♪ francine: powered by powell -- powell, theed by chairman opens a door to a rate cut. president trump encourages britain to finish the job on brexit on -- after stirring up controversy. and putting on the brakes, rent out delays takeover talks after nissan shows resistance to the deal.

welcome to "surveillance. " what a move we saw yesterday, the s&p 500 jumping after jay powell opened the door to a rate cut. we continue to see green on the screen. the 10 year yield jumped six basis points, leaving us at 2.112. the dollar index is on the back front. elizabeth warren: for a weaker dollar, in agreement with president trump -- elizabeth ward is calling for a weaker dollar, in agreement with president trump. market-- candove they ecb out-dove the market? bank is cutting growth forecasts, saying traded growth slowed to their lowest level since the crisis.

it also saw a drop in investment. they see the world economy expanding 2.6% compared with a 3% forecast last year. jonathan gracie's progress being made on trade. >> as it relates to u.s. and china on trade, ultimately, i think there should be a resolution. there is a recognition of a rebalancing that should be taking place. this is really about the pace and extent of that rebalancing. >> a significant source of uncertainty for china's economy is trade, according to the imf. excess government stimulus measures will only partially offset the impact of u.s. tariffs. it cut their forecast for growth to 6%. they also say china would benefit from more opening up and reforms that enhance competition. sayshe mexican president he hopes the countries can reach a deal to escape u.s. tariffs.

find a waye they can to stop be 5% duties imposed. this as president donald trump says he will bring in levees on mexican products as planned. elizabeth warren and donald trump have something in common, they are both unhappy about the value of the dollar. the is calling for actively managing the currency to bolster u.s. growth, saying it would promote exports and domestic manufacturing. 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. nejra: state three -- day three a president trump's visit to u.k.. earlier, he promised the u.s.

and u.k. could triple trade, but stirred controversy by suggesting the state run health system could be part of the deal. here are some of his comments, starting with his thoughts on .rexit >> it happens because of immigration, but i would think it would happen and should happen. this is a great, great country and wants its own identity. it wants to have its own borders, to run its own affairs. this is a very special place and i think it deserves a special place. we will absolutely have an agreement on huawei and everything else. we have an incredible relationship. i think everything but the trade deal is on the table. everything is on the table. nhs, or anything else. everything will be on the table. >> i don't see it being on the

table. somebody asked in question, i say everything is up for negotiation, but not that. that is not only i consider part of trade. nejra: the frontrunner to replace a says the party faces an existential crisis. conservativer the party has set out at accelerated procedure to choose a new leader. let's focus it on the u.k. and what we have heard. joining us for the hour, head of asset allocation at pimco at a strategist at peak k-12 management -- at a strategist of asset management. let's discuss the words around trade deal. everything is on the trade deal, everything on the table. what are you looking out for

signals as for what this could tell us? unexpected.pretty president trump has opened many fronts in the straight work, and that is not a regular tactic. we will have to see what happens with europe. the u.k. is something pretty remote for all of us. we'll see if we have the possibility of a hard brexit or a deal. the view for us is that a hard brexit should be avoided, and that is where we will base our assessments. nejra: do you share that view? frederick: absolutely, although there may be another extension. we know the 31st of october is not that hard deadline and the real hard deadline is next year. in 2020, when the eu will have

to negotiate a long-term budget, it is very difficult to think about how to negotiate a five-year budget. something has to give. a new election with a second referendum, a new government, by the way, because parliamentary arithmetic's are very difficult indeed, we hope a hard brexit can be avoided. do you approach that with asset allocation -- and so how do you approach that with asset allocation? geraldine: it is hard to take a directional view. but there is one segment that still offers value, credit and u.k. financials. it looks like the spread of those bonds is relatively high. this is still an area where we would like to be overweight and invest for sterling or guilt or other matters -- gilt or other

matters. has flattenedve since the financial crisis. if that's going to continue your view -- in your view? frederik: with everything going on in the world, the global framework. it is also important to look at the currency. and dollars, sterling, euros, it makes a huge difference for how to invest in gilts. negative on u.k. equities over the long-term. when you look at economics, this will be a long-term thing and unfortunately likely to result in lower earnings. nejra: i know that were base case is not a hard brexit, but let me put my question of the day to you. our markets underpricing a hard markets- are

underpricing a hard brexit? geraldine: it depends on which asset. some credits are pricing a hard soxit, sterling or yields, -- less so. nejra: great to have you for the hour. up next, no laughing matter. notident trump says he is bluffing on mexican tariffs. exceedsays costs could $1 billion. more on trade next, this is bloomberg. ♪

nejra: francine lacqua is that the bank of england talking to policymakers about life. guests from the fda later in the program. let's get our business flash. on solids. economy is footing, except for leverage loans. hasn moynihan says his bank dominated the sector for a decade and that things are generally solid, but leverage loans could cause a major stumbling block. >> it will be ugly for those companies, ugly for the system. down, theyomy slows will have to be restructured and real cartage will go on. the issue there is in the

leveraged finance. terms have gotten too favorable to the borrower. ford's $20s fined million for restricting sales prices and apply to shanghai's ford operations in chongqing. chang on ford produces a range of models. a that support is using is postponing a decision after nissan put up decision -- put up resistance to the deal. it reportedly takes into account a request by the french state, renault's most powerful shareholder. later today, the board is scheduled to meet again. that is were bloomberg business flash, nejra -- your bloomberg business flash,.

-- nejra. nejra: jerome powell is keeping a close eye on trade disputes between the u.s. and its trade partners. >> do not know how or when these issues will be resolved. we are closely monitoring the implication of these and, as always, will act as appropriate to astain the expansion with strong labor market and inflation near our 2% objective. nejra: treasury yields client following the comments. we have seen a move lower today but our study on the 10 year yield. so let's keep our focus on the fed. still with us is geraldine and frederik. the equity market reaction, of 2%, was just a signaling of openness. is that exuberance?

frederik: it does suggest the market was almost sold. markets want to rebound on anything that powell would signal. he did not say a rate cut. he did not say the fed was patient any longer. it is a subtle shift towards a rate. ,e do expect interest rate cuts but the timing is interesting. it's difficult to see them cutting in june or july without some time -- type of news. it is also difficult to see how they could just restart investment spending or push inflation expectations. so it is a bit of a difficult situation. nejra: absolutely. and point out a crucial thing, he did not even save rate cuts, but we got this reaction again. we were looking at the 10 year

by some technicals. did powell get his messaging right? everybody could see what they wanted to see there. first of all, the g20 is in the middle and we need to see what the outcome is. that, it isbeyond important to distinguish what a fed cup is. -- cut is. insurance cut or a cut because global growth is tanking? taken -- a cut my to do the job or not for the stock market. the stock market seems to go with the idea it would be at insurance cut, but looking at pmi's and other things, the global economy is genuinely slowing down. we could very well have an earnings recession without the

gdp recession. so you say the stock market seems to be interpreting an insurance cut. does the bond market habit right -- have it right? geraldine: they are still a great diversifier in the multi-asset. you are making significant capital gains and they remain an asset possibly in multi-asset portfolios. but looking at the cuts, it is an average of people thinking we are headed towards a recession and will have much more than two were three cuts. cuts -- twort -- 43 or three cuts. it depends on what will happen. in terms of weighted

expectations, it is probably correct. nejra: what do you believe of the two scenarios laid out? yeah, the u.s. economy is still strong enough to wait out a recession. we could have had earnings recession without a gdp recession. you could see markets pricing in more rate cuts. that is something we do not talk about that much, compared with futures or inflation rates. the premium of the 10 year is down to 90 basis points. that is a big difference from 2015 when treasury yields were lower. to me, it could suggest that some central banks are forced to do qb. -- qe. through a going

deflationary environment with inflation expectations down to that is unlikely a difficult to see but if that is the case, yes. q could be back on the tablee. , they arextent pricing in this possibility. nejra: how are you pricing risks in terms of equity and they longer treasury curve? geraldine: a little underweight it equities -- with equities. earnings are going down hard and it will be hard to sustain this level. in terms of duration, a bit more neutral. we have had a big move. the uncertainties out there are too big to give up. so a bit of a hold pattern but remaining underweight. nejra: what about your view on duration? frederik: exactly the same,

actually. it is becoming quite a crowded trade, but that is the conviction we have. we are headed for difficult times and have moved underweight , the most in three years, with some differences. we still like emerging markets in some countries. but same story with duration. we are trying to get little exposure as possible, focusing on good-quality, short duration credit. it has worked pretty well. nejra: both our guests stay with us. later today, we will hear from robert kaplan and charles evans. more on the fed throughout the show. this is bloomberg. ♪

nejra: this is "bloomberg: surveillance. " donald trump is sticking to his threat of mexican tears, accusing charles schumer of loving. -- bluffing. meanwhile, the mexican president has been more optimistic, expressing hope a compromise can be found. still with us geraldine adn frederik. how closely are you on a recession watch? geraldine: we will have to see

what will happen at g20, and certainly this is quite crucial. what seems certain about looking at the medium-term, the u.s. and china are in a major war for from anupremacy economic and technological standpoint. the tensions are likely to be simmering under the surface, at a minimum. like youust one crisis had during the cold war and is likely to be ongoing. couldpike in uncertainty be big enough to really derail global growth and sentiment and we are seeing it in a number of data. it is not that the beginning of the year was that solid. of course, we have to be on high alert. nejra: are equity markets underpricing the risk geraldine refers to? frederik: the idea that the fed could save the day, yes, there is complacency in pockets of the

market. but looking at the data, the manufacturing pmi has been struggling and, mqm, hard data had arong, but soft data longer decline than during the global financial crisis. chineseoach was that stimulus would help, but it has not happened yet. highernly slowly edging and weaknesses spreading to other asian countries, that is my concern. geraldinederik and stay with us. back a says they will fiat chrysler-renault merger, with certain conditions. this is bloomberg. ♪

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every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. ♪ nejra: powered by powell. global stocks rally and treasury yields climb to multi-year lows, as the fed chairman opens the door to a rate cut.

getting it done. president trump encourages britain to finish the job on brexit after stirring up controversy about whether the nhs will be part of the trade talks. his u.k. trip continues. putting on the brakes. renault delays takeover talks with fiat after its alliance partner, nissan, shows resistance to the deal. we are live in rome. welcome to "bloomberg surveillance." we have some u.k. data crossing the bloomberg. we have been looking at pmi data throughout europe. u.k. services pmi comes in with a beat on the estimates. we see the pound just a little bit stronger today, not moving too much on that data. in terms of stock movers, let's go to dani burger. what is below the service -- surface? >> some of the big movers today hydro.h hydro -- norsk

they reported an unexpected profit, now moving their growth outlook. analysts in morgan stanley saying it's a beat on all levels. alsoassaultes gaining. shares look attractive and there is also room for the company to give up dividends -- give out dividends. lansdown, another down day. this is the neil woodford affect, if you would. the beleaguered asset manager is pulling back, not allowing anybody to withdraw from his funds. he is one of the biggest investors in his trust. a two day decline for those

chairs. nejra: let's get the bloomberg first word news now. >> u.s. federal reserve chairman jerome powell has signaled an openness to cut interest rates if necessary. investors have aggressively predicted the fed would loosen policy. how pledging -- jerome powell pledging to keep a close watch on this fallout between the u.s. and its closest trading partners. chairman powell: we don't know how or when these issues will be resolved. there closely monitoring implication of these developments for the u.s. economic outlook and as always, we will act as appropriate to sustain the expansion with a strong labor market and inflation near our 2% objective. theresa mayister talking about the substantial risk between the u.k. and u.s. since president donald trump took office. she says london and washington are at odds over key issues,

including china, iran, and climate change. the president was asked about the possibility of a jeremy corbyn becoming prime minister and if he would do a trade-in with the left-wing leader. pres. trump: i certainly would. i would have no problem with it. i think it's a long shot when you say that. i don't think it's going to happen. boris johnson warning his conservative colleagues that they face extinction if they do not deliver brexit by october 31. the front runner to replace theresa may says the party faces on existential crisis. he spoke after the conservative party set out on accelerated procedure to choose the next leader that will see a prime minister in place by july 26. here is what democratic presidential hopeful elizabeth warren and president trump have an common. they are both unhappy -- in common. they are both unhappy about the value of the dollar. she says the move would promote

exports and domestic manufacturing. 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. nejra: thank you so much. delayed the decision on it fiat chrysler merger. theing us from rome is undersecretary of italy's economic development history, which oversees the industry. great to have you with us on the program. thank you so much for joining. in fiattaly buy a stake to have a greater influence? michele: fiat is a private company. the italian government has no purchase stakes in the short-term. the company is free to act accordingly to the interest of its shareholders. we, the government, take care of

making sure that there is a positive impact on improved, increased production, and positive impact on job creation. this is the role between companies and government. interest --e in the are interested in their shareholders. we are not shareholders. the french government is the shareholder. the french state would be demoed it back half -- diluted by half. in principle, this is not against our view. our government is open to investment, provided, as i said, that this brings positive impact , economy growth. we will see the details and then we will act. nejra: ok. so still waiting to decide on

possibly making an investment there. you have walked us through the conditions as well. what do you see as the conditions necessary for the deal to actually go through, including concerning layouts and the location of the headquarters -- layoffs and the location of the headquarters? michele: we would be against potential layoffs. we do not know the details of the industrial plan. we do know, however, that the combined entity, fiat and renault, which may also of course include the japanese partners, would really increase the production stable -- production scale of the company by a large factor. we are looking at roughly 50 million production units per year. more importantly, italy is behind the production of electric cars with about 5000 units per year, versus 55,000 in japan and almost 40,000 in

france. scale in the overall automotive market will bring a benefit to the italian auto industry that has been lagging behind. japan is a very important partner for our country. tomorrow we will be there for the g20. we will have talks with members of the government. we have a free-trade agreement with japan, so it is important --t fiat-were no fiat-renault would look at japan as a key partner. i want to strengthen this relationship. fiat is an italian company. it is really on italian american company. way, on paper, this deal looks good. from a geological --

geopolitical point of view and the increase in scale in production. nejra: you say on paper the deal looks good and you are giving us your view. has the italian government actually been consulted on the deal? if it has, what have you said? michele: i am sorry, i missed the question. the italian government has been consulted on the deal. it is a private company. let's not forget that. the italian government is in touch, but the decision is with the shareholders of the company. nejra: what obstacles do you see to the deal? any risk that france or nissan could cause it to fall apart, from your view? michele: well, i do think that nissan is an important partner and of course, careful attention

must be paid to japan. we know there have been issues in the past. news, we are more on the positive side from the side of japan, more open to the idea. japan is much more advanced than italy in the development of electric cars. we would care that nissan continues to be part of the andtionship with renault fiat-chrysler-er renaud group -- renault group. these deals get announced and then take months, maybe a year or more to get all of the details ironed out. it is a bit premature at the beginning, now, to get a view. the principal and this is the strategy of the government is

that we do welcome investment, we do welcome foreign investment, provided it does not take jobs away from our territory. if it meets this requirement, we would be in favor. nejra: on the jobs then, if there was a risk to the italian workforce, what would you do to mitigate that risk? cross that will river when we get to that. we do not know yet, so it is early to speculate. fresheners. -- fresh news. i don't think it's appropriate to speculate on a number of scenarios. we will have time to react once the details are figured out. we have no need to have a specific position at the moment. company prettye much free to do what's in the interest of their own shareholders. we will worry when and if the

problem occurs. i expect it not to occur. industrial numbers suggest that this could bring good benefits to our country and to fiat itself. nejra: and in on the positive. thank you some -- ending on the positive. thank you so much for joining us, michele geraci. brussels is set to publish its report on italy's finances later today. we will bring you the latest. plus, could leverage loans be a economy, ase global a bank of america ceo ways in. this is bloomberg -- weighs in. this is bloomberg. ♪

♪ francine lacqua is

currently at the bank of england talking to policymakers. the benchmark set to be phased out by 2021. are the banks ready? let's get the bloomberg business flash. >> salesforce has given a quarterly forecast pointing to continued rapid growth. the market leader in customer relations of software says sales will be just under $4 billion for the three months. the company also continues to expand by hiring more workers in offices around the world. ce wantsowner of versa more stores and fast. it plans to open dozens of outlets each year with the goal of doubling annual sales. 'sre than half of versace stores are in asia, with 40 in china alone.

venezuela has reportedly defaulted on a gold swap agreement with deutsche bank, prompting the lender to take hold of the precious metal used as collateral. the deal was opened in 2016 and settled early due to missed interest payments. a significant source of uncertainty for china's economy is trade, according to the international monetary fund. government stimulus measures will only partially offset the impact of u.s. tariffs. it cut its forecast for the nation's growth in 2020 to 6%. the imf also says china would benefit from more opening up and reforms that enhance competition. we spoke with the head of the imf china mission. >> if trade tensions were to escalate and the u.s. were to impose 25% tariffs on all chinese exports, growth could be significantly affected. in that situation, we think a temporary stimulus would be appropriate.

that's something contained and focused on rebalancing growth sustainably. that could be a fiscal expansion, modest monetary support. you have to factor in both the negative impacts of the tariff increases offset by the positive impulse from a positive response. >> and that is the bloomberg business flash. nejra: thank you. let's get the latest on italy's debt. the u.k. commission set to publish its report on the nation's finances later today. this comes as part of the ongoing dispute over italy's government debt, which currently stands at over 130% of gdp, more than twice the eurozone limit. ecb officials are likely to be weighing how to help the region's economy at their meeting this week. we will get an ecb policy announcement tomorrow at lunchtime. with us is geraldine sundstrom from pimco and frederik ducrozet

from -- what management. -- wealth management. the deposit rate from the ecb is open. there are two things the ecb could do eventually bit. -- eventually. tomorrow might be a bit early. the potential to open the door to easing. that could be chasing -- changing the forward guidance and going back to maintain policy rates at present level or lower. it seems to be too early to do so. eventually, inflation expectations are drifting lower. the response should be qe. they need to address the issue with the limits that they face with qe. i won'tnother step that

expect mario draghi to take tomorrow but it could be something they do. nejra: what steps do you expect the ecb to take? geraldine: the ecb clearly has a very poor toolbox at the moment. there are certain things they could do, like the rate at which the ntro will be. eventually, they could lengthen the maturity of those. they can tinker with some things. short of changing the p, which -- the capital key, which i referred to come will be quite complicated. handcuffeda lot more compared to other central banks like the fed. general, we have a more cautious attitude towards european equities. nejra: i am going to go slightly off piece. we seem to be at a point where

people are questioning whether the dollar has topped out. do you see much prospect of euro strength based on dollar weakness that could prove a challenge for the ecb? frederik: yes. we see potential for the euro to strengthen from here. even if the ecb cut rates, they would not cut by 100 basis points. i hope not. the constraint would be on the euro, it's obviously happening through the channels of asian currency and the yuan. it's going back to the trade deal depends on what happens with yuan. on the european economy, we see some improvements, even in italy. with theey will go lowest rate possible. you have the potential to see some improvements. all in all, we could see some euro appreciation. at those levels, it is not a

problem for the ecb, growth, or even inflation. nejra: even with the 10 year bond yields and that record low -20 basis points, people say there are opportunities to be found along the curve. what opportunities do you find below the surface in european fixed income? geraldine: it is true that the curve in germany is relatively steep. remains -- the bund remains a relatively good carry option. the other thing is that the european yield went back into dollars and other currency still look relatively attractive. nevertheless, in terms of portfolios, we would overweight the u.s. duration, which has a lot more scope for capital gains than the european once. -- ones. frederik: agree on the bund.

let's not forget regulation. obviously, the huge boost in bund prices. the free flow of the bunds is very low, probably 10% or lower. regardless of price, some investors will have to dial in. nejra: ok. frederik ducrozet and geraldine sundstrom stay with us. talksishi saying it is in for the bond market crg. an announcement could come at the paris air show. could leverage loans be a threat to the stability of the global economy? we will debate that next. this is bloomberg. ♪

♪ nejra: economics, finance, politics, this is "bloomberg surveillance." i am nejra cehic in london. could leverage loan to the stability of the global economy? bank of america has topped a

ranking of leverage loan book runners for the last 10 years. now it's chief executive is warning of a problem if the economy slows down. still with us is geraldine sundstrom from pimco and frederik ducrozet. where do you see the potential trouble spots in the global economy? geraldine: we just published on outlook with a warning on credit markets. really, the motto is bear in mind liquidity and go up the quality letter. certainly -- ladder. certainly, that's how our portfolio has been moving. , therik: the weakest link high-yield credit spreads for instance, is always a good indicator. it has started to creep slightly higher. we have seen some tightening on the bank credit conditions.

those are the indicators we are watching. low levels, low rates will help to prolong the cycle. this is the key risk we are looking at in the u.s. and coming right now. nejra: great to have you both with us. thank you for joining us. frederik ducrozet and geraldine sundstrom, head of asset allocation at pimco. tom keene joins francine lacqua in london. they will be joined by the bank of england's deputy governor for markets and banking, followed by conversation with andrew bailey. this is bloomberg. ♪

♪ tom: this morning powell to the rescue. the chairman speaks.

yields grind ever lower. libor is a very foundation of the finance -- the very foundation of finance. portsmouth, -- at the queen -- the young men of d-day. i am tom keene. with me in london, francine lacqua off a very important panel with the bank of england. the queen, the president. angela merkel will be there, emmanuel macron. a symbolic date for all of europe. francine: certainly. president trump really promising the u.k. this phenomenal trade deal. with are trying to understand how long that would take. all of the global players, where you have had tensions and frictions and tariffs kind of come to the forefront to commemorate veterans. tom: one of the big backdrops

well's speed po just today. don't miss our conversations -- speech yesterday. don't miss our conversations with dave ramsden and andrew bailey at the bank of england. really looking forward to that. francine: i just arrived from the bank of england, where i was on this panel with both dave ramsden and andrew bailey. this is all on libor. we want to try to understand if chief executives of banks are taking this seriously and whether they will be ready in time. let's get straight to the bloomberg first word news in new york city. >> president donald trump talked about iran', gun control, and british politics in an interview monday. he says there is always a chance of war with iran.

he says he is considering on gun silencers after last week's deadly shooting in virginia. he also dished out more praise for some of the politicians who want to succeed theresa may. senate republicans back in the united states are pushing back on president trump and his plan to impose tariffs on mexico. the president scoffed at members and that theyty would try to block his proposal. senator kevin cramer of north dakota says senate republicans are weary of tariffs. reserve's topal policymakers are not quite ready to cut interest rates, but trade tensions are pushing them that way. jerome powell questioning markets the central bank is looking for signs trade disputes could hurt the outlook for the u.s. economy. his number two echo those remarks. that the the u.k. boris johnson warning that his

conservative colleagues face extinction if they don't deliver brexit by the october 31 deadline. johnson is the frontrunner to replace prime minister theresa may. he said if brexit is delayed, they will not be forgiven. 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. tom: thank you so much. a huge political day and of course a historic day. the markets are on the move. let's look at equities, bonds, currencies, commodities. a seismic shift after chairman powell's speech in chicago. we will have more on the u.s. century bank today. futures -- u.s. central bank today. the euro ever stronger. dollar weakness. oil really having trouble

finding a bid, for fundamental reasons. on to the next screen, please. we were at a 16 handle, now 1701. the dow closed nowhere near record highs. two yields which are simply extraordinary, the german ten-year, -0.2201 point and the 10 year yield at 212 right now -- 2.12 right now. francine: i almost put mexican peso on my dado check -- data check. the fed chairman's dovish comments. they are still gaining from 0.2%. treasuries edging higher. 19.53. peso, we always need to have a look at it. it's at the markets by surprise

with that tweet on mexico. day three of president trump's state visit to the u.k. he will shortly be on his way to portsmouth for ceremonies to mark the anniversary of d-day. he promised the u.s. and u.k. could as much as triple their trade after brexit, but also hinted that britain's state-run health system could be part of the deal. he walked those comments back late in the day. you are looking at live pictures of london. joining us now is edmund shing, bnp paribas global head of andvative strategies stephanie baker. a phenomenal trade deal by when? think his words on this seemed a bit empty given the fact that he is engaged in a trade war with china and threatening tariffs on mexico.

he has flip-flopped on what he has said. yesterday when asked if the nhs would be part of trade negotiations, he said everything is on the table. in an interview today he walked about back. in reality -- walked that back. in reality, the whole issue about drug pricing and the controls on the drug pricing by the nhs is likely to be part of the negotiations in any deal. it is hard to see how pharmaceuticals would be left off the table. francine: i have a million questions for you. doesn't make an impact on the brexit debate -- does it make an impact on the brexit debate? >> he met yesterday with nigel farage at the u.s. ambassador's residence, which was a bit of a surprise. he has spoken warm words about boris johnson. they did not meet yesterday. whether or not this impacts the brexit debate, you know, he is dangling out this u.s.-u.k. free

trade deal, which is what the brexiteers want. i think everybody realizes it will be a harder slog, even if they reach an agreement with trump, it needs to be ratified by congress. tom: i have 18 ways to go here. just extraordinary with the markets yesterday. to pick up on a theme you touched, the game theory about how you choose the next prime minister to me is absolutely original. you can almost toss off your first vote to francine lacqua, who i believe is running for prime minister. francine: am i? tom: yes. it gets to two people, where it is a completely different game. -- game theory. stephanie: if history is any guide, the front runner never went. -- wins. tom:. stop.

. boris johnson will not win based on history? stephanie: based on history, but history has not provided a good guide for us the last few years. they are in the process of changing the rules of selecting the tory leadership. that could impact it as well. more remainere are mp's up for grabs. they have yet to back the leader they will line up behind. i would not say it is boris johnson as a slamdunk. he is out ahead. given the fact that nigel farage is giving them such a run for the money, he is seen as a good campaigner, so he could win. 58% and 68% leave. i thought it was remarkable.

we are going to really go to edmund shing right now about what we observed yesterday. let's cut to the chase. you know all of the greek letters. why were you, me, and everybody else apprise about what the chairman said yesterday? edmund: because he was quite forthright. owell like. the market knows that the federal reserve is 200 basis point of ammunition, which is not a lot. they don't have a lot of wiggle room. the feeling was the federal reserve could be very helpful -- careful before deploying any of it. the comments by jerome powell and other members of the fed were a departure from that. now we are thinking actually, we are in a different ballgame when the fed might throw in an insurance cut to forestall having to use the other 175 basis points to keep the economy

ticking along at a reasonable rate. tom: yields even lower this morning. francine: we will talk a little bit about how the markets hit on algorithm. we digress, but this is an angle where looking at. stephanie baker, thank you. edmund shing stays with us. up next, our exclusive conversation with the deputy governor of the bank of england. we will talk libor and also maybe about brexit and stability. this is bloomberg. ♪

♪ tom: "bloomberg surveillance." tom keene and francine lacqua. am enjoying the hospitality of francine. a vibrant london. london is going to roll over and die. francine: a lot of people don't think that, tom. we love having tom here. we kind of talk about european vegetarianh as the sausage roll that tom still has not tried. tom: the lines are too long outside to get the famous food. i will go to edmund shing for a little bit with bnp paribas. what is your single observation of the greek letters right now in the equity market?

is it about first derivatives, second derivatives? we weak gamma, gamma -- gamma, gamma, gamma? relative volatility in the equity market is not as high as you might think. my colleague was pointing out if you look at brent crude oil and the implied volatility of brent crude, it is in the 40's. it has spiked, gone through the roof. then you look at the europe or -- at europe or the u.s., they have moved a bit. there is an issue of liquidity. there is an issue of supply-demand dynamics which is specific to the oil market. it is interesting to see that you could argue both of these were affected very much by the trade war. the ball has gone off the charts. tom: we will continue this with edmund shing through the hour. francine: what could be bigger

than brexit? the world's financial firms are looking -- getting ready for the f libor.ibor -- end o the benchmarks are set to be phased out by 2021. are the world banks ready? my next guest has been a key player in the u.k. financial system. he was a top adviser on macroeconomic policy and then just over 18 months ago he was appointed deputy governor for markets and banking at the bank of england. he is one of the names mentioned for the top job when the current governor steps down. dave ramsden, thank you for joining us. the market was worried that the banks would not be ready. can you quantify what the exercise this morning at the bank of england was. was it to focus the mind of banks, rather the troops, saying

this is -- rally the troops, saying this is being phased out and you need to be ready? dave: thank you for having me on your show. i think this morning's. event had three real elements to it. i was there with andrew bailey .rom the fca the three things we were trying to get across is on sterling, libor, and the transition away from sterling libor to our new real risk rates, progress is being made. we had a lot of market participants in the bank with us this morning engaging with us on that. that was message number one. the second message was that more needs to be done. we need to accelerate progress when liboradline for

is supported 2021. with that in mind, we were keen to get more senior engagement for financial institutions. when need board level accountability and responsibility for this. third message -- we need board level accountability and responsibility for this. third message, it's really important that financial institutions stop issuing libor related products that go beyond the 2021 deadline. we were calling last orders. francine: how big is the transition? bigger than mifid ii? what we heard this morning is that institutions have had to make a lot of these transitions. they really have got their systems together to do it. it is a big transition. libor is ingrained right across the financial system. the major financial institutions

that we have engaged with through our ceo exercise, where we ask them to tell us what they have been doing, they have project plans. they are planning, doing scenario planning. it is a big transition. not just a sterling, globally, as you are sent. francine: is the deadline movable? atve: it is only up to th deadline that we know libor will be supported. that's the agreement that the fda reached -- fca reached. it was important to give breathing space. it's important that institutions aim for that deadline. tom: you are sounding so gracious. you sound like some of the political leaders we have seen this week. let me cut to the chase. bankers love libor. it is an ancient institution. now we are want to change the rules -- going to change the

rules. what would you suggest would replace it? it.: thanks for framing like that i think it's important to stress that libor is a very fragile rate. the transactions underpinning it -- tom: agreed, but it works. dave: we have a replacement rate for sterling which is backed up by many more -- tom: what are we waiting for? dave: we are not waiting. there has been good progress on the transition to this but we need that progress to accelerate. tom: what was the response from the bankers? i don't know why this was not fixed last week. francine: you are not in charge of a bank. dave: maybe this is me being diplomatic, but i think it is right to be fair to the bankers. libor is really ingrained. it will be a really complex getsition undertaking to

all of the different aspects of the market off libor. derivatives is moving quickly. we need the cash market to follow. francine: should corporate borrowers that need a term right be given an extension if they need more time beyond the deadline? dave: i think it is really important to focus on the deadline, which is why we heard from the chair of the risk-free rates working group that we set up. this is the public authorities working with the market, which will have to lead this transition. we have recognized the need for a forward-looking turmeric -- term rate. three providers have come forward with credible plans to offer one. we have to work through one. a lot of borrowers can use compounded overnight and they should do that. i see a possible advantage here for london getting on and

innovating with the new product, the new infrastructure. this could be good for london as a financial center. francine: intercontinental mental exchange, which -- intercontinentalexchange, they say libor is not want to go away -- going to go away. dave: they are obviously the provider. francine: they have skin in the game. dave: the whole system and recognition from the key players throughout the ecosystem that libor will be going away. it is very fragile right now. it is better than it was but not an effective piece of market infrastructure. we need to make this transition work. with us. ramsden we are honored that he is with us today. listening on, taking notes from bnp paribas is edmund shing as

well. i had to finance during my last visit to the veterinarian and he took it off libor. libor is worldwide. how ingrained is this london interbank offered rate in what you do every day? edmund: i'm in equities, some not very. just from my limited perspective, we have been bombarded with compliance and even i, who don't touch libor ever, have had to learn all about libor and how to change it and why all banks are moving off it. my limited perspective, i can say that banks are taking it very seriously getting on with it. if i, who do not deal directly with it, have to do a whole bunch of training on it, it tells you banks are putting it into the system. francine: we need to talk about brexit and financial stability. are you still comfortable with

the bank's brexit assumptions? dave: i gave a speech on some of these issues last week in scotland. the monetary policy committee, which i sit on, gave its latest update on prospects for the u.k. economy at the beginning of may. frame --ast, the forecast that framed the policy decisions are based on 2 the assumptions. the first -- the assumptions -- key assumptions, a smooth transition and a brexit end state. uncertaintyot of around the political process now and the deadline has been pushed back to october 31. those key assumptions still absolutely hold for framing the monetary policy committee's

forecast and the decisions that the mpc takes. francine: the rate curve has flattened since the last press conference by the bank of england. is that bothering you? dave: i am not going to get into a running commentary on whether raker is -- rate curve is. tom: we would like you to. i'm afraid you'll have to wait for\ [laughter] another mvc route coming up soon -- i'm afraid you'll have to wait for another mpc round coming up soon. we were observing this trend of the curve coming down and largely been driven by global factors, particularly being led by expectations of what might happen in the u.s. what we will do is track that had that will help -- and that will help from our decisions.

tom: i would be honored with your academics at oxford, mr. david, if you would comment on what we have learned about negative interest rates. he's looking at me right now. negative interest rates. we have not enjoyed those in the anglo-american world, but many others are forever. how is that negative interest rate experiment going? dave: one of the advantages now, you referred to my education and previous career. when of the advantages been at the bank of england -- one of the advantages being at the bank of england is we have a constraint remit. we have not gone down the negative interest rate path in the u.k.. we have cut close to the zero lower bound and introduced new policies to ensure that the rate cut got passed on. we have been doing a lot of

quantitative easing. i would rather comment on the uk's overall package of intervention, including positive interest rates that help to support the economy in a very challenging time. francine: thank you so much. dave ramsden, the bank of england deputy governor for markets and banking. we will be back with edmund shing from bnp paribas later this hour. we will also be talking to andrew bailey about libor and legacy issues of that product. we are looking at president trump arriving in portsmouth very shortly. this is bloomberg. ♪

♪ i thought it was going to happen because of emigration more than anything else, but probably at happens for a lot of reasons. i think it will happen and

probably should happen. this is a great country and it wants its own identity, at wants to have its own borders, wants to run its own affairs. this is a special place and it deserves a special place. we will have an agreement on huawei and everything else. we will be able to work out any differences. anything with the trade deal is on the table. nhs or anything else, a lot more than that, but anything will be on the table. somebody asked me a question today and i say everything is up for negotiation. that is not something i would consider part of trade. "surveillance," francine lacqua and tom keene in london. what were your thoughts? i looked at the british newspapers and well received at

the bottom of every article was the three little words "nhs." francine: the president needed reminding of what is -- what it is, the health system. we will get a phenomenal trade deal, as president trump says. does it take 10 years? what are the details? tom: the marks are pretty high. we saw him beginning his journey to portsmouth. well as a, i thought choreographed moment. huge news flow this morning. u.s. senators are set to review donald trump over his decision to sell weapons to saudi arabia and the uae. a bipartisan group will introduce 22 resolutions of

disapproval. the administration has overridden congressional holds on more than $8 billion. trade tensions between the u.s. and china are escalating, china finding ford almost $20 million for antitrust violations. they are accused of restricting retailer sale prices. ford says they respect the chinese decision. cutting itsnk global growth forecast for the in 2019 worldng economy will grow 2.6%, down from the 2.9% projection in january. at sees a slowdown in trade growth the weakest since the financial crisis, and forecast a drop in investment. in new dutch in normandy, u.s. d-day.-creating

climbse arms -- ropes to the cliffs. the journey was undertaken by army rangers seeking to destroy german guns atop the cliff. 235 of the soldiers were fit for battle two days later. 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. tom: thank you so much. i have read of portsmouth and i was ignorant. i knew the novels of patrick o'brien and that, but the 20th century history of portsmouth is remarkable. francine: this is a commemoration of the 75th anniversary of the d-day landings. this is the final day of president trump's u.k. state visit. host other nations.

every country that fought beside the u.k. will attend. aboutrkets are concerned tariffs and trade, and whether leaders can get along and come to an agreement. this is probably not the best time to talk about a trade agreement, but maybe they well. desh maybe they will. -- maybe they will. jay powell says they are willing to lower rates. kennedy,s now is simon and edmund shing is still with us. with the fed chair remarks? will we see a cut? simon: the fed has definitely

moved towards a cut. we saw that from richard clarida. and jerome powell yesterday. and robertth powell burgess writing about this, that he is aware more about the markets, how you communicate clearly what the markets. he put this holding pattern in. the fed meets next week. we saw bullard last week preempt this a little. week, expects a cut next but perhaps the ground has moved. we have a jobs report on friday, and this gives -- the comments from powell yesterday take the pressure off of him. there is a holding pattern, they

are watching and monitoring the situation. all street economists are lining up for fed coats. tom: -- fed cuts. tom: it is all getting old. have central banks run out of ideas? are they running out of theories or belief in theories that work? simon: potentially. you have a conference in chicago. olivier blanc char did it a few years ago. .imon: adam posen there are aggressive policies on the table. central-bank community is happy to discuss them, still reluctant to embrace them. if you look at the amount of aftertion they have left that decade of rock-bottom interest rates, there is not much there. the fed has raised rates.

the bank of japan is still where they are. options the ecb wants to simulate -- stimulate. an interesting question for the market is the risk on rallies ,hat you get when powell speaks are those sustainable when people start to look at the ammunition? the volatilityto that you were just speaking andt, where we get a speech up 600, down 600. this is not the way you run a normal market process. edmund: we have not been in a normal market process since the financial crisis. --has put it tom: do you remember v-shaped? edmund: i remember normal economic cycles. tom: how do we get back to normal? edmund: i suspect we don't.

this is a new scenario, slightly different from the old scenario. could this late stage be more prolonged than anyone expects? that is a risk. equities is an upside risk. risk.ld be positive if we have no growth and no inflation, that is a good cocktail. francine: what the fed is looking for, what it has in its toolkit, is this highbrow thinking or are we expecting it to have an impact on the way at sets monetary policy and impacts markets? simon: you are dealing with short-term/long-term. the short-term part of jerome cut.l's speech was the fed does not seem to be particularly a fan of the idea that you boost the inflation

target. the sweetest central bank is getting traction -- swedish central bank is getting traction. the good years to offset the bad years and over time, inflation is around 2%. canada has regular reviews of its mandate, and it rarely changes anything. that is perhaps a good example for the fed. a might do this listening tour and still stay. , i talkeddent trump to yesterday, he does not care. he wants to know how england lost to pakistan in cricket. simon: short-term problems. tom: is it because of brexit? simon: temporary. tom: london down in flames. francine: sounds like italy.

we will be back. michael mckee sits down with two fed presidents, robert kaplan and charles albans -- charles evans. those interviews start at 7:30 a.m. new york time, and this is bloomberg. ♪

♪ this is bloomberg

"surveillance." france will the -- back the proposed merger of fiat and renault. fiat must guarantee jobs. the board meets again to consider the deal. mitsubishi is and fax dutch in -- is inbuy bombardier talks to buy barnier and a deal could be announced i the middle of the month. the revenue has been surpassed by train and business aircraft. the new owner over saatchi plans to open 100 -- verse saatchi -- saci plans to open 100 new stores this year.

capri will spend more on marketing while expanding to handbags and accessories. that is the bloomberg business flash. francine: let's continue the conversation about libor. the bank of england is calling for businesses to move against -- the u.k. central bank says senior executives must be responsible for the transition. our next guest has had a long and distinguished career with the bank of england. he is chief executive of the uk's financial conduct authority and a front runner to replace mark carney. andrew bailey, welcome to bloomberg. on libor, we did a panel this morning and you say you were optimistically surprised about the fact that chief executives have taken this on board and see the end of libor coming and are starting to be ready. that they worry

weighing on their commitment? pleased andre very positive about the engagement in london and around the world. the 2021 deadline is interesting. when we came up with this date, it was always ambitious. some people even said aggressive. we also knew, we came up with that date three years ago in 2016 when we were having difficulty holding banks into the panels because of the decline in the market, that we had to be aggressive and ambitious because it becomes a limit beyond with -- which holding the thing together could not be guaranteed. i am pleased with the engagement. francine: can you delve deeper into what you mean when you say everything is on the table for the legacy book of trade? could you have different speeds for different markets? andrew: we know there is a

legacy and it takes different forms. the use of libor has grown in different markets. you cannot generalize that. we want to ensure the market adopts tools and systems that allows much of the legacy to be taken out from market prices as possible. i said earlier at the event, we will come to a point when we have to have discussions, and how we deal with that, there is a lot of talk around whether it extentslation or to what term rates will deal with that, whether there are other solutions. all options should be left on the table. tom: it is important to speak to you, not only because you are on the shortlist to become the next governor of the bank of england, but your experience. mervyn king gave a speech in scotland and you lived it.

what did you learn of the basis --of the crisis of andrew: i don't spend my time thinking about what i will do in the future. tom: we are in charge of that. [laughter] what did you learn in the trenches with northern rock it? andrew: the banking system was capitalized.y there were flaws in many business models, and the agenda held by the financial stability board has been to address those globally. there was a defining moment where we could've gone into a organized,was more or adopt a regulatory approach. unfortunately we went for the latter. tom: within this is the lessons

learned about shadow banking. every interview we do, we say there is still shadow banking. it is a different shadow banking. what are the shadows? andrew: we really dropped the term "shadow banking," the fsb. tom: it is not a proper word. andrew: one of the very sensible things that has changed since the financial crisis, shift and the balance of financial intermediation towards the nonbanking system in the sense that assets held in nonbank it is one of the causes of vulnerability. it means we have to spend more time thinking about what can inpen in the nonbank system two respects, from a financial stability point of view. could it lead to the tremors and

problems that went through the system 10 years ago, and what do we do about that? if you are in the position of being a markets regulator, we worry about integrity. it is not financial stability, but can we undermine the operation of markets, and what do we do about that? francine: we need to talk about neil woodford. tom: he had a bad week. sca do towhat can the oversee these funds? andrew: it is a good illustration of what we were talking about in terms of market integrity. the reason it was necessary and essential but there was a suspension of the fund was because otherwise, you could have had a disorderly process of investors exiting. that has restricted options, but i would counter that by saying the alternative would be more disorderly. time toates a period of

put in place a plan and a program that will solve that problem in as orderly away as possible. they will be watching closely and involved where re-think is necessary. francine: what does it tell you about the funds being invested? does it tell you about the broader industry? andrew: it tells you something that lies behind the more global situation, the nonbank world, liquid assets, and it should. it is much better that they are in the nonbank world. you have to come up with and understand a deal with the issues that can come up, and this is an illustration of how do you allow a fund that gets into that position where it has got liquid assets which people want to sell to exit? 10 years ago we were dealing with banks that were too big and

we do not want funds that are too big. .om: i have a delicate question there is a modest german bank having modest problems now. everyone in america would like to know the regulatory review of any german bank, do you have confidence that regulators in germany, in london, and the united states are looking over any given troubled bank? andrew: this has been a big focus of the postcrisis world, regulators around the world and major centers. it is a lot more intensive and thorough. we are watching very closely. nicely.got through that francine: i have a lot to ask you because you are here for libor. his libor or disruptive? -- is libor more disruptive? andrew: i think it is bigger

than mifid ii because it is globally,bor is used and it deals with a big legacy. mifid ii was more focused on the future. i think it is bigger. it is harder to compare it with brexit. that is apples and oranges, because brexit is an origin of financial issues. it has much bigger ramifications. take --: do you need to look into or put a review to protect investors that look into these ill liquid funds? andrew: we need to look very closely at that. there is always a balance. we need to have an economy in which there is investment in illiquid assets and how to do it to preserve the integrity of markets. francine: we need five hours with mr. andrew bailey.

thank you so much for coming on. edmund shing of bnp paribas is with us. looking at the equities and the market mispricing it. give me your top two things. edmund: i would say potentially u.k. equities -- u.k. assets in general. francine: undervalued or overvalued? edmund: undervalued. what markets dislike is uncertainty and anything to do with u.k. equities is uncertainty. uncertainty and risk are not the same thing in the long run. for long-term investors, there is an enormous amount of value in u.k. and -- in u.k. equities. tom: if someone has a bowl cast, risk on, is the value in value or tech stop growth? do you get back on growth or go with stodgy things like banks?

edmund: at this point, i would be very aggressive on value because value has underperformed in the u.s. and europe basically for 12, 13 straight years. unprecedented, but it is one of the longest stretches on performance of value against growth. after that massive underperformance, typically you have a massive rebound. tom: edmund shing of bnp paribas, not enough time, but we will have him back soon to talk about gamma and vega and freda. -- theta. francine: bloomberg will be live from the st. petersburg forum with oil managers and executives . you can catch that interview on bloomberg later on. we are continuing to follow president trump he arrives in

portsmouth. theresa may, 15 world leaders paying homage to the 75th anniversary of d-day. tom: fort smith is an island city, more dense than london, crammed into an island, and it has been that way since before king john when france would attack england. it is fortified and aggressively defended over many hundreds of years. it was the natural place to put a navy yard, to build boats, anduding nelson's boat now one from the queen victoria and age. francine: d-day, the largest combined air and naval operation in history. we were briefed by the prime minister who on friday will step down as head of the conservative party. she will use the occasion to

call for continued western unity in tackling what she calls a new and evolving security threat. tom: it will be interesting to see. president trump will attend with trump.trump -- mrs. the queen will speak with the veterans gathered. an important look at the markets through the morning, after the huge up move yesterday off the comments of chairman powell. one butmckee with not two important central-bank interviews later today. from our studios in london this remembrance of d-day, this is bloomberg. ♪

♪ tom: this morning, powell to the rescue. the chairman hints of rate cuts. offdow leaves 650 points

the doom and gloom bottom, yields grind ever lower. the president survived a tuesday of politics. a press conference with the prime minister, a phone call with boris, and regrets to mr. corbin. the young men of d-day, 1944. this is bloomberg "surveillance," i am tom keene francine lacqua in london on queen victoria street. stage the images of the where the world leaders will observe this remembrance of d-day in portsmouth. that is not the stage we were looking at moments ago, but these are people gathering in portsmouth. what is interesting will be a flyover of antique airplanes. francine: these are commemorations to mark the

allied invasion in northern france, after president trump had a series of political meetings in the u.k.. we are trying to see if some of the leaders, theresa may has been joined with 15 letters to commemorate desk leaders to commemorate -- leaders to commemorate the d-day landing. whether they will have time to talk about tariffs and trade. tom: i don't think they will. i think it'll be more about the history of the moment. the queen and others gathered with respect in portsmouth. viviana: president donald trump talked about iran, gun control, and british politics in a wide-ranging interview, saying there is always a chance of war with iran. he said he is considering a ban on gun silencers after last week's deadly shooting.

the president dishing out more praise for politicians who want to succeed theresa may. senate republicans are pushing back on his plan to impose tariffs on mexico. he scoffed at whether members of his own party would block his bill. kevin cramer says senate republicans are wary of tariffs. topfederal reserve's policymakers are not ready to cut interest rates, but trade tensions -- tensions are pushing them that way. the central bank is looking for signs the trade war could hurt the economy. richard clarida echoed those remarks. warns u.k., boris johnson the conservative party they face "extinction" if they do not deliver brexit. he is the front runner to

replace theresa may, telling lawmakers if brexit is delayed they will not be forgiven. 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. tom: thank you so much. , further lift to the markets equities, bonds, currencies, commodities. upures up 17, dow futures 151. that is an 800 point move by the market opening. vix showing a the stunning 16.73 off a near 20 level 24 hours ago. interest rates grinding lower. a negative .210.

francine: we have a very similar data check. we are aligned. stocks extending some of the gains, oil falling. peso, thet mexican real surprise in the markets was mexican peso with the tariffs. 19.53. tom: the queen is scheduled to speak in the next hour, but we need to find time for washington. kevin cirilli joins us in washington, our chief washington correspondent. when i noticed in the zeitgeist yesterday was republicans going off to -- after their president on mexican tariffs. are they dead? kevin: not yet, and republicans would like them killed. constituentsys her are directly impacted by the constituents in

the farming community have been pummeled by the weather. she would like to see the president back off on the threat of tariffs, and says there could be a situation where the president is trying to stir the pot to get democrats to bring usmca to a vote. whether it is republicans on on wallhill, or traders street as anthony scaramucci told me, there is deep skepticism of these tariffs running rampant in the republican party. tom: what does the president come back to? he will be at portsmouth and normandy, and good presidents travel abroad to japan. they have to come home. what is his biggest headache at joint base andrews? survival of the

republican party and uneasiness negotiating trade deals, multi-front trade war. from a domestic standpoint, i was speaking with a colleague yesterday. allie donaldson and former staffers at the white house are having to discuss with democrats on capitol hill about whether or not they will testify. from a border policy standpoint, the situation in iran is escalating and the president is going to be obviously working with his top military advisers on that situation. i have a note that the vice president, while the president is abroad, is meeting with a mexico delegation at the white house to talk about the tariffs. francine: we are looking at live pictures of portsmouth, where donald trump will join the queen , theresa may, and 15 world leaders to commemorate the 75th

anniversary of the d-day landing. how will it be perceived? kevin: there is a deep appreciation and sense of gratitude for the greatest generation and all the sacrifices they and their family made, not just americans, but u.s. allies around the world. the images of seeing all these world leaders together on one stage at one venue, they represent various different countries and various different political ideologies, but coming together to acknowledge the global force that the western world in particular can have for good. i think those positive images speak for themselves. francine: kevin cirilli, our chief washington correspondent. jay powell says the central bank is prepared to act to extend the tradeic expansion if impacts the economy.

you both for joining us. what does this tell us about treasuries going forward. max: we have had the 2.10 handle for quite a while and this confirms a low for longer picture. it says the data, even if they have been slightly stronger in the first quarter on the headline gdp data, that probably was an allusion because final domestic demand had not picked up in most countries. yesterday in the euro zone, it was a temporary spike because of package holiday, transitory factors. if you take these extra factors out, it tells me it is lower for longer. francine: we are cutting short tom keene's visit in time for the jobs report. how important is that number? >> the market attaches a great

deal of significance and it feels very vulnerable, so it will be important. the fed is trying to chew over whether there will be a worsening in trade position and if they will have to act. the u.s. looks relatively shocksble and negative could push the u.s. into something like an in cycle invent -- event, something like a recession. we will not see economic data truly react for 6, 8, nine months. these data are really a phony war. on the back of this year and next year we will see the economic data reacting to any slow down and the fed has to prejudge that. whenhow do they know the of getting back in the game? david: one of the most frequently asked questions at

the moment, which kept us cautious for risk assets across the board because most people have said, we are neutral already or even slightly underweight. we are looking to get in. there was little lost in terms of we are already neutral but we are concerned. we almost gotom: the correction. 810 points this morning dow futures were up. i am being whipsawed. what do you actually do with cash? max: over the next three to four months, the main driver for performance is carry. you kind of have a lack of upside catalysts given all the risk, but on the other hand we have pretty light positioning and sentiment is quite bearish. we will end up in three or four

months plus or -5%, which does equities, so you want to buy external emerging-market debt, carry assets. tom: the board that is up there with max kettner right now, we did the same board with david page, is back to normal. better and thex nasdaq up 2.7%. normality after what we saw from jerome powell yesterday. we have lots to talk about, including observing the remember -- remembrance in portsmouth. this is bloomberg. ♪

♪ viviana: this is bloomberg "surveillance." france says it will back the proposed merger of renault and fiat chrysler. fiat must offer the government guarantees on jobs, a board seat, and local headquarters. they made again today to consider. it's a be she is in talks to buy bombardier's aircraft program

but nothing has been decided yet. a deal could be announced in the middle of the month. producednal jets once the bulk of bombardier's revenue. melinda gates is speaking out against inequality in the u.s. she has teamed up with warren buffett to attack the problem, melinda gates speaking exclusively with david rubenstein. >> we believe we should not have this in equity that exists in the united states. we need to do something about that. philanthropy, with the government, with the private sector, that set of partnerships in that ecosystem can do the rest for the world. viviana: you can watch that interview tonight on "the david p.m. onin show" at 9:00

bloomberg tv. with us are max kettner and david page. we talked about the fed and possible repricing of treasuries. this is a chart that looks at fed fund futures. it shows the fed cut is gaining momentum in terms of odds. what happens if the fed does not cut? max: probably a little bit too cuts next year, none this year. the market has probably gotten ahead of itself. it has been driving the decline in yields has been almost having ofthe real yield -- halving the real yield. that is probably too much, given that we have not received a lot of economic data. the picture has not turned upside down and until we get

worse data, it might take another six to nine months. the market has gotten a little ahead of it. tom: on real yields, it is the new normal. retirees and savers garner a real yield? david: it will be sometime. the nominal yield will come ader more pressure, against backdrop where historically at the back end of a cycle you see inflation pick up. both factors are likely to move against the real yield. tom: is there an urgency to clear the market and get back to nominal yields and any kind of measurable real yield? david: i don't think so. the fed is worried about headwinds to the growth outlook, which are starting to mount up in the backdrop of trade. the market is telling us -- tom: you are telling me chairman

powell's speech was about donald trump and trade? david: yes. do the same extent you saw the government producing fiscal stimulus, you would expect them to adjust policy accordingly. they will adjust to the environment they are in. trade has second round effects on global economic activity which is dramatically tightening financial conditions. francine: thank you, both staying with us. do not miss our interview with the european commission vice president for social dialogue, valdis dombrovskis. he will have something to say about trade and euro. this is bloomberg. ♪

tom: good morning, everyone. the president in britain, the first day, a royal monday, political tuesday, and emotional wednesday. this is portsmouth on the bottom side of england. happened,ere it all the naval yard of napoleonic united kingdom. i read the history. i had no idea the number of times those people french attacked. evil french attacked.

francine: the countries being represented at the event will make a joint statement pledging to ensure the unimaginable horror of world war ii is not repeated. theresa may will host the largest -- commemorate the largest air, naval, and land operation in history. tom: mark champion joins us on this day of remembrance. on 75mmediate thoughts years on? think there has been a more poignant time for this kind of event, mainly because there has not been a more disorienting time politically. a lot of things that were simply givens in the past about the nato alliance, different

relationships between the u.k. u.s., a, france and the lot of these things are much more in question, and that has been on display during this state visit when you have what is normally sort of a routine event, a u.s. president always welcomed, and yet to see the friction with the opposition party. tom: within portsmouth and the ceremonies and here at the main podium with the queen and prince philip -- prince philip will be 98 in june. tell us about the british navy. andas portsmouth naval yard then you are down to a naval base. they brought shipbuilding up to scotland. tell us about portsmouth as a geography. obviouslysmith is -- it has an extremely long naval

history, very proud. it is also been economically -- tom: it has been an economic struggle. been a struggle and yes, there is the issue of some of the shipbuilding went as it went in much of the western world. some of it went to scotland at the time and at various times when there is a discussion of scottish independence and the second vote if that should happen, you might see that coming back. francine: if you look at the u.k. and its allies, how have the allies changed? if you look at what is happening at the moment with the trade wars, this is very unsettling. to quiteking recently a well european official and they were saying you cannot

underestimate what kind of a shock the mexican case in particular has been here, because it is outside the normal rules of trade disputes. it has nothing to do with the u.s. response to a trade issue. it is a political issue, which is outside the wto. the e.u. is watching quite closely. francine: we just had a hot headline from the bloomberg terminal, the e.u. triggering a disciplinary process with italy over its public debt. the economic situation in italy has moved on, so we will look at the implications for btp's. ♪

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2.57%. still with us are max kettner and david page. we need to look at the spreads between the italian and german yields. how difficult is this if you are looking for yields and you are an investor? you have a 2.5, not bad, but you don't know what happens next. max: i am already getting bearish. on a serious note, what we see now and we have just looked at the btp-bund spread on the 10 year, essentially nothing is happened over the last six to nine months, and people more broadly in europe are saying onope is so bummed out credit and equity, there has to be a rebound. spreads, there has not been panic.

there has not been a panic move yet, so there is scope for more bearishness. francine: the longer-term spread between italian and german yields. is this setting up for a clash with the government in rome, and could rome say, we disagree and we will go at it alone? max: that is the speculation you face when you engage in ten-year btp traits. what we have seen in duration moves over the last six months in btp's in spain and portugal, there has been such a dramatic rally. positioning along the curve is more attractive because gauging that speculation, what kind of way it could come, is really impossible. perspective,tment it is probably most attractive to say, i will buy 10 year btp's because they are up five basis points. tom: our bloomberg story on this

to give you the historic moment, the commission's move is one step in a complicated process but has the process just begun? a lot of people have waited a lot of time for the european commission to put italy in the timeout chair. france,fense is, greece, portugal are also in the timeout chair with us. is that what is happening? david: italy was the fiscal storm we heard about last year that pushed the economy into recession and hit the growth numbers which are feeding into the forecast. we are seeing the cyclical deterioration rather than structural deterioration but underlying that, the coalition government's that they do want the structural deterioration. tom: well europe inflict austerity -- force austerity

upon italy? david: it is unlikely, but they crampramp the stimulus -- the stimulus they would like to do. you are seeing the european budget commission looking down and trying to retain control. valdis dombrovskis saying italy has not complied with its debt criterion and extensive debt procedure is warranted for italy. the recent measures damaged public finance. we do not know whether this coalition can hold. is this what brings it over the edge? i want to control and get out of the five-star movement? max: that is something you will have to accept if you engage in those trades, political risk premium. from an investment standpoint,

if i think that is something where investors have become too complacent over the last six months, and it shows how some investors have been desperate and overly keen on trying to be the first ones in the long europe trade. it really tells you with this resurrection of risk, political and growth and structural, even risks,surfacing of those these kinds of trades have gone too far on the periphery. tom: what is the approximate to do for the government of italy? bonds have moved. rovskis headlines are shocking. how does italy respond? max: to go back to the commission -- david: to go back to the commission and discuss

the cyclical nature of this. toneugh the commission's drive markets, the italian government drives the market. if you see the spreads pushing higher, with all of the concessions for italian banks and lending, that will be something that if anything restrains the italian government above talks with the commission. francine: the european union's executive arm took the first step in this disciplinary action against italy over failure to rein in its debt. this could pave the way for the initial penalty of as much as 3.5 billion euros. do not miss our discussion with the european commissioner valdis dombrovskis. we will also be speaking to the commissioner of financial affairs, one of the key players

in the fight against italy. viviana: u.s. senators are said to rebuke donald trump over his move to sell weapons to the saudi -- to saudi arabia and the uae. a bipartisan group of senators 22 resolutions of disapproval. trade tensions between the u.s. and china are escalating, beijing finding ford -- finding main business's for antitrust. ford says they respect the chinese decision. china was investigating fedex for what they call wrongful deliveries. the world bank is cutting growth forecasts for the year. the world economy will grow two -- 2.6%, down from 2.9%

percent, down from 2.9% in january. it is forecasting a drop in investment. 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: thank you so much. oftain have a new the end july with the first round of voting. tom: or so they say. francine: boris johnson, the frontrunner says the party has to stop banging on about brexit and the conservative party will face extinction if they do not deadline.exit by the joining us from new york on how the tories choose their

leadership, what did we learn from boris johnson? he is the front runner and if history is anything to go by, he may not get it. he said he will do anything to deliver brexit asap no matter what kind of brexit. therese: we can divide the group of leadership candidates into two broad baskets. one are those saying they would be happy to leave without a deal . boris johnson is one. others will avoid no deal at all cost. the pitch to conservative party members is that he will be the one to sell whatever it is he thinks will get them over the line to brexit, to the broader public. willrvative party members not deliver an election victory and will not be enough to deliver brexit in parliament. johnson's pitch is he has a

broader appeal, and that remains in question. many people have formed their opinions of boris johnson. he has a big sell job to do. tom: i can tell he is in the process of selling. what will mr. johnson actually do in selling? does he sell to the members of parliament? does he sell to conservatives? therese: if we look at brexit as this sort of rickety bridge over a ravine on october 31, johnson is not even at that ridge. he says, and i get to that bridge, i will figure out a way over it. he is selling to the hard-core members, and that is a pretty easy so, depending on who is running -- cell, who

is running against him. if ed is michael gove, that might be a bit harder. it is not a shoo-in and we have a history that suggests the frontrunner does not win. tom: who votes for him? all of england does not vote for him. do conservative party members vote for him? therese: it is quite a small membership. 124,000, put it at smaller than the labour party. he has got to get to the final two in parliament. that is the bigger hurdle. than those 124,000 will decide between two candidates. then the big job happens after that way he tries to sell whatever it is he wants on brexit to parliament and the rest of the country. francine: it is british democracy at its best. we will have the tory

parliamentarians -- it is like a contest talent and they will finally be left with two when it goes to the bank -- based. is that fun? we can have updates from london. tom: my head is spinning. i was reading about charles the second crowned in portsmouth and i was like, why? francine: we will brief you again on brexit. tom: the second place i need to see. francine: it is a date. and max kettner stay with us. bloomberg will be live from the st. petersburg forum with anne moderating. you can catch that on bloomberg tv friday. this is bloomberg. ♪

♪ done, and we to be withto accelerate progress the deadline for when libor is supported, 2021. with that in mind, we were keen to get more senior engagement. >> it is bigger because it involves a lot of market, it is global, and it involves dealing with a big legacy. francine: some of our conversations with david ramsden and andrew bailey in the last hour. let's go to your single best

chart. tom: looking at the equity markets. now going to say this right -- hsbc has been the hottest bank out there. your equity guys in new york nailed a double-digit return in the gloom of december. a guy named steven major. you guys have the advantage of your equity and bond teams. what is to do on the single best chart? it is where we are with the dow jones industrial average, we did not get to correction and we bounced up with a vengeance. no bear market. what is there to do now? max: if i had a clean sheet of paper, i would have the choice between running a simple 60/40 portfolio and what would be my

deviation, i would inclined to say 40/60 but still err on the side of caution. we are faced with a lack of upside catalysts on the earnings side and the equity side we have full valuations. i cannot see 10% plus gains from here. that is the thing about trade. we put out a provocation about five weeks ago and one of the first macro variables was trade. five weeks ago, people were saying, you are only looking at trade and the facts on trade and export growth and the disparity and disconnect with markets and pricing, in particular equities versus bonds. i said, there is a whole array of other factors and in the last two to three weeks, we are pretending it is all about trade. it is not only all about trade.

-- a is a real disarray real array of disconnects among credit impulses and monetary policies in china, activity surprises, data surprises, pmi, and trade being one of them. a whole disconnect with what markets have been pricing until the couple weeks ago and what data have been doing. if i had a clean sheet of paper, it would be 40/60 rather than 60/40. francine: how does that cross into your world? david: we would echo those views. the global economy as fragile. the u.s. economy is not bad. we have seen this deceleration come through from china which have spillover effects into the u.s. and euro zone. now we are seeing a significant

stimulus from china, toasts -- so to go to the access point, there are signs china is returning and there is a spillover the other way into financial conditions and the u.s. and you get this trade shock at a point where the global economy , given the deceleration, the u.s. economy is more vulnerable and this is the tipping point. we have done our comparable dynamics of what this does to gdp, but it is not linear and you can get quite sharp movement. tom: the president of the united states in portsmouth, england. religion,ublic, our and our celebration, and to set free a suffering humanity. blessings,ead thy for the enemy is strong. , buty hurl back our forces

we shall return again and again. we know that by thy grace and by the riches of our cause, our sons will triumph. some will never return. embrace these, father, and receive them, the heroic servants into thy kingdom. faith, give give us us faith in the, faith in our and, faith in each other, faith in our united crusade. thy will be done, almighty god. amen. ♪ gathered for a remembrance in portsmouth, england, the president, the queen and prince philip, and world leaders. we saw mr. trudeau come out with a short remembrance and

president trump speaking the words of fdr that we saw in 1944. it is choreographed but there is nothing choreographed about a clock ticking on a generation of 90-year-olds. francine: what we know as president trump and his wife participated in a meet and greet with her majesty with d-day veterans. in about an hour and a half, they will bid farewell to the final her majesty, the day of his state visit to the u.k. tom: we will continue to follow the events in portsmouth. this is bloomberg. ♪

♪ francine: this is bloomberg "surveillance," francine lacqua in london. coming up, we speak with federal reserve president robert kaplan and charles evans. joining us is michael mckee. he will be conducting both

interviews. it is all about inflation. what will you ask about rate cuts? ishael: what we want to know did jay powell consult with them and are they really opening the door to rate cuts? that is the message wall street took away from powell's comments in chicago, but how close are they to cutting rates? do they really want to do that or are they just buying time as they try to figure out what is going on with the tariffs and trade wars? francine: how important is the jobs report on friday? michael: a little less important. there is the expectation of a strong jobs report in the labor market does not show any signs -- the jobless claims indicator is small. one thing that will complicate looking at the jobs report over the next couple of months is the

next year is a census year so the census will hire part-time workers that will show up on the payroll. you might get a high number, but it will not be quite that many. francine: how does the fed look at the trade war and the tariffs? they probably do not openly talk about it, but do we have insight on how they measure it? michael: they look at what the tariff impact would be in terms of what consumers or producers will have to spend to meet the tariffs. the next round is harder to calculate, the effect on the stock market and how that spills over into spending in the united states. what is the impact on business confidence? if we get mexico tariffs, that could have a major impact on supply chains, many times products going back and forth for being sold as major -- final

products. if they can reach some kind of deal, or how quickly they can come up the feeling is the fed will watch and wait as long as it can because it cannot get a handle on things will develop. if you have a tariff war, it should be inflationary. if it is a one time thing, they may look past it. michael mckee, our bloomberg international economics and policy correspondent. he sits down with two fed presidents, robert kaplan and charles evans. this is bloomberg. ♪

♪ alix: powell put live in well.

says theyjay powell will react appropriately to expansion. the market debates timing. equities surge, yields pop, dollar drops. did powell really light a fire under the market? in the imf lowers its china gdp outlook as trade is a wild and linchpin for growth. we will speak to peter navarro later in the next two hours. david: welcome to "bloomberg daybreak." i'm david westin, here with alix steel. president macron is speaking on the 75thmoration of anniversary of the d-day invasion's. alix: then president trump heads to ireland later on today. he's going to have a