francine: no show throwdown. the president threatens more tariffs. european stocks follow higher. local governments have room to spend on infrastructure. not yet exclusive. contracts, head-to-head. francine: welcome to "bloomberg surveillance," i'm francine lacqua in london. stoxx 600 gaining. u.s.-chinacus on

with renewed hopes. study.. 10 year yield , 53.7.il some banks putting into question on whether the saudi-russia alliance will hold. will bring you our exclusive interview with the editor of one of china's more combative state run newspapers. interview, onive how to compete with huawei on 5g. >> president trump is complaining the fed doesn't listen to him. this, after the deal with china

central bank. they are expected to discuss if a rate cut is needed. the white house is weighing more sanctions against iran. go-between.ll be a france,likely sever germany and britain from tehran. that could exacerbate divisions between europe and the u.s. a helicopter crash in manhattan, killing the pilot. he wanted to return to the helipad, after reporting a problem. to crash landed into the roof of a building on 7th avenue in the rain. the mayor saying there is no indication of terrorism and there were no other injuries. 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. this is bloomberg. francine: donald trump has 25%atened to raise tariffs, or higher on $300 billion of chinese goods if xi does not meet him at the g20 later this month. greatsident xi, relationship with him. i think he will be there. we are scheduled to talk, i think, interesting things will happen. let's see what happens. francine: joining us, andrew and christopher. thank you for coming in. professor, what is your base war?scenario for the trade

normalooks like the new and if not the trade war, then a tech war. huawei is the beginning. united states and president trump not feeling very comfortable about china's rise to prominence in the way they are dealing with the world. i might be wrong. that is how i read it. the reasonexample, for threatening more tariffs -- they are not economic. it is more pride. francine: if it starts hurting the 2020my, given election, will the u.s. not back

down? christopher: you would hope so. it is not going to hurt u.s. economy as much as other economies. it will hurt it but not very much. be, when making a political case, before, the election you will say look what we have done to them. we have taken some cost. i don't agree. i can see the playing politics and avoiding. francine: we talked about this in the last couple weeks. at what point does it hurt u.s. economy? think we are potentially already seeing it in the data.

growth decelerate and one q to two q. production number softer. cap expending numbers softer. the real channel will be the margin . line.gin this is not going away anytime soon. that has been a 30 year trend of globalization, structurally fantastic for corporate margins/profitability. if we are talking about reversing, that will not just be about second-quarter earnings, it will be in the numbers for many years to come. francine: does it mean chief executives will just have to get used to it? capex will pick up again? this is the new normal? or we will see the consumer tailing or a depressed investment? andrew: the risk is more to the latter. without the market fully realizing it, many tech capex

boom over the last two years. this represents a catalyst to pull back from that. confidence is everything for the consumer and for business. this is one more reason not to do something, to push activity back to a furniture -- to a future quarter. francine: what are other unintended consequences? it is about technological supremacy. the worst is the uncertainty. business needs to know what kind of environment they have when they are investing. you are investing now for yields in the future, next five years or more. if you think, ok i don't like immigration policy of this country, i will affect trade. they are completely unrelated. -- your business

analysis, forecasting, saying, this is where i expect the economy to go because these fundamentals are around. some completely unrelated political thing comes over. back.ss pulls it is not a long-term investment that will give you sustained growth. francine: we will talk about the impact, next. christopher and andrew, both staying with us. next,ith "surveillance," including, and then there were 10. they will discuss the front runners. plus, inside track on trade war. interview excuse of at 9:40 a.m. u.k. time. this is bloomberg. ♪

francine: economics, finance, politics. this is "surveillance," and i'm francine lacqua in london. executives that a top company resigning after accusations of inappropriate behavior. the latest allegations of sexual harassment involving lloyd's of london. the incident reportedly happened at a party.

shutterfly jumping on news of a buyout at $51 per share. the deal values the online retailer that $1.47 billion. apollo will assume $1 billion of debt as it moves to merge shutterfly with snap fish. that is the bloomberg business flash. candidatesecord 10 have entered the race to lead the conservative party. the prime minister and the future of brexit. conservative lawmakers will take part in votes to whittle the candidates down to the final two . the process will be complete in six weeks. five of the 10 launched campaigns yesterday but boris johnson has so far stayed out of the limelight. >> we won't deliver brexit with bluster. i am the conviction brexiteer

with a plan, discipline and focus to lead us out by october. >> our failure to deliver brexit has put our country and our party in great peril. >> we need to deliver but not be defined by brexit. we can get to the center ground to attract people however they voted. >> free-trade agreement with the eu and new free trade deals across the globe. i will ensure we are out of the common agricultural policy, of the parliament, of the eu and taking back control of our money, porters and laws. >> i always said i would be prepared to leave without a deal if there is a straight choice. without brexit, there will be no conservative government, maybe no conservative party. francine: let's get more on the leadership contest. let's and christopher, also welcome, rosalind.

this process will play out in the next couple confused.many are >> we have a beauty contest essentially. candidates will launch campaigns. thursday, tory party members start voting. are presented to party membership, 160,000 people who can vote in the u.k., who will then pick the leader who becomes the prime minister. you will probably see the lesser-known names start to pilaf across that process in the next few weeks the heavy hitters will come to the fore. francine: they still have the same people in parliament. arithmetic doesn't change much. they're all saying they will get brexit done.

they will be the ones to see it through. wouldwo are saying they go for a hard brexit, crashing out with no deal. they're not saying how they would do that. roadblocks are still there. brussels, eu says we are not going to reopen the deal. we have done enough and been very patient. at home, a bit of goodwill for a new leader but also many lawmakers want a soft brexit or don't want that to happen at all. theresa may was unable to do those two things. francine: great bloomberg terminal saying bojo will get this. rosalind: he is very popular with the rank-and-file, especially in rural areas, where many tory party members are in favor of brexit. you could also have candidates like dominic, last night, pro brexit rank-and-file in the

party. he pulled very well out of that meeting. momentuite long at the but he is seen as a front-runner along with the former environment secretary and jeremy hunt. bojo is boris johnson, that is how we call him in the u.k. christopher: i cannot see how they will do anything very different from what theresa may was doing. same parliament voting. eu says we won't renegotiate terms. if there were a candidate, i would go to eu and say, i want norway or to be part of the sigel market. they would do it. they would renegotiate. question, and how much are you in, how much out? what things come under

jurisdiction of the eu courts and british courts? they will not do it. it has been three years. francine: no deal increased? christopher: i'm not sure. i cannot not see parliament voting for it. ministerhink i prime could sign a no deal agreement or just get the country out given that they all, including the candidates, voted to let parliament have the final say. this as a good way of electing a leader that will see this through parliament. he or she will have come from within the cabinet probably. they tried before. they failed. they try again. who are you going to try with? views are so polarized. these are decisions that will affect the country for the next generation, at least.

francine: you think we should have a general election? christopher: it can be done. not just yes or no. on the package you can offer. francine: if you are a chief executive, this is another uncertainty. we have bad numbers yesterday in terms of data. you also have to model the possibility jeremy corbyn as prime minister. andrew: we talked about trade and the effect on confidence. look. this is another big uncertainty that is unresolved. it is not just uncertainty in london. when i visit family in birmingham, people have very little idea what will happen next. businesses do not know what will happen next. this is one of these things where we are still approaching

the october 31 deadline and it is still not clear, what compromises are going to be made? what decisions will be made that move us closer to resolution? this continues to weigh on growth, push gdp estimates for the u.k. lower and probably will do so until there is more clarity. francine: thank you. up, when should you have the next policy move? one says, you should not wait for brexit. this is bloomberg. ♪

francine: this is "bloomberg surveillance," i'm francine lacqua in london. let's stay with the u.k.. michael saunders, more hawkish on the monetary policy committee says the boe does not have to wait until brexit is resolved to hike rates. he says the economy will move to significant excess demand in the next 2-3 years. christopher, does the not need to hike or regardless of brexit? christopher: i think they should wait. there's so much uncertainty. we don't know what we're going to get. nothing very much is happening

in finance now. the economy is slowing. hiking rates would add to uncertainty, increasing negative forces, if you like. francine: not even cut. christopher: no. francine: michael saunders is one of the most hawkish members. andrew: we don't think they will hike anytime soon. we don't have them hiking until august, 2020. market focus with the boe and fed with uncertainty on brexit, trade, it is all about the effect on demand curve. what we probably aren't considering is the effect on the supply curve. brexit and trade are negative shocks. they potentially have inflationary pressure. we have not seen it yet. francine: the last report said the market was mispricing the possibility of a rate hike, if

the u.k. manages a smooth transition with brexit. is the market mispricing something? christopher: you have to look at probability. otherwise, you cannot talk about pricing. chances of a smooth transition to brexit are so low now that we cannot really tell if it is mispricing or not. there is so much uncertainty this.ed toward cannot put it down and pretty numbers of statistics. it is uncertain. we don't know what prices we will get. wait and see. as people collect more information, we will see at the very least who will be prime minister. we talked about the

april weakness yesterday and michael saunders said due to the unwinding and renters stockpiles from first quarter. next, deutsche downgrade. trouble worsening after downgrading the credit rating. we will have a full round up of the markets. markets smoother today. u.s. futures on the up. investors turning focus on the u.s.-china trade arena. goldean bonds, steady with after yesterday's slump. this is bloomberg. ♪

francine: trump's no-show threat.

news.ing, stocks fall on chinese local governments have room to spend on infrastructure. telecom company executive tells bloomberg its 5g contract is handsomely as it goes head to head with ericsson. good morning and welcome to "bloomberg surveillance." getting a little u.k. data. straightaway let's check on what the pound is doing. april,ruary to unemployment rate stays as forecast. the pound barely budging. we will have plenty more on the u.k. through the day. let's get first word news in new york city. >> president trump threatening againse tariffs on china if president xi does not meet with him at the g20. he said he can impose duties of

25% or higher on $300 billion of chinese goods. the trade war escalated, the countries of blaming each other for the breakdown in negotiations. u.s. house democrats reach an agreement with the department of justice to get some evidence from the mueller investigation. numbers of the house judiciary committee will be able to view some of the material. the chairman says this will help their constitutional duties and hold the president accountable. a helicopter crash on a high-rise in manhattan killed the pilot. he wanted to return to the helipad he took off from. in thehed into a roof fog and rain. mayor de blasio says there is no indication of terrorism and no other injuries. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries.

this is bloomberg. deutsche bank's troubles are worsening. it is downgraded to triple be. -- triple-b. this reflects the difficulty and limited progress in stabilizing its business model. deutsche bank targets of returnable equity for four percent for 2019 19, but after the first quarter results, earnings were hit by the week market, we believe that will be difficult to obtain. that means the longer target of 10% is quite far away. isncine: joining us now jonathan tice. still with us christopher .issarides, and andrew sheets

every day there is bad news or an investigation. it must have an impact for the people working with some. jonathan: absolutely. if you had been an employee, it would have evaporated. when will they catch a break, for investors, the bad news is consensus estimates keep coming back and back. hard to say. certainly not until they do something more wholesale and impactful rather than messing around the edges. francine: what does that mean? we are still lacking details. jonathan: it has to be get out of the u.s. properly. fairly,e people who say when you have a balance sheet with that much risk, even that

box cannot be ticked. they need to make the balance sheet easier to understand. francine: why the reluctance to do that? jonathan: because you are a domestic pan-european bank. deutsche said they were the last man standing in europe. management has changed, they did make a run for their own bank. they need to contend with commerzbank, it is very popular. is deutsche bank popular? it is a smaller bank. deutsche bank is still big in germany. we need pan-european focus. lost a long time ago. the volatility in trading, margins only go one way.

move that way. francine: what happens to the chief executive? will we hear from him in the next few months? jonathan: i think about barclays' jenkins. wholesale banking problem. if he does not say we need to change the game, he is not the right man for the job. if that is not the story, he is not the right guy for the job. in general, how much does this have to do with the ecb? , even ifhese banks they do a better job focusing on the business model, are catching a break. shows thathink it there are side effects of negative rates and low rates. the nonfinancial

sectors, but the financial sector profitability is impaired by where rates are broadly. interestingks to an aspect of this rally we have had your to date. ands led by defenses quality stocks, not by cyclicals or financials, not the things that usually signal a stronger and longer running bull market. that is a risk over the summer, if we think about what is leading this market higher, not just europe but everywhere, that is a sign things are not as good as the headline numbers would suggest. francine: thank you all. we will get back to christopher pissarides and andrew sheets. ask -- at the inside

track on the trade war. more on the exclusive interview. this is bloomberg. ♪

francine: this is "bloomberg surveillance." . am francine lacqua in london it trade investors looking for clues on china's next move in the trade war. keep an eye on the twitter feed newspapert state run that has a great record of scoops. >> i have access to accurate

information or the nature of my job. i cannot say i am authorized by government to release the information. >> it is fair to say officials will be passing you information and tips in the knowledge that you are likely to tweet about them. >> to be honest, i do not know. the officials have a tacit understanding. i have access to information, some of them know i would publicize the information. >> chinese officials are talking up the economy, but that economic data shows continuing slowdown in the chinese economy. our officials exaggerating the potential for china to whether the trade storm -- weather the trade storm. >> the losses bearable for china. does notlieve it matter to have some losses.

the chinese economy is still growing, we do not have negative growth. we are advancing. the size of our growth is remarkable in the world. >> if trump goes ahead with additional tariffs on all of chinese exports to the u.s., what levers or tools to policymakers have to reach for in terms of retaliation? china may target the u.s. services sector operating here. trade and services is not the same as trade and goods, the u.s. has barely talked about services. china knows this is a fast-growing for the american side. that was tom mackenzie in beijing. telecoms, wer, spoke about the new technology where it competes directly with huawei.

it is difficult to tell if america's blacklisting of huawei is a positive or negative. .> it is early to call it there is some uncertainty and unpredictability as to how this will unfold. we have been thoughtful about, if you are a customer who wants player, howyour 4g will you deal with it? we have alternatives were you do not have to delay your rollout. we are focusing on the customers. >> the argument made by deutsche telekom that they are in bed with huawei and the rollout of 5g is not correct? >> i do not think on the european level there will be delays. onhink there might be delays not being available, or the economics not making sense for a

particular operator. we have four technical solutions. they are all doable. about through the u.s.-china trade tensions we will see two different technology focuses ending up eating built? thatays of delivering 5g will be incompatible. do you think that is a risk? >> no. >> what is the key risk when it comes to security? is a relevant realistic risk? >> the concern people are expressing, it will be critical to infrastructure. security will be there no matter what, it has to be there. where is the intelligence in the network? is it in the core network, at the edge, throughout the network ? it will be throughout the network because there is no one

place for intelligence to fit. francine: that was nokia's executive speaking with caroline hyde. with me is christopher pissarides, and andrew sheets. i want to go back to artificial intelligence and transformation societies will go through. our politicians ready for it? christopher: i would not say so, no. technology,hasizing but when you look at the impact it is having on the labor market and jobs in particular, they are not ready to prepare labor markets for the job creation needed in other sectors to take on the work they will inevitably and artificials intelligence. francine: are we overestimating

or underestimating the impact artificial intelligence will have a next five to 10 years? christopher: the disruption has already started. with housesg it full of robots. we are overemphasizing the impact they will have come on the disruption impact, but at the same time there will be a disruption impact, and we are not preparing ourselves for what we will get. it will not be massive, but many workers, 15% of labor pulls will need to make a transition over the next 10 to 15 years. whatetely unrelated to they are doing now, and we are not prepared for the future of , where jobs will be, and

how we will train workers to make the transition. how we should adjust our educational system beginning to preparechool people for new jobs. we are studying applications for things happening, it is not really happening. francine: how does this translate? this is there even needs to be looked at because it could disrupt the way we live and work , especially people who are displaced. with what you do in your folio management -- portfolio management. andrew: when i think about how much change will occur, if you look at the way interest rates are pricing, long-term interest rates, the market is not assuming any real uptick in

long-term activity. we have technologies that are wouldtionary, years ago have seemed science-fiction, yet seem increasingly near-term. rates look at long-term in europe or the u.s. or japan, there is no suggestion we are boosting the level of productivity in the long term. that will be in adjusting debate. maybe our technologies are just the next thing, there is always technological change. if anything they are more transformative, i do not think the market from a long-term perspective is expecting that. francine: up to 20 jobs might be creation, given how andrew's perspective can work for the markets, how do central banks need to look at this? christopher: i think central banks should take on a bigger role than what they have now. that would justify inflation and get an inflation target. it comes with more.

central banks should encourage more productive lending by commercial banks. they have found ways of doing it, but they have to look into this isgoing, because taking place over several years, 10 to 15. we also have the carbon policies at the same time. i do not think we are prepared for that. 90% of the lending up to what banks do is in the financial sector, it is not leading the financial sector. they have to take into account the impact these are having on inequality, which is being

reinforced with surprises. wages keep falling. prices keep going up. central banks have a bigger role to play in the society we live in. francine: we will talk more about central banks, and if this is a way to go around it. we will be back with christopher pissarides, and andrew sheets. we will carry on our conversations with the guests, and latest business headlines next. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance ." i am francine lacqua. still with us are christopher pissarides and andrew sheets. we are talking about foructivity challenges central banks. people say we should look at the economy differently. how should central banks adapt?

andrew: i think it is hard he cares -- it is hard because there is a focus because inflation is low, we are succeeding. in some ways inflation has been stuck in a low range for a long time. people forget in the late 1990's, it was well below 2%. if you focus too much on the inflation side and ignore other imbalances in the economy, things that can create risks. that could be crucial going into this fmo see meeting. willie focus on data or concerns? financial conditions are at the easiest levels. that question about stability will be at the forefront. francine: how should we look at productivity today? the model seems broken.

you would expect it to be better. before, look what is happening in the world of technology and capital investment, you would expect it to grow more. this same thing happened in the early 1990's when computers were coming. i am not too concerned about productivity. , i worryre we are about wages. between low wages and low skill wages and high skill wages, which is growing. int might bring problems

terms of incentives, what jobs you have. societies do not function well when the labor force is not seem to be behaving in the formative years. the economy is growing, you .xpect improvement we are not seeing that now. decoupling to be a from productivity and wage growth. francine: will that change because of new technologies? or are we stuck? christopher: i do not see change. to take action. it is not going to be easy action.

francine: thank you both. we will get you back on and talk about germany. christopher pissarides, professor of economics, and andrew sheets from morgan stanley. "bloomberg surveillance" continues and tom keene will join me from new york. we will discuss huawei among other things. this is bloomberg. ♪

francine: trump's no-show

throwdown, he threatens more ahead of theina g20. european stocks higher as the chinese local governments have room to spend on local infrastructure. says itchief executive is going head-to-head with ericsson and huawei. good afternoon if you are watching from asia. this is "bloomberg surveillance ." i am francine lacqua, tom keene in new york. the markets are quieter today. we will look at the brexit rates and what is happening between the u.s. and china. tom: i like a you lead with china, the shift for the president getting ready for the end of the month g20 meeting. what has changed in the last 12 hours is a set of articles in america in the washington post which make clear it should be a victory lap for the president in terms of how mexico will approach the southern border

with guatemala. francine: we will delve deeper into the shift, but first let's get to first word news. >> a record number of conservatives are in the race to replace theresa may. 10 of them will fight each other to lead the party and the country. they agree the u.k. has to leave the european union, but there are few specifics. on the first day of campaigning, the rivals turned their fire on boris johnson, the front runner. the u.s. is considering more sanctions on iran. the next move would be aimed at iranian financial body used for humanitarian trade with europe. that could cut the economic lifeline the u.k. set up for iran. president trump is asking a democrats fromt

gaining access to his financial records. they argue that lawmakers have no legitimate reason to see them. a judge ruled they could get the records going back to 2011. in manhattan, the helicopter pilot warned he had a problem moments before he crash landed on a high-rise building. he was killed in the crash. the helicopter was owned by a company linked to american continental properties. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you so much. equities, commodities, surprise, i only have one chart, the first truly quiet day in asia, futures up 10. the bull market continues. not nirvana, but

we got there quickly. francine: i cannot believe you only have one chart. this has never happened before. 18 months, treasuries steady. is on theocus u.s.-china trade. i am looking at treasuries including european bonds, steady . the price of oil is something we cannot keep ignoring. 7.erican oil 53.6 a couple banks doubt whether saudi and russia can hold. tom: i take your point of oil bouncing off of the lows the last two days. coverage, this is a normalized chart back to 2001 of three defense contractors. ge has that financial albatross

they had to deal with. ge down 75% over the 15 years. --and then raytheon breaks down about 2013. utx will combine with raytheon to make a behemoth. francine: i want to bring you a brexit update, but instead of looking at labor dynamics, i am just looking at the candidate. you the odd checker to give all ability of who becomes the next prime minister. boris johnson is still gaining. we are hearing from one of the other candidates, 10 in all. she said leaving by october 31 is a hard redline. we will see what the implications are for brexit and the markets. donald trump has threatened to , 25 percents again

or higher on $300 billion of chinese goods. if xi jinping does not meet him at the g20. he said he is confident xi will show up. always great to speak to you. overall, will president xi show up to meet with president trump? john: the chinese are playing their cards close to their chest. after what president trump said, the china minted -- chinese ministry said they would like to set up a meeting. when they have something to announce they will tell them. francine: what does that mean if you are a market participant? will the chinese by hardball? wants athink everybody deal. the chinese find it difficult when back into a corner to give in.

if president trump is saying, if i do not get a xi meeting, i will raise tariffs. that makes it more difficult for the chinese to agree. but i think eventually they will meet. tom: coming to the end of the month, every world leader plays to the home audience. who does president xi play to? does he play to the politburo or the communist party? does he play to the mayor of shanghai? who does he play too? john: i think very important are the bureaucrats in the government. the politburo for sure, but just as important is the broader communist party. he needs to make sure the people who might be in the firing line and take the pain from an extended trade war know they will go into something good for the country. tom: can they withstand a reduction in gdp? you have the work issue with inflation there, can the

government going into g20 -- how much of a drop in gdp can they stand? percentage point in terms of gdp growth. the government has said they have enough levers to make sure it does not cause too much of a disruption. in terms of the political system, they have a lot of things to do, banks can lend more. they announced new rules allowing local governments to projects.ales to fund they have a lot of things they can do. francine: yesterday we heard the chinese central bank is moving to shore up of the yuan, but also planned on sale in hong kong. what does it tell us about the intention of the pboc? john: i think the central bank

governor told us late last week that no one number is more important than another. they are not worried about going below seven, but they do not want to see a rapid destabilizing decline in the currency. they want things to be smooth. ist of the stronger fixing guidance in play. francine: thank you john liu, editor for greater china. always great to have you. richard f. lacaille, exec vp/global chief investment officer, state street global advisors. longer-term view that this will have ups and downs, or do you follow to see if there is a resolution russia mark -- if there is a resolution? has a stronga

motivation to meet, but the position they have been hemmed into with trump's rhetoric makes that difficult. g20,y not happen at the but there are strong motivations on both sides. francine: are we ever going to get a deal? is this about trade or something else? if it is a bigger question on technology, it will not be resolved by september. richard: no, there will be several chapters. the security and technology issues become more complex. on intellectual property, china has a strong incentive to get that right. has a stronger system. in the last 48 hours we are getting the first indication of china adapting trade threats by exporting business to vietnam to do business with the united

states. how big is this to adjacent nations? richard: i do not think that is a positive thing. lowest end exports, they were migrating to bangladesh and elsewhere. it for the higher end activities, you look at the bulk complexts, they are high end activities. i do not think neighboring countries have the capacity to take what china needs to export. tom: how do you change or allocation in asia in the last month? what is the new adjustment? overweight have been in market equities. europe is beginning to look more attractive, not because the fundamentals are improving, but it is becoming relatively cheap. moment, by implication,

we are expecting resolution. francine: a resolution? richard: between the u.s. and china, as a first step. francine: if you look at the foreign policy of the u.s. and how trump has treated mexico, getonizing tariffs to something on foreign policy, will we see this every couple of months with new countries? richard: entangling security issues with trade is unfortunate. the huawei confusion around trade is a little bit of a wild card. when you step back, these are temporary noise issues. china, immigration, other things that have come and gone. we should not be swayed by these transitory issues. tom: i want to touch on your research and sustained earnings growth. richard f. lacaille, exec vp/global chief investment officer, state street global

advisors. much more to come. a conversation with the eu security commissioner, julian king. stay with us, this is bloomberg. ♪

francine: this is "bloomberg surveillance." a record 10 british conservatives are bidding to replace theresa may. jeremy hunt is leading the field. the contest will take six weeks to complete. the winner will play a crucial role in the future of brexit. by richard f.

lacaille, exec vp/global chief investment officer, state street global advisors, and jim reid, managing director/global head fundamental credit strategy, deutsche bank is also with us. if you look at this, 10 candidates, they are campaigning. it seems like everyone is saying they are ready to walk away from the eu. is that your assessment? -- all 10 areid saying they want to get brexit done. they say they will see it through, the question is how. we have not heard how they will get past what theresa may failed to do, get brussels to renegotiate part of brexit, then the u.k. parliament to vote for whatever they come up with. far, there is no evidence how a leader will find a way through. francine: is there anyone who can bring parliament together?

theresa may was criticized for not having the skills to bring people from the labour party to her side to vote for this deal. >> part of the criticism for theresa may as she tended to consult with a small group, and a new leader might be more open to talking. theresa may did open talks with the labour party but those went nowhere. perhaps a new leader might be in the hard brexit camp. center, and he may get a more polarizing leader in a parliament a lot of lawmakers prefer a soft brexit, and some do not want brexit at all. you could find it is more complicated. tom: how far our conservative leaders from the voters, the electorate? thing,d: the interesting someone like boris johnson is

very popular with the rank-and-file. in rural areas in particular. the tory voters want brexit and like or as johnson and my support him if he gets through to the final two. the question is what do those 160,000 registered tory party members represent to the rest of the u.k.? they are a small proportion of britain and voters. how much do they represent in choosing the new prime minister what the rest of u.k. wants from brexit? , yourichard f. lacaille hear this discussion, is it an opportunity to look at the ftse and large companies in the united kingdom? yes, if you think from an asset class perspective, equities and currency might feel more comfortable for a variety of reasons then the gilt market were you are not being rewarded

with of the risks out there. they are in plain sight in currency and the equity market. it is cheap, has a high dividend yield if you are talking about the equity market. francine: what does this tell us about how you look at the credit market in the u.k.? we had one of the rate policy makers saying wait for brexit to hike rates. that is pretty hawkish. jim: i think the bank of england , today's data was strong. the reality is what you think about brexit, as we get close to october, the market will get scared about brexit again. as mrs. will get worried. -- businesses will get worried. francine: we will have plenty more on the bank of england's thinking. richard f. lacaille, exec vp/global chief investment officer, state street global advisors and jim reid, managing

director/global head fundamental credit strategy, deutsche bank stay with us. coming up, what the pound does next. this is bloomberg. ♪

francine: shares of ted baker are plunging. andcompany wants markdowns extremely difficult trading conditions were hurt its result. it slashed its profit outlook by

80%. offollowed the resignation the founder, there were allegations he gave employees unwanted hugs. apollo management agreed to buy online photo products shutterfly, $1.7 billion in cash. apollo will assume a billion dollars in debt. it plans to merge shutterfly with its rival. that is the bloomberg business flash. we are thrilled to be joined -- he has one week of the trophy from an investors. we are joined on the debt markets. what have you learned about the credit markets in the last two weeks? obviously in the u.s.

cutsts have priced in rate , over three rate cuts, nearly four. the thing i have in the back of my mind, over the last 10 years the market has been bad pricing in. the trade war gets worse, it is premature to price in that many fed cut. tom: barclays yesterday, jonathan ferro mentioning two rate cuts. ,hat i see is a lot of drama people are forecasting or strategizing drama. am i right on that? are people making big bets? jim: certainly at the front end of the rate markets making big bet. i think we are late cycle in the u.s., but i do not think we are ready to roll over in the next few. no one knows how the trade war will go. we could wake up and there could

be a trade deal with china. i think it gets worse in the summer, and rate cuts will be priced in, but i do not think it will happen. francine: where do you see the fed going? richard: this precautionary measure might be premature. saying am an outlier there could be events that would cause the fed to keep on hold. ,eep in mind, if they do cut they have to be data driven. if you do the deal and the economy picks up, will you start hiking? you have low unemployment and no sign of inflation whatsoever. you are late cycle. could you raise rates after you cut them? very hard. francine: could you raise rates into a recession? how quickly do you see a recession coming? the trade wars get substantially worse, it does

not seem like we are in recessionary territory. if you look at the consumer momentum, sentiment is very strong. that accounts for a large percentage of the u.s. economy. jobs data was disappointing. trade,are nervous about but we are not in recessionary territory, and yet we are treating the yield curve as if we are. francine: we will have more on that. richard f. lacaille, exec vp/global chief investment officer, state street global advisors and jim reid, exec vp/global chief investment officer, state street global advisors managing director/global head fundamental credit strategy, deutsche bank stay with us. this is bloomberg. ♪

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♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. ♪ francine: that is the u.k. parliamentary committee questioning michael saunders, bank of england policy maker.

he was saying the boe rates may rise faster than the curve implies and he is not persuaded by the case of publishing interest rate forecasts as they would give uncertainty over the outlook. we will continue following that u.k. parliamentary committee. sparks usually fly and we will see if they do. let's get to the bloomberg first word news. sayana: senate democrats they have enough republican support to oppose president donald trump's plan to sell weapons to saudi arabia. presidenticans -- the invoked emergency powers to overrule a senate hold on the sale, but even if the revolution -- resolution passes there may not be enough votes to override a presidential veto. the u.s. is expressing concern

over legislation in vietnam that caused protests. suspects could be extradited to china and that could affect employees. the bill could underlying the city's autonomy. there is no sign the auto slump in china is nearing an end. it was the 12th straight monthly decline. are weighing on chinese consumer sentiment. i spent months jabbing at each other from a distance and now president trump and joe biden will spend the day in iowa. biden needs a win to get a jump on his rival. the president wants to shore up support in iowa as part of the strategy to win the midwest again. 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: president trump's war on huawei rages on and europe is increasingly the defining battleground. is pushing totion exclude huawei from their 5g network. aump is branding them national security threat over spying concerns, so how is europe managing the stalemate? maria tadeo is live with julian king. morning.od i am joined by julian king come at the european commission for security union. mike pompeo was in germany recently and said europeans need to look at huawei differently. there is a risk, and he argues huawei is not truthful. what do you say to that?

perhapswe start from slightly different experience, different starting points. there is more huawei on the u.s., in europe than the and that has been the case for a number of years. member states have quite a lot of experience working with huawei, and we start with a different perspective on trade. europeans collectively stand for open markets and fair trade as long as you stick to the rules and follow them, so it is difficult for us to mix national security and trade policy, and difficult for us to reach for anything that looks like a blanket ban. with those starting points, i don't know where we will reach in terms of a conclusion. we started a process in europe where we will work together to analyze the risks collectively for all the european countries,

look at the possible measures that can be taken to mitigate those risks, and at the end of the process we will reach a conclusion. we have said we do not rule out at the end of the process that some products, some services, some suppliers might be deemed to be unsafe. maria: at this point, there is no evidence that would suggest that this company operates on behalf of the chinese authorities and there is no risk of spying. you can sign and anti-spying ingredient -- agreement. is there anything you are seeing? the memberulian: states that work on cybersecurity are going through a process, looking at technological risks, how secure is the stuff? are there technical risks we need to look at that might or

might not be possible to be mitigated? they will also have a look at the legal framework, not just for china but for any third country supplier. what is the legal framework they operate in and does that give rise to concerns? i do not want to prejudice their work or predict what they will come out with, but in the case of china there is a legal framework, six or seven bits of legislation that say you have to cooperate with the intelligence. that will be one of the factors taken into consideration. maria: you said you have to keep trade and security second, but --sident trump said separate, but president trump said huawei -- julian: that hasn't happened yet. i want us to go through this process which we are doing in full transparency with our

american friends and partners, and the chinese, to look at what the real risk is for all of the countries across europe. what is done in one country affects other countries. to look at whether there are particular risks, and what measures we could imagine to mitigate those risks, recognizing that at the end of the process there may be some risks that are difficult to manage. much will that cost the european consumer? julian: we have to be realistic. to put security at the heart of decision-making on this key technology. 4g, it was primarily about cost and price. now we are saying because it is such a central technology that we also have to take account of security in these decisions.

it does not mean that it is cost free. we will have to have a discussion about economic fallout. there are reports that it would cost a great deal more if you excluded all of chinese tech, and make rollout much slower. those are factors that will be taken into consideration. maria: do you think if european governments are aware of this, there will be a price to pay? julian: that is why we are having this discussion. all the member states have been represented and have bought into it. i don't think there is any lack of awareness. indeed, the u.s. administration have made sure everybody is very aware of the importance of the subject. maria: i have to ask you a question about brexit. you know how the institutions work. potentialee or hear

prime minister candidates come out and say, i may not pay the divorce bill, is that a credible ?hreat or is it a bluff the europeans have seen this for a long time now? julian: you are probably asking the wrong person. i have a colleague, michel barnier, who does the negotiations. i think europe is quite good at doing negotiations. he will continue this process and it will try to reach a conclusion for the e.u. 27 and the u.k. on security matters, it is important that we reach a conclusion because the threats and challenges we are talking ,bout, the challenge of 5g threats of terrorism and other cyber threats are best tackled when we work together. maria: can you do that when there is no deal? julian: we will try to find the best way to maintain the closest

security, because those trying to do us harm are not necessarily targeting one country or another, but our values that are shared. maria: thank you very much. that was julian king, e.u. commissioner for security in the european union. he said the relationship between the u.k. and e.u. should be very close when it comes to security. francine: we will delve deeper into the wall way security concerns -- while way security concerns. securityway -- huawai concerns. this is bloomberg. ♪

♪ two banks across the world have moved to an accommodative stance. >> it is fair to say we have an amazing bias. >> reaching the reduction. goif things somehow do not cow it is predicted, we will react. >> all of you have been talking of rate cuts so much so rate cut gets into your system. >> members raise the possibility of further rate cuts. >> like mario draghi, i think we can leave things. >> the rule for adjustment is tremendous. tom: i love what our video team does.

they are sequestered above a fjord in norway where they put those things together and they show the conversation and the zeitgeist that is out there. let's go to rick lacaille and jim reid. let me start with you, rick lacaille. when we look at the japanification, what does that translate as? rick: it could mean a lot of things. you have some things like demographics where japan has the aging population and europe has immigration, and the lack of recognition of losses in the banking system in japan that happened earlier. i don't think there is a 1-1 rate across. we have to be aware of the demographic effect in europe. tom: you have just put out a report that goes city to city and tells you what a cappuccino will cost.

i have been taking my babel lessons. i can pronounce cappuccino. are we seeing global disinflation and japanification in cappuccino prices? jim: not according to starbucks. if we think about what japan means for the rest of the world, japan hit its bubble 25 years ago in a different environment from today. although the demographics are the same in europe as japan, the world is different today. europe might be lucky to have a job at the japan type outcome. japan had 1% per capita gdp growth over the last 25 years and europe might struggle to do that. francine: tom gets full marks for pronouncing cappuccino. what do you do about productivity in europe? --: my personal view it is

is it is a legacy of too much debt. the authorities have understandably refused to tackle that debt and keeping that in the system must keep an inefficient allocation of resources. if you are not prepared to let the debt default, you probably have to reflate your way out of debt and get a different size relative to the economy, and maybe productivity can rebound. francine: we keep saying the ecb probably has the toughest job. they are running out of ammunition and it will be difficult to use unconventional tools, but what will happen? i understand the point that there is uncertainty about leadership and that will take a while to bed down. there is some room for flexibility on the downside.

i think the european economy depends not just on central banks. growth depends on labor reform,vity, structural a whole host of things which are quite fickle lytic. -- politically. textbooks, reflation is not defined. some, running for prime minister, talking about the end of austerity. how do you define reflation? jim: it is probably getting inflation higher to grow our way out of our huge debt earn, what -- burden, what we have. tom: have we been successful? jim: know, because in the last five years we have bought financial assets. the next major policy shift is probably government spending,

more populous birth -- supporting that, and the central bank is probably picking up the tab. tom: you are right, it has been a financial exercise. how do governments bring it over from a financial exercise to a tangible reflation that affects our viewers and the world? rick: probably by a voters , -- jim: probably by a voters election, pander to the people. , bothne: thank you both stay with us. deals.deals, the $15 billion deal for tell bloke. this is bloomberg. ♪

♪ this is bloomberg "surveillance." serve sellingfive selling $5 billion

itth of bonds to finance -- is also looking at selling bonds in euros and pounds. the total proceeds are expected to be around $12 billion. -- technologies expect higher -- slacknd lower than will be trading shares without issuing new ones. the pentagon is reviewing raytheon's proposed merger with united technologies. military leaders will not get to make the call on approving one of the biggest defense industry deals ever. to pentagon well submit it the antitrust regulators. that is the bloomberg business flash. francine: salesforce is buying software maker tableau for $15

billion, bringing the san francisco-based company into the intelligence are get. salesforce shares their worst in almost seven years. when you look at salesforce, they have done a $15 billion acquisition which moves them away from their core competency. is this just for the executives to deliver on 28 billion dollars in revenue by 2020 or does it make business sense? mandeep: it makes sense, because you go back 10 years and look at giant, sap microsoft, the software companies we know, they built application software first and added analytics into the deals. it is the same thing that cloud companies are doing. francine: the share price falls

5.2% over two days. mandeep: it is an all stock deal. that is the currency they are using to pay for the stock. when valuations are so high, they can come down, but they are not paying cash for it. tom: i want to rip up the script. this is one heck of a story. of stanford university got this done, became a billionaire yesterday with tableau. europe does not have a stanford. europe does not have a "toy story" or tableau. what does europe need to build pat hanrahans? mandeep: you have to invest in cloud and analytics. the private equity money will find its way into these growth areas. there is a lot,

of investment and growth areas around digital transformation. it all comes down to channeling the money into the future for a digital transformation. tom: you sound like an american. rick lacaille, ohlone. it is -- baloney. it is about taxes. get the spirit to do that with the oppressive anti-capitalistic tone they have? i am not sure i would sign up to that anticapitalistic tone for the whole of europe. there are different nations within europe and successful businesses. they do not have to be in the tech space and the conductivity of tech with finance has been a failure from the european perspective, but there are no easy solutions. you have to work from the ground a, as many are doing, we are

long way from the silicon valley mail -- silicon valley. francine: i get so much hate mail when you say that. ,om: this is ancient history back when we were writing with a coil, everyone at m.i.t. boston went west because of the tax differentials between massachusetts and california. i don't see any difference in europe right now. of thee: i think some policies in the u.s. now is backing the way for multilateralism and begs questions on capitalism and the commitment to that. overall, is there anything you like in the tech space? rick: yes, we like tech. we think there is a lot of potential. tech has created so much value that is not feeding threw two labor productivity and growth. if you look at a stockholder perspective, you are creating real earnings and the cost of

the.com bubble is substantial. tom: they are losing executives like crazy. will you go to uber and sort out the company? mandeep: the focus is shifting on execution. at the end of the day, this company has to find a way to positive through lower insurance costs, sales, and marketing. they are spending way more than their competitors. tom: thank you so much. we will continue forward, lots going on, particularly on mexico. ♪

♪ tom: this morning, for the first time in ages, stable and quiet markets.

the dow at 26,000. a great bull market. in this hour, bruce has been. -- bruce kasman. should the president take a victory lap along his border wall? a new vigilance of mexico among -- with its border in guatemala. biden and trump in iowa. future prime minister's will go as the great brexit tear. this is bloomberg "surveillance." francine lacqua. talking about austerity. is there any bloomberg in the debate or is all of that leave and remain? francine: a lot of it is leave and remain and how to balance the budget. there is pushback from the other

party saying it is time to go to a general election because toy lawmakers that vote for them -- tori lawmakers that vote for them, the candidates get pushed to tory members. we will see how each of them falls or rises. we will see if they can deliver brexit and by what timeline. tom: can i just editorialize and short theol it is how campaigning is, whereas in america it goes on and on? here is viviana hurtado. viviana: the u.s. is considering more economic sanctions on iran. at next moves would be aimed an iranian financial body used for humanitarian trade with europe. that could cut the economic lifeline france, germany, and the u.k. set up for iran.

president trump's lawyers asking -- asking that the house not gain access to his records. a judge ruled the house committee could get records going back to 2011. a record number of conservatives are in the race to replace theresa may. 10 of them will fight each other , and they all agree the u.k. has to leave the european union, but so far there are few specifics. rivals turning their fire on the front runner, boris johnson. in manhattan, a helicopter pilot warned he had a problem moments before cross landing on a high -- crash landing on a high-rise. it was foggy and rainy. the helicopter was linked to american continental properties.

global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. tom: one data stream today, equities, bonds, currencies, commodities. up 13 onst hour or so, s&p futures, euro with a bid. francine: i am looking at quite a lot of stocks on the rise. the focus is back on u.s.-china. i am looking at pound, pretty much stable. oil, $53.69. tom: ge, not getting it done in defense. they had the financial albatross, ge down 75% going back to 2001. raytheon with a real left. it -- lift.

it matters what you buy in the stock market. francine: this is what i am looking at in the bloomberg terminal, a cool function called the auld checker. -- odd checker. 10 british conservatives fighting each other to become prime minister, boris johnson still at the top. he is the current favorite, but we will see whether his policies on brexit change. he said he would deliver brexit in october with or without a deal. tom: there is so much news on trade, president trump clearly moving from mexico to china in the g20 meeting. chinahink president xi of , great relationship, i think he will be there. we are scheduled to talk and meet. i think interesting things will happen. tom: a lightness to his step.

joining us now, kevin cirilli. there has been a shift and you see it in different articles, particularly published last night in "the washington post." i would say it is a legit trump victory lap. how well democrats respond to an american understanding of the migrants at the border and the presidential actions? kevin: they are talking impeachment. the general counsel during on policy, there are centrist and moderate democrats. publicans in be the last midterm cycle, they have to decide who they want to get on board and work with the u.s. on the usmca. aes pelosi want to usher in piece -- or do they not want to

do that? that becomes the political calculation. while things are temporarily patched up with mexico on the issue of trade -- which is a period of respite for the agricultural sector -- china starting to intensify. tom: what will you look for in china in the next 24 hours? kevin: i think it comes down to national security. republicans and democrats -- and this has not been covered as much by the mainstream press outside of the financial sector there's -- on the issue of security, there is no daylight between them on the need to keep huawei out of the united states. francine: who is advising the president on how to speak from china? we hear from numerous sources in

china that if you back them into a corner, it does not really work. kevin: it does not work president trump either. every time you have seen the chinese try to be more aggressive, he just doubles down. they are looking at how the president has reacted internationally to other foreign leaders. to answer your question, secretary mnuchin has continued to take the lead with regard to the chinese and they have been staring down the chinese and not linking. -- blinking. when it comes to that meeting, they have got to get something done on the issue of technology and enforcement. that is something i hear consistently from lawmakers, how will any agreement be enforced? francine: talk to me about iowa. they are getting a preview of the potential 2020 showdown. kevin: i want to go to iowa.

on the a very key state issue of energy and ethanol, the president handing the ethanol industry a victory by reversing obama era regulations, allowing for ethanol fuel to be sold year round. that is a major win for farmers. chuck grassley and joni ernst applauded that, but iowa is the first caucus state, crowded republican field. elizabeth warren staffers word tory ethanol -- were touring ethanol plants within the last 24 hours. tom: you just want to go to iowa for the craft beer and the confluence brewing company. kevin: they have got good steak and iowa. tom: it is an important time to

talk to bruce kasman. we must digress. this is just out from jp morgan, as underwriter for beyond meet, the stock is up 572% in jp morgan drops from a buy two-way hold. ahe 10,000 shares -- buy to hold. the 10,000 shares you have -- bruce: unfortunately, i don't have any. tom: can you believe as an marketst and a underpinned by revenue growth and earnings growth, underpinned by nominal gdp of this america? bruce: what we have now is a pretty interesting tension. we have politics creating problems. the other side of the coin as we have policy, which is supportive

and flexible, and it is the fed and the chinese we are seeing spillover. we have positioning, which is for all the talk about the expansion that is 10 years old, all the talk about the labor market that is tight, corporate margarines are close to record -- margins are close to record levels. we had a pickup in productivity growth. where the credit cycle is, is not as vulnerable as people perceive it to be. tom: you speak with your team about points of clarity. what are those points of clarity? unclarwe have very much ity on what will happen on the tariff side. is ais clear as there significant drag working through the global economy that is starting to wash on to the u.s.

shores, which has led to business sentiment hitting spending and starting to weigh on hiring. we have seen the pettit -- fed pivot -- and if the data continue to soften -- the fed will respond by easing. chinese are committed to keeping growth somewhere close to 6% and we can see the spillover into other central banks. policy is easing and growth will stay soft for the next six month or so. francine: how quickly can sentiment change with a trade deal between the u.s. and china? bruce: it can change quickly in financial markets. the damage to business sentiment is more lasting. businesses are having to deal with an uncertain environment after spending the last 25 years explaining their supply chains through north america, through asia, with the idea that the rules of the game would be

stable and defended by the u.s. that does not change because the u.s. and china make a near-term deal. on that front, we have done damage that will be somewhat lasting. francine: bruce kasman stays with us. we will talk more about what the fed can do. then there were 10. the six weeks process to choose the next conservative leader is underway. we will discuss, next. ♪

♪ viviana: this is bloomberg "surveillance." shares of british clothing retailer ted aker are plunging. -- ted baker are plunging.

slashed its profit outlook by almost 80%, following the resignation of ray kalvin over allegations he gave employees unwanted hugs. two at lloyd's resigning after acquisition -- accusations of inappropriate behavior. the incidence reportedly happened at a party for employees of tokio marine killed group andokio marine came to light after an article about bloomberg. agreedglobal management to by shutterfly for little more than $1.7 billion in cash. apollo will assume more than $1 billion in debt. they plan to merge shutterfly with rival snap fish. that is the bloomberg business

flash. francine: 10 british conservatives are bidding to replace the prime minister. boris johnson, michael gove, and jeremy hunt leading the field. the winner will lead the party and play a crucial role in the future of brexit. let's get straight to therese the qualitiesare needed in the next prime minister? bringseed someone that together parliament to get the withdrawal agreement through? therese: the qualities that are needed in the next prime minister are different than the qualities needed to get to that position, first and foremost the next tory leader will have to drive a consensus within the conservative party and across the bench to the labour party. it is hard to see where that

consensus lies. it is clear that most of the out aates, two have ruled no deal brexit which tells you how far toward the hard brexit movedhe candidates have and the impact of the brexit party. i think your question gets right to the point, which is what it takes to become prime minister is different what it will take to get us over the line october 31. francine: has it changed in the last three months? are we going to a harder brexit because of the brexit party and european election? ago we: three months were talking about a no deal brexit receding into the horizon. it was looking like it would be may's deal or cross party consensus. not a lot of people anticipated we would be staring in the face

of a no deal brexit as much as we are now, all candidates advocating it. tom: july 23, what happens five days before that? is there a convention or debates in the bbc where the world stops? what is the crescendo in the process? therese: the crescendo will be the vote itself. there will be lots of debate leading up to it and there are too many candidates to have them in one debate. finalt gets down to those two, which i think will happen relatively quickly, the party will want to get it down to those two within the next couple of weeks, then i think we will ,ee a lot more open debating and we will know where the candidates stand. boris and obviously everyone against him. what is the number one talking point for people who are

anti-boris? talking the number one unreliable, divisive as a leader. nobody knows where he stands on issues because it has changed over time. character is an interesting campaign, and michael gove who could have challenged boris, his campaign is weighing often admission that he took cocaine as a journalist. character is becoming a key issue and that is giving jeremy hunt an edge. the so unseemly compared to quiet of american politics. , "theg up on bloomberg open," jon ferro sits down with mr. horn bacher from morgan stanley. the caution coming out of morgan

stanley. this is bloomberg. ♪

♪ bloomberg "surveillance," from london and new york. it is one of the greatest calls from recent years, where a young economists working with bruce kasman said the terminal value will be terminal. michael for rowley talked about a low terminal value and everyone has caught up. the terminaliew of

value above 2%. bruce: in the near term, we are seeing a fed grappling with concerns about low-inflation, concerns about the low r-star terminal rate implies if we get close to hitting zero bound again, and having to integrate that with a period of economic weakness. this suggests they will be willing and able to give some easing. the issue around where they are in the cycle is interesting in the sense that what we have had over the last four or five quarters is a pickup and productivity growth. we don't think that is a signal something is changing. tom: frame the r-star debate. olivier blonde chartered and other -- olivier blanchard and others want -- and there is a

controversial group that say bring it down. where are you guys on that? bruce: we are comfortable with what the fed is moving towards, so that you do not ignore the persistent undershooting we have had. over time, there is a case for raising the objective, not lowering it. francine: when are you expecting a recession in the u.s., or significant slowdown? bruce: now, which is to say we have growth dipping into the growth -- i would argue that if we get through it alongside some fed easing, the picture into 2020 will improve. i do not see an economy position for recession and we don't have

an explicit forecast for the next recession. francine: bruce, thank you so much. bruce kasman of jp morgan is staying with us. coming up, goldman sachs head of commodity research jeff currie joins us. we will ask him about his price on oil and a little bit of delay on whether this alliance between saudi and russia holds, opec plus. this is bloomberg. ♪

♪ this is bloomberg "surveillance," tom and francine from london and new york. through when we

talk about oil and the inflation forecast. let's get straight to the bloomberg first word news in new york city. viviana: senate democrats say they have enough republican support to oppose the president's plan to sell weapons to saudi arabia. four republicans apparently back the action. he may invoke emergency actions. , there may notes be enough votes in the senate to override a presidential veto. the u.s. is expressing concern over legislation and hong kong that led to protests. that will affect employees with multinationals with headquarters in hong kong. the bill could undermine their autonomy. recession,at risk of

according to the research firm centex. indicating a recession is "just around the corner." concern is escalating protectionism will hurt german exports. they spent months jabbing at each other from a distance. president trump and joe biden will spend today in iowa, a state critical to their political futures. biden needs a win to get a jump on his rival and the president wants to shore up support as part of his strategy to win the midwest again. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. tom: we are going to rip up the script for the next 20 minutes because events make the script happen. this is the chancellor of

germany and a really important, 100th anniversary in geneva. it is the international labor organization which goes back way before the united nations to 1919. it is really interesting coming off of the debris of world war i. .oining us, simon kennedy one of the great miracles was the employment of europe after world war ii and a lot of itmployment, and my right, has gotten better recently, the job economy in europe is better? simon: you have seen the u.s. is mirrored by a laggard europe. low,n unemployment ferry elsewhere improvements -- very low, elsewhere improvements in economies that struggled. the debate on how well-paid

those jobs are goes on here as much as in the u.s. tight labor markets, there is still room to tighten. tom: we can fold this into u.k. politics, the death of british steel. no one is surprised. what is the state of unions in the united kingdom? are they disappearing as in america? less powerfully than 30 or 40 years ago, still trying to have a role. still and the opposition labour party who they backed, but financially and vocally, jeremy corbyn, the leader of the opposition party in britain, someone who could potentially be on their side in government, and so perhaps a chance for unions to have a greater voice inside the corridor's of power than

they have in recent years. francine: how should i look at trade? every day it is a step forward, a step backward. what does that mean for the world economy, deflationary overall? simon: i thought the trump exchange yesterday was a strawman. president xi will go to the g20 and they will meet, so threatening to put tariffs on if you do not meet seems slightly weak since people think they will break bread and come together. what comes from that is the next step in the trade war. seems too situation have blown over and we are back to where we were, and yet the china-u.s. trade war rumbles on. not good for chinese stocks, a concern for the world economy. it remains a deflationary force.

it could push up inflation and down growth. it is more stagflation. can the economies get ready -- that use to this flaring up -- get used too this flaring up? will they get used to it? simon: it is a big call to make. as long as the trump presidency runs the weaponization of tariffs, use of duties to do things much more broad than trying to rebalance the trade continues and that will create uncertainty. the question is, how much do you want to invest in the background supply chainse as becomes a big issue?

it overshadowed the world economy. tom: simon kennedy, thank you so much. bruce kasman listening on. i want to go to the global labor economy and this phrase labor share. his technology pushing away labor share on a global basis? bruce: i don't think so. productivity growth has been weak and job growth has been strong. we are close to the lowest unemployment rate since the monetary union started. it is more not getting bargaining power with the wages and that has to do with the structures of unions and the fact that there is more slack in the labor market then we measure. i don't think technology has been driving shape -- we go with the model right

now, the power gets taken away from labor if you have scale with only one or two players. bruce: i would not connect that specifically to technology. do with regulatory policy and natural forces. one of the misconceptions is that we are seeing technology substitute away from labor. tom: you don't buy that idea? bruce: the data is saying the opposite. job growth is slowing now but that is because demand has weakened. part of the week potential growth is that technology is not adding as much as it was 15 or 20 years ago. francine: how do you look at the inverted yield curve? that old question. bruce: a piece of this, we have to understand the structural changes on the long end of the curve that are not related to

the business cycle. if you look at the way the curve has been pricing the fed, the intensification of the inversion over the last few months, there is a change in sentiment that reflects markets believing there is a greater risk of recession. i do not think we will go into a recession, but it is right that we increased the tail risk and the fixed income markets are reflecting that. francine: anything else you would look out for a sharp downturn in the u.s. economy? you say it will slow down around 1% but nothing recessionary. is there a signal markets and economists should be paying attention to? bruce: i don't think there is any lead indicators. it is watching whether the drag working through the business economy on spending, how much this will change business behavior so credit conditions

tighten? last friday's payroll report was a weakening number, but there is a balance that gives softness and not a recession. your gdp two months forward? bruce: for the u.s. for the next four quarters, we have growth averaging about 1.5. tom: there has got to be a political response. i have never seen you this gloomy. bruce: i am not gloomy. we are going through a phase where we have to recognize there is a conference -- consequence in terms of the business sector. it will deliver softness in the u.s., but we will make it through and if we are not in recession over the next 69 six yo ne will have -- -- months, we will have

bruce kasman. an important observation on japan as well. , another candidate of the democratic party, in the 4:00 our -- hour. ♪

♪ the central banks across the world have moved to an accommodative stance. >> it is fair enough to say we have and easing bias. >> we think the reduction is low. >> if things somehow do not go how it is predicted, he will certainly act. >> all of you have been talking about rate cuts so much so rate

cut gets into your system. >> several members raise the possibility of perth -- further rates cuts. >> like mario draghi, we will do what is necessary. >> the room for adjustment is tremendous. tom: managing the message, many central bankers managing the message and the tumult we saw in april and may. bruce kasman with us, single best chart. you mentioned japan and we spoke to mr. kuroda the other day. this is per capita nominal gdp in japan, with a moving average smooth out back in the middle 1990's and we are there now. it is a japan that has not really gone anywhere. what is the japanification of japan? bruce: we have had reasonably good growth and that has been of

some encouragement, but we have not seen nominal growth pickup. tom: the animal spirit is not there. bruce: it is not, and we are seeing a falling back of the credibility of the boj. tom: so what do they do? bruce: they have been persistently patient in the face of disappointment and part of that has to do with the pressure on bank profitability and the political pressure not to move more aggressively. with the parts of the global economy fading, they are not able to count on u.s. growth and we think they will move towards and easing year. to lower ratesoj further in the summer. francine: what does that mean for the yen? bruce: it stabilizes the environment, which if the fed put raising it would

pressure on the yen value. francine: there has been some talk about pboc dealing with renminbi. time, tame -- at the same they may increase capital controls. bruce: we think the chinese will be cautious in terms of using the currency, but all bets are off if you get a greater hit from the trade conflict. the primary drag is the supply chain is getting hurt, capex is getting hit globally, and we are seeing easing. we think the bank of korea will ease and the spillovers are strong. your thoughts on fiscal policy? fiscal policy to the rescue, i think we have heard it eight times before. we are hearing it again. will we see fiscal policy to the rescue? bruce: what the exception of

china, that is not feasible. usually at this point in the cycle, fiscal policy is tightening and we have a modest ease, not enough to give you anything like a rescue, but there is easing and fiscal policy in the u.s., germany, western europe. japan is the one exception. tom: let's come back, bruce kasman with us, with jp morgan, their chief economist. it will be most interesting to see where this fiscal debate goes. francine: it is most interesting to see. a deutsche's downgrade. troubles are worsening after fitch downgraded its credit rating. this is bloomberg. ♪

♪ this is bloomberg "surveillance." selling $9 billion worth of bonds to announce the acquisition of first data.

the dollar debt sale is coming and for parts and is looking at selling bonds in euros and pounds. the total revenue expected to be about 12 billion. slack technology expecting glowing -- growing revenue, gearing up for a direct listing on the new york stock exchange. they will begin trading publicly without issuing new ones as in a more common ipo. the pentagon reviewing raytheon's proposed merger with united tech knology. leaders will not get to make a call. the pentagon wells to pit its views.- will submit its that is the bloomberg business flash. francine: deutsche bank's troubles are worsening. fitch have downgraded them to

triple be. deutsche bank's goals look unrealistic. >> deutsche bank targets a return on tangible equity of 4% for 2019, but after the first quarter results where earnings markets,by the weak believe that will be difficult to obtain. mormon tort and lay, -- more importantly, reaching the target of 10% is quite far away. francine: joining us now is jonathan tyce. if this is not moving quickly enough, how is your move it along quickly? jonathan: it is a tough one. it is not a surprise they will not hit their target. happen is ao wholesale change in the business model, a simple as that. playing around the edges has not

helped. the u.s. is considered the biggest source of risk. who rightly can say, is there good enough capital? we don't know what is on the balance sheet because of u.s. exposures. francine: if they get out of the u.s., this is a huge transformational deal. jonathan: it is the same as a business plan trimming and trimming. you have to take a bigger hatchet to reshape the business and focused on domestic germany, and making pan europe your investment banking. 10 years ago, these guys where the last man standing in fic. now it is barclays and they are struggling. tom: i want to bring up the chart, if i were to teach a isrse on drip function, this one of the greatest charts in the history of finance.

as you mentioned, we don't know what is on the balance sheet. if that is the case, what are the regulators waiting for? jonathan: i think the issue for the regulators is this is systematic. one of the reasons the deal did not make sense as you put together a systemically important bank with another bank, we have new rules in europe, suddenly you have a more important bank. it's risk weightings, the amount of capital it would need would go up. experienced so about this, let me cut to the chase. as deutsche bank, and other banks, are they heading to a good bank/back bank -- bad bank structure where the regulators work it out? jonathan: the deutsche bank issue is not the same as it is

for monte dei paschi and the italian banks. staff, and inefficient business model, it is not the same that challenges this bank. that is not what we are talking about. francine: what are we talking about? are they losing clients or talent or both? jonathan: both. just is notn assets yielding enough, and that is massively compounded by low rates. they talk about when rates go up, this is what we get. they will not go up and they might come back down. they need to shrink the size of the balance sheet to shrink the expense. francine: given the banking lens bait -- landscape, is there room for deutsche bank? jonathan: absolutely. company a pan-european

with a domestic base. they just do not fit and they cannot compete. tom: what do they do? you have been expert at this. you have essentially predicted what we are seeing now. when are they waiting for as they go to a five handle on the shares? barclays had a retail guy, anthony jenkins, the investment bank was the issue and the same thing here. he needs to focus on what he is good at, running a commercial and retail banking operation, and get the rest under control and get rid of the assets taking up a little cold capital. -- political capital. tom: you get rid of those even if it is $.19 on the dollar? jonathan: you can shrink this business, not sell it. it needs to be a more aggressive

approach rather than the drip feed that we hope the market will bail us out, because that will not happen. tom: clearest discussion on deutsche bank i have heard. jonathan tyce is writing about the oddity known as european banking. quieter markets today, and i want to emphasize looking at the bloomberg, futures up 15. , good feelingo over the last 24 hours, 19.17. renminbi with some strength, down to 6.91. stay with us through the day. this is bloomberg. ♪

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president xi does not meet with him at the g20. backup plan as manufacturer partner says it has capacity to make all iphones headed to the u.s. outside of china. and what's in a cut? central banks around the world show their dovish wings. how to play a fed cut if it is already priced in. david: welcome to "bloomberg daybreak" on this tuesday, june 11. awful lot going on in the world today, but there was a lot going on in toronto last night. it was game five of the nba finals, critical for the toronto raptors. kevin durant, who had been out the entire playoff season, got an injury 12 minutes in. the crowd erupted in cheers when he went down, apparently not understanding how serious the injury is. if you -- a few toronto