francine: tanker attack, carriers are damaged in the gulf of oman and crude jumps. president trump threatens action against germany. russia says the efforts amount to blackmail. hong kong lawmakers have scrapped today's debate on a controversial extradition bill. tensions remain high after violent protests. ♪ welcome to "bloomberg surveillance" these are your markets. the simmering political tensions are definitely getting an edge to equities.

we saw a little bit of volatility with stocks starting the day on a down note. crude oil is the one to watch after this attack on oil tankers after the tanker incident in the gulf of oman. we will be speaking to reporters on the ground. this is the picture for the u.s. 10 year yield. also looking at the pound but this is the first day were we have u.k. lawmakers doing the first round of voting. voting to choose the next prime minister want to choose the leader of the tory party. minister and to choose the leader of the tory party. coming up next, we speak to the chief executive of the swiss national bank after their policy decision. but first, let's get bloomberg first word news. >> hong kong lawmakers have scrapped a debate on controversial extradition legislation as tensions remain high between police and protesters.

the question turns to what happens next and if this will become a prolonged protest. some say hong kong is not a safe place to keep assets. >> if you are an investment banker in hong kong, you have absolutely no rationale to stay in hong kong. you would move to singapore or move assets out of hong kong. seeing spikes are is because there is a massive liquidity shortage. the japanese prime minister shinzo abe has urged iran to avoid conflict. he is a rare friend of washington and tehran and has done his utmost to ease tensions. it is the first visit in iran's forty-year history and comes as the u.s. shows little sign of reducing sanctions. bernie sanders has lashed out at jamie dimon after criticizing socialism. the executive said it would be a huge mistake.

the presidential hopeful hit back saying he did not hear jamie dimon socialism when the federal government about wall street -- bailed out wall street. spacex has launched three satellites. they were deployed successfully an hour later. say they will provide 250,000 images a year to monitor teamsvironment and health monitored -- deal with natural disasters. global news, 24 hours a day on air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much. let's bring you the latest on a moving story. the u.s. navy says to tankers -- two tankers have been damaged. incident has been described as a suspected attack in crude jumped on the news. let's head to the region. what do we know so far?

>> as you said, it is a developing story. have beeno tankers involved in an incident. one owner said it was a .uspected attack we have no confirmation yet. this a very tense area after four other tankers were attacked in this area. involved today had already passed the strata for moose -- the strait, about 14 miles from iran. but transiting through waters where they had loaded oil and were headed to asia. we're still seeing the impact on the oil price and some in price of the shipping market as well as we get more details about the incident. francine: is this the first time

we have had this type of incident? anthony: no, this goes way back to the iran-iraq war when there was that tanker war in the gulf. ,hips get going at that time there was no stoppage to oil transit. these fears every time iran rattles a saber saying we could close this strait. we have got to attacks on other tankers we mentioned just a couple of weeks ago. they were at work in the uae. they were hit. we don't know what or who caused that. authorities said it was sabotage, probably caused by a state actor. u.s. officials have pointed the finger at iran, saudis have pointed the finger at iran. so this is a really tense period. we had recent attacks, a drone

attack on a saudi pipeline, just days after, and now we have this incident. the owners are saying it is an attack and that is just going to fires -- flame to the add to flame to the fires of tension in the gulf. francine: thank you. bloomberg subscribers can get the latest on the story on our special live blog. just access the bloomberg terminal and type tliv. joining us for the hour to talk trade and oil is paul donovan, global chief economist at ubs and the chief investment officer at london in capital. paul, you were really in the news about the social media furor about something you wrote. issued ants, and i apology this morning and i reiterate i apologize to anyone who took offense for my remarks. i got it wrong.

i made a mistake and i unwittingly used culturally insensitive language. i apologize publicly for that and am glad for the opportunity to reiterate. when you look at the dynamics of these oil tankers, do your models based themselves on a range? or is it too difficult to guess? the issue is the price of oil is very complicated. it is not just oil prices, it is what it is doing in different countries and taxation rates. so we tend to operate in ranges. it is one of the easier ways of dealing with fluctuations in the oil price. it makes big news if you are an oil trader. less relevant if you are looking in terms of the direct economic impact. we are not necessarily to worried about the event -- these events.

but the general tenor of uncertainty we now have is something with an economic consequence. difficult to quantify, but that is where i would put the main economic response. there was a sustained surge in the price of oil, can the world economy deal with it? be the course, it will last thing they will be able to sustain. a are already in disinflationary environment and a slowdown, the last thing the world could deal with his with a supply shock event that would exacerbate inflationary pressures. i don't really see oil going anywhere, in terms of breaking barriers. toc has limited ability , veryively impact prices different from where we were in

the past. and let us not forget there is a significant amount of capacity coming from the u.s.. overall, we might see a little bit higher prices, but nothing sustained. francine: we have a wealth of information on this live blog. most of our energy correspondents are on it and we are being reminded that, if you look at the history of this. last time oil tankers were targeted was during the docalled tanker war how much we need to look at history to try and understand the shapes of these regions and tensions? paul: i am inclined towards the new world order. what we have seen over the last 30 years is the rise of shale and alternative energy. it is changing oil dependency. when we look at alternative

routes for getting oil out, it does not all have to go through this strait. that does not mean he dismiss the lessons of history, but it means we are not going to be able to draw direct parallels. this is a somewhat different environment. francine: is it safe to say the oil price will be stable? pau: probably, yes. as long as it holds. the wars in this day and age will not be fought. oil will not be the main character in geopolitical uncertainty. it will be other elements like tech, and indeed, when you talk about trade wars, that is where you have the potential to destabilize the world economy. thank you both. and paullondon capital from london wealth management --

from ubs london wealth management. trump lashes out at a germany over nordstrom to. to -- two.eam plus, we bring you the very latest live from hong kong. this is bloomberg. ♪

francine: economics, finance, politics, this is "bloomberg surveillance." but get straight to your bloomberg business flash. >> alibaba is moving closer to hong kong's biggest ever share sale.

china's largest corporation has filed confidentially for a listing in the city. they could raise as much as $20 million -- $20 billion in the world's largest ever ipo. --flix is stepping at stepping up efforts to turn its media empire that turn its streaming service into a media empire. stranger things the game will come out on the same day as the third season debuts. they are not developing games but licensing characters to outside studios. renault's chairman has kept the door open for a future tie up with chrysler but told shareholders they must work to repair the broken relationship with nissan. he also went on the offensive, saying the failure send him -- saddened him . fromalcon nine rocket spacex took off from a base in california. says they willy

provide 250,000 images a year to help monitor the environment and in emergency team to deal with natural disasters. francine: donald trump has lashed out at germany over a planned gas pipeline with russia. they threatened sanctions to block nord stream 2. he has previously warned the project will leave berlin captive to moscow. that is as they hope to export their own liquefied natural gas to germany. andl with us is pau paul. first, let's get to annmarie, who should be here looking at some of the things we are looking at. i think we have a map up. let's bring it up to see what exactly it means. just a couple of months ago, they were talking about if this is another way of putting germany?n

we will get back to that shortly. talk about some of the oil tankers, how does this pipeline fit in to the narrative? is this a first step on imposing tariffs? is good at doing is sending salvos and seeing how opinion in the u.s. reacts. i'm sure he is doing a onnificant amount of surveys these middle-class voters which seem to gravitate towards him whenever he presses a button that they feel emotional about. i do not think this will escalate but is the beginning of something more serious in terms of tariffs. or oil related tariffs. dangereed, there is a that if this class were to react to these comments, trump would do so.

the danger we have with trump, and that is why it is difficult , but the whole protectionism stance is not out of strong conviction but out of a lever that he pulls up and down with 2020 elections in sight. francine: when you look at the trump administration. on mexico andfs saying they have a deal because of foreign policy linked to immigration, does it mean europe is next? he is going after nord stream 2, he is going after cars. is there any pattern? pau: i'm not sure there is a -- paul: i'm not sure there is a particular pattern with the u.s. president. there has been a change. mmething broke it may -- in ay. trade policy is being used as a political weapon and that is different. ways,hat does is, in many

challenge the whole structure of multilateral capitalism. i think that is where the risks come in, i agree. i frankly don't think people in the midwest care much about where germany gets their gas from. but what we are running the risk of now is this increased risk premium. do anythingwant to that is in some way associated with the united states, what happens if you are subject to sanctions, tariffs, taxes in the future? that is a problem. francine: a problem that will be resolved when? when it starts ruining the economy? paul: that is the difficulty. in the 70's when nixon advantage -- abandoned wage and price controls the there was an uptick in inflation. , but for yearsng

afterwards, there was an uncertainty risk premium. moving towards the stage whether maybe u.s. trade risk premium built into any investment that is even the slightest hint of an american accent. we move in this direction, it does not matter with -- what happens with this. it becomes very troubling for growth. francine: do you agree? pau: absolutely. issue we have is that if it was to become a structural feature of any relationship between any particular country and the u.s., whether direct or indirect, indeed about we will not only be facing a smaller size of the pie, the inevitable conclusion of protectionist , which like a domino also,, extend the globe --t extend around the globe

extend around the globe. it is not looking very good. the close we are to the 2020 elections, the more there is the danger that words might quickly translate into action. if we were to see impact on the auto industry, for instance, it would have significant implications on things like consumer spending. last time in 2010, we had significant layoffs in the auto market. that is something very, very relevant indeed. francine: thank you so much. pau and paul stay with us. lawmakers scrapped a debate on extradition of legislation for the second day, we bring you the latest from hong kong. this is bloomberg. ♪

francine: this is "bloomberg surveillance." hong kong's legislative council has canceled a debate on the controversial extradition bill for a second day. this is amidst threats of a massive protest. but the chief executive says she is not backing down. our chief asia correspondent is in hong kong. what is the picture like? hen: of course, we are at the epicenter of a large protest on sunday, anywhere between 250,000 to one million plus a relatively in

peaceful protest. but as we have seen yesterday, that has kind of devolved into a protest of several thousand and a conflict with the police. now it has gotten to this point. i want to point your attention to that bridge over there. by the way, it is raining quite heavily here. the protesters have done ,ispersed -- have dispersed about 75 of them gathered on that bridge. they are face-to-face with heavily protected rights police, basically a standoff right now. it is fairly good-natured, there has been some singing by the student protesters and there has not been any violence i have seen. but it has been a tense call most of the day in admiralty. we are waiting to see what the next move is. and if you bring the camera back to be, i can show you what the students are holding up. they're are holding up signs in

the face of the police, saying stop shooting hong kong students. as well as signs that say hong kong, add oil, jia you, in mandarin. rally, to stand up and to fight. thank you very much, stephen engle. president is weighing in on the turmoil yesterday, saying he is sure hong kong and china will work it out. coming up, today's euro group meeting will be closely watched for something not on the agenda. we bring you more on italy and the eu next. this is bloomberg third -- bloomberg. ♪

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two periods damaged in the gulf of oman. sanctions in the pipeline,

president trump threatens actions against germany over a gas project at russia says the efforts amount to blackmail. hong kong lawmakers with a debate on a next tradition bill with tensions high after violent protests. we will have more on the markets. at the open, some stocks regaining losses. let's get to the first word news. >> a developing story, oil is rebounding after reports in the gulf of oman with the u.s. navy says takers have been damaged, one suffered a suspected attack and another reported on fire and it was hit by a suspected torpedo. president trump threatens he sanctions over germany -- sanctions over germany come he previously warned a gas project and that he could shift troops away from the nato allies.

the u.s. budget deficit has widened to nearly $740 billion in the first eight months of the fiscal year, $200 billion increase. describe -- despite the revenue did nothe budget gap shrink because of tax cuts and increased spending. president trump says he has no deadlines for china to return to talks, he has threatened tariffs if xi jinping does not meet him in japan. talks with beijing broke off plasma with both sides blaming the other. the swiss national bank with loose monetary policy and a pledge to battle a currency strain by the dow shipped to the global economy and the shift i other central banks means the president is likely to see -- we speak to the president later today. 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: thank you.

italy's government that comes back into focus with the eurogroup meeting. this comes as european commission disciplines italy for failing to rein in debt. here.onovan from ubs is is there anything you like? italian yields are attractive. a good time on that time to weigh into it? >> a bad time, it is catching a falling knife. if italy is as very negative feedback loop from slow growth and low labor productivity. power on the back

of the expansionary fiscal ,olicies in the north and south they are not going to do what the european commission expects. germany, it as dictating at the expansionist populism is clashing with german austerity. it does not make for a very good picture. i suspect the european commission will have to go further than they did the last time this flare happened in relationships back in autumn. francine: you could argue that, if democratic elected commission government needs hst spur growth. does the commission me to back off?- need to back >> how do we manage a dysfunctional monetary union to make sure you do not get this force where there are countries

with weak growth for a long time? that is challenging. you have different demographics and other parts of europe. we should not just obsess about the gdp number. high standard of living and a very wealthy in the context of europe. it is a complicated picture. i have sympathy with the idea of a neurotic growth picture with germany, italy needs more growth. the challenge is about how this is being achieved. once you say you cannot have more growth, you say how you go about this? we have got with the coalition is a shopping list of single issues they care about but they do not come together. that is troubling about how successful the similar setup may or may not be. francine: there are changes in

the european with ecb president and a new commission, a new council head, does that move the markets? >> i don't think so. of fiscalt the lack cohesion. dismembered collection of countries with different dynamics without the .ackstop, without germany , the europeanthat experiment is potentially doomed. we are ready here how italy is trying to do these backstops of issuing these bonds which may be able to deliver the money. slope fordangerous ,taly if it were to do that

that would paint them as not a member of the union. that would be dramatic for the whole european union. it is an interesting time. investorsortunity for to tap into euro denominated yield. whether dollark is overvalued, is the euro undervalued? >> more a dollar valuation story. overvalued dollar is against a number of currencies but not by much. not by dramatic distortions in the currency market. currencies move 10% in a year typically speaking. overvaluedere 10% does not cause me huge concern. the euro is the surplus, the value is marginally dictated by

the europeans are willing to sell the currency or not. necessarily say the euro is undervalued. it is more a dollar overvaluation story. foreign investment is constrained into the eurozone. francine: will we have more mark amendment -- market movement with the ecb reacting or will markets price mario draghi's commitments to extra stimulus and whether that will happen? >> i think the market will. i suspect the next step for the backtrackbackdrop -- with things they have been saying for quarters and go back a 2011 when they implemented system of ltro, cheap financing,

europe has a lot of liquidity, not finding a place, that is why liquidity is in the bond markets and you have an environment where you are paying for the benefit of buying their bonds. the german curve is yielding less than japan. spain,eloved country of you can buy five-year spanish bonds and pay my own treasury for the benefit of buying their bonds. we are in a this functional market. -- dysfunctional market. i am not sure how much more can they do. of qe becoming a reality is lunacy. -- a treasuryming

-- francine: thank you. "surveillance." weak cpi and chances of the u.s. rate cut. and round one of the contest for the next leader of the uk's conservative party starts today, how they will get from 10 candidates to one winner. this is bloomberg. ♪

francine: this is bloomberg surveillance.

expectations are building for rate cuts from the fed with a billion-dollar macro trader saying that is his expectation and we spoke with -- he spoke with vonnie quinn in new york. >> they are long stocks initially come along fixed income, probably short the dollar. dose -- that is what you into the first rate cut, the stock market is already trading, the trades are in process and the question is how much further will they go with the first rate cut? they will go a long way. francine: wilbur ross says the fed december interest rate increase was at best premature. >> where most economists have been wrong, particularly where the federal reserve staff economists have been wrong, they have been believers in the idea down,as unemployment goes

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 warranted. when you look at how the market is pricing a fed rate cut, it is pretty aggressive but what if it does not happen? if trade concerns go away, there is little chance the fed will cut? >> i do not see much of a chance and yes removing into a full-scale trade conflict with everything on the table. the u.s. economy is operating a little bit below trend growth but is fine with full employment and rising wages. the race -- around 3.5%. inflation is normal. we had a normal inflation friend

yesterday, exactly normal and the fact is .1% lower than consensus does not make a difference. i do not see the feds have an economic justification at the moment absent further trade taxes. that is a fiscal tightening and creates uncertainty. absent that, the markets are normally wrong with the fed, particularly this far out. we can take some confidence that the underlying economics and the language of the fed at the moment is not suggesting we get a cut at the next meeting. francine: the speech of the head of the s&p who said they will battle currency strengths in a deteriorating backdrop that is tying its hands. you look at the fed, it is a tough spot to be in with a deteriorating environment and you are at the limit of what you

have done before. easy, if you just look at inflation, you would not expect banks to be at a -- where markets are predicting. if you look at the possibility of a significant dent on a global economy which is already going down, you would say it may be preemptively reasonable to do so. considerationhe political interventionism and pressures from the commander-in-chief in the u.s., it makes for a very difficult environment. the reality is that, as far as investors are concerned, we should all be very mindful of the fact that the direction of travel for rates is down, even are being the market

excessively premature in predicting almost up to 75 basis points of rate hikes in this year, which may not happen. francine: as we listen to jordan, them thomas snb with record low interest rates but unwavering intervention threats. that has been the strategy of the president, will they continue to work? >> i think that there was a ecb moved towards tightening, how is the snb reacting? negative interest rates have a cost. they are policies which do damage. opportunitytake the

, it tied itself to the ecb's monetary policy quick suggest you continue with the lower rates until the ecb moves and the threat of intervention in the currency. the general point, with trade war risks, an interesting , is central-bank policy capable of tackling these things? the uncertainty around trade, think about policy, one set of levers, lots of other things operate in the economy and in my view interest rate policy and quantitative policy not necessarily the right response to an economic slowdown caused by fiscal tightening and uncertainty related to trade taxes. francine: thank you, both. stay with us. later, we will speak to thomas jordan who just finished a news conference after the central bank kept policy over lose. round one for the contest for

the leader of the u.k. conservative party starts today, how we will get from 10 candidates to one winner? this is bloomberg. ♪

francine: economics, finance,

policy, this is "bloomberg surveillance." round one to choose the next leader of the u.k. conservative party starts today with eliminations. the first ballot results today at 1:00 p.m. if you receive fewer than 16 votes, you will be eliminated. the benchmark is 10% and any candidate with 32 votes or fewer would be gone. on wednesday, june 19, a third ballot where the candidate with the fewest vote is limited which continues till only two candidates remain and then conservative party members will vote and by the end of the week of july 22, a new leader will be announced the -- announced. first of all, is the next prime minister having the ability to change the course of brexit?

the arithmetic is the same and the european says -- side says they will not renegotiate. nothing substantial can be changed. , thereets complicated may be challenges around the political declaration but ultimately you could see a radical action. 50 andld revoke article say we will try again in the future. the interesting question, if somebody on the eurosceptic side -- francine: revoking article 50 you would imagine would only be done by a pro-remain prime minister. >> somebody could say we have to stop and start with negotiations again but we do not have enough time. i do not suggest it does happen but with the u.k. policy at the moment, anything can happen. it is almost like we are governed by mr. bean. the constants of confusion and

nobody knows where we are going. i think a lot of things are possible and the most likely course of action is another delay and changes to the political declaration and some kind of negotiated exit. the process of getting to that is by no means clear. francine: what is priced into the market right now? >> you expect for the possibility of a cliff edge falling in october. you have a strong brexit person hee course johnson, even if -- even if it night -- may be the case, you could see the u.k. leaving in october. that is not priced into the market. it is not priced in sterling and not priced on the valuations in some u.k. domestic securities. up,market has become so fed

market participants have been so fed up with brexit it has been three years since the referendum. three years. the developments have been more of a monty python sketch or mr. being than anything -- mr. be an than anything else and investors have been difference -- in different, it is wait and see -- in different, it is wait and see, the u.k. is not investable therefore we do not want to touch it and whatever exposure we have -- francine: not investable because we worry about a no deal brexit? probability,ns of the essence of investing, when we save these are how assets should be allocated, you have a pretty debility of outcomes, it is so fluid, and i am not sure politicians know what they do not know. it is difficult.

the answer to your question is, because of this paralysis, i do not think the probability, very impactful event of a no deal exit in october has been priced in. francine: what are the probabilities? what are the chances of a no deal brexit? johnsoners, at least on could weus johnson, -- see a referendum or general election? how should the market participant look at this? different,ome are so how do you price it represent -- 20% chance of a heart exit. hard to price that into the market. we do need to remember that the leadership candidates are

talking to their constituents and they are a mixture of military -- members of parliament and members of the party who are not necessarily representative of parliament as a whole or the country as a whole. you may get statements which may not come true once they are ensconced in number 10. francine: thank you for joining us, paul donovan and pau. bloomberg surveillance continues in the next hour with tom keene joining me from new york to talk to thomas for dan after the swiss national bank kept policy loose. this is bloomberg. ♪

two carriers damaged

in the gulf of oman. sanctions in the pipeline, president trump threatens actions against germany over gas projects. people, hong kong lawmakers scrap a debate on a controversial bill with tensions high after violent protests. everyone, tom and francine from london. we have a busy day. the first time some candidates in the leadership to become the m will bearty p eliminated and i'm looking at european stocks and the tankers with incidents in the sea of oman. tom: protests in hong kong. with oil in a downdraft, it lifted oil 4%. francine: we had industrial outputs in europe with industrial outputs a little bit better than expected.

we expected a fall but it was less. we will get back to the geopolitical concerns. but let's get to the first word news. >> oil tankers were damaged in what one operator called an attack in the persian gulf near the strait of a waterway. one ship is described as having its hold breached and another was damaged but no word on who is responsible. vessels were damaged weeks ago in what the u.s. called an iranian attack. president trump threatening sanctions against germany over angela merkel's support for a gas pipeline from russia and the president said he could move u.s. troops out of germany because he exit is not spending enough money on defense. senate republican leader mitch mcconnell is trying to avoid another government shutdown, urging the white house to do a deal democrats could live with

but congressional leaders cannot agree on a spending limit. hong kong with tensions high after violent protests over controversial legislation with lawmakers delaying a debate on the measure which would allow extradition to china. police cleared robots that had closed major streets. a smaller crowd of protesters showed up today. 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. tom: thank you. an update out of hong kong, this is a continuing story, the last of the visuals of protest today and more of the opposition and government going back and forth. a headline out of our hong kong office is, they will apply for a protest permit to march on sunday. last weekend, the protests were

very large. let's get to the data check. markets -- lift to the markets with oil moving, not moving at the 4% level we saw earlier or even 4.5% as you would expect, it has come half way back. charles cantor to join in the next hour, 15.79 on your bull market. yields are next ordinary. -- extraordinary. we have the correct guest to talk about that. gold is being discussed, including halted her jones saying shut up and buy gold. that, thei like technical term, shut up and buy it. equities are trying to find a direction, they were down and now up a little bit.

president trump taking issue with nor trained to. stream two. don't forget that you are choosing a new tory party leader in the u.k., the next prime minister of the united kingdom and the first round today with names being dropped off. tom: i did not know that, thank you. francine: there you go. francine, ie show, love how quick the campaigning is in the united kingdom compared to the long drawnout soap opera in the united states. they have the first vote today. francine: at 1:00 p.m. it is like a contest. eliminate candidates. tom: this is great.

the second book by cartel our today. the bloomberg -- cartel our hour today.ktail this is a stunning chart. this is the five-year forward european expectation of inflation. all you need to know is the second derivative of this move, i will use the word unprecedented. i do not know if it is or not but you have a massive impulse of disinflation in europe now. enough of that. francine: the u.s. navy says to takers have been damaged in an incident with the operator of one ship sailing from saudi arabia to singapore described the incident as a suspected attack in crude prices jumped on the news. our middle east energy markets reporter joins us. if you look at history,

something that escalated in the 1980's, so give us perspective, how bad can this become? >> there is a lot of nerves in the oil market already and from the point of view of the oil market, we could see the nervousness continue. this is a big risk on a human level if they were tankers coming up to the segment, a heavily trafficked area for all kinds of cargo, particularly for .he oil supply of the world today, the sailors on the vessels got off and got on to other ships. there is a huge risk to shipping, to the sailors, and to the oil markets. a lot of the commentators we have spoken to have said, where is the geopolitical risk in oil prices? they set oil prices have been too low as people watch

macroeconomic issues and issues around a potential trade war. they have been saying there has not been enough of this concern over conflicts in the region priced into crude oil. we have seen that coming today. it has already come off a little bit and we will have to see what are some of the conclusions into these attacks before we know more, francine. francine: what do we know so far? the japanese prime minister was meeting with the iranian supreme leader in tehran, at the same time, we have multiple reports, the maritime authority, iranian tv, is it difficult to piece everything together? >> it has been a busy morning in dubai. two tankers have been hit in this incident. one tanker says it was an attack. minutes ago we heard from the

second ship manager from the second taker who said there was an explosion but the cause is unknown. a fire from both vessels. all the sailors got off and the vessels were damaged. the first tanker says the ship is not in risk of sinking and the cargo of methanol, a refined oil product, is safe on the vessel. the other vessel, we are still waiting to see what is the status of that. the ship manager is trying to recover the vessel. we do not know about the cargo of nafta that came from abu dhabi. tom: this is serious, you have north of beaumont and oman, you have islands, iran, you have islands, in the 21 miles of the is like the panama canal , and exaggeration, what kid the

u.s. and it -- what can the u.s. and others do to stop ships with torpedoes on them? >> this is the asymmetrical risk that the u.s. navy talks about, these small vessels who look at navy hasfrom iran, the small vessels that can swarm the bigger ships. the bigger ships will have defense mechanisms to protect themselves from a similar threat. but they are more vulnerable to these smaller ships swarming them. one off risks in the persian gulf are enough to put the oil market and shipping market independent and enough to vessels to transit through their. it does not have to be a real t but therethe straight can be smaller attacks that could create havoc on those markets. francine: thank you, anthony.

joining us is a global strategist. geopolitical tensions and the impact of economy a given where we are in the world economy, can it take oil prices higher -- can higher oil prices? >> on consumer prices in the next few month will come from the debt we see in oil prices and we cannot cope with $100 a barrel oil or anything close as that would hurt a slow environment. barrel, in the range we have been coming down a bit. that is not the big problem. tom: we have a lot to talk about in the markets. the first derivative, the acceleration of disinflation, remarkable. why is it happening? >> because we have sony forces

pushing prices down, so much competition, such a massive change in the retail market with double-digit falls in the prices of televisions you can get easily. in clothing prices, collapsing. the american numbers came out yesterday, the only thing that has gone up significantly in price is children's furniture. that is one of the things we will get, nice cots for our nice children. not much else is going up in price. goods, reducing rent, putting staff into real stores to sell stuff, that has just changed the short-term inflation outlook out of sight and sound. tom: we will come back on this. about on lot to talk fixed income. has thea map which

google thing with more intellectual information on oil. very simple, oman, here are the islands off of the south of iran, this gap is 21 miles. the gap of hormuz is like this with these explosions outside the arabian gulf. please they will fuss -- please stay with us. kit juckes is with us. this is bloomberg. ♪

>> i were first obligation and highest loyalty -- our first obligation and highest loyalty is to the american citizens. >> our way of thinking and actions may have to be multilateral and not unilateral. >> we have to stop in the

aggressor. >> we do not always act on our first impulses, even when there is pressure to make a fast decision. >> no longer will we sacrifice america's interest to any foreign power, we do not do that anymore. >> protectionism and trade confluence jeopardize international trade and the very foundation of our prosperity. >> we are reawakening american pride, american confidence, and american greatness. >> tear down walls, ignorant and narrowminded this for nothing has to stay as it is. [applause] francine: that was the u.s. president donald addressing the air force academy a couple of weeks ago, tapping american first, and the german chancellor encouraging globalism during her commencement address at harvard. donald trump has lashed out at germany about a gas pipeline

with russia. the projecty said would leave berlin cap it to moscow -- captive to moscow. for warrants enough impetus the president to impose tariffs on german carmakers. >> the threat he will do something, we could have sanctions to try to get people to see the world our way. my first response is, what do you want germany to do to get gas because you cannot provide it. responses, you are right, if he wants to get his way, what he sees is the right thing for america through trade negotiations, what he did with we willit makes certain

see these conflicts and they will not go away for the foreseeable future. francine: conflict is policy, he did not mention nord stream, not what the next step is for the united states. >> not clear there was a link between the trump all, illegal immigration, and the collapse of nafta or sanctions on imports from mexico six months ago. blurred at a moments notice. tom: i want to get to the markets. everyone watching this program is stunned at the disinflationary tendency expressed through the fixed income market and somewhat through the ambiguity of foreign-exchange. what are you watching right now to gauge the rate of

disinflation? >> i am watching economic activity because, if we see a slowdown globally now, with a few underlying economic inflationary pressures we have, that will really drag inflation down. that is the danger. the u.s. economy is slowing significantly, imagine five-year inflation, if we get a u.s. recession next year. that will change the ballgame. tom: are you calling for a u.s. recession in 2020? >> the forecast is for a recession next year, yes. tom: kit juckes with us and we have a lot to talk about. i cannot convey enough in the last 24 hours, the first derivative disinflation, i can say i have never seen it. your desire to go to cash, never seen that, how to be in the market.

stay with us. kit juckes. this is bloomberg. ♪ ♪

>> this is "bloomberg surveillance." startedh grocery chain on a weak note with sales held back by the market in the home

country and comparable sales came in worse than expected. alibaba close to the biggest share sale in hong kong since 2010 with the largest corporation confidently for a listing as they could raise as much as $20 billion. netflix is taking a step to become a multimedia in part with video games based on it shows. they were really stranger things three the game based on a popular tv series and also a gain based on the series dark crystal. that is the bloomberg business flash. tom: we are looking at market and disinflation's which means price up, you'll down. -- you down. -- yield down. kit juckes of socgen is with us. -- how- i have massive

do i keep in the game with these low yields? do i move to a lesser credit, do i get out of bonds, what do i do after my gains in bonds? >> still gains to be had because a low environment, absent recession, low yield environment helps credit, as some of the credit quality deteriorates. jones, has been doing this longer than i have and is richer, you heard from him, the big game is we have had three downturns in bonds, the first two did not lead to a recession, the right trade was to use the fallen yields and any accommodation from central banks to load up for the next round of the equity market. the million dollar question is, do i buy the dip in the equity market?

paul is a braver man than i, this could be the beginning of a mild recession because we have run out of gas in the global economy. i want to stay in bonds for our institutional viewership. , youyou have a trade continue with it, how does kit juckes encouraged to know bond prices will not go down with yields higher? how do we know that buying demand will be there for fixed income? more long as i get downside than upside surprises in the inflation, as long as i see more signs that the global economy losing economic momentum, the naysayers on the bond market rally will be saying , look how much is priced in with too many rate cuts. they have done that in every downward rate cycle pretty much i can remember in my career.

the market does overshoot. the test will be, you will get corrections because we're going fast, if you are in the trade, stick with those as long as you do not see upside economic surprises and inflation surprises, and we are not. francine: thank you. kit juckes stays with us. we will talk about the snb coming up. they keep ultra loose policy in place while the european close, guy johnson in switzerland and snb be talking to the president later. this is bloomberg. ♪

♪ morning, francine lacqua in london, tom keene in new york. like googleg map is

maps with a lot of smartness. petroleum, this is the path of one of the ships attacked by torpedo outside the gulf of hormuz. singapore,the way to another day at the races. lot oniles, there is a the way. this gap is narrow. on they go before the torpedo off of iran. there is a quick indication. it is a very narrow chokepoint. francine: it is, and we need to keep a close eye on it. we have a live blog on the bloomberg terminal. there is a great historical context and we are trying to figure out if there are parallels with what happened in

the 1980's with the tanker wars. it is something people on the ground are trying to figure out. more details about those tankers damaged. it happened in the sea of four moose. -- gulf of hormuz. one ship reported an explosion and more than 40 sailors were rescued and taken to a round. -- iran. japan's prime minister is in urgednd tried -- iran and iranian leaders to avoid conflict at all costs. the u.s. shows little signs of easing sanctions. group called a top in to make meaningful dialogue with protesters after a violent

demonstration. the public has serious apprehensions about a bill. there is a permit to march on sunday. 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'm sebastian salek and this is bloomberg. yesterday, we were focused on hong kong. it is thursday and the goal of all in hong kong is to get to sunday. that involves the police and their commissioner, who is speaking now, managing the message. it has been a quieter day in hong kong. am i right to say that? been a quieters day in hong kong. we had a briefing by stephen engle and he showed us some of the things the protesters are trying to do.

it is a bigger test about where this goes and what happens next. we are trying to figure it out with a multitude of reporters on the ground. tom: what happened overnight, and how did the executive leader of hong kong message forward? what does she do? karen: when we came out of the office last night into the heart of the protest, it was still going strong. thousands of people gathered in the financial center and showed no signs of leaving. this morning, things were fairly quiet and while it is a lot calmer, it is still very tense. people know what happened yesterday and they are nervous over what will happen the next two days. organizers have called for a new protest march on sunday to gather in the same park as last weekend, and monday in admiralty

, which was ground zero for yesterday's clashes. we are not seeing quite as much violence but that does not mean things are not on the boil. do forat does the leader what could be record sunday protests? karen: she is walking a fine line and it is not an enviable position. she is backed by the beijing and has hundreds of thousands of constituents protesting a piece of legislation she has defended and still defends. we are waiting with anxious eyes to see her next move. francine: the president of the united states weighed in on this, saying he was sure hong kong and china would work it out. how do they work it out? karen: people are speculating if

this comes to a breaking point, there will be a redline that somebody crosses, will the police use more violence? open a bitseemed to of a door yesterday in a taped interview. she talked about, whether we withdraw or not -- this is a thoughtse -- and people if she is not going to take the bill totally off the table, she has to make amendments. protesters have said their main demand is this bill be withdrawn. that is unlikely to happen. francine: thank you so much, . we will be back with a lot of talk on china and we will focus on the economic side. still with us are kit juckes and miranda carr with us. we will have plenty more on

anda and the markets exactly what happens with these geopolitical concerns. when you look at the economics of china and how they will deal with the trade war, how much policy can the pboc put in place? miranda: you are getting to a stage where they are moving towards an easing stance and the u.s. is giving them more room. there are no talks domestically of an interest rate cut. previously, he would not have been able to do that because of pressure on the sea and why -- see ny. if you remove that pressure, that gives scope for cutting interest rates more than they have before. francine: will china do whatever they can to not let renminbi cross seven? miranda: and is interesting.

number, a psychological downplaying its importance. it moves through that potentially. before it stabilizes around that desh goingut goading to a full stage crash -- going to a full stage crash looks like a potential. tom: is there a communist party in hong kong? i has the idea that mr. x picked up communism and the party is ascendant. is communism ascendant in hong kong? there is a communist party in hong kong who would like to see greater coordination between mainland and hong kong. significant resistance from the

democracy movement. this is all sort of part of , issing china in some ways more different in espousing a new world order then what the u.s. is pushing forward and the trade war is accelerating that, whether we have different monetary, economic, political systems. china is talking about that more confidently and that includes mainland and hong kong, and the wider asian market. tom: what should the u.s. do? the u.s. president says he is watching it carefully. flag,o we do, show the show up in hong kong so the sailors can have a wonderful weekend? what should the response be? miranda: if the u.s. starts involving itself directly and what china sees as an internal issue, that takes us into a

different turn. the trade war is bad enough and if the u.s. starts interfering directly in what china sees as domestic issues, that is uncharted territory. francine: does the president of china meet with the president of u.s.? will it be a trade war that lasts the next five to 10 years? kit: tensions will not go away until they meet and agree to something, and i am not sure they will go away. we may be in a new world where the old trade arrangements are more confused because trade is a geopolitical tool now more than it was. we might not get back to completely calm waters whatever happens. it could be messy. tom: kit jukes and miranda carr, thank you for joining us.

i want to show oil as we go to break, because we have a new sustained price level in red. oil down here, the weakness of the last number of days. level up after the shock and search we saw earlier. stay with us, not only on these international relations, on the markets as well. this is bloomberg. ♪

♪ this is bloomberg "surveillance." keeping a close eye on hong kong. on aizers calling

demonstration on sunday in protest of a current extradition law. they called on carrie lam's administration to engage in meaningful dialogue with the public. there getting briefed by police commissioner about some of the violence yesterday, and police saying they were acting in accordance with guidelines. dry it is always a conversation with the chancellor of the exchequer. out of himowbared information. chancellor -- the telegraph tearing the chancellor to shreds. theresa may is the authentic tory in this interparty fight over climate policy. of chancellor is a clutter -- and category errors.

he goes on to our expert at bloomberg and a half, and then lauren turner says it reflects the institutional arrogance of the treasury. they have this eat those -- ethos but the rest of the cabinet can't be trusted and that they are only custodians of economic rigor. what do you think of the chancellor if he is not a candidate for prime minister? francine: we had a 25 minute conversation yesterday in front of a crowded audience and we were there to talk about tech and brexit. i asked about boris johnson and the fiscal off they already. we touched upon climate change at the end. the u.k. is trying to show leadership. they were the first ones to say we want to end greenhouse gas emissions, and the chancellor

was not on the same page as theresa may and he is worried about the purse spring -- pursestrings. what we have to do to keep international investors happy with the u.k. that explains some of the animosity between dealing with climate change and greenhouse gases. tom: it goes on for the chancellor and the present prime minister, prime minister may casting her vote in the tort -- tory leadership conference. congratulations on an important interview yesterday. kit jukes of sauk jen on brexit -- socgen on brexit, what do i do with sterling? do i long or short sterling? kit: for now, you have to remain short sterling. it is hard to imagine a

circumstance that leads us away from being more and more worried about a no deal brexit, more and more worried about having a conservative party leader and prime minister committed to getting out of the e.u. whatever it takes on october 31. that is the worst outcome for the country in the short term. there will be hopes something can be done to arrange a softer exit and if we can, sterling will be softer by christmas. current dutch foreign currency for the summer is gone. tom: it is a question for francine as well, is it sequential to october 31 or is it a lot of noise until october 15 where everybody goes mental? kit: i think it will drag on. laboure yesterday that but forward rolling out a no

deal brexit, they did not get enough support. people thought there were more chances to scatter the no deal exit. that might not be true. that is the debate we will have for the next god knows how many weeks. francine: you know the anchor she's -- you know the intricacies of u.k. politics. if boris johnson becomes prime minister -- and ed is not a given -- does it -- it is not a given -- does it boost the chances of an election, a second referendum, or a no deal? kit: it boosts the chance of a no deal. he would like to get a deal but will take no deal. the only way he will be stopped as if parliament stops him. he sounded as if he is preparing for the idea of having to have an election. that is what it sounds like.

francine: if there was a general election, could boris johnson win for the conservative party? chanceinion polls say no and what we will have is a minority labour government what the support of the scottish nationalists -- with the support of the scottish nationalists. the problem we have seen is the opinion polls are not worth the money they are printed on at the moment. they have not been any help to anybody. an only thing worse than opinion poll is betting on the back of odds you get from bookmakers. tom: kit jukes, very informative, and we are looking for a new bout of disinflation across europe. oil is elevated off of the reported torpedo attacks outside the gulf of hormuz. methanol.ship of

oil shows it with a 4.5% move in oil. we have come up a little bit off of that. extraordinary, a running take from our experts on the hydrocarbon market, -- javoiierier blas. this is bloomberg. ♪

♪ "surveillance," francine lacqua in london, tom in new york. we are looking outside at hong kong, the strait of hormuz, and luxembourg. i could never find it on the map. francine: i can find it. tom: maria tadeo is with us. meetings, they have something to talk about which is the mess in italy. what do germany and finland think about italy? isia: that is right, and it

funny because in a meeting like this, the italians have become the new greeks in terms of the attention and the media circus. this is all about the potential fine italy could be slapped with . the italians say there is no need for this and will say the commission is wrong. the forecasters are too pessimistic and this idea of the output cap, the italians will tell you it is crucial they think is wrong. they have space for fiscal expansion, but the germans will not like this and they see it as the biggest test to the fiscal rules in europe. francine: well the commission back down a little bit because they are on their way out? maria: that is a good point. a lot of these institutions are on their way out. the new commission will sit by the end of the year, and they

feel like they have to watch out for their own legacy. no one wants to be known as a a --ssioner who slapped italians have to show they will take care of the debt. much,ne: thank you so maria tadeo on the ground from luxembourg. i have a luxembourg chart up because i think we have offended a whole nation. it is a big hub. kit jukes of society general knows where luxembourg is. when you look at the european conundrum, what does it mean if you are looking for yield? italian bonds would have a good yield if you have the appetite. kit: they do, and when the appetite is there, you get the

kind of run we are getting in portugal and spain. if you remove the existential threat, you get a strong rally. francine: can you get rid of that existential threat? kit: put in some reform and get some growth. at that point -- robin brooks is the one who pushes this campaign against nonsense output gaps every day, and it is true. the idea that italy hasa capacity and doesn't need easier policy as absurd. if you just slow this economy down further through austerity, the problems will get worse, not better. tom: should we blame the germans? kit: blame the system. blame the inability to realize we are stuck in a deflationary spiral in parts of europe, and if we had a common fiscal policy

where we could have transfers we could get what europe needs. europe has a huge current account surplus and has tight fiscal policy. that is absurd for an area with high unemployment. -- tom: this has been wonderful. coming up, must watch, must listen for all of you trying to find courage in the new volatility and story flow of the equity market. charles kantor ignores the stories and looks at fundamentals, with newberger berman. ♪

♪ tom: this morning, two tankers carrying methanol and naphtha

have abandoned ship after suspected torpedo attacks outside the strait of hormuz. oil surges 4%. the u.s. is assessing the damage. a quiet in hong kong. the police commissioner speaks and the opposition on carrie lam, president trump says, "i hope it works out." you need the courage to stay invested. mr. kantor comes by to apply courage. from new york and queen victoria street in london, francine lacqua. let's go to the map on these tanker -- tankers. bloomberg maps is like google maps with hydrocarbon information. and is here, dubai is here, near oman is a ship bound for singapore, stopped dead in the

water this morning, one of two ships attacked. i am not sure if it is napa or napa --, but a -- naptha or methanol, but a serious issue. francine: if you are on the bloomberg terminal, you can go to tliv. abandoned byere their crews after being damaged. there are conflicting reports. they are going blow-by-blow into what is happening. there are reports by other media that one of the ships has sunk, but that appears to be untrue. stocks in the region losing as much as 4.5%. dubai has been affected because they operate marine terminals. tom: in london, here is

sebastian salek. sebastian: more detail, the two tankers abandoned in the gulf of oman where a damaged apparently from an act in the strait of hormuz. its crewtor says abandoned ship after an explosion. unconfirmed reports say it was hit by some sort of torpedo, and the other was damaged by a show. president trump is ramping up criticism of germany, threatening sanctions over their support for a gas line with russia. move u.s. you -- troops outside germany because they are not spending enough on defense. mitch mcconnell is trying to avoid another government totdown, urging white house agree to a spending deal that democrats can live with. the fiscal year begins october

1. in hong kong, tensions remain high a day after a violent protest after controversial legislation. police cleared roadblocks enclosed major streets -- and closed major streets. a smaller crowd of protesters showed up today. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek in this is bloomberg. tom: thank you so much. it is thursday evening in hong kong. we just heard from the police commissioner with the usual set of headlines about injured, those not injured, and attacks on reporters. to me, the major source of information is not only the cleanup and images of cars in the streets, what they have to get to sunday. francine: there is another

protest on sunday. we know this because we have been following closely, but plastic lights and teargas met some frustrated youth throwing plastic bottles and debris. they are protesting a new law that would allow those in hong kong to be extradited to china. we will wait to see if there is more violence on sunday and what carrie lam does next. --: a lyft to the markets lift to the markets. oil not as elevated as it was two hours ago. the vix, 15.92, a bull market. we are to percent down from the top. it is a real disinflation story. that should be read on the screen and one basis point -- red on the screen and one basis point.

francine: european futures appeared to be shrugging off losses. oil jumping, treasuries nudging higher, and we have the first vote on what will -- who will be the tory leader, pound at 1.2668. to: an extraordinary time speak with charles kantor of newberger berman. gentleman that a steered forward the acquisition of avocados by amazon, but it is far more than just amazon and whole foods. part of that is the courage to be in the market. have you ever seen it like this, the cacophony of news? we are 2% under a great bull market top and people are miserable. francine: the misery thing -- charles: the misery thing is the confounding factor, given how much equity values have grown

over the last 10 or 11 years. the idea that valuations still seem reasonably attractive compared to where interest rates are is a compounding factor. it is almost as if those in the markets have not gone to look at their statements and understand the world changes that take place in the portfolio. away from wall street and in main street, things are amazing. the u.s. consumer is in an amazing spot. tax incomes are up. they are facing lower prices across the shopping. the how do you explain economic or pseudo-economic crew that central banks are keeping their rates up, trying to reflate, and that is going into equity valuations and it will disappear like that? us, it is in the bond market, not in the equity

market. is asnfounding fact it -- the equity or bond market right? generally, the bond market is. ie equity market is saying, am not willing to apply a 2% discount rate to valuations, and if they were, valuations would be significantly higher. the pe on bonds is over 50 with the pe on stocks closer to 16, against the backdrop that remains volatile, uncertain, but attractive. francine: what is the risk of a recessionary environment? if the bonds tend to be right, you would be looking at the inverted yield curve is a warning signal. charles: the risk of a recession is always on the table. there is no doubt we are late cycle and there is the question how long can we stay late cycle? longer than you think. not all baseball games and after

nine innings. sometimes they go longer as teams battle it out. it is hard to imagine a recession in the near term given the data we see today and i am hanging my hat on the fact that unemployment in the u.s. is superlow. the key challenge corporate executives face is finding the right skill set, so stronger unemployment, it is hard to have a recession. you can talk yourself into a recession, which is what almost happened around christmas eve last year, but away from that, the general narrative we read about whether it be trump or trade or china, that is more than well understood by the market and well reflected by equity valuations. francine: if chief executives stop investing, could that trigger the recession? charles: not by itself.

generally, recessions look the ame, which is it starts with shot to consumer confidence and leads to a fallback in hiring in the c-suite's, followed by a contraction of money in the itself and it feeds on until you get two quarters of negative growth, not a slowdown but negative growth. that is generally the dynamic. the u.s. consumer is strong right now and corporate executives cannot find the talent they need across the entire hiring chain. tom: the bloomberg optimism meter is glowing. o optimistic to continue on bloomberg. we will continue, as he finds courage to stay in the market. hammer michael wilson of morgan stanley on a much more coffee -- cautious

field to the market. different opinions make the market. this is bloomberg. ♪

♪ this is bloomberg "surveillance." it is the latest sign of openness from the world's most profitable company. saudi aramco will hold its first earning call in august. in april, aramco released a bond perspectives that showed a $111 million profit last year. tesco started the financial year on a weak note, saying sales were held back by low sales in the consumer market in its home country.

american airlines is planning to restore confidence in the boeing max. ask will fly before they passengers to climb aboard. the plane has been grounded since matt -- march following two crashes. says two the u.s. navy tankers were damaged in an incident near the straight of hormuz and the operator of one of the ships described the incident as a suspected attack. joining us now is annmarie hordern. we were trying to piece together the information. there are conflicting reports. annmarie: two tankers were attacked. shipeported a blast on the , potentially big torpedo. singapore andto

one to taiwan, and they were carrying oil related products. the people on them have abandoned them. we do not know who is to blame for these attacks. the incident comes at a time when there is a lot of tension in the region. last month, we had four vessels attacked. this could inflame the region and we could see more rhetoric coming from each side. francine: we talk a lot about the tanker wars of the 1980's. how do you view these geopolitical concerns? as prime minister of japan currently meeting the ayatollah of iran. can the economy deal with higher oil prices? charles: they are attacks on the economy much like trade disputes. friction costs, raises

, and leads to extended asision-making in c-suite's it relates to capital allocation . i think the saving grace is that from an equity perspective, valuations, i would argue more than reflect general geopolitical uncertainties, specifically not this event. we are at a point in valuations where there is no shortage of glass half empty priced into the market. we live in an interconnected global economy and a world where asset classes are increasingly interconnected, and labor and capital moves to the places where they can get best were lorded -- rewarded for their effort and risk. you have to appreciate the great thing that took lace over the last 50 years was company took their products -- companies took their products to the global landscape and with that comes the risk of trade disputes as

well as the unfortunate events this morning. tom: do you by big oil? big oil? is it the mother of all doom and gloom opportunities or is it done? charles: our team really struggles with this question. tom: struggle is the right word. charles: i prefer to own things to howear visibility as they will increase profits and capital. they have these balance sheets and they have been incredibly capital disciplined as it relates to reinvesting those dollars back into the commodity. the emp companies themselves would argue the net asset value is attractive, but the cost of getting the oil out of the ground continues to go up in the discipline around how they think

about capital allocation at higher prices versus lower prices has always left me with large amounts of skepticism. right -- is icahn carl icahn right on foxy? -- ocy? charles: we always worry about empire building, especially when it comes with vast amounts of leverage. --ppreciate what moran did warren did. lots of investors would prefer not making big bets with leverage and the history of how those turn out generally does not favor the empire holder. tom: charles kantor, thank you so much. we are watching hong kong today, into the evening where -- and this is important, it is getting

to sunday and managing the message -- protesters are outside the police administration and hong kong, peaceful. the scale yesterday, hundreds of thousands of protesters. the news flow this morning is a path to sunday. this is bloomberg. ♪

♪ this is bloomberg "surveillance," tom and francine from london and new york. we got a question.

if you are a viewer, please continue sending your questions in through the bloomberg terminal. this person is writing in and asks -- please explain your valuation which has bonds looking very risk -- rich. charles: in the u.s., 10 year treasury yields are approaching 2%. firstlyrsion of 2% is and the beauty of the bond market is fundamentally a mathematical equation. , theower bond yields go smaller the margin of safety is in buying bonds because your yield is smaller and smaller. yields willve bond continue to go down on a long-term basis because of deflationary pressures, recession, or global fear, then you will make a little bit of money by earning long-term treasuries.

on the other hand, if you believe growth picks up and treasury yields move a little bit up like back to 3% on a one year basis, your loss will be over 8%. i do not think the risk reward and treasuries with a 2% yield on a 10 year basis makes sense. treasury yields stay at 2% for the next year, you will make 2%. in the u.s., you can of liquid money market securities -- own liquid money market securities at around 2%. that governs my idea around the valuation of bonds and on the equity side, the equity market is not trading valuations at the discount rate of 2%. trading equities at the discount rate remains 4%, which it has been for well over 10 years from now -- 10 years.

tom: charles kantor on the reciprocal of pe. we will look at mainland china and hong kong. we have to rip up the script with diana choyleva. protest, iss on the it different this time? diana: it is different. it goes across all age groups. it is well thought out, and it is coming out of time of very tense u.s.-china relations. protests, we have to get to sunday and part of it is going chief executive to chief executive. how is carrie lam different than what we saw 15 years ago? diana: she has an extremely difficult job, but we have to think about what is beijing doing? what can they afford to show to

the world? in that respect, it is what they do that really matters. absolutely not have anse protests leading to overrule of the legislative council. at the same time, those who have set up these protests have push beijing will to really show its true colors to the rest of the world. for international companies that maintain regional headquarters in hong kong, will it make them rethink rather it is -- whether it is the right gateway to china? diana: i have had the thesis of the great decoupling for two years, and i have -- i would say we are at the end. rerouting require

trade routes and hong kong is very much part of china. it should have been making companies across the board reaching their strategy globally, and some are prepared and some are not. tom: diana choyleva, thank you very much. charles kantor with us, and we want to continue and show the map we have of these two oil tankers. damage to oneious of them. please stay with us, this is bloomberg. ♪

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damaged in's especially -- expected attacks in the gulf of emond. they were not far from the straight of her mous in the persian gulf -- straight of herm -- hormuz. were damaged in the area last month, the u.s. pointed the finger at iran. this happened while shinzo abe is in a run, trying to use his position -- iran, trying to use his position as a friend to the u.s. and iran. in hong kong, a top business group called on the government to have meaningful dialogue with protesters. tensions are high over allowing china to extradite. the chamber of commerce has serious reservations about the bill.

in hockey, st. louis has gone from worst to best, winning their first ever stanley cup. they began the year with the first -- worst record in the national hockey league and went on to win 30 of its 49 games. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek and this is bloomberg. tom: out of cambridge with the hockey coverage, that was very un-canadian. on the goalie from the st. louis blues, a rookie, and he was an amazing. does he was amazing. -- he was amazing. charles: our chief executive is a diehard st. louis lad. i can only imagine how giddy he

is this morning. tom: congratulations. worldwide, this is extraordinary to see the last place st. louis blues turn it around. er innk it was leiecst england a few years ago as the equivalent. joining us in washington is viviana hurtado. i want to go to the president linking trade and linking china. he says he is thinking about hong kong. is there any discussion in the zeitgeist of a more overt u.s. response to hong kong? viviana: that is what a lot of people in washington will be looking towards, but the president believes china and hong kong will work it out. that is what we will continue to watch for. continue to watch what secretary of state pompeo is able to say

as far as policies and action. tom: it will be interesting to see his response. the president was out on twitter yesterday after the iowa junket and vice president biden. is he in campaign mode now? worth, your all it's could argue very convincingly the president has been campaigning since the day he won the election. right now, the president should then offense because of historic economy and record low unemployment. drip,is that steady drip, and that is in the zeitgeist in washington when it comes to the explosive words he said in a television interview about how when faced with opposition research from a foreign power coming up in the 2020, he might think about looking on it.

that puts him on defense and is causing heartburn among his campaign at the white house and among republicans. francine: keep us up-to-date with what the president said about other countries disrupting american elections. this was an abc news interview and it is unclear whether he meant it as a joke. will someone take a stand against the president? when presented with foreign opposition research, with the president take a look at it, and he said yes. it is clear it is part of it isgns, but whether candidacy for president or dogcatcher inward county, ohio, candidates will not say they will go forward with foreign opposition research. the question will be how the gop reacts, particularly looking at

senators that are vulnerable coming up in 2020 like joni , who has cory gardner been identified by roll call as the most vulnerable 2020 senate seat. tom: viviana hurtado from washington. right now, it is important to move towards what we see in illinois. ,, a would be darin lahood very different and interesting republican to the west in illinois, and always representing peoria. let me start with an open question that all of america want to know -- what is the state of peoria now? darin: peoria is a great community, the heart of the midwest. we go back to the saying, there

is the clay in peoria. it goes back to the midwestern values, common sense, working hard and playing by the rules. it is a great area to represent and reflective of what is great about america. you have had to straddle trumpism with the republican packed. rep. lahood: president trump's results are real and people in peoria felt those. record low unemployment. when you look at what he has done with jobs, what he has done in manufacturing around the world. people are happy with the product. trump is playing well in central and west central illinois and we want to make sure we give that -- keep that going. tom: tariffs are taxes on the nation.

does the president understand tariffs are attacks on the people? rep. lahood: i am not a fan of tariffs. tariffs are taxes on consumers and businesses. if they are used in a narrowly tailored way, you can get the results the president wants to achieve. we cannot be in a long-term trade war for china. that is not good for my farmers or manufacturers long-term, but our farmers are not happy with china ripping us off for the last 25 years. farmers are sticking with the president for now. their patience is waning, i will tell you that. we want to make sure we resolve this trade war with china and get the usmca across the finish line, vitally important. and we don't shoot ourselves in the foot by going backwards on bad trade policy. francine: are some of your

farmers confused as to whether trade and tariffs are used in foreign policy like the president used with mexico? is there a danger the president over uses this tactic so it does not have the impact it could purely foris used trade purposes? rep. lahood: this is an unconventional president and there is concern with the whipsaw approach to tariffs. thes an approach of president when he looks up the humanitarian crisis at the border. people try to0 come across our border in may and the president was left with no alternatives except to put 5% tariffs on. he used that to his advantage. we will see if the results are real. tom: your district and the heritage of your family is one of fiscal responsibility.

i have to ask you about springfield and chicago. illinois is a basket case of this nation fiscally. what are you going to do about it? rep. lahood: it is unfortunate, we have about $140 billion of unfunded liability with our illinois pension system. we have to get out from underneath that. we have wonderful assets but have not had good leadership in springfield and part of that is a reflection of public corruption. a number of governors have gone to prison, but it starts with fiscal sponsor ability and good policy. a goodot have leadership. dominatede have been by chicago and our state legislature. tom: i have to interrupt.

the st. louis blues have dominated the chicago blackhawks. it is different. chicago is not dominating. the st. louis blues are dominating the chicago blackhawks. rep. lahood: we are all happy for the blues. it is a storied organization in st. louis. thinking what they did this year to go into boston last night, we are all happy for the st. louis lose. .- blues tom: he can finesse it. coming up, rick scott of florida. this is bloomberg. ♪

♪

been followingve closely what has been happening in the straight of hormuz. headlines from opec saying trade tensions are hurting global oil demand and bet 2019 oil growth will around 1.9 million barrels. i am trying to figure out what the straight of hormuz means for passage of these oil tankers. i know you had a great wrap up that we will get up in a second, but if you think about how much passes through this, the natural -- waterway has about 18 billion dollars a day of oil products. saudi arabia can divert some of that to pass it through the pipeline instead of through oil tankers. tom: let me go to charles kantor

on the single best chart, and the basic idea is what charles kantor does not care about. it is what the media does to keep the rates -- ratings up, a correction in the market on february. a bear market, we never got to it. we got to it around december 26, i believe, a big bull market rebound, nowhere near a correction and the agony of being this far below record highs. this is the fixation of the media. how do we avoid this? charles: you can't. you have to appreciate it and block it out. that is extreme volatility because of the interconnected nature of the markets in the global economy. at proves one point -- guessing tomorrow is difficult to do and if you do it, the cost of

tomorrow is enormous because the cost of getting back in is not small. tom: it is asymmetric. the focus of the media is getting out, when do i go to cash. it is a joke but it is not. the hard part is once you are in cash, when to get in. charles: it is always hard, and best to be done when fear is rampant, not when euphoria spreads across the streets. you have got to stay disciplined and be conscious of the risks, and be a long-term investor. the data on one year returns is nonexistent. the prospect that 10 year returns on equity where valuation stands today are positive is extremely high, and that will include a recession. it also speaks to market structure which is nowhere near

as safe as 10 to 20 years ago. folks have got to understand that guessing in this environment is going to be impossible to do, and the nature of these moves will remain. the headlines, the stories, the domination of these moves will remain, but the key question is one francine asked me. in the equity market, you will lose a lot of money if the recession is just around the corner and from the opposition, another thing that is hard to the but given the state of employment picture and valuations today and the confidence the u.s. consumer has, you can get to a recession if you talk yourself into one. away from that, the data does not support it. francine: what is in a bubble now? how do you identify bubbles and not invest? charles: we don't think there is

a bubble in the equity market. we think it is possibly closer in trade of long duration assets like fixed income. in any of the private markets across the asset classes, institutional clients and others love the idea that their marketios go into the every day. the money flows have been astonishing and creates the opportunity in the public, liquid markets. i would argue public investors face a liquidity discount do owning stocks. and i entered wall street, you got a liquidity premium and you could trade securities. today, the noise and volatility -- the chart tom puts up his across the market in aggregate. can you imagine what it looks like on a single stock faces? it is enormous -- stock basis?

it is enormous. tom: charles kantor, thank you so much. this is an important conversation and it is important to know that thomas jordan has been seven years with the swiss national bank. here is his conversation with guy johnson. thomas: if you look at the situation, there is no reason to tighten monetary policy. tight,ing else as rather the monetary conditions are tight, so we take that into consideration. guy: if you were to cut rates, and you have talked about having the flexibility to do so, do you think you would get pushback from the financial sector if that is what would limit the snb's room for maneuver when it comes to cutting rates further? analyze thelways

situation from the perspective of achieving our goals. we see what kind of instruments are available and we make a cost-benefit analysis and make the appropriate choice. guy: if you were to cut rates further, would you expect push the banksshback from and financial sector? you are at -75. if you were to go lower, they would be significantly more unhappy and incrementally they will become more unhappy. thomas: it is not our task to make the financial sector happy. we are taking decisions in order to achieve our goals. guy: do you think the swiss people, the financial markets believe in your ability to get inflation moving higher? , the goal the moment

is to remain there, not to get back into negative territories for inflation. if you look at the last 10, 20 years, the track record is great -- quite well for the swiss national bank. economyed the swiss going through a very difficult period, relatively well. that was the snb president thomas jordan with guy johnson. he is talking about defending the swiss national frank. -- franc. we will be right back. this is bloomberg.

♪ bloomberg "surveillance," from london and new york, tom and francine. we have been looking forward to this all week, talking tech with brad stone. like our daily lives.

he wrote an amazing book called "the everything store on amazon." we need to start with hong kong and the chief executive telegram said he traced the massive cyberattacks back to china during the hong kong protests. brad: we have to note the enormous popularity of telegram in hong kong. it is the digital equivalent of the facemasks protesters are wearing. here, the great irony is it is vulnerable to a denial of service attack. -- government overwhelmingly overwhelming the system with garbage data and bringing it to its knees, so one interesting way to conceal your communication but difficult and the face of a power like china. francine: how can we tell if this is something that has happened regularly, and is there any way of protecting from this

interference? the: all we know is what telegram said on twitter that this is routine and it is not the first time. isis not -- the irony is it a distributive system, it is anonymous and encrypted, and in traffic of the surge of it could be an inherent vulnerability to the system. francine: alibaba have filed for a hong kong mega listing. 2000 15 they raised $25 billion in new york. there is no such thing as too much capital on the chinese internet. they are fighting in the food delivery space, and unicorns in southeast asia. there is a lot of capital bringing the ownership base closer to home in beijing. francine: brad stone, bloomberg editor,nior executive

in town at the sooner than you think tech conference tomorrow -- yesterday. tom: we have much more to talk about, especially on the markets. , real bout of disinflation seen especially in europe. june 19 and the fed meeting ever closer. retail sales in america will be a big focus. what we see in the straight of hormuz tostraight of -- this is bloomberg. ♪ we're the slowskys.

we like drip coffee, layovers- -and waiting on hold. what we don't like is relying on fancy technology for help. snail mail! we were invited to a y2k party... uh, didn't that happen, like, 20 years ago? oh, look, karolyn, we've got a mathematician on our hands!

check it out! now you can schedule a callback or reschedule an appointment, even on nights and weekends. today's xfinity service. simple. easy. awesome. i'd rather not. ♪ anchor trouble. t -- tanker trouble.

omanankers in the gulf of in a suspected attack. theretells reporters that is a trade deadline with china, and he's the only one who knows it. he also threatens germany was pipeline sanctions and u.s. troop cuts. mark zuckerberg in the hot seat as the ftc uncover emails he was aware -- uncover emails that show he was aware of privacy issues. david: welcome to "bloomberg daybreak" on this thursday, june 13. yesterday it was riots in hong kong. today it is tankers on fire in the gulf of oman. alix: very different from what we saw yesterday in hong kong as the city gets back to work and recovers. i don't feel like it is over yet. there are still calls to do more, but at least the drama we saw yesterday is taking a pause. david: they are not backing off the legislation. we w