ou hundreds of dollars a year. plus, get $150 dollars when you bring in your own phone. its a new kind of network designed to save you money. click, call or visit a store today. >> playing hard baltimore the white house preparing to more han double tariffs on chinese impor imports. gain in extended trade as it projects sales to estimates. will it be the first trillion dollar company this week. with rofits jump 23% but trade head winds it reports a ougher second half from the chief executive. welcome to "bloomberg surveillance".

i'm francine lacqua in london. this is what we are seeing across the board. drifting a little bit of impact on euro dollar and getting earnings.d apple was a beat and what else looking at is japanese bonds anding sovereign debt lower markets trying to assess the china trade if there is escalation of tariffs. euro area data july manufacturing at 55.1 as expected and brex emember looking at brexit. we will look at shares surging beat estimates. we will talk to the acting chief exclusive or an conversation and air france gaining 6.6%.

comi coming up we speak to the air talk chief executive and about banking landscape and markets markets. then we have another exclusive .onversation with the chief you can get questions for all tv go at ng the bloomberg terminal and hit the guest questions. we will go to bloomberg and new with taylor. >> the trump administration double planned tariffs on chinese imports with $200 billion of goods with levies of 10% ccording to the bloomberg source that could be raise to 25%. tariffs on about $34 billion chinese products in another $16 d billion of imports.

the u.s. and mexico are in the final stages of negotiating a cars sold and they have the nged new proposals for auto industry and the economy travel is scheduled to to washington tomorrow for meetings with the u.s. trade reserve. biggest was one of sticking points the overall of free trade erican agreement. the federal reserve is due to on the statement american economy and interest rate decision later today. he target rate for overnight banking is projected to be 1.75 to 2%. the that is 7:00 u.k. .s. treasury set it unveil the latest borrowing plan and may increase the two or three-year $1 billion and one-time increase of $1 billion note.oating rate .n.p. tarry bah -- parry

pennsylvania is -- paribas fixed income down 17% the second quarter from a year earlier and 6.7% rails the combined increase of the five largeers u.s. farms. the french bank blamed the lackluster market for the fifth quarterly decline in revenue. you look at the results you have to take into account a effect and fact ompared it a year ago the economic context is less avorable for c.i.v. and particularly in europe. nevertheless the bank keeps ontinuing its transformation plan ramping up to 2020 and to continue its sustainable finance well. >> in sweden thieves made off jewels in ass crown hei heist.

crowns and royal -- skwraoufrpls yesterday. two were seen jumping into a moored just below the cathedral. them by sea, on land and helicopters and planes yet.no arrests global news 24 hours on the air by more than 2,700 there ists and analysts is bloomberg. francine: let's kick off with tech. facebook uncovered and effort to influence u.s. political opinion n the social network saying it has notified the government. apple shares jumped in extended it projected sales that suggested customers are high uing to snap up eyond iphones set to be the

first trillion company. alex webb joins us. about facebook. i don't know whether facebook is a tech story or an election but there is a huge deal. they lly coming out and have accounts that are trying it influence the midterm. >> in some ways it seems to be iving itself a pat on the back saying we are ahead of the election. but they have been going active spotted ear and they them last week, several dozen accounts. for several anized even events. the question is not just what not telling us but what do they know. the platform is so automated and as were as they eyeballs it improve the vetting it is almost the whole to police thing. rancine: on apple what were

investors pleased about? > even though it seems to be stagnating they are able to get iphone.ks out of every there w news in more investment in r&d. say ine: what did they bout the trade war and supply conta chain? >> it is important that they are able to squeeze more profit phone.each if tariffs come in and they said e will pass it on it the consumer it adds more to the top line cost of an iphone and they to reduce the cost per foreign. per phone. francine: second quarter slumped 41% and their biggest airline. is searching for a new chief executive following the

their chief f executive in may. 6.3%.gaining speakingaight to paris to the interim chief executive. the interim by c.e. thank you for being on bloomberg tv today. estimates gs beating in the second quarter despite 12 strikes. are we seeing the lightened of the tunnel? good step.it is a the market was a bit mourning occurred and in spite keeping in e we are mind that the real number there strike effect from the is quiteimulant but it

negative and bad impact as a that is a pity. it is coming at which is good. >> there were similar gains with customers base of this. question.s a good when you look at with we call load factor we look what could be the load factor the we have the d and we expect y led factor above last year. it is demonstrating that here is an impact which is not to compensate for [inaudible]. there will be an impact but not too large.

> despite this trouble which cuts the positive you are expecting a positive outlook for the second half. did you take into account ossible new strikes in the second half? skwraoeurb>> of course we have expectations concerning the load factor we don't take into we unt another strike and hope that we will find a olution with the unions to stabilize the situation to be focused on the customers, to be improvement as a roup, which is the most important. so let us hope that a solution quickly and very we will introduce it to the group as soon as possible as you tphknow we have the board and they need to be and stabilizing the group is quite important because

we have to think for the paramount which is the most important thing. of t is the responsibility the board of governor. new executive by u september? we have the subgroup of board the manner is not to perfectly which is normal and i'm like you, i have from the board. >> you have been here a long support the ou peter albert? well and worked with him for 13 years. guy extremely qualified. but again it is a decision of board.

position.not take any >> do you think k.l.m. is with the ustrated situation at air france? working t seven years so i know the company well and i and i have many hem years with air france. a frustration as also the frustration with air france to of their plan lost because the difficulty we had during the .irst six months that is a pity. mainly a lot of money for air france. itting frustrating for everybody for allel colleagues. i totally understand that. on top of that news of

strikes, we have the deal that expect to increase by 450 euros.n the increased n fuel bill to customers? >> in is big question. extent are you able to that by increasing fare. it is probably indicating that we have been take part of that o the customer some other airlines did. difficult to give a precise number. hen the cost increase because of such an external factor you customers l with the and ask them to take a part of the cost increase in the fare or

tariffs and probably we do that. >> the french fate still owns in k.l.m. and one dropped plan to bay the stake. feels that bad news? is there anyone else interested? it oncerning that what does platoon for shareholders. that is not my job, only to it and decrease after group that by the they were intending to take a stake of k.l.m. concerning air france it is more my business by definition. we have discussed that and to we have the possible impact the air

france k.l.m. which means that we are of course ready it work don't see any e reason based on the possible to be the first k.l.m.older of air france >> is there any possibility of aining market share or are you supporting any extension plans given the context? gave as a what we number to market we are growing 2.5 to 3.5 in 2018 and we wanttween 7 and 9 so in the market. >> thank you for being with us. interim c.e.o. and c.f.o. of after the k.l.m.

earnings beat expectation espite 12 days of strikes in the second quarter. fran sin. francin . francine: that is the biggest airline in europe. talk banks and trade tandoff between the u.s. and may be heating up again with the more than istration doubling tariffs amid reports treasury of the secretary and chinese vice discussing ways it reengage in negotiation. how is the tension effecting markets? we have that report now from the investment bank at u.b.s. and in the second they delivered a stellar performance with surging equity. welcome to "bloomberg surveillance" and congratulations on the last quart. the market ee

improving? ill we see more volatility or is it kind of the central bank utopia?ation still >> we have a strong underlying that will owth and teucontinu continue. emerging markets are quite and holing. europe and u.k. a little less good. dynamics are quite different. we have seen a lot of volatility political ce from events or politically driven events. trade wars.bout you can talk about brexit and that. things like that will continue to move the markets. e think the markets are quite come place sent and -- leveraged.and we don't see a lot of buying activities. f we have some reaction to can hurt but we are positive for the

second half. rancine: what did you worry most about the second half? it is not a sudden correction of the markets? i think we could have some effect from some of these events. we talk about trade wars of course is concerned. u.b.s. we have actually prepared a set of snares and we anywhere t could take from 50 business points from the growth. i don't think that is fully priced in. here could be positives or negatives. f you go with less liquid and you have some of those comments he reaction is relatively limited by the support can be significant. that doesn't mean it doesn't but it accalaureate means -- back later. they are do you think complacent because in is passive young ent or traders are -- we have never seen anything before.eis

>> we have a wall of cash that absorbing any correction. this continues. equity wek at private have over a trillion it invest -- m. are driving m&t people who have not underperformed and the underlaying economic is balancing. all of that is before. however, all of that is priced into stock prices and priced and people have not been able to ake any money from being negative. they have made money from continuing to be positive. that is what concerns us. we have seen the number of cases , a e we've reactions specific stock in a specific situation. there is no absorbing shock. more volatility.

we expect some pull-back but we up.ct it finish francine: but you are if the predicting a recession that the cycle e end of coupled with the central bank? not. this point certainly francine: what do your clients ask of you? > i think it is the difference 2010 an economy and background buoyant and market that volatile and specifically in europe and u.k. that are keeping this lock behind the u.s. and emerging market blocks a. cine: if look at m. and how is that going? >> that is going well. extract ink they can synergies, reposition portfolio and improve prospects and become more ever by merging and taking out costs or refocusing the way

business. that has been good and we are this have a record year year and europe is particularly trend.g that i think the fundamentals are quite good. day just this day after the market environment is quite filled with uncertainty that we don't know how to price. how do you price trade wars? do you price brexit? how do you price protection iis? how do you price events in italy over the bucket? -- over the budget. francine: how did you it? what i tell my guys all the time let's not be too greedy. you u need to florida -- need to navigate and be ready hope e worse outcome but it doesn't come. it is a way of behaving toward adopts et if everybody

we are positive but we try it expect the unexpected. francine: we are talking about m. and a in europe. compared to asia? > i think this year it is stronger than asia and a lot of reduced. from china has due it the numbers of scrutiny welcoming ay less from other economic blocks to and a so i ese m. think europe this year is performing and will continue to asia.rm better than francine: if you look at worlds iew you mentioned brexit and the budget in italy. where are we going to see the most volatility? from china from the extra husband -- d stimulus or europe? big themes hat the are protection iism.

e have never had it like this before. oil prices. if you look at the u.s. in recessions are always heads by a spike in oil prices. $52 by 75. if it goes over $100 in starts a driver and you have trade and we discussed it could worst case and you have and budget in italy. so there are quite a few things. talk any more about sanctions, immigration. so quite a few things led that is difficult for economies it canict the outcome and that change the environment. we we do at u.b.s. is prepare, map, we build a cenario and try it be quite disciplined in continuing to pursue our gross but in a way on the risks, without expanding too much in an

down nment that can have sides. francine: you look at your investment bank where are you hiring? are there certain positions where you want to increase to make sure you service that part of the business better? standpoint, we took ecisions in 2012 and executed for six years. in that execution we hired where and we -- needs today hire and we invested technology and electronic execution. we prepared the culture of the what we are diagnose -- do h is how do away how do we talk share without asking from our group additional capital or significant additional esources that u.b.s. will not commit. won't remember positive on our bility to do so because the

seconds pie second piece is the disruption in the markets, in the politics, in the economy, with some of our competitors we have been that and we are quite ready it push forward -- a team sh forward with focused on bringing it in. so our function is to provide u.b.s. without asking additional ant capital and risk resources from the group. your unit, the investment bank is there a pecific product that will fuel growth more than others? >> regionally for us is the u.s. china. the u.s., because we are investments only bank is equal between the three conomic blocks most of our competitors are 50 or 60 u.s. booming, so ees being on the weight with u.s. we

address. we have addressed it in equitieses and research and income. we need to do it in the traditional investment banking. china we invested early. it is an emerging market and is sro volatile but we continue to invest. getting to 51% our goal. francine: we will be back to about china. we will continue the conversation with the u.b.s. bank president. ♪

francine: economics, finance and politics. this is "bloomberg surveillance." francine lacqua in london. et's see what is trending with make the wanting to

lcohol as popular as wine and on bloomberg.com apple shares jump the yesterday and projected consumers will continue to snap up the high-end iphones as models are on the horizon. our most read stories third cracks showing in property markets from sydney to new york a hedge fund manager says the results for the second quarter were worse than imagined and -- we could have imagined and double on more than 200 billion in chinese imports tariffs. you can find out more of that. of ave breaking news out u.k. tomorrow is about. costsay and we expect new of inflation and g.d.p. growth be interesting to

hear what is said about that. how governor uce will introduce r star without target andook like a guiding the markets by putting plan.gh a e have manufacturing data for the month of july out of u.k. 1.31 pound s. we re the go to new york city with taylor. trump administration will propose more than doubling the planned tariff on chinese imports. the president threatened an additional $200 billion of goods tariffs of 10% according to a source. raised to 25% in the coming days. tariffs on osed 25% $34 billion of chinese products

in early july and the review on another $16 billion of imports ends today. u.s. and mexico are in the final stages of negotiating a deal on cars sold understood and a half attachment we have -- thea with new proposals for auto industry and mexico's economy minister is scheduled to washington tomorrow with meetings with the u.s. trade reserve. the ssue has been one of biggest sticking points in northsion to overhaul the american free trade agreement. frederal reserve is set to issue a statement today. he target rate for overnight bank landing is projected to be ..75 to 2% the decision is 7% u.k. time and set it unveil the latest borrowing plan and could ncrease two and three-year

auctions by one billion a month for ne-time increase floating rates. the air ws 24 hours on powered by more than 2,700 in more than 120 countries. francine: it is decision day for fomc likely to keep rates steady. powell said gradual hikes were he plan for now and sounded market.e on the stock we think risks are at the normal/moderate. don't see how leverage among households and banks. ou see a little bit in nonfinancial correspondents and that is something we are watching carefully but nothing is flashing red in our observation of it in the markets.l francine: is he right?

and what next for the markets. get back to the president of u.b.s. investment bank. last welcome in the second results at the unit bet estimates. we were talking before about being complacent and some of the fault lines that can emerge from central banks. we were talking also about china. what is kwryour strategy for th in china? bank >> we started early and we have quite significantly our hong kong house and we have joint venture in mainland china with local shareholders has worked well for us. the first thing to do is to over 50% stake which is something the shareholders are welcoming, then mainlands, not to eplace local players but to capture the flows in china and out. look at the rebalancing of the msci we had almost 30%

share in the rebalancing a few weeks ago. so we continue to invest in that and it is quite successful for us. at -- we we you look were listening it powell if you biggest central banks the fed seems to be study. b.o.e. we don't know if they will hike rates but do you see a possible correction stemming a policy mistake or do you think in general they are maybe?s, too cautious >> i think central banks are quite cautious. economy is good. labor markets are good. consumption is goodment good.tment is clearly regionally not the same. e said the u.s. is well ahead of the curve and continues it power through. merging markets has been quite resilient. more than we expected but that is good. a number ofope with issues we have at the moment are

weaker. factored in. rate rise gradual but we think if anything driven byies are more other events that are more olitically driven than rate rises or other economic factors. francine: how do you see the investment bank within u.b.s.? esterday i was speaking to credit suisse and they had said phrarbgmarkets to support wealh m. your u afraid of getting lunch aoepblt by the u.s. investment bank? defined our ively 2012 and away want it focus on things we do well and in them.ad as almost, let's have a republican -- relying we need

to exceed the cost of equity and go about a trend line. we have done the last six years. so aware smaller but -- so we smaller but 90% of our business exceed the cost of 70% top five or above so while we have a small pool of revenue if you take our position -- equity and deriver derivatives we are usually top it is a focused model. i don't think -- in the business focus on we are very profitable and growing and we -- high market share nd i don't think the u.s. investment is eating our lunch. with respect to our role in the need to be the best and that is what we are striving to if we do not provide the best execution we would not

-- wealth g welts management. focused on executing in effect 98% of our 98% of re electronic and our flows are riskless. 80%. equity is about if you structure that way you risk ke relatively less recognizing there is a risky bills but generate returns that excess of the cost of equity over the longer term. volatility u expect to continue? straight line a but for us volatility is particularly important because tphnot having carry in our business what you need is trying to act to require transactions.

it is like we have the whole set industry but we need through-put and that is the volatility ity so could catapult our returns more that may ompetitors have businesses that require ore risk taking and balance sheet deployment but generate a extrestream of earnings. we go up and down with the volatility so volatility in the or the first quarter for us is very welcome. expect more you consolidation in the european banking landscape? > i think eventually we will see that. for the moment everybody talks about it. are clear benefits to do it but there are big hurdles. regulation is not unified. fiscal policy is not unified and a lot of obstacles it bringing together banks especially cross-border because what we are talking

about and realizing economic andfits for the shareholder people want to have scale and oufrpb has less scale than the u.s. but we stop short because i think they have learned their all want to do deals that are not only providing scale but value added. moment it is difficult it see had you that works in the short term. u.b.s. changing the way they deal with sexual law ?nforcement cases what can you do better? the touched briefly on core topic or core priority that and u.b.s. has, and that is to build the whole investment a culture of excellence but integrity and that everybody look at himself or herself in the mirror and be proud of work here and proud it say it people i work for when you talk about these

matters they are serious and ways.to be attacked two one eradicate them from the ehavior of our people and i think most if not all of our eople would agree with me whole-heartedly. the second thing, if and when we deal with do them? are we fast enough? able to improve. you for me ittell is absolutely critical and one f the morse important things i -- most important things i want to achieve because i have a half-year-old aughter is looking back regularly are there things we should do differently. shouldn't be the complacency of saying we are strive to should improve what we do and ensure aware we take re

it seriously and we try to improve things. francine: so things will change? say that in -- i can only say that we are challenging the whole process. do that regularly. there is not the first time. and like everything in life we that we can ments do better and do differently and we will definitely not stand in of improving the way we do things. us,ncine: thanks for joining president of u.b.s. investment bank. i think we are getting a little news.ng icon central bank set to step up lending a boost couple days after away heard fromicon they were step -- china they were stepping unstimulus in support of economy. does that take too much risk taking so we go back it deleveraging. we will have more on china and we have big interviews.

next we will have an exclusive and then speak to the volkswagen champion. this is bloomberg. bloomberg.

allal francine: the italian lender banca reported a boost n profits because of wealth management allowing it to pay euro cents a 7 share. an exclusive conversation the immediate yo ank ka -- immediate yo bank ka c.e.o. alberto nagel.

give me a sense of what you are looking for. the group has recorded a good but t with top lane growth it -- top line growth but it has been backed by a number of we made in the past. many parts of the ank and relation ally bought asset management. it is quite important trajectory continue in o wealth management to complete the building of our platform. look at also consumer we are interested in ooking at capital like, business like advisory and capital markets. francine: the denied policy was higher end. why did you give back so much? what is your future pills

going cy for dividends forward? > on the back of this quite good trend in revenue plus 15% we have been able to generate capital.al otwithstanding the increase in 14.2% ted we ended up at quarter one of the this is p on we have increased the payout and this is the reason proposed to o buy-back up to 3%. to this policy as 50%, de between 40% and maybe more on the upper between 50% and use capital to acquisition strategies

i mentioned before. francine: going back to the the wealth , management, consumer advisory nd capital markets can you afford to do a big acquisition? a big acquisition is a more risky one so it is not something ruling out. but as always, large acquisition large amount of capital requires a lot of conviction and attention. it is less le but likely than a string of midsized fitted acquisitions that revenue andily bass profitability of -- boost less risk generate of execution. francine: would this be in europe, italy specific? any countries you look at as others?ractive than skwraoeurb>> in wealth manageme look at ion we will

alternative but in asset management well look italy.outside francine: your three-year plan next year. you have already reached sum raise are you going it them because you have been diligent and in some cases ahead? >> we don't plan to revise the target. deliver compared to the original plan and then to ommunicate to the market a new plan in one year at the end of our three-year plan. we don't think that in our is a good idea to anticipate revision of the plan an earlier capital market we envisaged th from the beginning. beginning the political position makes people ervous how do you look at italy's out look?

> this year a positive viability this is led by a very demand from household and corporates. we have seen correspondents reporting better than expected results in revenue. we have seen banks deleveraging that is a trend that is fororted by a strong demand m.p.s.d in m. and a. we have seen an mportant bunch of volume of transactions that are significant compared it a year ago and it is taking market here. the negative element is the idening of the spread and cost of the overall system. his is a cost that the longer it lasts the more we have the italy.ance of

francine: give me a sense of what you see as the biggest risk business over the second half of the year. we talk about trade and market some of the d unsrpt in italy. italy.ertainty in what is your top priority and it can be something outside of your control. >> we don't see a single element drain our growth trajectory. focused on tay delivering our plan and look for further acquisition. volatility of the market it may present an opportunity may correct assets its value and may be cheaper and in the eresting strategy. rancine: thank you for joining us. bloomberg. plenty coming up. we will speak to another chief european earnings

continue with the volkswagen c.e.o. there is bloomberg. there is bloomberg.

francine: economic finance and "bloomberg s is surveillance." it is time for the stock potlight and we focus on v.w. shares down on the trade war oncern and expected production bottleneck. we will speak to its c.e.o. on this morning. "bloomberg surveillance" next hour tom keene joins me out of new york as you there is a markets lot going on not the least because markets and i know traders are trying to position themselves. this is what we know. a little rkets are worried about trade concerns and stocks seem to be struggling for today.on commodities dragging lower a lot f other indices by the potential head winds of trade after china threatened to hit hikes tariffs..

apanese bonds leading some sovereign debt lower and futures of s&p 500 seem to be holding contracts for nasdaq gained after strong results from apple. this is one of the conversations of the day with the air france k.l.m. chief executive trying to appoint a they will new commander-in-chief executive soon but shares are rising after carrier posted second quarter earnings that beats estimates despite the the labory because of conflict. this is bloomberg. bloomberg. ♪ #

♪ francine: the white house said to be preparing a double on

tariffs. apple shares gain an extended trade. will detect giant become the world's first trillion dollar company this week? gw profits climb, but is the automaker in for a tougher second-half? good morning. this is "bloomberg surveillance ." in the last couple of minutes, china's central bank said to be stepping up efforts to boost lending. tom: there's a tilt going both ways. ,ou see it in turkey as well where mr. erdogan is jawboning

the higher inflation in the turkish lira. each bank has its own stories. i must admit what we've seen out since politburo headlines of yesterday has really been extraordinary, the slowdown that they are managing right now. francine: that's exactly it. the headline coming up today as part of a bigger story of them trying to stimulate the economy. you wonder what that means if they then leverage too much. that is a concern, something they need to fine-tune. let's get to the bloomberg first word news in new york city. is taylor riggs -- here's taylor riggs. taylor: bloomberg has learned trump administration more than double its plans tariffs on $200 billion of chinese imports. china says the issue should be resolved through talks and that threats are counterproductive. the u.s. and mexico are close to resolving one of the biggest sticking points in rewriting the north american free trade agreement.

bloomberg has learned that the two countries are in the final stages of negotiating a deal on rules for cars sold under nafta. willo's economy minister come to washington tomorrow for talks with u.s. trade representative robert lighthizer. federal reserve policymakers working to keep interest rates steady when they wrap up their meeting today. that futures show almost zero chances for a rate hike today. havehairman jerome powell signaled they could take a break from rate hikes at some point. mayrime minister theresa cutting her vacation to -- british prime minister theresa may cutting her vacation short to try and gain support for her brexit plan. she's expected to emphasize the risk of the u.k. leaving the european union without a deal. last week the eu rejected a key part of may's plan.

investors like what they are hearing from apple. shares are rising in premarket trading after the company projected higher-than-expected sales in the fiscal fourth order. stocks -- fourth quarter. stocks suggest consumers are still buying high-end iphones even when newer models are about to be released. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. francine, tom? tom: thanks so much. let's get right to it on the set day -- this fed day. what an interesting and two july and first day of august -- end to july an first day of august. helping out the

vix. yen over the last 12 hours, weaker turkish lira. we are on the five dollar earlier watch -- five dollar per lira watch. francine: potential headwinds to bonds leadinge some of the sovereign debt slower. -- sovereign debts lower. highershore yuan edging and the dollar climate gets most of its major peers. tom: over to said day -- over to fed day. it is simply the inflation-adjusted u.s. five-year yield. the red circle is the financial crisis beginning august 2007.

the nirvana here of a real five-year yield assisting retirees, assisting savers, maybe making for a normal bank environment, and we are not there. within the volatility we have seen since 2007, it is just not happening. right now is a little bit of rising inflation, we have a negative five year yield. it is a negative real yield, chairman powell. francine: is a great chart. i know we will see it -- that's a great chart. i know we will see it many times today. it is a simple chart looking at thatstocks after reports the u.s. and china will hedge discussions. investors look at more internationally exposed charts, specific kind of the one i'm looking for to give us an idea of what large caps are doing. tom: we've had a series of headlines, a series of moments

come over the last 24 hours on an economic slowdown in china. following this is our chief asian economics correspondent and a car and -- correspondent enda curran. is it a five handle economy, or can we say it is worse than that? enda: we can say the government said the growth target almost 6.5% this year, so in all likelihood the authorities pull out all the measures to make sure they had that growth target. whether private sector economists estimate growth to be lower or not i guess is a different debate. there's no doubt that the economy is slowing down or moderating. it is accommodation of two things. domestically they are trying to get a grip on the level of debt and slow the level of credit

creation. it is certainly on a moderating path. ,o disaster or hard landing yet but they will be wanting to get ahead of the curve. tom: what does inflation look like in china? i understand there's food inflation, particularly the pork price inflation. give us the picture compared to turkey and other economies. enda: they are not experiencing runaway inflation or inflation that would be added concerning level just yet. certainly not like economy's like the philippines, where you see classic overheating. there are impact on prices around china. we have the pricing around pork, for example. right now i think the inflation story is somewhat contained. there is a view that china's weaker yuan could become a

source of disinflation for the rest of the world, so china will be even less of an inflation influence on the rest of the economy. francine: good morning to you. maybe two reading years ago something from one of the big banks saying there's a possibility that china's interest rates would go to where the fed was. because of the sloan economy, they would have to do exactly what the fed did five or six years ago. is that likely or complete fiction? enda: at the moment what we are talking about is moderation of growth and activity, francine. it appears as though the authorities, while they are trying to get ahead of the curve, they also seem quite relaxed. tacklee not trying to shadow banking and the like. toy are taking nuanced steps make sure the parts of the

economy that need cash, need credit, will get it. there is some context to what is going on. they are certainly loosening the purse strings a little bit, but we are nowhere in your the kind boc isnario whereby the p forced to pull the economy out of a hole. even some of the worst trade war scenarios, i don't think too many are projecting that in the near to medium term. francine: thank you so much. stanley's now, morgan chief cross asset strategist. andrew, great to speak to you, as always. when you hear what we are hearing from china, coupled with the u.s. considering china may resume talks between china and the u.s., it is kind of self contradicting. guest: yes, there are many moving parts. the first thing that is really fascinating about the actions we see out of china is that they

are coming in the face of data that on the surface has seemed pretty good. pmi's are above 50. gdp in the second quarter was high. they have all been telling a different forward-looking story. that seems to be what the authorities are responding to, something that is much more defensive in nature to get off these risks from trade. withnk what you're dealing his news first law, that bodies in motion stay in motion until they are hit with another force. i think at the moment, our view of morgan stanley -- our view at morgan stanley is that tension will continue to escalate because there has been no market reaction. there has been nothing that has indicated this type of policy will have large negative consequences which will change that. francine: we are just getting breaking news out of tesla. this is according to our sources.

tesla is said to plan a $5 billion investment in a chinese factory. i don't know whether this is a supply chain, whether you have any insight on what this could exactly be come up at the timing i find quite significant because if you talk about a trade war and even the apple figures that were so good that could be impacted from the supply chain because of this trade, i don't know what that means with tesla now planning the $5 billion investment in a possible chinese factory. tom: we will have to see. it is extraordinary investment to real issuesw on the manufacture of automobiles. i guess we will get tesla earnings in a spirited press conference later today. we are going to continue with andrew sheets of morgan stanley. we want to quiz him on central banks and the fed meeting this afternoon. our special coverage at 2:00 p.m. this afternoon.

decides, to a copy of this afternoon. this is -- 2:00 this afternoon. this is bloomberg.

♪ taylor: this is "bloomberg surveillance." let's get the bloomberg business flash. bnp paribas came up short in debt trading this last quarter. bank says revenue from fixed income fell 70%, trailing the biggest wall street firms. equities -- 17%, trailing the biggest wall street firms. bank's cfo.the inwe are operating in europe this new interest rate environment, so that is a point we have to be careful of.

it is a point that we compensate by focusing on value-added services. are digitalization plan is also , so that is the overall element that we keep on focusing on. taylor: wealth management left profit at italy's largest publicly traded investment bank. the bank is proposing a dividend at the high end of its target range. shares of air france klm are rising. the struggling carrier posted second-quarter profits that beat estimates despite uncertainty and the search for a ceo. bloomberg spoke with the company's cfo. >> [indiscernible] -- which is good news, but of course we also have to keep in

there is an effect -- quite a negative impact. francine: thanks so much. apple shares jumped in extended trade after the world's most viable company projected sales that suggested consumers are continuing to snap up high-end phones. is apple poised to become the first trillion dollar company this week? joining us is alex webb, who covers bloomberg opinion on tech. still with us is andrew sheets of morgan stanley. there's a supply chain problem. is the trade war escalates, apple will be hit. guest: yes, it will hit the supply chain. has said -- reporter: yes, it will hit the supply chain. tim cook has said it will affect

production. even if they are unable to squeeze more profit by raising the price of the iphone, they are able to squeeze more on the bottom line by reducing its cost. francine: apple share price gained in premarket. what is the next thing people want to see from apple? reporter: there's always questions about what the next big product is. that theretion is will be some sort of smart glasses coming outcome, but probably not for at least two out, butcoming probably not for at least two years. apple is trying slowly to take towards valuations that facebook enjoy of 25 times price-to-earnings.

apple has 16, 17, pushing towards 18 times price-to-earnings. tom: alex, part of your charm is you are not a tech fan boy and not an apple fan boy. you've done some really good, smart, acute work on this. once again, the clowns were wrong who were negative to iphone and particularly the iphone x. this puppy is moving like nothing. ubs has a great analysis of this. what is the apple gloom crew doing now? what is the next thing they are going to worry about? reporter: is apple able to continue ramping up iphone prices by $50 each year? is there a ceiling to how much the consumer is willing to stomach? ,hen we talk about the iphone x the base price is $999. but if you want to add bigger memory, that is cost

another $100, $150. that memory chip which might cost apple $20 and they are charging $150 for is a huge profit driver. are they going to be able to continue on that trajectory? tom: come on, everybody i know is on a monthly plan. the difference is $34 or $48 a month. i hate the tech people that go do men gloom $1000 -- doom and gloom $1000. who do you know paying $1000 for an iphone x? reporter: it is a valid point. but it is still, particularly in the growth economy, which is where they sell more iphones, that is still a lot of money. if you look at india, vietnam, sub-saharan africa, that is the market where even $40, $50, $60 a month is a big chunk of change. less so in the u.s.

that's customers they arty have. francine: we probably should have already mentioned facebook with these accounts they say will talk to the government about. andrew commodity using the plunge of facebook and necklace will be the start of a plunging s&p in the u.s.? guest: i wouldn't say plunging. i think that is too strong of a take. but we are under way tech. technk the scenario where is weaker, if that is right, then the market does need to correct and adjust in august. and has obviously been important in the leadership story. better,inancials can do energy can do better, some of the value sectors can do better, but tech is so large and has been so important to market leadership that is tech is underperforming, it would lead

to some broader level of u.s. market we -- market weakness. francine: thanks so much. andrew sheets of morgan stanley stays with us. we will get back to some of these big names. facebook, for example. they cannot saying that we have these accounts. we are trying to -- they came out saying we have these accounts. we are trying to stop them. you are saying that this means there's a lot of other things they don't know. reporter: it is less about what they are saying that what they don't know it all. toreasingly we are having recognize that facebook is never going to be able to control this. that means i don't think we should stop talking about it. with any facebook scandal over the course of the past decade, 15 years, facebook has hunkered down and hopes to weather the storm. this is of a completely different scale. i think it is important we keep talking about it, but also recognize that if they are going to be an automated company,

there's no way they can really control this. they will have to keep spending on more eyeballs to watch this stuff. francine: thanks so much. it is almost certain the bank of england will announce a rate hike tomorrow. thestors will scrutinize language for another potential move this year and any split in policymakers' votes. vote expected they will 7-2 to raise. andrew, i don't know how to look at the boe. i've had a number of participants coming on a saying look, they are going to hike, but they shouldn't hike. is that how you feel? guest: we think they will hike, but we think they will hike and indicated there is still a lot of uncertainty surrounding the economy, the brexit process, and in the near-term it could be seen as a dovish hike. the big question facing the bank

of england more so than other central banks, to what extent do you have a negative supply shock in the u.k.? to what extent is the process around brexit or some related issues tightening the labor market further, restricting investment, and giving the u.k. something that markets haven't seen in a long time, a negative shock to the supply side which can create higher inflation without necessarily being higher growth? tom: i talked to governor carney before about the diffusion of united kingdom economic might out of london come out of the technology and service sector centers across the land of the united kingdom. is that occurring? are we seeing a dispersion of a better economy across the united kingdom, or is there still a colored it -- a polarity inequality -- polarity in the quality? -- polarity in equality? ,uest: when i visit burlingham

there is still a lot of investment going up there in a very significant way, but i think broadly speaking london is still the center of government, the center of finance, the entertainment industry in the u.k. that is still a very significant thing that i think is not close to balancing out. obviously i think there are shifts. and in the government elsewhere have talked about it, concentration of the government remains. tom: the question all in all of what mr. carney does, we saw boj yesterday, and the fed today and what is largely presumed to be a non-meeting. the bank of england has a real opportunity to say this is what we are going to see on inflation. is carney going to blink again? guest: i think this is where the supply issue i think is so

important. the market is expecting a hike. we think that happens straightforward. to what extent of the bank of england look at those factors and say there's a lot of tea, the labor market -- a lot of uncertainty, the labor market is tight, and the fact is might cause us to back off? francine: but why hike, apart from pound? guest: i think the rate on the bank of england's estimates is so far below neutral and the unemployment rate is so low. even i think we could sit here and say there seems to be a lot of uncertainty around brexit and we don't know where it is going to go and the deadline is getting tight, maybe that is wrong. it takes a long time for policy measures to work through the system. i think the bank of england has to adjust for some sort of risk. policy is very easy relative to neutral. we can still hike and have it

easy policy, and we need to start moving that direction. tom: very good. answer sheets with us. i want to come back and talk to mr. sheets about the caution in his shop, morgan stanley, as well. we've got fed coverage this afternoon, new york time a little bit before 2:00 p.m. we lost forward to thursday. we are thrilled to bring you two future numbers of the boe. really looking forward to speaking to these two. we spent a whole hour with them on different topics. will focus of course on tomorrow and the bank of england. stay with us from london, from new york. this is bloomberg. two, down and back up.

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tesla planning to invest $5 billion in a possible chinese factory. this is a nice bloomberg scoop according to someone familiar with the situation. this of course comes at probably in an opportune time because the trade war in the u.s. makes establishing production in china electricrative for the car pioneers. i'm not sure if it gives it a pioneer or gives at the end because it can export to the region if trade concerns were to escalate. emma, is this a good or bad move? is to build entire cars, model s sedans in china. it has been speculated about since before the trade war really heated up, but elon musk

didn't really seal the deal to build this factory in shanghai until a week after that first run of tariffs from the trump administration on $30 billion worth of chinese imports. it did look as the tesla was acting on that because the cost of exporting its cars to china increased when china retaliated against that trump move, so does look as though they are trying to really secure that local manufacturing base in what is its second largest market in the world. francine: talk to me a little about financing. think reporting, do we they are going to chinese money to help finance this, or is it money for a broad -- money from abroad? reporter: it is our understanding they will try and finance at least part of this within china, which is quite intriguing. , $5s a big amount of money

billion. tesla has under $4 billion in free cash at the moment. i guess they will try to do this loans.ans -- this via --n musk has said he's th has said he does not want to shares.ymore bonds or tom: i think you hit the heart of the matter, which is they really don't want to dilute and issue new bonds and equity. how does this fold into state owned enterprises? if they do loans, is mr. musk looking for some sort of traditional for an ga the, or is -- foreign gav, were looking to literally make it a state-owned enterprise? reporter: our understanding is he really wants to go it alone in china. but,, you just told me he doesn't want to do bonds and stocks.

you sound like elon musk on a conference call. he can't have it both ways. which way does he want it? reporter: in terms of ownership stake in the factory, is what i mean, he wants to own it outright, but yes, if you are going to raise the money here in prospect does open the of state owned enterprises, state-owned banks, other entities being involved. that is a factor. tom: emma, thank you so much. , o'brien with the reality over there, something i don't bash o'brieno'brien -- emma with the reality over there, something i don't think we will hear in tesla conference calls. here's taylor riggs with the bloomberg first word news. taylor: pressure ramping up on china to resume trade talks. bloomberg has learned the tepidness ration may plan to double its tariffs on chinese

imports. china may wait for the u.s. to take action before i takest its next moves. resident trump says china may be getting its way when it comes to relations with north korea, saying he has a good relationship with kim jong-un. as for chinese interference, "we are going to think when -- going to figure that one out before you can even think about it." white house may be backing off a slash tax bills on capital gains. some believe the plan would face an immediate legal challenge. these pictures make it hard to believe no one died in the crash of a mexican jetliner, but there were no fatalities when the aeromexico plane came down just outside the city of durango.

all 103 people on board were able to make it out. one official says the plane was hit by a wind gust as it took off. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thinks so much. good morning, everyone. this is what "surveillance" is all about. on our desk in london, andrew sheets of morgan stanley. we are thrilled now to bring you david lubin of citigroup. thrilled to have both of you with us. mr. lupin, let me start with you. you can see this on g tv . this of the indian five-year yield adjusted for one form of inflation. what i find so important is the regime of a real yield before the crisis, and they would -- and we are now back up to a

higher real yield in india commodity as a proxy for other countries as well. how tenuous is the higher real yield right now and some of these countries? >> i think what's interesting is there's a big difference between the real yield you see at the long end of the curve and the real yield you see at the front end of the curve. when you look at short-term real interest rates and the differential between real interest rates and real short-term interest rates in em and dm, the short term real interest rate differential is at a historically low level taylor: as you pointed -- low level. as you pointed out, the short end of the curve shows something different. which part of the curve is more important for financial stability, for stabilizing the exchange rate, and for avoiding capital outflows? my hunch is that the front end of the curve in the end is most significant. i think the fact that the real

short-term interest rate dmfferential between em and is historically low as one of the reasons why capital flow moved so freely in april, may, and june, and why the philippines, pakistan, and indonesia have had to raise rates. tom: let it go back to this core media idea, which is that chairman powell is the central bank over -- the central banker to the world. have distorted are the balance distorted are the balance sheets of the major banks? it does profoundly affect them, doesn't it? >> yes it does. powell made a speech in may where he seems to underplay the impact of said tightening on -- of fed tightening on emerging markets. u.s. monetary conditions play in overwhelmingly important role in

shaping the outlook for capital flows to emerging economies. such as g3heets balance sheets contract have i think that means the environment to capital flows for emerging economies remains very stretched. francine: you have this great book out which we are going to mention right now. tom, you can bring it to the beach. it is a short one. it is really quite good. what do people not understand about emerging-market right now? >> the real surprise in the last is we've had a big stabilization in emerging-market assets crisis during the month of july -- asset prices during the month of july. all it took was for the dollar to stop strengthening. 117 euro-dollar seems to be enough to convince investors to commit capital to emerging markets. it is kind of puzzling, but one of the reasons is that emerging

markets balance sheets are in pretty good shape. emerging markets have smith last 20 years acquiring foreign the last-- spent 20 years acquiring foreign exchange capital. economy policymakers have been desperately trying to get rid of all the vulnerabilities that made them susceptible to crises in the net in 80's and 1990's, and it has worked. -- the 1980's and 1990's, and it has worked. francine: what is your take on emerging markets overall? >> i would agree with quite a bit of what we just heard. i think it is an asset class that usually underperforms as you are later in the u.s. economic cycle. is also negatively impacted by what the fed is doing and what will continue to do. pricessame time, asset

are continually priced in your to date. if you look at u.s. high-end, despite fed tightening and balance sheet reduction in some of these risks, or some of these e.m. markets have repriced to come i think it is clearly pricing and a lot more risk premium for some of those same challenges, especially with the underlying fundamentals in many of these countries are good. we upped are allocation to hard currency debt in june. we took some out of the emerging-market equity side because we think the fixed income side looks better. broadly, aem fixed income -- broadly, em fixed income compared to u.s. corporate credit makes sense in the current market. tom: we are getting headlines out of india. i am going to the terminal to get them. mr. patel is speaking, talking about a few months of turbulence

, talking about the beginning of currency wars. he is saying the world as the -- the world is possibly at the beginning of currency wars, saying he has to run a tight ship. this sounds like em austerity. is that what we are going to see over the coming months, some kind of eu austerity reaction? >> it is somewhat straightforward. if monetary conditions are tightening, em monetary's will have to tighten. that would be destabilizing for expectations. the issue of currency wars have become particularly interesting now because of what's happening. in the last month, aside from the turkish lira, the only emerging economy exchange rate that has actually depreciated is the renminbi.

the central bank of china seems to be quite confident that the exchange rate can weaken without unleashing an unwelcome outflow of capital. in 2015,the concern 2016, that if the renminbi depreciated that would feed into chinese exchange rate expectations and fueling increased demand for dollars. because of the measures the chinese took in late 2016 and early 2017 to lock down the capital account and restrict capital outflows, the pboc seems to have more flexible the at the moment to let the exchange rate we can without shooting itself in the foot by creating an environment in which china's capital account because of stable. francine: david, -- becomes unstable. francine: david, think you so much. coming up, the trade war story.

this is bloomberg. >> bloomberg's first word is brought to you by oppenheimer funds, the right way to invest.

♪ taylor: this is "bloomberg surveillance." i'm taylor riggs. tesla is going to ramp up production in the world's fastest-growing auto market. bloomberg has learned the electric car company plans to spend $5 billion building a factory in china. the factory will be near shanghai. tesla expects to start produce its new model three there by 2020. the world's second largest company was to keep boosting cash returns. dividend raised its and increased the share buyback program by $1 billion, and

approved plans to hand investors about $4 billion from development -- from divestment. lloyd posted better than in profits23% jump for the second quarter. the british bank also upgraded investment forecasts for the year. the banquet takes a $602 million charge to compensate customers for improperly sold loan insurance. that is your bloomberg business flash. tom: andrew scheetz was as of morgan stanley. we are thrilled to bring you with andrew david lubin of of "dance and author of the trillions." this is getting rave reviews. there it is. nice. david lubin is with us to provide clarity.

what is so important about your effort is you look at flows. the money flowing in, the money flowing out. what flows are going to happen because of trump policy? >> that's a good question. i think one of the slightly scary things about the longer-term future for emerging economies is that in the last few years, the net flow of foreign direct investment has declined quite sharply to developing countries. because if youe think about capital flows is coming into two buckets, one real capital and the other fdi part capital, the of it is the central part of it. fdi parta -- the links globalization. if fdi flows are

beginning, that signals diminished expectations for opening one's economy. in other words, the flow of fdi into a developing economy is predicated towards the idea that opening a country toward trade is a good idea. if we enter a more protectionist world -- and by the way, the trend towards protectionism did not begin on generate 20th or whenever it was donald trump was in a -- on january 20 or whenever it was donald trump was inaugurated -- but if we are furthered the globalizing and country find it less attractive to open their economies towards will, then the flow of fdi continue to decline, and that is bad news for growth. francine: what if, andrew, trade has we shifted? towards is a trend

and it doesn't touch the u.s. so much? >> it has been purposely been made complex as markets have optimized there supply chains to boost profit margins to record levels. obviously that's a choice. the governments could make a decision that they want to change that model of trade, that model of economics, and that is obviously up to those governments. the offshoot would be that if you are going to fundamentally reshape how products are produced, how the supply chains look, how these incredible complex supply chains operate, there's going to be a profit impact as companies need to -- there's a cost to move those factories, shift production, find different ways to do things.

all of that is going to be a negative margin story. tom: this is wonderful. andrew sheets of morgan stanley and david lubin of citigroup. your knees are shaking. your on the buy side. what do you do? save yourself. go to tv . you can yank these charts up, including the real india five-year yield. this is bloomberg.

♪ francine: and the second quarter, investor banks delivered stellar performances. ubs' leader,ke to who sees more volatility on the horizon. >> become more efficient by taking up costs or refocusing the way we do business, so that has been quite good. actually we are set to have a record year this year. european is particularly driving that trend. i do think the fundamentals are quite good. it is just that day after day,

the market environment is quite volatile. it is filled with uncertainties we don't know how to price. how do you price trade wars? brexit? protectionism? events in italy over the budget? you try to price them, but it is very difficult to forecast and adapt. francine: still with us, andrew sheets of morgan stanley. do you worry about this in the market? >> i do. it may be a little too much to say the market is completely complacent. people are aware of these uncertainties. but you don't see much premium priced into markets. you have the s&p was in a couple of points of an all-time high. generally the view of investors is that these tensions will eventually resolve themselves. we are concerned, especially heading into an august-september period the tends to be weaker for markets. francine: what kind of positions

do you take? >> think it makes sense to be long-vol in a number of different asset classes. we are looking at reduction strategies in small caps u.s. equities. we think those are vulnerable because people have piled it on the view they are immune to trade, and we don't necessarily agree. i think some are cautious on u.s. tech given how well owned we think it is, and it is hard for the market to go down if you don't see tech weakness. i think being cautious on u.s. credit, baby trend is sitting into -- maybe transitioning into emerging markets. i think it is on the bond side. morgan stanley, we are at a consensus expecting the 10 year yield to be lower. i think that is directly related to the view we think u.s. growth will be slow what that's will be somewhat slower than the consensus -- will be somewhat slower than the consensus.

this fed tightening will ultimately lead to tighter financial conditions, but that is still something we get quite a bit of disagreement on. francine: thank you so much for coming in today, andrew sheets from morgan stanley. capital'snext, rbc chief economist. breaking news out of china. maybe extra stimulus out there on the economy, but also tesla possibly looking to build a $5 billion factory in china. what does that mean for trade? we'll discuss that next. this is bloomberg. this isn't just any moving day.

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simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. tom: this morning, it is said day. -- a fed

will we see rising inflation? and where is rich growth across america -- wage growth across america? offspring, they demand an iphone x. she will pay for it. apple nears $1 trillion. mr. manafort goes on trial. the prosecution does not mention the word "trump." good morning. this is "bloomberg surveillance." with me is francine lacqua. all the children need an iphone x, don't they? francine: of course, especially for years old and six years old. tom: unfortunately you will not be able to buy a mercedes-benz. look at the headline coming out of germany right now. this is really something.

germany blocks investment by a chinese company. a stew or a soup of headlines having to do with china. francine: yes, it is quite significant that we see this blockage from germany. in the past, the french have decreed it will that said that none of the strategic investments could be taken over by a foreigner. i wonder whether the wind is changing in germany. the middle of the crisis that sold off some of the ports to the chinese. the relationship between china and the eu has always been strong. tom: we will continue with china. with our first word news is taylor riggs. taylor: bloomberg has learned that trumps administration may more than double its planned

tariffs on $200 billion in chinese imports. trump said that the issues should be resolved with talks and that threats are counterproductive. thatberg has learned mexico and the u.s. are in the final stages of negotiating a -- a tradeina involving cars. as you were mentioning, tom. the federal reserve policymakers are almost certain to keep interest rates steady when they wrap up their meeting today. contracts show almost zero expectation for a rate hike today. traders say there is an 80% chance next month. jerome powell has signaled the central bank could take a break from rate hikes at some point. investors like what they are hearing from apple. rising in premarket

trading after the company projected higher than in the fiscal fourth quarter. consumers are still buying high-end iphones come even though updated models are about -- iphones, even though updated models are about to be released. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: said date -- fed day. equities, bonds, currencies. futures negative. stronger dollar versus euro. onto the next screen with a little bit of a bit off on oil -- bid off on oil. i put the two-year yield there. that is what matters for the fed. 1.12 over much of yesterday. turkish lira, i don't know what

to make of that. francine: there is a whole yen which also goes to dollar strength. it was very valuable having debuted lumen desha david lubin here -- david lubin here. goes back to trade and the rhetoric been racket it -- ratcheted up -- being ratcheted up on trade is having an effect. i wanted to look at chinese renminbi. if you look at volkswagen amongst your company's reporting -- amongst the companies reporting better-than-expected earnings. last hourowed in the the real yield for india, which is substantial, like 2% or the percent. here is the -- 3%. here is that real yield for america. here is the sustained real yield for the 60's.

make a real yields including the ega real yield mak including the glory years. six, 7, 8, 9, 10 decimal points. to --.st we go francine: if you think of august, usually it is quieter. we have a lot of news for the month of august. tom: i would suggest no holidays or vacation is for both of us -- days for both of us. francine: we don't take holidays anyway, especially if you are u.s. based. the u.s. and china are holding discussions to talk about trade. this is the overall picture. may bring it over to it. the s&p has been strengthening relative to the russell 2000. it is a simple way of looking at

it, looking at my chart. tom: very good. what really matters is our chief washington correspondent, francine, kevin cirilli is not wearing an ostrich jacket this morning. 15,000 large for a jacket and certain precincts of new york city would not be a big deal. is that as good as the prosecution is going to get? it to go over the small change of paul manafort's wardrobe? >> tom, i think the bottom line is that yesterday that trial really heating up for it former trump campaign chairman,, the fort. i think -- paul manafort. i think you are noticing a shift ever since the president's personal attorney came out and started discussing these tapes, and what he is now accusing the practice of -- president of witnessing about the discussion

between donald trump, jr. and the russians. now you are having a recalibration on the behalf of the administration where they are now saying that collusion is not a crime. tom: we saw the recalibration yesterday. this on the midwest, or mr. trump did so well. watch michigan. partyr the democrat establishment for the grassroots. unknown is how it engaged michigan's african-american voters, black turnout in 2016 was more than 12% lower than it had been for president obama four years earlier. what do you know about turnout right now? do you agree that it is a mystery? >> yes, i think it will be a mystery until election day.

i think that is absolutely correct in terms of the importance of michigan. this was a state that was crucial into catapulting donald trump is the white house -- into the white house. sherrod brown, a democrat from ohio, often rumored to be on the short list for anybody's presidential ticket, and the presidential democratic ticket. the second point i would make is trade. you have commodity dipping on the news of this china trade war. ground zero for this trade war is in michigan. it is where this interesting section and juxtaposition of the progressive populist left and the populace right on trade issues are very much on the same page, or something like nafta is very unpopular there. talking about facebook, we heard of these accounts. how does that play into the psyche of the american voter and

washington? quite frankly, there are many folks on the left to -- who have some strong questions -- and some on the right, strong questions about how the social media institutions did not really protect the integrity of the elections in the last cycle. that is the general feeling from their point. then you get to the standpoint of just thinks that is really -- of just the angst that is in washington amongst lawmakers who are concerned about not -- they're not been enough protections heading into the midterm elections. tom: kevin, thank you so much. kevin cirilli, our bloomberg chief washington correspondent. coming up tomorrow, we have fed day over in the bank of england

tomorrow. it will be timely to have a conversation with the chief executive officer of barclays. do stay with us. this is bloomberg. ♪

♪ tom: francine lacqua in london and tom keene in new york. it is dark and gloomy in new york. and london it is like a painting. look at the difference. on the left is the new york mets with their worst defeat ever, 25-4.

on the right is perfection. francine: i know, it's pretty beautiful. i know you are listening to us from london on the radio. it is sunny and bright. we are just not used to this heatwave. tom: my raincoat is nice and dry at home in the closet. let's turn to apple. ivan feinseth with tigress financial partners as we look at apple. and are selling iphone x's they're moving them out at $724 per unit. why does everyone seem to be surprised by that? ivan: people have been predicting they would have a hard time increasing sale prices because they believed people would not pay up for iphones or smartphones. i believe that people's smartphones are such an important part of their personal and professional life's that

they will pay up for both the phone and service. you really don't pay $1000 or $1200 retail. you pay somewhere between $40 and $50 per month for the phone, around $60-hundred dollars for the service between data, text, and voice. tom: within the tone of the conference call and all the uproar about microanalysis of ipads and all that, what is the persistency of their free cash flow? is it really free product driven? can ivan feinseth go out longer to a terminal value? ivan: they have a tremendously low customer base -- a loyal customer base. people continue to purchase smartphones, specifically iphones every two years at of their contracts -- once their contract is up.

people purchase other services, including content on itunes, icloud storage, applecare, which is the warranty, apple, which is the payment method -- apple pay, which is a payment method. their services continue to increase to record levels, which has a much higher margin than the hardware. services are approaching a run rate of about $40 billion per year. stillne: we are expecting the next big thing from apple. what is it? ivan: the view was that they expand ecosystem, which would include the smart speaker, which is an audio interface. apple tv to also extend content to the tv. people who buy iphones tend to macs, ipads, and

other apple products. francine: is there anything apple can do to try to succumb less to the trade war escalation? ivan: right now they have said they have had very little affects from the tariffs. they are building an iphone factory in wisconsin. to have a factory in india -- they have a factory in india, and the obviously michaela and china -- make a lot of money in china. tim cook said they have had no negative effect of tariffs. by arew do you frame sell right now -- a buy or sell right now? did you adjust your target price? ivan: i do not use target prices but i do have a bite on the stock -- buy on the stock, and i believe it will continue to

trade higher. the growth and return on capital are strong and it continues to drive the stock higher from current levels. tom: thank you so much. ivan feinseth with tigress financial partners, their chief investment officer on the dutch officer. will -- officer. we are thrilled to breathe you -- bring you adam pozen and david best flour. look for that on "bloomberg surveillance." tomorrow. ♪

♪ francine: and this -- taylor: this is "bloomberg surveillance." let's get the bloomberg business flash. m.d. is a central bank has taken steps to curb inflation and hold bank hasndia's central taken steps to curb inflation and hold down capital outflows. inflation has picked up because of higher oil cause and weakness of the rupee. shares of air france are rising. the struggling carrier posted second-quarter profit that beat estimates at despite uncertainty caused by a labor conflict and search for a ceo. the dutch unit contributed 90% of earnings. bloomberg spoke with the company's cfo.

we have to keep in mind that in the real numbers there is a strike affect of twitter 60 -- $260 million. -- will ramp up production in the world -- tesla will ramp up production in china. they plan to spend $5 billion building a factory in china. tesla expects to start producing its new model three there by 2020. the amp robot has said that revenue from fixed income fell -- bnp paribas has said that revenue from fixed income fell. we spoke to the banks cfo. >> we are operating in europe in

this low interest rate environment, so that is the point we have to be careful of. it is a point of course that we compensate by focusing on value added services, which are generating commission. are digitalization plan is also reducing costs. that is the overall element that we keep on focusing on. taylor: that is your bloombergtaylor: business flash. francine, tom. ossen andhave adam p david bachelorette -- denny batch lower tomorrow. is tom porcelli rbc isital markets of -- with us tom porcelli of rbc capital markets. -- essay a fabulous s8

on the wage puzzle. let's look a little bit. the wage puzzle is not about inequality. this is simply what a high-pressure economy looks like when productivity, growth rates, and inflation are both relatively low. inequality on balance has ameliorated the wage slowdown, not made it worse. this is a hugely controversial take by the democrat. where are we on inequality? tom: i tend not to insert myself in that more political conversation. i will say this. chairman powell's press conference from a couple of weeks ago, he was asked about religious both sides of -- real wages on both sides of the aisle. he gave standard answers.

when you look at real wages over any timeframe, guess what the average? they average zero. should they or should they not zero?e i would say the answer to that question is that you cannot have -- first of all, i think that looking at unit prices or unit wage pressures is the wrong way of doing it, which everyone does. real average earnings is a way that people look at it. you cannot have unit wage prices rise faster than costs. --.s an untenable economic tom: should chairman paul lori about the political -- chairman powell worry about the political -- of wage growth? tom: he has to continue to do what is right from it macroeconomic perspective. i don't think he has done that. takingdone a good job of

a step back and bringing it back to the bigger picture. you are supposed to average around zero from a real wage perspective, because if you have unit labor costs that are rising to rapidly, you have massive market compression. tom: all of our listeners and viewers -- about wages anyway. will continue with tom porcelli. a really timely interview on china. all of the headlines coming out of china. great article on coal of china as well. we have a conversation with mr. -- of rio tinto. this is bloomberg. ♪ this isn't just any moving day.

this is moving day with the best in-home wifi experience and millions of wifi hotspots to help you stay connected. and this is moving day with reliable service appointments in a two-hour window so you're up and running in no time. show me decorating shows. this is staying connected with xfinity to make moving... simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. francine: this is "bloomberg surveillance." tom and friends in from london -- francine from london.

this not only goes back to financial stocks, but overall this is an important story for .he region saudi arabia under coalition wanted to shut out qatar. you can see that they actually managed to sign away to not only retrace some of the gdp that was lost initially, but also recouping some of the losses from stocks. finally the qatar stocks erasing the losses that they stock -- sauces the embargo -- saw since the embargo. taylor: china says it's trade disputes only can be resolved through negotiation and blackmail will not work. the u.s. wants to ratchet up the pressure on china to resume trade talks. the trump administration way more than double its planned tariffs on $200 billion of chinese imports.

they may be waiting for the u.s. to actually take action before they unveiled their next move. president trump says china may be getting in the way when it comes to u.s. relations with north korea. at a rally in florida the president said the u.s. is doing well with north korea, and he has a good relationship with kim jong-un. as for chinese interference, he says we are going to figure that one out before you can even think about it. isre is a report that google preparing to launch a censored version of its search engine for china. p would terms and results that beijing considers sensitive. google's services are largely blocked in china. germany has signaled it would take a tougher stance from investments in china. angela merkel's government has vetoed a possible chinese takeover of a german company. merkel's cabinet turned down a chinese company that wanted to bite german machine tools

manufactured -- purchase a german machine tool manufacture. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i and taylor riggs. this is bloomberg. francine, tom? tom: we have been talking to tom porcelli about wage growth. may be one of the things at today's fed meeting. in washington, he knows the that calendar -- said calendar -- fed calendar. how dead is this dead meeting? >> it is a pretty dead meeting. it is mostly dead. the chairman will start regular press conferences in january, every meeting will be live, but there is no press conference today. don't expect them to do much.

the probably want to get out without moving markets at all. tom: how divided is the fed? right now how divided is the powell said -- fed? >> is about -- it is about the same as it has been with a few hawks sing that inflation is in danger of breaking out. you have continual tax stimulus which puts pressure on the economy. on the other hand, most of the rest of the fed says we have countervailing things happening, like the tariffs, which might depress activity, so we need to just go slowly. i think it is best summed up by chairman powell and his testimony when he said rates remain on a gradual path, for now. we will wait and see what the data shows. concern aboute is

central bank independence after president trump said some things about the fed. i don't know if that means that they will want to prove to the world into the markets that they are fiercely independent, and so that whether -- whether that raises the risk of them may be increasing interest rates more than what is priced in. >> it probably doesn't. good stewards of the economy. the economy is in a state where you can justify raising rates and you can do it slowly. you want to remain ahead of the curve. the only time that would really come into play is if there is a really close call, should we or shouldn't we raise rates? maybe you could see them think about the political implications, but right now there does not seem to be any reason for that to enter the equation, other than headlines for us to talk about. francine: what does it all due to dollar dynamics?

how do they dance around the trade war concerns? >> investors in the dollar, like anybody else, don't really know where all this is going. the fed will continue raising rates, and that should continue to push u.s. dollar values higher, but with the tariffs and trade war questions, you don't with a note what is going on -- really know what is going on. that is the fed's dilemma as well. the best they can do is wait and see what happens. tom: you will love this tom fromlli from of -- this tom porcelli. over here is my fancy algebra of rbc capital markets tom porcelli -- of tom porcelli's genius. --. billion of how can a fed do monetary policy if the estimate on national savings is so off the mark?

thank you for the plug. we have said this time and again. you and i have spoken about this. we were worried about the decline we have seen in the last couple of years. thanks to the magic of government provisions that has totally faded away, instead of having this two percentage point decline in the savings rate over the last couple of years, it has literally done nothing but move sideways. we have added by the hundred billion dollars plus -- $500 billion plus. tom: this is all the little pieces of the pie, michael mckee, that added up to greater savings and wealth. have you ever seen a miss like that on the income of americans? >> i don't think i have, tom, at least not that i can remember.

it does suggest that we have more money to spend and maybe we will keep spending it. they have to work with it. now. revised, but they can only work with the numbers they have right in front of them. this is interesting news for them but it does not change the outlook, i don't think. in 2004, --remember -- 2004, we had core in for -- core inflation that was less than 4%. the fed was right -- hiking rates in 2004. it doesn't make any sense to me at all that we use that as our target. francine -- tom: francine? francine: i don't know if you remember janet yellen at the end of their tenure -- her tenure on

stage with christine lagarde talking about bubbles. how much should jay powell think about market correction and bubbles? >> it will weigh on any central bankers thought process. where we are in the bubble phase of things? it is hard to see that we really see any significant bubbles or any emerging bubbles at this point. the fed will continue to drive home the point of its about financial conditions, and we agree with that as a general stance. financial conditions it still remained relatively easy despite the fed having put a number of hikes into the system. in terms of being at the thefront, no, because reality of it is that we do not see any of that right now. francine: if you are in charge of central-bank policy, where is the biggest risk?

is it pboc, rbc, bank of japan, or the fed? tom: risk from one perspective? -- what perspective? francine: a big mistake, not only for their economy but for the world? raising have to be rates when actually we are looking at the start of the downturn, or misinterpreting data points. tom: i think a good way of thinking about that conversation is where are we from a neutral perspective. the reality is that we are still way below neutral from really in any sort of modest way of thinking about this, we are below neutral. i think that is the right way of thinking about it. tom: it is august 1, so do your summer reading. for michael mckee summer reading means he will be giving ready for -- getting ready for jackson hole. what will chairman powell do at jackson hole?

will he speak this year? >> he will probably speak this year. maybe then he will go fishing. there is nothing out there that would tell you this is going to be one of those speeches are one of those jackson hole's that will make any news that moves the markets. that really has not happened since ben bernanke back in 2010 or 2011. people still think jackson hole is the place where the fed might come out and upset markets. there. me to trip out tom: michael mckee, and cute, from washington -- thank you from washington today. we will continue with tom porcelli of rbc capital markets. coming up, an important conversation with the gentleman from cincinnati, ohio. rob portman of ohio at 10:00 this morning. this is bloomberg. ♪

♪ francine: this is -- taylor: this is "bloomberg surveillance." second-largest mining company wants to keep boosting cash returns. rio tinto raised its dividend payment by 15% to a record. it also increased the share back hashare buyback program and plans to hand investors about $4 billion of proceeds from divestment. lloyd's posted better-than-expected jobs and profits for the second quarter. the british bank also upgraded its financial guidance. for the year lloyd is having to shake off its troubled past. it will take a charge to compensate customers for improperly sold loan insurance.

the stock market and qatar as a covered all the locks is -- in qatar has recovered all the losses it suffered since the embargo. the government of qatar helped by softening limits on foreign ownership. tesla is going to ramp up production in the world's fastest-growing auto market. we have learned that the electric car company plans to spend $5 billion building a factory in china. the factory will be near shanghai. tesla expects to start producing its new model three thereby 2020. that is your bloomberg business flash. tom, francine? ,rancine: continuing with tesla the company is due to report after the bell today. joining us now is bloomberg germany reporter. there is a number of questions about whether they are burning cash or what exactly happens with einhorn.

the bigger question is, will they build this $5 billion factory in china and who will fund it? >> i think the funding is the big question for tesla right now. that is the answer that investors will want to hear or get some insight about whether these plans are legitimate. , itplan for chinese factory shows the complexity and the growth that tesla is dealing with, and how they are dealing with the issues to get the start of issues, in terms of model through production, whether they can turn cash, and whether they can get the confidence of investors. francine: will they get confidence? i always heard that people love tesla and elon musk, love it, and people that do not, do not. to have the enough funds? >> i think it is a good

question. given where they are in their cycle, with the ramp-up of model three. the vision is one thing, elon musk's panache and sort of mobilizing people is one thing. whether he can do enough of that, whether he has enough to show after the second quarter to fund these kinds of plans is really the question. there will be a lot of focus on these numbers. tom: let me go to the bloomberg right now. i want to show the anr. this is the sell side view on tesla, it's deeply divided. it is a lukewarm view on the by byuy, hold, sell continuing. except talkanything about space x and boring tunnels through california, and funding china? >> i think the last call was so

contentious with elon musk, and how his reactions were from these critical questions to investors, and there are no signs of that letting up. i think there will be a lot of contentious questions and it will be interesting to see his response to them. whether he is able to take it and provide answers that the market wants to hear. tom: this, thank you so much -- chris, beck is a much -- thank you so much. we will come in just before 2:00 p.m. with our fed show. scarlet fu leading coverage with michael mckee in washington. jeffrey rosenberg of blackrock as well. please stay with us. this is bloomberg. ♪

♪ day.fed let's do a single best chart on fed day in the u.s. let's do india.

really important -- interesting press conference in india. here is the inflation-adjusted five-year yield in india. here is where it was, here is the crisis, and up here is the high your real rate of any struggling emerging-market economy. we are raising rates and they really don't want us to do that. pow has beenrman clear about this -- powell has been clear about this. the fed will do what is appropriate for the u.s. economic backdrop. two more hikes this year and we expect four hikes next year, which we know is out of market expectations. let's take a step back. we are in your ninth of an economic expansion and growth is accelerating.

the fed is going to continue to respond to that despite what may be happening elsewhere. tom: does it get us into e.m. instabilities that we saw in 1992, 1994, 1997? tom p.: we are talking about much lower rates overall. it's a much different regime. this is going to hold a three handle, so i think that dynamic is certainly different. i have to -- think we have to keep in mind, we talk about the notion of deleveraging. if you look at bank exposures across the globe, particularly to areas that may be more stressed, they have been significantly reduced. i think that is another important point to have on the radar. francine: what do bond yields do from here? tom p.: we expect that yields will actually really just grind higher. 10 year yieldsat

that are going to be around 330 by the end of the year. to 375 by the end of next year. will remain very flat. there is a lot to say on the flatness of the curve, which we don't have time for. our view has been that the curve will remain flat. even if the curve was to invert today or tomorrow, we don't think that is the harping of a recession. we are pretty steadfast in that overall thought process. keep in mind what neutral is. that is the thing being missed by most folks. francine: you don't think that actually yield inversion means anything sinister, but people on the fed do. you think they would try to do anything that they can to avoid it? tom p.: no.

i don't necessarily agree with the idea that there is a whole group of people on the fed that thinks that the curve inverting is a bad thing. there is a couple of people who think that. i think most other people have been mostly dismissive of the idea of curve inverting. i was showing tom this great chart that i have sitting in front of me. i think the right way of thinking is that you should be worried about curve inversion when the fed is above neutral. if the fed is not above neutral than there is no reason to worry about a curve inverting. tom: to circle back to what we talked about at the top of the hour, -- saying that simply wage growth has arrived. where do you see what growth? is a benefit -- wage growth? is it benefits, vacation, salary? tom p.: is it across the board. it almost is not matter what wage measure you want to look

at, wage pressures arising -- are rising. it may not be the kind of wage pressure that people want to see. in china, do we get about 2% and a sustained 2% inflation -- 3% and a sustained 3% inflation? tom p.: if you go through the full trade war, trade tariffs issue, then of course it will be really easy for headline inflation to blow past 3%. after self, even if we go through that process, where is corporation going to be? we do not -- core inflation going to be? that,not expect absent that inflationary pressures will continue to sort of mount from here. we are looking for core inflation to hold them to the

2.3-2.5 zone. tom: how many rate rises are we only from neutrality right now? tom p.: probably about four. [audio drop] ♪ phones have made our lives effortless.

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into higher tariffs. china says we will talk. plus, the $1000 iphone cells. a stock set to open and a record after the company beat its earnings estimate. the fed snoozer. watch the yield curve. policy decision out today at 2:00 p.m. welcome on wednesday, august 1. i'm alongside alex. whole new month. >> did you know august is not good for stocks? liquidity. on vacation. i remember those last two weeks in august 2015. i was there every second. >> july was very good for stocks. as we kick off august, here is where we stand in the markets. futures down about three points. earning going to be in focus as we go throughout the d