francine: pompeo blames iran for yesterday's tanker attack. billionaire money manager jeffrey gundlach says the fed will not cut rates this week that sees up to four reductions this year. contenders to be britain's prime minister. contends to be britain's prime minister. welcome to "bloomberg surveillance." these are your markets. a lot of the focus is on crude oil in america. 51.95.

we are also getting a report from the international energy agency and they say oil supply will swamp demand in 2020 and squeeze opec. we want to know whether this russia-saudi alliance keeps on taking hold. looking at gold, we're seeing risk aversion government gaming 1% and a bit of a depression in marketsith a lots of trying to figure out how much of global growth will be hurt. withg up, we talk coffee andrea illy. then we will be joined by the chief executive of luxury property developer north acorn. speak to a we visiting professor at the london school of economics. an italian flavor and many guests from around the world. let's get first word news from around the world. >> rivals to become britain's

prime minister are reportedly holding private talks about joining forces to stop boris johnson. this is after he took a huge lead in the first round. his rivals are so far behind that some are discussing consolidating campaigns. more votes are scheduled for next week. the u.k. coulded put future ties at risk if they fail to pay the agreed settlement. it was part of the overall brexit deal agreed by outgoing prime minister theresa may but has not been approved by parliament. boris johnson says he would withhold the money unless the eu leads to a better settlement. there have been calls for postponing a controversial extradition bill in hong kong. organizers of this week's mass protests are to renew demonstrations on sunday. hundreds of thousands rallied outside the legislative council.

sarah sanders is leaving the trump administration after a turbulent tenure marked by attacks on the media and the disappearance of the daily press briefing. she said was the honor of a lifetime. asked when she plans to run for governor, she did not respond. 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? francine: thank you. washington is pointing the finger at iran over yesterday's tanker attack. ran has denied the allegations. command said at with iran would not be in our strategic interest. joining us is our managing editor for energy and commodities in the head of investment strategy at rbc. thank you for coming on. how should we read this?

is this something that could actually escalate? we had tanker wars in the 80's. >> it is a concern this has happened twice in two weeks. what has got people in the industry rattled is that it has happened again right outside the straits of hormuz. there is a concern there is a concerted campaign. we have seen that cascade through the shipping market. insurance costs have jumped. some owners are wary of sending ships to that part of the world. but at the moment, it is nothing on the scale of what we saw in the iran-iraq war. francine: looking at the maps, is there any way saudi oil can be taken out of the region without using that strait? will: there is a pipeline. capable of moving several billions -- several million

barrels a day. and there is a pipeline in the uae. but we are talking about a fifth of the world's oil passing through that waterway everyday. but no one is saying that that is necessary. we would have to see more attacks, and importantly, neither tankers carried crude oil. francine: what can you tell us about u.s.-iran relations? iran said it was not, the u.s. says yes it is. is there an independent verifier? will: it is still unclear. we have video but are not sure when it was taken. it is interesting that the owner of the ship gave a briefing earlier today in which he said of their view was the ship had been struck by some kind of reject i'll -- projectile and not a mind -- mine. it is still murky what happened to that ship.

but the u.s. has decided it is iran. the u.k. said overnight that they back up the american interpretation. frederica, what does this mean for your outcome? i don't know if this change the outcome for your portfolios. frederica: we would look at higher oil prices looking negative for growth going forward. that would be the approach we would take. , ifcine: do you worry that oil prices go higher coupled with trade, could point to a global recession? i think they have to be monitored very much late cycle this was a trade war and dispute escalated. the probability of lower growth is really increasing.

so higher oil prices would be an additional negative. francine: what the world needs is this saudi-russia alliance. we have any indication that is fraying at the edges? will: i don't think it will hold. what is clear is that the supply demand picture is looking increasingly week for the alliance -- weak for the alliance. with these prices and clear softening demand, i think they will find a way to extend in the second half of this year. it will become a much more interesting at the end of this year when the russians may decide they have been doing this long enough. the report was pretty greek for opec, frankly -- bleak for opec, frankly. based on the numbers we saw, opec would have to cut by a further $600,000 -- 600,000 barrels a day come and that is

optimistic -- i day, and that is optimistic. francine: you have the market trading sideways, but they are also factoring central banks will cut rates. we don't factor a recession over the next 12 months and we expect some stimulus coming from the fed. china should also stimulate its economy. however, the trade war will take some growth away. china, .6% in the u.s.. while the u.s. consumer is still quite strong, things can shift quite quickly. economies tend to become quite slippery. francine: could it shift back quickly? everything seems to be pinned on whether president she meets president trump. is that suddenly change?

there isfrederique: optimism at the moment. clears are, it is not so what comes out in the market will oscillate between caution and optimism. for us, the next thing to watch is corporate earnings at the end of the summer. with expectations for earnings recalibrated, we think that should give a base for the markets to work from. francine: thank you both for joining us. frl kennedy and frederick -- ederique carrier from rbs. jeffrey gundlach is raising the chance of a u.s. recession. why doesn't he think the fed will cut next week? we ask that to our guests. plus, bringing down on boris is arrivals -- bringing down boris, his rivals talk back room deals in westminster. this is bloomberg.

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francine: this is "bloomberg surveillance." but get straight to the bloomberg business flash in london. chinese brokerages have stepped into the fray around controversial comments made by paul donovan. one group has urged the bank to fire all people involved in the incident. on "bloombergized surveillance." whenhe phrase chinese pigs talking about the impact of

swine flu on china's economy. >> i apologize and reiterate i apologize to anyone who took any offense to my remarks. i got it wrong. i made a mistake and unwittingly used culturally insensitive language. i apologize ugly and glad to have an opportunity to reiterate. hasnd activist investor disclosed a $1.5 billion stake in stony -- sony, urging them to make dramatic changes. he also wants the japanese media and electronics giant to sell its stake in a financial affiliate. sony shares rose on the news. volkswagen valued its heavy billionusiness at $16.5 , set to be one of the biggest public offerings in europe. they intend to offer stock from 27-33 euros each. they surprised investors when they revised efforts to float the unit weeks after shelving the plan.

that is your bloomberg business flash. francine: jeffrey gundlach does not think the fed will lower rates. but the money managers says there is a high chance of as many as four cuts. he put the chance of a recession within 65% within a year, so is the economy headed for turmoil? still with us is our guest. i was looking at the odds of a fed cut. is the market now pricing in too much? frederique: we expect them to cut. we do not expect a cut next week, but to prepare the ground. a lot will depend on a trade dispute. it is very difficult to know .hich way it is going for have moved tariffs mexico and oppose threatening

and backing down. it is very difficult to know. inflation by itself is not going to be enough to lower rates. but if we believe there are signs of stress in the market and a slowdown, they are likely to cut rates. we're looking at the possibility of to much rates later this year . francine: was there a policy mistake to not hike sooner? we're looking at a slowdown turn and already have all this cheap money. it is difficult to see if they actually have a toolkit to deal with an ugly downturn. frederique: less room to monitor them traditionally. traditionally, it has cycled at this point. we believe that in the next recession, fiscal policy will have to take a much bigger role than it has in the past. francine: what parts of the world you worry about? is it china that could spell

trouble for the world economy? where does it come from the u.s.. maybe if the consumer holds up, it is a lack of investment that could toss themselves into a recession. frederique: china represents one third of global growth. and there is pressure on all regions that are dependent on it, japan, europe. things are looking difficult in europe with a slowdown. it is difficult to look at just one thing to isolate in the trade dispute. francine: how do you view europe? we have the soft economic indicators that are getting worse. but does it translate into worse fundamentals or can we get back? frederique: it will depend on the global economy. a lot of the soft nets we have seen are due to transitory factors. the yellow vests protests, diesel car regulations changing. these are receding and we are hoping for a global growth

stabilization in the second half of the year for the economy to pick up, given that banks are lending, unemployment is receiving very nicely -- receding very nicely. ,f the world economy slows europe, an expert region, is going to suffer. francine: how do you see this? the straight mean the economy is slowing or do trade tensions somehow accelerate the pattern? will: the difficulties accelerate the pattern of a late thee -- frederique: difficulties accelerate the pattern of a late cycle. francine: is there any central bank that cannot deal with a late cycle? frederique: they have to become a lot more creative. , will befor interest difficult to cut rates even more. it has decided to not to look into tier deposits for now.

we think quantitative easing might be something they have to look into next year. francine: thank you very much. coming up, round one to boris johnson. the former foreign secretary takes a commanding lead in the race to become a britain's prime minister. we discuss that next. this is bloomberg. ♪

francine: this is "bloomberg surveillance." round 12 boris johnson. -- one to boris johnson. he has cemented his position as the favorite to become prime minister. vowed to deliver brexit with or without a deal has won support from 140 members of parliament. jeremy hunt came second with 43 votes. three of the 10 contenders were eliminated in the next round takes place on tuesday when candidates need a minimum of 33 votes to make it through. frederiqueus is

carrier from rbc. , butw anything can happen is it now boris johnson's race to lose? frederique: that is exactly how i would have qualified it. they have a lot of support from mp's and conservative membership. it is his to lose at this time. francine: if he becomes prime minister, what happens to mark he goes to brussels, tries to what happens? frederique: he might face a vote of no-confidence, which we would expect them to survive. there might be another vote of no-confidence if you are to brussels and come back with nothing, he pushes for no deal. there, it is less clear he would survive. i think some mps would prefer to throw the dice of a general election. francine: we had an interview

with the current chancellor of that heequer, saying was telling us on tuesday that the eu would not give them anything and boris johnson would face the same arithmetic and parliament. what is the chance boris johnson says no deal is now government policy, and what does that mean for problems? -- parliament? frederique: parliament is still very divided. it could be that a new figure has a little more political clout and can change things a little bit. but the arithmetic continues to be very, very difficult. francine: what do you do with u.k. assets? you think there are probably other places that are less obligated and nebulous. there is some value in u.k. markets, equities are not demanding.

some international companies with a very good global footprint are attractive. we tell our clients to look at those first and foremost. francine: but a no deal brexit is not priced in right now. is it priced in in european assets? frederique: we do not believe it is. they are fairly valued and do not even seem to discount a slowdown. there is more discounted in u.k. assets, but not the worst-case scenario. in a very worst-case scenario, we would expect the pound to decrease and go back to the lows , the post-referendum lows. in europeanpop equities, but not the same after the referendum. the relationship with its biggest trading partner will be in jeopardy. francine: how will markets react to a general election? frederique: that probability is probably fading.

they have gained a lot of support and taken from the labor base -- labour base. while we thought there was some probability of a labour government, it is slightly less now. we call it an anti-brexit vote. it gives a better chances to the conservatives to muster a majority. francine: frederique carrier from rbc wealth management. up next, wake up and smell the coffee. how does a 90-year-old brand stay relevant in the face of ever-changing consumer taste? we talk coffee next. this is bloomberg. ♪

finger,o points the escalating tensions between the

two countries, save it for later, jeffrey gundlach says the fed will not cut rates next week but he sees up to four reductions this year and bringing down boris, contenders next primein's minister. good morning everyone, a lot going on in the markets. we are looking at the price of oil after the attack on those two takers. will have plenty more, but first let's get straight to the bloomberg news here in london. we have olivia hows. says he doesndlach not think the federal reserve will lower interest rates next week, that he says the chances of cuts this year is high. july there's a good possibility -- there could be even a 50 basis point move. the u.s. says they have indications that shows iran was -- washington says at least one of the vessels was struck by mines but admits it is not clear

if the explosives were actually from the atlantic republic. iran will continue this behavior is really for them to decide. i can tell you from a market perspective, we are less concerned about those activities then we were 20 years ago. >> president trump is still waiting for a response about the meeting to restart trade talks. that is according to the advisor larry kudlow. month withpsed last both sides blaming the other. the president has said there is no deadline for restarting negotiations. --global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am olivia hows. this is bloomberg. francine: let's focus on one of the world's best note brands -- best known brands.

coffee company is served by 100,000 retailers and 140 countries around the world. how does this brand stay relative -- relevant? i am pleased to be joined by the chairman. there is a little bit of an announcement about virtuous agriculture which we will get to and a second. illy hase through what been over the decades. what is your challenge right now? >> it is to grow the company. the dream of the founder was to offer the greatest coffee in the world, and we still pursue this same dream lovely. qualityo obsessed with that we have only one blend, so anywhere in the world, you can get our blend only.

any point of contact, bars, restaurants, homes, transportations, airplanes, it is great. quality is ournd core mission. we are global, we need to be even more global. francine: talk to me about your blend. is it from several origins? consumer taste does not change. it is focusing more on that best you can get. more educated palate. and we contribute to educate the pallet with our coffee, which is been created 20 years ago. we celebrate 20 years this year. francine: will people pay for it? rea: this is embedded in our business model. this is part of the package. consumers do pay, unless there

are promotional events, and in growers it is embedded, if they want to transfer them the knowledge to better produce our quality. francine: we are not doing any promotional advertising, but when will you change the blend? single origin are the main ingredients of our blends. they would be instruments of let's say an orchestra, so in order to distinguish the characteristic of each and every ingredient, we also offer that our abaca selection, -- an arabica selection. but the preferred one is always a blend. we are surprised because we offer to some very sophisticated

chefs the possibility to make a variation on a theme and to refine the recipe of the blend by blending with the dispersion blender, which is an artificial intelligence system. francine: how do you sell to millennials? i have many hipsters and they like going to copper places, a small kind of homegrown place that makes its own coffee. does that mean that you are concerned about your business model going forward? alternative. it's like i would tell you that you're going to drink a homemade wine. it can be ok. but supposedly the best possible chateau from france can do a better job. we stick to our model, which is really investing as much as possible in knowledge, science, education and technology to

perfect quality. first priority is eliminating defects. beans are not always perfect. in the 80's we developed technology to select beans one by one. each end -- being of our blend the onesd to discard that aren't perfect. every second, 20,000 beans are checked upon 10 different criteria. we are obsessed with quality. this requires a lot of technology, scientific knowledge , multi-dysentery from plant to cut. from plantciplinary to cut -- cup. francine: let's talk about agriculture. you have a commitment to make it more carbon neutral. >> we started focusing on

sustainable quality in 1991 when we started working with coffee growers allowing us to choose the coffee 100% directly from their hand. five years ago we started the threatddressing of climate change because coffee agriculture is threatened by that, impacted, not threatened, with throughout or excessive son, erosion, diseases and on. we were concerned, and we did develop a financial model for growers to be able to invest in their plantations with subsidize finance from the western countries so they can improve their plantation in terms of agriculture, renovating and so fun -- so on. this is something that we are confident enough now. now the challenge is mitigation climate change. we will remember that 25% of the

greenhouse gas admissions -- emissions come from agriculture. contributor,inor but we can improve because --iculture can cycle state sect with straight -- estrating. this makes the soil more for tile and resilient and also produces a better product. francine: does it help with sales? i'm not thinking about menell yields, but -- millennials, but about generation z >>. absolutely. select products that are sustainable. you have a better time to stay in the market to have a solid story about sustainability.

we have been investing in that since the company was born, direct sourcing, attention to climate change, we went to have 2033,mpany carbon free in which will be our centennial anniversary. --ncine: think you so much thank you so much. next, we have the chief developer of north acre joining us next. this is bloomberg. ♪

♪ this is bloomberg

surveillance. i am francine lacqua. let's continue the conversation about luxury brands. northacre develops top and residential property and some of the most exclusive neighborhoods. with brexit uncertainty, how does a company sell multimillion apartments and that's a big question. joining as now is the chief executive of northacre. welcome to the program. i think the last time i spoke to was about a year ago. i had the same question on brexit, how is it impacting demand. how has it impacted your customers? given --k brexit has in a certain way for our customers to delay purchase. we have seen the market that has been bearish and we are now entering the sixth year of the bear market, and to put it in

perspective, the bear market between 89 in 1992 that everybody talks about was 37 months. this has been prolonged. it did not start because of exit, but i think it has put additional pressure on it. francine: are you expecting a bounce back? a i think real estate is particular asset. so in certain ways there's only so long you can put off buying a property that you want. that think -- we think market is off about 10%, and i think we are seeing customers that are looking and focusing on quality and thinking that actually they focus on quality by a home they would like to live in, and a few years back they see it as a great entry point into the market. francine: there are opportunistic investors such as private equity firms trying to take advantage of this by putting lowball offers on some of these properties? >> yes, but i think there isn't

that much distress in the market as people think. if you look at areas where there supply, everywhere else is very -- the optimistic funds are not able to -- the opportunistic funds are not able to put together substantial port -- portfolios. francine: we talk about brexit and some of the politics in italy, but do you need to be bigger as a global company? italian brands all over the world. how much bigger do need to be too kind of whether some of these storms? not onlyd say size is financial because if you have a business model like ours where you enter the market from a bigger segment like hospitality, you can do a good business being

smaller. size is important consumer wise. ,he critical mass, brand equity you need to enter into the mind of the consumer and solve the ability on the market, the reason why you need to be growing. francine: how do you strike the violence? i guess you need marketing. case we are super premium, so we are entering into luxury, technically speaking. of course you have to select your channel upon your price and segmentation. hotels ore luxury cruise ships or some airlines to serve our brand always in a sophisticated way. in this channel you need to be present and visible. francine: i want to ask you both about trade, whether investors are pulling back just because of

that u.s. china trend. the wake up worrying about extra tariffs from somewhere? >> so far so good. i understand there is a slowdown for sure. globalization has been influenced by global trade, and if you slow down trade, you slow down the economy, you slow down everything. something more concerning, which is the medium long-term perspective. at the end of the day, globalization is about global order, so the opposite of that is disorder. disorder withobal this kind of unilateral policies which is a zero-sum game. zero is zero. for a global company, this is a problem. so i think it's not the right

path. francine: how much are your chinese consumers shying away because of what is happening with the u.s.? i think if you take the view ,hat the market is quite quiet chinese buyers have been the predominant force in the last couple of years in the market. on one side, they are slightly shyer to buy in the u.s., and i think demand is reflected that is growing here in the u.k., no doubt about it. they are the main drivers at the moment of prime central london buying. francine: we will have more from our guests, and up next we'll carry on the conversation and get their thoughts on italy and brussels.th this is bloomberg. ♪

>> what as -- is at issue is the total lack of crust -- trust in the ecosystem in the mainland. -- in the legal system in the mainland.

everybody is execs that is against it -- everybody is exempt -- against it. veryther she crazy or evil. if you look at where hong kong is today globally, as a financial center, we are the new york or london of asian. no question about it, that sort of position is not a given. it has to be earned and constantly earned. >> this government is like any other responsible government, when faced with such huge opposition, must of course take stock of the situation did renee time to think about it. -- we need time to think about it. hong kong braces for another -- earlier one of the top advisors says her administration underestimated the situation. bloomberg will be bringing

special coverage of this protest both on sunday. let's get some final thoughts from our guests. let me start off with you, jeremy corbyn, is he ultimately a bigger risk? >> i would say yes. i think he has always been viewed in the property market as the black swan event in a certain way. seeing isat we are our customers are focusing on quality. we are in a binary market at the -- moment.market i think people will focus on quality and products delivered by quality developers at the same time. francine: i am sure there is a correlation between stock markets and property buying. the more people by property, the more the market will fall

question mark am i making this up? >> you're making it up. no, i'm joking. there are correlations if you look at long-term trends. in the last 25 years, the correlation has not occurred. if you see the downturns of the early to thousands, also what happened in 2008, the credit markets in real estate, we did not see appeared we have one negative quarter in 2009, and the market was up in 2001 and 2003. the correlation is not there anymore. francine: we are trying to figure out if there's something ugly in the economy how you see it. -- what iss growing your challenge in the next 12 months? how is your relationship with china at the market. whichna is a market crow's in demand. u.s. is a bit larger outside

italy, and china is the fastest growing, so far so good. we will continue to invest in both countries, and we are now in the process of working on the new medium term plan with the new governors. we plan to accelerate. towill accelerate growth due the better execution, organization, marketing mix, we are launching a new campaign on bocelliith andrea centered around the new capsule that we are selling across europe together with one of our partners. we have plenty of opportunity, but this is internal factors, which we stimulate, not necessarily the head wing coming from the market. francine: how much does the italian economy actually shave off your revenue?

there are budget concerns. >> we are improving our , --ution, our market shyer share, we are growing next to better management in italy, not thanks to headwinds from the market. the economy is flat, and we might -- might enter into a ,ifficult phase with the budget and so it creates a lot of uncertainty. francine: does it impact coffee sales? >> no. sales are more or less, you treat yourself with coffee and bad times, and you celebrated -- celebrate with that in good times. so it is central in your life. thank you both for a great conversation.

"bloomberg surveillance" continues in the next hour. at the price of oil, kind of moving sideways, but it drop a touch. united states is saying it has a video about the iran involvement in the oil strike taker. -- tanker. this has raised some tensions over the last couple of days. will have the impact this could have on the region. this is bloomberg. ♪

♪ francine: pompeo points the finger, he blames a random for the attack yesterday as tensions

rise between the two countries. jeffrey gundlach says the fed will not cut rates next week. bringing down boris, contenders to be the next prime minister. good morning, good afternoon if you're watching from asia. this is "bloomberg surveillance." we look at the price of oil, at brexit, and of course we look at the fed cuts and what happens next week. gots i mentioned, we've never happening right now. i have never seen the yield move old wide and particular in europe, continues this morning. absolutely extraordinary what we are seeing in the right markets. francine: 100%. we will have a big look at yields and rates. let's get straight to the bloomberg news here in london. >> tensions between the u.s. and

erlangen escalated. officials released images they say proves a random was behind the attack on an oil tanker. the federal command says forces were seen removing annie mine from the ship after another mine had already exploded. iran denies it was involved. gundlach does not think the federal reserve will cut interest rates next week, but the officer says there is a possibility of multiple cuts this year because of the chances of recession. he says there's a good chance of a rate cut in july. there is a warning from the about morecy pressure on opec. there be a surgeon output thanks to research in shale. -- a surge in output thanks to research in shale.

bloomberg has learned that two met to discuss options, and -- liberal -- global -- global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 this is bloomberg. tom: i want to get to the data quickly. this is extern a. teachers are little bit light. -- futures are a little bit light. laying at the yield market of 181. we hit 180 on two years. that should be read on the screen. three bases points -- three basis points right now. the dow showing the remarkable equity markets. francine. francine: i am looking at similar data points.

i think the yield is the story of the day. i am looking at oil declining after what happened yesterday. chinese chairs -- shares dropping a little bit. the focus will be on u.s. retail sales data and the heightened u.s. trade tensions and what that means on cuts from the fed. >> in june, this is already the chart of the year. i don't know if we will be there in december, but this is extern a. taken this back to the peak of inflation expectations in 2000, and down we go. you can see two standard deviations out. we are there again right now with a stunning 1.16. i cannot convey the acceleration of this chart right now.

it grabs the attention of everyone on global wall street. francine: keep that chart a. i just wanted to make sure we were keep in and i on pound, where you look at the bit pellet he -- volatility curve. that is what i am looking at. tom is right on the money. it is all about deflationary concerns, all about having market concern regarding u.s. and china, regarding the u.s. and iran and what's -- what that means for central banks. >> i think we have a much more dovish perspective for central bank action because of short-term factors, but the long-term factors still argue whether it is an easy policy. we have shifts in demographics. we have disruption from technology, deflation being exported from north asia.

we have the very real challenge of high levels of global indebtedness all of which are a cocktail for keeping central banks ultra easy. francine: to the point where they want to have the next tools for the next downturn. >> increasingly less potent in terms of capacity to affect outcomes. i think we will see the battle being shifted to monetary policy. he of pimcoonsents will join us this morning. james, i want to go to one single since you just said. i want you to run do this for the audience. we are exporting deflation from asia and from china. let's walk through that. inflationhina affect dynamics in the west? timeclockollback the because we have been here, we have seen it and lived through it.

these are economies where governments subsidize exports. in a world of free trade come of that doesn't work because the world that you operate in him of operating, companies have set pricing according to the rules of capitalism and supply and demand. where you have controlled economy, government intervention , that is how pricing is determined for that is i think yournob of pez tea -- >> way too polite to let's cut to the chase paired the president is working a mercantile policy. china reacts. they reduce price to keep unit goods moving across the pacific when they do that, that is a deflation that is exported to us, right? >> absolutely. i think your president has every right to be very angry about this. it is the case that these goods and services are being exported

below the cost production. this is not the system rewarding entrepreneurs for being adventurous, taking risks and delivering. this is about people being subsidized by governments in what used to be described as dumping but today is the reality of global trade. francine: how will that change? >> let's be clear. in the case of the u.s. and china, it's like who will be the biggest dog and both of them want to do the most barking. in the case of u.s. and mexico this is far more about their pricing. francine: that sounds like surveillance. did i say that out loud? talk to me how this will end. james: i think he will and with the two agreeing, but i don't think either of them will agree to the end game that both of them want, because i think chinaent xi once made in 2025 to be the vision.

and i think mr. trump will not give up on the premise that america once to remain globally number one. into july, we've got some guests coming up in the next hour. let's start it with you. how do the european banks adjust and in some cases survive given moremassive deflation and substantial negative rates? translated, how does deutsche bank get to july? james: they are in serious trouble. problemsr to their lies with the politicians agreeing that they would use fiscal policy rather than monetary policy both to drive economic growth, but principally to joy -- show the german people spend more. we have people and government back, --nies cutting

cutting back. francine: we will have plenty more on trade and what it means from orchids. the secretary of state blames iran for the attack yesterday escalating tensions between the two countries. speak with a chief oil analyst next. this is bloomberg. ♪

♪ this is your bloomberg business flash. to have billion-dollar sony, the company is being pushed to make dramatic changes. commenting on this,

but it says it takes constructive proposal services. the german company is battling more than 13 thousand lawsuits claiming round up causes cancer. it is made from clive phosphate and biomed says it wants to give farmers more options for fighting weeds. broadcom is indicating ape trade war will wipe out a rebound. a client ins seeing orders from uneasy customers. that is the bloomberg is this flash. us as wes bevan with consider markets and politics and international relations. the reality is at some point in the next 10 days james is going to walk into a room and have to hold the hand of people scared stiff to be in the equity markets. james, it is an extraordinary time. the yield movements are stunning, equities float higher.

that's begin with why, why are equities increasing in price while we see this turmoil in the bond market? james: i would say investors should consider equities from 2% -- perspectives. when is the price that they are prepared to pay to participate, and secondly the prophets themselves. valuation,tion of the pricing of an equity is inevitably linked to the bond market progress. the lower yields go, the more people should be prepared to participate in equity profits. that leads to the question of can equities actually deliver the prophets growth to justify profits? this is where i think the risks are significant. companies that come to the table with less strong profits than the market anticipates will be punished. my admonition is to stick with

quality and long-term secular growth. >> another image of the turmoil in the fixed income market, down we go, 2000 16, negative yields, and we rolled over to ever negative yields. do you buy the idea? a consumer company with a dividend, is that dividend growth to yield proxy? james: i think if they are able to grow, investors should understand whether that is an expense of long-term growth. free clash -- cash flow, being earnings less of keeping -- less the cost of keeping the company growing. those are the value traps investors should be wary of, plenty of those in segments of the markets, sort of the companies that i am much more interested in.

what kind of telecoms? global, generally, telecoms, are in trouble. i worry aboutple, the cost of the rollover. be very significantly stretched in terms of its free -- cash flow.fro a step away from week sterling, sterling weaker this morning, coming up a conversation, watch this interview the chinese governor that starts tonight. this is bloomberg. ♪

>> the united states government and the islamic republic of iran , they are responsible for the attacks. this assessment is based on intelligence and the weapons used in the level of expertise needed to execute the operation. groupe fact that no proxy operating in the area has the resources to act with such a high degree of sophistication. pompeoe: that was mike claiming a run for the attack yesterday. as tensions escalate, officials released a video shoots that showing the country was involved.

iran sought to calm tensions saying a war would not be in their strategic interests. analyst with us. first of all, amory tech, how should i view this? should we know whether iran was really to blame? are we going to see a tanker or brewing? amrita: i don't think there's any conclusive evidence that iran was to blame. clearly political tensions are ratcheting higher, given what the united states has said. said this wasbia significant. iran has denied the allegation. remember, these could be other groups in the region that could have carried out the attacks. we don't have enough proof right now. francine: what is your take on the price of the oil change and the impact this has?

>> i think we will see volatility in the near term, but i think the medium term shows prices down, and still expect supply to exceed demand, and this is a ripple in the waters. demand i is the supply namic's right now in the market as we tried to find price, we are stuck -- talking to different strategist. i am seeing a new study of supply. are we ignoring the demand dynamics? dynamici think the main is demand. supplies have been tight this year because of opec. irani and exports are close to zero. they haven't been able to sell most of the stuff they loaded. and as waylon protection is down. supply is not the problem. right now the fear is we are headed into a recession.

numbers have been coming in week. that is why prices have been coming off the pipe geopolitical tensions. that maps out got to figure out the distances. texases oncoming oil from and oklahoma affect global price if the issue is in the gulf of -- in the gulf? to do withis going shipping insurance. if that region is risky, premiums will go through the roof, and any oil, be it from europe or the united states, that is where the problem is going to be. prices will rise as a result of that. refiners will have to pay that. or they need to take a much longer route to the cape of good hope. can arabia divert some

of its exports elsewhere? amrita: it could. they have the east-west pipeline that is underutilized. a bituld potentially get more through the red sea, but the capacities there are half the capacity on the other side. it will never be a 141. it could divert a little bit, but ultimately you can go around the cape. it just adds days to the journey. it will never be ideal. costs will go up. francine: do you think the saudi russia alliance in opec actually holds? is that the only thing the experts care about? amrita: right now, yes, within opec, that is the only alliance that the market cares about. it does hold for now, even where prices are. i do think even that russia is more comfortable than the

saudi's, they clearly need a higher price. i think the alliance will ortinue, and if we were $10 $15 higher, would say russia will push more for an increase. a member of the pipeline is still contaminated. they can't increase protection -- production quickly. tom: what is your call on oil? i went to in you down on a view. say if demand is genuinely a concern and we are heading into a recession, i think the downside with respect to prices. otherwise, if supplies are where they are right now, despite u.s. production growth, then i think prices will climb back into the 70's and stay there. tom: interesting. saudi arabia has a fiscal not that they have to make every year. what is the sweat level in

riyadh right now? >> it's pretty high. it's a heat wave right now over there. i think they are aiming for -- at least they were at least iming -- aiming for the 70's per they have been nowhere close to that. francine: howdy think demand is holding up? demand isyou think holding up? if you look at the demand growth numbers this year already, we have always been below consensus of a million bow euros -- barrels a day. i think anywhere between 702 a million is ok. if you are talking about less than 500,000 barrels, then we will be in trouble. francine: james, does the oil price factor into your modeling?

changedhe world has materially in recent years, so i would observe we have stays energy,- sustainable solar taking a big chunk of the production function. on the demand side, there is reduced appetite for plastics, which has been a big source. now we have made cars much more efficient. you.ine: thank stay with us, bringing down boris is coming up. we discussed how content these are working to be the next prime minister want to stop the front runner. 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. ♪ "surveillance," francine lacqua in london, tom keene in new york. rates down is believed story.

is denying u.s. allegations it was behind the attacks on two oil tankers. images. has released they say proves the allegations. the attacks took place not far from the head of the persian gulf. president trump is looking for a new press secretary. sarah sanders is quitting after almost a two year tenure. urged her to run for governor in her home state. on theng may pause work extradition bill. a number of options are being considered. some members of the executive council still believe they should --

a toronto raptors are the nba champions for the first time, beating golden state 114-110. leonard was named the mvp. golden state had won the last two titles. 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. francine: thank you so much. thed one to boris johnson, pro-brexit conservative cemented his position as a clear favorite to become prime minister. the former foreign secretary who has vowed to deliver brexit whether without a deal, won the support of 114 tory members in parliament. jeremy hunt came second, trailing with 43 votes. the only two female contenders were eliminated. the next round takes place on

thursday. let's bring in rob hutton. on the others of boris johnson there is movement, which is to stop him. can the other contenders placate him and well they managed to, or is it -- well they manage to, or is it next prime minister johnson? rob: he is the favorite. known as the is stop boris movement in the conservative party but it is not clear how strong that is. tory members used to say he would never make it through to the final two. mp's will stop him. there is no sign that will happen.

even if everyone who voted for not boris johnson yesterday were to unite around a single candidate, he would still go through to the country. it --s a secret how ballot and members of parliament are not required to vote the same way every time. perhaps something will happen. one of the big messages the other candidates are trying to get going, is that johnson is in hiding. he is avoiding doing any kind of media. he took six questions at his press launch and barely answered any. we are unlikely to see him on sunday night's debate, so maybe that will damage him with conservative mps, but there is precious little time. francine: let's say boris johnson is prime minister and he says he will go back to europe and renegotiate.

as he prepared for a general election? does he make no deal policy? rob: three things can happen. .he european union can rollover that is johnson's argument. britaindoesn't happen, is facing no deal. at that point, johnson either says we are going to go for no deal, or i didn't mean it when i said we would go for no deal. if he says we are going to go for no deal, conservative mps who think that is a bad idea have a choice to make. the only way they can stop him is by bringing down the government and you do not need many of them to do it. tom: i am fascinated by mr. hunt yesterday pulling the churchill card. -- what is the

significance of the number two guy bringing up the four or five ghosts of winston churchill to go after young johnson? rob: the biography of churchill that you might have missed is the boris johnson biography of churchill which conservative mps -- to make the reincarnation -- the joke that boris is the reincarnation of winston. it is a nice taunt from jeremy hunt. you are hiding in a bunker and will not answer questions. tom: how does winston johnson respond? rob: with silence. the johnson campaign know it is theirs to lose and the running joke is the only person who can beat boris johnson is boris johnson. boris johnson, to be fair, has

had a long career of destroying boris johnson's career. if you have a candidate like that with a tendency to blow up, the best thing to do is to hide him. francine: according to press reports, matt hancock's do to make an announcement at 11:00 a.m. london time. do in thisrope contest? how will brussels look at the contest? are they preparing for a jeremy corbyn prime minister? rob: i think brussels must be preparing for britain trying to leave without a deal. it is not certain parliament would stop the prime minister if the prime minister was determined. brussels must be preparing for no deal. i do not think they are getting ready to roll over for mr. johnson. from the point of view of jeremy corbyn, he wants something that

brussels is more or less prepared to offer, a customs union relationship. there are things that corbyn wants that will be hard to achieve, but it will be easier to see how brussels can work with jeremy corbyn. they cannot give boris johnson what he wants. tom: rob hutton, we appreciate it if the brexit coverage that goes on and on. james bevan is absolutely worn coverage.xit let me ask an open question -- what does prime minister johnson mean to the nation? james: mr. johnson is one of the few people the tory party believe can take on mr. farage. he stands for brexit within the u.k. and many are saying if you have a soft line on brexit, the tory party will be split in half.

the tory party will be history. whereas mr. johnson is seen as someone who can take on mr. thege and win and knight tory party so that they will be happy to stay tory. tom: and the telegraph, about primerst days for who was minister, i was thunderstruck by the tightness of the schedule. does it really matter who is prime minister given the constraints on conservatives and the individual? james: it definitely does. we know the end of october is an important date from the european perspective because that has to do with the changing of the guard in the management of the e.u. if you were to think about the parliamentary arithmetic, theresa may's failure to secure a deal was primarily because she could not get parliament to support our proposals.

-- not clear mr. johnson will get agreement. there is a greater probability of a general election than many suggest. francine: what do the markets need to understand? james: i think the probability of a corbyn government is falling rather than rising, because i think that were mr. johnson to be the leader of the tory party, they would get more votes than any other candidates and the tories are interested in hanging onto power. francine: but with what proposal from brexit? james: he needs to look europe in the eye and say, if you do not give us a deal we will walk. if he does not have that up his sleeve people will say, fall in line. francine: aren't europe over this? james: i do not think europe will want to negotiate anymore

and the probability of a no deal brexit is rising. francine: james bevan, ccla chief investment officer content -- continues with us. -- will be consequences if president xi does not meet president trump at the g20. this is bloomberg. ♪

♪

you said it is about idea. do you agree with her? >> of course it is about idea. >> we have always said the u.k. is a country which honors its obligations. at least part of the sum that was agreed to be paid as part of our obligation among the existing msn so i would not recommend any of my colleagues to threaten to withhold payments which are part of an existing obligation the u.k. has. francine: joining us now from whombourg is maria tadeo has just speaking to philip hammond. what did he tell you? maria: good morning. he said he has not made up his mind in terms of who could be the next u.k. prime minister, but he does not think a no deal brexit is good for the country,

and he cannot serve in a government that actively pushes for a no deal brexit. there's comments on the divorce bill payment the united kingdom has to make to the europeans, the europeans think if boris johnson becomes the next prime minister the chances of a no deal brexit will climb and that means there may not be a payment. hammond says that would be irresponsible not to pay a sum of money you have committed to and say you would, and will treat this as a default on international obligations which will make another escalation. francine: talk to us about many ts.s -- minibo the proposal includes creating this new treasury bill that can be used by the government to pay arrears to commercial businesses. it has been the talk of

town and luxembourg and has reignited debate as to whether the italian government is committed to the euro and whether minibots would be the first step toward quitting the euro. continuese to salvini to say this is a good idea, but the finance minister broke ranks and told me it is a bad idea, it is dangerous. tom: i love your rude question. he loved speaking to you this morning. when i look at minibots it reminds me of the confederacy and the american civil war in that it is script they are making up as they go. is it perceived as script in the italian media? maria: the way they would look at it -- and we would have to go back to mario draghi last week is either money and

if it is money, it is illegal. if it is debt, italians have a .ig problem with that, 130% gdp both ideas in principle are about idea. it is a dangerous idea because of the debate it creates in the market. tom: is there any talk in your luxembourg festivities of fiscal work, fiscal solution, fiscal help for believe gold central beleaguered central bankers? maria: at this point, no. -- said thesay italians should cut to the chase and they really have two weeks. enough talk, we need to see action. and people agree, the way the commission looks at

this, the output gap is wrong and the italians have a point. they need fiscal expansion but the problem is the way they spent the money. there is no suggestion that these bonds will create revenue. francine: thank you so much, maria tadeo and luxembourg for the euro group. is stillan of ccla with us. when you look at some of the minibots,a fistful of do they really risk the stability of italy? james: i think we need to unpack the base problem, which is there is a pricing inefficiency between italy and germany of about 10%. italy has to experience prolonged deflation in order to get the economy back into balance.

neither country will blink on this. in genuine economies that are single entities, you look up with fiscal transfers sourcing the problem so you can have a recession in new york and able market in california. -- a bull market in california. that is not the case in europe and it is an appropriate to say italy needs to experience 10% of deflation in wages given they have had two decades of no wage growth, and germany will not move. tom: we see it in the yield market, the u.s. 10 year breaking down to two point 0580 -- 2.0580.h to .0580 is a conversation made important by the president of the united states, neil bradley of a beleaguered chamber of commerce will discuss tariffs. this is bloomberg. ♪

♪ this is bloomberg "surveillance."

shares of chu we begin trading today. , prices -- they are valued at 8.8 billion dollars and are controlled by petsmart. facebook is supposed to be lining up big-name investors. according to the wall street a number of companies will invest about $10 million each in a consortium to fund my creation. it is the end of an era at the london metal exchange. fromrs are prevented drinking during the day. setting responsible for industrials -- tom: i am glad to see we have not followed that policy at team "surveillance" on a friday.

that was interesting. francine: tom. i am going to save you. tom: good morning, everyone. we have james bevan with us. i have never seen this chart. it is a three standard deviation move in yield markets from any hope of inflation. down two standard deviations. really important, you can see how the markets moved just since i moved the white circle earlier. this is a move on gamma or convexity. what do equity people do when they see the acceleration in lower yields? james: they worry, because it begins to imply there is a risk to corporate earnings numbers. i would argue equities are aboveble when yields move 3.5%.

when yields move up, that is a danger signal for evaluation. when we get inflation less than 1%, people wonder about sustainability of earnings growth and introduce the price they are prepared to pay. equities do not like deflation. here isng up the chart, the circle i dated an hour ago on -- did an hour ago on where the yield was. i have to mechanically move the circle down to catch up with the market. this is absolutely a focus to the city in london. francine: it is. it is a big deal that markets need to look up. what are markets worried about? james: this is huge, because it reflects significant changes in demographics. the exported deflation and inflation, we have real

challenges of vast levels of global indebtedness, and technology disruption. these are huge factors. one thing we stopped talking about is the capacity for wages to rise, given the low level of global unemployment. francine: well europe end up with -- will europe end up with fiscal policy that the ecb cannot deliver? james: i am convinced europe will have to embrace fiscal policy to get a proper route forward. francine: when will we see inflation? disrupted,n has been will central banks change their mandate? how disruptive will that be? james: i think central banks will forget about and inflation target because they have run out of tarmac. they will not be sufficient to drive recovery. governments will be much more direct in getting economies moving. tom: james bevan, thank you so

much. this has been a very strong our as we look at the -- hour as we i am fascinated by the matt hancock announcement. in 7, 10ear from him minutes? francine: we are. it is clear from the results yesterday that 114 votes, boris johnson is ahead, and it depends on whether other candidates trying to block him organize themselves. that statement coming shortly. tom: this is bloomberg. ♪

♪ tom: this morning, disinflation trends forward. yields grind ever lower.

the japanification of europe continues. anthony crescenzi of pimco. weaker.erling adjusts, sea, a tax shining increase as china exports import taxes to america. this is bloomberg "surveillance," live from our world headquarters in new york. i am tom keene with francine lacqua. mr. hancock is going to come out and make an announcement. what is the up and up on matthew hancock? francine: he is saying he is quitting the tory leadership race. this could be to giving his backing to someone else to try and block boris johnson. we will delve into that. we had a vote yesterday, three people were out, and boris

johnson way out front with 114 votes. the second nearest was jeremy hunt with 43 votes. you can see the discrepancy. i know what i am getting you for christmas. boris johnson wrote a book on factorll, "the churchill : how one man made history." lovesw the secretary churchill and i will send it over pre-christmas. tom: cover to cover. we will see. we have huge news flow and if you are on global wall street, it is a must our with tony r with tony- hou crescenzi. sebastian: iran tensions with the u.s. escalated dramatically as america released images they say proves iran as behind the

attacks and the persian gulf. they say iranians are seen removing an unexploded mind from a ship after another exploded. attack.denying the jeffrey gundlach does not say -- believe rate cuts will happen next week, but the chances are high because of a recession. he calls the prospect of a september rate cut virtually a lock. the nba title has gone international. the toronto raptors are the champions for the first time, beating golden state in game six. kawhi leonard had 22 points and was named the most valuable player. golden state had won the last two titles. 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: what is amazing here, right after this, the guy that runs the washington wizards, ted leonsis, goes after the leadership of the raptors to steal that guy from toronto to washington. the raptors have had a huge impact on how you play the game and build a team. equities, bonds, currencies, commodities. i want to race through this. winston churchill never twiddled his thumbs. futures weaker, curve flattening. 1.80.ar yield, 1.79, equities removed from the interesting bond markets. francine: i am looking at similar data check yours. -- check to yours. i am looking at the u.s. have mine, the u.s. asking the wto to

pause the china ipo investigation until december. not sure whether that had a huge impact on the g20. bonds extending their rally and gold up, stocks retreating. tom: when you see four standard deviations, get your radar up. five-yeare five-year, , euro, 1, 2, 3, near four standard deviations. joining us as the expert on short paper, tony crescenzi of pimco. thank you for making this bond market. global our viewers and wall street audience need to know about this plunging yield, versus the ones in 2007? lot has to do with risk premia. it has to do with the aging of

populations. tom: we want to buy bonds, price up, yield down. risk.we want less as a ratio to treasury yields, call it 75% for a 10 year aaa versus the 10 year. it is yielding less than the 10 year. tom: there'll be a shortage of bonds, i get it. price up, yield down. link it away from your expertise to the equity market. if we have a pimco bond market like we have, why are equities elevated? tony: it has to do with investors, companies, households not wanting to put money into investments. governments are not doing it. corporations will be investing more, more capital spending. in the last 60 years, there has never been a decline in what we call capital intensity.

productivity is easy to andrstand -- people, stuff, total factor productivity, how do we use people skills and the stuff in place. the stuff has been weak. in the united states in the last five years, the numbers of people working has increased by 12 million. tom: exported the capital intended city to malaysia or has it gone away in the service sector? tony: yes, abroad, and this is part of the spat the united states has with china, the hollowing out of america. it reflects the difficulties the u.s. has with its fiscal situation. , tworillion dollars or so and a half trillion of that goes to entitlement spending. what is left is one and a half trillion. half goes to defense and there

is little to go toward investment. we hear a lot about how america needs infrastructure spending and we are not getting much of that. it reflects the difficulties the u.s. is having with its own fiscal situation. francine: what does this mean for where treasuries go? tony: productivity can be directly linked to interest rates so when we think of close -- growth potential, it is the number of people that exist and are working, and you could say that is about a one point change in the united states, although in the united states it has been .5. if the numbers are stronger, it will mean a higher number of interest rates. janet yellen set a long time ago if productivity were to increase, it would raise the average level of interest rates. reflect lowes do

levels of productivity and the potent democratic forces. years,n in the last five the loss of population is about one million people, and the population will shrink from 126 million to 100 million. how can interest rates be high when the story is like that, unless there is a surge in productivity? that is not projected given the lack of investment worldwide. francine: are you telling me we are staring at a recession in the eyes and no one is realizing? tony: we all worry about slow growth, but pimco has called this since 2009 the new normal. we predict interest rates will stay low for the next five years. the ecb will put its policy rate at 0%. for japan, around zero. the u.s. languish around the

current level. tom: what does this mean for european financials? you guys are a buy side shop. these guys are in the trenches of the reality. can they survive given the gamma we see in the bond market? tony: yes, our favorite area of investment is bank capital, just above equity in terms of risk. we think banks are getting stronger. tom: we will come back without. markets on the move, deutsche bank printing a5 handle once again. francine: we will have more on that on deutsche bank. a full round up, there is great investigations. there is a great roundup of the u.s. versus european banks in the next six months and we will have plenty more on that. he isancock decided

quitting the tory leadership race. i do not know whether that has implications for boris johnson, who yesterday won by a pretty big majority. he is still the front runner. our other candidates starting to -- are other candidates starting therganize to prevent former foreign secretary from becoming p.m.? this is bloomberg. ♪

,> the united states government if the islamic state ever upon -- has to do with the

attacks on the united states today. that no proxy group in the area has the resources and proficiency to act with such a high degree of sophistication. francine: that was the u.s. secretary of state mike pompeo blaming iran for the tanker attacks. they released a video showing the country was involved, they say. the is reiterating calls for dialogue. demand --entral command said a war with iran would not be in our strategic interest. .oining us is will kennedy is there any doubt iran was behind this? will: there is considerable doubt. it is not clear what happened. there is a consensus in washington and london that iran was the most likely player to have committed this act, but it

is unclear exactly what happened to these ships. one video purports to show the iranians removing a mine and they say they were fairly certain the ship had been hit by a projectile. at is not clear what happened in these attacks and we do not know what happened to the larger tanker that was on fire. suspicion is falling on a roll iran,nd there are good -- and there are good reasons, but we are a far -- far from that. francine: it harkens back to the tanker wars of the 1980's. will: one of the significant things as this is the second time. the gulf ofships in oman were attacked.

the oil industry, tanker industry, there is a pattern emerging and this could become more common. tom: what does it mean for saudi arabia? they are looking at a fascinating supply complexity. how do you expect they will adjust june into the summer? will: it was interesting. the market was fairly muted. we had a big spike up as attacks crossed the news wires, but they are trading a bit lower today. one, thes two things, persian gulf is not as critical as in previous decades because we have a big supply of oil from texas and that continues to change global oil markets, and reflects the fact that the international market is focused on what we see in demand. data is that demand is soft.

interesting, the i i said the market looks oversupplied next year, so the saudis are facing a tough decision and may have to deepen their cuts. tom: tony crescenzi with us. in the high-yield and cds space, there is a huge energy waiting. weighting. tense, not becoming only after the tanker incident but in general? tony: a few years ago, there was a big shakeout when oil went from $100 a barrel to close to $25 a barrel. there was major stress in the high-yield market related to energy. that probably limited the damage to the market this time and the market overall has not been impaired. it is a much different story because of the shakeout of weaker companies about five years ago. tom: what is the opportunity in

oil? if we assume there is unpredictable variability, do you express an opportunity through hyper -- harder carbon bonds or the equity market -- hydrocarbon bonds or the equity market or commodities? the energy market volatility is something an active manager can take advantage of. one wants to get away from the movement in the price of oil and think about the movement of oil. this includes the infrastructure. that may include pipelines. americans will be driving this summer on vacation. the price can vary, but the amount of money, oil that flows through the pipelines will probably be no different than last year and the year before that. if you are investing in that area of the market, that is a more defensive way to play the

industry. tom: tony crescenzi with us. you kennedy, i am certain have a busy friday and into the weekend with our oil coverage. vblasor javier advancing our oil coverage. dutchhows the accordance importance of listening to the head of the central bank of china -- importance of listening to the head of the central bank of china. ♪

♪ is bloombergis "surveillance." activist investor dan loeb acquired a $1.5 billion stake in sony. things, he wants them to spin off their semiconductor unit in japan. the company says it takes constructive proposal seriously. bayer will invest to replace its weedkiller. roundup is made from glide phosphate and they want to give farmers more options to fight weeds. the trade war between the u.s. and china will wipe out a rebound that they had been predicting. they say a rapid decline in orders from uneasy customers. chart with tony crescenzi,

this is a shocking chart that speaks to the financial repression realities of so many of our viewers. andlong term moving average the inflation-adjusted five year yield. up we go to the joy of the 1990's and it has been straight down. it is real, that financial repression is here, is permanent. how do we extract ourselves from it? tony: it is improbable. one should expect interest rates globally will stay low for the next decade and this reflects demographic forces which will not go away. i will not turn 65 until the end of the decade. it is only until the 20 30's in the united states. tom: we have managed ourselves into a low yield environment because we don't want to take

the pain of clearing markets, right? tony: it also reflects the mindset, inflation expectations. janet yellen who was a participant of pimco's secular forum, wrote an article called "inflation dynamics." she was providing an introspection on what drives inflation, and her conclusion is that inflation expectations and how we feel about inflation. we had a behavioral economist in attendance as well. , how can we raise inflation expectations when interest rates might go up? she said, it is a little bit hopeless because we need in the world a new experience to shake us from the old one we have had, this ever declining move in inflation and interest rates. something different has to happen?

-- something different has to happen. what is it? the fed is looking at the. it might lower interest rates as the economy is showing strength and that is something new that might be needed to shake things up. it is a matter of investment and productivity, because productivity is the main driver of growth and demand for money and interest rate levels. francine: given what you have said, i was looking at euro-dollar and some market participants say it has died as an asset. if you look at the fourth quarter of 2014, it was the tightest in history. tony: when you say euro-dollar, i am thinking libor. it is about to invert for the first time since 2008, which tells you and interest rate cut is close.

the dollar has been stronger in recent times, but it may be about to shake. much depends on whether the fed delivers on the lofty amount of interest rate cuts the bond market is pricing in. it is likely the markets will be disappointed by the number of rate cuts. the fedets are pricing to lower its rate down to 1% next year, and that will keep the dollar from weakening. francine: tony, thank you so much. we have a lot of viewer questions, so keep sending those. we have one next. we will talk bonds with tony crescenzi. ♪

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what the implications of the tory race is from yesterday, boris johnson coming out with 114 votes. the second candidate with jeremy hunt -- was jeremy hunt with 43. we are expecting the rate decision out of russia to come out shortly. that has an implication on global markets and kept its key estimated., as tom: they will lower the rate as widely expected and they have a low rate of 7.5 percent, showing the challenging economy of russia. dollar-ruble,f but a global move in rates has been our theme. deutsche bank two-way five handle, showing tensions in europe. have been tensions in washington , a backstory this week but it is front and center in "the

washington post." she is gazing -- scathing. toldublican accidentally the truth about tax cuts. officegressional budget would 1.90 in red ink. arthur laffer has proved so useful over the past 40 years of edgy terry baiting and switching that president trump just awarded him the presidential medal of freedom. viviana hurtado is sorting out our fiscal mess. if anyone care about the exploding deficit? fiscal conservatives and those with a more libertarian back.

want to keep in mind about this eye-popping number is that exists within this context in the next coming months, there are negotiations happening around the budget and what is connected to that as negotiations stalled or break down. aat would be for example perspectives of raising the debt ceiling or not. it is not just the lines around the gop saying, if we will be cutting it will be toward entitled programs and social programs, not defense spending. it will be interesting to look at someone like gop senators susan columns -- susan collins who says social problems -- programs are important to her constituents. tom: this is a backstory, but front and center off cbo with

shocking numbers. someone who reads congressional budget office data, their first wonderment of our fiscal nation, is neil bradley with the united states chamber of commerce, a hired gun with ages of experience on capitol hill. neil bradley joins us on tariffs and the president. the president has a membership to the chamber of commerce. would you like him to cheap -- keep it? neil: the trump organization is a great business that employs lots of americans. trump organization has not been a member of the chamber of commerce. we would like to work with them and we provide great value to our members. we hope to have the opportunity to work with them. tom: a million years ago, i was a proud member of the chamber of commerce. neil: we would love to have you back.

tom: what am i going to do, chamber of commerce for bloomberg "surveillance?" i can see it now. you guys are saying tariff kill, every single company from walmart to the smallest company you have says import taxes hurt. why can't they get the message? neil: they have a different view. we think we have been making the case. we are grateful the tariffs proposed on mexico were avoided, and a deal was reached between the president and mexican government. part of that was providing the data about the negative consequences about the tariffs. you were talking about the tax bill. irrespective of what you think of the fiscal consequences, imposing $17 billion on taxes and consumers would have been a net negative on the economy, and

we are grateful we did not end up there. francine: how do you see this ending up? do we see more tariffs or will the trump administration look at the economy and back down? neil: we would like to see a china,n the problem with anti-trade practices, intellectual property theft. the president deserves credit for being the first to take on this problem. we do not think tariffs are the answer, but at a minimum we should not be thinking of imposing tariffs on allies. we are hopeful we can focus our efforts on china. francine: what are your companies doing to get away from tariffs? are they changing their supply chain? are they moving parts of the business? how nimble do you need to be? neil: you need to be very

nimble, but in some respects you cannot be nimble enough. a lot of these tariff announcements were completely unexpected, like the announcement on mexico a week and a half or so ago. you have to have some level of certainty and that is one thing we are preaching, businesses need some level of certainty to locate supply chains, plan for future growth, and the constant evolving threats of tariffs undermines that certainty. that is one of the reasons we have to get usmca past. from the neil bradley u.s. chamber of commerce joining us. is denying u.s. allegations that was behind the attacks on two oil tankers. the u.s. released video saying proved iranian involvement. another mine had detonated and

damaged a ship. in hong kong, the governor dutch government may pause work on the controversial extradition bill that caused violent protests. a number of options are being considered to diffuse the situation. the executive council believes the government should fast track the matter. matt hancock has withdrawn from the race to be next prime minister. he is not saying who he will support. rivals are holding talks of joining forces to stop johnson from winning. 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: thank you so much. markets really on the move, particularly on global wall street. 10 year yield, 2.06%. nymex crude showing some

stability, but you have to watch that for a 49 print. we are not there yet. deutsche bank, 4.99 indicating european bond angst. anthony crescenzi with us from pimco and he knows the meal ticket is the total return fund. i have total return now, price up, yield down. i have made it on a coupon and on that price gain. how do you lock in a bond gain and stay on bonds? tony: you talk as if it is over. tom: you are on the edge of gary shilling. tony: there is a risk of collapse of u.s. bonds versus the euro. tom: what would you predict? case, yields hover around the current level. yields will hold around these

levels. if there is a recession, yields will quickly move to zero because the fed will be giving a commitment to keeping rates low until they jump towards full unemployment. the bond market will say, the fed is committed to keeping rates low so let's assign a 0% rate to the two-year, three year. tom: that framework, if we get a recession, 10 year yield under 2%, politically can our monetary institutions do what is right? we have never been here before, have we? agent,or has the fiscal the fiscal authorities have not done much either. the burden has to shift from the fed to the federal government to state and local governments to raise productivity. if the federal reserve -- federal reserve can only move around the timeline on growth but cannot encourage it in terms

of encouraging a company to invest or a government to invest. in new york there is something called the gateway project that will link new jersey to new york to the busiest commuting station in the country, penn station. in china, they just open between hong kong and macau a 30 mile bridge tunnel system. we have a big difference in the dust in terms of the way we utilize resources -- in terms of the way we utilize resources. francine: tony crescenzi of pimco stays with us. global bonds rallying on bets interest rates will fall as trade tensions jeopardize global -- coming up, rbc capital managing director. this is bloomberg. ♪

♪ "surveillance," to get into your weekend reading about lower interest rates. we were speaking with tony crescenzi and we will work that to the financial markets. what do you see within the data? at 10ne: i am looking year treasury yields extending their drop after the surprise increase in u.s. jobless claims lending credence to speculation the fed may cut interest rates. 0.3%ean markets down from on european stocks. wti crude and oil urging down after gains spurred by the tanker attack. tom: dollar-yen is likely

108.81 -- 108.21. it is good to do a single best chart with gerard cassidy on the london watch. have not trotted this out for a while. crisis to bank of america, fortress diamond, bank of america -- citibank rolling over in scandal. there is a great separation. how important is stock selection as we go into the summer? gerard: that is a key issue for investors, stock selection. though the macro trends will impact all banks, owning the best quality banks that will benefit from a steepening of the curve is the way to play it. isyou pointed out, wells challenged and looking for a new

america, j.p.of morgan, and citi, those investors should look at. regional andarge, banks with 200 employees. where is the opportunity? gerard: there is a couple places to look. when you look at the regional banks that will not be negatively impacted on a net interest margin standpoint should the fed cut short-term interest rates. there is an expectation the fed will cut short-term interest rates and the banks the last few years have benefited from a rise in the short-term interest rates. that rise in short-term interest rates started to work against the banks. regional banks are the one to look to. keycorp is not a very asset sensitive bank. m&t bank is another one that

would not be a -- hurt by a fall in short-term interest rates. francine: do you see consolidation in the u.s.? gerard: yes, we do. when you look at the consolidation of the banking industry, it has been going on over 30 years. we used to have 18,000 banks in the 1980's and we are down to about 5700. you will see more big bank mergers. francine: how big? gerard: similar to what we saw with bb&t and suntrust this year. when banks start to struggle on profitability, they will be able to look to do a merger. we have to remember the last four to five years, the american banking system achieved record profits. it is difficult to give up your job as a ceo when you are achieving record profits. will the where

problems firm profits come from, what division? gerard: there is two areas. the first and foremost is the new accounting issue from the lost reserves called cecil. although it is an accounting issue, it could create volatility in earnings and that could be the catalyst. if the fed has to cut short-term interest rates too far, that would be another area for oppression on the margins -- pressure on the margins. gerard cassidy, rbc with us out of our london offices. we have a huge treat coming up if you are part of global wall street and global banking. this is must watch, must listen. jonathan tyce and gerard cassidy together, the transatlantic

reality of banking from j.p. morgan to barclays to a beleaguered deutsche bank. this is bloomberg. ♪

♪ this is bloomberg

"surveillance," taman and francine from london and new york. we are staying on banks, barclays and its banking obligations. the chief executive jes staley has been pushing for the company to take on wall street giants, but how does barclays stack up? joining us now to discuss this is jonathan tyce. he has a report analyzing barclays' performance, and gerard cassidy still with us. bloomberge it is a "surveillance" special. thank you so much for sticking around, and welcome to the program. is there any bank that could take on the u.s. ones? jonathan: now. -- no. if you said who are the two or three best banks in the u.k.,

lloyds. in terms of j.p. morgan, have we got anything like that? absolutely not. francine: should we? jonathan: europe is still 27 countries with a different agenda. they are lending, reserving, in the bad debt situation, different from germany and the north countries. i don't see that we ever will have that. tom: i want to set you guys up for the reality, transatlantic battle over the future of banking. how far out front are the american banks? gerard: i would say in the capital markets business, they are certainly the leading providers in that area. when you take a look at a bank of america merrill lynch, j.p. morgan chase, and citigroup, and

of course morgan stanley and goldman sachs, all of those players are global players and because of the downturn in 2008 and 2009, they were able to get the capital infused into their banks faster than the european banks and have been able to take market share the last 10 years. they are tough competitors for the players over here. tom: i see deutsche bank under a six handle. it goes on and on for the european banks. which institutions in europe will allow europe to be more anglo-american and compete? jonathan: the biggest issue you have got is rates. the u.s. has a rate cycle that goes up, which helps, and profitability improved. -- we areement talking about potentially rate cuts. the interest income squeeze has hurt european banks.

you look at u.s. banks. other parts of their portfolio have performed really well, whereas over here on the revenue book have lost share. 2008,ne: in the u.s. in they fixed the banks quickly and in europe they are dragging on and on and it is legacy issues that have not been dealt with. gerard: you put your finger on the issue. american banks did not do this willingly. regulators put the gun to their head and told them to raise capital when it was destructive to shareholders' equity, and because they did, the americans attacked the problem more aggressively and turned themselves around. tom: let's open this up. as the dream here and american bank buys deutsche bank?

why would any american bank want to combine with an average or troubled european bank? jonathan: no reason whatsoever. the american bank does not want the balance sheet or a retail german bank where you will make 6% to 7% r.o.e.. if you want the people, you take the people. barclays does not have the bad debt problem and did not get nationalized. manageded to use -- it to use qa. the underlying fee margins, look at the fick business. americans have a secret source. tom: we go to where we must go. gerard cassidy will give us a bank in the middle of nowhere in america so jonathan tyce can make some money. what is the bank that has a value and catalyst?

gerard: last night i was in paris. keycorp is one of the best regional banks we have in the united states, but i know you and i like to talk about smaller banks. one bank that has done very well in new jersey, snb one. just overan and ceo, one billion in assets. dose are the names that can well along with j.p. morgan. tom: jonathan tyce taking notes on small banks across america. thank you so much. we continue with more data checks on bonds. this is bloomberg. ♪

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u.s. accuses iran of attack. the chokepoint for oil. and a record low for yields. investment in china shrivels and the trade war squeezes the economy. victim, dragging with ae chip sector conservative outlook. david: welcome to "bloomberg daybreak" on this friday, june 14. it looks like everyone is running for safety this morning. alix: it is hard to know what that is about. friend once said one reason is as good as another. you can pick iran, you can pick china. alix: unbelievable move in the yield. record low y