francine: trade war battles, china avoids being labeled a currency manipulator but beijing hints they can cut off access to rare earth resources. nissan's chief executive says there may be opportunities in fiats -- fiat's merger proposal. the centre writes lead candidate does not gather support from eu leaders as a political rift grows in europe. we are live in brussels. welcome to "bloomberg:

surveillance." these are your markets. the stoxx 600 is down 1.2%, a lot of focus is on the trade war and ratcheting up from china on the rare earth engle. -- angle. this is the 10 year yield, seeing a bit of an inversion. will this mean bumps or is it because of the qe from banks? 6.9.he renminbi is coming up, we speak to the president of the european central bank. let's get to first word news in your city. -- in a new york city. the trump administration has refrained from labeling china a currency manipulator, leaving a campaign president -- promise unfulfilled. the u.s. treasury also updated his watchlist with five new nation's, including italy, ireland, and vietnam.

parliament will not stand aside and let the country tumble out of the eu without a deal. this is from the speaker of the house of commons, the comments coming as some contenders to succeed theresa may have promised to force a hard brexit. but on the other side, the -- secretary jeremy hunt has warned that trying to leave without a deal would be political suicide. and ethiopian airlines pilots warned managers more training was needed, months before one of it's a boeing jets crashed. he says pilot needed more communication to avoid a repeat of the disaster. in december, he warned that the situation would be quote a crash for sure. iran is a must certainly behind attacks on ships in the persian gulf according to john bolton. but he says the trump administration is trying to be quote prudent and responsible in its response.

iran denies any involvement in the incident. netflix plans to reconsider its entire investment in the state of georgia if a law restricting abortions takes affect. the streaming company makes some of its biggest budget shows there. the new legislation is set to become law in 2020 if it survives legal challenges. georgia has become a popular hub for production because of its generous film and tv tax subsidies. 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? francine: thank you so much. this is what we are seeing from the ecb financial stability art -- report. they are seeing growth and trade tensions. the are also saying downside economic risks remain prominent and that euro bank profitability will remain low.

intoare taking a deep dive the banking sector, talking about leveraged loans being susceptible to weaker earnings. that is the earnings report and we will get back to it in a second. in differences in opinion who should lead the eu are becoming apparent. center-right was a candidate but failed to gain traction. this is what we have heard. not discuss names tonight, just the process. please don't ask me about names. macron: i am not like those who would only want someone who would not overshadow the heads of states. we need a strong leader with experience. >> it is clear the ecb is the strongest group in parliament, but they do not have a majority on their own. everyone will have to reconsider their position, but what matters

is we preserve our ability to act. francine: joining us from brussels is our reporter. leaders did not agree on a name for commission present. what is the issue? >> they did not agree on a name or the system by which the president should be elected. this is the core of the problem. clear thatel made it christian democrats won the election and manfred weber should take the lead. she said that if we want to make this a real democratic exercise, the next president should be a reflection of those results. but emmanuel macron was equally as critical, saying i never agreed to the system and that we need a stronger candidate. he is clear he thinks manfred weber is not up to the job. angela merkel is not willing to let go of him just yet, and this is a whole package. commissioner is agreed, they cannot move on to the central bank, and that is a concern for the markets.

mario draghi has to leave by the end of october. francine: thank you so much. let's keep it on all things europe. joining us from the hour, economist at vanguard and the head of fx strategy at goldman sachs. let me kick it off with the financial report. a are saying there are challenges amidst the downside risks. how worried are you about europe in general? i am not very worried about financial stability or the economic situation. we are having modest growth, it may continue for a while. but we do not have imbalances of the kindurozone we had a head the lehman crisis or eurocrisis. -- ahead of the lehman crisis or eurocrisis.

if something goes wrong, the consequences would be comparatively limited, with one exception. it italy chooses financial suicide, the italian choice, things might be different. francine: we will get back to the italian fiscal suicide, but there is so much concern that the ecb does not have the tools to deal with the next downturn. is that fair? , but they areair not the first to not go ahead with this process. what europe requires is safe assets and better flexibility of the central bank. but i would like to add to what was said, balance sheets in europe, they are strong. you could even argue that they are too strong. when you look at what was said a couple of weeks ago, we have emerging and it was that we have significant savings made.

their saying we need to change methods and go for more investment in europe to have our current accounts in order. i think that is going to be one of the upcoming topics. looking to united states, they have gone the other way. weakened, sheets have the corporate sector has increased leverage in a significant way and reduced equity in a significant way. francine: you are telling me that if there is a downturn, the ecb has the tools to deal with it? , the for the time being ecb is in a comfortable situation because european fundamentals are not as bad as people think. ?rancine: a soft patch hans: the soft patch is related to what happened in china and the global trade situation. it is hitting economies with a significant manufacturing exposure. when you look at others which

are more domestically driven, those economies have been doing better. i am not denying the problems but the issue here is that europe has to take one important message. it has to aim for political and fiscal integration. process, it can provide the central bank with a tool to react in a downturn. francine: do you agree? >> i largely agree. fundamentals are in significantly better shape than people give it credit for. you see it in one important thing. why is there a recession in ,ndustry, including in europe consumer and government spending is holding up nicely. it means the ecb would not have .o do anything drastic francine: let me cut you off because we're seeing a large move in the banks, erasing all

of the gains we saw in 2019. it is interesting. to european banks have a problem? holger: banks have a problem in a number of countries. we have italy with nonperforming , and aweak growth government pursuing policies that are not good for growth. we have the standard problem of banks in germany, simply existing in an overly competitive environment where consumers get loans to ask -- at excellent terms. we have issues and the banking system, but we have seen that, despite issues and the banking systems, the economies and the mystic demand can do well -- and domestic demand can do well. credit is functioning at what we would call a normal rate. francine: let we -- we are going to talk more about italy, but let me bring it to my chart.

is this the main concern we have overall? says, guys, -- matteo's albini -- salvini says , guys, this is what we were elected for. when you look at italy, the balance sheet does not have that room. we are easing and the wrong country -- in the wrong country. but we are not getting into an environment where we create or re-creates a european crisis like 2011. when you ask me about the longer-term prospects, i think that the italian bond market has positive perspectives.

prospectives. you need to have an integrated, responsible, and collaborative approach to handle the situation. i do those circumstances, not expect this spread it to widen significantly. francine: we got -- will get back to it later. both stay with us. "surveillance" beijing earth, itzing rare could be the next front in the trade war. and ethiopia's pilots warned of dangers without extra training. this is bloomberg. ♪

francine: economics, finance, politics, this is "bloomberg: surveillance." beijing is gearing up to use its dominance of rare earth as a counter in its trade battle with washington. that is according to a series of chinese media reports. rare earth stocks advanced on the reports. u.s. refrain from labeling china a currency manipulator, but said they were deeply disappointed in the country's lack of transparency. correspondentur to overseas asian political coverage. for those watching, many know what rare earth is, others don't. these are crucial elements used in a lot of fast-growing industries. what are the implications of a weaponizing these rare earths?

>> they are used in many components used in a lot of modern technology. they are called rare earths, but in fact, they are quite plentiful around the world. has managed to mind them in a way that is cheaper than everywhere else. it is not economical to process in many countries. ,f china were to ban rare earth supplies will be limited for the rest of the world. the u.s. gets about 70% of rare earth from china, so they would --d to look for whether other sources and it would take a while for other suppliers to get online. francine: how much should we read into the u.s. holding off on the fx manipulator tag? know, trump has promised he would label china a currency manipulator from day one of entering office. persistently, he has not done

that. china does not meet all the needed tohat need -- be labeled a manipulator. it is not entirely a surprise. it would have ratcheted up tensions severely. there are no real penalties if that were to be the case. china just responded in beijing, saying the u.s. is in no position to judge whether other countries are a currency manipulator. that is up to international institutions. francine: thanks so much, daniel , talking to us about the latest in the trade war. lger from --s, holh holger from berenberg and hans from morgan stanley. what does this mean for the trade war? in the chinese market,

you can see the spreads are widening and has a lot to do with the administration on friday. but the impact that is going to have on the manufacturing sectors, those are very valid. deeper, weo one step think the decline in economic activity you are seeing in many countries, especially emerging markets, is now spilling over into the united states. it has a lot to do with how monetary policy has been done in the united states in response to the fiscal expansion of 2018. the assets have been too tight, and it has been too tight for others. the u.s. dollar is used for global funding purposes, that is about 11.5 trillion u.s. dollars in liabilities. when the dollar becomes too

expensive, it happened in 2018, then you have a real problem. economy, and the that is now coming back into the united dates -- united states. you see that the pmi data in the united states has been declining. people should think about what matters. that is that the consumer indicators have been much better. equity markete has declined, nonetheless the bond market is in steep inversion. the first --in how how the trade has escalated? i doubt that. there is an underlying issue, that the dollar is too strong for many. and the central bank has to take the consequence of that observation, that they may have to ease. francine: that is priced in the market. hans: it is, but either we are talking about a bluer -- lower

u.s. dollar or lower markets. francine: we will talk about the markets being inverted or -- and negative yields. will get back to hans and colder -- holger. long before the ethiopian airlines crash, a pilot warned of dangers without more training. this is bloomberg. ♪

francine: this is "bloomberg: surveillance." oh --efore the etn ethiopian airlines crash, a pilot for the carrier told senior managers more training was needed. the morning -- the warning came after the lion air trash in indonesia.- crash in is this something new? there were multiple warnings. ie: this is a new document bloomberg news gone, documents he isrespondence outlining that they need more communication, more training, saying we needed to avert what happened in lion air. this was months after that, he is alerting senior management. while what he said did not play out exactly, he was for seeing

the chaos and peril in the cockpit, pretty much a signal to senior management that more training was needed. francine: why was it not given? annmarie: they gave a statement today saying they could not comment upon this now, but that they did give the training that boeing and the faa recommended. for them the training was given, not really sure what else was needed. but that is a good question. francine: so the training should have come from boeing? or was it up to ethiopian airlines? annmarie: the airlines would have given the training, but it was recommended by boeing and the faa. insightful, 400 pages of correspondence between this pilot and the airline. and there is more to the story today, because we just heard from the director that it is going to be another 10-12 weeks before the 737 returns.

enough, boeing told one of their biggest buyers that they will be back in july, which seems very bullish. francine: annmarie, thank you very much. up next, noncommittal nissan, the automaker sends mixed messages about fiat's proposed tie up with renault. this is bloomberg. ♪ the latest innovation from xfinity

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labeled a currency manipulator, but beijing talks about resources and a warning shot to washington. the sans chief executive says there may be an opportunity in the fiat merger proposal. it could be preliminary deals on the approval as early as next week. the center-right lead candidate does not capture support of the eu leaders for the box top job. -- for the block's top job. .ood morning everyone let's get straight to your stock movers. >> let's kick it off with ellie , a french company that they thought would seek 1% revenue growth and it is actually -1%. upside, 5%, berlusconi a stake in the company, a

friendly acquisition. ttal are seeing still production cuts around europe. -- still production cuts -- steel production cuts around europe. francine: the chairman arrived in tokyo with one task, to convince partners at nissan that the proposed merger with fiat would go forward. he may have met with some success. thechief executive of japanese carmaker said that there may be opportunities from the deal. at the very least, it could take the pressure off of nissan is a chance to rejuvenate the u.s. business. dave is live from tokyo. what does nissan bring to this proposed alliance? it brings electric cars, a big market share in china. a big market share in other markets across southeast asia. it also brings the additional alliance with mitsubishi motors

which is very important. those two companies are part of the three company alliance. began to integrate production. they are marketing. it will be important to keep both of them on board with this alliance. in terms of electric cars, nissan has the leaf, the world's best seller. it has been a market leader a long time that could benefit a big alliance a lot now that there has been so much focus on s.ny markets -- mini market mitsubishi also has low vehicles. a couple of very well performing suv brands. there is quite a bit that it does bring to the table for this. the question is how it fits in with fiat and renault. largene: given renault's stake in the sun, is their participation a done deal? , is theiran

participation a done deal? balk at thiscould deal. they have their own board. but given the trends in the car industry, it seems pretty certain that there will be a major alliance here. nissan is certainly enthusiastic about the alliance it is already in. they did make somewhat positive comments about this alliance. least of which you already mentioned, that it does sort of take attention from their immediate struggle, to revamp sales in the all-important u.s. market. has done well in the u.s. market with the chrysler brand. the jeep suvs are selling really well there. if nissan were part of an ,lliance that included that

they could reach sales in the u.s. as part of that. there is a lot to be gained as well. nissan could bow out of this. this protects nissan's interests. thank you, dave. let's go straight to bloomberg first word news. china may use its dominance in rare earth in a trade dispute against the u.s.. it includes hints from the state planning agency. resident xi jinping visited and earth plant that fueled speculation that strategic materials could be weaponize. who should lead the european union? center-right candidate but he failed to gain traction. it opens the door to a being put twice

forward by france. >> my priority is to have the who canlified people make europe as strong as possible. >> im not like those who wants someone who is overshadowing heads of state or governance. , strongstrong leaders experience, and strong legitimacy. angela merkel is reported to stay in power since sturm -- untilr her term ends in 2021. publicly, angela merkel dismisses reports as "nonsense." public eurozone markets has risen. it is according to a report that says downside risk remains prominent and gave a looming prognosis for the banking industry. they warned profitability will remain weaker than that of ended

-- of international peers. we spoke with former ecb president jean-claude trichet. >> the problem with the central banks is that intention -- inflation is too low. costs are moving too slowly. they are not dynamic in the countries. apan, germany, and the u.s. i would hope that there would be more dynamism. viviana: global news 24 hours a day on-air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. francine? so much, thank you viviana. it let's focus on the bull run. growth, we have tenure yields tumbling almost 40 basis points since mid april to as low as 2.2%. the spread between the u.s. three-month and tenure yields

falling to the negative since 2007. itwere just talking about earlier on. holders should be worried about it? in the past, there was an imminent slowdown. ?s 2019 different >> we do have a slowdown in the economy. we have slower growth in the u.s.. we have industrial problems across much of the western world. we have weak growth in japan. the bond markets are reflecting what is there. but a major move has been the realization that inflation isn't a problem for the time being. we are marking down inflation expectations. and to that extent, the drop in yield to me is not dangerous. world whereg in a savings are comparatively high,

and the need for business investment for machines and buildings is comparatively low. as a result, global yield levels adjusting for inflation expectations are low. i would say that in the past, the yield curve would be a negative signal. 50 basis points, it would be a comparable negative signal. is not at in version reason to worry very much for economists. you are basically pointing at better-than-expected figures from the u.s. yesterday. let's bring this yield curve inversion. if it really inverts further, do you worry about it then? >> we talk about the inversion yield curve.

think about the global scale or any other closed environment. there is a shift taking place between savings and investment. but we have seen in the past 30 years come a we have seen globalization. that means when you look at the yield curve, an environment with significant capital imports, it could be a manifestation of capital coming to the united states of america. step back and say, as long as you have a signal for a yield curve inversion taking place, this would be the first going into inversion. this broadens out and becomes a global issue. and there is something to consider. about is thatied what we have seen the last 10 to 15 years, the extension of globalization, there is a for the reserve

people's republic of china. it had a major impact on investment activity. so you have divergence taking place between global investment and g10 investment. that means a write-down of the capital stock within g10. it has continued to an inversion of the curve on that spectrum. we are seemingly cutting off china because of the trade tensions. that means we no longer have capacity reserves available. it will put us into a different perspective. about underhink which circumstances we're going to do that. when it comes to inflation, i think inflation is currently low end at major lower in the near term. last 15 years, it has been the chinese economy. you may have to rethink the entire future. let me bring you to my

other chart which is about the value of negative yield. this is a billion chart that hillary clark did for us. what is distorted in the markets ? or should i ask what is not distorted? think about who is a bondholder, and how is the bondholder reacting to that. banks have been significant holders. with a negative yielding environment, it makes it very difficult for the financial sector to make money. so i think to go to negative is challenging. francine: is that a diplomatic answer? challenging? to be diplomatic. it is challenging. when you have an environment three have not converted into a payments, it can

lead to a decline in the velocity of money. that is a risk linked to that type of policy. >> i think too many people are worrying a bit too much about longer-term prospects for the global economy. we do have serious issues with china. but by and large, we are seeing major technological progress that will probably underpin significant growth over decades. i think the markets by and large are putting too much emphasis on the near-term challenges rather than seeing the long-term opportunities that we have for growth in the world. of course, the challenges are significant near-term. and we will likely get over them. expected real yield to be somewhat higher. maybe three years to five years from now. guests will stay

with us and we will talk about italy. straight ahead. but he more in eu. it we have the latest on the budget row. plus, who is winning the football money league. this is bloomberg. ♪

francine: let's get a look at the most read stories on the bloomberg terminal. the u.s. keeps china from being labeled an fx manipulator. bond market warnings ring louder and the third most read story, china gears up to rep denies -- to weaponize rare earth

dominance. i am trying my best, francine. a good afternoon if you're watching from asia. toorgan is treating revenue the first few months of the second quarter. could dramatically change that according to chief executive jamie dimon. he also criticized competitor wells fargo. he says wells fargo was irresponsible without a succession plan in place. to reconsider the entire investment in the state of georgia if a law restricting abortions takes effect. the streaming company makes some of its big-budget shows there like stranger things and ozarks. the legislation set to become law in 2020. that is if it survives legal challenges. georgia has become a popular hub for production. it has some of the most generous

tax subsidies. back to you. francine: italian bonds are rising of the eu finance commissioner says he does not favor sanctions of italy's debt load. italy's deputy prime minister says he will devote all of his energy to change in what he calls old and obsolete growth. the labour party scores a decisive win over the weekend eu elections. our guests, you were both pretty clear that eu needs to stick to the rules. but is there enough firepower behind changing the rules given the influence and power that a lot of these populist countries or populist leaders have? and given the president they were voted on trying to grow that way? >> there's a significant moment in that will change the rules. he will have to talk to the german right-wing radicals and

say there is no appetite for anything like that. the fiscal rules in europe would have to be changed by the eu. this just won't happen. of course, before the eu is , but to theerpret extent the eu does it -- it matters are a much whether italy acts in good faith. if italy says they missed the budget targets but there are reforms that are really good for forms,from supply-sider then they can get away with more. reforms, then they can get away with more. the eu can say no and the bond markets will for steadily -- will force italy to prevent -- will force italy to relent. francine: in the changing of reforms you think would be ok?

>> the changing of tax cuts to progrowth supply-side reform would be ok. the eu would however not go towards fines. but if italy ignores the rules and the eu has little choice but to put up the pressure on italy. most of the pressure would come from bond markets. in the end, after bond market pressure, italy backs down more than the eu. >> i agree. the market pressures are significant. ourselves a very important question. with the european crisis , i need an europe german model. the german model is supporting generating. that within the

international context, it is no longer defendable. the report citing italy and germany. the international point of view is that when you create a type of german model, it means you lack domestic investment. you are saving too much. you are forced to export capital. what europe has done the last eight or nine years is it was not investing in the united states of america. it was investing in that yield and it means europe has converted into an atm machine for the united states of america. and the result of this is economic hardship. we will be paying the price on election days. that means the populist party is picking up and it doesn't mean that you need to convert to the populist agenda.

you need to analyze what went wrong and -- toncine: is the choice is radicalize the european population where they hate the --ject or bend the rules >> that is not what i'm saying. i'm not saying we need to bend the rules or something else. francine: or maybe let the italians spend a bit more. >> it means we need a growth strategy that we can promote investment. beeneason why europe has so strong, and germany in because germany is reinvesting in their balance sheet. exactly the opposite of what america was doing the last seven or eight years. we need to bring an environment into place where we have a .igher incentive

and olger all fired up. coming up next, it is a big week for european football. who is winning the money league? we will talk the business of football next. this is bloomberg. ♪

francine: it's a big week in european football according to this year's football a valuation report. the the first time, real madrid has overtaken manchester united at the top of the money league. it has allowed the spanish club to grow their commercial revenue at almost double the rate of man u. our guests join us. most of the newsroom and all of our viewers are football obsessed. what is the ranking tell us? >> it looks at the enterprise value of the clubs. it takes into account player values and projected revenue streams that the club can generate. as you mentioned with real madrid winning the competition, they have managed to move ahead of manchester united.

a lot of movement in this league has come from the champions league performance. we see the u.k. teams hit by the decline in sterling. league -- the d >> a metric is the best return on sales rates, which is why we see them do so well. the bestool has one of profit margins of the teams in this league. it shows you don't really have to splash a huge amount of cash to do well given that these teams are in the final. it flies in the face of the model the other teams are using. francine: that is your football fix. this is bloomberg. ♪

francine: trade war battles. china avoids being labeled a

currency manipulator but beijing says it could cut off u.s. access to resources and a warning shot to washington. sayan's chief executive there may be an opportunity for a merger proposal. renault could get approval as soon as next week. the center rights lead candidate does not gather the support of eu leaders as the political risk grows in europe. we are live in brussels. good morning, good afternoon if you're watching from asia. i am francine lacqua in london, tom keene in new york. there's a lot of movement if we look at the inverted yield curve. i think that is where the story is for this semester as the u.s. china trade war intensifies. there is no other story. the yield market is extraordinary. it is not one day, it is two days in a row. the options we are seeing in the

united states and even seeing japan come in last night. these are extraordinary moments for those. bonds up, yields lower. francine: we will talk a lot about that but let's get straight to bloomberg first word news in new york city. here is viviana hurtado. viviana: the trump administration avoided further escalation in china. it has avoided labeling beijing as a currency manipulation. the treasury department report does say it has concerns about china's currency practice. nine countries were included on a manipulator watchlist. in ethiopian airline pilot morning the carrier of dangers with the boeing 737 months before the crash. documents reveal the pilot told the airline more training and better equipment was needed. he was concerned about the indonesian crash last october.

the leaders of germany and france disagree over who should get the top european union job. france's emmanuel macron once michelle barnier to head the european position -- commission. angela merkel once the european people's party leader, but he is not getting much report. t-mobile and sprint may sell the boost prepaid mobile brand in an attempt to win approval for their merger. according to reuters, a deal would value the business at up to $3 billion. the fcc chairman says he would recommend approval of the merger if the boost business was sold. 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 viviana hurtado. this is bloomberg. tom: let's get to the data.

it is extraordinary. there is a way to equities correlated to bonds but it is not as bad as you would think. futures negative. dow futures -160. you would think equities would be off more. we will see as we get to the new york opening. the headline statistic is the spread. to be clear, it has not flattened. that is a steeper yield curve even as yields drive ever lower on the next screen with currency some of theasn't -- equity tension up a stick. here are the yields and francine has other yields. the two-year is extraordinary at a 2.08. that should be read on the screen. five basis points lower. the 10 year yield now on a 1.99 watch. i also threw in deutsche bank. remarkableolutely

the report that they want to change the goal posts on their capital ratio. extraordinary. francine: something we have to keep an eye on. without a doubt i think there are two stories. treasury yields sliding for a second day and then the u.s. china trade war remains a drag on equities. european equities are down. i've the 10 year yield you look at. a contrast with what the japanese 10 year yield is doing. it is negative .09. whethergoing to see china was weaponizing or would let it go to seven. for the moment it is at 6.91 but we are at seven watch. tom: this is a special chart. i'm using daily data to go back .o 1965

this shows the history of the bond market and the dynamics to the american economy. the 1970's slow down. -- cacophony of free volcker pre-volcker america. what we saw on the 1980's and then recession, recession, recession. a negative yield compared to the 10 year yield. francine: i like that you put it in context. --ave a much shorter breaking news and we both care about the inverted yield curve. to 1993. back you can see the spread between u.s. three-month and 10 year yields fell the most negative since 2007. we will talk a lot more about these market movements. let's get back to europe.

differences of opinion over who should lead the european union are starting to become apparent. there is what leaders are saying about the fight for the top job. >> we did not discuss names tonight, just the process. please do not ask me about names. who onlyt like those want someone who would not overshadow the heads of state or government's. we need strong leaders with strong experience for legitimacy. >> it is clear that the epp is the strongest group in the parliament, but they do not have a majority on their own. everyone will have to reconsider his position. what matters is we preserve our ability to act. francine: joining us from brussels is our reporter maria tadeo. why do we not have names? maria: they do not agree on names and they do not agree on the system by which the president should be elected and that is the core of the problem.

angela merkel is clear that she thinks the next commission president should be someone who run in the election. emmanuel macron equally clear he does -- he is lobbying hard for michelle barnier. until we get that balance of power correct, we will not move on to the european central bank and that is a concern because mario draghi has to leave by the end of november. tom: are they looking at the bond markets are all? are there any discussions with politicians about what we are witnessing in the bond markets? maria: they do not. this is very much a political situation. they would happen name already and move on to the european central bank. this is very much a political situation. until you get the political hurdles cleared, they do not want to go there. when you see two factions that compete as germany, angela

merkel, and emmanuel macron and what he think should be a much more commission president. francine: thanks so much. joining us now is commerzbank global equities economist. a million questions on the back of the ecb and these negative yields. what do you think will determine how the market functions? is it who the next ecb president is or negative yields? >> i think it is negative yields. markets care about a growth economy. the geopolitical environment between the u.s. and china and the fallout of the european elections. what it means for european policy. i think it is something markets are getting the retaliation. francine: what does that mean? does europe need to placate populists but give them room to grow through spending? er: there are a lot of issues

at play. ,ith regard to the fiscal rules i think the italians will put that to the test anyway. there will come a point where italian say we are not playing by these rules anymore. we've a mandate by our people to put forward and try to get some growth. there is a sense that across the continent people want to see their lives getting better or the perception of their lives getting better. they want to see fast growth and jobs growing more rapidly. as a consequence, i think the political pressure of the european policy makers to pay less attention to these fiscal rules will grow. us: great to have you with with your synthesis of bond dynamics and what we see in the economy. over to equities. what does it signal to you we are seeing lower yields, price up, yields down, but we are not seeing curve flattening? the curve is stable given the massive move into bonds.

what does that signal to our viewers? it tells your: there is risk off across the board. investors are moving toward bonds. they seem to be exiting from the equity position. you showed a chart before, the vix, which is up little bit. investors are saying this is not a time to take risks. we want to stay cautious and let the storm passed. the problem many face as they do not know that is the start of something big or just a passing shower. francine: thanks so much. peter dixon of commerzbank stays with us. coming up, we will be talking with the ecb vice president. this is bloomberg. ♪

francine: now to trade. -- ing gearing up to use its trade battle with washington. that is according to a series of chinese media reports that include hands from state planning agencies. the u.s. refrain from labeling china a currency manipulator but said it was deeply disappointed in the country's lack of transparency. joining us now is marcus ashworth, bloomberg opinion columnist, and peter dixon is still with us. are we seeing escalation of trade tensions and if it hits rare earth what does it mean for

american technology? marcus: it is quite a smart move in some sense by the chinese. player is no longer quite the element it was. that is certainly a smart move. this will be met with a fierce response by president trump. i do not think this is good news. that is why we are seeing a fight -- a flight to bonds. this could go down as low as 2% on the 10 year yield of this does escalate. francine: what does this mean for equity stocks? peter: i think equities will stay on the sidelines. i do not think investors want to pile in. wer the last five months have seen quite a strong rally equities because we set a christmas it is over, it is done. maybe that is a false donald -- a false dawn. investors may say it is time to

take some profit and get out. tom: we have been here before. mark is, i want to go to you on the confluence. her always odd things going on. we will talk about it later. we are seeing an extraordinary move to fixed income. why? looks: i think you have to -- it is u.s. led. off,u're going to go risk go to something that yield something. the dollar has held up well. the u.s. economy is still stronger than elsewhere, particularly in europe. in that sense it is a logical response. there is momentum behind the move. yields had run up a huge amount, that is all being reversed. whereby thetuation world is going to have an environmental crisis in the sense that these rarer elements go towards new technology toward

environmentally red products -- environmentally led products and that is something donald trump will lead on. he will not take kindly on this. it was signaled by a visit from president xi to a rare earth factory. that has signals all the way down the line and i think we will expect an american response vigorously. we haves the bond move seen, does it correlate to equities or can equities stand removed from the many reasons we are pricing bonds up? peter: i suspect that in the short term we will see the correlation between yields and equity prices continue. in response to your question why the shift, simply because investors are concerned. they do not like the traditional safe havens such as gold.

what is left? it is fixed income. it does feel like investors are saying in this trade war between china and the u.s., investors are siding with the u.s. because that is the place to go. that may or may not be the long run play but i think that is where we are. under those circumstances equities will continue to shake out. francine: how difficult is it to know where this ends? peter: it is impossible. as tom said, we have been here before. it is not that long ago since we went through all of this and markets continue to confound us. their only semi-times markets can continue to rally on the back of what appears to be bad news. every time the tension goes up a little bit more, market sell obstinate a rebound. there is going to be a time when the clockwork mechanism stops working. it does not feel like a safe place. is this big enough to

put the u.s. or china into a recessionary risk? marcus: this is a relative game and trump has played this well. , wills. will benefit suffer less, and i think investors are voting with fear. this will get worse but we are overdone. sharp moves are overdone. they may run further. lower before we get to a level where the market might correct. tom: interesting. well said. policy on bank of america yesterday looking at technical charts. fibonacci talking about a 2.05% on the 10 year and already we're at 2.22 on the 10 year. yields lower. equities drifting away. futures -19 on the s&p futures. she will be controversial. the president, another nominee.

judy shelton. economic advisor to president trump. a conversation in the 12:00 hour. stay with us. with markets moving, this is bloomberg. ♪

viviana: let's get the bloomberg business flash. shares of the world's largest steel maker falling the most in two years. it announced it is company -- cutting production at its

european plants because of its weak demand. the u.s. has been aggressive in shutting down foreign steel but europe has been slow to respond. begins the long process of trying to undo an antitrust ruling. the chipmaker asking a federal judge to put a ruling on hold. that would give qualcomm a chance to appeal. qualcomm argues the ruler could have -- the ruling could have consequences for the mobile phone industry and national security. numeral holdings fell to its lowest close in seven years. the company's largest brokerage is valued at .4 times assets. that is close to a low set during the european debt crisis. numera's prospects of only getting worse. regulators have sanctioned the firm for improperly sharing information. tom: thank you so much. futures -20 and deteriorating.

from boston the bruins, not wicked tight, but there it is. peter dixon with us with commerzbank. let's spend time on equities. equities are folded into earnings and revenues and also folded into confidence that cash will be used. can companies and multinationals support their stocks with a better use of cash if things get ugly? have theey certainly ability to do so. i wonder whether that is a great use of their cash at this stage of the cycle? we are looking at a market that has a great run, a 10-year bull run. valuations are quite stretched. year trailing average on pes. it does suggest to me that at

some point equities will run out of steam. given where the economy is in the u.s., still holding up but there are indications that things are about to slow down. it could be that it is going to be one of the situations where equity markets are entering a more prolonged selloff. if that is the case, why would companies want to waste their cash supporting their stock? tom: yields are lower. growth become a greater yield proxy or does that point peter:?me it has to end at some point. for the last few years, investors have been able to continue buying stock because the dividend yield has exceeded fixed income. as the fixed income market sells off it gives equities a little bit more attractiveness. at some point, as the earnings slowdown, the dividend yields

start to fall. at some point we will find ourselves in a situation where the dividend play on the equity market also loses momentum. whether that is now or in six months, that remains to be seen. you should be aware it is likely to happen. francine: peter dixon of commerzbank stays with us. we are getting live pictures from the nigerian capital. the nigerian capital -- the nigerian president inauguration ceremony has begun. we were talking about what nigeria has to do as today officially begins the presidents final term following his reelection in february. this is bloomberg. ♪

"surveillance." jonathan ferro up appallingly early on the west coast, newport

beach, california where he will chat up those at pimco. these will be important conversations made ever more important by what markets are doing. futures, 21. people, interesting to drive forward the debate about price up, yield down. not only a good day to go to pimco, but a perfect day because of activity. lots to talk about. look for that through the morning. flow.rdinary news house national security adviser john bolton says there is no reason for iran to break the nuclear treaty and less at is trying to build atomic weapons. he is meeting with officials

from the emirates, and says iran is behind attacks on four oil tankers in the gulf. jared kushnerd by will try to sell its mideast peace plan to a skeptical audience in the region. large-scale investment and infrastructure work in the palestinian territories. the u.s. is counting on wealthy gulf states from funding. palestinians are worried they will be -- china found the new way to battle u.s. on trade. it is gearing up to weaponize its dominance of rare earth. u.s..arth exports to the headver to india where the of the finance ministry will not seek a position in the new government. has had some serious

health challenges in the last 18 months. 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 viviana hurtado. tom: thank you so much. with markets on the move, we thought we would pause and look at the train wrecks known as uber and lyft. , a guy who looks at all sorts of deals out of london joined us this morning. peter dixon of commerzbank with us. what have uber and lyft done for the appetite of the next unicorn deal? mark: there is two ways to look at this. from a private markets perspective, they have given everyone a sense we can build with great capital, great companies. they waited too long to take their companies public and as a

result, you see what happened with the share price. it is below their ipo price. tom: what is so important, and this goes back to your background with arthur andersen, that tech gets to play by a set of different rules. they do the extrapolate of policy -- process of fund -- funding and then they throw out an equity offering. is that game about done? mark: i hope it is because i think the pendulum has swung too far. when we were taking companies public, we were taking them to lower valuation and allowing the public markets. we changed that as we started funding these unicorns and delaying the ipo's. hopefully, the pendulum will swing closer to the center where ultimately both sides of this equation can make money. francine: what is left to be

disrupted? companies that do what we used to do, but disrupted the way we do, is health the el dorado? next --think it is the the biggest el dorado for the next 15 to 20 years. we could argue whether fintech delivered on their prague -- promise. health care will be a driver of valuation. francine: how will it be disrupted? how you see your doctor, aging? mark: interesting subjects. it is a broad spectrum of things . it starts off first and foremost with how we deal with doctors. gps are overwhelmed around the world. software will play a big role in how we take the work away from doctors and allow them to focus on the cases that matter. seven out of 10 doctors visits

should not happen and they happen just because they can. bad ate: why is europe making unicorns? not used stock options effectively enough here. the company where i am chairman, we have 2800 employees and 200 millionaires in dollars because when we funded the business, we were generous with stock options fueled tom: how does that change? if mr. macron wants to hold cocktail parties, he has to motivate and incentivize people. mark: that is correct. from a legislative perspective, europe has not figured this out. we hide behind investors and entrepreneurs. at his first about the will to make it happen. tom: who has that well?

does prime minister johnson have that will? mark: i think he does. thannk more importantly what the politicians want or don't want, how do we believe employees who create the wealth should benefit in the equity story. it starts with that, and we could figure out ways legislatively and fiscally to make it work, but we cannot hide legislation to make it work. tom: prime minister johnson, possibly. michael gove just emailed me and said, shut up. francine: jeremy corbyn did too. if you look at asia, we do not talk about these unicorns being built in asia. what happens in asia the next 10 years? mark: they continue to grow, and the opportunity in europe in the ever-increasing trade war

between the u.s. and china is to turn east. we have an opportunity to work with china, the large market, and the unicorns, who become fantastic buyers of our companies in europe. long-term for europe, relatively positive. francine: is there anything you like in these disruptors? is facebook a disruptor or mainstream? peter: at one time it was, but there have been lots of innovators sense who are doing things equally as well if not better than facebook. as mark said, there are lots of areas to look for. one of my interests is artificial intelligence, and i can see how that will make a big inroad into sectors like health. over the course of the next 20 years, there will be an awful that weew things coming

currently are not aware of. in europe, we are stuck on the idea of -- not that we are anti-innovation, but it percolates very slowly through the economy, partly because of the way the continental european economies are set up. artificialtive intelligence will bring health costs down. tluszcz, when you look at your area, are you up to your eyeballs in money? we have a market up to its eyeballs in money. your up, yield down, is world the same? it is not-- mark: capital that is lacking. capital is not the issue anymore. the funding is easily available and it is a question of well, ambition -- will, ambition, and

drive. tom: if we are up to our eyeballs in capital, does not provide a cushion under the equity market for those with enthusiasm for equities? peter: the problem is a lot of these companies are starting out relatively small and do not have the have to to drive the overall to drive thet overall market. there are some great green shoots in a field at the moment. to be thegoing greatest company on earth when no one wants to talk equities, so timing is critical in determining which countries win or lose over the next one to two years. francine: are you -- i want to talk about tesla. what happens to tesla? mark: i think it is a sad ending. i think giants of the automotive

industry have caught up and decided they will start holding cars. $100,000, ipending will buy a mercedes over a tesla because they have been building cars hundred years. another think it lasts 10 years. have we really fully understood how the demise of huawei plays onto european markets? mark: i don't think we are celebrating their demise yet, but huawei -- tech is being used as a pawn in this global war between these large economies. notwithstanding what is happening at huawei, i would say i do not think it is good. they have become toxic. the reality of huawei is you cannot do business with them because you cannot go against the u.s. government. tluszcz ofark

mangrove capital partners and peter dixon of commerzbank stays with us. we will have more with our exclusive interview with huawei chairman and founder in a bloomberg special this weekend, starting this friday at 9:00 p.m. eastern time. is a true exclusive, and extraordinary interview. to see it in its entirety, look for our special coverage of huawei this weekend. machines,nal business their ceo in the 8:00 hour. futures -20. ♪

♪ viviana: this is bloomberg "surveillance." netflix is threatening to leave the state of georgia if a new law restricting abortions takes effect. the video service produces several shows there including "stranger things." huawei has gone to court to get off the u.s. blacklist. the told a federal judge ban on federal agencies and contractors buying its products is unconstitutional, and argues at stigmatizes the company and its employees. makinghi son is executives at softbank some of the highest paid in japan. executivesid six top $83 million.

his salary was a relatively modest $2.1 million. that is the bloomberg business flash. francine: an ethiopian airlines pilot warned senior managers more training was needed, months before the boeing max plane crashed. he warned the situation would be a crash for sure. joining me is annmarie hordern. fuel ofs fire to the their competing narratives of what should have went wrong -- what went wrong. annmarie: at just adds to complications about who is to blame. dense said, it was a amount of emails this pilot was sending to senior management, saying there needs to be more communication and training, months before that devastating ethiopian airlines 37 went down.

they issued a statement saying they cannot comment right now, but they gave all the training the faa and boeing suggested. the pilot was suggesting there were still safety concerns and it would be within ethiopian airlines' jurisdiction to give more training. francine: when will we know who is responsible for what went wrong? annmarie: that is a good question. the big question is when these planes will get back in the sky? told spiceboeing jet, one of their biggest businesses in india, they will have flights in july. the question is when the grounded jets will be back. tom: what are the consequences of this report by bloomberg? onus back on the airlines, ethiopian airlines. this pilot stapled to his

resignation letter all of these emails starting from december that he told senior management, following this lion air downing, these are things we need to look into. while a lot of it did not play out as he forecasted, what he did see is the chaos and peril pilots dealt with in the cockpit, causing that plane to crash. francine: do not miss on thursday our interview with james gorman, morgan stanley chief executive at 10:00 a.m. new york, 1:00 p.m. london. that will be done from china by tom mackenzie. this is bloomberg. ♪

♪ this is bloomberg "surveillance," common francine from london and new york. we had a couple of headlines on boris johnson. this is a judge saying they gave a preliminary ruling over the johnson brexit prosecution,

says the the judge charges against johnson will have a hearing in court. a judge is set to decide whether or not boris will be -- boris johnson will be summoned to court over allegations he was lying. we have a ruling saying the charges need ae hearing at the crown court. tom: it will be interesting to see, all wrapped up in this to known as brexit -- in the stew known as brexit. deutsche bank is down 25% from the peaks we saw back in march. elisa martinuzzi with bloomberg opinion has written a brilliant, detailed article, and also looked at the big picture. it is a stock trying to change the goal post.

i was thunderstruck by the report. you do not change the goal post in the middle of the game. what does it signify that they are considering changing their capital ratio to a less conservative statistic? elisa: we don't know whether this is indeed accurate. you are right, it raises questions as to what is driving this. to raise your goals for capital buffers is something you would want to do in a position of strength, not the position of weakness the bank finds itself in. it needs some explaining. why would you do that when there are lots of questions over how the bank will restructure itself , and whether that restructuring may need more capital, more funding to get it done. tom: let's go to the chart, because the market has reacted. this is a monthly chart that shows the creator down 2%

down 2%-- crator further. what is the five pricing on euro , 5.99? what would that mean? elisa: you should take note of the context. you are seeing a selloff across the board today. tom: fair. elisa: ubs is trading the lowest since 2012, so you have to put that in context. the industry is facing questions about how it will generate sustainable profitability, particularly in the cases such as deutsche bank which does not have one unit that is particularly strong driving earnings. tom: what kind of week is he having? everyone says he had a horrific vote at the annual meeting. what is mr. richie's future? elisa: this has been a recurring

rumor. we have been hearing this for more than a year that he may stay, may go. with the investment bank being the biggest business, it is critical to have leadership with the confidence of investment there's -- investors. it will be good for them to clarify once and for all if he is the man who will be leaving the unit. , when youpeter dixon look at italian yields and the ecb pushback on the debt idea, telling countries like italy to sort out their finances, is this the big risk that could hit europe in the next 60 wait months? peter: investors are looking -- six 28 months? ht months? peter: if you get the same kind

of pushback from italy, that could start to cause fractures within the euro zone. the german fraction in the north once at to play by the rules. -- wants italy to play by the rules. if it does not, you will get political unrest, which will make life difficult for the next ecb president. francine: who do you think it will be? peter: i do not think weidmann. a lot of people think he is a runner. i think the likelihood will be guy seems to be the compromise candidate who will probably fit in reasonably well, satisfying the north and satisfying the south in the sense that he is from the area. francine: thank you, peter

dixon. we are seeing some live pictures of the nigerian president elect's inauguration ceremony. we have some great charts on the bloomberg terminal, telling us in six quick charts what are the six challenges for the president in the next 18 months. nigeria,t going up in and oil prices factoring in, weaker oil prices the past few days. what we are seeing off the bloomberg terminal's is really talkhing, perfect time to to james sweeney on deflation and credit suisse. ♪

♪ tom: this morning, all of fixed income is bid price higher,

yields ever lower. the three month 10 year spread harkens back to 2007. japan yields drive lower. deutsche bank tests investor confidence and says they will adjust their key capital ratio lower. inflationr of lower or outright deflation, a perfect time to speak to james sweeney of credit suisse. this is bloomberg "surveillance," from our world headquarters in new york and on queen victoria street in london. headlines are out on boris johnson and i guess it is not a big deal. he is going back to court and the brexit thing is deal or no deal. francine: let's see what happens. there is a lot of debate on f the next prime minister would make a no deal government

policy, whether parliament would allow that, so more questions than answers at the moment. tom: we will see it in the coming days, always exciting. here is viviana hurtado. viviana: the trump administration avoided further escalation in the trade war with china, refraining from labeling beijing a currency manipulator. the report does say it has significant concerns about china's currency practices. nine countries were included on a manipulator watchlist. an ethiopian airlines pilot warned the carrier of dangers with the boeing 737 max months before the fatal crash. emails and documents revealed the pilot told the airline more training and better communication were needed. he was concerned after an indonesian 737 max crashed in october. the leaders of germany and

france disagree over who should get the top european union job. emmanuel macron wants michel barnier to head the european commission and angela merkel wants manfred weber. the names being floated now are just opening bids. t-mobile and sprint reportedly sell the boosty business, according to reuters. it is valued up to $3 billion, and a chairman would recommend a merger if the boost business was sold. 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. hurtado.ana tom: thank you so much. equities,to the data, bonds, currencies, commodities. futures that -18.

-- at -18. we have not seen major curve adjustment even with price up, yields down. three month 10 years and exception to that. vix -- andth, the the 10 year yield at 2.23%. bank of america modeling out the a 2.05%. 2.23% down to i threw in deutsche bank because it is extraordinary what is going on. francine: tom obsessed with deutsche bank. stocks retreating with equity futures. bonds tell us the story we need to delve into. gold climbing with the yen. if you look at the rally in the 10 year treasuries, it has been powered on. watch for its history and being

a precursor to recession. i am looking at renminbi, currently at 69092. tom: a chart to get in front of a perfectly timed conversation with james sweeney of credit suisse, the broader three year spread, three-month compared to the 10 year. the cacophony of the double recession of the 1980's, recession, recession, down we go to a negative rate now. francine: i have a similar chart, just shorter-term from 1993. at looks at the three-month, 10 year spread, the most negative since 2007. tom: we are thrilled to bring you james sweeney of credit suisse. he wrote an important paper two deflation andn --

recapitulated that yesterday. james: the fed was correct to describe the recent weakness and some inflation measures as driven by temporary factors. we think inflation will naturally drift up in the coming months, and if the trade war intensifies, as we see some pass-through from prices from china, we could have an overshoot and inflation. butomic growth is slowing inflation is likely to be rising. tom: let's go back to the history of stanley fischer -- irving fisher of a different time and place. you are saying deflation way overdone, and yet i have got price up yield down. looking at the foreign exchange market mirroring that, how irving fisher. james: i would separate

inflation from that conversation . it is slower moving and lagging, and has gone pretty much nowhere. 1.7% has been the core pce inflation rate since 1995. the market is moving because of the trade war, growth concerns, u.s. manufacturing has been contracting over recent months, and some people are extrapolating weakness into a recession, expecting multiple fed cuts. all eyes are on the labor market and whether you could see some week is in u.s. jobs and rising unemployment -- weakness in u.s. jobs and rising unemployment. inflation is just a different thing and is expected to go up rather than down in the near term, whether growth is weak or not. francine: does the u.s. have a dollar problem? is it too high?

james: it is a modest problem. if you look at goods prices in ,he u.s., meaning non-services non-energy component of inflation, they have come down recently but essentially have been steady and modest inflation for a long time. import inflation and dollar driven disinflation has not been a major driver of this decline in inflation recently. it has been a factor you have had over time. francine: if you see inflation picking up, as it despite the trade war test is it despite the trade -- is it despite the trade war or because of the trade war? inflationary supportive or deflationary globally? james: we should have some mean reversion after temporary factors reverts themselves.

-- reverse themselves. you could have some firms re-setting prices as the costs of goods at the border are increasing. if it turns into a horrible the session, you would have downside pressure on inflation, but that is not where we are right now. tom: my textbook is not working, james sweeney. this is the probability of a rate cut. to ane see is a leg out 89% likelihood of a rate cut january next year. chairman powell will cut interest rates into james sweeney's rising inflation? james: the market is assuming that growth stays weak, as it has been recently on the manufacturing side of the u.s. economy. ,ot only is inflation rising but we have a population

consistent with jobs growth of around 100,000 on trend per month. we have been getting closer to 200,000 for the last 10 years. labor market performance is well above potential growth. inflation itself is not far from target and is likely to be rising. the market is forecasting this cut because manufacturing momentum has slowed. the market sees the yield curve indicator and thanks the recession must be on the way. people are faring a bad outcome for growth -- fearing a bad outcome for growth. francine: thank you, james sweeney stays with us. do not miss our exclusive interview with james gorman of morgan stanley tomorrow. this is bloomberg. ♪

♪ viviana: this is bloomberg "surveillance." shares of the world's largest steelmaker following the most in two years. arcelor mittal is cutting production because of week demand and rising imports. the u.s. has been aggressive in shutting out foreign steel, but europe has been slower. qualcomm began the long process of trying to undo an antitrust ruling, asking the federal judge who declared its business model anticompetitive to put her ruling on hold. that would give qualcomm a chance to appeal. they say it could have consequences for the mobile

phone industry and national security. in japan, more holdings to that's lowest -- it's lowest in a year. it is within a hair of an all-time low set during the european debt crisis in 2011. gottens prospects have worse as they were sanction for improperly sharing information. tom: i thought we would pause in the washington derby and take a broader view of the discourse of washington. we can always do that with karen to multi-of the washington post. she has written an unbiased essay, and the washington post was on fire. nicknames we left behind in elementary school, a window into the character come of the psyche, the mental

stability of someone seeking the most powerful office in the world. it is hard to determine whether a slanderous trump statement qualifies as a legitimate news event. -- news event." kevin cirilli, has the president given you a nickname? kevin: no, we used to make tame -- nickname each other in the press pool during the last election but we should not discuss that. tension's discuss the between pelosi, schumer, and trump. is it fixable? kevin: i think it is. for all the talk of infrastructure, neither side feels the political calendar ford provide an opportunity them to get a comprehensive infrastructure deal done.

other areas where republicans and democrats have worked together, venezuela and national tradety in the u.s.-china , there seems to be appetite for them to get some type of things done. any hope for a broad bipartisan package by 2020 is unrealistic. francine: what is your take on the latest -- [no audio] tom: we are having a little bit of audio problems. kevin: i can hear you. tom: it is probably the nickname francine has. when i look at the back and forth with the democratic candidates, is the base of trump and the marginal based off of trump support the president because they do not have a democrat to vote for, or because they support the president? kevin: i don't think those

voters would vote for a democrat in any election. there are diehard democrats and republicans, and to the broader extent about the economic pitch the democrats will be making, this is where at will get interesting and someone like senator elizabeth warren becomes more interesting. she is delivering the progressive message in many towns in iowa and western muchylvania, that is a more progressive, populist message. she is pitching it in a way that alexandria ocasio-cortez has not been able to do. tom: i want to talk to you in the coming days about these red state, middle ground democrats. the post did a great job on that, and that will be a theme forward.

our chief washington correspondent, kevin cirilli. coming up, important conversation beyond timely, david westin talking with judy shelton, economic advisor to trump. she is a potential fed nominee. this is bloomberg. ♪

♪ >> we did not discuss names the office so

please do not ask me about names. those who wants someone who would not overshadow their leaders. is thes clear the epp strongest group in the parliament but do not have a majority on their own. everyone will have to reconsider his position, but we preserve our ability to act. francine: the race to leave the ecb is on. joining us from brussels is maria tadeo. yesterday, she was at the meeting. why do we not have a name yet? mostly because they cannot agree on the system by which the new commission president should be elected. this is the holy grail of european politics. angela merkel made it clear it has to reflect the result of the election and emmanuel macron

made it clear he does not thing manfred whether it is good enough -- man fred weber is good enough. he is lobbying hard for michel barnier. the issue is this is the whole package. until we get the european commission president we cannot move to the european central bank which has figure repercussions globally. francine: is it a given that the germans will have one of these positions? maria: the germans think it is about time they get a big job, and if it is not the commission at will have to be the european central bank. the ecb youngs weidman is a nonstarter for many because he has been in so much confrontation with mario draghi, so many think it is too much of a change. angela merkel yesterday very

clear, the german christian democrats are the biggest party and they need to get a big job. tom: what is the fallout from the election two days on? in the salons of brussels, what is the fallout? maria: it is relief. many people believed sunday would be a bad day for the european establishment and felt we would see nationalism and populism. that was not the case. the pro-european majority is still holding. the greens and liberals did very well. story. more of a country when you look at europe as a whole, the center is holding strong. tom: maria tadeo, thank you so much, and brussels. with us, james sweeney. right now to look at rotter

europe, the chart -- broader europe, the chart is the five year forward inflation in europe with declining expectations. james: i think the confidence of the market that europe will get out of 1% inflation is probably gone. tom: the confidence as gone but it is also gone on fiscal solution. i know there are subgroups you are better at, but the basic idea of debt and deficit to the rescue is not really there as a framework for those leaders. james: my colleagues in london published a report that the stimulus in germany targeted at electric vehicles would be one thing. tom: what is the likelihood of getting that through? james: he thinks that could happen. if global growth continues to tumble and the trade war

continues, there could be the need for change. tom: i can see the headline -- tesla in germany. francine: on a more serious point, when you look at the ecb what worries you about europe? war.: it is the trade wouldk the auto tariffs have such a significant impact on global growth that it is unlikely we would have implemented meaningful auto tariffs that would stick around. if you look at manufacturing activity in europe in the auto sector and around germany, it is extremely weak. it looks like what we saw in asia q4, a fear of rising tariffs has a big impact on investment and short-term growth , is taking hold in europe. a fear of tariffs is weakening

european grow sharply and the auto manufacturing sector. when you look at the broader labor market and the economy, it is not that bad. of the weakness has been manufacturing and trade. francine: coming up on bloomberg luis de," we speak with guindos jurado. we will talk to him about the next person to spearhead the ecb. our interview -- that interview, our matt miller is doing it shortly. this is bloomberg. ♪

♪ "surveillance," a little lift off the bottom we saw hours ago. francine lacqua in london, tom keene in new york. jonathan ferro is south of los

angeles in newport, california. you go out to pimco and chat them up, that is a good thing. given where markets and bonds are, this is remarkable. it centers around discussions with manny roman and dan iversen. look for that throughout the day. right to first word news. white house national security adviser john bolton says there is no reason for iran to break the nuclear treaty unless it is trying to build atomic weapons. he is meeting with officials from the emirates, and said iran is almost certainly behind attacks on oil tankers in the gulf. china found a new way to battle the u.s. on trade. it is gearing up to weaponize its dominance of rare earth. china may restrict rare earth

exports to the u.s.. the u.s. gets 80% of those minerals from the chinese. it has been a rare outburst of tornadoes in the u.s. over the last month. more than 500 twisters have been logged as severe weather hit from the rocky mountains to the mid atlantic. yesterday was the 12th day with reports of at least eight tornadoes. belondon, the man who could the uk's next prime minister has been ordered to appear in court. allegations of misconduct in office, the case centers around his brexit campaign claim that the u.k. sent $440 million a week to the european union. 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 viviana hurtado. this is bloomberg.

francine: beijing is gearing up to use its dominance of rare earth as a counter and its trade data with washington, according to a series of media reports. the u.s. refrained from labeling china a currency manipulator but said it was deeply disappointed in their lack of transparency. we turn to hugo rogers for more insight. james sweeney of credit suisse is still with us. when you look at the concerns surrounding this trade war, do we need to get used to it for the next four to five years? hugo: entirely, we believe it is the new normal. any kind of trade deal signed in the next couple of months is just some kind of detente in a long going -- ongoing strategic conflict. the two superpowers of the world

are at loggerheads, technological, sociological, and political. we think it continues. francine: to what point? does it break? does someone blink first? hugo: the pressures are quite acute on china. hot money flows because liquidity tightening in the world where growth is slowing. there is pressure on china to get a deal done. trump needs a deal. there is pressure to get a deal done but the rhetoric is the people have to back down from entrenched conditions. up the tariffsts on rare earth, it is another rat -- another notch and that rhetoric. some kind of backtracking at the g20, but we are not certain it happens beyond that. us, just rogers with

trying to figure out where to be and not to be in the markets, and james sweeney with us looking at the broader economics. notuld suggest you two are on the same page, and james is more optimistic. investment right now, what do you see global investment and u.s. investment? james: the fear of this trade situation lingering is leading to short-term weakness in investment. firms do not want to invest now because they do not know what to do next. long-term redirection of investment specifically away from china. what we are seeing since october is weakness. we have had a substantial slump in global manufacturing activity since october. it was starting to come back in

april and may, and with these tariffs it is likely that has stalled out. you are in a growth slump globally in manufacturing related to tariffs. tom: i want to go to your research note, the confidence that investment will leak into china -- out of china into vietnam and others. hugo: i suspect we will get that leakage. there is significant china.hment in capex in there is structural overinvestment in china. i think the chinese authorities know this, basically forcing domestic savers to fund lossmaking state-owned enterprises. that investment continues and there is the dangerous of a

nasty negative feedback where you get tightening in liquidity conditions and higher interest rates domestically which will exacerbate the problem. that is the negative that could come out of china. francine: do you worry about the emerging markets neighboring china? if china escalates the trade war , they will have to be more inward looking and stimulate their economy. hugo: you can see that clearly from the trade data. if you are looking at semiconductor exports out of taiwan, you can look at that data and there is no turnaround. there is a lot of pressure. the chinese stimulus now is focused on the consumer. big government deficit, literally directed at the consumer. it is an inward looking stimulus this time and we think that is a

tacit move by china to get the consumer to become the motion of the economy. what is your take -- francine: what is your take on emerging market equities? you were long. hugo: they were cheap and positive catalysts coming down the line. our position allows overweight ofitions, but we got rid that long position two months ago. tom: i want to show a great chart investment, hugo rogers and james sweeney with us. much more to talk about. and the 7:00 hour, martin gilbert with standard life aberdeen. equities a little soft. futures really breaking down to new recent weakness. the 10 year yield, 2.23%.

a great chart coming up on a changed america. this is bloomberg. ♪

♪ check.ght to a data equities, bonds, currencies, commodities, bonds leading the way. earlier, now -16. oil weaker. on to the next screen.

,he idea of the two year yield 2.08%. deutsche bank having an ugly day as well. francine: i think this story is the rally in the 10 year treasuries, further inverting this part of the yield curve. watch for your history -- this history auguring a recession. bu has annd effect on japanese yields. renminbi,ng at 6.9089. tom: at two separate times in the heat of august or september of 12 years ago, not only can f -- said watch investment. let's go to our single best chart with hoosier -- hugo

rogers and james sweeney. modeste a log factor of cyclicality, and things change in 2007. we have never really gotten back on track. update defectors we see for our new trade world -- update the vectors we see for our new trade world. james: one component done well is software. intangible investments is doing well. equipment investment has been soft. isufacturing growth globally lower so we are not investing as we were years ago. that investment has been sluggish. the other component is select -- structures, things like mining equipment, was strong for a while. basically buildings and retail, we are not advancing.

that is why investment is sluggish, because we are not building malls and factories. tom: sweeney says build malls. let me speak to the gentleman who lives above gucci on fifth avenue. this investment that sweeney just outlined is going to malaysia, vietnam, poland, is it? hugo: to some extent it is, and his rhetoric is to bring that back into america. he will struggle. the investment, maybe this chart is under reporting and the investment is intangibles. it is when you are looking at the data, seeing software investment, ip is where the growth is. will he get this to come back as well? if he is looking for job cuts, he might argue there is nothing he can do to bring fixed capital investment back up again.

i would argue that might well be the case. francine: we go backwards and forward about how the trade war ends, if it ends, why it ends. as the only real question, how does president trump measure success? does that give us a good indication of what happens with the trade war? james: political success is the measure for a politician so he is looking ahead to his next election. he needs to keep the economy on the right track and send the message to his core voters that he is doing something about this week manufacturing investment -- weak manufacturing investment and weak job growth. the trade war will be partly related to those things. our view is there will be a deal, but no deal will solve the vast range of problems the u.s. has with china, and it is not

likely that you will transform the investment landscape in the u.s. completely, regardless of what happens in the trade war. the trade war is putting noise in the economic data, driving financial markets down, and increasing uncertainty in the business world to the detriment of near-term global growth. francine: when you look at china, how overrated are the risks? hugo: i do not think they are overrated at all. as tom was mentioning, we take great danes to describe the weaknesses we can see. the big thing about china as they are trying to rebalance the economy but the growth debt levels, there is so much debt and it is being serviced by such week corporate's -- weak corporates that you have a structural problem.

if you want the consumers to pick up the slack, you cannot appropriate their savings. there is a real conflict that needs to be resolved, and that is resolved through lower investment and lower growth domestically in china. it is almost inescapable. .ou are seeing stimulus now thank your mental effects on money and growth speak to the the trade war, if and when we get some kind of detente, it is a short-term patch if it is not going to fix those underlying structural problems. francine: james and hugo, thank you. .hey both stay with us areare taking an arsenal -- taking on arsenal. we talk for all news next with

andrea sartori from kpmg madrid. this is bloomberg. ♪

♪ this is bloomberg

"surveillance." netflix is threatening to leave the state of georgia if a new law restricting abortions take effect. the video service produces several shows there including "stranger things." the legislation is set to become law next year. huawei went to court to get off the u.s. blacklist, telling a federal judge the ban on federal agencies and contractors buying unconstitutional, and argues it stigmatizes at's company. --seo she son is making top softbankshe son -- paid six executives a total of 80 $3 million in the last fiscal year. -- salary was a relative relatively modest $2.8 million.

inncine: it is a big week european football with the final , and liverpool faces the hot spares for the champions league. we look at the evaluations of the clubs and some of the enterprise values have risen but the stock market valuations of these clubs have dropped. we are trying to figure out the difference and what that means for the future of funding. tom: the idea of three leagues. jon ferro and i were trying to get to madrid but the hotels were like $3000 a night. "surveillance"he fly this morning. we name him larry the cat. francine: i was thinking mr. me augie -- miyagi. tom: the issue is the tv rights

and the global reach. i found this interesting and timely. francine: we are talking about madrid and munich. they have not made it to the most valuable clubs this week, according to the report. winning the champions league three times in araujo has allowed madrid to grow their -- moreal -- allowed with this is andrea sartori. he joins us from madrid. great to have you on the program. what explains the movement at the top of your kpmg ranking? andrea: certainly, the fact that madrid has won the last three champions league has helped them significantly in terms of a new

generation and commercial revenue caused that has been higher -- cost that has been higher than manchester united. i would like to point out that real madrid has reached the top, yet their value is slightly below manchester united in last year's addition of our report. was a little bit of confusion at the top. talk to me about why the club enterprise values have risen but the stock market valuations have dropped. andrea: what is interesting to economyhat the football is going significantly faster than the general -- growing significantly faster than the general european economy. the football economy has grown by 35% if you look at the top

three clubs, while looking at the stoxx 50 where the 50 top european companies, it has decreased by 9%. ourof this is showing investment in football assets can be good and profitable and can provide an interesting opportunity to the capital markets. practice is the best of the premier league teams? of the i think all premier league teams are somehow financially -- or most of the oneser league clubs, the sitting on the left side of the table, they are all quite sustainable. -- six out of the top nine clubs in this ranking are english clubs.

the two that are definitely worth mentioning, liverpool and tottenham. the final is next saturday, final of the champions league. they have seen significant growth this year. second fasteste growing and liverpool is the third. -- as the club that has grown the most, but it is interesting to say that tottenham is the club that has grown the most in our survey after it. francine: that is exactly where i wanted to go. if you look at the champions league final, they also have the best return on sales ratio. is that just correlation to their success in the season? andrea: yes, to a certain extent, because our valuation

report does not take into account the sporting results of this for all season. the final of next saturday is interesting because it is a final between the clubs that have shown the highest ever recorded profit before tax achieved by a football club. tottenham just overtook liver tool -- liverpool after the announcement in april. thank you so much, andrea sartori from kpmg. we will have plenty more on football, and we look at pimco with jonathan ferro. ♪

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global bond yields drop. gamble.s the rare earth ecb's new bank warning. the central bank vice president's has downsides are prominent and negative interest rates aren't to blame. david: welcome to "bloomberg daybreak." it is another day of extraordinary storms across the midwest. alix: and flooding up in yonkers? david: and much worse in the midwest. in arkansas they had enormous floods that won't even peak for a week. alix: looking at kansas, too, really getting hit as well. we talked about this earlier for the markets. it is affecting the oil market