legislationy over to x right -- to extradite to mainland china. inflation gives the pboc some cover. food prices spike in china, giving the central bank more room to ease policy and navigate the trade war. we will speak with u.s. commerce secretary wilbur ross. elon musk delivers a show stopper performance at tesla's annual general meeting, where he says the company could see record deliveries this quarter, and that there's nothing wrong with demand. david: welcome to "bloomberg wednesday,n this june 12. we have all been concerned this morning watching that video out of hong kong. there have been riots in the streets as they try to shut down low distillation -- shut down that legislation for extradition. alix: it has trickled down into a safety bid in the market, but

also in the hong kong dollar, seeing a big pop. it makes it harder to wind up shorting the currency, so there is that as well contribute into the level we haven't seen since december 2018. david: the hong kong dollar up, the hong kong stock market down. alix: getting hit quite hard. the question becomes whether operationally, what businesses get shut down, how fast they reopen, what about banks and lending. and the long-term picture, what it means for the region, particularly when the u.s. gets involved. david: go to our colleague on the ground in hong kong. jodi, what you know now? reporter: there is to a complicated situation at the legislative complex about a mile from here in central hong kong, where the protesters have been all day. they got there this morning. they said they were going to

remain until the extradition legislation that they so oppose was removed. it wasn't removed, but they postponed debate on the bill. they remained there, and the situation got more and more chaotic through the afternoon as they tried to push forward toward the building. in the images that have been transmitted all over the world, we've seen police clad in riot gear using tear gas, pepper spray, water cannons to stop the crowds who had done things like thrown some objects and were pushing through barricades. aty remained there nightfall. we don't know whether they intend to leave. we don't know the status of the legislation, whether it will be considered or whether they are going to pull it. we have not heard anything from chief executive carrie lam. the last we heard from her was on monday, at a press conference after sunday's massive demonstrations, largely

peaceful, where one million people took to the streets. today was tens and thousands -- was tens of thousands, and it was not peaceful. alix: can you give us an indication of how widespread is it? is centered on that one location, the legislative complexs -- legislative . it is about a mile from the very center of hong kong where our offices are. people have said leaving the building tonight that they could soll teargas, that there was much sprayed at that site that near the financial district, you could smell it in the air. it stung your eyes. but it is onerby, concentrated place. there is a large police presence. the protesters are still there, and the police are still there as well. the chi attic -- the chaotic

situation continues, but it is centered on that one area. david: thank you very much for reporting from hong kong. that is bloomberg's senior international editor of the snyder.r -- editor jodi we are joined by michael mckee and jim newman. we heard from president trump yesterday that they've got to come to the table and do a deal on trade. is this a subtle reminder that even president xi is not entirely immune from political pressure? michael: absolutely, and it is a complicating factor. overnight cup the -- overnight the house and senate said they at theake another look special trade relationship that thats with hong kong

excludes them from president trump's tariffs, for example. it has only gotten more important over the years. it is difficult for them to deal with if they have something like that happen. it is something to keep in mind because xi jinping is obviously not going to want that to happen. alix: can you pick that off of that and talk to us about the importance of hong kong as a financial institution? reporter: hong kong has this special relationship with the u.s. and special trade concessions that obviously will get chopped up if the u.s. and china trade negotiations escalate. as we head into the g20 negotiations, this may give president trump political ammo and firepower to really escalate and ratchet up their threats he's been making over the week. we are talking about 1% -- about 25% tariffs on $300 billion or more that could hit basic consumer goods like laptops, cell phones. this could be another bullet to

ratchet up those trade tensions. david: please stay with bloomberg for more on trade and china. we will speak with wilbur ross, the commerce secretary. in the meantime, let's go to our second story, which is also china. they came out with ppi and cpi numbers overnight. it was really two very different tales. consumer prices went up for groceries, and producer price is really different. michael: people who follow chinese economics essay follow the ppi. it is seen as a proxy for chinese business, and it has been declining, and that is not good news for china. it reflects the idea of the slowdown we are seeing. alix: but part of that obviously has to do with the swine, the african swine flu virus that totally decimated the hog population. but there isn't actually a pass-through because if you don't have hogs, you aren't

going to buy silly beans -- going to buy soybeans for meal. david: and that chart is pigs right there, something you covered a lot on commodities. it is a real problem. alix: in essence, that still gives the pboc cover to then continue to move. reporter: that's right. it does give them room to move, and some of the things we've been looking at this morning, also the credit expansion in china shows that the government is still trying to prop up the economy. seeingn is well, we are signs the chinese authorities are still trying to up their comedy and prop it up. --does give the pboc room trying to prop up their economy. it does give the pboc room.

what i find interesting is there was so much of a lovefest. the stock did wind up popping, but there are still so many concerns about profitability and elon musk just did not care. reporter: there are people out there who are concerned maybe he's a little nuts in terms of the tweets and the behavior of the last few months and couple years. people are still concerned about the leadership there, and a lot of the things investors are concerned about he still has not addressed. david: before we leave, we want to say a word about a different subject. we lost a real leader yesterday, and advisor to president reagan. michael: in that time period he was an intellectual giant, a free market supply-sider who

believed that instead of stimulating the economy through government spending, you should create incentives for companies to expand and cut taxes, and that would lift the economy. that has now fallen out of favor, but marty feldstein never did. he is widely respected around the world, and it is a great loss. alix: thank you for that. michael mckee and lynn on new and -- and lanan, thank you for that. check out the chart we used and more at gtv on your terminal. david: there is some overture in the counseling hong kong to carrie lam to say, can we talk about this? alix: we will discuss that later ti specialw with a ci economic advisor. this is bloomberg. ♪ is bloomberg. ♪

david: china is at the center of the news this morning as protests continue and hong kong, seeking to block extradition legislation. overnight we got consumer and producer price index numbers. we welcome now willem buiter, citi special economic if either. it is good to have you here. let's talk about hong kong just for a moment, as we see video here of the protests going on over there. how critical is hong kong to china's overall approach to financial markets, but also to its economy? is lessi think that it critical than it used to be, which is why we are seeing the

encroachment of the traditional rights and freedoms of hong kong , but i think it will probably an injunction in the defective --in the o position of hong kong. if you read together political , yous and economic issues in a way and the scope of compromise. certainly china is not going to be told by anybody what it should or should not do about hong kong. in that sense, it is not helpful, i think, to a peaceful resolution of the trade dispute. this: how much does

potentially either reinforce determinations or say i can't put my people too far? willem: i think the former. it will make him more determined not to be seen to be weak and pliable. alix: that is an interesting point. we are hearing from the state tv company in china talking about trade, pushing back on the u.s. saying they were going to boost diversified imports and exports. when you see headlines like that talking about the trade gap and china buying more stuff, does that make you feel better about trade deals, or does it make you feel the same? willem: i think from an economic perspective, this is an exercise. imports fromeases the u.s.

[indiscernible] it means that you were exports go to other places. the bilateral trade balance with china will improve, but the overall trade balance will only improve if the u.s. treats more. -- the u.s. trades more. alix: a metastasized level trade war could trigger a cascade of reactions and cap the economic growth into recession. where are we in that potential thesis? willem: we are still at the trade war and trade recession driven war is avoidable. a decision may be at the to keep the

negotiations going. then i think the chance to get to the end of a deal will be there. there will be some damage done. if no deal or no truce at the end of the month at g20, i think the prospects for the global economy are significant way worse. david: we are putting up a chart you provided us it indicates the projected gdp growth, or lack of growth. you have different colors on the right bending on what the effects are, the direct effects of trade wars and things like less direct effects. willem: and confluence affects especially, working both through capital expenditure on the corporate side and household expenditure. , it trade war doesn't

just work through exports and imports. it works through investments and consumption as well. alix: if you wrap this into watching the protest over in the borrowingre costs are higher, you could make that idiosyncratic, but how much of the conversation in six months will be about tighter financial conditions elsewhere? willem: i do not think the trade will i themselves have any impact on financial conditions. if anything, key central banks around the world, from the fed to the ecb to the bank of japan, are going to be looser in their policies, trying to prevent a tightening of financial conditions on top of a possible worsening of the trade war. i don't think that financial conditions are going to be necessarily a killer of this global expansion.

david: bill will be staying with us. coming up, wilbur ross, u.s. commerce secretary, joins us. this is bloomberg. ♪

david: the trade relationship with china has become a cornerstone of the administration, with the president emphasizing his meeting with president xi at the g20 meeting later this month. we welcome a key player in the administration, commerce secretary wilbur ross. sec. ross: thank you for having me on. david: we have to start with the news we have been watching all morning long, what is going on in hong kong with the protests trying to stop this extradition legislation. we know secretary of state pompeo has expressed his concern. now we have nancy pelosi, the speaker of the house, saying

something that really affects you, but in chile. potentially.ou, she says if it passes, "congress has no choice to reassess whether hong kong is autonomous." that would have implications on the free trade arrangements we have with hong kong. is it your position that we should consider revising our relationship with hong kong if they pass this legislation? sec. ross: i think it's a very complicated issue and should be dealt with within the overall context. i think it is a very unpleasant situation, and a big change apparently in chinese policy towards hong kong. david: let's put it into the

overall picture. president trump said he really once to be with president xi at the g20. what is the prospect of coming too, if not a final agreement, at least a truce by the end of the month. sec. ross: i don't know what you mean by a truce. where we situate at the moment is we thought there was pretty good progress on a whole variety of scores in the negotiation. on chinese then backtracked what we thought were some significant commitments, and that's what led to the impasse. footobably at the 40,000 level, the level of the two presidents, the most that will be done is they will decide that it is worth reopening. g20i don't think that a

pull aside is a very likely place for the details of the 2500 page agreement that needs to be worked out. that needs to be in a conference room with detailed, technical people. about withholding of the additional 25% tariffs on the 301 $5 billion of chinese imports? is that a prospect he would look forward to -- on the $325 billion of chinese imports? is that a prospect he would look forward to at the end of the month? sec. ross: the meeting, as i understand it, hasn't even yet been scheduled, so it is hard to say what is going to be the subject matter when we don't know for certain whether or not they will even have a meeting. and if they have a meeting, will it be a brief pull aside? will it be a dinner? what will be the details? a little early to speculate. alix: if you weave this conversation into what we are seeing in hong kong, what we

learn from the administration is that there are no qualms with mixing geopolitics with trade conversations. what would the u.s. do to use the hong kong situation as leverage against xi jinping in trade talks? sec. ross: i don't know that the hong kong situation is leverage. the real leverage is the tariffs. leverage,ays been the and that continues to be the main leverage. david: talking about the tariffs specifically, one of the questions i think those of us who deal with the markets and with businesses have is is the goal here to use the tariffs for the end of these trade relations with china, or is president trump happy with tariffs? tariffs rather not have and we are just using them to get to a deal? sec. ross: well, i think it is

always easier and better if you can make a deal, but a deal and a proper deal aren't necessarily the same thing. the president is wedded to a deal that embraces a number of very important principles. first, to ease the current trade , purchasing more goods on a current basis. that is not very hard because the chinese have to buy those goods from somewhere. the second, which is harder, are the structural reforms. respect for intellectual property, not requiring partnerships, not forcing technology transfers, opening a level playing field for market access, all of those things that take legislation, regulation, and enforcement. the third thing, which is the hardest, is in case either party

doesn't live up to the terms of the agreement, what is the enforcement mechanism? what can the parties do to make sure that these deals that are written on paper become deals in reality? that is the hardest part, and in many ways, that is the most important part. it is part of where the problem came in with the breakdown in the last talks. so it is a whole series of complicated issues, all of which need to be addressed taylor: -- need to be addressed. david: mr. secretary, let's go back to huawei.we place.me sanctions in the president has once again suggested that huawei might get folded into an overall deal. is there some room there to negotiate on huawei with the

chinese? sec. ross: what i understand is what the acting director suggested has nothing to do either with the pending litigation against huawei and its chief financial officer, nor does it have anything to do with the commerce department putting huawei on the list. what it does have to do with is a separate order talking about supply chain and huawei's position in it, and the ability of u.s. government entities to deal with it. so the huawei picture itself is very complicated, has many dimensions to it, but it is my understanding that the eoin be onb that the -- that the concerns were the ones i mentioned. alix: president trump referred to a secret agreement with mexico.

can you give any insight into what that may be, this "very long and very good" secret agreement with mexico? sec. ross: i think the real key in terms of the detente with mexico isn't what scrap of paper has what words on it. i think the real key is will the mexicans do what they said they will do, and what i believe they , really start to crack down and prevent too many people from coming in over their southern borders from guatemala and nicaragua? second, will they deal with the spans of migrants wandering through their country toward the northern border with us? third, will they help us deal with the problem at the northern border? we need solutions to all three

components of that equation. i believe they will act in good faith. i believe you will see in fairly short order the numbers go down. if not, then there will have to be more actions. alix: sure, but -- sec. ross: i believe we are en route to a very good solution. alix: but based on the market reaction when president trump said they were going to increase tariffs on mexico every month until an immigration deal was made, don't you think it is important for market participants to know what that secret agreement is, considering the market is very vulnerable to these kind of shifts in trade policy? sec. ross: i think the most important thing is we need to solve the border crisis, and we need to get usmca passed through the congress. ambassador lighthizer took the former step -- took the formal step he had to vis-a-vis the

congress in putting forward the matter. it is now up to speaker pelosi to decide whether to let the house bring this up for consideration. we believe that if she does, the votes are there both in the house and in the senate. usmca,l question on which is after all the big thing that markets should be focusing on, the real key is will speaker pelosi let the bill come to the floor, let the members debate it , and let them have a vote on it? david: and as we know, there are members of the democratic caucus on the house side who say they are for the usmca, they think it is better than nafta, but they want some modification and clarification. they've been talking with ambassador lighthizer about that. are you in favor of making whatever armaments need to be made to get those votes -- whatever un-amendments need to

be made to get those votes? sec. ross: i believe the votes are there for the agreement as it stands. there is a limit to how much modification you can make with the enabling resolution. the mexican senate is in the process of voting on the actual shortly webut very believe the canadian parliament will act on it. once they have taken action, the freedom of motion becomes much smaller because now you are asking other countries to change their practices, so i don't think there's a lot of room for major change in it. are importantly, there is not major change that is needed. this agreement has much better provisions, much better enforcement, than any trade agreement we have ever had, including the old nafta

agreement for which many of the same folks in the congress would say this one isn't tough enough, they voted for the old one. so i think it is a little ludicrous to say we acknowledge that the new one is better than what we have voted on before, but we still want more. i think for some of them, it is just a big excuse not to vote on the issue because i think a lot of the democrats simply don't want to give the president the victory. david: there's also the prospect of possible tariffs on autos with respect to europe. there was an extension given on that. where do we stand on that? the clock is ticking. are we making progress towards europe on an agreement on trade? sec. ross: the timeclock is a 180 day clock from roughly may 17, so there is plenty of time within that. of that extension, the

president wanted more negotiations to be underway and gave quite a generous amount of .ime for that to happen side, they'ven just had their parliamentary elections. you are going to have a whole new staff at the european commission. we don't know who will be the president. we don't know who will be the trade minister. actl they get their together and give the new trade commissioner a mandate, it is very unlikely that substantial progress can be made until those thresholds are crossed. having europe get their economic act together, as you put it, would be tricky. what is the worst case scenario that you are outlining potentially if there is no movement, particularly when it comes to negotiating export quotas with europe? sec. ross: export quotas at the

u.s.? alix: right, so the eu is not open to negotiating those. so if nothing happens, this is my zinger to europe, this is what we are going to throw at it. sec. ross: well, the president has available to himself the auto tariffs. he has a whole bunch of other tools. let's not prejudge what he might do under some hypothetical situation. hopefully all of these things will end with some sort of negotiation. if they don't, the president has made it totally clear that he is happy with the tariff alternative as a general matter. david: let's turn to the subject of currency. there is pending a modification in duty regulations that would expand the extent to which you can take that into account as a subsidy, essentially, if a

foreign government modified their currency to help exporters. why is that necessary? the treasury already has authority to find that a country is a currency manipulator. why do you need a dual mandate here? sec. ross: it isn't so much a dual mandate. countervailing duties are specific duties imposed on a particular set of products from a particular country or countries due to facts relevant solely to that limited set of circumstances. we feel that under some circumstances, there can be actions that a government took strictly to favor the currency in order to help the export of a particular product or a particular set of products. it is a targeted thing, not a big blunderbuss. settreasury situation is to

overall parameters, and as you know, they have said in their view, at the moment, there is no one manipulating the currency, but there are a number of countries they have on their watchlist. david: it is the department of commerce came to a different conclusion from the treasury, how would that be resolved? again, you are, coming to hypothetical questions. what we have put out for public comment is our proposed set of regulations. the publiceive comments, we will take them into account. we will then go through the interagency process and come to a final conclusion as to the details of the regulation. it is quite premature to talk about what happens if there is a possible conflict when the regulations haven't even been written yet. david: at the same time, the

president of the united states has been quite outspoken about our own currency, as recently as the lace day or so. he says are currency is too strong because the federal reserve has not cut rates as much as they should have. if other countries follow the might we beu say, manipulator?rency sec. ross: no one is held back on any trade actions just because we have a pending measure. there's nothing to indicate that whatsoever. alix: broaden this out for us. put on your old hat as an investor. with the market we've seen in the last few weeks, we are still close to record highs. we have dovish central banks around the world. yet, u.s. central banks are closer to 2% than 3%. how do you look at the market?

well, i think the permit of ethics would be very upset if i started giving market forecasts right now. it's one thing when i was back in the private sector. if end when i go back to the private sector, i will be glad to give you forecasts. alix: well hedged. but a 10 year yield at 212 basis points, what kind of economy does that say to you about where investors think we are? sec. ross: well, the factors that investors consider is not just federal reserve. consider where we are in the economic cycle, and especially where we are in the inflation cycle. where most economists have been wrong, particularly where the federal reserve staff economists have been wrong, is they have

been believers in the idea that as unemployment goes down, inherently inflation will become a problem. they have been simply wrong in that thesis. i do think that that has led the fed to be more aggressive in interest rates than the facts really warranted. we really don't have inflation. the real purpose of monetary policy used to be to make sure we didn't get runaway inflation. nobody thinks we are in runaway inflation right now, so i think the fed taking a more cautious attitude on rates, then , i thinkring an effect that is good. i think they should reconsider. i think it is quite likely that that last increase was, at best,

premature. david: i don't want to get you in trouble with the office of government ethics, so i am not asking exactly how you invest your money, but you were a renowned investor. would you agree with the bond suggest wech would are not going to see substantial growth at the long end of the curve? we are not anticipating a lot of growth or inflation. would you base your and basement thesis on those principles going into the perceivable future? -- into the foreseeable future? sec. ross: i believe the economy's underlying strength is terrific. unemployment is very low. wages are starting to rise, finally. capital expenditures seem in pretty good shape. worker productivity is in pretty good shape. all of the key economic variables seem to be in place for a strong economy. i think that is the important

thing. will there be individual months, maybe even individual quarters, where something glitches? could be. economies don't necessarily grow at a constant, compounded rate, but i think we are in a very different economic period from what we had been under the obama administration. the d regulation has been very important. the new tax rules have been very important. the trade policies, very important. consumer confidence, very important. business confidence, very important. so i think it is over supplication to say the bond market on a particular day is doing this, that, or the other thing, and that therefore tells us where the economy will be. it is a lot more complicated than that. david: thank you very much, mr. secretary. good to have you with us.

that is wilbur ross, u.s. commerce secretary. alix: still with us on set is willem buiter with citi. do you have any takeaways, more questions? willem: on the trade side, the u.s. is going to gets a there until it full deal worked out. it is not going to be worked out at the g20 meeting between president xi and donald trump, so we look forward to many months or quarters of tense and the risk that negotiations don't go fast furtherand we could see

rates. the secondary argued that the bond markets, effectively, were wrong in signaling economic weakness. he described in economy where --estment was positive conga was positive, consumption is positive. was tension that we also see. in our view, the fed isn't there yet in terms of rate cuts. they have to see other material inflationr performance for there to be cuts this year. alix: quickly on that, what would be your forecast? no cuts, but no hikes? willem: certainly no hikes. alix: so just on pause? willem: the fed is totally data-driven. at the moment, our view is that the most likely outcome is no

cuts this year, but it is certainly more likely to have one or two cuts than any hikes, which is really off the table completely. alix: always a pleasure. thank. is good to get your -- thank you. it is always good to get your thoughts. david: we are watching a live shot in hong kong. there's not the violence there was earlier, but still people in the streets. we will talk about the situation and how it could weigh on financial health. this is bloomberg. ♪

viviana: this is "bloomberg

daybreak." coming up in the next hour, jason mudrick,-- mudrick capital cio. alix: we're looking at live video of the protests in hong kong. chief executive carrie lam says she feels no guilt over the handling of the extradition bill , and "after this incident, we will do better." not sure what that actually means. david: some people saying they should have explained it better initially. the protests are demanding that they withdraw the bill altogether. alix: you can see policeman there was some riot gear. there was tear gas and lots of violence earlier in the day. we are going to turn to wall street beat now to cover three things wall street is buzzing about this morning. we wrap it all into what we are

seeing in hong kong. hong kong is a financial hub. we will look at how banks might be responding to lingering uncertainty. then there are threats to hong kong's hot ipo market. in trading,15% jump so does that continue? all ofto go through this, we are joined by sonali basak.sonali 's what role does this play in the financial system? asia is one of the big growth areas for morgan stanley in particular. there was this great optimism until now. until now, the trade war was the big topic of discussion, but now you have to worry about sending employees there as well and what your efforts are going to be in

the country. alix: and a difference with the smaller regional banks versus the big players like hsbc, which has a big number of branches there, but they can handle it. how does a bank look at that? sonali: trading in asia is up more than most parts of the world. you have trading activity, private wealth. billionaires are expanding. wealth is expanding pretty rapidly. jp morgan and morgan stanley potentially being affected. there's a story outside of one of the big billionaire clubs in hong kong, how there were people with tear gas masks and goggles on. that is kind of crazy to think about. how will it affect the private banking that is expanding their, not to mention other investment activities like the ipo's? alix: great segue. let's talk about the ipo market, superhot. they have a 15% john chen the first month of trading. it is a good hub.

what happens to this kind of activity? sonali: hong kong ipos are actually popping across the whole world from the end of last year through to the beginning of this year, when the ipo in the u.s. completely shut down when the government shut down. the index is performing very well, but through the end of april and may, that has completely tumbled. so will that start to stunt activity? by the way, not just in hong kong, but in the u.s. my sources that all the top banks say they think of the u.s. top ipo's very similarly to the chinese ones. they are definitely thinking about them in comparison. alix: that is interesting. david: and remember, alibaba decided to have a new issuance through hong kong. they certainly want to significant roles in the new one, but this is between local and international players. alix: morgan stanley and

citigroup yesterday we heard warning of activity. different from what we heard a few weeks ago. sonali: two weeks ago we heard from morgan stanley that confidence is still up. then even james gorman himself said yesterday that over the last two weeks, that confidence really started to tumble. they wanted a trade deal by june 20. that and other uncertainties happening around the world, you are really seeing people freeze up. trading is down. this is a bank that was on the united technologies deal. alix: good point. sonali: so you could say there is some confidence coming back in, but it is weak enough to say that their numbers will be down for the quarter. we don't think as much about people trading with the same reaction of, i don't know what is going on. let me hold onto my cash right now. sonali: if your clients aren't

doing anything, how are you going to serve them? there's no money going around if people are not trading. david: thank you so much. that is bloomberg's son ali -- bloomberg's sonali basak. coming up, elon musk tells tesla shareholders sales could hit record levels this quarter. this is bloomberg. ♪

>> i think it's basically financially insane to buy anything except an electric car that is upgradable to autonomy. it is just nuts. david: here's what i'm watching. tesla having their shareholder meeting. i'm tempted to say when elon musk talks about financial insanity, you listen to it. but this shareholder meeting was extrude mary. that's was extraordinary.

it was just -- meeting was extraordinary. it was just one thing after another. we may hit new records in the quarter across the board. then he says he might get in the mining business. alix: to secure his own supply of lithium. in the india thing, no one asked him. it was out of the blue. been the not friendliest country to u.s. companies. david: and in india, they are saying where did this come from? and then he's got a new pickup truck coming out in the summer, and he said it would be something like a sci-fi movie. the coolest car he had ever seen. alix: something i did find interesting was it won't be long until they have a 400 mile range car. it is things like that, as well as the whole mining thing, securing your supply, pairing those together, that actually does make a difference when it comes to adoption of ev's.

if you get that going, your payback is better. david: he also did not back off of china at all. he did not disclose where they are going to get the battery supply, but they are not backing off. alix: if you look at profitability, that was a mistake. he said 60% to 80% growth this year. you can't get that growth and profit ability. come on. coming up on this program, harris associates cio of international equity. his take on the car industry and european banks, and what happens in a trade war the protectionist environment. 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. ♪ alix: don't pin your hopes on the g20.

u.s. commerce secretary wilbur ross says a trade deal won't be decided in a pull aside meeting at the g20. it will take longer to seal that deal. hong kong takes to the streets. thousands of protesters shut down the city to block legislation allowing extradition to mainland china. inflation, what inflation? chinese producer prices going note where -- producer prices go nowhere, giving the pboc cover. david: welcome to "bloomberg daybreak" on this wednesday, june 12. we are seeing live pictures right now of people basically milling around. earlier on, there was an all out riot. there was tear gas, pepper spray. it was a lot more kinetic. they are still on the streets, though. they are not going home. alix: and it was a big trigger within safe haven flows into the market. you can finally see that reacting. s&p futures are down. the hong kong dollar is up by

about the most in seven months. it is harder now too short the currency, so that is popping up the currency as well. crude also one of the first victims of the risk off mode, down by almost 3%. that is also going to be in inflation expectation story as we head into the cpi number coming. david: before that, we want to stay with hong kong for a moment. we welcome on the phone paul forerman, elected counselor one of the districts in hong kong. thank you for joining us. give us a sense of what is going on in hong kong even as we speak. well, there is transport chaos, stations are closed, and it is bad weather, too. there's a lot of very sad

people. everyone was out on a protest on there is chaos with the police shooting directly at its own people. david: to be clear, it was not shooting regular emanation, right -- regular ammunition, right? there were beanbags? paul: beanbags, rubber bullets. exactly. david: the protesters, as i understand it, want the extradition legislation removed. it doesn't appear that carrie lam, the leader of hong kong, is going to back off. what is the endgame? paul: she is going to stay put. it is what is considered a firewall between the two systems, hong kong and the mainland, which was the agreement, one country with two systems. community, there might

be risk of extradition and he might be sued under national security laws, and people are very scared of that, and i think rightly so, but it is also scary for the business community. the banks and financial organizations started to shut up and sing high -- up in shanghai, but moved their senior staff to hong kong and operate from here because it created transparency with the legal system. i'm sure that some of these large organizations are going to rethink that. alix: i'm glad you brought that up. can you give us a sense what kind of economic activity is at a standstill? what can still operate, and how long will this continue that will end up impacting financial decisions? paul: i think the city operates

like in 2014, when we had a shutdown of major road and transports. the city is operating. but i think what is far more insidious, in 2014 it was about political development and democracy in hong kong. now it is about the risk of extradition to the mainland and what that means in terms of how safe you can feel doing business on the mainland, and how safe you can feel being in hong kong, doing business throughout the region and the mainland. david: ok, paul zimmerman, elected district official in hong kong, thank you so much. alix: we now want to welcome david herro, harris associates cio of international equity taylor: i just want to touch on hong kong -- of international equity. i just want to touch on hong kong. do you rethink how youth think

about the region based on the upheaval we are seeing? guest: these little storms come and go, so no. as long-term investors, we will stay focused on this area and keep looking at this area, but of course you have to see how some of these legal changes, legislative changes impact, for instance, hong kong's competitiveness and stability in the area. you can't ignore these things, but it doesn't automatically mean that you just back away. as i said, these things come and go. 30 years ago we had tiananmen square, as an example. alix: you're totally right. it is part of the backdrop, though, of broader protectionist world, trade war world. as a longer-term investor, how do you choose to allocate capital regionally or sector wide when we are in this world of less interconnectivity? guest: you have to look at

companies specifically. their managements, business models, cash flow streams, and you have to look for ones that, even when you incorporate some ,f the macro events happening the higher trade tensions, you have to look and incorporate this into the business. if they still represent value just because they are in a trade sector doesn't mean you automatically ignore it, but you do have to incorporate what is happening around a company and the environment a company operates in into the evaluation of that business. david: ok. let's move to an area you have experience in, and that as banks, particularly in europe. what do you make of the banking situation in europe? what are the strengths and weaknesses? tost: the weaknesses are due the slower growth in europe, we see pressure on spreads because of the lower interest rates and

the negative interest rates. so we know this exists. and as a result of this issue, you've seen that banks in the last year or so are basically down anywhere from 30% to 40%. however, the positive is that despite the fact that they face some of these headwinds, the cost cuts and raising income through other methods have higher fees, selling insurance through branches, asset ., thement, etc high-quality banks have been able to defend their earnings streams and in some cases grow them moderately. future, nott in the in the near future, rates will drift up again and this headwind will become a tailwind. but in the meantime, they are hanging in there quite strongly. they are fully capitalized for

the most part, and they are 10%ding anywhere from 7% to with single-digit priced earnings multiples. we think there is a very strong value proposition in european financials. alix: in the meantime, financials have been one of the underperformers in europe, and very sensitive also to trade tensions. are you adding to any of your positions at this point? if so, which ones? guest: what i would say is our day-to-day trading really depends on the difference between market price and our measurement of intrinsic value. if something departs from the market price, we add. if something sticks to the market price, we subtract. they are less affected by some of these trade pressures. again, they've weathered through these low interest rate environment, and i think there

strong,wing of some sustainable earnings streams, and that these yields, at some point, people will view these almost as a safe place to put money, especially with those near double-digit yields. david: our automotive's a safe automotives a safe place? we have the renault meeting coming up, the first since the fiat chrysler deal fell through. guest: there needs to be more consolidation and cooperation because the industry is going through some structural change. mobility is still very important. mobility is still a growth business. the automobile companies that have invested appropriately in these areas and make money and still can grow. when you consider the valuations these businesses are selling at,

i am not saying they should be anywhere near market multiples, but the free cash which the businesses generate even in this period of change, and the amount of growth that is still out there given their exposure to the emerging world, means that it should not leave areas completely ignored. the caveat is that businesses have to be focused on getting through some of these structural changes. i look at our investment in daimler and bmw, toyota, and our international product. we are convinced that they are doing the right steps to stay competitive in these areas. alix: david, always good to catch up with you. david herro, harris associates cio of international equity. secretarying up, wilbur ross says g20 is not the place for a trade deal, necessarily. we will discuss the trade conflict with republican senator and former u.s. trade representative rob portman. that is next.

this is bloomberg. ♪

david: china was already the biggest issue on the international agenda with the trade conflict and the meetings coming up in osaka later this month, but now civil unrest has over extradition legislation. we welcome now from capitol hill republican senator rob portman finance member of the and foreign relations committees. let's start with the hong kong situation. we had speaker pelosi this morning saying we should revisit our trade relations with hong kong.

we still have relatively free trade relations with hong kong as opposed to china. sick entry ross says he's not sure it should be pulled into -- secretary ross says he's not sure it should be pulled into larger discussions. what is your take on what is going on in hong kong? sen. portman: first of all, i think they are making a mistake. incredibly an successful economy, and it has helped china, frankly. i was in hong kong about two years ago. i'm always amazed that the chinese don't realize that this has been a successful experiment , not just for markets, but a more democratic approach. hong kong to continue to do that, but see how that works in the rest of china. david: you negotiated some big international trade deals. how might the conflict going on

in hong kong read against president xi's position with respect to the larger trade with the united states? is it possible he will feel he needs to be even tougher in those negotiations because he doesn't want to appear weak at home? sen. portman:. don't know.man: i it is a complicated situation, but the bottom line is the united states in china need to have a mutually beneficial trade relationship. it is really important for both countries, and it needs to be sustainable. you look at what china has done not just in the united states, but to all of their other trading partners. they haven't played by the rules regard to subsidies, intellectual property, licensing agreements, the new venture agreements they require. there is not reciprocity. thereis not equity, and is not there for sustainability. so we need to work this out, and

hong kong should be part of the mix, but ought to be an area where china continues to allow a more free market approach, which is beneficial certainly to the residence of hong kong, and they wanted, as you've seen with these demonstrations. this isn't just about extradition. this is a much larger issue of china exerting its influence over hong kong. so my view is we can make progress on this because it will be an opportunity for negotiators to come up with some additional progress in connection with a meeting that i hope takes place between president xi and president trump. my hope is we can move forward on all of these issues. we were very close just a few weeks ago. when we get back to the table, we can come up with a result. david: the question is how much progress at that meeting. commerce secretary ross said he lowered his explict tatian -- he lowered his expectation. just listen to what he had to say. sec. ross: the most that could be done as they will decide it is worth reopening, but i don't

think that i g20 pull aside is a very likely place for the details of a 2500 page agreement to be worked out. a member of the foreign relations committee and a former trade representative, set the expectations for us. be high should expectations for the g20? the two heads of states are intimately involved in this issue. president trump has strong views on it, as does president xi. i think it is a good thing that they have the opportunity to talk about these issues, and the negotiators at a minimum have to figure out how we can make some additional progress. my hope is it will lead to the kicking off of toxic and, and we -- the kicking off of talks again, and we come up with a resolution. but as i said earlier, china needs to realize this is not

just about the united states taylor: we need to bring other -- about the united states. we need to bring other countries into this. other trading partners share the same concerns we do about the issues, about the imbalance in trade, about the subsidies, the intellectual property, the transfer of technology. there are opportunities here for us to use this to get more focus on the talks and make some progress. david: china is not the only trade issue pending right now for the united states. let's talk about the usmca, the successor to nafta. apparently we put behind us, at least for the time being, those tariffs that were threatened against mexico. does that set us up to renegotiate cash to readdress the -- set us up to readdress the usmca? avoiding the tariffs which i thought were self-defeating was great, and the usmca is a really important

agreement for us. another 175,000 jobs in this country. it is important to ohio because we have a lot of manufacturing jobs that would benefit from it. it is good for our farmers, particularly with the uncertainty. this is something we need to get across the finish line. think we still got some work to do, and we need to be very clear with the american people and with the numbers of congress who are on the fence on this that the choice is binary. do you want to stick with the u.s. agreement with mexico and canada now, called nafta, or do you want to move forward to this ?ew agreement called the usmca if we don't move forward with the new agreement, we are stuck with the old. it is not good for the united states and a number of different regards. first, it is 26 years old. it has to be updated. it doesn't include things like

the modern internet economy. it doesn't include labor reforms, any environmental or labor protections, it doesn't include the kind of things that will lead to more jobs being created here because of the rules of origin. there's a lot of good stuff in there to protect intellectual property and american jobs, so the source -- so the choice is either the status quo or the new agreement. my hope is that we can get it done before the august break. david: thank you very much. we really appreciate your time, as always. that is senator rob portman of ohio. alix: coming up, bill ackman once united technologies two digits plan -- bill ackman wants united technologies to ditch its plans. this is bloomberg. ♪

david: time now to look at three companies we are watching's morning.

up, a really mainline, ,raditional publishing company kkr is saying we will buy out as many shareholders as we can get, up to 20% or so, to take them digital. alix: all of that dry powder for you. david: that's exactly right. alix: we are watching beyond meat yet again. first, the last bullish analyst throwing in the towel on valuation. then we learn tim portman is going to add sandwiches to about 1000 shops. but the last bull to downgrade wasn't on fundamentals. it was just that the evaluation of the company ran so much that the potential could be huge for this kind of market. david: trees don't grow close to the sky, and this one is getting pretty close. alix: that looks really gross. any view of dripping cheeselike

that is not my jam. david: if you need to put that much stuff on it, i'm not sure it tastes that good. the third company we are watching today is united technologies' plan to take over raytheon. brooke sutherland joins us now. i thought this was a done deal. brooke: maybe not. tore was a letter sent united technologies ceo over the a fand, saying he is not of this deal. he says he does not under fan the logic -- he does not understand the logic and thinks raytheon is of inferior quality, and does not understand why it is doing an all stock deal when shares are trading at a discount. we have not yet gotten evaluation pop you would hope for from that breakup. we seen that happen with a lot of industrial companies. their shares are sort of stuck in this purgatory while we wait,

in this case, over a year for this split to happen. david: as a practical matter, can he really stop this? brooke: he has less than 1% of the stock, so i am not sure what he can do. he says he is willing to come out publicly and he think she will have support from a majority of shareholders. i'm not sure about that. stocks were up on news of the raytheon deal. then the shares came down even further when ackman came out against the deal. i don't know if this is a swell of shareholder angst against the company. i think he may be very isolated in his you of raytheon as an inferior -- in his view about raytheon as an inferior business. they are perceived as sort of being be better, stronger company here. alix: specifically he warned about united technologies' exis ting aerospace business and lowering the quality, so how

does that square? brooke: they are different businesses, and i guess you could make the argument that he worries about defense spending going forward, and does he see the support for ongoing revenue growth, but i think it's technology is higher value. they are generally perceived as being a great company. if you look at they return over the past five years, it is significantly higher than united technologies. i am not really sure what you base that estimation of inferiority on. alix: all right, brooke sutherland, thank you very much. coming up, oil prices sliding as global demand worries permeate over the market. we will discuss the state of the oil market. this is bloomberg. ♪

alix: this is "bloomberg daybreak." i am alix steel. just moments away from the latest read on inflation in the u.s.. cpi coming down any minute. risk off in europe and the u.s..

you had that weaker inflation data out of china. not a lot of movement there. yields low, 2.12. record low yields as yields continue to move lower. the tenure auction later on today. inflation numbers dropping. year on year, straight up looking at 1.8%. weaker than estimates. same deal he backed out food and energy on a year on year basis staying in line with 2% but softer than expectations and softer than the month before. ing outy month ek something. inflation is not there. david: the president is right. he says there is no inflation. bpi yesterday and cpi today. alix: you talk about inflation expectations being stuck in the doldrums. is something fundamental

here if you cannot get any action and oil keeps rolling over, there you go. david: we have michael mckee here to explain it to us. michael: i am looking at the breakdown and it does look like it is all alix's fault. energy prices down after rising 3% the month before. energy playing a big role in the flatness of the headline inflation and that is why we are seeing core inflation stay higher than the others. some of the categories you normally see the defenses been worried about, not as bad. apparel flat. that was one they were looking at. transportation prices, cars down .3%. medical care hangs in there, up .3% and housing up .3% which is been the pattern. -- which has been the pattern.

, a highlylation concentrated drop in disinflation areas to the energy sector. we are seeing more buying in the bond market, it looks like the dollar does drop. it is two pronged. it is one you see the fed cutting but also i'm scared about longer-term growth. michael: it makes the fed's case there may be transitory aspects to this. they will not worry about energy prices because they bounce around so much which is why we have the core rate. the rate hung in there, lower than it was last month but it is not dropping significantly. they will feel like we do not have a case to be made on inflation basis to cut rates. you are seeing buying in the front end of the curve. two-year yields down by five basis points. a lot of buying across the curve. thanks a lot. appreciate it.

staying with my fault and oil prices, wti dropping for the most since may. that doing nothing to help inflation expectations. today's worry, the global economic slowdown that could hurt demand. last year, a different story. surged and u.s. oil demand increased the most in over 10 years. joining us to discuss the report is spencer dale, bp group chief economist. the market is telling us that level of oil demand will not hold up. do you agree? you said, last year, global oil demand grew by 1.4 million barrels a day. the u.s. growth last year, half a million barrels a day. that is the strongest we have seen for 10 years. the story was not gasoline being put into cars and buildings, it was the story of a particular type of product in petrochemical sectors.

year, we areis clearly seeing a loss of economic momentum. global economic growth this year looks like it will be slower. the imf has suggested about .5% slower than what we saw last year and that will weigh on oil demand growth. alix: talk about the distinction for petrochemicals. that will be a china-u.s. story. china will be short, we will be long. walk us through what you know about that. that, petrochemical production in the u.s., some of it was absorbed domestically but a large part was exported to asia. this is just part of the interconnections around the world. trade wars,s in the this is why so many people are nervous about the trade wars. alix: to talk about why were able to produce so much petrochemicals, it is because we produce a much oil.

this is an amazing bar chart. the orange is u.s. oil production. you can see the average over the 2016, 2017,s versus 18, that is an enormous amount. spencer: unbelievable. u.s. accounted for him the entire increase in world production. u.s. oil production grew by 2 million pounds. much of that coming from u.s. oil. this is the shell revolution, and the growth in u.s. oil production was largest ever seen annual increase by any country. add to that natural gas. it became a remarkable first, the largest ever increase in oil production and gas production. the shale revolution is alive and kicking. david: can't be sustained? to the geophysics support that kind of growth continuing? spencer: the truthful answer is no one knows.

say theectations underlying reserve can support that growth over the near-term. the issues over the near-term which can more likely constrain the size of growth is the infrastructure. the takeaway capacities. secondly, finance. the availability of finance. are people willing to carry on supporting the strong growth or will investors demand more returns? alix: the answer is yes to your latter one. they are demanding more returns. if this was the oil price three years ago, the high leverage companies would be out to water. now we are talking about how chevron and exxon, they do not care of the price be $50, they want the short cycle play. they can keep pumping money into shale regardless of the short-term fluctuation. spencer: we had an interesting analysis where you would expect it to be increasing

concentration of u.s. oil production. you do not see that in the data. we have analysis looking at the production accounted for by the top 10 firms. that ratio has declined every year for the last 10 years. that level of concentration you do not yet see in the data. the other part goes to the broader takeaway when you take a look at energy consumption versus what we see with carbon emissions. some countries go to the paris climate accord. where are we in reaching those goals? are we using less call, using less oil, how do you see it? spencer: the data for 2018 is a bit of a wake-up call in terms of that transition. is going when society increasingly aware of the dangers and climate change, demanding more action, growth and carbon emissions was at its highest rate for years.

rather than slowing, carbon emissions were accelerating last year. there is a growing mismatch between those hopes for action on climate change and the stark reality where the data is moving in the opposite direction. david: the thing that jumped out at me was coal. it is really increasing. we have hired so many storm -- we have heard so many stories about going away from coal to generate electricity. where is that coming from? spencer: it is largely in china and india in the power sector. in china and india last year, renewable energy group by 25%. -- grew by 25%. massive growth. increasing power demand outstripped that. it was not enough to meet all of the demand for electricity. use all other things being dragged in. in those countries, the fuel that balances the system is coal.

coal still being sucked into the system. what we saw last year was coal consumption rise for the second consecutive year after three previous years of declining. many people had thought we had seen the peak in global coal consumption. alix: how fast would renewable energy have to grow to supplant whole? -- to supplant coal? spencer: the honest answer is impossibly fast. reportanalysis in the and the punchline message is rapid growth in renewables is essential, but it will not be sufficient. as the world moves to electrification, that process only makes sense if it goes hand-in-hand with carbon eisen the power system. renewables of a central role to play. to gas widespread coal switches, using natural gas rather than coal.

a way you can use gas without generating carbon emissions. we will need many fuels and many technologies for years to achieve this. renewables a central part, but not sufficient on their own. david: what will drive that? is that china? is it a government matter that will drive that? spencer: throughout the world we need government policies. china is making huge gains. the other interesting thing about china is huge growth in nuclear power. china counts around .75 of the growth in nuclear power. they are growing almost every fuel they can to increase demand for coal. alix: always great to catch up with you. or as a fun report depressing report, depending on which we look at it. spencer dale, thank you so much. in the market, you have equities holding on to their lows.

the dax up .4. the two year yield down five basis points. when gore came in a month by month basis, up .1% overall inflation at 2%. a softer trend in inflation. a large part of that has to do with oil. the fed funds futures are now showing increased odds of july cut after that cpi. you can see the play out in the short term by market. up, opportunities in distressed debt. this is bloomberg. ♪

alix: here is what i am watching. the odds of rate cuts.

ppi disappointing and that is moving bond yields lower. a lot of money moving in the short end. the curve a shorter. the two year down by five basis points because of the weaker consumer price expectation. inflation expectations move lower. david: no inflation coming. alix: some investors talking about your rate. he thinks we're on the cusp of a first rate cut after a long hiking cycle. we have this playbook where you go along rates. at some point you short the dollar. you go along stocks initially. he has this playbook ready to go. he has a good: track record. we will probably start cutting. tariffs are more important. it is a game changer. alix: totally. the first five months of the year, he is up like 4% for his main hedge fund.

inflation disappointed. -- alix: that we will talk on the sidelines, that will not be the game changer the market thinks it might be. stay tuned to bloomberg tv because paul tudor jones will be joining bloomberg market to date more into his rate cuts 101. that wraps it up for bloomberg daybreak america. coming up, jonathan ferro. cpi like, buying across the curve. this is bloomberg. ♪

jonathan: from new york city for our audience worldwide. i'm jonathan ferro. "the countdown to the open" starts right now. ♪

jonathan: coming up, the final read of u.s. inflation ahead of the next fed meeting. -- beijingrump says offering little response. morgan stanley ceo lowering expectations. 30 minutes until the opening bell, good morning. stocks lower. futures down seven points. treasury yields coming in two basis points. 2.12 is your yield. let's begin with the big issue. markets debating whether low inflation is here to stay. >> inflation. >> inflation is speaking. >> inflation expectations have collapsed. >> more transitory. >> transient. >> they have talked about inflation being transitory. >> what is weighing on inflation is probably more structura