>> relief rally. stocks gain after trump drops lands for new tariffs on mexico. taking a punch. hirohito kuroda tells bloomberg he can roll up more stimulus. on the defensive. united technologies agrees -- and one of the industries takeovers. -- industry's biggest takeovers. welcome to "bloomberg surveillance." welcomening as you are -- as you are watching from new york. these are your markets. it is very clear there is a risk on as some of the flows on it to

haven. we are looking at yen at 108.66. european stocks gaining. looking at the yes 10-year yields, 2.13. treasury yields, they found old falling. on bloomberg surveillance we will bring you an interview with -- boj governor governor, haruhiko kuroda. nickel.oined by carsten let's get to the first word news. >> boris johnson hardening his rhetoric on brexit. -- hes he would scrapped would scrapped the back stock. the tories leadership campaigned has been marred by revelations of his cocaine use. >> it was a crime. it was a mistake.

i deeply regret it. >> should you have gone to prison? who i was fortunate that i didn't. i have seen the damage that drugs do. i have seen it close-up. that is why i deeply regret the statement i made. >> hong kong has seen one of the largest demonstrations since his return to china. the protest is against legislation that would ease extradition from the mainland and organizes claiming one million people took part but police took a figure closer to 140,000. the hong kong government says it will wish ahead of the bill -- will push ahead with the bill. >> i have not received any instruction or mandate from beijing. it out of ouroing pure conscience. our commitment to hong kong.

>> as policymakers turn dovish, the focus for europe turns to who will you leave -- who will leave the european central banks. all of schulz indicating his support for the bundesbank chief. he says he is a very good central banker. we caught up with ignazio visco. he says the bank will take further steps to support growth. things somehow do not go how it is predicted, we will act. there is no question. >> global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: viviana, thank you so much. investors are breathing a sigh of relief after president trump

dropped tariffs on mexico. the president left officials south of the border cap old by his claims that the deal calls for large purchases of american farm goods. is the matter settled? joining us is kamal sharma. is it dollar positive or negative in the long-term? kamal: i think it is positive for now. u.s.-mexico trade settlement is a part of a larger story. it is a big story. for us to seem more sustainable increase in the dollar, we need to see a resolution. the market is focused on the g20 meeting as a potential event xi jinping and donald trump can agree on something. sayinge: i saw a report

it will touch seven. what happens to dollar? kamal: that is not an expectation. we have revised down those forecasts. francine: why? kamal: we think there will be a revolution. we have always been positive on that. trump needs it for the economy given where it is headed at the moment. rate cuts and a potential u.s.-china trade deal will help the economy. that, the longer this goes on, the longer the data in china continues to remain we call. the pboc has stated there may be more stimulus coming through. we think we will see it trade lower on an optimistic trade scenario. francine: is dollar to overvalued at the moment? yes.: absolutely,

the longer expectations of the dollar, the real exchange has never been this strong. we think we are at a turning point. the piece we wrote last week is, is the dollar on the brink? data acrossgative -- we have made revisions to our u.s. rate forecast. we expect rate cuts to the end of 2020. therefore, with that rate support fading, the inability of central banks to cut meaningfully, that should be the precursor for them oh -- for a more projected dollar selloff. francine: come all, we will get back to that -- kamal, we'll get back to that. the boj will deliver more stimulus if momentum is lost. will the market moving message one of the --

biggest difference deals in history. and united technologies agreed to combine. we will bring you details. this is bloomberg. ♪

francine: economics, finance, politics, this is "bloomberg surveillance." i'm francine lacqua. let's get to bloomberg business flash. >> renault's 20 year marriage with nissan may be in trouble. the implosion of the merger plans with fiat has brought the tension out.

the japanese automakers were reluctant to endorse the deal cited as one reason for its failure. francis find -- france's finance minister said -- strengthen its alliance with nissan. cooper it is up -- >> it is up to renault itself. full responsible -- we have to give full responsibility to management. our priority is to strengthen the alliance between renault and nissan. francine: thomas cook is surging after a potential offer with its operating business. it said the board will consider any potential deal. the hong kong listed company is already thomas cook's biggest shareholder. any deal would exclude its airline business. anadarko will receive a golden

parachute worth $98 million after the oil producers to the $8 billion sale to occidental's. the sale is a part of $300 million to be shared under -- shared between six executives. it will be the largest takeover in the oil industry for four years. that is your bloomberg business flash. francine: back of japan -- bank of japan's hirohito kuroda says he can deliver more stimulus if necessary. bloomberg's to captain haynes of the g20 -- kathleen hays at the g20 financial ministers conference. but theconomy is well economy is suffering from the number of companies so that both

banks faced with this trend. mean, we could have -- risks.ave potential situationoment, the is quite stable but we have to carefully monitor the situation. control and even core,expand our strengthen the monetary easing farther in case of need. >> you are willing to take on this risk of these rising costs if you need to do so to stimulate the economy and keep inflation going.

>> at the same time, we want to avoid that side effect. tools tombine monetary reduce that sort of potential side effect. >> very interesting. big picture, so many central bankers are saying they have ammunition and they can do more. china made that very clear. said, wejay powell has can do it if we have to. mario draghi said they could cut the negative rate further, combined more bonds if we need to do so. if you talk to people in markets, the boj cannot do more. you mentioned earlier, or maybe we can do something else. we have these tools, maybe something else.

do you still have the capacity to show all those people who say the boj cannot do anything, you can do something big or new? >> i think so. >> what will it be? >> first, four options. father reducing the negative interest rate and father increasing the amount of the committingd farther to continue to increase the monetary base and so on and so forth. options, i think we can still utilize if necessary. -- howuse and how to these we could combine the pens price andnomic .inancial conditions, but, yes

, think weio draghi can do these things if necessary. francine: that was harry who took wrote a -- that was harry ito kuroda speaking to kathleen hays. kamal, first of all what is your target on yen? from governor kuroda, it all depends on trade. -- it has been our highest conviction from the long side so we do like the yen higher. but the yen lower over the course of the rest of the year. yes, trade is an issue. if you customize like six or 12 months ago, these -- this was the issue that many were concerned about. they lost the window to .ormalize policy

now it is a question of what else is there available. to me, one of their concerns will be the reduction -- the production in the dollar. -- they will be acutely concerned on the easing cycle. the dollar appreciates against -- depreciates against the major currencies and they dissipate the already weak concerns. francine: do you have a target level for yen? kamal: one-on-one. francine: euro-yen? thel: it is the yen versus dollar. it is driving dollar yen lower. francine: looking at the boj's balance sheet.

.hat is a white line for boj then you have the fed total assets and this is the blue line and the ecb in yellow. -- said we should put the kamal: this is not only going to be an issue for the boj, the ecb, it was fine when the economic rationale for a move in that balance sheet was increasing at the early part of this decade but now with increasing, they are wondering buy else can be of jake can -- what else can boj by. some scope for increasing the bank of japan's firepower. it is uncertain how they can do that. francine: you are expecting an agreement in trade. anti-globalization.

globalization has been deflationary. that is going to become an issue for monetary policy. is the monetary policy target -- we have already seen the fed consider a 1.5% range. i think what is going to happen is we are going to have a more meaningful debate around the inflation target. whether it is the right want to use, look at sweden for example. very low inflationary pressures. this is going to be the big debate for the next five years. francine: would you change the target? we are starting to think about this. do you think the way we look at economics will change? in a decade or five years? kamal: things do not move quickly. if you look at the amount of academic papers coming out from various central banks, there is a concern about how difficult --

how monetary policy connect. we are in a neoliberal economics world where the focus were dry surpluses is really not helping the domestic situation. germany and the rest of europe are export driven. yet germany has an increasing surplus. there may be a consideration that the policy needs to be slightly altered to help the domestic economies. francine: kamal, think you so much. coming up, the combination that will define the future of aerospace. that is coming up next. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua. let's get to the us defensive megadeal. united technologies have agreed to by raytheon. billion.les of $74 it is one of the industry's biggest deals p it when it closes and the first half of 2020, the deal will be called raytheon technologies. first of all, what exactly was the motivation? carsten: first of all, airbus and boeing have so much power in aerospace that anybody supplying the industry

is under pressure to get their costs down in order to build upscale. they're looking to consolidate with another company. the companies are split really and nefarious between defense and aerospace. that has the benefit of the antitrust and not going to be a huge obstacle to get it over that reason. francine: have we seen other deals? joe: in 2016, honeywell attempted to buy you tech but that was dismissed and seen as undervaluing the company. harrison and l3 merger. that was have this deal -- half this deal. potentially it could trigger another wave of deals. we haven't heard anything on that but we think in europe, companies will look at how this will affect them.

francine: are you expecting more deals or because this was such a big u.s. deal, it would stir europe? joe: the industry is so global, because of airbus and france and boeing in america. european companies will have to react to this, just as much as american companies are asian companies. francine: joe easton, our stocks reporter on this megadeal in the defense sector. coming up, germany's finance minister tells us he is backing bundesbank's chief to lead the ecb. our exclusive is coming up next. let's give you a good roundup of what is going on in your markets . happy monday, it is the start of a trading day. june is usually an audit month. -- an odd month. i am looking at stocks. they are up. u.s. equity futures are climbing. u.s. stocks taking heart that

president trump has suspended plants -- plans for tariffs against goods from mexico. yen has demand for havens seems to be adding. that good if -- good interview with hirohito kuroda. he told us they can deliver more stimulus if necessary and of course we look at what the payroll report means for the dollar going forward. we have a wrap up of the markets coming up next. this is bloomberg. ♪ the latest innovation from xfinity

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plans for new tariffs on mexico. taking a punch. haruhiko kuroda tells bloomberg he can roll out more stimulus. went from risk stimuli -- could be affected and if the momentum toward the information .arget -- the target swiftly respond by changing. francine: united technologies moves to by raytheon and love the industry's biggest deals. good morning, everyone. we are getting breaking news out of the u.k.. gdp, the u.k. contracting in april. the estimate was 0.1% to climb. it will have an impact on pound. pound 127.04. it is a little bit backward looking but that is much worse

than expected, -2.7. contracted, -0.4 instead of the plus 0.5. pound is moving a touch. cable, the race to become the new leader of the conservative party and therefore, the new prime minister of u.k. we'll have plenty more on the u.k. shortly. let's get to bloomberg's first word news. theome confusion about terms of the deal, president donald trump says was reached and caused him to drop plans on tariffs of mexico. he will back on illegal immigration. mexico agreed to make a large farm purchases but officials telling bloomberg, agricultural trade was not discussed. chinese exports unexpectedly rebounding inmate but imports dropped. this as the trade standoff with

the u.s. has intensified. u.s. treasury secretary steven mnuchin says he had a candid and constructive talk with pboc governor. talks have been on hold since the u.s. ramped up tariffs prompting kelly asian. finance ministers from g20 agree they need to find a common .ethod a number of proposals are being discussed but reaching a consensus will not be easy. this is coming as the u.s. is stepping up against while way. -- against while way. >> with the u.s. is doing now, they are destroying this world. the shrapnel will hurt everyone. >> the bank of japan governor says he still has plenty of options to boost the economy it further threats materialize. speaking to bloomberg, he says reducing the negative interest rates, raising asset purchases

and committing to it -- to a continued increase of the monetary base. he added, the boj is able to react. >> when some risks and if the eric japanese economy -- and if the japanese economy is affected , then, of course, we can swiftly respond by changing. >> global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. francine: thank you so much. the european central bank will support the region's economy if trade threaten the economic outlook according to the ecb governing council member. he sat down with kathleen hays for an exclusive interview.

as you may have noticed and our last meeting in frankfurt, there was a total consensus on maintaining an easy monetary policy stance, but also -- which means also taking into account the fact that we will maintain interest rates at this very low level and negative as far as banks are concerned. for a longer time. as long as needed. use all the estimates we have including those you have mentioned if needed. -- in ourmay somehow forctive goes hand-in-hand

survival and demand. [indiscernible] we don't have a dual mandate, but it is clear that the revival totals our price ability measure and increasing domestic amount go hand-in-hand. >> as long as this u.s.-china trade war is unresolved, as long as this uncertainty hangs over consumers, hangs over this assists and financial markets, at the very least, the ecb will maintain current level of stimulus, even if it doesn't take these additional steps to add more. >> the monetary stance is very favorable. policies tor other complement the ecb fiscal policy. thatl policy, we know there are differences across

countries. the countries which have fiscal space are called for helping on that side. the others is an issue of composition. somehow do not go how it is predicted, we will act. there is no question. francine: that was ignazio visco speak to kathleen hays. let's bring an interview from the g20 meeting in japan. olaf schulz says trade tensions are having an impact on the development of the global economy. take a listen. we hope that trade tensions will vanish because there is an agreement that could be reached but we need -- between the united states and china. it will be very helpful.

if we look at the growth of the world economy, we see that this pending question is having an impact on the moment of the world. these man-made problems could be solved. >> in terms of the economy, his name has come up as being the next president of the european central bank. do you support him? -- who on the cap this is ready to stimulate the economy. how are you sorting the question out? olaf: he is a very good central banker. we are now discussing the news about how we will take our decision. it will be a common decision of all the different countries. we will make it. >> do you support him? olaf: he is a very good guy.

there's procedure on how we discuss this question. >> what about italy? leaders are looking at launching some kind of order against them because they are falling out of compliance. was that discussed here at the g20? olaf: there has been a lot of debate about this question really. but we talk to each other and we have some experience. it was very wise how they acted last year. and how they acted this year following the regulations and rules that we have in giving italy the chance to adopt to this and i think this will be the way how we can proceed this time again. francine: that was the german finance minister, olaf scholz speaking to kathleen hays. joining us is carsten nickel, deputy director of research at

teneo intelligence. thank you for sticking around. there is one million questions i have on europe. overall, what is the biggest concern that people should have on europe? this kind of right-wing alliance that took form but maybe not to the extent that people are expecting. carsten: the biggest story is the realignment of politics at the center. we have seen it in france with the macron movement. in germany, the greens are doing very well. is the camp that controls the majority. .e shouldn't lose sight of that francine: do we have any idea -- we talk about the council president, the ecb president. people are not making bets on it they have the power to change

and influence each injector -- the change after he of europe. carsten: to me the underlying policy and the member states are the most important thing. the process of realignment that is going on, we could also talk about the u.s. in that context and the effect it has on trade. we are only at the beginning of that process and that means much more policy will be had. francine: how does this make money? how do banks make money in zero interest rates? carsten: you rely on a higher interest rate cycle. we are in environment where the major central banks have missed the opportunity. the window to normalize policy has not been taken. move in banks's stocks tells you everything you need to know that it was less

generous. the markets are looking for higher rates. if you get higher rates, tanks across the world will see an improvement. francine: what is your take overall on germany? from hearing actions angela merkel and her chosen successor. do you worry about germany? therobably not in terms of ultimate outcome if we were to go to new elections. greenrengthening of the party, that is -- there is a stalemate in germany. we are not going to resolve that situation. we are going to have three regional elections and germany looking inward being busy with these kind of machinations. that could never be a positive story for europe. kamal: the political outlook

probably hasn't deteriorated as much as expected. even here we have seen a polarization between the parties. outus, the one that stands from a markets perspective because we see that widening of the spread that is a direct correlation against the euro. it is idiosyncratic stories that we are looking on. -- he was fighting nine months ago. he wants reform. how think gives us an idea much he has an interest in keeping the story simmering. if you assume we are not going to go to early elections in italy before the end of year, then he is probably doing the irrational thing keeping the eurosceptic story simmering, make sure it is a fall over before the end of the year because this helps him to rally

his base. francine: thank you, both. stay with surveillance. coming up, boris. the front runner to become the next u.k. prime minister talks payments on the eu. we will talk on the rates. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua. the race for the u.k. top job

accelerates with nominations closing for the nation's conservative party later. poors johnson says theresa may -- boris johnson says theresa may has toughened his rhetoric. hold 39 billion pounds from the michael:, the second favorite has been marred by rev -- by revelations of his cocaine use. >> it was a crime. i deeply regret it. >> should you have gone to prison? >> i was fortunate that i didn't but i do think it was a profound mistake and have seen the damage that drugs do. i have seen it in the work that i have done. that is why did the regret the mistake that i made. francine: kamal sharma and carsten nickel. carsten, the odds of some of the people michael gove, 20 21.

in the past, the favorites never really got the leadership. boris is different. carsten: looks like. the question i am asking is how much does that matter? the thing to watch if the social factor. the subset of the torah membership in terms of social status. that comes with a very clear expectation for no deal. you need to play to that gallery right now. you need to realize that in parliament, majorities are very different. any winner will say. francine: if you have a prime minister that once a no deal or i am going to blow up the agreement, it will be very difficult for the eu side to renegotiate. parliament has a choice, no deal. second referendum on general election would sit more likely. carsten: what you need to look

at is the more moderate concern. beenave philip hammond has -- who has been talking down of the prospect of a new deal. what we have to remember is there is a significant minority within the conservative party against a no deal. if johnson comes to parliament with a no deal proposal, those are on the table. a vote of no-confidence, conservative party mps moving toward -- it makes them very vulnerable. institutional constraints that johnson faces or whoever the next prime minister maybe, the with drawled with agreement -- agreement. francine: no deal is government policy. it is going to put parliament in a tricky situation. we are going to have another constitutional crisis.

>> in legal terms, that is quite interesting that all the conversation about how parliament cannot legally stop a prime minister. how that conversation started on the day in which theresa may had to resign for political reasons. it would've been impossible legally to challenge a tour remember. she stepped down because she lost all political support. we need to look at the reality in which the constitution works. francine: boris johnson as prime minister, does it make it more likely that jeremy corbyn becomes prime minister within the next 12 months? convinced. get that francine: thank you so much. we need and i were on brexit. hong kong backlash. protesters flood the streets. for anlam pushes

exhibition law. this is bloomberg. ♪

francine: economics, finance, politics, this is "bloomberg surveillance." i am francine lacqua. hong kong's chief executives have promised to push through a controversial extradition law despite backlash from citizens. it would make it easier to transfer criminal suspects china . carrie lam says hong kong's leadership has taken the spirit of the action into account. >> i and my team have not ignored any views expressed on this very important piece of legislation. we have been listening and listening very attentively and very humbly to views expressed. we have already made two sets of amendments to our proposals. ourcine: joining us is china government editor, karen.

what exactly did she say her reasons for this were? did, she basically said she was going to continue to try and push this through. she has been saying, she didn't offer anything substantial in the wake of massive protests yesterday and that is something that has been hoped for, speculate once people saw how many people came out, that would apply a little bit of pressure. there hasn't been as much before despite the bill. she said that hong kong should not be a refuge for fugitives. she said that the whole time. this is been her argument for pushing this through. she did acknowledge how many people came out. she did acknowledge that the people knows the people have concerns just the government knows the people have concerns. maybe make concessions with the protesters, that didn't come to fruition.

francine: lysis worrying people in hong kong so much? >> for months, this is worried everybody from business groups, international groups, people are worried that this is something that is going to eradicate what is left of hong kong's economy. -- hong kong's autonomy. riskis going to put a where people want to come to do business. you see how much this means to hong kongers by how many people came out and how important it is to people and how worried they are amid this long campaign. how beijing hovers more influence over hong kong. francine: we will have plenty more with karen drop the day. i am looking at pound movement. this is after much worse than expected gdp figures.

we need to keep an eye on what has been happening the cousin the u.k. economy shrinking most since 2002. bloomberg surveillance into the next hour. tom keene joins me out of new york. we will bring more of the exclusive interview with javier: krona -- with haruhiko kuroda. brexit stockm evaporated. brexit have plenty from and the boj. this is bloomberg. ♪

francine: relief rally. stocks gain after president trump drops plans for new

tariffs on mexico. packing a punch. haruhiko kuroda tells bloomberg he can roll out more stimulus. on the defensive. united technologies buys it raytheon and one of industries biggest deals. good afternoon if you're watching from asia. this is this is bloomberg. tom, we had some disappointing figures out of the u.k.. gdp falling out of april. the fact they do you care economy falls the most since 2002 is something we need to keep an eye on and it has moved the pound as well. tom: maybe even some of the trade dynamics over the weekend as well. china and then percolating in the zeitgeist is this eu-u.s. battle. francine: we will have plenty more on your targets and the trade that tom is alluding to.

viviana: a blockbuster deal will create the world's second-largest aerospace and defense contractor. united technologies means to by raytheon. raytheon has a market value of $52 billion. this year the two companies will aftern revenue of -- united technologies separates its elevator and air conditioner businesses. mexico is in backing up president donald trump exclaims the big form deal was a part of that agreement. agricultural trade wasn't discussed during three days of negotiations. the agreement led president trump threat of tariffs on mexican goods has been suspended. the latest trade data from china .asn't enough to fell concerns last month there was an increase in exports but chinese imports fell 8.5%.

there was more than double the forecast. it underscores the weakness of the domestic economy. the u.k., that is where the front runners -- boris johnson said he was scrappy irish border hold -- untilhat an agreement is reached. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. and more than 120 countries. tom: let's look at the data this morning. equities, bonds, commodities, a better feel over maybe some calmness in mexico. down futures up 78. euro, 112.99. oil, good on risk on.

the vix showing the better equity market. 19.70-ish.co, -ish is what you do on a friday when all that is happened. peso.er mexican 10-year yield, that should be green, that is a higher yield, 2.13%. remember he has a life of his own, weaker this morning. francine: renminbi is a good one to watch. i saw a note saying it will punch seven in the next three months. that is something that would be really significant. looking at stocks here, gaining. the fact that trump suspended plans gives a little bit of a lifts -- lifts to the market. the yen also falling. we had the great interview with governor kuroda of the boj.

i'm looking at pound. more than expected figures out of the u.k. economy. i am looking at uber. this is pretrade. this is after we found the chief executive is shaking up management. the operating and marketing chiefs are leaving. leaving the stock prices down. tom: i'm glad you brought that up. fridays,hat you do on you throw things out like that. hopefully francine doesn't mention it monday morning. of course, she did. .rancine is on the same page this is the balance sheet of the three major banks. kuroda spending a message with kathleen hays. all it comes down to is a slow up. blowup in08 when the the balance sheets, the u.s. with a big blowup early flat. the u.s. shrinking, ecb late to

the party. the important point is japan just keeps on going with the stimulus mr. kuroda talking about. it is an original experience in japan. francine: i'll say. i have the exact same charts. tom, we are on the same wavelength. i changed it. -- i thinkto give us it is quite significant because u.k. manufacturing output fell the most in 17 years in april is a post from -- car produces in the u.k. went ahead with plant shutdowns. this had an effect on cable. it hasn't on euro pound. context.into turning back to trade, key leaders weighed in on global tensions of the g20 meeting. take a listen. >> we all hope that the trade

tensions will vanish, especially because there is an agreement that could be reached between the united states and china. this would be very helpful. >> we are hopeful we can make progress of right now we don't have a path and this entire issue between the united states and china is something we hope will move afford. the --we use some of will depend on the situation, particularly economic price situation. francine: that was the german finance minister, olaf scholz, and of course the bank of japan governor, haruhiko kuroda. we are here for the hour. discussing markets, all of the stimulus. kennedy.twell, simon

thank you both for joining us. that me start with you. the question that everybody wants to know is what happens with trade? >> the g20, the big event happened on the side which is donald trump engaging with mexico. thisnk it has put forward worry that when it comes to trump that he is weaponizing tariffs. not just to rebalance trade but to achieve a whole gamut of things. he is willing to use them on the fly. i think that is unnerving to markets and people who watch and try to forecast the president's view on trade. we'll have to see whether this becomes a permanent state of affairs at we already know about tweets but now weaponizing trade policies. francine: peter, what does this mean for balance sheets, for

such a banks. i had a chart which i cannot get up anymore. have the biggest central banks in the world lost their credo for normalizing? peter: for sure. the rhetoric about avoiding competitive devaluations on the fx channel is water down. g20 toge is set for the toleaning forward and saying the u.s., if you continue on this path, then we will be looking to make sure we keep conversation mandates, easing monetary policy, weakening our currency. really the ball is in u.s. part court. if the trade war continues, if the fed eases, the boj will be following pretty shark-ish.

tom: just introduced a chart off of mr. kuroda's conversation. simon, your professional -- you are professional. bring up a chart and it is japan year-over-year inflation. it ain't happening. mr. crowe to wants to get up to 2%. he mentioned 2%. it is deflation down here under 0%, simon. we are barely getting it going. what is your report card on how also for banks are getting to a 2% level? simon: they're all struggling. deal in thes a big early 1990's. can central banks hit those inflation targets? the sums and was you jam it full of stimulus. two theories, one, central banks have not been as aggressive as they should've been.

targeting 4% inflation in chasing after that and being more aggressive. negative interest rates have been used or perhaps not used particularly deeply. there is a question about such a banks being aggressive. you the balance sheets, whether they have been doubling down even more. would it make -- would it have any effect? then the response lives with the government. policies to group -- to boost productivity. it has changed the relationship percent of banks. episode of another so, willsing, and if that be different from the last round, central banks bailing out governments again. chatwell, what is the to do list for strategist given

mr. kennedy's good summary? what do you do in the summer given the various turmoils on how we cannot get to a normal inflation? howr: simply, you look at the central banks are going to ease. i would say the path to reopening qe in europe is quite difficult. i would expect that it is easier for the ecb to pursue --matically making their much more dovish pit after those measurements have been delivered, then opening qe. you construction your views and investments around those. where in japan, it is easier for the boj to be buying more in the open markets and then concerning rates. they don't have the issue limits that the ecb has. tom: absolutely fascinating. peter chatwell, thank you's much

. simon kennedy, thank you for the dissertation. that is what simon kennedy does best, go through the complexity of the moment we are in. the message this morning. one of them from the bank of japan governor, kuroda. go ine japanese will search of inflation. a lot going on. this is bloomberg. ♪

>> this is bloomberg surveillance. let's get to bloomberg business flash. shares are sowing. the british travel agency confirms it is in talks with china about buying its tour operating business. it is thomas cook's largest

shareholder. it is a conglomerate the deals in a rethink from pharmaceuticals to insurance. renault's 20 year marriage with nissan may be in trouble. renault's merger with fiat chrysler falling apart and nissan's reluctance to endorse the deal is said to be partly responsible for its failure. in response, renault is threatening to block nissan's plan to overhaul its governance structure. we know has a 40% take in nissan. nissan is renault's second-largest shareholder it marks off says its next-generation xbox naming console will be four times more powerful. the device will be released in time for christmas of 2020 is a new version of halo. that is the company's popular shooter game. mike soft announced the upcoming debut of its streaming platform for games. that is the bloomberg business flash. tom? francine? francine: haruhiko kuroda says central bank can deliver more

big monetary stimulus. he also says he needs to watch the side effects it can have on the financial system pretty spoke with kathleen hays. >> the fed is the most advanced in normalization. almostve in the process completed. more infatuated with strategies 2% and%, but they have inflation rate is close to 2%. risks materialize and if the japanese economy is affected and also if the momentum toward our 2% inflation sitet is lost then we would -- swiftly respond. in order to avoid as much as possible that side effect, we

may combine various tools to reduce that sort of potential side effect. those options, i think we can necessary.ze, if how to use and how these we could combine, depends on the economy -- the economic price and financial conditions, but, yes, like mario draghi, i think we can use these things if necessary. tom: thoughts from the government of the bank -- the governor. a little difficult to understand but important insight as he manages the message. we hear from draghi and powell all the time. chatwell. now, peter

we are thrilled to bring you a wonderful perspective on france, china and asia. who is definitive in his writings on china, particularly as we work on france. is it new japan? and is japan very different because of the growing might of china? how constrained is japan by a summer china? japan finds itself in an awkward position because economically it wants to keep up with china. the presidents of japanese companies and so on and so on. that is part of the medium long-term japanese strategy. but at the same time, it has the defense, the strategic links to

the united states and if donald trump forces it to choose between the two, that is going to put abe in a difficult position. with this gives of gold clubs to the president and his attempts to make more friendly relations see xi jinping is what we abe trying to steer a medium course and that can be difficult . francine: peter, what does it tell you? when we listen to governor kuroda, does he have the tools to deal with whatever comes next? peter: he has a mandate to do more. if in pursuing more monetary easing, it is slightly harmful for the japanese real economy, then that may also serve one of the intended measures which is to prevent a tightening and appreciation of the yen. it seems asymmetrically skewed toward the doj -- boj pursuing more if the dollar does cheapen from here.

francine: thank you both. both stay with us. we will get back to our guest and have more on brexit and the race to become the next head of the tory party. matt hancock you can see saying he wants a fresh start. we will have plenty more on some of the leadership context. who will become the u.k. prime minister. this is bloomberg. ♪

tom: bloomberg surveillance and an almost summer morning. francine lacqua and tom keene in new york. we are wired up for an interesting week. it feels to me like a reset week . we are going to see lots of different opinions like different houses on gdp. peter chatwell is with us and jonathan them be -- fenby. i want to talk to peter chatwell about rates at what did you change this weekend? there is so much going on. it seems like a shift moment. are you going to shift on your recall question mark peter: -- rate call? peter: we shifted. what we are looking for is a change in the forward guidance which potentially would open the

door to policy rates in europe going lower. what we did on friday, we started looking at curb steepeners in the european rates market. that is the change we have made recently. francine: what is your take on the tray concerns? china once a trade because this changes everything. >> china would like a trade deal but it wants a trade deal that has been rejected by the u.s. the danger with the trade war is it is going well beyond the trade war and china sees it close to an existential threat to the regime. francine: how does it change the weight of the fed -- the way the fed looks at the outlook? >> that deepens the concern and more emphasis on xi jinping and donald trump will meet in osaka and make some sort of presidential level deal.

francine: thank you both for joining us. jonathan fenby and peter chatwell. both stay with us. we will bring you more conversations from the g20 in japan. we will hear from the finance ministers of canada and germany, as well as the governor of the bank of england. in the meantime, i'm looking at a little bit of the u.k. economy. the u.k. economy is shanking as outputsctories ordered drop the most since 2002. it is becoming difficult to model brexit. this is bloomberg. ♪

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

♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. ♪ francine: this is "bloomberg surveillance." i am francine from london. we will talk about the pound, but first, the first word

news. >> hi francine and tom. one of the biggest defense industry deals ever. united technologies are going to buy raytheon and an all stock deal. united technologies build jet engines used in fighter engines. close next year after united technologies us -- technologies is separate its businesses. president trump hinting there are additional agreements between the u.s. and mexico the public does not know about. a day after he said that the u.s. will make large purchases -- mexico will make large purchases from the u.s. the deal and the threat of u.s. tariffs on mexican goods for now. president trump acting budget chief reportedly wants a delay technologyin chinese

huawei. he said the blacklist could lead to a big reduction in the number of companies that could supply the government. the chief executive of hong kong vowing to press ahead with controversial extradition legislation despite massive protests. estimates up to one million people demonstrated in one of thisity's biggest protest, since the former british colonies returned to them more than two decades ago. it would allow for more extradition to mainland china. global news, 24 hours a day on air and @tiktoc on twitter powered by more than 2,700 journalists and analysts in over 120 countries. this is bloomberg. tom: thank you. extraordinary images of hong kong on this monday morning. us,ave peter chat well with

but we are pleased to bring you jonathan fenby, his books on france and china are definitive. christopher patton, the former governor of hong kong said shut up and resend me. is this time different for hong kong? jonathan: yes, certainly. it is the size of the turn to begin with. things andts several most notably, the way that an awful lot of people in hong kong in the streets here and others who did not actually turn out on a very hot day, resent and are deeply worried about the way beijing has been increasingly establishing its control over hong kong. -- one country to systems hastry, two systems idea

become less and less preserving the hong kong system. tom: jon, that is right where i want to go. hong kong is the heritage of four large families. now we come forward 10 or 20 ingh -- isnd s that a seismic shift where hong kong will be folded into mainland china? jonathan: that is the way that beijing is going and has been going the last two to three years. yes, you can have some freedom and some international links which you do not have in the mainland -- that will be allowed. but in the end, hong kong castro member that they are part of one country and that is what they are resenting here. it goes beyond strictly their extradition issue. francine: what is worrying people so much? jonathan: that beijing is basically running hong kong. as simplein this is

as that, but it has been the case for some time. jonathan: it has been the case, but there has always been the idea that hong kong's rule of law would be independent from the mainland and many ways functionally. that is now being eroded fast. tom: jon, there have been a series of governors in hong kong, and now we have a new president xi taking a much more rigid stance, a more communist stance. do you look at hong kong like shanghai as being an extension of the communist party or does it sit in a quasi-capitalism unique? jonathan: it sits in a quasi-capitalist niche there and that is what people in hong kong thought would be the case or 1997 onwards. now they are wondering whether exactly the first formulation as justether it is seen

another big chinese city. francine: should we worry about it more than we worried about it now? >> i do not that we should worry about it more, but we should pay attention to the remember the to go through -- to the room and - francine: but it is the speed at which it gets there. >> it also depends on whether it has been soft capital controls in place. are preventedows or contained it to a degree, then we can have a managed to move and that can be to the benefit of the chinese economy. francine: should we worry about the outflows or will they put capital controls in? they have been in place for some time. sure thatis making the government rhetoric stays sufficiently strong to prevent that. havehan: capital controls

been there and they have been strengthened, but also a question of inflows which have been quite strong with equities and bonds. that is over the last six months or a year, but whether they will continue are not. francine: thank you. well,an fenby, peter chat both stay with us. so the front runner to become the next u.k. prime minister -- up next, we will focus on the race. this is bloomberg. ♪

♪ ♪ >> if thinks somehow -- things somehow do not to go how predicted, we will certainly

act, there is no question. -- withery wise following the regulations and the rules that we have and giving italy the chance to adopt to this, and i think this will be the way of how we can proceed this time again. that was the german prime minister of the budget compromise from italy to the eu. the race to be the prime minister and the u.k. is accelerating. boris johnson, the frontrunner to succeed theresa may is hardening his rhetoric on brexit and unveiled a tax-cut plan. johnson said he would scrap the irish border backstop and withhold 39 million pounds from the eu. ,till with us, peter chatwell and jonathan fenby.

thank you for sticking around. at, iis so much to look am looking at the candidates, very controversial about a abortion,things like boris johnson, controversial on many things. touess what the markets want know is if there is a no deal prime minister that wants to push for it, i.e. boris johnson, what happened? he says he does not want to pay the divorce agreement and then renegotiate with the eu >> that's right. scrapping the backstop as you just said, but none of this is likely to bring him any friends in brussels. the idea on the european side as they will offer mr. johnson anything they have not offered to missus may is probably quite unlikely. you are seeing the pound it down

a little bit today we have had some pretty shockingly bad economic data as well which reminds everyone that the country cannot take too much more of this uncertainty. but yes, the possibility of no deal. remember, parliament has blocked no deal or the idea of it. whoever is leader of the conservative party does not change the numbers in parliament. francine: peter, what does the market believe? is boris johnson as prime minister priced in, and does it make it more likely that labor prime minister, or a second referendum, or no deal? peter: the betting market is pricing boris johnson as the strong favorite, but what i think the market is not fully factoring in is that there will likely be, if he is confirmed leader after the election

campaign, is they will probably have a resurgence of the conservative party in opinion polls. and then once they realize they cannot deliver on the no deal brexit, they are more likely to go to the general election. i think the market is not pricing that has a significant risk that is growing. tom: david, i was coming in today in the bentley made with british steel, and i was thinking about the sequential path of what we see over the next coming weeks. to me, the first thing is what the europeans will do in brussels with prime minister meriter, prime minister johnson, or whoever it is. how do you presume europe will respond to a new tory prime minister? is the question, but it is unlikely they will respond any different to how they are responding to missus may. tom: exactly. david: there is a version of brexit the european union has offered and they say that is

final. if anything, a more aggressive approach to the prime minister may see europe hardening as well. it is going to come back to parliament, do you want this version of brexit or something else? tom: so what has changed? get prime minister johnson, he wins, he has an october 31 date. do i need to book my trip to england october 26 -- is that what we are doing, another week in october in london? see overthink we will the summer whoever is the prime minister which way this is going to go. isthat deadline in october really realistic, it does not look that way from where i am sitting. we are going to have another extension to do anything and get anything more done. you have to change parliament to get a different outcome. parliament cannot agree as things stand. tom: jonathan fenby would like to weigh in.

to this, you listen discussion with david wired up. what is the fenby response? jonathan: i just came back from paris and the french are not going to give way to boris johnson or anyone else. some of the people i spoke to in paris were saying really, are you going for boris johnson now? is that what we are facing at the end of this process? the french will be very resistant to any change in the deal or any delay. the germans may be slightly more emollient. tom: jonathan fenby with us, thank you, david so much. david merritt as well as peter chatwell. i really want to point the jp morgan out moments ago, in important research note -- they shifted their pound calls south and are very terse about the election outcomes if there is one.

let us speak of another conversation today, bloomberg daybreak. really timely discussion on productivity and the impact of technology after the ugly jobs report. romer in the 8:00 hour. please stay with us, this is bloomberg. ♪

♪ this is bloomberg surveillance. >> let's get the bloomberg business flash. american airlines is extending flight cancellations for boeing's troubled to 737 max through september 3. that affects 150 flights per day. suggest boeing's fixes will take longer than expected. some chinese exporters have found ways to dodge u.s. tariffs. vietnam says it has found dozens of fake product t -- product labels. exports from vietnam to the u.s. rose 40%. investors hoping to make

windfall from their stakes in fannie mae and freddie mac will have to wait. financial secretary steven mnuchin made it clear, it will not happen without an overhaul of the housing finance system. mnuchin telling bloomberg, the key reform can only be implemented by congress. that is the bloomberg business flash. francine: thank you. the 20 year marriage with nissan may be in trouble. the implosion of chrysler has brought the tension out on the open. japanese automakers reluctant to sndorse the deal, and france' finance minister spoke to tokyo this morning and said he still sees the merger as a great opportunity. we will have plenty more from that today. joining us now for more on this bureaubloomberg milan chief. when you look at the possible

alliance and merger, they were going to merge, they were not going to merge because at the last minute, fiat chrysler pulled out without the support of the french government. what we understand right now? >> that is a good question. i think we should pose the question to the french government and it is a bit unclear to what the french government wants. they clearly are blaming the french government for the withdrawal of the proposal because the french government and asking for more time clearly a sign to the french government is in the driving want to fiat does not with renault. weekend,een over the conflicting calls about the future and clearly the situation at the moment is unclear. fiat is not back at the table.

francine: you have a great insight because you have been following fiat for many years and you just wrote a book. if we take a step back and leave politics to the side, does it make sense for these companies to actually emerge from just a pure, industry carmaker point of view? tommaso: it absolutely makes sense. this goes back to the famous presentation called capital confessions, the car industry uses too much capital and investing in double capital double investers in technology so you need to merge them. has muchtegy which more, fiat will give the u.s. renault, so

there is a lot of sense of doing this deal. clearly, it looks like a new protection is going in the other direction. let's see how it goes. for the moment, fiat withdrew its proposal. , there the united states is the f-150 pick up, lots of big suv's which turned profits, profits, profit. where is the prophet in europe? tommaso: nowhere. ?om: where is the profit tommaso: europe, there is no profit for the mass carmakers. profit, it is very difficult in europe if you are a mass car producer, if you make premium brands. so one of the reasons for this merger is to become bigger to reduce costs and eventually manage to return to profits.

tommaso ebhardt, thank you. peter chatwell with us. i read your book this to cover, there is whole thing about unions and france. labor relationship coming out of world war ii obviously involving autos as well. give us a union update and labor in france and for that matter, in europe. the unions and france have been losing ground, losing membership. but that has not made them any less militant as we have seen over the last few years. i would add to that not just unions, but the french, the power of the french state which is very important and is

respected very much by the right as well as by the left in france. fiat-renault the question, the french state as represented by emmanuel macron and the finance minister, they want more of a say in any joint company. that is what they were insisting on, then fiat wants. it is the french state and rather the french unions although the two are closely aligned. francine: what does it mean for when future possible mma -- there has been something that the french government has had a list of crown jewels that no one would touch. when will that change? jonathan: some of them are pretty ridiculous. that is not going to change. tonce is feeling the need the french state macron

presidency the need to strengthen the idea of france is back again, not to give anything away at the moment. it is going to be difficult from the m&a point of view. tom: quickly here, jon, tommaso talked about no profit in europe. it is a basically state support industry? >> it is largely because of exports including the exports in china that may be different from this, but certainly, the state is very important and the idea of having a national champion carmaker remains deep in the european psyche. runs against m&a players in the game. francine: there is a belief in the market that some parts of

europe are not open for business and that it is archaic systems. does it filter through? >> for sure it does. velocity of money, take it back to the basic fundamentals of why europe looks to be disinflationary, stuck in a liquidity trap. s incompetitivenes certain sectors, that rebounds kinds of things. tom: peter, great stuff. stay with us, this is bloomberg. ♪

♪ >> this morning, all is good. risk on andund,

mexico will buy quote "large quantity of agriculture products from our farmers." central banking 2019, a race to moreottom and an ever negative interest rate, the world is going to end. protests -- hong kong is not china. good morning, this is bloomberg surveillance. i am tom keene, francine lacqua in london. eight days to go. those images and hong kong are just extraordinary and as jonathan fenby said in the last hour, this time is different. francine: yes, this time is different. we have reporters on the ground trying to figure out exactly what that means. there is longer-term gain here and i would also point to the shrank,t the u.k. -- and this brings all of the

uncertainty that we have surrounding brexit. it is the last day that people can say they want to be a part of the race to become the next prime minister. that is today so we will have a full round for you tom: -- full round. tom: let's get to bloomberg first world news. >> a blockbuster deal will create the second largest aerospace -- raytheon having a market value of $52 billion. this year, the two companies will post annual revenue of about $74 billion. yeareal will close next after united technologies separates its elevator and air conditioner businesses. -- is not backing up. saying thatcials agricultural trade was not discussed during three days of negotiations. presidentent led trump to announce the threat of tariffs on mexican goods have

been suspended. last month, there was an unexpected increase in exports, but chinese imports fell eight .5%. double there than forecasted decline and underscores the weakness of the domestic economy. in the u.k., the frontrunner for succeeding theresa may as prime minister, boris johnson says he would scrap the irish border backstop. 50also would withhold billion dollars owed it to the european union until an agreement was reached. to leavelso pledged the eu on october 31 even if there is not a deal. global news, 24 hours a day on air and @tiktoc on twitter powered by more than 2,700 journalists and analysts in over 120 countries. tom: very good, thank you. equity bonds, risk on, commodities, futures up nine,

the curve steepening that, life is good and onto the next stream with a big showing of resilient markets with 16.16. down to, 19.70 ish 19.19, stronger. the peso 2-year yield should be green on the screen and a solid six basis points. crisis over, and i put renminbi in there. francine: this is what i am looking at overall with a very similar data check. treasuries are dipping on the fact that there is a little bit of release regarding mexico. i did see a couple of people saying that they are just confused because president trump is talking about a deal, but he suspended punitive tariffs on goods from mexico. that means that the yen as a haven, and we also spoke to governor kuroda who said that he has the firepower to deal with whatever comes his way. priceooking at uber stock

pretrade by this is after we are seeing some management changes at the top and this is basically the operating and the marketing chiefs leading in this and i am also looking at a note by jmp saying that uber shares on the weakness after the management changes is a good time to buy. turning to trade, key leaders weighing in on global tensions in japan. >> we all hope that the trade especiallyll vanish, because there is an agreement that could be reached between the united states and china, and to be very hard. >> we are hopeful that we could make progress but right now, we do not really have a path and this entire issue between the united states and china is something that we hope will help to move forward. i think there will be no change in the scenario that the

global economy will pick up in the second half of this year. although there is still some uncertainties, i am pleased to hear the news about president trump's decision to ditch plans for on tariffs to mexico. fromluke powell is with us bloomberg news it also, the chief content officer for bloomberg. marty, i want to go right. the president of the united states now with our new deal, mexico doing more on immigration than the democrats, the democrats are doing all caps, nothing, and they want open borders which means a -- illegal immigration, open -- do we have an agreement? what was the actual agreement brought out friday in the depths of the new cycle? >> are journalists -- our

journalists were scrambling to figure out what was happening now. tom: is there an agreement? >> there is an agreement on what mexico will do for the border enforcement but there is no agreement on agriculture. tom: but i am not even sure there is an agreement other than that they are going to deploy their national guard or whatever, right? that seems to be the case. mexico did figure out that they need some sort of headline that donald trump could tweet that showed progress, and they gave him that in those discussions and we will have to see if it is substantive or not. mexico has created a problem longer-term foretells in terms of border enforcement. -- for it self in terms of border enforcement. francine: the president once again used these tariffs to push

foreign policy, or was this a one off and actually not a good idea. is just thenk this start of a trend of donald trump weaponizing tariffs in situations where you wants to achieve foreign policy goals. i do not think that she probably and in my view considers this a success and will use it again. i think the mexico trade issue and china trade issue are completely different. this does not presage a similar situation with china. francine: what else are we looking for this week in washington? it move, does the dialogue move away from trade onto something else? marty: i do think, as usual, donald trump sets the new cycle ended depends on what he decides is the most pressing thing. i do think the mueller investigations have been put on the back burner the last week with mexico, and donald trump

himself can get it back on. he tweeted over the weekend about mueller, and i think you will see the investigations heat up. tom: here is the great exclusive, the president has learned how to retweets. he can put out for five retweets. i think i've had six retweets since marty started talking. marty: he knows how to do that and he uses that quite effectively. it definitely works. a cross assets team that is absolutely superb. what do you and the team observed this morning, all of these distractions, mr. shanker is talking, and then risk on? turning you look at a point in terms of during the trade war in terms of when u.s. began to outperform the rest of the world again, it was essentially when jerome powell

opened the door to the rate. we have beenat, outperforming more of the rest. what strikes me, i do not know about the yield curve steeper. i thought it was something that was going to hit the real economy more than financial yet, we ared keeping a lot of the fed cuts priced in and the dollar stronger. tom: when you get a plan, let me know what it is because i do not have a plan for the markets. francine: yeah, a couple of people have plans. that is the u.k. and the people entering the race to be the u.k. prime minister. thank you marty schenker and luke kawa. a lot of the conservative party leadership contestants putting out some of the things they would do. boris johnson just pledging to cut income tax bills are people

earning more than $50,000 a year if he were to succeed. have until 5:00 p.m. u.k. time to enter the race to become the party leader and the prime minister which is where we are listening to dominique raab right now. in the next few hours, expect more leadership people explaining what they would do. this is bloomberg. ♪ >> collect the response ability missing in government for far too long. too long.

♪ this is bloomberg surveillance. let's get the bloomberg business flash. nault's 20 year marriage with nissan may be in trouble. the merger with fiat to falling apart.

in response, renault threatening to block nissan's 43%, and renault has a stake in nissan. today shares of thomas cook are soaring. the british travel agency in talks with chinese international. deals withe that everything from pharmaceuticals to insurance. says its next-generation xbox gaming console will be four times more powerful than the current. the device will be released in time for christmas 2020 with a new version of halo, the company's popular shooter game. microsoft also announcing an upcoming review of its streaming platform for games. and that is the bluebird business flash. francine: -- the bloomberg business flash. francine: thank you.

governor kuroda says that the central bank can deliver more stimulus, but they also need to watch for the side effect it could have on the financial system. he spoke exclusively with bloomberg. even the fed to come as far as i know, is likely to maintain the 2% differentiation target. -- depreciation target. the only thing they are now discussing is how to maintain the inflation target and how to communicate with people and so on and so forth. , well before the completion and inflation rate is still 1% or one to 1.5%.

as far as the bank of japan is concerned, the inflation rate is only 1% that is halfway or something to 2%. it among the three central banks is different. among the three central banks is different. farther increasing the amount of asset purchase and farther committing to the continuing increase of monetary base and so on and so forth. think we can still utilize those options if necessary. how these can and be combined, that depends on the economic price and financial

conditions. draghi, iike a mario think we can do these things as necessary. yeah. mr. managing the message, kuroda with our kathleen hays, moving the message forward for the bank of japan. we move the conversation forward with luke kawa of bloomberg and we are thrilled to have dana peterson with citigroup. off of your good work, dana, a few years ago at wesley and at wisconsin madison is an idea of central banks getting their work done, are they getting it done now? dana: i think absolutely central banks are becoming much more accommodative. tom: so a new round of accommodation. dana: indeed. tom: what is this for citigroup,

qe 6 or 7? dana: [laughter] [applause] willticipate that the fed remain on hold for now and is waiting to see the eyes of a trade deal. tom: you crack open the books, you go out to wisconsin, you crack open further books, and where we are right now is none of your textbooks? tom: no, -- dana: no, it isn't. but fiscal stimulus when you do not have a crisis and trade wars, so these are uncharted waters. francine: when you look at some of the risks out there, how does trade war for the next five to 10 years if we do not get the resolution or the backwards and forwards, what does that mean for central bank policy? dana: the uncertainty is still quite strong and we think it will increase. the u.s. may indeed impose tariffs on all chinese imports

and if that is the case, then we expect central banks to respond. the only problem is that central banks cannot to lean against the fact that we are going to have fiscal drag in 2020 and other trade war, whether you have a deal or not, are going to continue to weigh on the world wide economy. francine: luke, what is your take on how we should treat the trade war? is it deflationary for the world if what we so so far? luke: so far, it is hard to play a passive prologue for the trade war. if you are going to have a trade war and not have an effect on prices, in the u.s. last year was the best time to do it. it was the best time to see not full pass-through. as you go to the tariffs on the full range of chinese imports, that story may begin to change more, but in regards to central banks, when you look at what

everyone is looking at, a global trade war, average inflation -- all of these are reasons to be structurally more dovish. especially given the fact that expanding balance sheets and superlow rates have not had a strong connection to inflation at any point in the cycle. tom?ine: we will get back to that shortly. dana peterson and luke kawa, staying with us. , the at the brexit frontrunner to become the next prime minister. we will focus on the race for the top job next. this is bloomberg. ♪

♪ this is bloomberg surveillance. tom and francine from london and new york. the rate for prime minister in the u.k. is heating up with several candidates launching their campaign to be the next leader. boris johnson, the frontrunner, hisarder -- hardening rhetoric on brexit. he said he would scrap the irish border backstop and withhold 35 billion pounds from the eu until a new agreement is reached. let's bring an bloomberg government reporter, we also heard from michael goat apologizing -- michael gove apologize for taking cocaine yesterday.

boris johnson, is it is to lose?t his to >> it absolutely is. [indiscernible] a difficult connection from inside the announcement of jeremy -- francine, let me go back to you. you mentioned mr. gove and slack with prime minister may mentioning her support of mr. gove. francine, do you expect it will get down to 3, 4, or five candidates quickly? therene: yeah, basically, is a vote in parliament. if you do not have a threshold every time, it goes from 11 to 6 do11 to 8 and the ones who not have its will get put out. we will have a clear idea and

the next two to three weeks of who could get it, and then they have to put the vote to the grassroots brexiteers, the conservative party. if boris johnson makes it through the parliamentary vote bes because we end up with -- with theause we end up two candidates, if he gets the two, he will end up as prime minister because of name recognition. danawhat we do have is peterson of citigroup and luke kawa of bloomberg news. luke, j.p. morgan came out with a sterling reduction, they quoted 135-ish down to 129. the vector seems down and economic data seems down, and within your reading, is sterling traded right now -- trading right now? luke: i am surprised. i thought people had taken it off the table, that was the impression i was getting.

it is because of the perpetual, political overhangs coupled with the backdrop that you are starting to see the limits to stock building and the economic data not there, so i was surprised. luke kawa, sterling call, we will get him to do that in a bit. well,is a g20 meeting as we will hear from the finance ministers of canada and germany as well as the conversation with the governor of the bank of italy. --a peterson of city citigroup with us this morning. what you need to know, risk on on mexican tariffs drift away. this is bloomberg. ♪

at comcast, we didn't build the nation's largest gig-speed network just to make businesses run faster. we built it to help them go beyond. because beyond risk... welcome to the neighborhood, guys. there is reward. ♪ ♪ beyond work and life... who else could he be? there is the moment. beyond technology... there is human ingenuity. ♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. ♪ bloomberg surveillance, good morning. francine lacqua in london, i am tom keene. it is a defense industry, combining.

we are going to talk about this later in the hour, but francine, these are two venerable u.s. firms, and you wonder how the pentagon will adjust and adapt to raytheon technologies. it is going to be $100 billion business. francine: yeah, this is huge. the currentf technology shareholders, so that is why i said bill, tom. they will own most of the company after the transaction, so there are questions to be raised. and we are on track to figure some of the players here in europe. still with us, luke kawa off from bloomberg. he is a cross asset reporter, and a dana peterson of citigroup. let's come to you with a chart that looks at the boj balance sheet. if you look at the central banks

around the world, the boj, ecb, and fed respectively -- have they missed the window to normalize and what does that tell us about the possibility of a recession coming? the: when we talk about concept of opportunistic normalization, what does it probably mean? in means we probably policy now than it should have been, so i think it interesting to throw it away. none of these central banks have sustainably had their inflation targets over a cycle, and some of the remedies and alternative scenarios, it makes you wonder if they would have even been normalizing at all based on last year and the outlooks. tom: dana peterson, part of your charm is that you really look at the citigroup literature. what did citigroup change over the weekend? what was the nuance that caught your attention across all of the citigroup research? dana: [laughter]

it depends on which research you are talking about, but certainly, we have said that we still expect the feds to remain on hold. tom: you are not calling for a rate cut? dana: no, but we think the data has been week. payrolly friday's reports, you had a very weak number, and markets are definitely conflating to the week number with trade wars. it certainly does give the fed a little bit more fuel for the fire for potentially softening language and ultimately perhaps even cutting interest rates this year. tom: luke, you are squirming over there. luke: this is the big thing the bond market is wrestling with. is the data bad enough to kind cuts will be any reactive and prolonged easing cycle, or do we somehow have this beautiful moment where we tens inverted. that suggests to me that the

market believes that risk ask be risk assets can better, so it is something certainly that is not prevalent in the equity market. longine: luke, how can this last and when does this actually invert? i do not know if there is a signal you might be watching. luke: today, i will be watching the idea of sector rotation the fact that we have interest rates up. i think that would be worth watching, but in terms of how long stockmarkets can stay somewhat disconnected from the economy, i would say do not hold your breath, especially with the bond markets. tom: we are going to continue this discussion and will look at -- rtn with bruins? luke: bruins. tom: there you have it.

right now, the first word news. >> it is one of the defense industry's biggest deals ever. toted technologies agreeing buy raytheon in an all stock deal. oftheon with a market value 50 2 billion dollars. united technologies builds jet engines used in fighter engines. next yearill close after united technologies separated elevator and air conditioner businesses. thereent trump is hinting are additional agreements between the u.s. and mexico. coming a day after he said that mexico would soon make large agricultural purchases from the u.s., this as a part of the deal on illegal immigration. mexican officials saying the matter was never discussed during negotiations. and president trump's acting budget chief reportedly wants of the lay on the ban on chinese

huawei technologies. he argues that it places a burden on u.s. companies. he said the blacklist could lead to a big reduction in the number of companies that could supply the government. the chief executive of hong kong vowing to press ahead despite a massive product -- massive protests. a million people jamming the streets, demonstrating one of the city's biggest protests. britishce the former colony returning to china more than two decades ago. it would allow extradition for the first time to mainland china. global news, 24 hours a day on air and @tiktoc on twitter powered by more than 2,700 journalists and analysts in over 120 countries. this is bloomberg. tom: thank you. one of the great things we know is over the weekend off the friday announcement by the president, there has been very little information about what

the mexican agreement actually is. people are struggling this morning for those details. we are getting more information --m the president which terry haynes only appearing with us when the president trump, three minutes before his appearance. [laughter] terry the president of the fully states, we have documented another part of immigration and security deal one theico, the united states has been asking about getting for many years. it will need a vote by eight mexico's legislative body. we do not anticipate a problem with the vote, but for any reason the approval is not forthcoming, tariffs will be reinstated. extraordinary. where are we on this? are we going to reinstate

tariffs? terry: i doubt that very much. what the president has been up to near as i can tell is engaged in a lot of discussions with mexico and what the administration wanted was to formalize and get the closure on a lot of that, so they have. i will take the president at his word that some of this required legislative approval and neither he nor i nor experts in that regard, but he has some. and he has decided to put pressure on the mexican government to make sure this gets done quickly. i expect it will be and i look at this as more of a one-off than anything else, but it is not out of the realm of conceive bility. tom: i read over the weekend that there would be a shift of businesses, and that businesses had enough of ad hoc, is there really going to be a shift that congress has to get involved?

terry: no, i think it does not. i look at this as a snapshot of the moment. what you have in washington is the admits ration doing what they do on tariffs, you have a lot of bipartisan support in congress, and you have a little restiveness going on. being as much as about people in congress and the downtown and the business community not read into the policy as anything else, but i think that is largely a one-off than it anything else. businessistration and is going to focus more on getting the new nafta past than anything else. -- nafta passed. francine: are we going to have more tariffs on europe? terry: i doubt that. i saw some reporting in european papers in english papers over the weekend to that effect -- i

doubt that very much. where the administration has been for almost a year now since the eu-u.s. negotiations started last july was that the president would not entertain auto tariffs as long as there was progress in the negotiations. there have been by all accounts. and ict that to continue, expect that to continue without additional automotive tariffs, and the white house does not have to decide until november at the earliest. francine: terry, how can we be so sure? i do not know if six months ago, the president was tweeting something about south africa -- how can we as market participants figure out what he will go after next? this makes them popular with his base and he wants to be reelected, is that not the premise of anything we talk about? terry: i think it is not the premise with respect. it is certainly a factor, but i do not think it is fundamental.

the administration has always been transparent about what it wants to do on trade, to the point of writing a lot of this stuff down. but where they have been on u.s.-eu for example for the last year, and started with this premise is that as long as negotiations are proceeding well, they would not have to get fs a decision on auto tarif and i look for that to maintain for the foreseeable future. it is not out of the question that the administration decides spur torect that as a get something finished, but i do not look at that as a substantial possibility, no. tom: what happened to the republican senators off the mexican announcement friday, terry? do they regroup, how do they respond to the president's quote "success" unquote? terry: i think they will be pleased with the success and

they will urge the administration to put the vast majority of resources on inter-american trade towards getting the new nafta, the u.s.m.c.a. agreement approved and ratified as soon as possible. think the business community will turn and the administration will turn and try to put pressure on house democrats to get their hearings in order and the ratification process in order. and get their negotiations in order. tom: thank you. terry haines with us this morning. later today, bloomberg daybreak a, a conversation with paul romer. on productivity and the new technology and its affect on all of our lives. in the 8:00 hour, and this is bloomberg. ♪

♪ all the instruments that we have including those that you have mentioned, if needed, if broughtmay fail to be back in line with our objective. he is a very good central banker. europenot discussing in how we will take our decision, it will be a common decision of 14 different countries, and i think we will make it. francine: that was the german hotznce minister olaf sc indicating support for one candidate as the new u.k. prime minister. now two your single best chart. side, dana american

peterson from citigroup with us. and on a relative basis, the inflation estimates of the united states and all you need to know is europe is worse, you're a posse equivalent is down here. bettere are still in a position on inflation guessing than the euro. do we maintain that in the coming data-dependent quarters? dana: inflation is certainly missing the fed's 2% and -- 2% objective, and we are doing better than everyone else. and the fed is still seeing this transitory element. tom: i am going to rip up the scripture. kuroda was just saying the same thing you just said, a 2% target. no one is near the 2% target. do we need to bring the 2% target down or do we need to explode the outside reaction function that brings the target up as we know it would?

are we at that point? dana: i do not think the world is ready for a higher inflation target projection. and we are missing those objectives. i think it is important to keep something that everyone can really understand and certainly, monetary policy can continue to work towards achieving those objectives. and certainly when you think about the trade wars, in the short run, that is inflationary come up over the longer run, deflationary. francine: overall, what are we misunderstanding about our economy? there is a productivity puzzle that is going nowhere. not reallys also going anywhere, is it because of a sharing economy, and is it really not time to change the mandate, certainly for the ecb? dana: productivity is one of my least favorite measures and we have two different things going on at the same time. we have seen stronger economic growth, but productivity is weak because the labor market was

recovering over the last 10 years, and now we have reached full employment in the u.s. economy. it is up to gdp growth and certainly last year, the economy was supercharged by fiscal stimulus and we are seeing less of that. i think maybe productivity is not the best measure to focus on, but certainly, you have seen changes in demographics and the way that consumers consume that has affected inflation. those are the elements across many advanced economies. i think those elements are more structural and probably not going to go away at any point. francine: dana, how do you view europe in general? if you look at the structural concerns, a lot of them come from the economies. ecb is think that the certainly running out of tools relative to the fed. the concerns are not just concentrated in europe in terms of the forces that are weighing ecb and

decision-making, but certainly strongde dispute, very trade issues as well as the entire main fracturing sector in europe. tom: what is your gdp call 12 months forward? you have a sanguine idea. dana: our call has been 2%. tom: 2.0? did not know you are that grim. dana: that has been our call for almost two years now, and that is reflecting in the u.s. but that is still a quarter percentage point above where potential growth is likely to be. i think if we did not have the trade wars, we would not be talking about fed cuts right now, we would be talking about the fed continuing normalization. the trade wars were a major shock for the u.s. economy and global economy. thank you, dana peterson of citigroup global economist. we are also getting some

pictures of jeremy hunt, the foreign secretary, launching his campaign to lead the u.k.'s tory party. he made waves to because of his stance on abortion. of jeremy he back hunt as conservative p.m., or conservative leader and therefore u.k. p.m.. we will have plenty more on brexit and the leadership break shortly. this is bloomberg. ♪

this is bloomberg surveillance. i am viviana ours -- viviana hurtado. through september 3. affecting about 150 flights per day, the 737 max has been grounded following two deadly crashes. fixes will take longer than expected. some chinese exporters have found a way to dodge u.s. imposed tariffs using fake of fake made in vietnam labels. companies trying to sidestep

tariffs on everything from textiles to steal. the exports from vietnam to the u.s. rising 44%. tom: thank you. if you need to get ready for your 10:00 a.m. meeting today and need to be smart, 100 billion dollar company, $74 billion transaction of ray theon to be taken out by utx, you need this beautifully -- i need to go to the heart of it. the behemoths versus a sprawling conglomerate is -- conglomeratization. operablethis make an behemoth versus a mass? >> it is certainly going to be a challenging task and they are

still integrating, but what makes this easier is that you are dealing with the same kinds of business. the same capital requirements, the same margin profile, similar growth profile, so that makes it a lot easier versus the old united technologies was having to juggle aerospace business with climate control and elevators. we will of the things see in the behemoth is the cost. they call out $1 billion in costs, and it has got to be way more than that. right, i think you are it probably will exceed the estimate and we have seen that was united technologies with goodrich that required $18 billion in 2012. colonies the rockwell are also conservative, so i think this is a pattern for united technologies. but there is a lot of of overlap in terms of back office staff in

terms of procurement officers, so i think in terms of that type, there will be a lot of opportunity there. francine: do you think it will spur more m&a in the sector, but for the moment, people will see how it goes because it is so big and then decide what to do with their own companies? brooke: i absolutely think it will spur more m&a in the company. first the rockwell deal at, and now with the raytheon deal -- this has to be a wake-up call. the reason why technologies is doing this as they feel like they need more leverage to go into the conversations with boeing. they need to be a behemoth so they can have the scale in this industry. they think that is the way to go to have real power here. if you are another aerospace supplier, you have got to be thinking about are we comfortable with our size or do we also need to pursue some kind

of transactions. brooke, congratulations, a beautiful essay on the ramifications. brooke sutherland writing for bloomberg opinion. francine, this is really important. citigroup way out front on this roll up that we are seeing all across america. francine: absolutely and something went to keep an eye on. we are getting breaking news out of the various candidates trying to become the new u.k. prime minister. jeremy hunt watching his campaign. we need to keep an eye on that, tom. ♪ >> we need to get real.

>> central banks to the rescue.

the central bank will respond with lots of ammunition if threats materialize. the latest central bank to offer support as the global economy grows. trump walks away from tariff threats on mexico, but will mexico really purchased more ux goods? -- forms an forbes massive company to expand its reach into the aerospace and defense industry. we thought we didn't know about the deal, but now we really didn't know, the president said there isn't more to come. if you didn't know it all yet, there is still some more. >> basically there's another important part of the immigration security deal with mexico but threatened that if it doesn't pass, terrace will come back. -- tariffs will come back.