chart. we were talking about yield curves flattening. of course, we have to factor in what to expect from the boe. does the curve continue to flatten, and what is that mean for cable? themos: some of the flattening is due to the european rates. environment, if things

go well, it will not extend forever. but in terms of the bank of england, although they are fully priced for the next hike, they are facing softer data on the growth side. stable,he pound stays then the inflation profile is likely to soft and bashed soft -- soften. and therefore, the outlook is symmetric. proud -- pound is probably flat and the yield curve is dependent on europe and global growth. in a bad scenario, obviously, there is a lot more downside. and the curve can actually behave in different ways. nejra: given what you have said on the pound, would you be of

the opinion of selling on any strength in sterling? themos: it really depends on the escalation of the situation. but i think that we have generally been on the negative side of sterling against other currencies. nejra: thank you so much for joining us this morning. continues.ce" we will be talking at x -- fx. of the discuss in terms dollar reaction from trump and what it means for the fed. this is bloomberg. ♪

morning, the president

squawked, fed independence is under threat. no word on whether the chairman will be ultra accommodative. sharon summers says this is a banana republic. he comes to washington, ok. that is going to be special. in the last 24 hours, donald trump invited vladimir putin to the white house. the director of u.s. intelligence is simply hung out to dry. in its original july, how many degrees of freedom to investors really have? good morning. this is "bloomberg surveillance." i am tom keene in new york. nejra cehic in for francine lacqua in london. putin goes to mr. washington. prime minister may goes to belfast. markets have been

relatively stabilized. theresa may is quickly focused on the irish border in belfast. cable not reacting, moving sideways. tom: we have a lot for you all through washington on "bloomberg surveillance." president trump has doubled down on his controversial summit with vladimir putin. he has invited the russian leader to come to washington for a second meeting. news of the meeting came as a shock to his intelligence chief, dan coats there are rumors that members of the president's team don't know what the two leaders discussed on monday. exactly what he doesn't want, higher interest rates. the president told cnbc he is not thrilled with rate hikes. that is a burst of presidential

pressure not seen for decades. minister theresa may will reaffirm her brexit ment to a so-called soft irish border. she has urged for a proposal on free trade of goods and open border between northern ireland and ireland. prieto isief giovanni seen as a guarantor that the populist coalition will preserve some degree of fiscal responsibility. they are reportedly threatening to demand his resignation unless he backs down. global news 24 hours a day, on air and @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. greatly appreciated this morning. let me look at the data. one screen today. not much going on. futures flat. down, stronger7 dollar through the week. american oil so the dollars about. what do you see? i am always terrible at that. nejra: european equities not seeing much on the headline level. speculation that the finance minister's future could be in doubt. the euro has not move much. questions on whether we are seeing the invisible hand of the pboc as yuan has steady. metals in general moved into correction territory. tom: we will look at prime minister mays trip to ireland later in this hour. to bring you up-to-date on all

in washington, with us is martin schenker, our chief content officer. looking casual today. he ran our washington shop for a number of years. of -- viraj patel patel of ing. let's go over to cnbc with the fed. are we going to have an arthur burns, nixon moment? do you have any sense what this new threat to the feds independence will play out? >> it is fascinating to watch donald trump break all convention as he likes to do. the question to me is that, donald trump and the fed chairman have regular meetings. they meet at the white house. if you wanted to express your opinion, it is probably a great

opportunity to do that, but you don't do it in public. it does create a cross current in the fed that you really don't need when the economy is doing quite well. and michaeloronado mckee will be with us. we are thrilled to bring you david blanchflower of dartmouth college this morning. let's move on to mr. putin coming to washington. do you envision, does craig gordon envision in washington that mr. putin will be standing in the oval office? quitet would be extraordinary. it may well happen if donald trump wants it to happen. , his own national security director was completely blindsided by this invitation, and i suspect some others in this administration who are not happy at all, they're trying to tamp down this narrative that

donald trump has a special relationship with vladimir putin. nejra: the other thing we got from president trump was a little dollar jawboning. what brought that on? >> probably the yuan weakness. i don't think donald trump looks at the ticks in the dollar rate that much. he is an instinctive politician. he knows that he wants to get a new trade deal with china. he wants to get a trade deal with europe. he will do whatever he thinks works for him at the moment. what: let me bring you president trump was saying about the fed and rates. given what he was saying, is there a chance that the fed is more likely to stick to its rate hiking path to give the impression that it has independence. >> it will not derail what the fed has told us.

it may put the seed of doubt into the market. that is the key. a couple of months ago, we were talking about the dollar decoupling from rate spreads. timing that.ut differencesajor between today and january when the dollar slid 5% on the treasuries comments about the dollar is the euro, the yuan, the yen. tom: i want to get back to the washington mill. -barely keep up with the zeitgeist -- i could barely keep zeitgeist.e sit let's listen in to the national security director. >> it is undeniable that the

russians are taking the lead on this. they are the ones that are trying to wreck over our election process. we need to call them out on that. it is critical. coats hugely for lunch a, -- hugely respected among both parties. he was stunned. i'm going to ask you the same question i asked yesterday, when do we start to see resignations? >> it's a great question. i asked myself that yesterday, not only about dan coats but about the fed. laws have consequences. there are many people in this administration who i am sure think they are doing the patriotic thing by sticking with it. at some point, these people will have lives outside of downtown,

and how this damages the reputation is something they must be thinking about. tom: let's circle back to mr. trump and fed independence. here is the cnbc interview yesterday. attacking central bank is one more step in what seems to be a presidential strategy of turning the u.s. into a banana republic. what is next, tariffs? attacks on individual countries? gaudy decoration of presidential aircraft? economic policies to enrich the first family? mr. summers was on a roll to say the least. >> larry summers is very good at that. let's not forget, he is a democrat. he has been opposed to donald trump from the outset. it does raise questions.

what is the next convention that donald trump will blow up? inviting vladimir putin to the white house when dozens of institutions in russia and individuals are under sanction is one more thing that makes this presidency so unique. earlierou were talking about timing the politics. what will you be looking for in terms of the president or other people that will affect your view on the dollar and currency? viraj: these views will be with us for the rest of the presidents time. maybe some of the trade rhetoric will die down after the midterm elections, probably not. this is with us. we are looking at the political risks and economic risks elsewhere. can we start to put capital back to work in more attractive locations around the world? it is waiting for that dynamic.

the uncertainty in the dollar is here to stay. tom: thank you. marty schenker with bloomberg and viraj patel with ing. i cannot tell you the importance of this relationship of independence with the federal reserve system. rochester head of the federal bank, he will anchor a conversation on fed independence at 8:00. this is bloomberg. ♪

taylor: this is "bloomberg surveillance."

is providing evidence it can boost cloud sales and cut massively in the industry -- massive lead in the industry. cloud revenues in the current period were better than expected. software funds looking to invest almost a billion dollars in two influentialmost artificial intelligence startup. it can analyze faces and images on a large scale, contributing to china's vast surveillance system. era automotive standards, they will recommend raising mileage standards from 2020 to 2026.

that is your bloomberg/. -- it comesound has as chinese stocks jumped after reports that regulators will loosen rules on the industry. ing us is viraj patel help and miranda carr. is this the invisible hand of the pboc working on the market? miranda: yes. the stability you have seen since 2015 is basically down to pboc intervention, government support, and minimizing capital outflows. this is the trouble with the market mechanism where it has to adjust the price on the previous close. you end up with this ratcheting down. now the pboc is stepping in and

saying enough is enough and trying to stabilize things. nejra: why is it weaker than expected? is there an actual strategy here? miranda: you can never read the mind of the pboc accurately. over the last month, they have set the price higher than you would expect. we are getting reports that the interventions to the state banking system. the trouble with the pboc is it is limited in its options at the moment because you are getting close to this $3 trillion rate.gn-exchange it has to be the mixture of the banks, fixing, and all that limiting the downside. it is not an easy task. tom: you absolutely mail what i have been thinking about within the trilemma of challenges,

which is the size of the the bank and the challenge of going down to $3 trillion. the panic that will set in. before i go to the $3 trillion reserve, the belief is this is managed, choreographed by beijing. i don't buy it. what percentage of this move, deviations, we yuan, how weaker much is managing the currency, and how much is actual market dynamics? miranda: the useful thing is to look at where the market is deviating from what the pboc set the rate. now -1% where the pboc fixes it. you are getting the market dragging it down and in the pboc sets its rate the next day based

on those previous market moves. it is a must like a self-fulfilling -- this is why you have to some kind of intervention to stop that, otherwise you end up in a currency crisis. tom: i am going to show you in real-time how we do this. this is going to hold the rabbit out of the hat. reserves withina a big buildup to $3 trillion, almost $4 trillion. what is critical here is dr. carr nails the piggy bank. the piggy bank is flat. what happens if we break under $3 trillion and get a piggyback back to where was in 2010? to 3da: as soon as it goes trillion, that damages market sentiment.

that is a was been a red line. the way they have managed it is you have kept some money going out of the country and stepped up capital controls. at the moment, you have this very strange and well-managed equilibrium. as soon as you see that breaking down onto flipping below the thrill trillion -- 3 trillion and capital flights going out again, but more importantly foreign money not going in anymore, that would be the most damaging. at the moment you have $10 billion every month going into the bond market. if that comes out as well, then you are talking about a much steeper correction in china's monetary environment than you would expect otherwise. tom: thank you so much. haitong, jarosz patel with us as well. -- viraj patel with us as well.

this is an interesting effort. jonathan ferro is going to dive into the real jpmorgan and talk about real and nominal yields. he will go inside fortress diamond. this is bloomberg. ♪ s bloomberg. ♪

nejra: i am nejra cehic in london with tom keene in new york. italian yields have stabilized a little bit, but still higher if you look at the 10-year and

two-year yields. is --s that resignation the 10-year yield is up quite true basis points. euro not moving much. is there a tag on how high the euro can go based on italian politics? viraj: i think so. the confidence we have on the europe is based on the economic and policy side. it is the politics is the curveball right now. if we were to see a similar escalation in italian fears as we did earlier this summer, that takes euro-dollar below 1.15. top ofs a defective 1.18. basis points.

we are seeing it wide now. are you surprised that has not moved out further?? viraj: i think this is something to keep markets on their toes but not necessarily widespread price action. that is the key when it comes to european political risk. it will keep your pain investors on their toes but not something they want to chase right now. nejra: what about the fundamentals in europe? does that leave to more fundamental strength, or is that thing out now -- playing out now? viraj: slowly. there is a massive headwind, which is the global trade war dynamics. the global economies are at a crossroads. making any directional call on the euro or dollar right now is really tough. economics may be

there, but the politics risks, the ecb has laid out the criteria for them to start hiking rates at the back end of next year, but until we get some of these things fading, it is hard to make a constructive euro outlook. nejra: if the finance chief were to resign, how far could the euro fall? viraj: you might be limited to 1.15. nejra: viraj patel staying with us. this is bloomberg. ♪

nejra: i am nejra cehic in london. tom keene is in new york. let's check in on what is trending across the bloomberg universe.

is it a bird, is it playing? -- plane. company is releasing a new streaming platform. stories on the bloomberg terminal over the past few hours, in third place, jpmorgan season high a record untilmarket run 2020. aroundtrump fees helsinki summit with plans for putin in washington. taylor: president trump's intelligence chief has been cut unaware this week. dan coats says he does not know what the president and vladimir putin talked about during their meeting on monday. thats surprised to learn

the president invited vladimir putin to washington. a warning for president trump, they say his proposed tariffs on auto imports would hurt the u.s. economy and make relations between washington and its closest allies even worse. the trump administration has gotten limited support for the idea that foreign cars are a threat to american security. at least 11 people were killed last night when a tourist boat capsized and a powerful thunderstorm near the resort town of branson. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. nejra: thank you so much. german chancellor angela merkel

will hold a news conference in berlin. you can see her about to do that. u.k. prime minister theresa may is set to speak in belfast, northern ireland. she has not taken the podium yet. may is expected to reaffirm her pledge to keep the border open following brexit, avoiding customs checks at the border is of the most critical issues holding up brexit negotiations between the eu and u.k. turning us in london is bloomberg's european news director david merrick and viraj patel of ing. we sort of know what theresa may is going to suggest. what will be of interest? viraj: she is going to reaffirm this commitment to avoid a hard border in northern ireland. she is also going to be very firm around rejecting the european union's proposal, which is their backstop position, which carves out northern

ireland and puts a border around the irish sea. it is essential for theresa may that she continues to have their support, so she is going to keep that red line firm. at the same time, this northern ireland border is the problem that is holding up an agreement. they are going to continue to say we're going to keep it open at all costs. the eu and british government still have different ideas about how you guarantee that. that is the sticking point. there will be talks over the next few months. nejra: at the g20, the chancellor of the exchequer philip hammond will be talking to his french counterpart because france is seen as key in these discussions. >> there is now a range of different views across europe about what sort of relationship is possible with the united kingdom. throughout this, the french have been a little more hardline. perhaps they have a little more to gain. lure thekeen to

bankers across the channel. it is perhaps in their incentive that britain gets a slightly worse deal. there are reports this morning that mr. hammond will be making a beeline to his counterpart at the g20 to soften that french position. tom: how big of a deal is it that the prime minister visits ireland? i go back to my readings of post-reformation england and lord north, the guy you did not want in london was abandoned and thrown out to ireland. is it a big give that prime minister may shows up? is it another day? >> we have seen the prime minister make several visits. it is significant that she has to reaffirm this point. it is a sensitive issue, this border. the reason why everyone is so focused on keeping this border

open is because of the threat of return to violence. it was the peace treaty that was signed, the belfast agreement, the good friday agreement that ended decades of violence. what everyone is worried about. everyones reassuring on both sides of the border that we will not see any return to sectarian violence. tom: let's pull out our lecture from a couple of years ago. they just had a christening of the royal family, the baby named after mannrly named batson of elizabeth the second, killed in ireland and ann arbor. give us an update on the orange green violence. >> the good friday agreement was one of the great successes of diplomacy of the last 20 years, and the european union is at the center of that as well.

the lives oformed people living in those communities. we have seen there have been small letter ups of more french elements. -- fringe elements. that is why everyone is focused on their nothing anything to provoke it. on the republican side in ireland, there is an argument may is propped up. that seems to have died down. i think it is an everybody's interest. no one wants to be seen as breaking the piece. they don't want brexit to bring back violence either. nejra: cable is down more than 3% year to date can a catch -- d ate. can it catch a bid? viraj: we thought we would be over this irish backstop issue

earlier in the year. clearly not. frexite u.k. governments strategy is trying to -- brexit strategy is trying to square a p eg in a round hole, it is hard to see sterling rallying. we have been here before. degree ofsignificant political risk. tom: i want to show the chart. this onou nailed sterling. i missed this this week. you go down to a 1.30 level. we erode to 1.20. this rollover is not that small. 1.27 level.ning a nejra: what is interesting about bloombergng to 1.27,

did some analysis, and they say in the event that no deal we could drop to 1.20 or 1.15. viraj: that is a number we have 1.20.iding, -- citing, the perceived risks of no deal will weigh on sterling in the near term. nejra: is the market pricing that sufficiently? viraj: it could pick up. between now and october, there are a series of uncertainties. several things could unravel. the actual risk of what we are paying our long-term hopes on is sterling moving up to 1.35 or 1.40. carney governor independent of prime minister may? viraj: in theory, yes.

one thing we have learned over the past couple of months is the bank of england's policy reaction function goes beyond economics. there is politics involved. it was built on the assumption of a smooth brexit. if that were to be questioned or tested, they would have to change tim. we don't think it is -- tune. we don't think it is big enough. they are taking each bank of england meeting by meeting. that does not lend itself to sustained sterling outside. that is one place where the politics outweighs the economics. nejra: euro trading is not all about cable. andk you to david merrick viraj patel. coming up, danny blanchflower, dartmouth professor will speak with us at 1:00 p.m. in london.

this is bloomberg. ♪

tom: it is not lcd. that is what helsinki looks like at 2:00 a.m. it was amazing out there. bloombergof you on radio, it is the gorgeousness of a sunrise here in new york city. it is summer in new york. is it summer in london? nejra: this week has not felt quite as much like summer.

i think people should tune into surveillance just for that lovely shot. look at london, looking a tiny bit gray. we are looking forward to the weekend. front is onech in of only two churches of its ilk in the united kingdom. tower. true gothic stone it is almost as special as st. paul's in the background. nejra: i know you were active in london walking around, taking pictures. send some of them here. put them onto tv . as president trump continues to criticize the eu over trade, auto groups, industry workers, and foreign governments are condemning his idea of raising duties on cars. tariffs onarned that car imports would hurt the u.s., disrupt the economy and the

global auto industry. joining us is richard bravo. catch us up on where we are ahead of this meeting between jean-claude juncker and president trump. i understand the eu is preparing some retaliation. >> they are. they are currently working on a list of american goods that they will retaliate against if the u.s. were to hit the eu with -- this auto import tariffs. eu reacted to the steel import tariffs from march. we are looking forward to the wednesday meeting between trump u.s.uncker to see if the

goes ahead with these auto tariffs. nejra: how would jean-claude juncker approach this meeting? what is the eu going to ask or specifically -- for specifically? >> it is important to keep in mind that the european commission does not have a mandate to negotiate a trade deal with the u.s. at this point. it is a mission to see what is the tenor of donald trump at this point? are they willing to negotiate a trade go, or is it a foregone conclusion that the u.s. is going to impose auto tariffs? proposals two lose they will take to the u.s., one of which is this plurilateral deal, one in which all automaking companies agreed to this agreement, which will lower

car tariffs across the board, and the other would be in many free trade agreement between the u.s. and eu. yes? tom: no, go ahead. keep going. >> neither one of these deals seem to be gathering traction on either side. the french especially are not into this plural lateral deal. they don't want to go into this positionrom a of weakness. just to get donald trump the upper hand again. tom: we got a new word in our language this week. we are pluralateral. will you explain to our audience what is pluralater. al. >> it is a very strict rule and

adjusted.s can be what we see a lot these days is a multilateral deal, which would have to be signed by everyone in the wto, 160 organizations. multilateral deals are hard to complete. this would include just a few countries. one of the main sticking points is the countries, and it is sector specific, which is automobiles in this instance. the countries that would agree to lowering tariffs would also have to offer that lower tariff to everybody in the wto. you could have a lot of free riders in such an instance where they would be getting 0% tariffs on cars, but they would not have to offer the same to anybody else. it seems unlikely that such a deal could take place. nejra: bloomberg's european

bravos.nt editor from just want to highlight a headline from angela merkel, she says she will keep working for cooperation with the u.s. these tradegh all tensions, the dollar has strengthened against the yen since the start of april. is the yen going to start to strengthen? >> we think if there is continued escalation. that is not a foregone conclusion. we think that is significant enough to shake risky assets, outrighten becomes an safe haven. nejra: does it take the auto tariffs for implementing the $200 billion of tariffs on china? viraj: both. that is where risks are, things

will escalate from here. regimed always been that that takes us into that, and that is when we see the actual repatriation of yen flows that we are used to seeing in a risk off environment. we are caught in this trap where it is not too hot to start downgrading your forecast, but it is not too cold. that is let the dollar rally be the preferred destination for putting money to work in the fx market. that will fizzle out as things escalate. tom: we are going to come back and look at the pacific rim, em, and foreign exchange. we are waiting on prime minister may to speak in ireland. that will be an exceptionally important and nuanced conversation. we are lined up in washington may be visiting washington. that is old news, two days ago. also fed independence.

prime minister may in northern ireland here in a bit. on bloomberg daybreak, bloomberg radio, your morning briefing, the morning. robert known, karen moskow. this is bloomberg. ♪

belfast,many faces in northern ireland. you can go back to the turmoil of july 1922 the bombings of world war ii and the tension between ireland, northern ireland, and the united kingdom. prime minister may to speak in northern ireland. we will touch in on that conversation in a bit. nejra cehic in london. i'm tom keene in new york. with us is viraj patel with ing. this shows us the second derivative on pacific rim weakness. pacific rim currencies as shown by adxy, a bundle currencies without japan.

it has some acceleration and some velocity. it is amazing the weakness in pacific rim, down to standard deviations plus. what does it mean? viraj: the source of the risk of that move is the weakness in the yuan. by extension, when we look at the catalyst for this move in the chinese yuan, it is all done for the trade war. downside risk for the chinese economy and pboc easing, that just exports deflation across asia, and you see the rest of the currency complex in asia matching that move. tom: here is the joy. take the same chair. it is a little ugly. it really matters. we go back to 1997 and we saw this huge weakness in asia dxy. that is the fear. crisis inar another

amplitude like 1998? viraj: there is more painted, for emerging market currencies to come. that is the key risk to global markets. at the moment, the global economy is at a crossroads. pinpointy hard to where things are going. the direction of travel is there is more pain for the em. nejra: the strong correlation between offshore yuan, if you are trading commodity currencies, do you need to watch the underlying commodity is closely is the one? viraj: i think that is one risk. the commodity markets, which is fxso seen as commodity trading with a premium. this always sort of

underperforms. we think there is more downside risk against the dollar it is not looking too pretty for those currencies. tom: thank you very much. appreciate it. a briefing from viraj patel of ing. very much appreciated martin schenker showing up earlier on the ballet in washington. we have michael mckee, julia coronado, david blanchflower, and this is timely. pimco on fedder of independence, the thermometer in the system. stay with us. this is bloomberg. ♪ s bloomberg. ♪ two, down and back up.

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friday, said independence is under threat. will trump tell powell what to do? no word on whether the chairman will be alter accommodative. lawrence summers says this is a banana republic. mr. putin, he comes to washington ok, that's going to be special. hours, the 24 president invites putin to the oval office. the investor will not be questioned by the russians and the director of u.s. intelligence is hung out to dry. do me degrees of freedom investors really have? we will look into that. this is bloomberg surveillance live from our headquarters in new york. him in quiet london. nejra cehic and for francine. while we are waiting for prime minister may, we are showing that in all fast. what is the prime minister's message on ireland and brexit? surprise that she is

in belfast. we are expecting her to talk about the irish boulder and how the u.k. wants to avoid the hard border. that summing to focus on. also chancellor hammond of the u.k. is likely to try to speak to his counterpart from france at the g20 because we understand that it's france there really needs to be gotten on side in terms of these negotiations. we know the eu is not a homogenous block even though they been standing firm and together. am: washington is not homogenous idea either. let's get a friday briefing. has have at trump down on his controversial summit with vladimir putin. has provided -- invited the russian leader to come to washington for a second meeting. they came as a surprise to his intelligence chief who learned of it from a report. that are rising concerns members of the teams don't know what the leaders discussed in helsinki on monday.

president trump's extraordinary fed bashing could backfire and give him what he doesn't want which is higher interest rates. the president told cnbc that is not thrilled with rate hikes. with presidential pressure not seen for decades, it could prompt policymakers to demonstrate their independence and raise rates. theresa may will reaffirm her softt committee with a irish border today. she is visiting northern ireland. she is expected to urge the eu to accept your proposal for a free trade area on goods and a open border through -- between northern ireland and ireland. in italy, the treasury is denying reports of a rest between the finance minister and the figures in the populist government. it seen as a guarantor that the populist coalition will observe some degree of fiscal responsibility. he is battling populist lenders

over who will have the state lender. the government says that reports he might resign are pure invention. global news 24 hours a day and that tick tock on twitter powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. the prime minister of the united kingdom. it significant for me. the party i lead has a belief in the union of england, scotland, wales, and northern ireland as a central tenet of our political philosophy. as prime minister of united kingdom of great britain and northern ireland, it is my duty to serve the whole u.k. and to govern in the interest of every party event -- part of it. is the approach i've taken in government over the past two years. as we leave the european union, i have made protecting and strengthening our own precious union by making sure that every strike works for every part of

the u.k. an absolute priority. my belief in our union of nations is rigid not just in history but in our collect the achievement. time and again, we have stood together as one to overcome challenges and do great things. this year we commemorate the centenary of the armistice, you will remember the sacrifice of brave people from here and indeed the whole of ireland. at the end of the second world war, churchill famously said that without northern ireland, the light which now shines so strongly throughout the world would have been quenched. war, a great national institution, our national health service, was established throughout the united kingdom. today are in a chest other pillars of our national life. our parliamentary democracy and our commitment to the rule of law have been admired and imitated around the world. these are the results of our

common endeavor as a union. they are the signs which signify its fundamental strength. across the u.k., far more unites than divides us. our sense of community and shared values, our diversity and talent -- tolerance and perhaps the greatest strength of our union is potential for the future. together, we can achieve in the years ahead, as an outward looking united kingdom. modern industrial strategy, government working with business and academia to boost productivity and invest in science and research and create more good jobs in every community. making the most of rapidly changing technology. new tradeut to strike deals around the world, open up new markets for the great products and services of our innovative entrepreneurs. as we face the challenges of the and draw on the

talents and resources of every part of our united kingdom to overcome them. that of course includes northern ireland. cultural landscape is dynamic, vibrance, and wholly original. northern ireland is a tv and cinema powerhouse supported by u.k. government tax policies that support the film industry. over 2 million visitors come to northern ireland. of thee prime minister united kingdom speaking in northern ireland. i heard no double net -- no double negatives there with the proper english of the prime minister. double news have a conference going on because theresa may speaking in belfast and we also have angela merkel speaking in berlin. she has made some comments about the use relationship with the u.s. and she is based we said that she will keep trying to resolve conflict with the u.s. and she is rejected -- has rejected president trump's statement from a few days ago that the eu is a u.s. though. through equities,

bonds, currencies, and commodities. you're a weaker overall the last four or five days. american oil nudges above $70 a barrel and let's leave it there. what do you have? nejra: european equities pretty much flat in the session as well. the 10 year italian yield is where this been a lot of move. two year yield moved even higher. even after the entire in treasury said it was sheer invention that we could see a resignation of the finance minister. the u.n. stabilizing after weakness earlier. i've been looking at a between the offshore yuan and ellen me copper. in davidring blanchflower. we have them for a few treasured minutes. absolutely extraordinary moment

with joe curran yesterday. burnses us back to arthur and held nixon had to get over the shock of april of 1960. are we doing another arthur burns in real time? david: i think we are. . think this was inevitable i've seen is coming for some time that trump eventually would turn his eyes and attention towards the fed. them bring it on been arguing have that raising rates are mistake. there is no inflation, there's no rise in expectations. wage growth is benign. this looks like a mistaken in some sense it is the consequence of the fed's failure to see the great recession and potentially making another mistake. the responses saying that the fed's independence, people have in their head, suppose this is a

turning point. suppose they shouldn't be raising rates. -- recalcitrant child and give the middle finger to the president. while suppose they are wrong? i think this is inevitable. trump is going to be turning towards them. he may be right. the economy is booming in every step. the fed is going to raise rates. what is the right? maybe it should be two and a half percent. who is supposed to push against the president? is a chairman powell? is the economic community like yourself? or is it within the white house? who pushes back against a president pushing back -- fracturing fed independence? david: the data, the evidence.

we have to remove the heat and the rhetoric. we have to get down to a serious argument about whether this is the right thing to do. , the president says you're raising these rates is preventing the fiscal stimulus working on the other side the fed says, here is why we are doing this. but i think the evidence of why they are doing it is very weak. against that,sh we have a 4% make america great again economy, don't we? the question is going forward, if the debate, it doesn't really understand what a central banker has to do. you have to say, what to going to look like an 18 months time or so. fullt's coming at the forecast horizon. this is the second longest recovery ever and by june 2019 it will be the longest ever.

do you think this recovery is going to go on forever? the likelihood is with the fed wrongly raising rates that's what curves the economy down. is the prospect of a u.s. recession in the next two years is probably 70%. tom: let's leave it there. short notice. safe travels. squirming out of control next to me. it's jerome schneider. i was watching you on my surveillance corner of my eye. of made on the edge there. what did he get wrong? jerome: ultimately, we have to look at why the fed is doing why it is doing. it's responding to the higher growth.

it is doing. it's responding to the higher growth. 4% growth is pretty astounding. they will be reactingg4% growth. they will be reacting

the methodology the fed has been consistent upon even before jerome powell. he is simply taking the time and running with it in a consistent fashion. a clearer message over the next year or two. we will talk more on the front end but is the longer ends, 10 year, 30 year, telling

us the fed is nearing the end of the tightening cycle? you look at the longer end, we are clearly focused on curve inversion and that's been a topic of conversation not only internally but externally. admittedly, it's been a focus because it's been a predictor of recession. it doesn't really tell the timing of the recession. you look at the longer end, we are clearly focused onin terms of the long e yield curve, it's looking at the term premium. it will ultimately be influenced by two things. interest -- increasing supply. increasing that supply. backu have the fed step it other folks that back,

simply duration dollars. it's a little bit less appetizing. good to have you here today, jerome. i want to talk you about that new york times article. we think prime minister may for making it an interesting morning in belfast. she speaks of the special responsibility to the people of northern ireland. she manages the messages in her united kingdom. please stay with us, more on fed independence next. this is bloomberg. any form of infrastructure at the border is an alien construct. ♪

tom: the present squawking with joe kernan. we saw the fed independence story released yesterday and now the president has a big number moving out from 230 billion on tonese import tariffs up $500 billion. that's a very difficult number to achieve. china is only so big. what do you do? you go after apple? you go after whatever export of china's industry you talk about? that out on cnbc. we go to washington. cirilli is the only one at bloomberg and keep up with the news flow. to ask you theg same question as we asked in the five. when do the resignations begin? ?hen -- what does mr. coates do should he resign? i'm not hearing of there will be any impending resignations.

conference you heard from the intelligence community speaking out in clear terms about how concrete the evidence is that the russians did in fact metal in the 2016 present election. fromnk the fallout helsinki is going to continue. mike pompeo will testify on capitol hill. has he been quiet. the secretary of state. i'm sure the secretary couldn't keep up either. what is he going to say? what should he say? in these types of situations they're are going to reiterate the chronology of how things went down. president, according to republicans, walked back his comments from helsinki and did express confidence in the intelligence community after he raised the backlash from the likes of former speaker newt gingrich and the current speaker paul ryan. i would also notes that he is also likely going to, and i

would quickly make this point, he is likely going to face intense questions from democrats. i spoke with elizabeth warren and progressives are very fired up by this. he was reviewed yesterday by unanimous consent on the senate floor. leader mcconnell allowed there to be a review of the presidency even the suggestion of sending former ambassador mcfaul over to vladimir putin to be interviewed. that was a nonstarter for every lawmaker in the senate. nejra: it's an important point i'm glad you've made it. we still do not know what president trump and president putin discussed for two hours. will we ever find out? kevin: likely not. before i left for helsinki, i spoke resources of the intelligence committee who really laid out for me why that is problematic. not just because of president trump but they are saying that in these one-off meetings, to not have a historic record for

the u.s. government or for other sources beyond just having a you just don't know where things go from there. speaking of where things go, this second summit that president trump has invited putin to, how likely is that to go ahead or suggest president trump mouthing off again for want of a better phrase? kevin: according to sarah huckabee sanders, these plans are already underway. the president has suggested other could be a washington visit. we don't have the white house visit. but a washington visit sometime in the fall. those plans are in motion. tom: i want to go back to october 12 of 1960. mr. putin is coming to washington. maybe he will go to the u.n. as well. a khrushchev? do is he going to bank issue on the desk?

what will we see when mr. putin goes to washington? i remember khrushchev banging issue at the united nations. is that we are going to see? we saw him tossing a soccer halt to the president of united states saying the ball is in your court. he might literally be taking the ball to dresden -- two president trump scored. that -- i think the notion of yesterday where the print -- where the president suggested he is willing and then he had to but theely walk it back suggestions of sending a former ambassador to russia to be thatviewed by russians, was an immediate response. tom: they walked back the mcfaul thing. what to the present think of that? change agents at this white house? you with someig

sources and what resources suggested to me that former speaker gingrich, his comments against the president's rhetoric this week,arlier really did jolt the white house and really did stand out as a criticism silly because the former speaker has always been lockstep with president trump. and all ofyou to you our team. this is exhausting. i can't imagine what it's like. our chief washington correspondent. mr. schneider of pimco, he's not going to bang his shoe. futures down to 104. crude oil weaker as well. the new york times, jerome, with a concise article. do we have a clue we are going to do after 12 guys in tech see those in london set the

short-term rate that everything is based off? ultimately, the structural change were trying to raise is focusing on how to get truth in short-term rates. how to get a hard indicator of short-term rates. we are making a good bit of progress in that regard. we is the regulators. there's a timeline of getting the supplemental rates which is known as the secured overnight funding rate. it's based upon actual observable trends mark -- transactions in the repo market. clear chronology laid out over time. with clear out of tatian framework. a market.o develop it's the replacement rate market that had futures as -- features -- as an example, to start trading. subsequent to that we had over-the-counter transactions. then you need adaptation from the market itself. tom: to actually use it.

jerome: exactly. that will take a little bit of time. it's like your kids wanting to eat vegetables. they may not like them but they're pretty good and there are benefits. yes there are. over the next few years you will see a greater adaptation to this benchmark rate but for the immediate future and for other articles, this is a structural change. as a short-term investor, we need to think about ways to ultimately adapt to the new structure. it's probably a better observable index for us. nejra: i was asking whether it's a good replacement but you seem to think it is. let me get to some headlines from angela merkel. she has been speaking and giving her news conference. this is while theresa may has been doing a news conference in belfast. merkel saying the eu is ready to autoiate against any u.s.

tariffs. remember that the eu is due to meet the president in the u.s. last week. merkel saying that the eu is going to the u.s. with an offer on auto tariffs. she says that u.s. alto levees will be a -- b illegal and a threat to prosperity. we will continue with a visit to jpmorgan. to the fixedak income experts about total return. look at that in the 1:00 p.m. hour today. .his is bloomberg stay with us. ♪ this isn't just any moving day.

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earnings of the new general electric. 19 versus 18. whatever accounting they are using. they have a fiscal year look ahead of a dollar to a dollar and seven cents. that is up may be cents from where they were. a little bit more on industrial free cash flow. i wonder if we will see an organic revenue number which is ancient ge talk. it'll be fascinating to see if they drive that as well. a little bit more as well today. let's bring you up-to-date on a quiet friday. futures at -11. they were flat earlier. the euro 116 and 47. this will be an important conversation. bloomberg international economics and policy correspondent is speaking of independence. he is with us as well. let me bring this out from brookings.

just the basic dissertation on fed independence. mike mckee i'm surefrom jerry as well. begand's independence with the 1951 accord between the treasury and the fed. both william mcchesney martin and alan greenspan served under both republicans and democrats and there's plenty of room. it is asserted mainly on the hill in the white house. an appreciation that independence and nonpartisanship are important at the fed. a president who goes right off the fed. is chairman powell threatened? >> i don't think so at all. you just read talked about the 1951 accord. the fed is independent by practice, not by law. it is a semi-independent agency so in theory, somebody could try

to manipulate it. but no president has since richard nixon really tried. powell is not going to react to this. april of 1960, richard nixon felt arthur burns cost him the election to jfk. of 1960, richard nixon felt arthur burns cost him the election to jfk. in the recession, etc. etc.. eight years later with burns as nixon chosethe fed, someone else over arthur burns. now this is about the presidents worry of the midterm in 2020, isn't it? donaldcan criticize trump for a lot of things but if you lead the present with questions like he was led in this case, any president would say the same thing. their economic program would be better off if interest rates were lower. presidents don't have to worry about a dual mandate.

they are not as concerned about inflation. it's an understandable reaction. the question is, what does donald trump do about it. in practice, he has supported mainstream well supported economist to the fed and is not tried to interfere in what they have done. anything is possible but i think at this point it's more about the words that about any particular threat. tom: julia coronado with us right now. a real wartime duty at the fed. dr. coronado, and we look at the federal reserve system, we looking at something as stan fischer said altra accommodative. the president is all upset. low rate donald is all upset. where are we on the continue tim -- continuum of accommodation, neutrality, and a restrictive fed? we are still enjoying an accommodative monetary policy. economic performance flex that.

i think the fed is in a very methodical, well-thought-out process of removing that accommodation and i agree with michael that i don't think the presidents tweet or answers to questions are going to alter the way the fed makes his decision from here. they are going to follow their process, moved to a neutral stance very gradually. who wedanny blanchflower spoke to earlier thinks the president had a point and the fed shouldn't be following the rate hiking path it's on. which you agree? julia: i don't agree. i think the fed is following a reasonable path talents in the risks of an economy that could go too far into overheating territory with allowing the fed -- allowing the city to run strong. i think the fed has a solid policy in place. i think they will continue to do

the right thing driven by what the economy does, what the markets do, and how inflation performs. i think their goal isn't to take with the punch bowl, their goal is a soft landing and that's the appropriate goal. nejra:nejra: we could argue thal comes back to the neutral rate. does the fed know what neutral is? julia: no, it's feeling its way towards neutral and right of economic performance tells them that they're not neutral. they think it's a couple of rate hikes away at least. more than likely will see a rate hike in september and we will see how the economy per or. intended topay is gather information after every rate hike to where the policy stances and where -- and how close they are to neutral. we have julia coronado plus michael mckee and jerome schneider.

alan greenspan is very big on the t word. trust. did we destroy a little bit of trust with this cnbc interview yesterday? i think it puts into question their ability to maneuver but ultimately the fed were being that. it's the data. jerome powell is going to maintain his trust in that structure and normalize monetary policy in that regard. did you see any movement? jerome: rates rallied a little bit with the possibility that the fed doesn't normalizes quickly. if you look at where we are and more importantly the iterative fed program, they are still gunning for a 3.4% tim and a rate over the perceivable horizon. bright.s is

let's go to the iterative wonder, michael mckee. does the press conference change with jerome powell now? he has to respond. it will depend on whether he has an opportunity to september because there's no press conference and no dots for the august cap -- calendar. tom: it's a different world, mike. living in al is news transfer media that mcchesney martin and and earns never knew. -- and burns never knew. this point, biotime you to september, this is all but forgotten. the only time this would ever come into play is if there were a very close call of whether they should raise rates are not.

then you would have the larry summers argument that they might be pushed into raising rates to show they are tough. we don't know that is going to happen and if it is in might happen somewhere down the road. approximation,s they will raise rates in the wild to get to that point. he's not been a back off immediately. thisis not this -- jerome: is not discussion about august or september it's about the on that time. powell has suggested implementation of press conferences after every meeting. he can articulate it adjusted in real time. tom: donald trump doesn't care. the president comes out with joe yesterday and hits the nail on the head with his hammer of low rate donald. how many more does it take

before people sit up and listen to the economists? president trump doesn't care and is good more things. we should expect to hear more like this as the months go on. it fully expected he would try and believe the fed. his playbook.in but it doesn't mean that powell has to respond. he doesn't have to respond. he will say the same thing which is that we make our decisions free of political considerations and we make our decisions based on the economy. i think he will continue saying that from chairman powell area nejra: -- powell. are also getting president trump's take on the trade war as far as tariffs on china. that coming through from cnbc as well. this is some in the fed really does have to listen to. julia: absolutely.

this is where the president has control and is taking action and inaction will have ramifications for the economy in the economy's performance in the fed is going to have to take that into consideration. they are watching it very carefully. they are talking to their business contacts and watching how that matches up with the data. that will have an impact going forward because that affects the economy. we really do need to listen to the president because he can implement policy on trade. mentioned this idea of trade and the president, 500 billion is not 34 billion is not 200 billion. when does this go directly against american importers and process maters in china? michael: we are already hearing anecdotal reports about the tariffs we have now. big with members of the fed, they are saying they hear the same things from many of the companies in their districts. $500 billion would major league

-- would be a major impact on the global economy. this could be a ways down the road. it was a leading question he was asked so -- so we don't know if he's actually planning that or not. your terms or 14 at least up to 14 your terms and they cannot be removed except for cause. a disagreement over rate policy will not be seen as cause. the president could refuse to reappoint jay powell if trump is his term willuse run over into the next presidents. i don't think he's particularly going to worry about that. there's really nothing donald trump can do to them it's just whether or not they will give to political pressure. thank you for the spirited conversation. jerome schneider enjoy a coronado, thank you on short notice. let's get back to the

u.k.. we have shown prime minister theresa may speaking in belfast. she just finished speaking there in northern ireland and she reaffirmed her pledge keep the border between ireland and northern ireland open after brexit. the most critical issues holding a brexit negotiations between the eu and the u.k.. let's get backbringing -- joins bloomberg's brexit editor. good to see you, hama. did we hear anything that will reassure people there is a solution on the irish border? there were three messages in there. one is she is committed to know hard border on the island of ireland. and she was also very clear that her party is the party of the .nion the union of the united kingdom. she was adamant that there cannot be a border between northern ireland and the u.k.. both sides want to avoid these two borders. each side sees the others

proposal so far as unacceptable and she says she's come up with something new and she's saying to the eu, considerate. this is the best proposals so far. it says let's keep the rules on goods aligned and if we do that, she sees that as the solution. that was her message to the e.u.. the ball is in your court. over to you now. the chief eu negotiator is to speak in next 20 minutes. he was also to the dreamers and the boris johnson's and jacob burress morris to accuse her of killing the brexit dream. she said to them in a veiled way, we have to negotiate brexit based on practicalities and reality and not just bonds or theories. they said never my the irish border, smuggling is fine, leave

it up to them. she was addressing those in that rhetoric as well. remind us with the backstop solution has to do with all this. both -- emma: both sides agree there mustn't be a border and the eu has come up with a proposal that says if the future trade relationship isn't good enough to keep the border open, which the eu is pretty sure it won't be, essentially northern ireland would remain within the purview it comes to customs, rules, and regulations. that means drawing a border between the mainland britain and northern ireland and that's totally unacceptable to any british prime minister, particularly a conservative and unionist. nejra: you will have to see what michel barnier a has to say.

as we understand, france might be a little bit of a sticking point in these negotiations as .ell area well. tom: with a news flow so extraordinary, we have to charge today. let's start with jerome schneider's wheelhouse. point out understanding on short term paper. out eightneider standard deviations online though ois. was it like for you? what was that moment like? part of my life is at bear stearns in 2008 in if you look at its, you have to look at the fundamentals of how the economy has transformed itself and have a structured world of finance -- tom: do we see the amplitude

now? jerome: people are more understanding and appreciative of the plumbing. the bread-and-butter. it's a true barometer of risk taking how it ultimately multiplies -- multiplies. what we need to think is the structural changes now about the unwinding going forward. how do you remove quantitative easing and the reverberations that might occur. that's the focal point in terms of a structural change. ultimately, there is a. of time. transformational risk over a section of time. we will get some of the expertise in a moment.

ge failing. danner winning. with this is about in your world is the financial engineering that could come about to take this with money costing nothing. funding andcost of people have been incentivized to leverage balance sheets. we are seeing a little bit of the unwinding right now. the initial realization was the increase in interest rates but we are actually seeing it right now and thinking about the tax reform we have seen. tech and pharmaceutical companies look to bring money back on shore and re-leverage their balance sheets the repurchase of shares or debt management. was cheap funding that once and 0% or near 0% is now pretty high.

three-month t-bills are trading at 2%. factor.mportant to also what it means consider in the t-bill. nejra: i spoke to sharon bell of goldman sachs and i was asked about that and asked her about european equities and she said why would you look at european equities when the front and of the u.s. treasury curve is doing what it is doing. is the front end a good diversifier? 100% it is. in this environment, you have to be highly connected to be in equities or emerging markets and frankie the state of volatility for investors is going to go higher. you have to have the fortitude to be in those investments. why being those investments when you can own -- earn 2% in a

three-month t-bill? cash is now cool. the reality is, this is the first time in a long time, that the yield curve has made a lot of sense. and to be three and 3.5% realm. it pursues some optionality. takes more opportunity and puts more risk on over the next year or two. tom: thank you so much. all of this including the effective fed independence. .his is a special treat we will come back on general electric and speak to a ge optimist. ge out with earnings. recovery,ing of the optimists hope and many others will wait and see. we will see how she is doing. this is bloomberg. ♪

taylor: i'm here with your bloomberg business flash. general electric has given

investors a bit of a relief after a collapse in stock price. they posted better-than-expected earnings for the second quarter in a row. it was boosted by strong demand for aviation and health care equipment. shares were down 21% for the year before today. now, we are going to look at general electric company and i would suggest respectfully that you cannot look at the new ge with nostalgia. you have to look at another company, danner. us, mr. hayman. he has been an optimist. to get things started, are you still long on ge? nick: we sure are. the price target. give a scope and scale from $12. nick: we think you have the opportunity for something like

16 or $17 by the in of this year and someplace in the end of the by 20,019 and the upper 20's to low 30's by the end of 2020 when they will have completed their total transformation as well as cashing out all their stakes in various companies. tom: i usually don't spend much time on processing corporations, i think it's a lot of mumbo-jumbo. but this case, a really matters. dannaher going to do. i want to know what lawrence culp brings to ge. clearly, he's a strong ally. to be able to dramatically push operating control out to the businesses in that them become much more dynamic and less

constrained. what impact with a protracted trade war have on ge? nick: minimal. where else are you going to get the best engines from somebody euros 70% of the world's market? in this case, what the other concerns or to be looking at? i'm asking you particularly about near-term liquidity issues. ,ick: i think the plan laid out where they plan to be able to billion,ce debt by $25 and i think when you look at the resources, 18 billion of that debt in underfunded pension we moved over to health care. they have $10 million in cash.

-- $10 billion in cash. i think the company looks to have $7 billion to $9 billion to the 20% of health care from the ipo second half of next year. tom: cash. i think the company looks to thank you so much. he's an optimist on ge. we want to say thank you to all of our team today. just extraordinary news flow. thank you to london and new york. we continue. jon ferro rumored to be with so -- just -- on bloomberg railroad -- radio. bloomberg real yield live from jpmorgan today and the 1:00 p.m. hour. stay with us through the day. this is bloomberg. ♪

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the company beats out earnings for the second quarter. the fx put. trump bashes -- potentially stabilizes the u.n. after the pboc lowers its rate the most in two years. the italian job. bonds selloff and a report of a breakdown between the prime minister and the populist leaders throwing leadership and out. we made it, it is friday. i am alix steel. onset.elly joins me jason: an exciting friday it is. jeepers creeper's. alix: you come in and you zone out. equities rolling over. . you take a look at the s&p futures down. it had been a monster dollar value. president trump put a stop to that yesterday. that dollar really helping commodities also take a