francine: room to maneuver, the pboc governor tells bloomberg that china has more tools to fight. and vice president mike pence warns mexico tariffs are coming, talks continue today. and the road to recovery, crude extends a rally. we have been speaking to industry leaders in st. petersburg. good morning, everyone. welcome to "bloomberg surveillance." these are your markets, i am

looking at the stoxx 600 gaining 0.6%. the treasuries are pretty much unchanged. a lot of the focus is on renminbi. we are trying to figure out if it touches a seven. -- touches a seven. seven.hes and what that means for trade talks. with our life in japan ahead of the g20 finance ministers meeting. the australian treasury minister joins us this hour. and tonight, the latest episode of "leaders with lacqua" airs. make sure you catch that interview. but first, let's get straight to bloomberg first word news in new york city. >> a solid outlook for the u.s. economy, but risks are mounting. that is according to the new york fred president -- a fed

president-- fed president. williams reinforces the flexibility and openness of the fed, echoing remarks from the vice-chairman earlier in the week. >> we are getting a lot of mixed signals from financial markets, -- businesst investment is weakening. us is justortant for to keep an open mind, keep being data dependent. ecb president mario draghi is heartening his language as he says the central bank will not shy away from action. he says policymakers are determined to ask amidst a prolonged period of uncertainty. banks haveseveral started a quantitative easing program. oil is extending its recovery from a five-month low on reports

the u.s. may engage more with its trade foes. it has eased fears of slumping accrued demands-- clude demands. theming in st. petersburg a the russian energy minister has said uncertainty has intensified. >> them a after the announcement of the , the currentons price dropped by $10 per barrel. so we cannot tell you what the crude price will be tomorrow. >> the uk's labour party has successfully defended a seat, dampening the momentum of nigel farage is a brexit party. the movement was the bookmakers favorite to win the constituency. today, theresa may officially steps down as leader of the conservative party, kickstarting

the race to replace her. the new prime minister should be chosen the week of july 22. and there will be no more tall tales in the nba, the league is looking into ways all of their players are exactly as tall or as short as they claim to be. fudged their own hides numbers to give themselves an advantage, but the expansion of legalized sports betting is putting pressure on major league's to make sure all player data is accurate. 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, back to you. francine: now, let's bring you our exclusive interview with the governor of the pboc. he told bloomberg that china has tremendous room in monetary policy if the trade war deepens. says the central bank

has leeway to move on the reserve rate ratio and has other policies in their toolkit. he spoke to tom mackenzie in beijing. this point, we have come up with some idea of overcoming the tremendous difficult the ahead of us. we do not like a trade war. we hope that we can solve our differences through mutually respectful negotiations. tom: speaking of negotiations, you'll be headed to the g20 and a meeting with the u.s. secretary of treasury steve mnuchin, having a discussion. is that an opportunity to get talks back on track question -- on track? gang: yes, i will meet mnuchin

in japan. we are going to talk global economy, of course, and also g20 issues. but also, we will discuss the are commonly interesting to both sides. it will be a productive talk, as always. francine: you mentioned the tariffs, what impact have they had? gang: the tariffs, to me, is a bad idea. i am an economist. as an economist, for years, i my students that comparative advantage and trade is beneficial for both sides. are really a

double-edged soared. it-- sword. it is hurting the chinese and american economy, especially consumers. tom: turning to the chinese economy, the manufacturing data has all been weaker. what is your assessment of the current state of the chinese economy? i think the current state of the chinese economy, for the first quarter, was a little better than expected. , the trade war expectations have turned negative and gloomy. but still, the chinese economy is resilient. but some things are still very robust. domestic consumption is still the main driver of your economy.

export.stment is a flat i think that in terms of a total assessment of the chinese innovation part of the economy is very active. plus, they have a proactive fiscal policy. and prudent monetary policy. what does all of that mean for the yuan? ang: the trade war would have temporarily depreciation pressure on the renminbi. noise, thehe renminbi will continue to be stable and relatively strong, compared to emerging-market currencies, even compared to convertible currencies. i am very confident that we will be able to be stable.

at more or less equilibrium levels. francine: that was the pboc governor aegon -- yi gang speaking to tom mackenzie. we saw the yuan touching weakest levels since 2008, so we are keeping a close eye on this. a lot of watchers say that if it doesn't touch a seven, this will willes touch seven, it further strain relationships. president trump plans to place tariffs on mexico next week as officials plan further talks. pence says he was encouraged by progress, but that more has to be done. let's go to kathleen hays who is in japan ahead of the ministers meeting. you also have an important guest with the. -- with you. >> i certainly do, the

secretary-general of the oecd. so methinks talk about -- so many things to talk about. wrinkles isatest tariffs being weaponize. not to get a result with a trade end, but to fulfill another , to make changes on immigration. how bad has this trade war gotten with this latest step in how bad is it going to get? hast is gotten very that -- -- it has gotten very that. -- very bad. practically, one year ago we were forecasting almost 4% growth in 2019 and 2020. 3.2.we are down to

2.6, so theyk says are even more pessimistic. and what was the difference? the trade event, the trade tensions, whatever you call them. it has created uncertainty. uncertainty is the enemy of growth. uncertainty means trade stops growing. why do you invest? you invest to produce, you produce to sell. but if you do not know if you can sell, if you do not know at what terrorists you cannot access -- you can access a market, or if you can access the market all, then you don't invest. you hold back, and when you hold back, the rate of growth drops. >> it looks like central banks are not going to hold back. suddenly, they are normalizing.

even six months ago there were looking at cutting rates, dragged into the trade war unwillingly, sometimes. supply the trade war chain uncertainty really be solved by central banks? the banks are heroes, they got us out of the 2008 ms. mess.thout -- without them, we would be in worse shape. but can the central banks, having exhausted a large part of their arsenal, get us out of this generalized slowdown? well, they can do something. cuts,d is talking about rather than the next type. -- next hike. and the european central banks have said they will stay level until june of 2020. but the question is how much do

they still have? , particularlyts those silver bullets, do they still have. fundamentalsly the and that has to do with the field of trade. and as you said, not weaponizing them for other purposes. >> a two-part question on taxation. first of all, transparency work over the years, that tax regulation has netted some pretty good results. when hundred 20 jurisdictions today are changing information automatically -- exchanging information automatically. it means you have a foreign person creating an account in any of these jurisdictions and immediately it is reported to authorities.

nowhere to hide. euros or $110 billion have already been collected. 47 million accounts worth $4.9 trillion have already been identified. it is massive. nowhere to hide, big change. >> got to go to the but one final question -- to go, but one final question. your next project is taxing the digital economy. what will you be talking about at the g20? >> we will be talking about the program, which is already approved by different committees. basically, it is working from now until the end of 2020 so and the multinationals growing digitalization in the

abouty -- it is not just whatever you call them, it is about the growing digitalization of the economy which is now escaping the tax man's power. everybody should be paying their fair share. we are looking, and for that, you need a consensus and you need everybody to have the same criteria. >> i know japan is on your side. good luck to you, sir. we will see a lot of you over the next couple of days. angel gurria, secretary general of the oecd. we are starting off our own most two and a half days of g20 meetings here, back to you, francine. francine: kathleen hays in fukuoka. speak to the russian energy minister live from st. petersburg. don't miss that interview at 3 p.m. london time. this is bloomberg.

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pence: at this point about the tariffs will be imposed on monday, we have made that very clear. discussions are going to continue in the days ahead. francine: that was the u.s. vice president mike pence talking tariffs on mexico. ,oining us is lucy macdonald chief investment officer of global equities at allianz. at the global markets, treasury yields are lower. how do you make sense of all of this?

-- in an a a deflationary environment, in risk of a recession? lucy: i would say we are not in danger of a recession, but the trade war is having a negative impact on demand, no question. the question for us is how are companies going to be affected? , not justhole relative to each other. time for companies which have been telling us how agile they are to demonstrate that. to do that in the ways they are dealing with pricing, the supply chains, and the investment decisions about where they will locate capex. these are the discussions we are having. they are needing to show quite a lot of flexibility in the way

that they work. francine: is there a danger that the chief executive officer actually stops spending. cliff andls off a trouble starts in a few years. lucy: there is definitely a risk that that is the case. it is clearly a risk. francine: what does it mean to where you look at your portfolio? have you find a company that strikes a good balance? lucy: it is difficult to find companies that are completely affected it is very pervasive, and clearly becoming more pervasive. it is a question of looking at one by one. then taking a view at the uncertainties that are there for everybody. francine: lucy, thanks so much. lucy from allianz stays with us. coming up, we speak to the

russian energy minister at 3 p.m. london time. don't miss that interview. this is bloomberg. ♪

francine: this is "bloomberg surveillance." president trump says he will decide on new tariffs on china at the g20 meeting in japan. he is expected to meet president xi jinping for weighing additional duties. still with us is lisa mcdonald from allianz global investment. you're telling me that because the environment is more

difficult, not necessarily a bad thing, how do you look at china? is there a worry that china goes into a recessionary environment and affects whole industries? lucy: the impact of china is much larger than its position within the industries would suggest because of the number of multinational companies that have been driving growth from their. -- from there. so that is the issue. how those companies are being affected, how their supplies are being affected -- supply chains are being affected. and there is slower demand and more uncertainty. francine: lucy, i need to cut you in. >> dollars of investment in russia. many of those have already taken place.

there is a broader range of investments in russia, but there are also russian companies that are looking to invest in saudi arabia. one is looking to invest in the robbers and elastic's plans, it will cost billions. there are other oil services companies which have done a fantastic job in russia in bringing the cost down and refreshing companies. we are in discussions with a number of them to become service providers for saudi aramco and our oil sector. and permits the news that came to address the regional markets. like theret sounds is political will to have an opec agreement. is that when you are expecting to do in vienna? absolutely. i don't think the question is if

we will extend or not. the question is at what level? the next four weeks, we will continue to calibrate those numbers and consult with our colleagues. from non-opec, primarily. i am not telling you a secret that the rollover is almost in bag.ad -- the there needs to be an adjustment from the first half. annmarie: how much more could they cut? >> i think they will wait and see. i don't think there will be a need to deepen the cut, but whether we scale it back will depend on what happens in iran, venezuela, other countries that are maybe facing other difficulties.

i think it will be an easy decision and we will roll over, but i think we will be flexible. they will drive inventories down and we have made it clear we would like to do that collectively. we have been working collectively but we are going the extra mile and intend to the same. thank you very much. that was the saudi oil minister speaking to annmarie hordern on the ground in st. petersburg, saying that they are in almost full alignment with russia. saying that they are seeing a consensus emerging that they need to continue supply management. that is the latest from st. petersburg, let's look at the impact this could have not only on the oil industry, but on inflation expectations and therefore equities in general. but get back to lucy macdonald from allianz global investors.

we were just listening to the saudi oil minister, saying there is consensus with russia. this foreignn policy alignment is here to stay? -- tooe don't spend some much time for testing oil prices. they are what they are -- forecasting oil prices, they are what they are. but they can clearly increase the volatility of inflation. but over long-term, wages are the biggest driver. that is what will happen with inflation, and more recently, tariffs. at the moment, there is a little more wage inflation in the system, but it is still relatively muted compared to where unemployment levels are. withis partly to do automation.

that gives more scope to the central banks to do what they are doing. francine: are you invested in oil majors? lucy: for most portfolios, there is not an industry that we think has got significant returns or great profits. tom: what do you -- francine: what do you have to get right when looking at your investment strategy, and is oil demand a good indicator? lucy: it is secondary, but it is an indicator. everything points in the direction that there has been a weakening. francine: do you find value in european stocks? lucy: yes, more than elsewhere. they have been derated because logical. completely within u.k. there is value. within china related, trade

related there is apparent value in the auto sector but i think that is generally always the case. industrials with more exposure to china are looking more interesting. francine: thank you so much, lucy macdonald stays with us. finance ministers from central bank countries meet this weekend. policymakers will meet against the background of a dovish tilt across the globe. while mexico and the u.s. will be there, the u.s. has threatened to impose 5% tariffs. chinese officials will be present. italy and japan will be in the same room, presenting a rare opportunity to discuss the fiat t deal.-- renaul

kathleen: we have the treasurer of australia joining us. theratulations on incredible victory. >> it was great to be on the others of that. it was hard-fought. kathleen: you have got some big challenges hanging over the country, lots of great things have happened. australia is the most china dependent advanced country in the world. nearly one third of your exports go to china. aw concerned are you about trade war that has taken itself to a whole other level? josh: china is a critical trading partner. two-way trade is over $150 billion. we signed a treaty -- a free-trade agreement years ago which has seen our exports

increased substantially. for us, the relationship with china as a trading partner is absolutely critically important, and we want those differences between the united states and china to be resolved amicably, because we believe that free-trade leads to more jobs being created and higher living standards. kathleen: a trade war hurts the economy. it is not just the direct damage but the indirect damage, i am not going to invest or hire workers because i don't know what will happen next. how concerned are you about the damage it made do? the escalating trade tensions have weighed on the global economic outlook and you have seen the imf and oecd downgrade the outlook. we are confident china and the u.s. will continue to be strong economic partners for australia. the united states is our number

one investor. r.b.i. set its key rate. your job is thinking big picture. they are getting closer to zero with every rate cut. a lot of central banks have run out of gas. are you worried the rate cuts will not be enough? ish: monetary policy important and what we are seeing in australia is not different from global banks. they can provide a rate cut without creating concerns around inflation, and that is a relatively new phenomenon because traditionally full employment has been around 5% and now it probably has a 4% in front of it. we have an economic plan outlined in the budget to continue to grow the o's

trillion economy. 28 consecutive year of economic growth, a remarkable run that we will continue, as well as having our aaa credit rating from the three leading agencies. one of the key parts of your platform was promising the australian people a budget surplus, but if the trade war continues, of monetary policy does not have the bang for the buck at once did, do you have to look at that pledge to have a surplus and consider more spending that might push you into a deficit? was 150at we announced $8 billion worth of tax cuts, significant tax relief focusing on loewen middle income earners, as well as tax incentives for small and medium-sized enterprises to grow their business. we are spending $100 billion on infrastructure.

linkedivity infrastructure projects whether it is roads, rail, or other forms of infrastructure, we are investing. we are creating new apprentices. we have a plan to grow the economy without increasing taxes , while delivering a surplus. kathleen: the aussie dollar is down about 25%. do you expect it to give it a boost? josh: i do not comment on the day-to-day movements of the australian dollar but obviously the lower the dollar, the better for our exports. kathleen: one more thing i want to ask you about is the fact that australia followed the you yes -- u.s. in banning huawei. given the importance of your trade relationship with china, is there a point where the cost of that kind of move outweighs the benefits, particularly if the chinese decide they want to signal to tourists they should

not go to australia for their vacation. are you concerned? josh: we have seen over one million tourists from china come in record numbers to australia and a record number of chinese students in australia. we welcome that. are trading relationship has been strong and growing as a result, so we will maintain a positive and mutually beneficial relationship with china as well as with the united states. kathleen: no concerns about huawei? josh: we take our concerns based on national interest, but we continue to work closely and effectively with china. kathleen: you have a good two days at the g20 meeting. think you for joining us. -- thank you for joining us. josh: all the best. francine: coming up on bloomberg , we speak to alexander novak,

the russian energy minister live from st. petersburg. this is bloomberg. ♪

♪ this is bloomberg "surveillance," in francine lacqua. here is viviana hurtado. viviana: china has tremendous room to adjust monetary policy if the trade war gets worst, according to the governor of the pboc. in an exclusive interview, he said they have plenty of room in moving interest rates. he hopes talks with the u.s. get

back on track, but the topic of the trade war is "uncertain and difficult." >> i think at this point they have to come up with some idea of overcoming the tremendous difficulty ahead of us. we do not like a trade war. solve ourt we can differences through mutually respectable negotiation. is recovering after a five-month low on reports that the u.s. may engage more with trade photos. petersburg the st. international forum, the shell chief executive said price volatility does not suit anyone. byi think nobody is served the sort of volatility we are

seeing today. it is not sensible, not helpful. i do think one fundamentals reassert themselves, they will do so above the current levels. viviana: 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. the latest episode of "leaders " airsook while" -- lacqua tonight. there is a significant amount of uncertainty on the u.k. economy. the u.k. economy has been proving to be very resilient, although the uncertainty, if it continues, might affect it.

uncertainty is something that markets and the economy do not like, so it is important that uncertainty disappears. the economy is resilient. gdp is growing between 1% and 1.5%. employment levels are at the highest level ever since we have had statistics and unemployment is the lowest since 1975. we have low interest rates and the quality of assets is high. the world economy is growing at a slower pace, but still growing around 3.3% this year, which is a healthy pace. you have good conditions for economic growth to continue, but you have uncertainty areas. another is trade between the u.s. and china, and the u.s. and other regions, which is important to address. i would classify the economy as resilient with good

fundamentals, but important areas of uncertainty which as an expected outcome should go reasonably well, but might not go as well. francine: how do you deal with a political party, one of the major political parties in the u.k. that has taken a turn for the left and that could impose transactions. tough environment to be a central banker in? antonio: i don't think my position is influenced by politics. we have dealt in the past with all governments, present and future. our goal is to serve our clients in the best way and interact with regulators, politicians, and other stakeholders, irrespective of which party they belong to. we have a common goal. one of the additional beauties of large strategy being focused in the u.k. and on the real economy in the u.k. is what we

want is the best for the u.k. economy. what is best for the u.k. economy is best for lloyd's, and vice versa. it is really good in terms of our interaction with the u.k. side in general. francine: you can watch the full episode at 7:00 p.m. london time tonight. still with us is lucy macdonald from allie youngs -- allianz. what worries you most about italy? the big issue is about trade and the impact of the trade war's on exports, because -- sectors inhe europe are open and driven by exports. that has been driving negative revisions to growth and profit. when you look at the more domestic driven, that has been

pretty stable. the liquidity environment, interest rates still very low. that is pretty stable, but trade more than uncertainty necessary for the larger markets. francine: what would you do in the u.k.? lucy: the difference between the u.k. and global has spread out. areal type companies cheaper than their peers and domestic driven companies are much cheaper. double terrors of -- the yen cords -- on forecast castableerrors -- fore terrors are there things will remain cheap. francine: where do you look in

the u.k. to find value? lucy: the value is there, it is a question of whether you want to take a deal. francine: i have not asked about emerging markets. do you still like them? lucy: china is the biggest and will be driving everything. we have talked about the impact from there. most of the other emerging markets are more driven by commodity prices. there are some pockets of interest which are less effective, and that is india. india has managed to power through with pretty idiosyncratic risks. francine: lycee mcdonald, chief exec -- lucy macdonald. talk theing to business of fashion with the editor in chief of british gq. that is next. this is bloomberg. ♪

♪ economics, finance,

politics, this is bloomberg "surveillance." with london fashion week for men kicking off tomorrow, let's discuss the business of fashion. the market for menswear is set 2023 asmore than 15% by it continues to outperform womenswear. my next guest is the women's fashion -- men's fashion council -- he is a best-selling author of 20 books. i don't know how he finds the time. on subjects from fashion to photography and one on the former prime minister david cameron. i kind of want to ask about david cameron but i shall not. talk about men's luxury, men's fashion. it comes from a lower base, but the numbers are huge. terrific and it grows around 5% each year. we are at about 16 billion now in the u.k.

it is a strong part of the market. it comes from a slightly lower base in womenswear, but the growth is more acute. francine: who is buying it? how do you break it down on who the big customers are? dylan: we have a lot of international customers and not fluctuates according to the pound. international customers in russia, china, and america, and there is a generational shift. a lot of young guys expect to have a huge amount of variety when they are walking down the high street. you have got a lot of activity at both ends of the market, chair and younger. francine: does british fashion xo in menswear? well -- in men's menswear? dylan: it is huge.

men's fashion week starts today. over 70four days and shows, presentations, events, parties, dinners, what have you. we have got visitors from 40 different countries. we have fashion designers from korea, china, mainly from the u.k., that it is a fantastic platform for young british creativity. francine: are there as many brands in menswear as womenswear? dylan: i would say there is more because it is a sexy world to be in. francine: because of growth? dylan: and because of huge opportunities. mature market. men are as sophisticated as women when it comes to their purchasing. francine: i imagine it is impacted by the way we dress at work.

our people now less stuffy than they used to be and so can buy more different types of clothes, or am i making that up? dylan: that is a smart observation. you still have a lot of people who by a lot of suits, and that is great for our industry -- buy a lot of suits, and that is great for our industry, but there is a lot of diversity. is lots of changes going on. it is all good because it creates interest in our sector. francine: my coanchor who has a bowtie was allowed in. dylan: he should not be allowed in any way. francine: when you look at the challenges some of these menswear companies have, i imagine it is the same, access to talent. how much do they think about how the businesses operate, supply chains?

talk about trade wars and brexit. dylan: everyone is concerned about no deal. a lot of companies have a lot of stock in equity here, and smaller companies, and their margins are very different. when you have the possibility of restraint of trade, the fact that you can't move people and goods with as much ease as you once could come at that is going to be difficult. plus, it is compounded by this huge insecurity and worry about what will happen because nobody actually knows. francine: do politicians where ties are not? dylan: i want politicians to sort out brexit. i don't care what they wear. francine: is it the language of talking to the people? dylan: there are two instances. in terms of talking to the people, yes, i think there should be a second referendum. vacuum ofbeen such a intellectual firepower at the

moment. you can see everyone when he comes on your show is probably saying the same thing. francine: dylan jones with the british fashion council. bloomberg surveillance continues in the next hour. tom keene joins me in new york. when timor from st. petersburg, and it is u.s. jobs day -- plenty more from saint petersburg, and it is u.s. jobs day. we spoke to the pboc government in china. they say china has a lot of policy room if the trade war deepens. this is bloomberg. ♪

francine: room to maneuver.

the pboc governor says china has more tools to fight a trade war. vice president pence warns coming.tariffs are and we have been speaking to industry divisions at the st. petersburg economic forum. good morning, everybody. good afternoon if you're watching from asia or london. tom keene back here in new york. you are age trooper, here look at the jobs report and trade talks. joseph wharton made more important, the linkage, fra ncine, -- the jobs report made more important, the linkage, francine, between the pboc, made unusual over the last year. francine: you are 100% right. forecasts that expected.worse than

for those in new york city, it looks like a rainbow, because you have many different people in the -- colors in the sky. let's get to sebastian fraley. miketian: vice president pence worth the u.s. plans to impose a 5% duty on mexican goods next week. president trump has threatened to impose tariffs to get them to do something about immigration. tremendous room to adjust military policy is the trade war orse.the u.s. gets w yi gang spoke to bloomberg and said that they cut both ways. are really affs double-edged sword. it is hurting the chinese economy. it is also hurting the u.s. economy, and the u.s. consumer. sebastian: germany's

second-biggest bank says ields the lowest in years. in the, the labor party -- labour party was dealt a setback. nigel farage and made the brexit parties a favorite. it still has yet to win his first seat in the house of commons. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. and thisstian salek, is bloomberg cured francine, tom? -- is bloomberg. francine, tom. tom: thanks. equities, bonds, currencies, commodities. left about where they have been, the vix showing a zooming equity markets, 2.55. mexican peso up 4.

in the yield structure, francine, in europe all of draghi, i love what katie martin said in the "ft," there was no bazooka, it was more small-caliber. they evaporate to new lows this morning. francine: yeah. we have a couple of opinion visas, tom, on the bloomberg terminal, one saying draghi is no longer taking it seriously. tom: well said. francine: european softserve kind of on the list. they are looking at trade. we are also looking at the renminbi and what it means for the china trade relationship, $53.3 for american oil. the first responder as the will economy went into trouble.

many governors have decidedly turned dovish this week. so we asked, "mirror, mirror, on the wall, who is the dovishest of them all?" 1.2 5%, the r.b.i. lower, the key party rate, and european central bank, as we were just saying, extending its plan to keep interest rates at a record low. mario draghi said the ecb will not shy away from action to support the economy. finally, federal reserve chairman jay powell signaled it is necessary, a common theme far from an actual positive chan ge. here is what a few key people have to say. >> it is fair to say we have undone easing bias. >> the tariffs are affecting the entire nation. >> the risk surrounding the euro group outlook remains on the

downside. >> we are going to be very vigilant about understanding the us hide trade tensions. >> we think this option of production as possible. >> several members raise the possibility of further rate cuts. >> a few have been talking about rate cuts so much, the rate cut gets into your system. we couldeased now, help reset our inflation expectations of the 2% target. >> central banks across the world have moved to an accommodative stance in setting economic policy. >> it is the time to act and case of contingencies. >> we will act as appropriate to sustain the expansion with a strong labor market and inflation near our symmetric to present objective. francine: well, we are now daniel morris, bnp paribas asset management senior strategists, as a global head of fx energy. thank you both for joining us.

yuanhe key levels, the at 7, could be a game changer, because it suddenly ratchets up trade tensions. daniel: we are not looking for sustained weakness in the yuan, which would be the bigger trigger. you're right, if i were to happen, it would signal things are going a lot worse in the relationship between the u.s. and china. tom: we are having a little audio problem. i would say good morning, gentlemen, from new york. that is my problem. a turning point, we sort of setup a friday after all of this, a key turning point. what are you watching right now?

guest: well, certainly be a number one, the trade disputes between the u.s. and china. i think the trade disputes between the u.s. and mexico are the importance relative to the ones between the u.s. and china, and obviously watching very closely in the bond market. assessment terms of what happens with deals and rate expectations is the reasonableness have made the case for a fed rate cut more sensing there am is a high likelihood that the market is really jumping again, started pricing in too much across the globe. fed, by the end of the year, we had too many rate hikes. 370 basisian, we have

points. you also started pricing and rate cuts in switzerland. rate cuts, federal pricing in the ecb, so i am getting the sense that the market having good at 60, all of these years of excessive monetary policy easing, it is still accepted that we will go through another round on a cyclical down run. francine: thank you very much, daniel morris and vasileios gkionakis will stay with us. coming up, the council of economic advisers. that is an interview you do not want to miss. this is bloomberg. ♪ omberg. ♪

we have tremendous room if

something bad happens. our monetary policy could act in the right direction. they have plenty of room in interest rates. they have plenty of room and the required reserve ratio rate and also the physical monetary policy. i think the room for adjustment is, uh, the trade war would have a temporarily appreciation see,ure on it, but, you after the noise, it will continue to be very stable and relatively strong, compared to emerging-market currencies, even compared to convertible currencies. it is a very strong currency. i am very confident that it will continue to be stable.

francine: well, that was yi gang, people's bank of china governor, in conversation earlier with bloomberg's tom mackenzie. let's head straight to st. petersburg, russia, where emily her door is with -- where emily is with the former pboc governor. emily: thank you so much for joining me. from yi gang. which measures do you think should be prioritized if we were to see some action? yi talked about the room of monetary policy adjustments. case, that in the extreme

you do not have further room to lower down the interest rates. inflation, have high currency depreciation. you may have barely room to breathe interest rates. is in a very comfortable area. now we have relatively low inflation, interest rates are around 2%. the decidedly want to have lower down interest rates, and also use measures, the interest rates that money supply are reduced, and now there is some kind of a middle point of money

for policy adjustment. >> xi jinping is here with about a 1000 strong delegation, as you know. he called putin his friend when he arrived. china -- moscow and do you see beijing and moscow leaning into each other, even more so now in defiance of both of their country's troubles with the united states? mr. zhou: uh, i do not really myk at the spirit understanding is china and russia have a lot of , this area.s so if we talk about the trade, china needs energy impulses from russia, and brush also needs the

chinese, so we have a lot of investment opportunity to complement each other. i am an economist, so in this regard, i think that to upgrade the china-u.s. strategic relationship, i think it is a very natural thing. >> and the central bank holds the most yuan. that is their biggest foreign holding, right, at the central bank. mr. zhou: mr. zhou the central k corporation all is already, has already for a long time. it already has coordination, macroeconomic policymaking and dealing with the global financial crisis, and both sides

would like to use our local currency to develop a trade. both sides of the central bank have it and also our agreement to gradually increase the. >> there is a lot of talk about dollarization. this conference has been so much focused on the trade war. i came from an energy panel, and executives were saying that is what is really driving the oil markets. are you hoping for a trade deal between presidential then-president t -- president trump and president xi? mr. zhou: i think much depends on president trump's side, say ae in our side, we

great deal of free trade, the global trade regime, so we would like to reduce the trade friction, and china also shows us that we are going to accelerate, including trade policy problems, to meet the standards of free trade, thatnvestment regime, so is, i think, the negotiations, they are going up. , in my mind, yes, i wonder. americans, right, they really

fake free trade is good for them or not. negotiate, theto trade situation may last longer. but the kind of negotiations then i think, yes, a strong leader, there are going to be negotiations themselves. >> what about the impact on the chinese impact economy in the u.s. raise tariffs and you do not get a trade agreement? as the former pboc governor, what do you see as the impact? mr. zhou: last december, i talked about that, the negative impacts for a trade friction, the tariffs on the chinese economy. in china, we have a federal research institute that

they use for models, what should be the impacts of different sides of tariffs. not only tariffs but also some the majorer, uh, 0.2% to 0.5%s that of chinese gdp. but this should be the first of ,he year with higher tariffs because chinese, first, have the ability to diversify across the nation. so the first of the year, they may have difficulties immediately, but in two or three decrease,aink

so the u.s. can successfully diversify into other nations, including russia, the middle east, africa, latin american countries. i think actually the chinese side is good. they are good products. have the spirit, in 2008al crisis spirit and 2009. i saw those tax cuts. from, soly two years they could successfully reset, and the 30 years, you can see this.

the negative impacts of the standard.p, it is annmarie: we are going to leave it there. thank you so much for your time. francine, a former pboc governor with me in st. petersburg. francine: annmarie, thank you so much, throughout the day and think it is berg, also -- in st. petersburg, also speaking about oil. annmarie hordern will also be speaking with alexander novak. don't miss that. this is bloomberg. ♪

tom: "bloomberg surveillance." lots going on with markets on the move on a friday. francine lacqua in london. i am tom keene in new york. francine, i am going to take mexican peso that to the 1990's -- back to the 1990's. this is a really cool chart. i showed it a year or two a go. this is the collapse, the so-called mexican crisis in 1994. here is the lehman crisis. the percent move on a large chart, bring this over here, and you can see we have the same percent move of weakening peso over the last three years, francine? francine: tom, i am looking at treasuries, if you bring up my chart, are telegraphing that

they are growth years. for example, j.p. morgan chase is telling investors to save stocks, and credit actually listened. line, look at the second look at some of the estimates of a decline more than 100 basis points in the treasury yield. probability of a u.s. recession over the next year. by contrast, if you look at stocks, they tell you another story. this gives you an idea of who is right and who is not. that is next. executive.puty chief we will discuss the company's plan and challenging financials. this is bloomberg. ♪ this is bloomberg. ♪

get the numbers under control and adjust the balance sheet was something to do critically.

to be customer focused and make the bank cost cautious in investing for the future, the cultural shift is something which takes much more time because culture by definition is something that you acquire after a long time, so in order to change it you need to allow time to go by. that,er to that -- to do i had to change a few people and i had to be visible to my staff communicating what our values and goals were, and how we should bring the bank together to refocus it on customers, and make it an efficient and profitable bank, to give taxpayers money back. francine: that was part of my conversation with the chief executive of lloyds banking group. is leaders with lock while tonight. another european bank that

has revamped itself since the crisis is credit agricole. the lender generates the bulk of its revenue from core businesses, consumer banking and asset gathering. whether some of the macro challenges ahead? joining us is the deputy chief executive of credit agricole. thank you for giving us a little bit of your time. one of the challenges for european banks is explaining their business model clearly and generating revenue growth. how will you generate revenue growth? mr. musca: we have a very customer centered model, and we are delivering precisely and increasing revenue growth, by increasing our customer base. medium-term, we have one

million added customers in italy and france before the end of next year. synergy and the objective is to reach 10 billion revenue synergies during the course of the plan, which means we are not quite sure we will be able to reach this level, thanks to the fact that revenues will be made on actual customers, so we are confident in that. you are targeting act one ratio in the future that is it is.cantly below where xavier: you should not look at the ratio in the same way as you are looking at -- that is a list entity. competitors -- as

far as we are concerned, we are part of the group and it is the whole group and the level of the whole group, we are now about 15% and we commit to be above 60% in the middle of the medium-term plan. what we do in this context is -- and we target 11% just like we did during the previous medium-term plan that was a success, and which was delivered one year ahead of schedule. tom: good morning. it is an honor to have you on the program, particularly with your public service to france. i have a bunch of questions that go back to the heritage of credit agricole. credit agricole is one of the great agriculture banks of the world. is there any understanding that if we have a trade war between europe and the united states

that agriculture in france will relent and somehow bring the tariffs and blockading of product down? do you have any optimism that agriculture europe can be part of these trade negotiations? xavier: i understand for the time being, the position which has been adopted unanimously is to exclude agricultural products from the trade negotiations. considering think the strong consensus i do not see much risk. we are in a very uncertain environment. for example, the plan we delivered as seen by a lot of observers as cautious and conservative, but it is on purpose, i have to say. tom: with your service to the french government, i would suggest no one knows benewah cure.

why would he be a wonderful replacement for mario draghi? your question is slightly embarrassing for me, because i am a friend. i have full confidence in his capacity, in his ability to be a central banker at the highest level. , tos not up to me, indeed choose the next president of the ecb, so i won't go further. tom: i know it is a delicate task, but let's go further if you will. bring a french perspective to the ecb -- we saw that with mr. trichet -- how would that change the dynamics between the core of the central european bank and peripheral nations? there: i don't think that

will be major changes in the ecb policy, depending on the new president. i think the ecb policy is driven by the directorate and it is very collective, as far as i understand it, approach of economy and interest rates. i don't want to speculate on the presidency will lead to any significant change in monetary policy. in any case, the current members of the directorate are fully aligned. francine: let me save you from questions and maybe for international viewers, they forget there are two contenders from the french side. .alk to me about dividends let's go back to credit agricole. do you see any room to boost the dividends after keeping targets and change. we are confident we can

improve the dividend. we target 5 billion euros at the end of this medium-term plan, so we will do our most to deliver this result and therefore improve the dividend for all of this. tom: thank you so much, greatly appreciated this morning. chief at credit agricole. sebastian: president trump says republican lawmakers who criticize his plan to impose tariffs on mexico should be ashamed of themselves, saying they are undercutting the u.s. bargaining position. the president is using the threat of tariffs to force mexico to do something about illegal immigration. google reportedly has warned the white house that it's huawei ban could cause a security risk.

company is set to warn they cannot update their android system and that could lead while way to develop their own version which could be more vulnerable to hacking. -- that of attacks comes from an investigation conducted by the united arab emirates and saudi arabia. the trump administration has pointed the finger at iran. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek and this is bloomberg. francine: thank you so much. the labour party successfully defended seats, denting the party.m of the brexit the anti-e.u. movement was a favorite to win constituency. theresa may is stepping down, whostarting the race for

will be new prime minister. do you see any value in u.k. assets? i ask every couple of weeks in case something changes. daniel: if you look at u.k. equities versus europe, the main difference has been the currency and we are not expecting a lot from sterling until we get the next prime minister chosen and even after that, we know the outlook remains the same. for large-cap equities in the u.k., it does not look any better than it does from the rest of europe. where do you see pound going from here? i don't know if there is risk of no deal. vasilieoios: things will get worse before they get better.

our scenario remains that some time -- do not ask me to put an exact date on that -- we will end up with a soft brexit of sorts. i think over the next few months we will likely see an arms race for who will be the most hardliner brexiteer, in order to stroke drainage from the conservative party to the brexit party. i think this will start weighing in sterling, who will start pricing in more the risk premium of potential no deal. whether or not we will end up with no deal, the probability has increased but has not become a central scenario, largely because we feel it is in both sides' interest that a solution is being found. history is full of examples where it was in both sides' interest to find a solution and they didn't.

accidents do happen. ,rom a valuation perspective starling is about 10% undervalued now, -- sterling is about 10% to 12% undervalued now. it will come under depreciating pressure over the next couple of months. tom: i have a chart i could show from four to five different angles. this is the five-year for e.u. view of inflation, and it is absolutely extraordinary. chart. call it a never i have never seen this before. we have broken through the 2016 disinflation, even in the last hour, there is a deterioration. what does e.u. disinflation mean for the united kingdom? vasileios: that is a fantastic question. first of all, there is definitely an issue of being able to export disinflation in

one way or another to another country. withur question has to do the negotiating strengths between the u.k. and e.u. side of things, i don't think it really has anything to do with it. tom: what about economically? vasileios: economically, it means -- let's try to put it in better perspective. you have market pricing of inflation, but at the same time if you look at the hard data, you don't see that for example in wage growth. that is encouraging as far as actual wage growth in the euro area. the market is taking a gloomy view into the future prospects of inflation, but i don't think we are going to end up with a scenario of disinflation over the next five or six years. blockedeventually, that

channel between wage growth into inflation will start flowing through. tom: daniel morris, if we have the yields where they are moving, what does it mean for dividend growth or dividends stay -- stability for the big e.u. stocks? 4%, love paying out those 5%, 6% dividends. can they sustain that? daniel: at will be a challenge, outcome, it is a new world. we need to adjust to that. we need to change our nominal total return exchange for any asset class and i imagine people have not done that enough. tom: thank you so much, daniel morris and vasileios gkionakis with us today. it is jobs day. erro, is he back from london?

maybe jon ferro is back from london. joining him is mohamed el-erian. this is bloomberg. ♪

♪ bloomberg "surveillance," thrilled you are with us. lacqua inand francine new york and london. daniel morris and vasileios gkionakis, they could get through the traffic of london because the president is gone, and they join us today. i want to fold in your worlds with the american jobs report. let's look at the amazing history of what we will see at 8:30. this chart is absolutely extraordinary, it recessions along the way, allows the

unemployment, the 1980's, the 1990's recession, this slight 2001 recession, and the gloom of 10% unemployment. the we go to 4% and we have ability to get down to 3%, some say. if it is a better job economy, why are we so miserable? daniel: it is not so much the perspective on economic growth. it is the discussion of a potential recession in the u.s., sees out of bounds -- seems out of bounds. it is more about expectations for inflation and that is being priced into treasury yields and what that implies for the fed path. i am not sure we are that pessimistic on the outlook. could posted trade growth, but there is a new world order for inflation change, and the fed's operating model that has been driving yields has been

operating on the pessimism for growth. francine: as dollar too strong? -- is dollar too strong? vasileios: interesting question for a dollar bear. if you look at the fundamental models, the signals we are getting is dollar is approximately 7% to 8% overvalued relative to fair value. i think it is strong but not that strong. i have to say, i have been surprised recently by the fact that it has been too resilient despite the fact that we have seen the massive compression of the u.s. versus the rest of the world, and that is reflecting the trade war risk premium as a safe haven. it is strong and the yen appreciating on the back of it, but i would not call the dollar too strong, although i am expecting depreciation. tom: what is your yen call?

what is the amplitude of yen strength? atiel: we have dollar-yen 104 by the end of the year and that is predicated on a number of factors. the yen is one of these currencies which quite undervalued against the dollar. it is euro-dollar closer to fair value. a recent element of undervaluation of the yen, we anticipated to be 10%. no matter whether we are talking about the possibility of a full-blown recession or a simple slowdown, the reality is that we are in a mature phase of the business cycle and risk will so -- struggle. investors will choose to put money into safe havens, or continue to do so. francine: thank you both, vasileios gkionakis and daniel morris. plenty more coming up.

we are looking at treasuries and your markets. this is bloomberg. ♪

♪ >> i don't think there is anything specific to compare

with the way we saw the world at the beginning of this year. at the beginning of this year we said, there is a slowdown in the perhapsand more acute in 2020 than 2019. >> we are confident we can improve the dividend. we start from a level of the net income of 4.4 billion euros and we target 5 billion at the end of the medium-term plan. we will do our most to deliver this result and therefore improve the dividend for ourselves. tom: two french bankers managing the message, without question the backstory at davos this year. we saw european banking confronting reality. let's move on five more months. chart, this is a

the blended bank chart for europe, not the doom and gloom of deutsche bank or the outperformance of bnp paribas. martinuzzi pieces it together on a friday. what a mess. i cannot begin to tell you what a mess this is. what is that to do list as they tried to get through june? what does e.u. banking have to do to write the ship? -- right the ship? elisa: i think they can see through further in june -- further than june. there do not seem to be any catalysts insight. -- in sight. they are working in a record low environment and a lot of them have restructuring to do. perhaps they are too exposed to

investment banking where returns have suffered, and you have a combination of issues. it is a fragmented market so consolidation would have help, but -- helped, but is difficult. tom: the messaging we heard from credit agricole and socgen, where are shareholders? do they have any power whatsoever over the e.u. banks? elisa: i think he would have to look at each case individually. -- you would have to look at each case individually. what we are seeing, particularly in the light of the fresh news from the ecb that the rates will stay low for long, that banks will have to continue probably to become more efficient. ,hat also requires investments because to become more efficient you need to grow your digital offering to investment technology. that is what your valuations are

reflecting. francine: there is a headache for deutsche bank because the head of the investment bank is named in the probe. is it a big deal? elisa: it is not helpful, clearly. course,helpful and of another probe widening is the last thing they need being close to a record low. tom: not enough time. we will catch up on a monday, i hope. elisa martinuzzi. he is definitive on american wage growth. that is a good thing on jobs day. tom porcelli will join us. ♪

♪ tom: this morning, it is not the usual jobs day and america as

.ob growth -- in america has job growth slowed? how behind the rate curve is the fed? the president golfs in ireland. mexico, new taxes for americans, monday the 10th of june. mexico must "step up to the plate." european banking is facing increasing disinflation. live from our world headquarters in new york, as well as francine lacqua. i am thunderstruck by the inflation indicators in europe. i have never seen it like this. francine: they are much worse than expected but they point to trends globally. --dhist bank lowering bundeswehr lowering their

forecast for inflation and gdp. that has implications on how consumers feel about the future. extraordinary backstory to all the other news we have. the trump administration is pressuring mexico to make a deal to overt tariffs. planpence warns that they to impose 5% duties next week. they resume talks today. president trump threatened tariffs until mexico does something about illegal immigration. the pboc says there is plenty of room to adjust monetary policy if the trade war gets worse. the u.s. rate tariffs cut both ways. really ariffs is double-edged sword. it is hurting the chinese economy and also the u.s.

economy, especially the u.s. consumers. germany's second biggest bank sees the 10 year yield fall to 10 year -- to record lows at the end of the year. the bank protects the fed will be aggressive in easing when confronted with the looming economic downturn. the labour party has -- successfully defended a seat in st. petersburg last night. brexit party was the favorite and they are looking to win their first seat in the house of commons. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek. this is bloomberg. tom: thank you so much. those election results were really something into a four party united kingdom. what i resiliency to the market, dow futures up 71.

euro joining, oil a bid two days in a row. a wonderful stock market, a bull market. -- mexican peso weekends. up there, it is extraordinary the yield dynamics of the draghi press conference we witnessed yesterday. -- itne: i also did have also had an impact on euro. do nots that markets believe mario draghi has much firepower left in him or his powers. renminbi is the lowest since november after we had an interview from the pboc chief governor. a little bit of movement on oil, 51.10 after we saw -- 53.10. tom: it is a weekend for regrouping all of global wall

street. they will want to rethink and try to adapt and adjust to the new power and direction of all the different global central banks. let's listen in to a set of dubs -- dubs. .- doves >> we have anything buys. the euro growth outlook remains tilted on the downside. >> we will be vigilant about understanding these heightened trade tensions. >> several members raise the possibility of further rate cuts. >> all of you have been talking about rate cuts so much so rate cut gets into your system. now, we could re-center inflation expectations at the 2% target. >> central banks across the

world have moved to n accommodative stance in setting monetary policy. act in caseined to of adverse contingencies. act. are prepared to putsi love that our team those together, a lot of different voices in the conversations in a most tumultuous time. we would like to talk for two hours with tom porcelli. on wageay out front growth dynamics over the last number of years. from immediate demand, cameron crise joins us. you see fromson bloomberg quoted out on the internet space. i have got to go to the rockstar first. what have they stolen recently from you?

what is the insight u.n. your team are doing that everybody goes, -- you and your team are doing that everybody goes, that is smart? cameron: there are a lot. tom: give us one. cameron: mr. kaplan said the fomc is looking more at credit dynamics than equity per se. i have developed a recession probability model that builds on the fed methodology. tom: pushing to 2020, are you there? cameron: we are not there but getting there. tom: are we there? tom: the odds have lifted a bit, but we are not at a point where the recession will happen in 2020. it depends on your perspective. we have a robust recession model as everyone on wall street does, and i would say over the course of the prior year, recession

odds were sitting around 10% for the coming year and they have drifted closer to 12%, 13%. claims play prominently. while they have stabilized over the last week or two, they are coming off big numbers because of the chainstore strike in new england and problems with seasonably adjusting the spring break holiday. i would say generally speaking, they have drifted but it is still marginal. francine: pain some of your latest pieces, -- in some of your latest pieces, you say the fed is not right -- the fed is right and not panicking and expanding the credit market. cameron: my model is based on financial markets, trying to distill what financial markets are pricing in terms of the economic cycle. the yield curve is an important prognostic or oracle, i believe

mr. williams cited yesterday, of the economic cycle. my work suggests if you look at the level in change of credit spreads, you get more information and more impact on recession probabilities then you do from just the yield curve, and certainly from equities which have a fairly marginal impact. francine: how does the trade war change everything? does it put the world in a possible recessionary environment or just advance the probability of it? cameron: the trade war is playing the role that inflation normally plays in the economic cycle, to inject uncertainty into the decision-making process of businesses and financial markets. we don't know what trade policy will be next week, month, or year, because it seems as if these decisions are being kind basis, andan ad hoc

that is a difficult environment to plan for. tom: on the jobs report, what a shock to adp. you have to reframe your nonfarm payrolls? what does it mean for chairman powell? cameron: i learned a long time ago if i changed -- tom p.: i learned a long time ago if i changed my forecasts, i would be at risk of being wrong twice. payrolls are a rate example that. tom: what does this mean for jerome powell? tom p.: i don't think it is a be all and all. we had a macro dinner last night. tom: what the hell is that? -- bunche had a batch of macro clients and we talked. we talked about how important it is today from a fed perspective,

and everyone was more in agreement that it does not change the narrative for the fed. you get a really clunker of a number today, it will not usher in a cut in june. i think most people are willing to concede that point. tom: is this the 3rd avenue mcdonald's over here? the number two value. tom porcelli with us, and we will speak wage growth with him and cameron crise. this will be an interesting interview, the gentleman from the university of pennsylvania. chairman of the white house president council of economic advisors, kevin hassett grilled by mr. farrow after the jobs -- ferro after the jobs report. this is bloomberg. ♪

♪ five,our and then it is tom keene in new york. francine lacqua in london. viviana hurtado is here with the golf report. golfing at hiss place in ireland. it has never made money. he wanted to meet the prime minister. he comes home, lands this afternoon. viviana: this is where he is planning on making money, for the economy and u.s. people through tariffs. there will be negotiations with the mexican delegation with the administration. we will blow past the sunday public affairs shows because

monday is when 5% tariffs kick in. , when he is he doing gets off the plane he will be on the phone in the car. who does he speak to to get this process going now and not after the talk shows on sunday? pencea: vice president and secretary of state mike pompeo have been brokering this with the mexican delegation. even though president trump was abroad in europe this week, he has been in the driver's seat and it is likely he will personally get involved. he likes to do that. those one to one relationships. lookwhat are you going to for this weekend out of the talk shows? viviana: exactly what kind of benchmarks and numbers and timelines this administration will force mexico to comply with

in order to roll back on this threat or imposition of tariffs. rbc tom porcelli with us of and cameron crise as well. 5% is no big deal, right? >> it is the signaling effect that is a big deal. tom: exactly. my son literally graduated from preschool. it was really cute. tom: it is so touching. [laughter] what was the gift at the porcelli house? tom: a really big hug. -- tom p.: a really big hug. tom: you didn't get him a bentley? tom p.: no. tom: does he take mandarin? tom p.: no. tom: next year. tom p.: my bloomberg starts

lighting up. was, who isction next? to me, that is the bigger worry. does he say, nato partners are not paying their fair share. germany and france, here are your tariffs. that is the big worry. a singular trade war with china-u.s., we can sort of manage that but if this spreads out to become a global trade event, the starting point is a recession. it, itity market, bless is not responding. it is not thinking about that in those worst case scenario terms yet. francine: i am still trying to figure out what a graduation -- we don't do that in kindergarten in europe. why do you think the markets have been taking it in stride,

because they are expecting resolution or they do not know how to price worst case scenario? tom p.: at this dinner last , it was mostly fixed income and currency investors. i walked out of that dinner and was nearly in a state of depression. people were so downbeat and before this meeting, i was on the equity side of our floor. if you speak with equity investors that we speak to at rbc, no one is clamoring for a rate cut. no equity investors are necessarily looking for rate cuts, which is in sharp contrast from fixed income investors. it is shocking that equity investors have been taking this in stride. if we understood what the depths of this could look like, it is very different. tom: i think your son needs this. likert, short money, only $8,000.

it is a bentley super sport battery driven. that.rcelli house needs tom p.: if you want to gift it, we will be happy to take it. tom: we will see if we can make that. $8,000 at walmart. francine: we just give oranges to our kids in london. tom porcelli and cameron crise staying with us. coming up, my conversation with the chief executive of lloyds banking group. we talk brexit and revenue. this is bloomberg. ♪

♪ this is bloomberg "surveillance." santa fe's has made -- named paul hudson as its next ceo. they are replacing one of their top managers who is retiring. hudson has led their pharmaceutical unit since 2016. caesars entertainment and is in advanced talks with el dorado resorts. carl icahn has been pushing caesars for a sale. j.p. morgan chase put to rest and embarrassing chapter in its history, the so-called london whale trading debacle that caused a loss on derivatives.

they have six internal controls so they are dropping the matter. tom: cameron crise with us. we have been looking at the dynamics of the markets and the disinflation indicators. tom us this morning is porcelli from rbc capital markets. i get more mail on your world than anything else. comepeople with blue ties on and say, we are fully up lloyd america and -- fully employed america and we are getting wage growth, the majority don't agree. areron: the people that expressing that view are obviously completely dissatisfied and i am sympathetic, but if we look at this in the aggregate, which is what the data do, the vast majority of people are actually doing well.

there is so many other things going on with trade. i want to be mindful of that. the reality is, aggregate worker production wages, production wages, which is 80% of the pie, as running at 5.5%. tom: when you adjust it for the inflation every household has, you adjust for a trimmed cleveland or dallas mean pci by ais more tuition based, kid in the driveway a bentley case -- based. which inflation hurts viewers' paycheck most? tom p.: inflation hurts paychecks, that is always true. people always lament that real wages have not done much, but it is hard for real wages to advance more than selling prices. that is a basic economic tenet.

expectations probably need to be ered.ger -- rejigg atncine: how do you look inflation? if the trade war continues, and it is difficult to tell how aggressive it is, what does it mean for trade? cameron: on a literal sense, tariffs will raise the cost of we import from china, mexico, and whoever else the administration decides to put tariffs on. the tips market is priced off of the literal unadjusted cpi. that will raise what people are pricing in. we have to recognize this is a supply shock, not a demand shock . demand driven inflation is inflation you would expect to see persist over time, whereas tariff driven inflation impulses

are one off. you reset the price level and it acts as a tax on the consumer and business sector. it would make the short run look inflation numbers like they are meeting the fed's objectives, but the fed would not necessarily say, great. thank you socrise, much, tom porcelli with us as well. he is a gentleman with a phd from the university of illinois and has taught at perdue, as now pboc governor. an important conversation. this is bloomberg. ♪

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been doing and saying since she has been in power. may: her majesty has asked me to form a new government and i accepted. do we have a plan for brexit? we do. the permanent representative for a decision to invoke article 50 of the treaty on the european union. brexit means brexit. brexit does mean brexit. there should be no general election until 2020. we need a general election and we need one now. every vote for me is a vote for strong and stable leadership. strong and stable leadership. strong and stable leadership. i am working to get a deal parliament will support. i reached a deal with the other 27 e.u. member states and it is clear the house does not support

the deal. leaving without a deal and with an extension does not solve the problem. i fear we are reaching the limits of this product says -- process. we will now leave on time with a deal on the 29th of march. it is slipping away from us. we risk losing a great opportunity. i will shortly leave the job it has been the honor of my life to hold. i do so with no ill will, but with enormous and enduring gratitude to have the opportunity to serve the country i love. francine: those were some of the highlights, the highs and lows of theresa may since she came into office. today, she is officially stepping down as tory leader and stays on as caretaker prime minister. that is when the tory leadership race kicks off with 11 candidates and thorough process of elimination and parliament,

we will have someone in july. tom: how minority is the minority party known as the tories, the conservatives? not just after yesterday, but how little have the conservatives become? francine: peterborough is a by election and it has always been a marginal tory and labour seat, which gave an indication of who is more popular. in the fight for this peterborough seat yesterday, the brexit party came into second and conservative fell to third-place. margin,on by a small giving an indication on how the tories have fallen behind. we speak about brexit, but the next prime minister will want to deliver brexit or find a solution as soon as possible, because the longer this drags on, the longer it hurts the tory party.

it does tonder what investment flows in confidence in the united kingdom. drop with brexit on the left side of the screen. is amazing how the exhaustion has set in as she has attempted to solve the unsolvable. francine: it is amazing how the messaging changed. let's get to the bloomberg first word news. sebastian: president trump says republican lawmakers who criticize his plan for tariffs on mexico should be ashamed of themselves, and it is undercutting the u.s. bargaining position. the president is using the threat of tariffs to force mexico to do something about illegal immigration. thele reports they warned u.s. the huawei band could cause a security risk. dateompany said it cannot

-- update at android operating system on android phones. presidential front runner joe biden reversed himself on federal funding of abortion and now says he no longer supports the hyde amendment which bars such funding. that statement led to sharp criticism from rivals and progressive activists. a series of attacks on tankers in the northeast -- middle east last month was conducted by a bad actor. the trump administration has pointed the finger at iran. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek and this is bloomberg. francine: the governor of the pboc has told bloomberg that china has a tremendous room to adjust monetary policy if the u.s. trade war deepens.

he spoke to tom mackenzie in an exclusive interview in beijing. have atrade war what temporarily depreciated pressure on our renminbi. renminbi wille, be stable and relatively strong compared to emerging markets currencies and convertible currencies. it is a strong currency. i am confident the renminbi will continue to be stable at more or less equilibrium level. tom m.: is there a redline for the yuan? yi: i don't think this is an important question, because you is smooth numbers, it and continuous number scale. i don't think along this mathematical scale any number is

more important than the other number, so it continues and is smooth. this is totally market driven and determined by market supply and demand. pboc,ntral bank of china, is pretty much not intervening the exchange market for a long time. i hope that is the situation, we will continue not intervening. a little bit of flexibility of the renminbi is good for the chinese economy and the global annomy, because it provides automatic stabilizer for the economy. it adjusts and balances out payments along the line. the people's expectations will be along the line. regimeble exchange rate

is a very good arrangement. we will continue to have this market oriented mechanism. in m.: if we find ourselves a position where we see tariffs on all chinese goods to the u.s. markets and some retaliation from the chinese side, that will lead to a slightly softer market domestically and a depreciating renminbi. actually i i think see a lot of resilience and robustness of the chinese economy. said, it is -- as i a stabilizer for adjustment and balance of payments, and our policy for further hikes in tariffs, for escalating the trade war, our policy toolkit is ready.

as you know, our fiscal policy for this year is tremendous. we have tremendous room, if something bad happening, our monetary policy could act in the right direction. we have plenty of room in the interest rates. we have plenty of room in the required reserve ratio rate, and also for the physical monetary policy toolkit, the room for adjustment is tremendous. ready for theare negative impact on employment, and if people are getting unemployed because of the trade war temporarily, maybe for six months, maybe for longer, they make sure they have unemployment benefits to raise their family, as well as send them to

vocational school for job training. midwest, aed in the phd from the university of purdue, and teaching at the governor of the bank of china. tom mackenzie did this extraordinary interview. congratulations on what i thought was a most delicate issue -- interview. what is the backstory, the linkage of his pboc to the government, given the trade war? certainly, he has to factor in the central government and president xi's stance on the trade war. he reiterated the three joint -- address, aa wants to reasonable demand in terms of agricultural purchases and a mutually beneficial agreement in the removal of tariffs. in terms of what happens with the currency should we get this

full-blown trade war, which investors are watching, he did not seem to push back against the idea that there is no line in the sand. he was not entirely explicit, but that is how the markets seem to have reacted because the offshore yuan is down 3/10 of 1%. the pboc are wrestling with different priorities. they have pressures from exporters and manufacturers to allow the currency to depreciate and they are cognizant of how that will be perceived in washington, and could lead to capital outflows. francine: was there a sense from the pboc governor that they try and do almost everything they can so it does not reach that seven level? tom m.: i think the sense we got from him was that they don't want to see a rapid depreciation of the yuan, but certainly the

themes -- the sense i got from him as we are not going to be putting a lined in -- line in the sand if we get to the whole $300 billion of tariffs on the whole chinese export market. he wants to allow a gap in the window to allow that space for the yuan to appreciate if we get to that. he said strong about the currency three or four times, in the context, this is a strong and stable currency. they are trying to attract inflows through the bond markets and equity markets, so they are concerned what signal this would send to outside and domestic investors. it is a tricky balancing act for the pboc governor, but the message from the market is maybe they are relaxed around the idea that it depreciates further if the trade tensions escalate. francine: congratulations, tom

mackenzie. finance ministers, central bank governors in japan for the g20. policymakers gathering against a dovish backdrop. trade and focus with mexico and china. coulds on border nation come as soon as monday. steven mnuchin will hold a bilateral meeting what the pboc. italy and japan will be in the same room, presenting a rare fiattunity to present this renault deal that will no longer happen. ♪

♪ the situation in the markets

as far from being positive. >> america would be helpful. >> we are planning the company on a $55 price to remain conservative because we have had these price movements that are so painful. >> nobody is served by the volatility we are seeing today. it is not justified, sensible, or helpful. >> we have to find a sustainable level for the cycle. price sustainment is north of where we are today, well north of where we are today. inncine: that was a panel st. petersburg where annmarie hordern spark to -- spoke to some of the largest -- we will hear more throughout the day. putinent xi and president are planning to address a plenary session in a couple of hours from now.

it ist is jobs day, but time to get you ready for your reading next week with all that is going on, mexican tariffs, jobs day, what will the fed do? ee showed the e.u. guestimat for five-year forward. let's show the same chart for the united states. we are here. the e.u. is here as well, but that cap could narrow. -- gap could narrow. we need inflation humility. tom p.: it is difficult for the united states to generate underlying inflation. tom: can the fed make inflation? , in thei think that is ivory tower i think we can certainly show that the fed has that ability. in practice, it is difficult.

people do not know what high inflation is until it is here. inflation between 1% and 3%, that does not even register. if you ask most people on main street, what is the fed's inflation target, they do not know. it is difficult for the fed to generate inflation through the tools we have been talking about over the last few days. it is interesting. if you look at the united states -- i have been saying this for a while. looking at the phillips curve is a silly idea. andorked in the 1950's 1960's and made sense then. you were trying to understand inflation today, based on a singular domestic variable, the unemployment rate. today, we are a wildly more open

economy then we have ever been in history, so it is silly to think we can have a handle on inflation by simply what is happening from an unemployment rate perspective. this is one of the key reasons it is hard for us to generate underlying inflation, because we import quite a bit of disinflation. francine: i have a viewer question. know if youwants to are so positive, he asks, on the economic outlook, how does that fit in with your rate forecast? tom p.: it is funny, that is not enough. today, it is not enough to have a positive economic view, and we do. if you were able to strip away what is happening from a trade perspective, we would be talking about the potential for continued rate hikes. that is not where we are.

worry.ensconced in trade into youro weigh getting. i am sympathetic to the idea the fed could be cutting rates sooner rather than later, but do not make the case based on economic theory ration in the immediate term. i am a seller of that idea. i would be more sympathetic to the neck -- the equity market starting to swoon and the fed responding to that. this notion that the fed can act preemptively, there has never been a time in history the fed has acted preemptively. they have always responded to something, and the 1990's is a great example. 20%equity market was down in 1998 on the back of em despite the fact that fundamentals were sound. the fed was cutting rates because of the equity market, so

i am sympathetic to that. equity market comes to a realization that this could get ugly. the fed could respond to that. i believe at this point, given where we are from a narrative perspective, that the fed could cut rates. it is not an economic fundamental story, it is a market story. francine: tom porcelli, rbc capital markets. coming up, jonathan ferro will break down the jobs report with mohamed el-erian at 9:00 a.m. in new york, 2:00 p.m. london. this is bloomberg. ♪

♪ this is bloomberg "surveillance." shares of beyond meet are soaring today. they came out with their first quarterly report and their forecast was better than expected. shares had quadrupled since its ipo on may 1. softbank is in talks to buy a stake in fintech from new bank.

they do not have a specific figure. includes sequoia capital. they have a $3.6 billion valuation. ae nba cracked down on billionaire owner of the golden state warriors or pushing an opposing team's player. after banned for a year , and wasyle lowry fined $500,000. tom: it is an important moment for emma chandra who is in fayetteville, arkansas. she is all arkansas football, for the annual gathering of the walmart people. it is always interesting and of national importance. what is this year's certain twist? emma: it is good to be here.

we are at the bud walton arena. 20,000 walmartut store associates fill the seats behind me as they joined for the big celebration walmart holds every year. walmart has a good story to tell it the moment. they are doing well when you look back at sales, a key metric for retailers, and they have been building e-commerce. they have been building the people commerce platform -- tilting the e-commerce platform to compete with amazon. delivery, the key area of competition for a number of retailers, they plan to offer a number of walmart customers home delivery. that is where walmart associates will deliver direct into customers' fridges. tom: emma chandra, thank you so

much, from fayetteville, arkansas. we will drive forward the walmart conversation, there chief executive officer meeting amazon. a timely conversation on the great internet battle. it is jobs day. much more coming up, include jonathan ferro's post jobs day discussion. sitting in, kevin hassett. good to be back in new york. thank you for the hospitality in london. francine: we miss you. walmart is putting groceries in my fridge? tom: seb salek was holding the door. ♪

♪ boc has china's back --

the pboc has china's back. president trump still pressures the fed to lower interest rates, saying the market could be 10,000 points higher. mexico tariffs still on track. vice president mike pence says the plan is to impose 5% tariffs next week. andy jobs day matters. trade war looms. the market pushing the fed into re-cuts. david: welcome to "bloomberg daybreak" on this friday, june 7. jobs day in the united states. we know somebody who's out of a job in the u.k. alix: sort of. or temporarily employed, maybe? the head of the conservative party as of today. she will remain prime minister until they find a replacement. alix: do you check out?