francine: china downplays chances of continuing trade talks, the white house black list huawei. the race to number 10, boris johnson throws his hat in the ring. how much longer can the prime minister hold on terror gap but who -- hold onto her job? oil jumps as tensions flare up between iran and saudi arabia. ♪ welcome to "bloomberg: surveillance." these are what your markets are doing. looking at the stocks in europe 600, a little bit of pressure.

markets are still try to figure out what happened next in this trade war. from the chinese side, they are signaling they are not interested in talks as things stand. we do not know if that is political posturing or a real breakdown in communication. what we do know there is a real impact on the market. you can see the u.s. 10 year is unchanged. and after saudi arabia being accused of being behind the attacks, brent crude is up to 72.79. up next, we speak to the chairman of the royal bank of new orleans, later on, to david haro about his bank holdings. first, let's get to bloomberg first word news in london. >> president trump is wary of drawing the u.s. into a war with iran, reportedly out of concern the conflict could endanger his

chances of winning a second term. he is keeping in mind his pledge when he was elected, to keep the u.s. out of middle eastern wars. when asked about the prospect of a new conflict, the president said "i hope not. " this social media giant has been under increasing pressure to protect user data and concerns they could do more to stop the spread of fake news and hateful content. >> i don't know if a kind and he that is a company should be broken up because it is popular. -- if a company should be broken up because it is popular. if you look, we have had advancement in areas of privacy and election interference. >> taiwan's president has claimed victory in being the first asian nation to legalize same-sex marriage but it has

revealed divisions on the island young, urban progressives are in favor but older, religious citizens of oppose it. theresa may will try to get her deal approved in early june but she is unlikely to succeed. meanwhile, the former foreign secretary boris johnson has announced he will stand in the race to succeed her. global news, 24 hours a day on air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thanks so much. president trump is pulling out the big guns in a move that could cripple china's biggest technology company. the white house has blacklisted huawei. bars their access to critical suppliers, it could inhibit the rollout of 5g around the world. however, wilbur ross says these are not part of trade talks. >> this is not actually part of the trade situation. and it was not something that

had been discussed in any of the or the many meetings that were held between china and the united states. francine: meanwhile, china has signaled a lack of interest in talks. joining us is our chief china economic correspondent. are we hearing from the chinese? is it a breakdown or political posture to get the u.s. desk -- posturing to get the u.s.? >> we are seeing a bit of pending in the rhetoric -- ramping up in the rhetoric. they have accused the u.s. of playing little tricks and being insincere, and therefore they should expect little in return. we had an editorial in the main communist party newspaper drawing on analogies to how china has gotten through tough

periods of hardship before and are prepared for something of a long fight. by all accounts, while the officials and diplomats stick to standard language, we are a more aggressive tone and, perhaps, the real message from china. francine: i need to interrupt for one second as we are seeing the spanish 10 year bond yield falling to a record low of zero 8%. -- 0.8%. we will go to look at some of the yields in europe. is this actually all about quality --huawei? is this justified about technology supremacy? doubt that the u.s. going after huawei, though to thelicitly, does go

core of china's industrial and economic strategy, france -- francine. there is a a lot of pride in this company and it is a world leader in telecommunications and the 5g technology field. if we were to get to the point where the u.s. doesn't threaten to cripple huawei, that would be a severe blow to china and to u.s.-sino relations. that is why the broader technology story really is hard to separate from the whole mix. francine: thank you so much, as always, for your briefing. is pimco's head of portfolio management for germany. i was going to ask you about the trade war, but let's kick off with the spanish yields, falling to a record low. what does that actually mean? they are out of the global

production chain. what we are seeing is partial recognition that spain is on its way towards slowly migrating towards the core of europe, maybe the outer core. it is behaving like a risk-free asset, which is much difference from earlier. - earlier periods. francine: let me bring you to my favorite chart. it looks at negative debt topping $10.5 trillion. what does that tell us about the state of the economy and the market? ,ndrew: in terms of the economy it tells us that the outlook for nominal growth is pretty muted, no? that there is a conviction amongst

central banks and policymakers about how to go about reviving things. the jury is still out as to whether this negative interest rate will turn the ship around. francine: what does this mean for pimco? where do you find value? andrew: what it means is that if you need income and yield, you have to look to other markets. a way, has some luxuries europe no longer has. when they have low yields, they could look to the united dates, to europe. it is now taking place in europe. locs ine got two big b negative territory, leaving fewer for positive yields. the implication is that it is pushing global yield staff. francine: i have another chart, we are on fire. this is the 10 year german bund

yield approaching a 10 year low. when does this get repriced? is hard to pound his glass table and say that is a bargain. francine: [laughter] andrew: to the extent you place any credence on technical analysis, one of the sayings is the trend is your friend. you do not bet against that. certainly with that fundamental outlook. francine: there is stimulus, 30% market probability about the ecb cutting rates, but that coupled with the recession means they run out of tools. andrew: which could be quite deflationary, if they were to do that. francine: but that means what, global recession? the ecb will be reacting to whatever is happening in the global economy and the eurozone. but in terms of the outlook for yield is notd

going anywhere fast. francine: we are also getting breaking news out of china. renminbi extending the drop, 6.ding at six point 1954 -- 1954. does this actually have an impact on the rest of the world? andrew: that is a fantastic development. it is showing the exchange rate is there as the adjustment mechanism. it is, in china's case, cushioning its economy. francine: the spanish 10 year yield is 0.86, what is wrong with this picture? andrew: there is nothing really wrong with it, but what it veryls is that deflationary message about global growth and growth prospects. it actually makes me feel quite encouraged about the distance from zero four u.s. treasury

yields. francine: we will talk a little bit about that and thank you to the news desk for pointing out some of these moves. coming up, facing the challenge. calls toch giant faces break up, we'll bring you more about interview facebook's vice president. that's coming up a little bit later, this is bloomberg. ♪

francine: economics, finance, politics, this is "bloomberg: surveillance." we had a bit of market movement. i was going to say we have had quite a lot of movement, specifically the spanish 10 year

bond yield dropping to a record low. we have seen it record lows also for the german bund and movement on the yuan. six .9154 --hing on watch for it possibly touching seven. let's get your bloomberg business flash. >> amazon is set to become the biggest investor in delivery use round ofroo's latest funding. the company's rivals are slumping on the news. hasish lender metro bank sold millions of pounds of shares after a surprise shortfall. that is a 7% discount to yesterday's close. they have announced they have revamped the business model and may cut jobs. has reported profits

that trailed estimates. the margins slipped the lowest in a decade. it also reveals the scale of the company's bet on e-commerce. purchase of why an ap have boosted sales but eroded profitability. the one positive note for investors is double-digit growth in china and hong kong. francine: is qe set for a comeback? president trump has encouraged the fed to match china's actions by pumping money into the system. former fed chair ben bernanke says they can turn to qe if needed. >> they would not be eager to jump into quantitative easing because of the complexity and because it involves operational issues. given the experience we've had, that other countries have used this tool successfully, that the side effects that were predicted

it anot appeared, i think significant downturn, the fed would be able and willing to undertake more asset purchases. francine: this is as the federal reserve governor suggest the fed might let inflation overshoot 2% if tariffs are the reason. on --you for sticking sticking around were coming on. could the fed really cut of and could cut twice -- could it cut twice? >> it will largely be data dependent. even if we put aside the trade front, we have to acknowledge that the data in the u.s. has been holding up well. of course, we will have to factor in some deceleration as the fiscal impulse starts waning. but the magnitude and size of

the slowdown still needs to be confirmed i think for now, they .tay put we have put in tariffs, as a matter of fact, they have not been implement it because we still have all of these goods shipped into the u.s. there is still the possibility this will be unwound in k's a deal is reached. so i do not think it is a clear-cut case for them to cut. inflation has undershoot, but it is not falling off a cliff. i do not think they are in a state where there is pressure to cut. there -- they are patient and will look at the data. francine: do you think they will cut, andrew? andrew: no, i don't think they will. as he said, it will be data dependent. francine: the trade could be

negative, right? andrew: it could be developing that way, but i think it will first express itself in the fed being very patient. francine: what is the likelihood of a recession in the u.s.? 20%, less, more? vasileios: [laughter] that is an interesting question. purely from a historical perspective, i would say it is a bit higher if you look at the back end of the 18 month. largely because the business cycle is extremely mature. based on history, we should be facing a recession. however, if you actually look at the data, barring what happens on the trade front, you can actually make a case for a strong or severe recession for .he foreseeable horizon one thing i will say is that the tariffs will likely be felt in inflation first, then the domestic economy.

and will be a difficult balancing act. francine: do you agree with that? andrew: the inflationary impact of tariffs will be a one-off affect. -- effect. and the fed will look through that, because it is not a sustainable, demand driven price increase their -- increase. i don't think tariffs will be any reason at all to act. francine: when you look at the inversion of the yield curve which we have charted here, does that indicate a recession or are things a different today? that indicator has a very reliable history of protecting future recessions. i would put some weight on that. francine: ok, so you it is closer than equity markets suggest. is that how you would put it? andrew: if you look at markets

the try to quantify the probability, they are increasing. it is mainly coming from signals from the financial sector. basis and arward qualitative assessment, if we look at what is happening on trade, there seems to be some validity to this rise in increase in the probability of a recession. , we'll talkl right a little bit more about recessionary probabilities next. both stay with us. -- ng up, matteo cellini mateo salvini projects himself as the only leader in power. more on that next. this is bloomberg. ♪

francine: this is "bloomberg: surveillance." we look at markets across the world, quite a lot of movement when it came to markets and yields the last 20 minutes. we were talking about recessionary risk and some of the canary in the coal mines that our guests are looking at. andrew are both still with us. is there something you would look at, maybe oil demand, that would be an indicator you would look at for alarm signals that a recession is imminent? i think you can look at asset prices, which are far more timely, or you can look at real-time data and surveys.

below the 50thing level, i think that would be alarming. , iterms of asset prices think we have stated before, i think the yield curve and the inversion of the yield curve has been quite consistent historically. -- consistent, historically. francine: would a recession started in the u.s. or could start in china? andrew: what is new this time is, relative to pass recession, we have had a decade of unconventional monetary policy. roughly 8 trillion of excess liquidity. so what could happen this time is instead of a recession starting in the economy and creating a financial crisis we could have the financial crisis. don't ask me what the causality will be, but could sneak back to

the economy that way. because of the quantitative easing that has pushed up these asset prices, that is new. we should be keeping an eye on that and looking at profit margins at company reports. thatis the balance between and the labor costs. francine: really interesting, thank you both. andrew from pimco and vasileio : from lombard stay with us. with theresa may's leadership on the ropes, contenders are queuing up for the top job. this is bloomberg. ♪

at comcast, we didn't build the nation's largest gig-speed network just to make businesses run faster. we built it to help them go beyond. because beyond risk... welcome to the neighborhood, guys. there is reward. ♪ ♪ beyond work and life... who else could he be? there is the moment. beyond technology... there is human ingenuity.

♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. not interested. china downplays trade talks with the u.s. the white house blacklists

huawei. hats being thrown in the ring to replace theresa may. how long will the prime minister hold onto her job. and oil jumps as tensions flare up near iran. it's his bloomberg surveillance. i'm francine lacqua -- this is bloomberg surveillance. i'm francine lacqua in london. rising about 4% this morning, revenue came in line. they said shares are going to during the summer amid brexit uncertainty, but investors are thrilled by the fact that they did not issue a profit warning. just eat to the downside, plunging more than 7% on the amazon leaving the investment worth 500 million pounds.

and then thomas cook plunging today, down just under 30%. this as citigroup cuts the price target to zero cents per share. zero, francine. pretty critical for the company. francine: zero is rough. ouch. a get to bloomberg first word news with olivia. olivia: president trump is pulling out the big guns in a chineset could cripple technology companies. the move could disrupt the rollout of critical five g networks around the world. but commerce secretary wilbur ross says these actions are not part of the trade talks with china. >> this is not part of the trade situation. this was not something that had been discussed at any of the many meanings -- many meetings that were held between china and

the united states. >> president trump is wary of war with iran, possibly endangering his chances of reelection. he promised to stay out of foreign wars. european car sales have declined for eight straight months. consumers are putting off big purchases due to brexit. marketsd's biggest car are slowing down and undermining the auto industry's plan to shift spending for electric cars. he won the prize in 1983 with some of the most iconic buildings in the world including the pyramid and the louvre in paris.

they also created the rock 'n roll hall of fame in cleveland. 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. this is bloomberg. francine: theresa may has a couple of weeks before she has to announce the schedule of her departure. she will try to get her brexit deal approved by parliament. but she is unlikely to succeed. in a signposted move, horse johnson will succeed her. is our u.k. government reporter. the man of the hour, everybody wants to know where boris johnson is. and how many people are actually wanting to get theresa may's job? we have a metal wall -- a mega wall. >> that wall is too small.

currently, 17 people are running. and i think that is an underestimate. there are others that are going .o come in and whether all of them even get to the first hurdle, there may be a certain amount of windowing in a couple of weeks. francine: you wrote a brilliant piece. johnson is slim, trim, and ready to fight for power. has ahas lost weight and new haircut. he is the one star candidate that the tories have. he has long been a star. play anda west end it's not even the first. he's the only person that voters instantly recognize.

the problem of boris johnson has always been boris johnson. if you remember the last leadership campaign, he had a launch and then announced at his launch that he was not going to campaign hadis blown up on the launchpad. the campaign manager decided to run himself. that's how bad boris johnson's campaign was last time. everybody says he's more more organized than not entering. he is still a star. how damaged is he by the brexit campaign? a lot of people liked boris johnson and voted for him to be mayor of london who would now cross the street to click -- to kick him. given that it is a pro brexit prime minister, how does that change brexit negotiations? >> i don't think anything is given.

there is no standout candidate. francine: nigel farage rising from the ashes. with brexit groups polling 30% in elections, what does it mean for politics back home? rob: the conservative party has two adopted clearly hard brexit position. that would be the boris johnson answer. the flipside is that even if nigel farage is going to run in the general election and i think they willitely will, take 5% or 10% of the vote for people that want a really hard brexit. so maybe the tories should give up on going for those votes and go for the center instead. what it definitely means is trouble for the conservative party. francine: it could mean trouble for the markets, for sterling, and for guilt.

>> a candidate like johnson is generally seen from a market perspective as one of the worst case scenarios from the continental europeans side. francine: worse than labor? >> there are margins worse than his. i can imagine markets will be nervous running up to a leadership change campaign. and we have to see what the outcome is thereafter. are looking at? is it a general election or on brexit? there are 10 angles on this. at least. andrew: i think the first hurdle is what nigel farage does in the european elections. because if he manages together that amount of vote, i think it increases the probability of boris johnson being elected to run the conservatives.

he is seen as the only one that can take votes away from nigel farage. in that case, i think we will be in a very nasty cycle for sterling because the probabilities will start shifting from a soft brexit into potentially a hard brexit. because boris johnson will try to renegotiate with the eu. the eu has been pretty clear it is not renegotiating. i think it will be bad for markets. andrew: and we should not forget the other side of the channel as well. i get the impression from the capital cities across on the continents that brexit has basically already happened. they have their own domestic agendas. francine: they have stopped caring. andrew: they want to move on.

as johnson,te such for example, could accelerate the whole thing. on the european side, they are just less willing to move. francine: i have a million more questions. we will try to get you back in the last -- in the next hour. coming up, facing the challenge as a tech giant, call to break an expose interview with facebook vice president. that is coming up next. this is bloomberg. ♪

francine: cybersecurity has become one of the biggest concerns in the defense sector as companies scramble to protect themselves against data hacks. hadfrench airspace analyst a leading position in the --ustry with the acquisition we go live to the viva tech conference in paris. over to you. francine. aboutst question will be the tech that we saw earlier this week. how is it even possible that these drones were not detected? >> [indiscernible] can say that we are concerned about some of the radar to detect some of the small objects.

>> these are involved in the defense protection of saudi arabia? >> yes. they have been a partner in europe, in spain, in transportation, in defense. .ll the activities >> and the protection of these sites? >> that is the head of the authority. >> could we see more today? is it not advanced enough for tech? >> there exists a solution for

the complex problem. and [indiscernible] -- [indiscernible] -- [indiscernible] >> can you tell us today what is the number one cybersecurity threat? >> for me, the most important topic is around data privacy. data privacy is linked to trust. if we can't restore trust in a digital environment, we fail. so we work a lot. and we try to create good solutions to protect the consumer. [indiscernible]

>> we see a lot of innovation here at the the tech. -- at vive tech. you can be an astronaut. what is the innovation that you think will bring us into the future? in particular, i think liberating these potential technologies. speak a lot about ai. and our customers in that moment. be on the will high-end of the target of 1.8 billion euros? >> i am confident that we have said it properly. from vive tech, thank you for joining us. francine? has joinedacebook

forces with other big tech names such as twitter, google, pledging to curb online extremism. it follows unprecedented talks. willingness to ask, facebook faces scrutiny over their track record. there are also calls for the company to be broken up. we set down with the company's vice president to discuss the challenges in an exclusive interview. know why a company should be broken up because it is popular. today, are getting here what are the issues facing the internet? and we have made huge amount of investment in the areas of safety, privacy, and interference. we can look at our different platforms and if there is a bad activity, we can push through.

we think there is more that we can do but we think we're making good progress in these areas. do regulators understand you and understand exactly what the internet is? >> i do think the regulators do. and we want to work actively with them around the world. we have been very clear about that. we were just in paris last week working with the french government and visiting with french president macron. the work that we have been doing together with hate speech on the internet and content regulation, i want to know what more we can do. it is a model that we would like to see more of. francine: will mark zuckerberg testify in the u.k.? know.on't he hasn't been asked and he doesn't have plans to come to the u.k.. put in a lot of work to make that there was not interference in the elections. are there signs of people trying to interfere? >> we have not seen signs specifically but we have in

putting a lot of work in place to make sure that we can protect the integrity of the european elections. what does that mean? any political advertiser or party that wants to put out issue-based at both have to register, say where they are from, and any ad will say paid on anyone of the adverts. have a library that they can put up. look at targeting and where the location was. it's not just about political advertising. there is that transparent sing of advertising that we haven't seen anywhere before. transparency of advertising that we haven't seen anywhere before. and we want to be working with governors -- governments and regulators. francine: you have been able to

measure the impact? yes. people can see very clearly who is putting those ads out. [indiscernible] >> from mark zuckerberg and sheryl sandberg. she doing int is brussels? lobbying for facebook not to be broken up? largely based in san .rancisco he is very much committed. you have seen him and interviewed him. ,nd what we're talking about where we are today, we need to what internetout we actually want. one that has no control or is tightly controlled? the answer is somewhere in the middle. we want to work with people

around the world to understand with the next evolution of the internet should be. francine: that was the facebook vice president for amy him -- for emea. accused of attacks on oil facilities, crude prices had to the biggest weekly gains since april. we will discuss that next. this is bloomberg. ♪

here in london, it has really rocked the agenda. when i first joined a couple years ago, i went around and talk to the member executives. to one of them volunteered put gender equality as a major issue they were concerned about. this year, they were all talking about it. >> when i look at the city today compared to where i started in 1998, it had to change. it is a much more conducive environment for women to work in. equality, igender think we have gone backwards somewhat. >> when you talk about the corporate world, there is a bit of a distance that starts to occur roundabout in the 30's and early 40's. some of it is related to people

having kids and making choices. notit is also people -- everyone has children so we have to look at that and say, what is happening at that level? francine: a selection of guests at the bloomberg equality summit this week talking about progress being made toward racial and gender equality in business. while has for the biggest weekly gains in april as tensions flare up in the middle east after saudi arabia accused iran of ordering an attack on their fuel pumping stations. this will dominate discussions meetopec and their allies in jenna this weekend. what have the iranians actually said about the attacks by saudi? >> the europeans have repeatedly have-- the iranians repeatedly said that they don't want a war.

they don't want to escalate tensions. we have the iranian ambassador saying that the intelligence the americans have and various newspapers in the u.s. is fake or manufactured intelligence. produced by a knowledge or to create an environment in the persian gulf region that would basically set off a conflict. it is not something that they want. we spoke to the vice president a couple of days ago. if the u.s. wants to talk with iran, the best thing they can do is go back to zero and lift all the sanctions. >> what does this mean for the price of oil? we could see this although price premium dependent on any movement and tensions in the middle east.

the one member of the opec that a not there, we don't have deal between beijing and washington. what does that mean for global growth? also u.s. shale. so the oil prices with short-term and long-term demand and supply issues. francine: what about this weekend? >> we will talk to iran about whether they will fulfill that supply glad -- fill the supply gap. we will also talk about oil from russia and we will hear about iranian sanctions. tom: thank you so much, annmarie. bloomberg surveillance continues in the next hour. we look at your markets. this is bloomberg. ♪

francine: not interested. china downplays chances of

continuing trade talks with the u.s. the white house blacklists huawei. boris johnson throws his hat in the ring to replace theresa may. longer can the prime minister hold on? and the chairman of banks on the hunt for leadership at rbs and in great britain. morning, everyone. this is bloomberg surveillance. good afternoon if you are watching from asia. francine lacqua in london and new york.in we had a record low for the spanish 10 year yield and that goes back to the global sentiment that we saw, a couple of swings with fixed income. tom: the inflation rate i will let you chat up. i would point out that the movement in europe and the 127 handle, china, china, china. renminbi overnight

was truly extraordinary. francine: you are right, that is interesting. rising 1.3%. we look and see if they changed some of their bets. a 30% chance of a rate cut. it has been largely unnoticed. let's get straight to the bloomberg first word news. >> president trump looking at the election calendar. he is wary of drawing the u.s. into a war with the islamic republic. president trump campaign on promises to withdraw the u.s. from the middle east. signaling a lack of interest in resuming trade talks with the u.s. there are new moves that show the u.s. as sincere. that will put the focus on the and chance for xi jinping donald trump to meet.

theresa may has one more chance to get her exit deal through parliament next month. it has already been rejected three times. others have started campaigning and among them are former secretary boris johnson. -- an is wrapping up its london-based startup is for $1.5 billion so far. global news on air and on tictoc on twitter. this is bloomberg. data.et's get to the it real movements in the market. i thought it was going to be a boring morning. wrong on that. futures -123, the curve not part of the story.

the euro itself is attention-getting well below 112 with a number of shops beginning to frame 110 including deutsche bank. on to the next screen with oil little elevated. the big show with the stunning resiliency of the u.s. market, here is the headline. smart essays on renminbi and flows out of china. i will let you chat up mr. johnson on sterling. -sterling, francine, i was told to ignore cable and look at euro stilling -- sterling. francine: euro pound, actually. but you are right. it is interesting because we have some averages.

but no matter, stocks in europe are heading lower. this is on chinese state media appearing to signal that they will have a tougher line on the trade dispute. looking at some of the market movements. and looking at the spanish 10 year yield. to the buying that we saw. it is back to the fact that we saw the 10 year yield in the two point something and the spanish yield is .85. you have to wonder what is wrong with that picture. tom: this is dollar renminbi and it is simple. here is the jump condition we have seen coming back over to the touch points. it's sort of frames where we are with renminbi.

there is a backstory there and we will touch on that through surveillance us morning. i have a chart i want to show and a second that looks of the value of debt topping 1.5 trillion. i wanted to show you the impact of the trade concerns, tit-for-tat. awei, the sum of their suppliers. -- but some of their suppliers. tom: interesting. i think it is safe to say it is a trade war. francine: it is a trade war. chinese equities falling this morning. signaling a lack of interest in resuming trade talks with the u.s.. they government will use this as a weapon. joining us now from hong kong is

our bloomberg chief asia economics correspondent. at the end of the day, is this about trade or is this about huawei? huawei is central to the story even if it is not explicitly linked to the broader trade negotiations. the threats go to the heart and the core of chinese industrial and economic strategy. rhetoric and ary response from chinese state media in particular that are pushing back against the idea of one country unilaterally sanctioning a chinese company and they promise to defend their own company. is note, huawei explicitly part of this but it is not avoiding the mix either. tom: ambrose evans pritchard has a brilliant essay over the telegraph on the constraint

china has, even given the $3 trillion tiki bank. tell us about the flow tensions in beijing right now. they don't have a lot of choices, do they? they are limited by what they can do at the beginning of this trade war. >> they have been pushing through this deleveraging campaign. they do have central bank and a fairly healthy tool. the economy goes through various channels. that its not forget could allow some weakness in the currency before it starts to trigger broader instability.

this poses a great challenge for them. they do have some tricks of their policy sleeve as well. enda curran trying to explain where this leaves us. we are joined by the rbs chairman. thank you for joining us. we're trying to figure out if the chinese will retaliate. we need to get used to the trade wars. >> we have to get used to trade wars. i can't see how the u.s. administration can back out of this. i expect we'll see that as a continuing feature of the landscape. the question is whether it escalates or is just a series of skirmishes. until recently, it is a series of skirmishes and people will back off of anything serious.

look to be on a generally escalating trend. can be escalating trend lead to a recession? >> yes. the u.s. remains pretty buoyant. we have the sugar rush of the tax cuts. i am not optimistic about the 12 most 18 months. the regulation over to sir howard davies economics professor, we have a supply and a demand-side study for china right now. i would suggest that people are ignoring a lot of things about china. what are we ignoring in their flows right now. about the constraint the chinese leadership has?

>> they are anxious about debt in the chinese economy. identified growing debt in china as one of the biggest potential threats to global security. i think that they are under some pressure to adjust the debt profile domestically. --y do have some domestic and feeding the social excited he in the country.

tom: very good. we will continue. we are thrilled sir howard is with us today. power,up on balance of congressman heard of texas with david westin at the 12 noon hour. this is bloomberg. ♪

>> this is bloomberg surveillance and let's get the bloomberg business flash.

taking steps to disrupt the impact of air traffic disruptions. fair slump and the uncertainty surrounding brexit. hewlett-packard in advanced talks to acquire great. the deal could be announced this week. a value market of $1.2 billion. it could be high-end computer systems against ibm. and one of starbucks rivals in china has gone public in the u.s.. they raised $551 million in an expanded ipo. the offering values the company at more than $3.9 billion. it faces an uphill battle against starbucks. -- held only 2% share last year. tom: francine lacqua in london with sir howard davies of rbs. we're thrilled you could join us today on too many topics. i want to go to a chart right

now. it's not renminbi. ofis the negative rates war europe. exceptionally qualified to this new velocity toward lower interest rates that we see in the german ten-year and the german two-year as well. sir howard, the arch debate here is the economist and the bankers. you are both. economists that suggest we can have negative chronic interest rates and it is no big deal to bankers? on david. pick but it could be any of the number of people you work with that rbs. what is the negative interest rates due to our financial system? do to our financial systems ? valued at them are

tangible net assets and i'm not sure that is a sustainable position for the long run because it does constrain the ability to raise capital. the question is whether the ecb missed an opportunity to normalize interest rates in the past. i can see that they are very nervous. they are more nervous that the figures seem to suggest. a year ago, the ecb would follow the fed and begin to edge interest rates up. they have gone in the other direction. they are worried about the stability of the european economy and the robustness of the growth prospect, more than the rest of us are. i don't know what it is they are looking at that is causing them to be this anxious. friedrich areate few years back would say, clear

the markets. why can't continental europe clear the market in a more anglo-american way to get the scale and get a better financial results to get to a better book value. >> if you look at this over a decade or 15 years, what we thought we were seeing was the gradual development. the eurozone crisis caused everybody to retreat. they were very anxious about the credit worthiness of the other banks that they didn't understand so well.

union ando a banking it was supposed to solve the problem. if the central authority was happy with them, they should be confident. it is not still framed at the moment. it and is able to do other countries are opposed to it. i think that we will still see this lack of a genuine european financial market. and that is a really big obstacle. francine: is that the obstacle to consolidation? >> yes. francine: that deutsche bank did not merge with commerzbank, is that an obstacle to cross-border? >> i think that is a slightly different question because it is not get to me that the deutsche

bank and commerzbank merger would have solved the problem. that was in germany. i don't think it is the same issue. lending a proper germany interbank market is folded up in the eurozone crisis. and it still has not yet reopened. and it is still entrenching across the borders in europe. that was not supposed to happen. europe was opposed to develop a banking market and capital market. you see the finance ministers of germany, italy, and france once again saying that we have to have a capital market union. we don't have that. brilliant, sir howard. we really appreciate you driving this conversation for us. as we go to break, here is a chart. this is going on right now. francine alluded to this at the top of the show. this is sterling over the last couple of days. sterling breaks down this morning to new 127 weakness on

cable. coming up on du banking as well, david hero of arrow associates. arrow of arrow associates. this is bloomberg. ♪ ♪

francine: this is bloomberg surveillance. tom and francine from london and new york. tom, we were talking about european banks and the need for consolidation. you're talking about the capital markets union. it now let's focus on rbs. we have sir howard davies.

talk about the political turmoil that could happen. you are also looking for a chief executive. how are you going about that? way withonventional headhunters and discreet phone calls. we have internal candidates, external candidates. athink a bank with large-scale public ownership must go through proper process and be seen to look for the best possible person. i think it is an attractive job if i can use this as a marketing opportunity. [laughter] because we have a very strong capital position of more than 16%. we are a soundly capitalized bank with lots of interesting opportunities. the restructuring of the balance keun.was done by roslyn francine: to grow. the chief executive will grow the bank.

we have spare capital. we can afford to buy back some government stock when they are ready to sell it. i think the prospect is pretty good for rbs, actually. rbs, like all big banks, is facing competition from big tech. that is where we need someone that really understands that world. but it is exciting and there are many more opportunities than there were five years ago. do we get a woman running a bank? we just had a lovefest in washington of eight white guys standing up and putting their hands up and all that. where is the pressure on your team to find and richards or and ichards or annr carnes, any of the other annes? >> i have a chief financial officer and deputy chief executive.

and two of those three are women. we appointed our first woman cfo for our big british bank a few months ago. we have alison rose who is the deputy ceo and responsible for the strategy of the bank. , equality in the city has happened. but we will see what happens. the rbs chairman stays with us. coming up on bloomberg markets, the open, bank of america head of u.s. equities. at that is coming up at 9 a.m. in new york and 2 p.m. in london. and this is bloomberg. ♪ g. ♪

♪ london, it has rocketed up the agenda. when i first joined a couple years ago, i talked to all of

our member chief executives and not one volunteered gender equality is a major issue. this year, they were all talking about it. >> when i look at the city today compared to 1998, it has changed. it is a much more conducive environment for women to work in. in terms of gender equality, we have gone backwards. >> and the corporate world, there is a dip that occurs in the 30's and early 40's, and some of that is related to people having kids and making choices, but it is also -- not everyone has children, so we need to look at that and say what is happening at that level? tom: very good. that was a wonderful summer -- summit. i would note sterling south this morning. right now at queen victoria

street, here is sebastian salic. sebastian: the pentagon is preparing to release images to back up the growing threat from iran. the pictures show traditional sailing vessels carrying missiles. they say the iranian military has been moving around more than usual. president trump's immigration plan is getting a cold reception even within the republican party. merits into place a new system for allocating green cards. lindsey graham says the law -- the bill will not become law. taiwan has become the first place in asia to legalize same-sex marriage. partymocratic progressive ordered a vote in favor of the 72% of voters in taiwan opposed same-sex marriage.

has died.im pei among his works are the crystal building at the louvre. he was 102. 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 sebastian salek and this is bloomberg. tom: thank you so much. it is unthinkable that we would have a 20th century of what we are without im pei. he often ate in smaller restaurants in midtown manhattan any number of times. i sat at the table next to him and we would greet him. he was such an extraordinary gentleman with a spam that clearly went the on day century. went beyond clearly a century. francine: theresa may has a

couple of weeks before announcing the schedule of her departure and will try to get her deal approved by parliament one last time, but is unlikely to succeed. the foreign secretary -- foreign -- former foreign secretary boris johnson will stand in the race to succeed her. anding us is rob hutton still with us is howard davies. how many candidates? candidates. eight there are at least 18. rob: and lots of people have not declared. i was sitting with a senior conservator the other day and he was scrolling through his phone, showing me the text messages from colleagues saying, we must have a chat, how are you? francine: who has the biggest chance? boris johnson, six months ago

people thought he had no chance but now it is a name that may win it for the conservatives. rob: he is a book markers -- bookmakers favorite and a favorite of the party. there are lots of problems with oris and issues of whether he -- boris, and issues of whether he is still popular in london. the argument internally is if you are up against jeremy corbyn, and nigel faraj who has this astana king political quality, -- astonishing maybe we needity, a star, and the star they have is boris johnson. tom: sterling is down nine days in a row. boy, is it signaling something. is it signaling no deal? if boristheory is that

johnson becomes leader, he will not have as a policy to pursue no deal, but that will likely be the threat. the idea is he will go back to brussels and say, give me what i want for i go for no deal. the problem with that is that as the koren -- current foreign secretary pointed out, parliament will not accept no deal. deal boris says, i want no and parliament says you cannot have no deal, and the prime minister does not need anyone's permission for no deal. then parliament would be passing vote after vote telling the prime minister to stop. i cannot see that a sustainable. tom: let me go over to sir howard davies. sir john williams of the new york fed said it is a little bit to do with business confidence.

how is the business confidence of the united kingdom now? howard: it is not great. description of the impasse is accurate, and that is what i hear around town. people can follow the logic of a leadership election and trying to renegotiate with a brexiteer, and then they get stuck on the dilemma you suggested, how do we get out of that? what is going on in business confidence is at the moment, the consumer is still reasonably confident and seems to be spending, but business investment remains extremely weak. that unfortunately persists. the consequences of that and the long run are not good. if you have a pause in investments, that is an unhappy situation. everyone is holding their breath. there is no sense of real panic because business people can

understand the dynamic. moment, they cannot see the way out because normally end the situation you described you would have an election, but what will that deliver you? we cannot see that. francine: what does this political turmoil mean for your business? howard: we look at the underlying demand for our services, and on the consumer side and mortgage side it is soft, but it is tolerable. all the banks have shown in the first quarter that income was less than they wanted but not catastrophic. on the business side, investment is weak. we have people asking for approval for business for facilities but they are not drawing them down. it is not great but it is not catastrophic. francine: are you worried about what a corbyn government would

do to british banks? howard: people are starting to wonder does worry about that. -- worry about that. corbyn says they would not be buying rbs back but would not be selling any more. whether that is a stable position, we will see. as far as the other banks, there is not much specific about banks. employee ownership would apply to all banks in some ways. an expensive fiscal policy would be good for the banks. there is not much that is specific except the financial transactions tax, which is tricky because if you just have it in london you will shift business there. tom: one final question. we have the calendar up and i believe may 23 is of some importance. what does a guy like you look at through the weekend as you get

to these european votes? ob: everyone is now expecting farage, the brexit party to win. the question is how badly do the conservatives and labour do? questions from people like me, can they explicitly remain parties, the ones who want to overturn the referendum and have been struggling, can they make this the moment which they make that an argument that has populist support? francine: what if nigel farage wins big in the european elections? rob: there is the argument he never went away, and i would be astonished if he does not end up leading the brexit party into a aneral election, especially general election, clearly

unresolved. francine: up next, miranda carr. we will talk more about trade and a little bit more about the underlying fundamentals in the chinese economy. this is bloomberg. ♪

♪ >> the chinese government has to decide what course of action they wish to take. to we can do is react whatever it is they undertake. i am not aware of any action having been decided just yet by the chinese government, so it is a little hard to speculate what they might do, and even harder

than to speculate what we might do. tom: we welcome all of you in beijing falling off your chair at the comments of the commerce secretary of the united states of america, looking for chinese reaction. the chinese appear to react overnight. futures at -10 and bond market and renminbi moves, weaker renminbi this morning, really getting out towards seven yuan per dollar. i think we need to pause on this united kingdom headline coming about cross corbyn party brexit talks. they went as far as they can. was that in march or april? francine: we understand some of the talks probably ended last week, labour saying the cross party brexit talks have gone as far as they can.

we will not see a customs union or something like that. what we think as theresa may's thinking is that she will put to the parliament her fourth time this withdrawal agreement may be with tweaks, and she will say that she will stand down for someone else to take over. that is the latest on labour and brexit. bring us in on china. tom: there is any number of ways to go for someone as qualified as miranda carr. she writes exceptional synthesis of what is going on, the politics, the culture, and the financial markets. i want to do a combination of mohamed el-erian and -- on the constraints beijing has now. we heard secretary of commerce ross, like they have a lot of options in terms of flows,

reserves, balance sheet. does beijing have a lot of options now? miranda: it has not a lot of options in terms of it can stimulate the economy. it has not gone into full-scale stimulus so they could go back to the old school practice of stimulating the economy by boosting the property market. obviously, how china works with the international markets will be a tough one. the currency and foreign investment influence has been part of keeping the economy stable. it is things like that that threaten us, rather than domestic issues. tom: stephen roach and catherine about thetalk dysfunction and codependency between beijing and washington.

how is that dysfunction going now? they are wedded to each other with a trade deficit and a need for them to buy our paper. miranda: this is a relationship which has been fundamentally changing over the last years. peaked in 2016 so the last three years we have seen some treasuries sold down, one trillion sold down. china is no longer the net lender to the u.s. markets and the u.s. market is no longer pumping huge amounts of money into china. this underpins a lot of the change in the relationship, because of instead of the mutual dependency, on a monetary and industrial system, you are moving into a more protective one. francine: if the trade war continues, will projects be put on hold? well we see capital outflows of

china? miranda: it was flat on a dollar --is in april, but you have one it was only 10% tariffs, people think, we can cope. now it has gone to 25%. it is a categorical difference. a lot of the companies are saying in their results season, we are thinking of moving outside china to vietnam, taiwan. decisions already being made about whether people wanted to stay in china because it is no longer so competitive to manufacture there, this is a catalyst to readjust their manufacturing. francine: well renminbi touch -- will renminbi touch seven? miranda: it is becoming more of an expectation but it is a bit of a redline.

what could happen is it both -- maintainsgh seven and , so you do not see an overall collapse. it is supported at a lower level. unless we get something over the weekend -- you never know, there could be a tweet -- there could be a shift below seven on the cnh if not the see ny. -- cny. francine: later today we speak to the l'oreal chief executive at 10:00 new york time. he will be asked about his supply chain and china. this is bloomberg. ♪

♪ this is bloomberg "surveillance," tom and francine from london and new york. banking and the outlook on consolidation. advisor andd by an

-- two nicolas sarkozy. talk to me about how you want to get into the millennial space. millennials are in demand, and often they never go too branches. how are you talking to millennials? i am sorry, i cannot hear you as well as i hoped to hear you. can you repeat your question? francine: i was asking about millennials, the young people. how will they bank and how are you adapting to suit their needs? >> i am sorry, but the sound is not quite here. francine: i think we will fix it. thank you for bearing with us. we will get back to you shortly. it is interesting when you look at the consolidation, we were speaking to sir howard davies of

rbs who was saying if you look at the capital markets union in europe, it is just not quite there yet. that means it will mean that some of this cross-border consolidation may take longer than we think. interesting, and this is something you and i aggressively picked up on as the backstory at davos -- when is e.u. banking clear? we have david herro coming up in the next hour and this will be a major theme. he is a large shareholder of bm pie. largest mosts, the successful retail shop. i am not willing to say they are the jp morgan of europe. i do not think that is accurate, but they are a dominant player, 2000hen is the wind in may -- when in may 2019?

-- francine:t bmp if you look at emp perry bought compared to society general -- bnp paribas compared to its rival society general, you have two different banks with different portfolios and fortunes. we heard in the last 10 minutes or so, i know we were looking at pound and maybe what it would labour move euro-pound, said the cross party brexit talks have gone on with the conservatives as far as they can. we are not helping or expecting an agreement between the two main parties. that means theresa may less of a chance of staying on. yesterday she was taken by some senior conservative leaders, pushing her to step down after june. this is brexit. this is u.k. politics and if one

thing is certain, they change almost day today. boris johnson said he will challenge theresa may, so she puts one final vote to june, and we early will go to a leadership challenge to see who the next conservative pm is. tom: we have sterling weakness today. a chart that takes us back to john major, may be the breaking point within the deep litmus paper of the market. the success of the 1990's and the early part of last decade, the ugliness of the financial crisis, and the overwhelming headline is how the united kingdom trade-weighted has not pounced off the so-called lehman to, and it gets you back 1992 and the wealth destruction of sterling weakness. francine: the european elections

are staggered because there is so many countries voting, but they start in the next few days. one of the main contenders is the italian deputy -- matteo sal vini. a new e.u.is sure commission will change policies. exciting because it could be a referendum on brexit, and you have a faction in off of the soter right and center left, you see a parliament that changes within its policies. with davidbanking herro. ♪

♪ tom: this morning, the path towards it through. seven yuan per dollar.

the responses china has washington and trump mercantilism. the path forward for european banking, given chronic negative rates. david herro on his value. week,sterling is an ugly so too for the prime minister. this is bloomberg "surveillance." i am tom keene with francine lacqua. brexit is back front and center. what is your single observation? francine: we had a terrific briefing by rob hutton who said there is about 15 or 16 people to challenge theresa may in the leadership contest. we think she will put her fourth vote to parliament in june and they will decide on a new leader, a brexit person like boris johnson or someone else.

in the backyard -- background, you have nigel farage polling very well. tom: here is sebastian salek. sebastian: labour party jeremy corbyn says compromised brexit talks are over and negotiations with the conservative party have gone as far as they can. may hoped to reach a deal to pass in parliament. lawmakers have rejected her brexit agreement three times. president trump contemplates tension with iran, and is wary of throwing the u.s. in a war with the islamic republic. he campaigned on promises to withdraw the u.s. from wars in the middle east. in china, media is signaling a lack of interest in resuming trade talks with the u.s. focus on the next

chance for xi jinping and donald trump to meet at the g20 meeting in japan next month. amazon is wrapping up its drive into european food and groceries , leading a $575 million investment in deliveroo. $1.5eroo has raised billion so far. 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'm sebastian salek and this is bloomberg. tom: thank you so much. equities, bonds, currencies, commodities, i thought it would be a flat day but there is a lot going on. futures -12. curve not part of the story. euro weaker. crude watching oil, brent $73 a barrel. the vix showing the resilient equity markets, 16, 17 handle.

deal,bi is a big certainly above 6.90. sterling is its own beast. francine: we have a story entitled -- boris is fully trimmed and ready to fight for power. a real leadership challenge this time. we are seeing movement on pound. overall, it is a fact that china is signaling a tougher stance in trade that is making investors nervous. treasury yields study. the yield on the spanish 10 year debt falling to a record. tom: let's do a chart for enda curran. he deserves it. dollar-renminbi up to seven, did

not make it, up to seven, did not make it, now 6.9140. francine: i changed my terminal in record time. this is the story of the day, of the week, probably the month. it is looking at negative yields come at the value of negative yielding debt has topped 7.5 trillion. that has huge implications for money managers and the banks. tom: let us go now to china, enda curran. he joins us from hong kong. what will you watch for this weekend and critically into your monday morning in new york, our sunday evening? what will you look far? enda: we have to see what kind of rhetoric comes from washington on the one side, and see how china responds. the barbs out of beijing are getting quite fierce.

there the state media, we have had accusations of washington playing little tricks and not being truthful in their dealings. we will see if we get an attempt to bridge that gap, a softening of rhetoric from both sides, or monday when there is further down pressure on the one and president trump is attacking china on twitter, that will diminish expectations that we are closer to a deal. francine: what happens if renminbi touches seven? will the sky fall? enda: it is interesting. on the one level, it is just another level. the currency is not far from it at the moment. there is a view if it were to pass the threshold, it is somewhat of a psychological level, it may lead to companies and savers wanting to get their money out of china and creates a

negative feedback loop with consumers not spending. the government would have to intervene and use their reserves to prop it up. it would trigger political criticism from president trump accuse china of deliberately manipulating the currency rate. the psychological effect cannot be discounted. francine: thank you so much. joining us now is david herro. we have so much to talk about, banks, commodities, but overall, how hurtful is this trade war for your confidence in the equities you hold? david: in the short-term, it has hurt the prices of equities, especially european equities, which have a stronger reliance on the chinese economy then perhaps u.s. equities. u.s. companies are more insulated from this then the

european companies, which are more global. i am talking about the negative impact on prices. we have not seen such a huge negative impact on the actual operations and cash flow generation and earnings growth of companies. right now, the share price movements have been greater than the economic impact on the companies themselves. clearly, there business is not as robust as we would like, but nothing compared to the share price movement. francine: as the trade war normal, and do you worry about the supply chain? you just picked up rolls-royce. it has a supply chain. what car companies in europe and the u.k. not be the first impacted? david: the trade war is something that will dissipate through telling. why do i say that? it was really in not the best

interest of either china or the u.s. to have a prolonged trade war, especially china. you mentioned the supply chain. users or western customers of chinese factories begin to lose confidence, they will have a long and steady supply, they will source elsewhere. how about the chinese manufacturing sector? the chinese must realize they have to be a good, reliable supplier to western companies. if this trade war continues forever, it will slowly begin to cause companies to look for other places to source their raw materials and components. tom: i am watching milwaukee brewer headlines. david herro, continue. david: how about the milwaukee

bucks? tom: we are going to rip up the script. we are going to do politics later. you are telling me we will manage our way through a trade war. how is this trade war of trump mercantilism working in your is constant and rural illinois? it is working out well, isn't it? david: the midwest is very industrial and so far it is ok. the economy of the midwestern united states, you see full employment and inability to get skilled labor. you see relatively robust. hasn't hadwar really a major impact. there will be some smaller impacts. it well if it continues for a long time. you brought up a good point when you mentioned "mercantilism."

moveis a mercantilistic trying to build barriers to subsidize your homegrown companies, or a bargaining ploy to get china more on a level playing field with the rest of the world? china has grown up, there economy has grown, their gdp has grown. they no longer need the artificial support of uneven trade rules which they have benefited from, and this is what the u.s. is getting at and perhaps western europe. aboutall of this rhetoric leveling the playing field or about mercantilism, i believe all this rhetoric is about trying to get a level playing field and bring china more in-line with the rest of the world. if that is the case, it would be a good thing. if mercantilism is the case, it would be bad. asia, oryou invest in do you assume a mass currency

depreciation of dxy on the pacific rim? .avid: asia is investable the currency movements will be more transitory. you have to be mindful of what is happening in currency markets. there are lots of places to invest in asia. japan is the biggest asian equity market. for us, we are significantly underweight, but that has to do more with valuation and the impact corporate governance has on valuation than anything else. tom: david herro with us, we have a lot to talk about. what we see on trade, blended with american politics. this is a really interesting republican voice from texas. well hurt with david westin -- will hurt with david westin at 12:00. this is bloomberg. ♪

♪ "surveillance," on a friday morning, everyone internationally looks at don dear. deere and kat. they come in with a nice revenue beat and the word "solid" is used by their venerable ceo. buried down in one of the bullet points -- and it is good to go to mr. herro on this with you -- persistency -- persistent uncertainty ways on market outlook. what do you observe in farm community -- commodities?

soybeans are back down near historic lows. when does agriculture break? david: clearly, this is one of the issues of the midwest, the trade situation, that china is a big customer of soybeans in particular. so this will need to be rectified. if you look over the medium and shrinking, the population is growing, and more and more productivity and agriculture will be an important characteristic to field the -- feed the world. cnh assist in the productivity of agriculture, as do there and monsanto. -- bayer and monsanto. in the short-term, they are impacted by the trade situation,

but in the medium and long term, the world will need productive agriculture to feed itself. if you are into all this anti- fad fed -- i was reading -- -- i was reading about the ipo of these companies -- plant-based agriculture plays a big role for those who do not like meek. i still -- meat. francine: present -- tom is coming because he wants to try vegan roles. david: have a nice hamburger. francine: meatless tuesday. david: natural beef. francine: what is the first sign of a recession? is there anything in earnings, anything you look at daily that could give us a sense that the world is going off? is it profit margins? david: more important than

either of those things is to watch the consumer. theobal consumer come at u.s. consumer is two thirds of global gdp. consumer income and indebtedness, employment, these are things that really drive the growth of economies. francine: could you have a recession with a strong consumer? david: i don't think so. because be difficult unless the business expectations are so weak and they completely cut off capital investment and inventory investment, that is probably what you would need with a strong consumer to drive us into a recession. if you are a business and see strong individual buying behavior, it would be counterproductive to cut off inventory and capital investment. one of the things that is different this time is the consumers around the world are not highly leveraged like they

were going into the great financial crisis. not only where the consumers highly leveraged but in certain places like the u.s. and perhaps the u.k., they had a great deal of their net worth invested in overvalued assets, their homes. we do not have that situation today. tom: how cheap is your world? if international stocks underperform and you have such a great track record, when you underperform everyone listens. how cheap is the international blue-chip market? david: pretty cheap. a way of measuring this, we look at our portfolio today trading on about $.55 per dollar. in the global crisis, probably $.57, $.58. in that range, we are towards the low-end.

this is a reflection of the weaker prices that are being driven by political and macro events, and thankfully not as much to fundamental week is an earnings. -- weakness and earnings. this is where there is opportunity, where politics and geopolitical events are having a far greater impact on prices than what is happening in the business environment. francine: david herro stays with us. subramanian,vita we will ask her about trade and some of the calls she sees. that is at 9:00 a.m. in new york, 2:00 p.m. london. this is bloomberg. ♪

♪ francine: this is bloomberg "surveillance." tom and francine from london and new york. we talked about the agricultural business and we had the figures from deere. let's go to commodities and the china trade war. you still have a big shareholding in glencore. what do you do with glencore? is it a china story or inside operational story? david: china is an electric car story. look at what glencore minds -- cobalt, copper, nickel.

2025, 20lly believe by percent or 15% of new cars produced in the world will be electric or hybrid, these things require a tremendous amount of copper. this will be good for glencore. francine: are you adding to your shares? david: we never talk about current trading, however given that glencore has been week and their value has done anything but gun -- gone up, there worth has gone up. one of the strengths in the mining sector, these companies have completely d leveraged. they have growing cash flow streams across the board. have excess capital and they are starting to reinvest and ex in brownfield mines, very low greenfield. there is very low m&a.

these are good cash flow generative machines and glencore, you see them investing in their businesses and giving the money back to the owners. francine: what do other shareholders misunderstand about glencore if you are so optimistic? david: it has been weak, and it is a good opportunity because it is trading at low multiples. its earnings stream is good. they are buying back stock. i don't see any value destructive m&a. this is one of the things that killed this industry in the past , when they were in a position of financial strength, value destroying m&a. i do not think this is a big fear for glencore or anyone else. mining and about 70% 30%, 35% trading, and both

businesses are doing quite strong. valuation is too low today. tom: david herro, lots more to talk about. coming up, this will be a great synthesis. this is an extremely important conversation. the bank of canada governor. that is equivalent to the chairman. this is really an important interview in the 1:00 hour, particularly given vancouver and this trade war as well. ,e have much more to talk about including extraordinary weekend for brexit. this is bloomberg. ♪

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♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. ♪ righthat you need to know now, bloomberg "surveillance," sterling weaker, 1.2755. not in freefall, but searching

for some sterling strength. with our first word news in london, here is sebastian salic. sebastian: the pentagon is planning to release images to back up a growing threat from iran. sailing vessels carrying missiles. the iranian military has been seen moving around the country more than usual. president trump's immigration plan is getting a cold reception even from within the republican party. it implements a merit system for allocating green cards. lindsey graham says the law -- the bill will not become law. sales have fallen for the eighth month in a row. registrations were down 1% in april. consumers have been putting off big ticket purchases because of uncertainty over brexit. taiwan has become the first place in asia to legalize

same-sex marriage. they ordered lawmakers to vote in favor. voters inber, 72% of taiwan opposed same-sex marriage. prize-winning architect im pei has died. among his best-known works are the crystal pyramid at the louvre and the eastern -- easter building of the washington national gallery of art. he was 102. 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 sebastian salek in this is bloomberg. of thet us look at one many thoughts on iran. , a mucheen a story larger story in the last number of days. at the washington post -- the face-off is an odd

situation where both players seem eager to set off sparks, yet neither wants to set a raging fire. both view the confrontation through the rosy lenses, tinged by ideology. viviana hurtado will guide us through the messaging in washington. what will be the messaging and washington? viviana: they are engaging in a dual prong approach, exerting massive pressure and trying to bring iranian exports to zero, as well as this deterrence as a show of military force. what is important is to think about the off ramps in the white house and capitol hill. this has to do specifically with

what those off ramps would look like when a situation gets so tense. tom: what is the offramp for the pentagon? these are the people from the arabian sea. what is the offramp for the naval crew on the abraham lincoln? viviana: as you said, those assets have been mobilized, but interestingly, and offramp may not be so much this military show of force but in the president's tweets, that he thinks iran will want to talk. that is sending chills in washington. withdent trump has spoken north korea's leader twice, leading to the walkout at the vietnam summit which has emboldened kim jong-un. interestingly, as the ignatius

op ed, and quoting general "how thistell me ends." there is no clear path as to how this would end if this tension continues to ratchet up between the u.s. and iran. francine: viviana hurtado with us in washington. we have a couple of questions on the republican party in a second. we have a string of recent events in the middle east that could potentially lead to a deficit -- devastating conflict. how do you view that as an investor? does it have an impact on oil? is it bigger? david: it is surprising oil has not spiked up more. sparks there are just and i do not believe there is a belief that anyone desires war.

some of the messaging in the last couple of days and even president trump saying, we do not want a war with iran, for someone who tends to be very loose with his words and obnoxious with his tweets, he clearly does not seem to want to engage militarily. the oilthis is why market has not responded. tom: we have a banner headline in iron ore, australia. australia has not had a recession since marginal calculus was invested -- invented in 1865. resurrects a herro portfolio? david: certainly, you have seen a spike up in iron ore. part of that is due to the accident months ago in brazil. there is only two big cost

and three orazil, four companies in australia. the problem with iron ore is the cost curve is flat. you could keep producing more at a very little increase in marginal cost. this is why, as opposed to copper, which has a steep cost curve, why we preferred to be invested in companies like glencore that have a huge low cost copper resource, as opposed huge lownto that has cost copper. you can keep mining this stuff at no additional cost, whereas if the demand goes up for copper, the cost goes up. we would rather have low copper then iron ore. tom: your support for the grand

old party, do you recognize the republican party now? david: these political parties go through mutations, whether it be the republican party, democratic party, labour party, they are not static. this is why i affiliated myself or toibertarianism ingressive -- progressive conservatism. these parties will ultimately disappoint you and do something contrary to you what you belief -- to what you believe. they will do something to disappoint you and you have to be careful to never become so connected to a political party. we should be connected to principles and the principles of premarket capitalism have elevated people, made them less poor, and have eradicated poverty in many places.

the republican party tends to be aligned with that and this is why i have supported the republican party. francine: has that changed? we are seeing fractured political parties in the u.s. and europe, so policies we thought were associated with parties have gone too far to the right or left. david: clearly something is happening today. the ideological movement within the parties and the inability to get anything done, take for example the brexit discussions. what do they talk about for days and weeks and weeks? they must be going around in circles and no one is able to step forward and compromise and make a decision. this is what seems to be lacking in the world today. there seems to be no ability to compromise to make decisions for the greater good, around the

world. up. david herro is fired we will talk about the green bay packers and the opening for the g.m. spot. cut in the a rate air. in the 9:00 hour. ♪

♪ "surveillance," francine lacqua in london, tom keene in new york. every 90 days, francine lacqua wanders to switzerland to figure out swiss banking and she

darkens the door. , for anrro with us update on switzerland and swiss banking. how do you put these people out of their misery? do you just assume within scale and merger but companies like credit suisse, not that they get gobbled up but they combined? david: certainly, a company like credit suisse and ubs, they are doing quite well. tom: agreed. david: their investment management, private banking business is very strong. the problem is there competitiveness of their investment banking arms, their global businesses. they should circle the wagons around those franchises which they are strong at, and look for cooperations or stepping back from businesses which they are not good at. by the way, they have been doing this to some degree, credit

suisse in particular. when you look at the valuations of these businesses, i think they are way too low. times talking about 6, 7 earnings, growing earnings. they are growing their capital positions, generating excess capital, and the market seems do not want anything to do with them. francine: how do you feel about your stakes in u.k. banks? happy,we are very notwithstanding what is happening in brexit, which is a crime. u.k. economy could be growing at 2% to 3%. people are not making economic decisions, because of the uncertainty surrounding brexit. the politicians are in malpractice mode. they are preventing the economy from growing to its potential. even despite this, the u.k.

banks are still hanging in quite well. we do not see elevated long losses or a collapse in earnings or loan growth. andee capital buildup growing capital in rbs and lloyds, contained costs. francine: are you modeling a jeremy corbyn government and what that would mean for u.k. banks? include theave to possibility of a jeremy corbyn government. if you put something like that equal,it means all else banks are worth less. the problem is coming up with that possibility of a corbyn government and what does it mean. these things are worth less under a corbyn government. the whole u.k. market is worth less. francine: you are a big shareholder in schroders. you see the wealth space consolidating? david: there seems to be

tendency toward consolidation. i am in this industry and we are owned by a very good french parent. who knows what will happen? there is a tendency for this to get a little bit bigger, to be able to leverage global distribution of wealth products, and that is one of the reasons why consolidation is happening. whether this happens with schroders or not is another question. tom: if you are at mckinsey right now, they are telling you everybody has to go into fee management and asset management, and you are limiting the equity bond and fee compression we are seeing. it seems too simple. david: one of the reasons why you do not see more transactions is very -- as there is a big ask spread between what people are willing to sell at and what they

are willing to pay for. businesses are cash generative, and even in the atmosphere of low interest rates and weak global share prices where we have seen limits, and fee compression, asset management is a good business and has a good time restructure and a relatively good growth profile. in the west, we have been through the worst of decompression. for active managers, it can only go so low. francine: have you seen an opportunity to get into fintech directly? david: not yet, but it will play a more important role especially as it pertains to commercial banking. the lever that commercial banks will used to lower expenses and get those expense ratios closer to 40%, which you might remember

a couple weeks ago economists had about banking, the need to get cost on fintech will play an important role in getting costs down. francine: would you buy alibaba or tencent? is that how you by -- play fintech? david: that is one part. francine: but it is broader? david: it is much broader, being able to deliver financial services from a low-cost faces. -- basis. alibaba and tencent are criticism -- critical because they have almost a duopoly in china, and the technology will spread to the rest of the world. tom: single best chart, david herro, please stay with us. cameron crise darkens the door. his only one with four bloomberg logons and 16 screens. i want to bring up the single

best chart. five days of sterling trading. we have seen this chart before many times. it is called inability to get a bid. go into the trenches of any asset track -- class and something is on the downtrend, and the fact is there is no bid, what happens on this? cameron: in this particular case, you have got essentially some new news, the emergence of the vultures circling over number 10 as the european elections loom. sterling has been an interesting case. tom: in what way? cameron: people have been trying to play this brexit trade for the better part of two and a half years, but no one has an edge. the very people in charge of determining brexit do not know what they are doing, so how can anyone on a desk no?

-- know? tom: the downside is steeper than the upside and it is not good. are you suggesting the brexit trade has been a money loser for most? cameron: absolutely. we are talking after the referendum when people made some dough. tom: francine. cameron: over the last year, there has been the cycle of excitement that the deal will get through, they will come to some accommodation. you see sterling rise, and then deflating when the cold draws of reality bite. bite.s of reality hope springs eternal, so the only way to make money is to look at the short-term moves and fade them. even as we are breaking out of a range, it is kind of fraught

with peril. i have been writhing on and off for six months, it is kind of like wargames. sometimes the only winning game is not to play. francine: labour walking out of cross party talks, basically nixing a brexit deal. thomas, we keep joking she has not slept in about two years. they say labor talks have gone as far as they can. what does that mean for theresa may? emma: even after her arms and legs are lopped off, she keeps on fighting. talks have failed. she is still talking about she will put her brexit bill, a proxy of her deal to parliament, even though labour will not support it. she is talking about doing a

nonbinding vote in parliament to figure out where there is a majority. it is not clear these indicative votes will produce any kind of majority that can eventually get a deal ratified. basically, it seems to be maneuvering to show they are doing something. she is giving it her all, leaving nothing on the field. basically the next step is we will have the european elections. will probably wipe out the tories and theresa may is hoping that enough tories back her brexit deal, but very unlikely. what has changed in 24 hours is theresa may is definitely leaving. june, july, august, whatever you like, and that has made it more difficult for labour to believe anything she offers will be respected. francine: if you say, i will put this to parliament and go, who

has the incentive of sticking by her? of borisre is no way proofing any agreement. the true brexit hardliners who refuse to support her deal, why would they support her deal now if they might end up with a prime minister boris? we are in a bit of a holding pattern until after the deal is rejected, if it is. we have a leadership election that will essentially define the course of brexit. tom: i love francine: francine: -- i love the way emma put it, boris proofing. tom: i really want to talk about this, because you are the only one in the united kingdom who knows how "game of thrones" ends. ,he next important thing is what actually happens the first

day of the next prime minister? is that a rude question to ask? prime minister johnson or out and and they walk the cat smiles. i get it. then what? emma: the prime minister realizes the parliamentary arithmetic has not changed, the irish border has not changed, the e.u. position has not changed. we do a flowchart at bloomberg. itthe end of our flowchart, has a general election and/or a general referendum. the probe brexit hardliner campaigned -- pro brexit hardliner campaigned on no deal. let's have a general election or a referendum. a general election is a perilous process for the conservative party before they deliver brexit. tom: will there be three or four parties in a future of general

election? party so entrenched? is that the way the next election will be? age is talking about fighting the next general election and the view and the conservative party is if the next general election happens before brexit is delivered, he is a threat. if they can put it off, probably less so. francine: if in the polls at looks like there is general whation and labour leads, does that mean for pound? david: if labour would get in? francine: if jeremy corbyn is the new prime minister. cameron: the prices of everything go down, including sterling. people will sell sterling aggressively. tom: when you say as a grizzled

pro sterling cells, is that -- snap back some kind of export pop? cameron: normally you would say they become much more competitive exporting to their biggest trading partner in europe, but if you have a hard brexit you are erecting all sorts of barriers to offset, providing a headwind to the weakness of the pound. tom: i just got an email from karen from australia who says, no spoilers on "game of thrones." i sat with you at your acclaimed victoria street as you sketched out the flowchart. what is the flowchart of no deal? is that feasible? emma: parliament has made it

clear they will not support no deal. the question for me is if there and a general election and a majority -- this is if

strong majority -- this is if -- a strong majority for a brexit hardliner came back, up is the possibility for no deal. my colleague in and a strong majority -- this is if -- a strong majority for a brexit hardliner came back, up is the possibility for no deal. my colleague in brussels, has reporting indicates the e.u. will not cut off the u.k.

♪ alix: china pushes back.

the government says it will counteract u.s. tariffs and says the trade war will not ripple trump's response to aggressive stance on huawei. theresa may under pressure as cross party talks go nowhere. oil's geopolitical risk premium. to "bloomberg daybreak." 17, we hadday, may earnings come out a short time ago. because of trade, they are ticking down their forecast for sales from 7% growth to 5%. you have to feel a little sorry for the deeres of the world. they thought they were coming into good times, but now the farmers are