♪ >> fighting back. china promises retaliation after the u.s. blacklists huawei. strawberry for consumers. -- catastrophic for consumers. there was a series of issues. we will see. ♪ >> good morning, good afternoon, is are you are -- and these are your markers.

0.4%. we are looking at that yen as a litmus test to some of the chinese currency. this is how the trade war is going. china says it will retaliate. coming up on bloomberg surveillance, we speak to the chief executive of this company. global be talking about demand for commodities. let's get to the bloomberg. in london, we have more to say. -- resident trump the charge rejected the president claimed that congress is not speaking about this. therefore, they are impartial. -- a lending --

leverage lending has more about status. they have told bloomberg that the outlook of the rate is balanced. >> it is hard to say what what willext or of -- move likely be. i think we are generally and balanced. the governor said that the jobless rate needs to move below 5% outright inflation back to target. this comes as evidence of the houses slowing the economy. to say that we have a bias. -- to to read in verse

that it was a time to get above 2%.up it will take time. >> global news, 24 hours a day. powered by mother 21,000 and most and journalists in more than 120 countries. this is bloomberg. president trump blacklisted huawei. he said the chinese government. they're representative said the chinese government will not sit by and do nothing. theing us now to discuss is correspondence. thank you for joining us. they will retaliate or not stand for this.

the lady something else? -- will they do something else? this is from the state press. rhetoric about how they could strike out against the u.s.. it was quite a powerful tariffs object. they could make life much more difficult for u.s. companies operating in u.s.. they are making out requirements on u.s. commodities operating within china. when you look at the market, you could see exchange rates. this is whether or not they -- this is another level. viewed as a psychological level, this would help against exporters.

then you get into the war of treasuries. it is considered an nuclear one for china. i think we would be looking first and foremost an image of tariffs and nontariff barriers. if we do get to that next step in the trade war where china is retaliating. >> what are interested groups saying about the escalation? had comments from those big consumer giants. this is consistent now. mr.u.s. retail sector -- if trump does go about this, he across --king pan pain across the whole swathes f retail. of

ers u.s. and those manufacture aboutna are worried consumer sentiment. >> that you for coming in. when you look of the trade war, there are industry groups fighting back, what does that have for investments? does that mean that they stay put? do you look for the sectors that you could find? understand the wide implications. we are at a very significant crossroads. they are not -- the economies are not growing at the rate they were months ago.

all of those across equity markets would have to be massively readjusted. do i think this escalation of trade war rhetoric will continue to mark at some point, discontinue -- continue? at some point, trump will bli nk. they resonate with that of its world base. this is all about a political lever. there is a lot more to lose for mr. trump then there is to win. consumers will feel the pain. 12-50%ll have to pay more for electronics or that toy

for kids. it could be that night you shoot for kids. kids.e shoe for china has no reason to motivate. lot less goods than the exports of the u.s.. >> does this not import -- in fact the -- impact the chinese consumer? thaney import a lot less the american consumer imports chinese goods. >> i am feeling very annoyed with my government. this is not a democracy. as far as this is playing out, it gives chinese authorities stronger bargaining position. >> this is a pretty good markets

lot. this is what we are asking all of our strategists. -- will aturn dish trade war turn into an effects war? >> is good. if it does, mr. powell will have to react. i am not sure if this is ambitious. i'm not sure that the fed will 75 basis points of capital this year. it is feasible that the fed is standing by. the dollar is going to be effective and was a little bit of ground. that will help u.s. exports. thatwill help to spread turf of the war from headlines

to the actual real economy. >> we will get onto the dollar in a second but what does that mean? >> it probably does. it probably does. canchinese government adjust. they are trying to create and unveil a stable environment. it becomes more of a reserve currency for holders. it is always a possibility. >> that you so much for writing in >. you can go onto tv . click underneath the tv screen. who will be more hard by the tariffs? these exports. the u.s. or china?

>> the u.s.. no question about it. the u.s. consumers, once they are buying a toy for the kids, that is made in china. hinese consumers, they demand u.s. products what they tend to be in areas where they could not be as effective. tech is is relevant -- it is relevant. that is going to be a situation where everybody will lose. you are marginal loser will be on your shores >> -- it will be on your shores.

>> we will talk about what will be here. you can see the trade grant downwards after these tariffs and this blacklisting of huawei . trouble as the selloff games strength. sla- what tela has beendoing. more on our top stories. this is bloomberg. ♪

>> >> let's get to the business was here in london. >> the justice department is reporting meeting against the proposed test -- proposed -- says they don't go far enough for the doj. this is not the rate with the fcc. deutsche bank is increasingly dissatisfied. the hna group have discussed pushing for his exit. if this would happen at the bank's general meeting this thursday. they are now looking into whether the chipmaker abused its dominance.

on chip sales. that is the bloomberg class. >> jay powell says leveraged currentdoes not equal a threat to the system. he says the economy is better shielded now. he says they could use an inflation range rather than the 2%. isbecause that we have done exactly on point. i think the economic performance would bear that out. we had seen growth continue beyond the trend. i think we are in a good place. >> visit us from london. let me bring you to summer that will bring us the other fed cap.

they have been significantly gathering momentum. steer --et a cut the this year? >> you probably will. especially if mr. trump does what he has been doing. if we get significant rate can't up to 0.75%. it was a war for the fed to readjust. the fed is trying to find a short-term situation the let you know that this sort of existence leveraged may not be a problem but it will be a problem at some point. when you had to fight the problem, the last thing the fed once as stocks from a low base. this will be the historical low.

they laughed at by a recession down the line. -- they will have to fight a recession down the line. overall, what is the biggest risk to the fed? textbook to book -- possession. >> not a financial map meltdown -- financial meltdown. >> no. they will not be the catalyst of a crisis. about theirit is jobs. it is about their debt. they won't be the trigger of the crisis. the consumer will not be able to bail out the economy as it has over the last few years. private demand is going down. we have had very good numbers for gdp growth -- gop growth.

as a the crisis will be exactly where mr. powell says there is no current concerns. it will be the corporate level, the level of excessive debt. a lot of regulation has gone into bans. >> shadow banking? >> shadow banking. >> the u.s. of china? longer-term as far as a problem. mainly because china has the ability to stimulate the economy a lot more aggressively. there is a lot of centralized direction that the chinese can do. the u.s. can't do that. do central banks around the world have the tools to do with this?

do you worry about lack of coordination against government? >do you worry they will have to worry about monetary polic? >> i worry that we will have to use quantitative easing. this --very used to never used to this. are all becoming japanese. all the banks are becoming japanese. qeey'll have to resort to . a discounted that fiscal stimulus is nothing but an absolute reality. that has long-term implications for the sustainability of the national treasure. >> thank you. he is from the london cap in the. testifies to its lowest stock in

mind two years. analysts are calling it code red. -- we willlass discuss this next. this is bloomberg. ♪

>> this is bloomberg surveillance. stock has a- tesla long road to profitability. they have it code red situation.

to 230 ninewas cut dollars. >> this takes another turn from their. from london and capital. i don't know if this is just a concern from tesla or if there is a problem with these lofty expectations from the area. falling victimn of the expectation. having said that, when it comes to the delivery of a ship by -- supply chain, tesla is obsessed with excessive amounts of products.

they should be obsessed with delivering 100,000 model three cars. they are behind. thatain danger is that 400,000 model three cars -- it is high in the sky. some people are making this a problem. >> thank you. >> that market flop is falling below. we'll get back to our guest. we'll talk a little bit about oil. this is bloomberg. . ♪

>> china prompts retaliation.

she accompanies peer group raise up. scores were companies are planng trump's tariff catastrophic for consumers. francine: tesla shares fall nearly 12%. let's take a look at the marks with a look at the european stocks on the move. here's a sebastian salek. ugghe health care space, raising its outlook. it sees acquisitions -- overseas acquisitions allowing it to raise its forecast. north sky drove as well. well.s -- norsk hydro as the brazilian government is now allowing production in the world's biggest aluminum plant back at 100%. it had been capped at 50% amid

pollution concerns. telecom italia as well cutting it debt. growsts had expected it to . revenue per subscriber in at 9.4% for its italian consumer landline unit. francine: sebastian salek with the market movers. how should that country build the infrastructure needed to move towards a greener provision? the owner and operator of italy's natural gas distribution network. joining us is the ceo. welcome to the program. when you look at some of the concerns, first of all about demand coming economics in italy. is it illegal to

disproportionately suffer compared to other countries -- it only going to disproportionately suffer compared to other countries if the trade war continues? >> mainly its exports into the european union. it will not be more impacted than other countries. only 12% of exports go into china. italian gdp has performed above expectations recently, coming out of recession with little growth. i think italy is doing ok actually. francine: do you worry about the trade war impacting your consumer demand? >> i don't see an impact in demand. i see a slight positive for europe as we enter summer and tariffs on u.s. lng means more lng is likely to come into europe, which means more diversification, which means better prices. a trade dispute between the u.s. and china could mean cheaper energy. francine: i know once you showed

up with a physical map. you can do it on the bloomberg terminal. how will that map change in the next 15-20 years? >> i think you will see more yellow dots in china for sure. all of the yellow dots are in the northern atmosphere. when it's winter, it's winter for everybody at the same time. china does not have a love gas storage, so it's actually on lng imports at a time when it does not consume a lot of lng. if you have storage, you can actually get some good deals and that's very positive for europe. francine: talk to us about the correlation between the price of oil and what you guys do. the price of oil seems to be pretty stable. seems like there are geopolitics risk concerns, but because there is a natural hedge, demand may

be going down, because there is a global slowdown, it kind of stabilizes. >> when the war broke out in libya in 2011, we calculated about a $30 premium because of geopolitics in brett. if you add -- brent. if you add in the libya issues, i think oil is quite low given everything going on in the world. long.ories are still very i think opec are likely to push for an extension of the cuts in production. they feel on the demand side there may be some slowdown. francine: one of the things we were looking at yesterday was the price differential between brent and wti. do you look at that? do you care about that? >> used to. guest prices used to be linked to oil prices, but no more -- gas prices used to be linked to oil prices, but no more.

they are now linked to the weather. francine: do you worry about the strength of the chinese economy? pboc can stimulate anything out of the economy. should we worry? >> we are not worried. will be a lot of opportunity for investors like us to look at the chinese market as a place where a lot more infrastructure will be nothing very. necessary. will be china is very serious about addressing air-quality issues in cities like beijing. living in beijing has been extended by 2.5 years just by people -- francine: do you have positions and death companies -- in gas companies? >> we do not at the moment. we are looking at it closely. there are too many geopolitical

concerns. some of the political intervention, obviously, maybe we have a bias here on the u.k.. jeremy corbyn would be happy to intervene in some infrastructure. we're trying to stay awake from the space at the moment -- away from the space at the moment. francine: was the question you get most -- what's the question you get most? >> is definitely about climate change. our answer is very straightforward. there is a big role for hydrogen and green gas in a transition. we are very bullish on the ability for were noble gas, mini -- renewable gas, meaning turning waste into gus, -- gas, and hydrogen. francine: has it really and the government so far -- has italy and the government so far done enough?

>> i think italy has the highest production of renewable energy. the future will be a lot of wind power coming from the north and solar power coming from north africa. italy will be a natural have because of its -- hub because of its geographic location. the symbol happen in the north sea coming into the coast year -- the same will happen in the north sea coming into the coast here. francine: let's get straight to the bloomberg first word news. here in london is sebastian salek. >> the u.s. -- the china -- china could retaliate against against the u.s. after they blacklisted tom porcelli -- blacklisted huawei. tariffs against china could be

catastrophic for u.s. consumers and the american economy. that's what nike and adidas had to say, urging president trump to reconsider the levees on shoes from china. $300 billion worth of goods could see higher duties, including all footwear. the u.s. commerce department has granted 90 day relief for certain companies using huawei equipment. this comes after the white house blacklisted the company. phone users will be able to receive security updates but apps in theogle future. i run has except -- iran has accelerated the rate at which it apps in the future. is -- three-time formula one champion niki lowder has died at the age

of 70. three world driver titles . he also survived in near fatal fire when he crashed at the german grand prix in 1976. h jamesg rivalry wit hunt was turned into a movie. global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek and this is bloomberg. francine? francine: thank you so much. stay with "bloomberg surveillance." plenty coming up, including with populism and european skepticism on the rise, we will look ahead to the european parliamentary elections. bp, what its target means for investors. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." i'm francine lacqua here in london. we are just a couple of days away from the european election. we are trying to figure out well, depending on who comes in and the composition of parliament, how changes policies at home. alvarera.back to marco what does it mean for the markets? >> not much, i have to say. , i all of the big following think what matters a lot more for markets are the very long-term trends, in terms of

how europe is able to develop and staley from -- stay away from what has been the -- of things also, brexit outcomes, as well as exchange rates and ecb in particular. the main talking point has to be how the ecb perceives the outcome of the election. there is significant danger that this election will once again confirm that there is a disenfranchised middle class who feels very upset about what they are doing and the only way they had to express that is by voting for populist parties. that has implications for government spending. the ecb is concerned about the present, that negative rates are a reality. the last thing we need is countries adding more debt while the country is trying to fight this deflationary debt spiral.

feels once again like europe is stuck between a very hard place and a rock. francine: we will talk about where europe stands and how they should deal with some of the issues. this thursday voting begins in the world's second-largest country.c the stakes have never been higher for the european union. ,oining us now is jan zahradil president of the alliance of conservatives and reformists in europe and their candidate for the european commission. when you look at the possible composition of the parliament, we will get to that in a second come but how would you deal with china right now? in the u.s.-china trade war, what is europe's place? jan: good morning. i think we are watching closely what's one on between china and

the united states. -- going onhappy between china and the united states. we would be happy to avoid a trade war. i think the european union is somewhere like halfway between the u.s. and china. therefore, i cannot expect that toughld follow this approach of the u.s. administration. there are certain concerns about chinese presence in europe. we recently introduced a scheme which is called investment screening. this is a measure that should better check out all particular chinese investments coming to europe. we are preparing some other measures. that's one of them. francine: how do you think europe and the commissioner should deal with technology from china? wei,europe afford to ban hua or does it put in danger the 5g project? i ifwould it not been huawe

the u.s. is doing it? jan: there is not a united position among individual eu member states. there are other countries that are more receptive come up more open. so at this -- receptive, more open. don't see aoint i unified european approach to this particular issue. francine: how would you do with a ron -- iran? jan: i think, in this case, we should follow a u.s. position. i have never supported the its easement -- the appeasement policy. iran -- inlieve that the region.

i believe this deal is problematic. i believe in this case we should rather join forces with united states and the current administration. when you look at the composition of the possible parliament, so we will know of course next week exactly who will win what. do you worry that the parliament will be fractured? what does that mean for european policy? jan: of course, european parliament will be fractured, as every problem in europe is fractioned. europeectoral systems in are --systems. what we need after the election is to build a coalition and the european parliament -- in the european parliament.

that coalition is most likely coming to an end. beould be happy if it would centralized coalition, but of course i cannot guarantee it at the moment. i think we have to prepare for really substantial change in the ep composition. francine: what do you think will be the biggest headache that the commission and parliament will have to deal with? is it trade? is it a currency war, a trade war, or brexit? jan: i think we have to find once again the right balance between what can be better executed on the european level, and what can be better executed on the national level. this endless fight between national jurisdiction and european jurisdiction is the attempt by european jurisdictions to grab more power from national governments.

that is exactly the phenomenon leading us to where we are now. that does not make people too much hopeful. thanked year. are interfering too much in their everyday lives -- they believe the european commission are interfering too much in their everyday lives. francine: thank you. jan zahradil from london. we are getting breaking news from deutsche bank. price at ashare fresh record low. this is bloomberg. ♪

♪ -- cine: paolo gentiloni economics, finance, this is "bloomberg surveillance." i'm francine lacqua here in london. deutsche bank investors are growing increasingly dissatisfied with the chairman.

there have been discussions of pushing for his exit. it is unclear if they will vote for such a move at the bank's annual general meeting. this thursday shares have touched. a fresh record low. --are back with deutsche bank is not quite sure how the bank gets out of this mess. if you have a problematic think, shrink it down, -- bank, shrink it down, but it's a struggle for them to do that. >> because of the collapse of , it was a massive opportunity for deutsche bank to simplify itself and find a place for the investment bank and division. francine: but you thought that was a good idea, commerzbank and deutsche bank? >> potentially, i don't think that would have solved the issue. in the short term, it would have

given deutsche bank a way out. there were synergies which would have been able to beat exploited. everything that could have gone wrong with deutsche bank in the past few years has gone rock. the me -- gone wrong. it is a leverage play in a sector that is facing massive headlands. you have negative rates in europe. how are you going to bolster your profit margins when in an environment when nobody really wants to borrow and in an environment where you don't really have the spread? i think deutsche bank will have to find ways and potentially other partners to join forces with. as we stand, i think that they are running really on-time. francine: who wants to buy deutsche bank? right?nd of entity, somethink there will be

incentives from the german government which will have to be taking place. as we stand, i agree with you. it's not a very appetizing enterprise to get your hands on. i think germany knows that it's obviously extremely important. they will do everything possible to make sure that the problem does not disappear but lowers. francine: do you think we will consolidation -- cross-border consolidation? >> we like european banks. we like the debt of european banks. i think that gives us exposure to systemically important institutions without the dangers of execution. concern about the execution of profitability and concerns about the futures of overall banking industry.

it's becoming very much like a utility space, which mower -- with much lower return on equity. francine: ok. thank you so much. "bloomberg surveillance." stays with us -- continues for the next hour. tom keene joins me. in the meantime, european stocks climbing. up. futures also we had a mixed a session in europe. 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. ♪ francine: fighting back. china promises retaliation after

u.s. blacklists huawei. chipmakers fall on fear of reprisal. wrongfooted. nike and adidas lead sportswear an end tocalling for the tariffs. good morning, everyone. good afternoon if you are watching from asia. this is "bloomberg surveillance." tom, i am looking forward to our conversation with stephanie flanders. we have been looking at the impact of the trade war. report the oecd global on what they see the world doing in the next 12 months. tom: yes, we will get the oecd report out. we have got those headlines coming out literally by the moment. while the economy -- do we get a global recession? there is no talk of that, but there are various concerns. i love tim kopin's phrase the

digital iron curtain. maybe that's what we are seeing build up this week between china and america. francine: yes, he wrote a great piece on huawei, asking if it's a trump bargaining chip. global growth will remain subpar because of trade tensions. they see a risk from the china stimulus. straight to the bloomberg first word news in new york city. >> in the u.k., prime minister theresa may faces a showdown with her cabinet today. she is seeking their support for one last push for her divorce deal with the european union. probe exit ministers and -- pro-brexit ministers and those who may succeed make -- china is warning it may were italian rate -- may retaliate hainst the u.s. banning of

uawei. china will not sit by. president trump has lost the first round in a federal court fight over his financial records. the u.s. district judge ruled that congress has the rights to demand personal and business records from his accounting from. the president called -- accounting firm. tesla shares have fallen more than 20%. when analysts cut his price target and called it a code red situation. tesla shares have fallen nine of the last 10 trading days. global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine, tom? tom: thank you so much. courteous, desk currencies, commodities.

we're watching deutsche bank futures churn up a little bit. the euro fractionally weaker. vix.ix 15.92 on the yen back over 110. handle andder a 127 renimbi churning. francine: european stocks climbing. we had a little bit of a mixed session over in asia. i think that trade war driven turbulence that has dominated market now showing a little signs of abating. 6.93., 12 there is a cabinet meeting. we will see what theresa may does next. tom: let's take a quick london snapshot. a lot of other news today. i wanted to get in at least one

london chart. the lehman collapse, the financial crisis. trade weighted sterling, down we go. brexit at a nice level. i don't want to say world coming nevertheless, we are in the vicinity of a lehman low. maybe you can even get out the john major of 1992. francine: that's a great chart. i had about 50 charts i wanted to get out. we have a great chart looking at impact. $600 billion of what it means for gdp. i chose to do something different at the last minute, which was looking at p ratio. 16.3, worseands at than the 10 year average. that's before analysts also slashed and estimates further --

last estimates further. slashedit of a -- estimates further. justberg economics has released a report saying that the trade war could mean global gdp in 2021 could be down by 0.6%, close to $600 billion. joining us now is stephanie flanders and then richie -- and tchie. 600 billion is huge. will the president wake up and say, i'm going to go less hard on china. >> that's assuming he comes through on the threat to impose $200 billion of tariffs. the base case is we end up in a halfway state where we still have the trade war, the tariffs we currently have imposed over the next two years.

that causes, over time, some selloff in equity markets. the net result is perhaps of that. we would be -- half that. a bigger hit to china and north of .4% had to the u.s. economy. this is a thing -- hit to the u.s. economy. are we in a starkly different place now with the trade war? also mentioning some of the side effects in china. does the trade war automatically mean more debt in china? does that mean capital control? >> this is the question we face. we have seen china determined to be on a new path in terms of its economy, not just falling back on the old pumping back of credit. trying to stick to the path of

slower, but still consistent growth. will they deviate from that if the trade hit gets to be too large? we have been asking that question since the start of the year. tom: i have got to go back to the numbers on this. i want to make sure we are clear for the audience. we are saying that global gdp 6% of come down by 0.^ gdp? >> that's right. the level of gdp but 2021 -- by 2021. we think it's important to get the number out there. tom: i totally agree. >> we need to keep it>> in perspective. this is still a relatively small the global economy, in that we would not expect this by a recession.use i if you had that alongside other

headwinds, you may well get that at a later stage of the global economy, it may be enough. if we see this increased uncertainty, reduced investment at a time in the cycle when you really need investment, that's when it gets worrying. tom: stanley fischer in his book was really big on percentage change. back of the envelope analysis. here is stephanie flanders and her team's .6&. .6% is the oecd number -- and here is the oecd number. here is maybe a more is aistic 4% growth, which 15% decline. these are blooming numbers. do you -- gloomy numbers.

do you have to hedge your investment off a tendency the number that stephanie flanders has come up with? ben: i think it's all about increasing the risks on when pricing equities at the end of the day. we have seen markets that have been extremely strong this year. we have seen valuations recover largely the level that they lost in the fourth quarter. we are seeing increasing levels of uncertainty. those things don't seem to be able to continue indefinitely. i think the moment we have seen in markets over the last couple of weeks is a testament to that. you want to be looking for the kind of companies that can be relatively resilient in a challenging economic environment. tom: thanks to stephanie flanders and the team. it's a must-read for global wall street. is with aberdeen standard investment and ms.

flanders has a shingle up on the bloomberg. lawrence boone on a subpart global gdp. terrific news flow this morning. please stay with us. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." tom and friends in from london and new york. let's talk a bit about the european election. the italian deputy prime minister has promised to change eu rules in order to push through his promise of a 15% flat tax for everyone. this all comes before european parliamentary elections this sunday. joining us from rome is paolo gentiloni, the former prime minister of italy.

before we talk about italy, i want to talk about europe as a whole. how fractured is this parliament going to be in the eu, given we seem to understand there are factions, right wing, very left wing that don't have much in common? ben: obviously -- obviously, we will have a more fractured european parliament. we will have on anti-european -- this will not mean we will have an anti-european wave in european elections. i don't think so. i think we will have a vocal minority against europe, but the only relevant countries where nationalistic parties where werening were italy and -- governing were italy and austria. in italy we have a strongly

divided government. i'm rather confident that this division will be understood by the italian voters next sunday. francine: when you look at the populists in europe, have they softened their agenda in regards softened their agenda in regards to europe? it seems like they were much more bashing europe 6-7 months ago. now they talk about reform. are they softer now, those populist forces, then they were six months ago? >> for sure, they have changed their language. they are no longer send they want to go out from eu and want to leave the single currency. in also for sure they are nationalistic mood. the mode of our deputy prime is hungry.alvini,

this means at the end of the day, they changed their language, but did not change their anti-european attitude. francine: because of the trade war between the u.s. and china, how much will italy, an exporter country, lose? paolo: we are in a particularly difficult moment. i think we have, in general, a more vulnerable economy. what the oecd just said about italy a few minutes ago is not for theg reassuring perspective of our economy. obviously we are on exporting country. trade, it's having an influence. the german slow down also had an

influence. in theonger influence stagnation that we are having in our economy is depending on the divisions and the confusion that the present government is having in the country. is president trump is estimating the populism -- exacerbating the populism of europe? paolo: president trump is is president trump is frequently the mode, the icon for these populist parties and movements. they gathered a few days ago in milan in a mass meeting and they had clearly a point of reference in president trump, and a clear enemy in pope francis. this was particularly strange for an italian mass gathering to have someone very vocal against

the pope. this is what the nationalist movement brought to our politics. tom: what is best for your italy right now? what is the next step to move forward towards a better economy and society? that thisguess is government, unfortunately, is not able to give any guarantee of this kind. different parties and we could say two different populism's. one is the classical extreme right populism of salvini. the other is an antiestablishment populism. merging ofof this these different parties is a total paralysis of any decision,

and it continues fighting between these parties. if this continuous fighting -- this continuous fighting is giving the wrong messages to financial markets. last week, for example, our deputy prime minister, salvini, said something about the italian debt. our bonds jumped up. the only solution is to change our government. the only way to change the government and to have new elections. francine: thank you so much and we will see you -- we will see whether we go to these advanced elections. that was paolo gentiloni. we will have plenty more on the european elections. next hour, we will be joined by the former president of the european commission and portuguese prime minister. this is bloomberg.

♪

♪ >> this is "bloomberg surveillance." let's get the bloomberg business flash. some of the biggest deutsche bank investors are unhappy with the chairman. they have discussed trying to get him to leave before his term expires in 2022. among those investors, members of the royal family and h&a group.

he has overseen several failed turnaround plans. there is no pressure on t-mobile and sprint to offer more concessions to get their merger there is no pressure on t-mobile and sprint to offer more concessions to get their merger approved. the u.s. justice department antitrust chief is leaning against the takeover. now the question is whether selling airwaves or other business units will be enough to change his mind. indonesia is underscoring the challenges boeing faces and getting the 737 max back in the year after fatal crashes. the government may ground the plane until next year. even after the u.s. clears the airplane to return to service, they will conduct their own review. that is the bloomberg business flash. tom: deutsche bank down to new lows. there is just no giving way here. it's been a really ugly, i will collect from new york time from 3:00 p.m. in new york, down, down we go. new lows at deutsche bank. hie with us from

aberdeen standard and stephanie flanders. ben, what do multinationals look like in a trade war? ben: great question. it depends on what part of the in.et yoe are invested it's not particularly positive for anybody. it has not been a great environment for that type of area. things like julius baer, which we have an investment in and is heavily dependent on the appetite for risk from asian investors. what we are seeing from the trade war is not doing much to help their business. we are likely to see a slowing in risk appetite across the board. it's unlikely to create the kind of interest rate environment which would be positive for banks. knowstephanie, as you well , in every economics textbook, markets, companies, it's like

chapter 23 that nobody looks at on a thursday late in your term. are the economists in the central bank ignoring at their risk the pressures on multinationals given the trade war we are launching into? a feature of aas lot of the economic analysis this year that people were focusedd, i remember we on the question, which was the appetite for investment and growth from the corporate sector. this is the stage in the recovery where you need that to be strong. capex to give more legs to the recovery. erlying strength in the services globally, which is keeping the economy going.

i think the central bankers are pretty aware of that. francine: we will get back to tchie ofe and ben ri aberdeen investments. , jp morgan asset management chief global strategist will be joining "daybreak: america." they will also be looking at euro markets. in general, what margins due for some of the big companies coming up shortly. this is bloomberg. ♪

♪ bloomberg "surveillance," francine lacqua in london. . am tom keene in new york let's get to your first word

news. kailey: president trump says there is no sign iran is getting ready to attack america, but warns results will be met with great force. he sent an aircraft carrier and bombers to the persian gulf, and invited them to negotiate a new nuclear degree -- agreement. tariffs anddas say china would be catastrophic, signing an open letter to the president, asking him to reconsider the tariffs. if you made more than $10 million a year in the u.s., your chances of a tax audit have plunged. the audit rate for higher earners fell by half last year. the wealthiest have the highest audit rate of any income group. nikki lowder has died. crash.ived a near fatal

he later founded his own airline. he received a lung transplant last year. he was 70. 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. tom: one of the advantages of surveillance -- "surveillance" is you squeeze it all together. 3.5% on theerate at rate without inflation. >> despite crosscurrents, the economy is showing continued growth, job creation, and rising wages. >> we remind ourselves that the , fullof unemployment employment is not directly observable and changes over time. it likely extends at least as low as 4% or perhaps lower.

>> if you want to sustain this expansion, keep the unemployment rate broadly defined. >> the policy course has been exactly on point. we have seen growth continue above the long-term trend and we have not seen very much inflation to suggest the economy is overheating. we are in a pretty good place. tom: bostick, williams, powell, chairman, notice directly observable. chart from money their effect of the trade war. the united states and they have the same chart for china. the white is now. the orange is if we escalate, and with it if we get a stock

market down, that would be a correction, not a bear market. you center tendency out right near the election to a 10%, 15% decline in america's gdp. this chart is extraordinary. how confident are you on the x axis, the timeline of the greatest drop given these scenarios? stephanie: that is probably the piece of this that is most reliable. the question is whether the assumptions you are putting into it are right. we know broadly how long it would take for this trade shock in itself to feed its way through the economy and supply chain. we know the impact of the equity market correction would be in and of itself. when you look at the chart, we are not thinking of the other things that will happen to global gdp, so it is possible this type of kit could get lost

in the darker mixed with another big shift happening, be at risk appetite or inflation picking up. we don't know what will happen to the global economy, but we know what the effect in and of itself of these kind of tariff measures. tom: are you predicting another depression? the idea of a drop off in gdp of that amount leads to the groom -- gloom crew coming out and saying, there is bloomberg again. is this a moderate tendency or does it lead to a global challenge? stephanie: this change will not send the global economy into recession. depression is several percentage points off the level of gdp, like 2008. several countries had a 6% to 7% fall in gdp. it will be something in the mix as a headwind and having

unpredictable effects on confidence and investment at what could be an important time in the global recovery, and certainly politically in the u.s. nobody will say this is the only thing going on. francine: what does this mean for how you invest in europe? widert comes down to the out turn of how things develop. confidence and investment are the things i would focus on. corporate confidence, is not particularly high right now. there is a degree of hope we will see an economic recovery led by china in the second half of the year, but right now there is a degree of uncertainty. if we see the tariff war escalate, that will compound and investment plans will be pushed to the right. that will make the numbers stephanie has look even worse. francine: what does that mean?

if a chief executive sits on cash or does not do investments because he is unclear what the future holds, does that lead to less m&a? does it lead to a shooting up of prices and inflation? significantd of capital investment requires confidence that the projects will acquire cash for you as a business. we have issues around brexit, concerns around the political structure in europe, the tariffs war is accelerating. the margin, we're just talking about a general weakening of confidence. we saw fairly modest signs in the fourth quarter spiral into a correction. against the backdrop, it may look more difficult and it is right to be cautious. francine: his germany

problematic? stephanie: we saw the biggest hit to germany with the car industry. the headwinds coming from global trade had a big impact on germany, which had an impact on the momentum in the euro zone. we have decent domestic momentum, but the biggest downside risk in the global economy is external and puts the greater risk of countries like germany, who have a model that is so focused on the outside world. chinane of the phrases of -- that was quiet in the last 24 hours -- and we have had some phrases out of the press of china and beijing in one of them resolve." what will that due to to the equity markets? ben: one of the mistakes we might make an we might think we are rational beings, we are looking for the type of win-win outcome that allows the most

growth for all participants in the global economy. new look at their actors -- the actors -- when you look at the actors and their motivation, that may not be their motivation . when you look at how donald trump acting into 2020, what will happen to the economy and the strong mark -- stock market, and what will his base think about china? thinkht sit here, and i people complacently have said, we are bound to get a deal because it makes sense, but there are incentives that play that are not just economic. newswe will dive into that from washington in the 6:00 hour. stephanie flanders with an important summation of trade war effects. we will continue that discussion. the fed speaks. bullard was stuck in customs in hong kong.

james bullard, 7:00 p.m. coming from asia. this is bloomberg. ♪

♪ this is bloomberg "surveillance," tom and francine from london and new york. theresa may facing another showdown with her cabinet, making one last push for her divorce deal with the european union. pro brexit ministers are expected to leave the objections . the cabinet are expected to debate proposals making the deal more attractive to opposition parties.

this is like political posturing. run me through the different scenarios. we still have like 15 options open. if we have theresa may succeeded by a pro brexit prime minister, does it make it more likely to go to a general election? stephanie: for what it is worth, it is more likely that you will have a referendum after this. if you can imagine someone who has just come in who feels they are quite likely to lose an election, although polls are not looking great for labour, they do not look great for the or tories either, and the alternative might be a referendum. if it is someone like boris johnson, they do not want that to be seen like a betrayal of the brexit voters. that is why it is definitely not a sure thing.

waiting until october, that you have the possibility of a standoff in october that is more dangerous than the last one when we got the delay from the european union. they will be less inclined to give britain another delay and the choices may be more stark. francine: what do you do with u.k. assets? what u.k.rt muddling assets could do under jeremy corbyn? considers something to , and the likelihood of a corbyn administration is higher than it has been. it is a time to be fairly well hedged when it comes to u.k. assets. it is difficult to work out value of what is going to happen, and it is not a market i would be taking huge bets as to what the outcome would be in the other direction. today, in thedia

papers today in london, the chancellor of the exchequer emerges. who is philip hammond? we know him from a chancellor in treasury, but how does he fix and test fit into brexit question -- fit into brexit? stephanie: he is the grown up in the room trying to play the middle course and it is extremely hard. you get quite a good chance of being run over, but he is trying to be the voice for the treasury , for common sense, and for managing this chaotic process with as much dignity as possible. in terms of the conservative party, he would be on the -- i don't know if it is one nation conservatives or other groupings appearing around the home secretary, and what you would call the grown up weighing -- wing of the conservative party.

it is hard to see anybody winning that leadership contest. tom: i have 47 more questions for you and 33 more for ben ritchie on the equity markets but we have to move on. the news of the moment, speaking of the fragility of a chairman's position at deutsche bank, you see that with the fragility of the low, 6.58. steven arons is someone we need to speak to. are youquestion -- what focused on in frankfurt? steven: the chairman is definitely a big focus. the agm of deutsche bank is set to take place in two days and the chairman is the point person for investors who has been at the bank for seven years. the share price decline since then and hit a new record low.

investors are unhappy. tom: what is the body language between the chairman and the man running the bank? are they on speaking terms or do they have entourages that communicate between each other? steven: i am pretty sure they are on speaking terms. i do not think there is a huge disagreement between them. i do not agree on everything, and the strategy forward is something being discussed at the bank. mainis not one of the bank,ms of the disagreement in leadership. francine: you could argue everything that could go wrong with deutsche bank has. how do they refocus? do they shrink the bank and is the risk of shrinking the bank that they cut too much? what is the risk of lending in germany? steven: another way to phrase the question is basically the

answer. if anyone had the answer, they would be working at deutsche bank now. they are working on a new strategy, trying to answer how they grow again and get rid of costs. i have been trying to cut back the immense cost base but revenue has dropped more steadily than cost, creating a problem in a low share price, and turning that around has been difficult. francine: is there going to be a lot of political pressure for this bank to merge? will they put pressure on deutsche bank for someone to buy it? steven: that is a crucial question. commerzbank between and deutsche bank recently about a potential tie up. those were ended last month, and those talks came about partly because of political urging.

the german government and regulators are concerned about the state of the bank. the share price is superlow. any disturbance could cause a further drop, so they want something to happen. as we wrote and our story today about the chairman, regulators are not happy with the performance, but what can they do? there is no easy solution, so everyone is watching the bank. francine: thank you so much, steven arons. , formerp, bob diamond chief executive of barclays and now chief executive of atlas capital at 7:00 a.m. in new york. this is bloomberg. ♪

♪ this is bloomberg "surveillance." let's get the bloomberg businessweek. u.s. antitrust officials widened their investigation of broadcom. they are looking into whether they abuse their dominance for some of their most important project -- products, focusing on

wi-fi and ship sales. the final episode of game of thrones set a record in hbo. fraction of the all-time record for a series "mash,"hat was set by which drew over 100 million viewers in 1980. tom: we did the best we could. another one. there is two dragons. my word. be careful. "surveillance" seen "game of thrones"? have come aout 65% 35% are waiting for the dust waiting for the weekend, so -- waiting for the weekend, so no spoilers. tom: the team in the control and goes to high sobriety

they buy for hundred dollar and and $700 sneakers. adidas,gin with nike, and all of that. if i move away from converse and get a $100 pair of sneakers, how much will i pay in paris? .5% -- 11.5% on footwear versus 2% for the broader consumer. tom: what will it be when the president is done? >> according to the industry group, it will go significantly higher. costsadding 7 billion in to consumers on an annual basis. tom: the most important thing in this article, 46% from china in

2013, 18% from china now, and they want a model to game plan down to 7%. can they do that? , there ares.-china other places to go for business. >> you are seeing diversification of sourcing to bangladesh. they cannot just pick up and move, so i would imagine many years of an impact until they are able to move, find the right manufacturers and partners. francine: when you look at the european, is it a similar model? the supply chain is usually across the world. does it make a difference if you -- toyootwear or tory or company? ben: over recent years, people have done by supply bases and fashion retail has had a big

shift, driven by the consumer model. have seent, you supply chain shorten and become more geographically prox acute -- proximate to europe. there will definitely be an impact, probably not as big as five or six years ago what have. francine: the shift away from china will continue? ben: it is likely we will see people diversify their manufacturing base and that will come into play for risk management. you will see more localization as a result of this, and more diversification. tom: i got a major complaint with gucci. i am waiting for the boston red i have the newut york yankees sneakers at $895. they are out of italy, but sold in the u.s. who loses and who wins? seema: the u.s. consumer will

always lose if there is a tariff, because manufacturing costs will go up. you still have freight costs. tom: let's say the yankees lose. the yankees lose, ok? $890. they are not even what they wear. seema: no, they are not. francine: it is what we wear on "surveillance." ritchie, -- tom: ben thank you so much. another hour, we will do it again. ♪

♪ tom: this morning, it is a digital iron curtain. "--ing should just's

resolve."unwavering while weight is not cte -- or is it?not zte all of the president's lawyers defend on multiple fronts and will appeal. deutsche bank from 91 to six euros per share, the chairman under siege. this is bloomberg "surveillance," tom keene and francine lacqua. i do not know if there is a home depot by you in london, but in america it is a big deal, and the idea is that they reaffirmed 2019 guidance. you call as it what bellwether of the american economy? when it comes to housing? what else? tom: a 5.7 percent increase.

this idea of organic revenue shah with us. they are moving to digital but they will not be amazon or walmart, and all of this is to do the pixie dust of doing better than nominal gdp. they are accomplishing that, aren't they? seema: they are. even though a small percentage is online, 7%, it is a large number of transactions they are doing online and they are focusing on doing that and building the infrastructure to take care of the pro and have an experience for the pro and do-it-yourselfer. tom: apple, google, apple, google. 27.6%.pot trailing d apple, didn't

they? guidance,y reaffirmed which everyone wanted to hear, given q1 started off wet and soft. made a big deal of going out to see mr. bezos and getting the internet blessing. how does home depot build out and not be amazon and walmart? seema: they have an endless audio on their website. they have improved their first feldman and that 40 -- fulfillment in that 40% of products are picked up. they do not have to be amazon, given the time that people want the product, so they have to have it that they have researched content, the ability to buy online, or if you go into the store.

i have multiple fulfillment options to make it easy. isle.the endless a much.shah, thank you so the news flow today extraordinary. here is kailey leinz. kailey: prime minister theresa may faces a showdown with her cabinet, seeking her support -- their support for her divorce bill. they are likely to debate proposals to make the deal more attractive to the opposition labour party. china may retaliate against the blacklisting of huawei. saysmbassador to the e.u. the u.s. has engaged in bullying and blackmail, and china will not sit by while its rights are undermined. president trump lost the first round in a federal court fight

over his financial records. a judge ruled congress has the right to business and personal rulings. the president says he will appeal. shares of tesla have fallen more than 20%. matters got worse after a once priceh analyst cut his target and called it a code red situation. tesla has fallen nine of the last 10 trading days. 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. leinz.iley this is bloomberg. ,om: let me do a data check equities, bonds, currencies, commodities. futures up eight. curve flattening over the last couple of days. euro weaker. sterling weaker. on home depot, their comp sales are not a nominal gdp number,

but came in a little light at 2.5%, even if the stock is relatively flat. data from london. francine: u.s. equity futures up with european stocks. a mixed session in asia, but the trade war jury of an turbulence -- trade war driven turbulence seemed to be showing few signs of abating. i am looking at cable. , 1.2701.und it is tremendous to have with us troy gayeski. let's talk about the hedge funds and alternative investments. i want to talk about the mathiness of the market. is the volatility we are seeing

normal volatility, or is there an unusual dynamic? troy: it has been more normalized as the trade conflict has escalated. big year, we had two corrections where it got to the more elevated range. once the fed pivoted their policy to be more easy in the market, volatility collapsed again and volatility sellers returned. we think we are in a normalized range, which makes sense. tom: over to the left tail of the greater financial system, are there instabilities? optimistic,l are and then the next are gloom. the strongest remains in corporate lending -- at hasn't been housing or consumer lending. tom: is it high-yield?

troy: high-yield unlevered loans. when you look at -- high-yield and levered loans. when you look at the market when a $1rted, now it is trillion market. growth in levered loans and high-yield, and net debt to ebita are back to the levels from the 1990's. tom: net debt to ebita. troy: you subtract out cash, look at where net debt levels, earnings before interest, taxes. francine: tom is just calculating how to do his next chart because he has the averages of all of that in his head. just to take a step back, what

does all of this qe and all the stimulus that central banks have done, done to that market, and how will that change in five years? troy: it is hard to blame corporate ceos and cfos for taking advantage of free money that has been offered by central banks for the last few months. the rates have gone higher in the u.s. and the leveraged levels have stabilized. consider --e if we continue at 4% to 5% nominal gdp, america can deleverage its way out of it. if we get an escalation, policy shift in d.c., the bulk of the paying for investors will remain in high-yield and levered loans, and secondarily in private credit. it will not cause a bear market or recession, but that is where

the bulk of market and realized losses will be, as opposed to the last cycle which was dominated by real estate and consumer credit. francine: up next, jose manuel barroso, prime minister of portugal. we will ask him a thing or two about brexit and the european elections. this is bloomberg. ♪

♪ francine: this is bloomberg "surveillance," tom and francine from london and new york. this thursday, voting begins in the world's second-largest democratic election. 28 countries all choose more

than 700 members of the european parliament, but the rise of populism means the stakes have never been higher for the european union. joining us is jose manuel barroso, prime minister of portugal. troy gayeski is still with us. you understand politics in europe, which confuses many. what do we misunderstand about the importance of these elections? we have a decade thinking, no one cares, and suddenly it could change policies. mr. barroso: the parliament is important because it is european parliament that has to approve the european commission. the commission is the executive body to the government of the european union. european parliament has the power to approve or not approve trade deals, so it is an important decision.

all the political discussions going now, i think it is going to be an important political event. francine: how do you see these elections panning out? a report saying the only person who is happy about this is marine le pen, because it gives more of a voice to the far right's nigel farage and boosts the social democrats. is it difficult to see the factions and what they mean for european policy? mr. barroso: democracy is complicated and complex. we have 28 different countries, all democracies, and a european democracy, so the parliament is the only transnational parliament in the world. 28 countries vote at the same this is extremely complex and complicated because there are national issues and

european issues. these elections will see the rise of the so-called populist parties, more in the extreme, parties that are against the traditional mainstream parties in europe, the center-right, european peoples party, centerleft, social democrats will grow considerably. i do not think they will grow to a point of putting in question, putting at risk a majority of the pro-european parties. the european people's party, social democrats, and the liberals remain very much pro-europe. tom: you accepted a nobel peace prize for the european union six or seven years ago. i want you to get another nobel peace prize. how do you solve the trade battle across the atlantic? how do you solve the pending

trade war between mr. trump, germany, and the e.u.? mr. barroso: i think it will be important that europeans and americans find a deal. this is by far the most important trade relationship in the world, figure than the relationship with china or that the united states has with china. numberopean union as the one partner in trade of the united states and the number one partner of china. it is huge, the amount of goods and services that every day across the atlantic. of what ismportance also considering other implications, political and geopolitical. my strong advice will be to discuss within europeans and the united states a good compromise. there was an agreement we were discussing.

it was launched with president obama. we were discussing that trade agreement but after the new administrator edition -- administration, they decided not to pursue that line. i think it was a good line, but now you have to face the facts. i think it should be possible to come to a compromise between the united states of america and europe because certainly, some kind of a trade war if it happens between europe and the united states will be much more devastating than what we are seeing now between china and the united states. is itne: is it really -- in the interest of president trump to look like he has made peace with china? is this about trade or about technological supremacy? if it is about technological

supremacy, this could last 10 years. mr. barroso: what is going on is much more than trump policy. it is a matter where there is a good degree of consensus within republicans and democrats that there are not so many issues. basically they agreed to be tough on china, and it is much more than tariffs. it is about global position on technology and defense-related issues. i think we should be ready for the longer-term competition and hostility between the united states and china. francine: thank you so much. we will come back to jose manuel barroso and troy gayeski. coming up later, we also talked to lawrence boone, chief economist at the oecd. they put a revision on growth. we will talk about china and the u.s.. this is bloomberg. ♪

♪ this is bloomberg "surveillance." new pressure on t-mobile and sprint to offer more concessions to get there 26.5 billion dollar merger approved. the justice department antitrust chief is leaning against the takeover. the question is whether selling

airwaves to another business is enough to change his mind. indonesia is underscoring the challenges boeing faces in getting its 737 max 8 back in the air. u.s. clears the 737 max 8 returned to service, they will conduct their own review. some of the biggest deutsche bank investors are unhappy with the chairman and discussed trying to get him to leave before his term expires. family -- are qatar's royal family. he has overseen several failed turnaround plans. that is the bloomberg business flash. tom: we are thrilled to have jose manuel barroso, former prime minister of portugal, a nonexecutive chairman of a small bank called goldman sachs. mr. prime minister, it is

totally inappropriate for you or me to ask specific ranking questions. i will not ask -- banking questions. talking about the linkage of a given american bank with a given european bank -- he goes directly to your bank, goldman sachs, and deutsche bank. he knew the financial system of europe was the glue that would bind europe beyond world war ii. do we still need that glue, and how do you keep the european finance and banking system together as it has prospered for the last half of century -- half a century? mr. barroso: it is a work in progress. it has been taking too long during the financial crisis, and as a reaction, we made some progress. it was my commission the put forward the proposals for the

banking union -- -- banking union. mechanismesolution for the euro area, but there are two pieces of legislation that have not been approved. ofneed to be bolder in terms the creation of a capital markets union. it is a work in progress. the european union is always very reactive and sometimes they need a credence to take steps forward. it makes sense to have more financial integration. we have a common currency and a monetary union. euro.bers of the grexit did not happen, greece is still with us. we have not done enough in terms of financial integration. tom: are we at the point of crisis right now when we see any

given major bank move from 90 euros per share down to six euros per share? there is talk of the chairman being shown the door. are we at a crisis where europe can effect financial change? mr. barroso: i am not in a position to comment. you have more experts and goldman sachs than me to speak about prices and valuations. what i can tell you from a structural point of view as it can be good for the european economy to have more consolidation and integration in the banking sector. that is certainly the direction of travel and should be the direction of travel. francine: what do you say to the experts who say what the european union did with greece was wrong, and it validates people who want brexit? mr. barroso: it was a success, what happened in europe.

we have to think counter factually. what it be better without the euro? i am sure not. we will have competitive devaluations and will probably witness the breakups of the internal markets. crisis,hat in times of a natural tendency to close street, to close trust -- trade, cross-border. the euro protects the european union from much more serious damage. it was possible for europe to recover, and some of those countries are above average. ♪

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. ♪ bloomberg "surveillance," francine lacqua in london, tom keene in new york. this with a backdrop of

all of the gloom, how are the hedge funds doing? troy: they are in the 4% to 5% 3% to 4%h higher beta, with lower beta. 13%.spx is up if i am a shareholder, i am upset. troy: what central bank intervention, strong corporate fundamentals, and buybacks, equities have mass outperformed hedge funds. bronze somewhere between -- bonds somewhere between one third and one half the equity side, where is the brain damage? investors have focused on private credit and equity, and for real estate. hedge equities have slowed. tom: what are they doing with

their money into and out of hedge funds? troy: investors look at it is late cycle. after the recent rally in bonds, we have much lower yields and the prospects for fixed income are lower. allocators are going towards credit, particularly consumer credit. tom:'s money moving into alternative investments? troy: net money is flowing in at a slower pace. what are the chances of a recession? if there is a recession in the u.s.? where do you see it first? troy: you start getting out 12 months, factoring in the trade war and potential policy change 25%.c., we think there is a

30% probability of a recession which means we are on the cusp of a bear market. we still think the consumer is in good shape. lowerl muddle along at growth rates than 2018 and the back half of 2017. the trade war escalating could shave off another few basis points. tom: troy gayeski with us. let's get to first word news. kailey: president trump there is no sign iran is getting ready to attack american forces, but warns an assault would be met with great forces. he sent an aircraft carrier and bombers to the persian gulf, and invited leaders to negotiate a nuclear deal but they declined. thatand adidas are warning imposing tariffs on china on shoes would be catastrophic,

signing an open letter to president trump urging him to reconsider. presente house moved to on mcgann from testifying before congress, escalating the fight between congress and the white house. democrats want to know if the president tried to curb robert mueller's investigation. thrones" set a record, attracting 19.3 million viewers in the u.s. that is a fraction of the all-time record for a series inale, which was "mash" 1983. 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. tom: thank you so much. let's move on to washington and the kings landing, and look at a morning rest -- must lead from a

democrat from democrat state. the former congressman, trump's actions are contrary to the republican party's doctrine of free trade. sanderssident bernard were doing this, senate republicans would protest seriously. america is so preoccupied with limiting imports that it devotes little or no attention to boosting exports. kevin cirilli cannot find a free trader in washington. it is a brilliant essay by the four congressman. free trade in washington? kevin: there is a slide in both parties. you have republicans against implementing tariffs, democrats against tariffs, but a populist streak on the left and right

that are actually in line with it. bernie sanders is very much naftat nafta, and says 2.0 does not go far enough. tom: we could pile on with all the different stories of the moment. i mentioned in my opening, all the president's lawyers are doing billable hours. how beleaguered is the president and his attorneys? kevin: these attorneys will get their hours in. yesterday, a district judge in washington, d.c. ruling the president did not have the right to exert that there was no legislative reasoning for democrats in the house to seek tax records dating back to 2011. that will be appealed and could make its way to the supreme court, and that was a minor victory for the democrats in pursuit of the president's tax

return. francine: how is the president doing in the polls? kevin: if you look at the matchups overall -- and it is very early -- it is competitive with the top tier democratic candidates, biden, sanders, warren, harris. they are neck and neck, and beating him in some areas. other polls suggest how activate the president's base is, and that would suggest has support particularly among event gela goals given the recent abortion given the recent abortion conversation, that suggests the bases with him. tom: what has he got beyond the base? troy: he has to win pennsylvania -- kevin: he has to win pennsylvania, after biden declared philadelphia his

campaign headquarters. tom: an eventful day to be had in washington. with us is troy gayeski, and a guess we can look at trade -- i guess we can look at trade. stephanie flanders put out a estimate of gdp the modele -- is that we have to have? troy: i think so. the trump administration is pushing back on china, some would say predatory behavior. there is hope there was a quick deal cut and we could get back to the races and taking advantage of tax reform, but when we look at the numbers come at the numbers, the main drag over the medium to long-term, business -- lower business

investment which leads to lower growth. tom: you guys just had your soiree and did not invite me. troy: you are always on the list. tom: from john williams and seven other people last week, we heard about confidence. how is the confidence in evaporating? strongvaporation is a term, but confidence has taken a hit. tom: consumer confidence. what about business confidence? troy: it was at record highs but has taken a hit. it is still at elevated levels. the tight labor market forces investment to increase productivity, and that there will be terminal demand for the products. when you are messing with inventory chains and production chains globally, and putting on tariffs, you will naturally lower business investment. tom: the white part is

pre-escalation, orange is the overlay, and the blue part is if we get a correction, what it does to equity prices. 4/10knocks 3/10 of 1% to of 1% of gdp. it is an ugly 2001. from the away cocktails, looking at gdp and you mix trade in, we spoke to a big investor that was saying the fact that we look day in and day out at what the trade war does to inflation, central banks, and your metrics, is wrong. if there is a full-blown trade ,ar that last five to 10 years we will go into deep depression and we underestimate the impact this could have. troy: this is extrapolating a lot into the future. all you can do with economic analysis is look the next 6, 9,

12 months and try to analyze how this variable changes. in the short-term, it has had in -- capeximpact on ape and fixed business investment. one could say that closer to 2% to 2.5% growth this year it could be closer to 1.5% or 2%. to say we will have a global depression because of a realignment china, that is a glass half empty. when the trump administration came into power, the view of many is we will cut deals with done,, japan, get nafta and turn the whole world to focus on china and changing their trade practices. the critics would say, why didn't we do tpp in the first place? it is a valid point. it looks like with tariffs

lifted on aluminum and steel that the usmca is poised to pass. japane a did taunt with we cannte with japan and use the western world to gradually change china's behavior to benefit everyone. we are just looking at the next three months and the right tail will not happen. the left tail will be a drag on capital. tom: the quote of the day is "unwavering resolve." next, we will have unwavering resolve to look at home depot. we will look at home depot and deutsche bank with a bid. home depot with a left. -- lift. ♪

♪ bloomberg "surveillance," francine lacqua on queen like doria street -- queen victoria street, tom keene lexington avenue. scott mushkin joins us from wolf research. home depot and the last 12 years, 20% per year. can they sustain that total return? scott: we think they can. home depot is a premier company and the culture is so strong. the housing market has been a little bit weak. between them and lows, it has -- lowes, it has been a duopoly. we think home depot in particular has advantages when it comes to e-commerce. tom: how do they compete against walmart and amazon?

how do they learn from walmart and amazon? scott: the funny thing is, maybe it is a little of the reverse. home depot was doing on the --nnel before omni-channel omni-channel before on a channel was a word. 10 or 15 years ago we may have faxed it in, but they were always pulling stuff off their shelves and getting it to contractors. their stores are set up for that, so if you are going over a true omni-channel e-commerce solution, there is not a better company to do that with an home depot. the other thing they have going for them versus other retailers is it is a specialized thing they are doing. not that you cannot get a lot of their stuff off amazon, but the expertise, breadth of product, home depot and to a degree

lowe';s have advantages. francine: the trend of people buying more stuff for homes because they think their properties are in investment, this trend, seeing your property as positive in terms of investment has been going on since the recession, but there are signs this is cooling off. what does that mean for home depot? scott: you are bringing up an excellent point. i live in connecticut and our real estate prices seem to only go down. we need positive momentum to continue in the housing market because people look at their homes as an investment and spend more when we see home appreciation. it is an important point and we need to continue to see modest home appreciation. us. please stay with i want to do single best chart on home depot. i do not think this chart is shown enough.

we had some breaking news, you see that on the screen. mark to take on pellets on because i'm the only -- merck to i amon pelaton, because the only one who has not bought one. it is ken langone, it is not sexy like apple. scott: it has been an effective business model, and effective duopoly. they have locations throughout the country and it is playing to the strength of the u.s. consumer, not only because of the tight labor market. the spending trend should continue at a healthy pace. -- -- p[ d pellets when i look at home depot and the persistency of revenue, how do they avoid the home depot malaise of the 1990's?

how do they keep vector rising? scott: one of the things they are doing -- we brought an investor group down about a year and a half ago -- and one of the messages to the manager of home depot is invest behind this business. if you look at invest to capital and margins, they are rising. we would like them to invest that back into the business, and what did that management team do? they said, we are going to do that. it is not anybody's numbers. they are in the process of growing their distribution capacity by 50%, so they do not build stores but put money behind the business. the idea is a lot more products will go direct to consumer, direct to jobsite. no one has this revenue growth in their numbers and according to our numbers, it could be an

epsa one dollar, $1.50 in out to 2020 two as this distribution comes online. tom: scott mushkin, thank you so much. block.yeski -- mental troy is with us. francine: skybridge. tom: pelleting therapeutics and merck. this is bloomberg. ♪

♪ is bloombergs "surveillance," tom and francine from london and new york. trade tensions taking a toll and global growth is expected to -- projected to slow to 3.2% this year, well below the growth rate of the past years. here to talk to us as the chief economist of the oecd, lawrence boone. thank you so much for talking to us. these trade talks hurt world growth in the next four to six months, and how difficult is it to measure? lawrence: growth has faded over

the past years or so, and it is now quite weak. ,here has been trade tension and we think trail has derailed global recovery that was going on in 2017. looking at the past, it is difficult to disentangle the trade affect from what happened in argentina, turkey, and china, but looking ahead, we can model what would happen if the trade tension were to continue. francine: what does it mean for what countries need to do? trade can't -- tensions continue. to central banks have the tools to deal with it or does it need to be from fiscal policy? lawrence: that is a good point. we also underline how much global growth has been much too , and for monetary policy

how important it is to consider , fiscal policy and structural policy. the one message we send for that beyond trade negotiations is first, invest. and callsates are low for the fed are to be low. in terms of reform, competition reform, the digital transformation we are seeing requires government to act fast. tom: i want to rip up the script. the telegraph published seconds ago, talking about an e.u. financial policy that is "back to the ice age." how restrictive are central policy whenntral rates are coming in solo?

lawrence: i would distinguish two things. policy, which i think is hugely accommodative, but obviously with a flat yield curve, if the bank's business model is not as good as it should be, that is one thing. now -- clean p&l and modernize the business model. , it is one oftive the reasons why the emerging markets took a hit. they have loosened since then. we should take advantage of looser financial conditions to invest more and talk about fiscal policy more than we do now. tom: thank you so much today, lawrence boone with the oecd, a really important report and the

global number, 3.3, they notched it down to 3.2%. i would suggest that is a tangible knock -- markdown. there is so much more to talk about today, not only brexit heating up the united kingdom, the important elections on thursday. deutsche bank, 6.66 euros. andgoing on in washington, troy gayeski continuing with me and jonathan fire. -- jonathan ferro. this is bloomberg. ♪

♪ no moreease sir,

tariffs. and kindness fight song, no -- and china's fight song, no u.s. bullying. chairman on the chopping block. top investors are discussing pushing the exit outside of thursday's general meeting. david: welcome to "bloomberg daybreak" on this tuesday, may 21. we have kohl's adjusted earnings-per-share. it is ticking down right now in the premarket, just about 6%. root jcpenney, though, rim -- though, remember that great quarter? it doesn't look like it held up. sales down