♪ >> china will waited out. the country says it is prepared for a protracted trade war. the tv as he steps into cushion the yuan. hsbc revenue makes the banks long-term bet on asia failed to produce significant growth. and brexit breakdown. u.k. is now warning that a no deal scenario is more likely than not. 40. odds are 60- ♪ >> welcome to "surveillance." i'm very change. let's check in on the market.

the stock 600 is pretty much dead flat, a lot more interesting things happening below the surface, a pretty similar picture in asia with the pacific index trading flat. atle hitting a 10 month low 129.74. are there more risks of the no deal? we have been watching this closely because we saw some stabilization following a record weekly loss in the currency, stepping in to make it more expensive to short the yuan. closegetting dangerously to that seven level? coming up, we hear exclusively from hsbc after europe's largest banks reported earnings. for now, let's get the first word news with katie lines. has made anbia investment deal in canada and a

dramatic escalation of the dispute over the arrest of a woman's rights activist. the kingdom recalled its ambassador to ottawa and told the canadian envoy in the odd to leave. they cited remarks last week by the foreign minister, citing the arrest of the woman's rights activist. ceo sayss., jpmorgan's investors should brace for yields a 5% or higher. on thede the comments 25th annual summer celebration gala, and said that the current bull market could go for two or three more years, because the economy is still doing quite well in markets could return. iran is racing to complete some deals before the u.s. imposes tougher sanctions. with iran taking delivery of passenger planes after approval. public resentment has been building as tensions push to historic close. iran has said it will try to

halt the currencies decline. and u.k. trade secretary liam fox said brexit negotiations are more likely to end in failure event access. he says there is a 60% chance of the no deal outcome. he blamed the european commission for a lack of flexibility. the prime minister's office issued a statement saying the government remains confident of securing a deal. and in venezuela, security forces have made several arrests after a military parade was attacked with explosive carrying drums. it will get some officers but left nicolas maduro unharmed. six people have been taken into custody including one man allegedly involved in an attack last year on a military base. global news, 24 hours a day and at @tictoc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. i'm kaylee line. bloomberg. >> let's kick it off with trade

and tariffs. the yuan moves high after the pbs he announced a tweak that exit more expensive to bat against the current. it comes amid rising trade tensions between the world's largest economies after chinese authorities pledged to retaliate. president trump once again hit out against china in a rally over the weekend. >> sadly, the chinese market is down 27% in the last three or four months. i don't like that because i really like president xi and i respect china, but they have taken 500 lien dollars a year for many years. andave really rebuilt china it is time that we rebuild our own country now full. >> joining us is just black who covers economics for the greater china region.

we have seen a little bit of stabilization -- would we have expected more of a reaction from the pbs he -- the pbo see? policymakersike are trying to intervene as little as possible on the currency of self given that they intend to liberalize it over time but we are getting close to that important mark and it seems to be a hard line from the pbo see. >> if we were to hit that mark what sort of action could we get? >> you would begin to see more robust intervention. quite akers have taken thed approach and in economy over the last couple months.

the clip you played of trump just now, that seems to link everything to the trade war -- it is not quite like that but if it does escalate then it is going to be a much more serious issue. >> i'm glad you brought around the trade war. at the moment, the signals we seem to be getting from china is that it is ok just the short-term pain. and the editorial as it appears is very much of that character, that this is a and that chinact is willing to suffer. the suffering hasn't kicked in yet but the economy is on a slow down pass and that's a cyclical factor, it's not just about trade. it could get worse. >> indeed it could. thank you so much to jeff black.

joining us for the hour, jane foley and neville hill. good morning to you both, great to have you with us. jane, let me start with you. it seems to be a downward trajectory for the yuan. what is it going to take for the pboc to meaningfully stem the losses? probably have today is the you when trading steady. >> that's right. although we know that the aim is to liberalize, the only hints that we get is quite the opposite. last week the market was having too much of an impact on the so if you look at this from a textbook point of view, no central bank wants the currency to move too fast. back.s push that i think what they want is a less

rapid decline but i don't think anyone is convinced that it will for further. >> the latest decision by china, rhetorically, to play hardball in retaliation to president trump, could that be a policy mistake in terms of the economic hit the country could take? >> it could be, particularly given that the chinese economy seems to be slowing dramatically. i think that's probably one of the reasons the currency is weekend. it has really slowed the economy down far more significantly than the anticipated. a trade war now, where the u.s. is increasing the tariff rate, it does feel a little bit courageous at a time when the economy is already requiring some stimulus to recover. >> what signs would you be looking for that might signal

that this is where we could be getting to the breaking point? >> you would look for a change in rhetoric which isn't happening yet. i guess the lesson from the european negotiations with trump is that at some point you have to come in with the circuit because otherwise if china retaliates all we will see is u.s. retaliate. that doesn't seem to me to be a path that is going to be successful for china. >> jane, let me show you a chart, the funding costs in thea's money markets as country leans toward easing. how quickly could we get to seven? >> if they were to step away, extremely quickly. it's a matter of pace and how much control they will have,

that would give us a little bit of a clue as to how much intervention there has been. they really can carry on controlling if they want to but we know the economy is slowing and it seems natural to allow the current the to slip. if you stand back and look at it, it was strong against the remember me and it has been one of the strongest currencies in energy. we have a strong dollar as well. if they were to separate capital outflows it could fall hard and fast. it's all about measures and balances and how far and fast they will go. >> into your point, we are seeing dollar strengthen the session, which could explain why we aren't seeing as much in the yuan. thank you, neville hill, jane foley, you stay with us. stay with "surveillance."

hsbc falling short. revenues miss estimates, the age of that fails to spark significant growth. you will hear our interview with the banks finance director, next. executivemorgan chase says you must tenure rates could have 5% or higher. should investors be concerned about a breakout? limberbutt -- bloomberg through. ♪

♪ economic finance politics, this is "bloomberg surveillance." let's get the bloomberg business/. >> i wg shares plummeted this morning after months of a

protracted courtship with multiple private equity suitors. informed tdr mer terra firma that it would not continue discussions for the possible takeover offers. warren buffett, berkshire hathaway said earnings growth is 67% from the same period last year, as key insurance operations recover and his statement may have been most noteworthy for what it didn't campaign. softbank's first corporate profit climbed 49 per from a year earlier thanks to investment in other games. the japanese telecommunication provider and tech investor said it was boosted by the vision fund and the sale of their subsidiary chinese unit. taiwan semiconductor manufacturing is recovering from a debilitating computer virus. the taiwanese company which

makes chips for iphones and said 80% ofs fabrication tools have been restored. it did not specify which customers would be effected. that's the bloomberg business/. adjusted revenue came in at $13.7 billion, again of 2% of the long-term bet. bloomberg spoke exclusively to the cfo. >> hsbc is in good shape. numbers are in my w/x occasions, good revenue growth through the first few quarters of the year, translating into recorded profit progress over the same period last year. we continue to invest in the growth of the business and are setting up's drawn balance sheet . we are feeling reasonably competent about where we stand.

>> what kind of impact do you forecast tariffs might have on your business? >> our job is to deal with what's in front of us in terms of supporting customers, and that is what we have done. we can clearly represent the challenges as we go forward but this is not the first time we have improved difficult trading conditions. >> most are probably preparing contingency plans. brexit discussing hard around the board room at hsbc? >> we support the customers, come what may. brexit, wehard clearly hope negotiations turned out with a slightly better outcome than the worst-case scenario, but we are planning for the worst and i hope there's a better outcome. cfo.at was the hsbc

still with us, jane foley and neville hill. neville, are you seeing anything from the corporate earnings season so far which gives you indication that the softness might pick up? >> if you look at the results you ared so far for q2, seeing decent upside surprises and corporate revenue which suggests that the underlying pace of demand growth in the euro zone is pretty solid. it's not necessarily the case in europe that also in the u.s., there's less of a translation from those stronger revenues numbers into profit and earnings numbers beating expectations. what we could be seeing is cost pressure building throughout the u.s. and european economies which in turn could mean it gets

pushed, or perhaps we get to see inklings of inflation picking up and you can argue the inflation data we had darted to see pressure picking up. >> what about the euro?has that been providing a tailwind ? >> we have seen it push much so from that point of view i think you could say it pushed down on inflation and you could see import prices coming through but it's too early to tell. if you look at the guidance from the european central bank they are not too worried about inflation just yet and i think one of the main indicators continues to be the route 5010, wage inflation and it is really very benign. >> thank you.

stay with us. up next, dimon double down. makes a new ceo bet. we will discuss that next. this is bloomberg. ♪

♪ this is "bloomberg surveillance." j.p. morgan chase ceo jamie dimon is doubling down on his warnings about u.s. treasuries. he previously warned investors should brace for 4% on the

tenure benchmark, but went one further over the weekend, suggesting 5% is a possibility. he also said the current bull market could last two or three more years. still with us, jean fuller leanne neville hill. i want to show you a chart which is the 10 year treasury yield, not able to push past the present. four times so far this year we have always gone above the back. >> if you look at the inflation, it is quite contained. dataweek we have the ppi and the cpi data -- if you look at market consensus, they are more or less the same. they are not getting the inflationary data that is exciting the market. if you think about the economy to justify yields at those levels the data we are getting in terms of inflation doesn't

seem to be coordinating with that. >> neville, would you agree or should fields be higher? >> i disagree. and even if you just look at the u.s. there is a strong case for yields to rise. if you look at the gdp print we had the other week, year on your nominal gdp is about 5%. of what'sat on top still going on, which at the peak of the cycle should create the impact of, the tariffs will likely create conditions in which we could see inflationary pressure build. deficitconomy, widening , policies that are inflationary even if we aren't seeing inflationary pressure. it's a strong place for yields to rise potentially quite substantially.

>> where should they be? >> 3.5% or even higher. the problem they will have is that you have japan and european yields much lower but after the decision the other week you can see a case for japanese yields to get back to .2% and for german yields to start rising. this 3% level doesn't seem to be able to stay above. is this telling us about where the fed sees rate? >> i suppose it is and i think there's a big imbalance in the market where some of the data is. we had one columnist whirring of the downturn in the u.s. economy and that puts a different perspective on the growth state. what we are going to see over the next six to 12 months -- what we need is the inflation coming through because we know

we have a tight market and we also know that in previous economic cycles it was tight and wage inflation is generally ho a lot higher. is that going to the something or is it just a lag? i think time will tell. >> we need to keep count of how many people call the bear market and give them credit. stay with us. up next, the kingdom suspends the ties of canada over criticism of the arrest of a women's rights activist. that's next. this is bloomberg. ♪ retail.

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a company that makes chips for apple is recovering from a debilitating computer virus. they have warned of delayed shipments and reduced revenue. liam fox is predicting a messy split from the eu, saying he sees a 60% likelihood of the no deal outcome as the clock ticks down to brexit. trump says the u.s. has the upper hand in its trade battle with china. jamie dimon double down on high possibility 5% is a and saudi arabia suspends ties with canada over a women's rights activist. find out more now across our various platforms. let's get the first word news in new york. >> china's state media has responded to donald trump's claims that he has the upper hand in the trade war. an editorial in the nationalist global times says they are prepared for a protracted war and doesn't fear sacrificing short-term economic interest.

this comers -- this follows a new tariff list designed to retaliate against the u.s. iran is raising to complete a string of deals as the u.s. enforces sanctions taking delivery of new passenger plane after washington gave approval. tehran has said it will ask leaders to halt the currency decline. says.k. secretary liam fox brexit negotiations are more likely to end in earlier. he said there's a 60% chance of a no deal outcome. he blames the european commission for a lack of civility will stop the prime minister's office issued a statement saying the government remains confident of securing a deal with the eu. and there have been several

arrests after a military parade was attacked with explosives. it wounded some officers but left majuro unharmed. six people have been taken into custody including one man allegedly involved in the attack last year on a military base. global news, 24 hours a day and at @tictoc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. i'm kerley line, this is bloomberg. >> thank you. saudi arabia has suspended diplomatic ties with canada, halting new trade and investment amid a dispute over the arrest of a woman's rights activist. it has recalled its ambassador to ottawa and ordered the canadian envoy in reality to leave. weakened as dollar point 3% on the news, and joining us from riyadh is our saudi bureau chief. good day, first of all.

when does this say about saudi arabia and mohammed bin, and -- mohammad bin salman? >> saudi arabia is being much more assertive, not targeting any public criticism of its thomistic internal affairs, which is what happened to canada. that this isimply a real shift in foreign policy and something that is likely to stick? past, saudi policy was defined by spending money and quietly trying to influence other governments and now you can see it is a much more and these position policies will probably stick. it started when he came to power, a shift from the previous year.

not only are there diplomatic problems, they recall the emperor asked her to germany which is leading an alliance against qatar. resume againsts supporters at home? when i woke up this morning i started looking at the saudi twitter feed. it is very positive and they are expressing themselves on twitter , they have criticized canada for interfering in saudi policy and they have been quite vocal about it on social media. what are theis impact on saudi arabia in terms of this policy? canada doesn't rank in the top 20 trading partners for saudi arabia. the stock market is trading flat little bit, down less than .1%.

>> glenn carrie, thank you so much. still with us, jane foley and neville hill with me on set. we saw a bit of a reaction in the canadian dollar. how sensitive visit to these sorts of geopolitical risks? dowhen canada is trying to is have more sources of trade, it is trying to move investment so it is less dependent on the u.s. we just heard that saudi's trade with canada is relatively small so this is an something which i will think all have a lasting impact however it is very interesting and i think that the bigger impact is what it says

about foreign policy in saudi. and if you look at the point of view from saudi since we oil prices down, they had a big impact, they are trying to change their economy. this sort of news isn't necessarily something which could potentially help. it will be quite interesting to see if there's any impact from the point of view of foreign investors. >> definitely. neville, dismissing anything about the general nervousness in markets anytime we get headlines about trade tensions? >> that's probably right. given that we are still in a situation where you continue to see an escalation of trade tensions between the u.s. and china, i think the bilateral intentions are underway and that will deliver further uncertainty for market. but at the moment it looks as if it is probably unlikely to be

that significant in terms of troubling market. >> talking about commodities more broadly, what is your outlook given that we have seen oil outperforming while metals underperform? >> we have seen a drop but i think the answer to your western is in china because china is the world's largest consumer of commodities and old commodity producers have china as a number one x work partner and this is where it comes in two important because if the chinese are mindy were to carry on falling, the competitiveness of those commodity exporters -- today, when we had the renminbi on staple, that was better for the stock market and commodity if thers, but certainly renminbi were to fall that is bad news for commodities.

>> potentially also bad for emerging markets. i want to take you to the turkish lira. simply because we have seen it doesn'tcord low, there seem to be any specific reason why it is moving today but is weakness the general trend? weakness andainly the answer depends on whether or not we hear anything from the central bank. we know emerging markets are under pressure with the same concerns about trade wars and funding in the u.s. dollar. but some countries have their own domestic concerns about the credibility of the central bank but we wouldn't be down here and the market is testing the

central bank to see whether it is going to come or do anything support the lira. ,eanwhile, the inflation data turkish inflation is looking very nasty. the market wants the central bank to do something. >> if the central bank does do something, will it be able to do enough to support the lira meaningfully? >> i think they need the government to step in. you still have an expansionary fiscal policy underway so it's an economy that's overheating and looks out of whack. , not justo see policy monetary policy but overall policy shift a more stringent direction and show policymakers have learned to stabilize the currency and for the time being there doesn't seem to be any appetite to do that. >> neville miller and jane

foley, stay with us. next, i wg plummeting. we will speak to the chief executive next. bloomberg. ♪

♪ >> this is "bloomberg surveillance." isice space provider iwg plummeting, the stock down about 20%, the biggest drop since october after abandoning talks with takeover firms. despite months of negotiations, the board agreed that none of the parties are capable of paying a high enough price.

joining us on the phone is the chief executive. great to have you on the program with us. thank you for joining us. confident inreally the long-term value? that is what they seem to be saying but shareholders don't believe it. how can you convince them? >> yes, the board are confident. in fact, going through the process with these different investment companies compounded the boards expectations and outlook for the future. process very detailed and it made us look at the business differently. we are convinced overall on the future, plus they also put out the interim results this morning. good,derlying trend is

with both the mature doing very well and additional growth and underlying all of that strong cash flow. >> what's the next debt? would you consider a management buyout? focus onxt step is to the business. we have a great business, and expanding sector, probably the future of the real estate industry as it converts to a digital world. that is what the focus is, on the growing the business, growing our global platform, adding more cities to it. focus is not on any other corporate activity at the moment. >> right. so does that mean you're not considering a management buyout? >> you would be right in that

assumption. >> ok. i understand you are saying you are focusing on the business and you have said that the numbers coming through today are fairly positive, but others might say your u.k. business is tough -- why is that when we are told companies are increasingly seeking shorter leases? >> well, the u.k. business is a huge business, for a start. parts of the u.k. business that are doing very well. we continue to grow the u.k. business with quite a few centers in london and throughout the country. it's a very good business in the u.k.. ist is causing the weakness some of the older stuff coming out of the network for refurbishment, the ones we want

to keep, and some closures of centers that have become too old for the network. we would generally reopen with a new center but that can incur cost, most of them are non-cash. when you have a big platform there are times when you do tidying up and now is that time in the u.k. >> right. you mention some costs. can you quantify that for us?how much will it cost to modernize some of these older centers? cost is inal capital the tens of millions. jointly withwe do the owners of the property, so they are supporting that investment. the real cost is windows centers

have to be closed for refurbishment. that sort of gives you -- it hits you on that like for like number because the revenue we did have is no longer there but the cost is still in place. mark, is london oversupplied in general with short terms race? >> no, not at all. there's nothing like an oversupply. this is overall a growing industry. when you break it all down, this is what the customer wants. we are seeing good customer growth in places like london and across u.k. and globally. it's a global phenomenon. this is all about real estate being disrupted overall by both digital and by the customer saying that we want service on an easy to use platform, we don't want to deal with the real estate industry and all its

complication and rigidity. we want agility, not rigidity. that is what makes the prospects for our platform very good. the interims this morning were over 40% of the gross done in partnership with property owners and investors. more investors want to start providing space on our platform and that is clearly a strong sign. >> mark, given a six-month delay before brookfield could come up with a new bed is almost over, would you consider a new approach? do you think you could get any other approach? >> it's not really for me to say. this is a question for the board. it's a public company. people from time to time can come with propositions to our chairman and the board as a whole so i can't really speak

for them. but at all times, speaking for the board and how they operate, they are doing the best for all timeholders stop if at any companies want to come forward with an offer, i'm sure the board would consider those. >> mark dixon, chief executive, thank you for joining us. next, heading for a no deal brexit liam fox ruffles a few feathers in westminster, saying a messy divorce is the most likely outcome. the pound trades lower. this is bloomberg/ ♪

♪ economics finance and politics. this is "bloomberg surveillance." liam fox said wrecks it talks are more likely to and without an agreement.

he discussed the chances of the no deal outcome at dixie percent blaming a lack of eu flexibility. the prime minister's office says it is still confident of finding an arrangement. is theresa may overly optimistic? still with us, jane foley and neville hill. it is the gift that keeps on giving. now it seems a no deal outcome could be more likely than not. is it? >> i don't think so. in not surprised that some the government are saying the probability is high but once you look at what a no deal brexit would look like in terms of the enormous logistical issues, you realize that no parliament is going to allow that to happen. the way the stress between the , it anti-e.u. will manifest is more likely to take the form of political stress u.k. rather than political stress between the u.k. anti-e.u. but will

ultimately end up with a soft brexit. >> potentially bumpy for the pound. the low today was partly on these headlines. is there any way sterling can catch a bid? we got some u.k. date of this week. expectingket is something fairly decent but i think we have learned that this isn't all about politics. most forecasts say we will have us off brexit and as time runs out people are starting to get anxious but you can step day and say this is the behavior you anticipate. they keep pushing and pushing and i think theresa may -- perhaps with a little bit of

anciliation, there is perhaps reason but it is all about politics and the market is getting nervous. if we were to see some commentators changing their view, sterling would fall quite hard. >> and we did see the pound react decision from the press conference last week. is that policy mistake? >> i'm not sure it was the wisest, the problem is the uncertainty over brexit which we can talk at length about but ultimately the u.k. economy doesn't seem that strong and in particular the consumer seems to be very vulnerable after significantly reducing the savings rate. we think the consumer is in a state where it is likely to retrench and 25 basis points isn't going to make a huge amount of difference but against a backdrop of uncertainty i think high rates are unwelcome.

brexithat we know about it would have been better to hold off. but they seem keen to do it. >> very briefly, is there any level at which sterling he comes an opportunity, or not until brexit is done? >> not until we know it's going to happen, and that could be a few months yet. >> thank you so much. jane foley, head of fx strategy. neville hill, from credit suisse. great to have you both with us. "surveillance" continues in the next hour. matt miller joins me in london. we will be talking to the head of energy industry research at goldman sachs. lots more to come. this is bloomberg. ♪

nejra: china will wait it out. is prepared for a

protracted trade war as trump ramps up the rhetoric. miss.evenue costs outpace incomes. a no deal scenario is more likely than not, putting the odds at 60-40 four brexit. francine lacqua and tom keene have the day off. i'm nejra cehic. i want to talk about the 10-year yield. sayingimon saying 5% and the bull market will go on another three to five years. >> i thought i missed that. for 4% ande prepared 5%, and the bull market can go on for two or three years. nejra: people keep calling out this bear market. it does not come. it does not mean it is not going to come.

what is going to trigger it? that 3% level is where we have failed to go beyond three times this year. that is where the market sees the feds neutral rate. let's get the bloomberg first word news. president trump claims he has the upper hand in the trade dispute with china. beijing does not think so. an editorial in the nationalist global times newspaper says china is prepared for a protracted trade war with the u.s. and ready to endure the economic fallout. president trump tweeted over the weekend that u.s. tariffs are working big-time. there has been a dispute between saudi arabia and canada, the saudi's suspending diplomatic ties. last week, the canadian ambassador criticized the 70's a women's rights activist, one of them a canadian citizen.

state run iran air has taken delivery of five european made passenger planes. france ok'd the passenger planes release only after getting the ok from the u.s.. growing tensions with the u.s. have pushed iran's currency to record lows. in venezuela, six people have been arrested after a drone attack. president douglas maduro was unharmed when two unmanned aircraft carrying plastic explosives blew up. they were flown off course by signal blockers. massive bets on asia has not paid off yet. plans to spendan $17 billion to grow the banks

presence in asia. it has had to pay $105 million for u.s. investigations. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am kailey leinz. this is bloomberg. nejra: thanks so much. let's get to the data. if we look at the headline level of the stoxx 600, not much going on in european equities today. we are about 0.3% right now. a little weakness coming through in the session. the turkish lira worth watching. we have blown past that five level, key psychological level. we are also watching the u.n. -- yuan. it more making expensive to short the yuan. it is weakening again. that 10-year treasury yield is unchanged following that job

stayed on friday. matt: it is still pretty cheap to shortly you want it is -- yuan. it is still expensive. we did see european markets, which opened up mixed, now pointing down across the board. the ibex 35 index in spain going the other direction than your is europe is down. the pound is down. sincethe lowest level september 2017. if you look at the one day graph, it looks more dramatic than the numbers actually show you. i have the 10-year yield because nejra cehic and i think this is the most interesting move. as she has pointed out, it has

tried to go over 3% four times this year, and it has not been able to hold. at about 3%, it looks like that yield is so attractive that nobody cares about gold. the last time rates were this yieldn terms of 10-year and the federal funds fixed rate, gold was worth only $800 an ounce. it could fall by about a third. nejra: gold has been interesting, not acting like the safe haven many would expect. let's get to our bloomberg. we were both talking about the yuan a moment ago. funding costs in china's money market slumping as the country leans toward easing. that money market rate tumbling to its lowest since 2015. china's rate swaps have fallen below the u.s. since the first time since 2009.

we could see even more yuan weakness ahead unless we get a meaningful intervention by pboc. matt: i will admit to being influenced by your message at 5:00 this morning saying you think the yuan is worth watching today. on the divergence between onshore and offshore, we have not seen much diversions. it is climbing closer and closer to seven. chart line on the yuan goes higher, it is getting weaker. this is the amount you can buy for one dollar. we have not seen this since december of 2016. ofra: it will be interesting whether the pboc sees this as a line in the sand. there is not any official line in the sand. the pboc still has plenty of reserve to play with.

let's kick it off with trade and tariffs, somewhat linked with this conversation. a rules tweak has made it more expensive to bet against the currency. that comes amidst rising trade tensions between the two worlds largest economies. president trump once again hit out against china over the weekend. president trump: sadly, i don't like this. the chinese market is down 27% in the last three or four months. i don't like that because i really like president xi. it is incredible what they have done. but they have done it off of our back. i have taken $500 billion a year for many years. we have really rebuilt china. we rebuild our own country now. nejra: joining us now is emma bryant at our asian news desk. are we really getting the sense

that china is ready to play hardball? emma: i think so. a month ago the tone was perhaps softening. we were hearing that they were open to talks. representatives including secretary mnuchin and present xi's right-hand man was here talking. fromw threats president trump against $200 billion of chinese goods really upped the temperature. he saw his comments over the weekend, which were probably a red flag for the state. times coming to bat, these china has borne struggles in the past. it will bear short-term economic

hits if it is to survive and push on in this trade war, if it appears it wants to do. matt: do chinese people appear to have the resolve to follow this through? it is much easier for them to deal with the trade surplus changing. emma: that is right. it makes imports from the u.s. a lot cheaper, which does cushion the blow a bit. this is a population that has dealt with a lobby for and is only exposed really to state media and a censored internet. the picture they are getting of this is this is an attack on their sovereignty. this is how it is being painted by the state media and the various ministries here, that this is the u.s. trying to blackmail them. that can only serve to galvanize people against the u.s. nejra: thank you so much.

trade and asia. john normand of j.p. morgan chase bank cross asset fundamental strategy. how much space does china actually have to keep playing hardball in terms of where its economy is at? now? john: they have a fair bit of space. the degree to which they are going to mitigate monetary policy is the driving force behind exchange rate. if they use fiscal policy to mitigate monetary policy, it will matter a lot. currentlyimportant is stability to the best currency currencyy -- is stability to them?

neville: i think they have a -- john: i think they have a presence of mild-mannered stability. i think they have more tolerance for weakness than some people suggest. matt: seven or seven of the half? john: i don't think that is a problematic level for the economy. nejra: some say it is not the level but perhaps the speed of the depreciation. yuanarkets sell off the even more quickly than they have so far? john: i think because the policymakers seem to be averse to volatility, they are unlikely to allow that sort of market pressure to allow volatility to climb. can see market pressure i think there will be some sense to contain it.

nejra: thank you. geoffrey yu will be with us on set at 6 a.m. in new york and 11:00 a.m. in london. this is bloomberg. ♪ ♪

bloombergis is surveillance. kailey leinz. u.s. regulators killed a $2 billion deal -- week $2 billion deal. they say it is a higher likelihood the requirement was asked to.

plunged today. several capital it will not continue discussions. at thely profits soared japanese telecom provider knowledge investor. throws the 9%. ose 49%.ngs r that is the bloomberg business flash. nejra: thank you so much. u.k. trade secretary liam fox has said the chances of another deal outcome are at 60%. the prime minister's office says it is confident of finding an agreement. his theresa may overly

optimistic? normand ofus is john j.p. morgan. why is the box -- liam fox doing this? >> he is pro brexit and av eteran. he is not involved in the negotiations. thecomments come in context of theresa may saying let's stop talking about no deal. said there is no alternative to no deal. the secretary on mission around --r saying let's be careful you have the foreign secretary on mission around europe saying let's be careful to not

accidentally have no deal. matt: the chance is uncomfortably high or into mark carney, it's not one of these politicians trying to negotiate. that is someone trying to take a sober look at it. re if trying to address the plants. plans.ingency if you find out what no deal would actually mean. about noof this noise deal, and there has been a lot of noise over the last three weeks and people with theresa may's government think there is a chance of no deal. pound would you buy the before we have certainty on brexit? >> absolutely not.

we are clearly on attending or the next two years from the brush aside the politics on brexit tape is value in this currency. this is not one of the more notlient, but g10 think is on a typing cap -- tightening path. nejra: would you sell the pound against any g10 market? john: you have a cleared emergence between what the fed is going to do and what the bank of england is going to do. you could make sterling versus a weak version of that trade. the uncertainty around where chinese monetary policy is going to be going is going to weigh

down on e.m. over the next few weeks. matt: a lot of people are saying this hartline is a negotiating tactic. i wonder how difficult it is going to be for the eu to get their ducks in a row to do any kind of deal that theresa may comes up with. have delegated a lot of power to michel barnier. there is the divorce and the future relationship. it is important to remember that when you're talking about no deal, all that needs to be done to get a deal that avoids chaos is the divorce. the stuff about future relations can push into the future. we are not try to be having committee gritty -- having nitty-gritty discussions. the 27 have delegated to bonnie a full power. full power.

matt: he doesn't need to get all 27 states on board? emma: he already has them on board. matt: thank you very much. and the ross thomas is our brexit chief at bloomberg. john normand stays with us. viewers can see all of the charts we use on the bloomberg terminal. you can use them in your own wor you can improve on them. k. nejra: and send them back to us. matt: this is bloomberg. ♪ ♪

matt: j.p. morgan chase ceo jamie dimon doubling down on his warnings about u.s. treasuries. he had previously warned that investors should brace for 4%. he went further over the weekend, suggesting 5% was a distinct possibility. the trouble is, he says that could be years into the future. forecasting that far ahead could be difficult. us. morgan is still with i don't -- john normand is still with us. i don't ask about your boss' forecast.

i want to know what the high- ish level is doing to people's investments. 3% is relatively attractive. does that take the shine off of gold? does that compress valuations of stocks? john: this is a negative for gold and fixed income? it is not a problematic level for the u.s. stock market. for this to be problematic, you have to believe interest levels are so high that it is weakening growth. i think it will continue to exhibit even as the fed moves up once a quarter. i don't think this is really a bond market that is going to challenge the equity market until next year. nejra: why is it struggling to hold above 3%? john: i think there is some uncertainty around the fed

path around trade policy. until that debate is settled, there is an unwillingness for investors to get in. nejra: john normand of jpmorgan stays with us. coming up next michele della vigna of goldman sachs. this is bloomberg. ♪ is bloomberg. ♪

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nejra: this is "bloomberg surveillance." with matt cehic miller.

the company that makes chips for apple is recovering from a debilitating computer virus. on bloomberg.com, they are predicting a messy split from the eu. international trade secretary says a 60% chance of a no deal outcome as the club ticks down -- clock ticks down to brexit. jamie dimon doubles down on r u.s. yields. .audi arabia suspends ties let's get to the bloomberg first word news. here is kailey leinz. kailey: the u.s. is ready to endure a protracted trade war. claimspset over weekend that from has the upper hand in

dispute. i china does not fear sacrificing short-term interests. trump has now changed his position on his son's meeting with a russian lawyer at the trump tower during the campaign. it was to gather information on hillary clinton. that contradicted a statement he helped put together last year. president trump said the meeting was totally legal, but he did not know anything about it. another challenge from italy's deputy premier luis tamayo. it will be fine of italy can finances program for a hot packs, guaranteed income, and lower retirement age within the eu's deficit parameters, but he says he will not let the staying in the way. u.k.'s trade secretary is adding to the sense that the u.k. is heading for a messy divorce with the eu. blaming the commission for a

lack of flexibility in talks. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am kailey leinz. this is bloomberg. nejra, matt? kailey, thank you for that. oil is trading at $69 a barrel. shrinking demand due to a traits that between the u.s. the de facto leader of opec reportedly reduced output. joining us is michele della goldman sachs international head of research, and john normand is still with us. what you think, first of all, about the real effect of the ataits that on oil -- trade sp on oil? the day, is end of

gdp remains as strong as it is now or continues to be strong, we are going very quickly to the opec strategy. we have the unit already between 1 million and 2 million barrels today. we going into a very tight oil market. if going tow iran follow soon. venezuela is having trouble getting anything out of the ground. is the supply side really going to shrink, or can president trump kind of jawbone or tweet the saudis into keeping it up? john: there is no doubt we're heading into a slowing period supply growth. venezuela continues to have 500,000 barrels today. iran could be up to one million barrels a day, depending on how countries like china react. libya is unpredictable your u.s. supply group is constrained by

infrastructure. this is actually still a period where a lot of major products come. the question is -- what will happen in 2020, 2021, when reality, the pace of new alejects slow down, and sh itself will start to slow down. want to point out there is a great functional bloomberg go on the bloomberg. and you can see, nejra, crude production has come down. i have used to seeing it at an all-time high, but as it pulls back, that could be a problem for the price three nejra: we have a tight market approaching. what should be will be doing right now? ishele: i think the oil going to position the hell in the 1990's. nobody else can -- they held in the 1990's.

nobody else can do it. i think what it will do is continue to use the stronger position to negotiate improved terms with government, will service, continue to simplify then when theynd get the returns as they can with the forward current, which is five dollars to $10 below the stock, which means the stock prices and period of structure liquidation, they can go back to a 10% return, something they have not enjoyed since the early 2000's. nejra: should the company be investing more or doing more deals to keep the price where it is right now? michele: i think they should do more activity. that is not necessarily make more money. i think they have learned how to simplify and breakdown projects in ways that make them with much lower crutches. -- budgets.

we looked at the largest oil and gas development in the world, and we estimate the cost, projects is down 60% to 70% from the peak. money spent at the top of the steeperle with the projects $1, saying that they were committing -- same as the three dollars they were committing before. matt: with oil companies do you think are in the strongest position right now? michele: to be fair, the sector very much moves together, and i think big oil as a whole can opoly thaty an oliga gives them a return. they can emerge as a winner like they were in the 1990's. in the 2000's, the investor was oil services. today, he wants it long big oil oil likent to own big

he wanted to own them in the 1990's. matt: when you rather own the producers and the underlying commodities? cases, you geth advantages. in commodities, you can roll. and on the equities like a similar roles to a positive earnings position, continues to revise upwards the oil. i think you always want to, the commodities and the big oil in the ages of restraint as much as in the asia's -- ages of expansion like in the 1970's and the 19 90's. bp?a: can i ask you about i wonder if they can profit from the shale of they agreed to buy last month. is clearly a key

part of the future growth and it will be a key part of the oil portfolio. the key part today is that areas like heavy oil, like lng, actually become as profitable as shale thanks to the deflation. i think for big oil, it is important to banners with major project development and the shale. matt: what do you think about oil? what part does it playing in a portfolio for you? uniqueo me, it is a catch for certain geopolitical risks, but when i look at cyclical developments, i think oil prices are lower. to me, it is a question about the sufficient spare capacity to handle the growth of u.s. -- breadth of u.s. sanctions against iranian crude. there will be some reduction in iranian output, there will be

some ability to meet that through opec capacity, and i think the mantle gradually weaken is the second half of the year. nejra: how much lower by the end of the year? john: i think high $60's on brent. matt: we start of the year around $70. john: right, so it is not a meaningful drop among but it is a signal that it is not a great investment. matt: all right, john norman of jpmorgan will stay with us. michele della vigna, he reminds them of goldman sachs. on your commute, tune into bob melvin and karen moskow. heard in d.c., boston, the bay area, and across the u.s. on those local stations. therwise, sirius xm is place to go. or on your terminal, just type in radio . this is bloomberg. ♪ omberg. ♪

matt: welcome back to "bloomberg surveillance." i am matt miller in london with neighbors or. -- with neighbors cehic.. -- with nejra hsbc's costs increased, even though they told bloomberg that first and second quarter costs were in line with their estimations. they spoke to us earlier. >> hsbc as in good shape. there he much in line with our expectations. we saw good revenue growth in the first quarter of the year. that is due to progress over the same period last year.

we continue to invest in the business, and we are sitting on a strong balance sheets, so i feel reasonably confident about where we stand. what kind of impact do you forecast it might have on your business? ok, our job is to deal with what is in front of us in terms of supporting our customers, and that is what we have done through the present through the representst clearly or have the potential to represent some challenges as we go forward, but this is not the person we have gone through difficult trading conditions. >> they probably are preparing contingency plans. liam fox says a 60/40 probability. are you discussing it at hsbc? iain: our job is to support the customers, come what may. brexit, the goal

of 20 u.k. and europe turns out -- we are hoping for the best and paring for a worse outcome. matt: joining us now is bloomberg's dani burger. boost here in london, and later they felt. what is the story? dani: it is really about costs, matt. as it turned in european markets some as you pointed out, we had analysts asking if we will see costs outpace earnings, as you pointed out. it not only missed analysts expectations but was far outpaced by the 7% increase in revenue through it should come as no's rise because rising -- no surprise the costs rising.

they are spending $17 billion on new markets and asian technology. matt nejra: i cannot help but be reminded about standard chartered's earnings. dani: investors are pretty unforgiving when it comes to in costs.lity to rein there are signs that some of this is working. we have seen revenue from the bank come in at about 88% from asia, up from 75% last year. but investors, not only do they want to see more growth anpick up, but they won a healthy dividend. the company announced a healthy dividend of 10 cents. that has not changed. nejra: take you so much to bloomberg's markets reporter dani burger, and john normand of jpmorgan is still with us. we have got into earnings season with the mix

back out of your index, do you favor u.s. banks or the european once? john: i would say the u.s., given the momentum of the economy and also the direction of interest rates, and the u.s. to me have the advantage of the cyclical side in terms of what it is doing for the economy, and it has a more upside on race. even though i think -- on rates. even though i think they will go up because of growth in both parts of the world, the u.s. have it for me on the growth side. ust: the ecb has promised they won't raise rates until the end of next summer, but will they be able to even after tha t if we do not get inflation close to the target,? what is the point? john: i think they will because what the ecb is trying to do is remove the monetary stimulus measures that are only appropriate for deflation, negative interest rates and qe. qe will be over by next year.

having an economy that is growing consistently above trend is a differentiation, and inflation is clearly positive or negative, the policy is quite outdated. so you get rate normalizations through hikes. that is kind of the bearish case with bonds, the bullish case with financials. a 56 months before it becomes a catalyst for the market. matt: it is priced in already, wouldn't you agree? at least one rate hike from the ecb next year is priced in. john: one is some of the this is the beginning of the rate normalization losses. -- process. one is not a sufficient pricing in of the inflation in, to me. nejra: where are cyclical it comes to equities? john: i would rather be in cyclicals.

the issue is there are a lot of concerns about how long the u.s. expansion can continue, and that feeds into a risk when you -- premium in europe. that could go on for a couple of years. there is too much bearishness around cyclicals. they have not developed as well as they should in this environment. but the business can improve itself through interests, and we will get these sectors outperforming again. matt: john normand, thank you so much. john normand will stay with us from jpmorgan. tomorrow, i will be flying to frankfurt to interview the cfo of commerce bank. -- commerzbank. this is bloomberg. ♪ this is bloomberg. ♪

kailey: this is "bloomberg surveillance." high-end am kailey leinz. google's plans for china's are ambitious than previously thought, offering cloud services.

the talks began earlier this year, and now google has a road -- has narrowed its partnership candidates to three companies. mercedes is in touch with beijing electric vehicles to manufacture the smart car brand. inmler is pushing smart cars places where parking and emissions are becoming a problem. that --g has learned will run the security unit. ,t is currently based in london and he is currently the training officer of income businesses. that is the bloomberg business flash. nejra: thank you so much. still with us on set is john normand of jpmorgan three went to get back to the yuan. here is another one showing whiles one-year race falling below the u.s. for the first time in nine years. even though we have been moved from the pboc to make sure

things are running more expensive. we have been short the currency. we recommended clients profit from this. if you ask whether there is a good hedge for trade sanctions on the economy summit to me, it is definitely the renminbi, and second that would probably be the korean won. trade policy becoming more binding on grows. that reduces the rate spread to the u.s.. nejra: for you, this is very much trade-driven. john: exactly. if it were not for trade, what you would probably see our chinese markets starting to track u.s. markets higher. position is a tech-dominated equity market. nejra: but the divergence is not growing. john: it is, if you look at the equity side. i do feel like what is going on a currency is almost 100%

because of trade, and if that were not present, you have a much more capital balance. on my screen,crs and i am looking at the mexican peso really outperforming everybody in expanded majors here. it used to be that the peso was kind of a proxy for emerging markets. is that part of what we are seeing here? john: no, i look at the drivers in mexico being white country-specific, meaning it was ahead of elections in the spring and when it looks like math that would not be reduced in a favorable way, and now that the nafta would not be reduced in a favorable way, and now that it is over, it is not as steady as it used to be because of domestic politics an d nafta. matt: at the bottom of this

chart, we see the turkish lira, with is absolutely tanked, 20% year-to-date. turkish on several also gotten crushed. the stoxx have not done well. is there a point at which that situation is so bad that everything is priced in, and we can go back in there, or does this lack of a rule of law such a big concern? john: i think there is a very high degree of uncertainty around the policy mix, especially in an inbound economy. the recipe or the antidote for that is tighter fiscal policy and tighter monetary policy, and the turkish lira is not delivering that. you can think about all of the news being weak, but when you think about the catalyst on the policy to get rates to go higher, it has to be tax hike, spending cuts them and you are not seeing that right now. matt: right now, we see a lira,

, and itay, at $5.17 continues to lose ground today. our thanks to john normand of jpmorgan. appreciate having you with us for the hour. we will continue on the currency theme here. as the lira loses ground, as the yuan loses ground, a record locomotive will talk with geoffrey yu, head of u.k. butstment officer at ubs, also company is a bit of a currency specialist, a bit of an fx guy. new york, --.m. in that is at 6:00 a.m. in new york, 11:00 a.m. in london. this is bloomberg. ♪ this is bloomberg. ♪

matt: waiting game. china says it is prepared for a protracted trade war as trump ramps up his rhetoric.

brexit breakdown. warnsminister liam fox that no deal is more likely than not. hsbc says the bank is working on a contingency plan. dimon doubles down your jb morgan says it will hit 2%, but the current market will run to three years. this is "bloomberg surveillance ." i am matt miller with nejra cehic in london. tom and francine have the day off. nejra: get some interesting about dimon. we talked about him recently. sitting on the fence much? [laughter] saying 3%, nowen 5%, but still, two to three years in this bull market, that begs the question -- how good do you think you are at or casting rates if you can go out three years? is 3.5% to 4%,

john aboutked to that, and he looked and looked and saw this kind of trade war. we get a resolution to it. it will be harder for yields to push higher, even if they should be higher. matt: you pointed out we got up across that level or close to it around four times in the last year. international investors like a 3% yield. it is juicy, and they get in there when it gets high. nejra: here is kailey leinz in new york. president trump clancy has the upper hand in the trade dispute with china. beijing is not think so. an editorial in in the "global times" newspaper says that china is prepared for a protracted war with the u.s. are working "big-time." there has been a range of medical escalation of the

dispute between saudi arabia and canada. they have halted new trade and investment dealing. the canadian ambassador criticize the saudis for arresting women's rights activists. one was a canadian citizen. they told the ambassadors leave the country within 24 hours. state run iran air has taken delivery of five european passenger planes. france ok the release of the planes only after getting approval from the u.s. the trump administration have isndoned nuclear accord and planning to impose new sanctions on iran this week. in venezuela, six people have been arrested after a drone attack on a military arabian washed by president -- parade being watched like president nicolas maduro. venezuela's interior minister says the drone was thrown off course by signal blockers.

hsbc's massive that on asia has not paid off yet. it missed estimates, meanwhile, costs rose 7%. hsbc ceo john flint $7 billion to grow the bank in asia and improved technology. 765 million dollars to settle u.s. investigation into mortgage-back security. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am kailey leinz. this is bloomberg. nejra, matt? much, thank you so kailey. let's look at the data check and see where markets are moving. the stoxx 600 showing it a , down touch of weakness earlier from .3%, but it is rebounding, moving on either side of the zero line. we have seen it all. hsbc pulling banks down. but overall, a tiny bit of recovery in the stoxx 600. hittingish lira

a fresh like record low. how quickly could we get to six dollars? , setting it, making it more expensive to short the currency. we are steady, but it is not like we are seeing strength against the dollar. the 10-year yield steady today at 2.95%. matt: i think that turnaround in stoxx 600 is really the story of the hour right now. it is not just that some of the the dax has absolutely shot up. if you look at a one-a chart, and i just pulled one of quickly, you can see that something has spurred a big rebound in equities. it is helping not only the dax, cax, and the ftse, but an hour ago, we saw european

markets across the board, and they were getting weighed down low or in possession very they have now turned around in a big way. something is boosting equity demand throughout europe, and that is really pushing up users as well in the u.s. -- futures as well in the u.s. looking at brent crude, it has had a pretty decent rally as well, right now up $.74 to $73.95. some: matt, you might have insight on this, but i said miners were lower on trade tensions. when you get the u.s. ramped up, what do we see carmakers do? carmakers are the best performing industry group on the stoxx 600. matt: where our cars mostly traded? all in frankfurt. mostly on the dax. consumer discretionary stocks are a defensive play.

now they are starting to turn positive, which means people are starting to rally. nejra: let's get off with trade and tariffs. ruleboc announcing a that makes it -- against betting. pledge toonomy retaliate against any inflation tariffs. president trump spoke in a rally over the weekend. pres. trump: sadly, because i do not like this, but the chinese market is down 27% over the last three or four months. i do not like that, because i really like president xi, and i respect china greatly. it is great with a have done. but they have done it off our back. they have taken $500 billion for many years. rebuilt china, it is time that we rebuild our own country now. nejra: joining us now is cap is really come our bloomberg chief

washington correspondent. great to see you, as always. we have heard from china that they are ready for a protracted trade war. is president trump ready for the same or just one the lasts until november? kevin: yes. the president as well as senior a demonstration officials do feel that they have the political upper hand, as we have been running on this program for quite some time. the second point, is from a political standpoint, that great soundbite that was just plain really illustrates how senior officials are hoping that the politics of that type of rhetoric, that oculus-fueled rhetoric, will help them -- populist-fueled rhetoric of it help them in the elections the in states that helped them in 2016. the independent voter is very much skeptical of china. i can tell you many pollsters feel that u.s.-china back and

forth place well with the independent space. matt: i want to bring up a tweet, kevin, that president trump put out saying "fake news reporting, a complete fabrication. i am concerned about the meeting with my wonderful son." of course he says he is not concerned. he says, when you think the most interesting part of this tweet is, that they were there to get information on an opponent. he says it is totally legal, donald the time. the first part of the statement is, i guess, questionable. the second part, you have to agree, opposition research happens all the time. isn't this kind of a change of position here? now he is saying it is no longer about adopting children but to get embarrassing information on the clinton campaign. kevin: that is referring of course to the june 2016 meeting between donald trump, jr. as well as then-candidate donald

trump's campaigns chairman paul manafort, who is standing trial. the bottom line is you have now seen a shift in rhetoric over the past two weeks with regards to the president's now attorney, former new york city mayor rudy giuliani, about michael cohen, the previous attorney, and they have been critical of michael cohen, the president suggesting consistently now in those tweets that he has not had any awareness of those meetings, and you have also seen coming from these folks that they feel collusion is not a crime. nejra: thank you so much to cap is really, our chief washington correspondent. -- a cap is really come our chief washington correspondent. -- kevin cirilli, our chief washington correspondent. joining us is another guest on the we have another step up in

trade tensions. how difficult is this making it for you to work as the u.s. economy near-term? it is making it difficult. as affecting both exports and imports from a different time horizons. in the second quarter, we got a big boost from net worth. i think-- net exports. that you need is to see -- it is going to take some time for this to get negotiations to move forward. you need to see additional put in, then he to be place -- they need to be put in place before we get a resolution to this trade spat, so we have actually started to build additional tariffs into our forecast. matt: so far, we are only talking from the u.s. side, tariffs on $34 billion worth of goods, which is them in the scale of things, not very much at all. how much do you as expect us

to eventually see, matt, will the u.s. go through with the remaining $16 billion, a remaining $200 billion, and will china come back? matthew: you are right, it is very small, on the aluminum side, with has already been admitted, and the additional $34 billion. we do expect to get the additional $16 billion for most of the remainder of what they announced, $50 billion. we do expect them to escalate to $200 billion additional tariffs from the u.s. on imports from china. as you probably know, that is probably going to leave to a further escalation or retaliation from china. i think it is a close call. it is hard to know exactly where this goes. what we are taking from both sides is you need to see additional pressure to bring both sides to the table before we get a negotiated deal. nejra: right. i keep hearing from

people again and again is so far, this will not shake the fed, what will shake the fed from its rate hiking path? matthew: i think that is right. we have not changed our that expectations at all. we still expect them to hike in september and december. so far, they have said we are hearing from businesses that there are concerns, that there have been potentially some disruptions, but so far, we are not seeing data at all. if you look at friday's jobs report, there is no indication we are seeing in the data right now. the economy growing at 4% with a 3.9% unemployment rate and an inflationary target, you do need to see a big hit in the data to knock them off their current path. nejra: matthew luzzetti of deutsche bank will be staying with us. coming up on "bloomberg markets: balance of power," you do not want to miss it. 12:00 p.m. in new york, 5:00 p.m. in london. this is bloomberg. ♪ n.

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kevin: -- julie: this is "bloomberg surveillance." i am julie ryan spirit shares of iwg plunged today. it does not want to be sold at the price that equity firms wanted to pay. it told them it will not continue discussions. profits soar that softbank. 49% boosted by the earnings. the company also gained by selling a unit of a subsidiary,

a.r.m. a semiconductor company that makes chips for iphones as it was -- says it was crippled by a virus. it should several - it shut several factories, just as the company ramps up for the new iphone. that is the bloomberg business flash. matt, nejra? for thatnks very much very you can trade secretary liam fox says brexit talks are more likely to end without an agreement and with one. speaking to the "sunday times," he put a note deal outcome at 60%, blaming you like of eu flexibility for the rising prospect of a messy divorce. office prime minister's says it is still confident of finding an arrangement. the clock is ticking. is theresa may being overly optimistic, or is liam fox pushing his own hard brexit agenda? still with us are matthew

luzzetti of deutsche bank and now geoffrey yu of ubs joining us from london. we already had last week mark carney the chances of a no deal brexit are uncomfortably high, but as our reporter emma ross-thomas and pointed out, she pointed out more like 20%, not 60%. what do you think? geoffrey: there will be something of a deal, some kind of arrangement. i think the markets are working what kind of deal it will become a hard, soft, or somewhere in between. we still have a few more months to go. matt: what is due to your -- the increasing likelihood of a no deal brexit, even if it is not your base case, what does it make you do as far as your investment, as far as being the head of the u.k. investment officer for ubs wealth management? geoffrey: i am concerned about

the pound of course. nuanced.it more the overall message, the ultimate no deal, brexit, no brexit, the pound valuation. a non-base case does come through, then we are prepared for adjusted lower, but we are talking about entry opportunity. i think we are fine with that message. nejra: geoffrey, what is the downside of brexit? you have to factor in monetary policy come in right now you can see the boe is not really in a position to be aggressive, is a medium or longer-term investment coming to take a multi-business cycle view, then probably they will be looking at entry levels already. you have clients are entrepreneurs thinking there will be an opportunity to get back at levels, that is a disturbing point of view, they will be looking for no deal as well. investment propositions.

nejra: what point could you reevaluate the u.k.? we are all hinge -- getting headlines coming through from an eu spokeswoman speaking to reporters in brussels at the eu is working constructively to reach a deal. is it a soft brexit that is needed? geoffrey: i think that conversation have ended already. it is a bit too late to think about planning for a soft brexit. but again, a lot of the clients space overseas, you know the rule of law, looking at the institutions, that means we u.k. will have the propositions for a long time. matt: matthew luzzetti, is there anyone in the u.s. giving this issue and he thought? at all ines it matter terms of fallout for the u.s. economy, for the global economy? matthew: i think it does.

i think certainly u.s. investors in global investors have so much on their plate right now thinking through what central banks are doing, thinking through how to think about the global trade tensions that are ongoing. the italian have political -- the budget deal that is coming up. there are a lot of things on investors' plates. the clients that i speak to in the u.s. are focused on the fed, our focus is more easily on what kind of trade deal we could get in the u.s. so it has not been at the forefront of their minds. matt: i wonder what you think about the possibility, and geoff, let me put this to you, for europe, how much does it matter -- obviously for the ok, it is a huge deal -- the u.k., it is a huge deal if you get a note deal brexit or a soft brexit, how much does it matter? geoffrey: economically and

politically, it is a different discussion. economically, managed expectation. it can be managed over the medium to long term, even when talking about the budget shortfalls, but politically, they are trying to old the line as much as possible. freedoms are indivisible, and that is the message from the u.k. that is where there is a gap. the eu will push to their benefit. nejra: did the bank of england make the right decision raising rates close to the brexit? geoffrey: the bank of england will say they will never precommitment and forecasting brexit. have the information that come up they made the call the do noid, but up ahead, harm, if there is uncertainty and inflation outlook stop some what there is no reason to push more aggressively,. you see that reaction in sterling already. nejra: what is ubs do on the

10-year gilt yield? geoffrey: it is going where global monetary policy is going. making a call on how much the bank of england or anything, for that matter, is willing to outpaced the fed. we have taken one already, but by 2020, it is more than likely they will need to keep a balance sheet stability, and they need to keep the treasuries. on a once level, i do not think anything wants to push -- any bank wants to push. nejra: i want to update that table has dropped 0.5%, touching $1.2935. you sort of moved on to the fed there, geoff. yount to ask you, matthew, were talking about a 10-year yield, the fact that it is struggling to break 3.5%. given the economy, should u.s. yields be higher? matthew: i think definitely

given where the economy is, given where the fed is some of the money on the balance sheet, and the increase in fiscal deficit. but you have the global forces that are taking effect. you have the boj with the policy, ecb has continued to do qe. in the u.s., there has been tensions on demand for the longer end of the car, which is yieldse, which has kept lower. you have less issuance in europe. so i think yes some of the economic fundamentals support higher yields. we are a little bit cautious on that in the near term, but we still predicts 3.5% by year end. back withill be geoffrey yu of ubs and matthew of deutsche bank are saudi arabia has halted diplomatic ties with canada amid a dispute over the kingdom's

arrest of a women's rights activist. saudi has recalled its investor to ottawa and ordered the canadian envoy to riyadh to leave, according to a statement cited by the saudi press agency. the canadian dollar weekend on akened on-- we the news. let me ask first of all, this looks like the saudis are even more concerned about how it looks than the canadians. they are the ones who are sort of putting things off. how important is the canadian relationship to saudi arabia? correspondent: we are seeing a more aggressive policy of saudi and we have seen them to a little bit more aggressively than they would have done in the past. the relationship economically between saudi arabia and canada is not that is passive in terms

of investments between these two countries, but the reaction, the saudi reaction was a little bit surprising to many. zainab, butising, what does it tell us more broadly about saudi arabia and foreign policy? saudis seem to be looking at the need for a more aggressive foreign-policy in the way the deal with other countries. they are drawing a line in the end and a in this our sovereignty that is being interfered with, this is a saudi citizen who was going to be going through a legal process in saudi arabia. they are looking at this as something that is very offensive in their statements, that seems to say this is very offensive . at the same time, this is not completely unprecedented, because the saudi's jakarta

investors over a -- ambassador over a row with germany, during some trade ties, they were also blamed with an episode with the prime minister of lebanon when he resigned abruptly. so this kind of is not completely new. nejra: ok, thank you so much to fattah,rg's zainab geoffrey yu of ubs and matthew luzzetti of deutsche bank are staying with us. coming up, jeffrey dwyer at 9:00 a.m. in new york, 2:00 p.m. in london. this is bloomberg. ♪ this is bloomberg. ♪ two, down and back up.

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plus get $150 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. let's get the bloomberg first word news. kaylee has that for us. thehina is warning china

u.s. is ready to endure a protracted trade war. after a weekend of claims by trump that he has the upper hand. says china does not fear sacrificing short-term economic interest. trump has changed his position on the meeting with -- on his with a russian lawyer. mr. trump: the meeting was totally legal but he did not know anything about it. another challenge to the european union from the deputy premier. they will not let eu rules block its populist program. he said he will not let the rules stay in the way. theresa may's trade secretary is

adding to the sense that the u.k. is heading for a messy divorce from the eu. brexit negotiations are likely to end in failure. global news, 24 hours a day, on ctoc on twitter. this is bloomberg. china has gains as trade concerns continue. this after the pboc announced a rule tweak that makes it more expensive to short the currency. they set the reference rate at its weakest since may of last year. downward for been the u.n.. is there any reason not to short the u.n.? >> friday was a message about

taste. whether to short or not to short, i don't think they want a vicious cycle and everyone wants to go short. worries and the message on friday, we have plenty of ammunition. they have not used much. if you look at reserves, there is a lot more that can be done. if the market knows pboc has more ammunition to protect against weakness, are they going to keep testing those limits? to thee will be tests weakness, but it will be halfhearted compared to 2016, when we went above 7.

thing the pboc has is there wasn't that much in terms of capital controls loosening opposed to years prior to 2015. if there are attempts to short, they will be halfhearted. tariffse u.s. can put on more chinese imports than china can put on u.s. imports because of the balance of trade. the chinese can let the yuan devaluation keep things even. is that what is happening? >> in part, yes. it is not a coincidence use all chinese authorities announced tariffs the same day they rolled out reserve requirement

restrictions on the fx side. there is some substitutability between what is going on on the fx side and the tariffs side. it is important you see u.s. data has remained resilient. what we heard over the weekend and seen recently, trump is likely to put more pressure to push forward and we may see additional tariffs put in place. tariffs, dosee more we see more devaluation? if he puts tariffs on $500 , i amn worth of goods sure he has said that in the past, do we see the yuan going to 7.5 or eight? basis fors no

sustained long-term depreciation. there will be rhetoric on one hand and restraint on the other. people are saying use this reformnity to prompt domestically. the chinese premier was in germany. they wanted to fly the flag for free trade. there is enough domestic will to try to generate growth by other means. do you think the reform program is not at risk, even if we see growth slow? absolutely not. the priority is to allow growth to slow. we have not seen a collapsed to the threat -- to the fact it threatens the reform package.

how strong deleveraging has been is a sign they are committed. they can ride this out. yuan: we talk about a weakness, we so -- we show it against the dollar. how much could be down to dollar strength going forward? >> it is hard to know. 2016, thek at 2015, u.s. has been more resilient this time around. from that perspective, you are seeing less spillover into the u.s. than you did in previous episodes.

matt: how much do you think this will help, these protectionist policies, to bring manufacturing jobs back to the u.s.? is that a good thing? will we see more people making steel in the u.s., building cars in the u.s., assembling iphones in california? is that going to help? we have seen a decline in manufacturing employment in the u.s. and manufacturing production in the u.s. a lot is due to automation over time. is you shouldr not expect a big impact based on terms of what it means for gdp growth from the implementation of these tariffs. matt: i pull up my bloomberg all

the time. i see the u.s., china trade deficit. surplus here. i can see the deficit is massive with china. how can that change? fromn buy less stuff china, but can the chinese by morestuff -- chinese buy stuff from us? >> they are open to energy construction. there is some scope on that front. story,s a fundamental what we see in terms of trade and balances, even if you see up, it mayariffs go

be the case the production moves to other countries, which does not affect things that much. it is more a fundamental story decisions.tment that is unlikely to change. are we going to see more dollar strength from here? the latest data shows a pullback. >> people are starting to look for opportunities in emergency -- in emerging markets. isr in mind, at what point rod-based -- is broad-based compared to the rest, the boe and the ecb?

you will get to the extent where he does make a difference. we don't need to worry about inflation at this point. matt: wage inflation will not follow along with good inflation if that accelerates. on your commute, tune into bob mooning karen moskow on radio. bloomberg daybreak can be heard in new york and the bay area on dial, but really across the united states of america on sirius xm here in london, on digital radio, and on your terminal at radio . this is bloomberg. ♪

>> let's get the bloomberg business flash. china arelans for more ambitious than thought. to offer itstalks cloud services. talks began earlier this year. google has narrowed its partnership candidates to three companies. daimler will make cars in china. the parent of mercedes is in talk with beijing electric vehicles to manufacture smart car brands. pushing smart cars in places where parking and omissions is a problem. jim esposito well run securities. the is based in london and is co-chief operating officer of

goldman's fixed income trading business. nejra: it is time for the single best chart. let me bring you to that chart. one we have shown many times. it is great. it is showing longer-term euro depreciation over the past years. another freshng record low. weaker for a sixth day. bond yields have risen. dollar strength have been some of the reasons for the compounding of the move today. is there anything the central bank can do to stop this route? some reassurance that is may be out of their control.

the other side, what can they do themselves in terms of hiking interest rates. that is the obvious one. there is a strong component of exposure to dollar debt. as long as the dollar is strong, they will use reserves to push back against that. you run the risk of attracting people to take it on. a rock and a hard place right now. matt: if you go on your chart , youlick max at the top will see -- i thought the turkish lira has always did valued for the entire life of lira.rkish there was a decade when it from 2001 to 2012.

like the economy has always been out of control. is the debt worth so little it to come in and pick it up? likew mexico -- we have the hard currency. it goes back to the dollar. at what point will the dollar full cycle end? nejra: does the prospect for turkey hinge on what the dollar does or is it an economic case to be made to invest in turkey? >> i don't have great insights on that. the dollar is an important part of it.

side, itin deficits looks vulnerable from that perspective. beending the currency will important. what about the central bank policy of turkey, what the thinks abouter what leads into inflation? have constraints, you will have markets trying to push that and pressure that to see whether the central bank will be willing to hike rates to defend currency to push back on inflation pressures. anytime there is uncertainty about central bank independence, you are likely to see a push

against that. matt: the federal reserve, as the fed raises rates, it puts and the markets universe of emerging markets in a difficult position. keeping that in mind or is that not any concern of his? >> he is keeping it in mind. they have to. isad u.s. dollar strength looking forward. in the past, we have seen emerging-market stress spillover into the u.s. what he has said is we have been transparent and how we are going to hike rates. we are going to set monetary policy so it meets the conditions of the u.s. economy.

that means they continue to raise rates. they raise in september and december, and four times next year. matt: you can see parallels strong-willed countries and the banks and the u.s. jerome powell was appointed by the president, but he wants to raise rates further and trump does not want to. jerome powell and the rest of the committee to enforce their independence to remain outside all political influences. policy asset monetary they believe they should based on the incoming data. from my perspective, what we are should i don't think it

deal with monetary policy going forth. decouple andates the tenure hold above 3%? >> it depends on how the fed wants to calibrate financial conditions. it is contingent upon the high -- we have one more for this year, three for next year. irrency rate spreads is what am looking at. the fed will prefer to see the tenure holding where it was, but risk premier being injected into the spread space. in 2015, the high yield, a major issue there. much more disciplined around. capex in energy.

that is where clients are happy to do yield pickup. nejra: it is all about the spread. thank you. remember, bloomberg users can interact with the charts shown in using g tv . you can catch up on key analysis. you canmatt miller did, see more long-term what it is doing. this is bloomberg. ♪

matt: good morning. joining us now to talk about banks is ed robinson. ofc is out with a report profits that beat the street estimates but growth that missed. this long-term plan to boost growth in asia. it sounds fantastic when you

hear them explain it. what is the story here? >> revenue growth was up about 2%. expense was up about 7%. the new ceo came in in february. what he is asking investors for is patience. he says we have a strategic plan. you have to hang with me for a couple of quarters here. is expansion the story for other european banks? we see it is doing what barclays is doing and what

credit suisse is doing. the outlier. is all of these banks are asking investors to give us time. not pullingre completely out of the u.s. they want to keep a foothold there. thank you for joining us. , it has been a pleasure. keep it with us. nejra: this is bloomberg. ♪ this isn't just any moving day.

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david: jamie dimon says we are heading to 5% rates and the 10 year should already be at 4% even as it struggles to get above three. saudi arabia suspends trade and investment with canada after canada criticizes them for jailing women's rights advocates. war of attrition. china is prepared for extended battle with the united states over trade. trump claims tariffs are working big time. i am here with julie hyman. julie: good to be here. at what is going on with the markets this morning. s&p futures, not much has tried just has changed. volume.o see low we