Transcripts For BLOOMBERG Bloomberg Surveillance 20160509

Francine on assignment. Vonnie news out of saudi arabia, japan coming back online, lots to talk about today. Tom the quiet after a big jobs day, huge in decision on what the fed will do. Vonnie listening to some more fed speak this week. We will be getting bank of england inflation expectations. Tom i didnt know that. Michael mckee and will join us in this hour to pick up the pieces. Monday, to our bloomberg first word news. Heres vonnie quinn. Tonie in his latest attempt prevent a u. K. Exit from the european union, David Cameron said that the u. K. Has a National Interest in preventing future conflicts in europe and that requires staying in the eu. I understand why many people are wrestling with this decision and why some peoples head and hearts are torn. I understand and respect the views of those who think we should leave even if i believe they are wrong and that leaving would inflict real damage on our country. Vonnie the british referendum on the eu is june 23 and we are expected to hear from current london mayor boris johnson. He is for the u. K. Leaving the eu. Greece has taken a step toward unlocking the next round of bailout money with reforms to the pension and tax system. The reform will raise taxes for most people. Investors will decide whether that is enough to give greece more aid. South korea says if north korea wants to improve relations, it will have to give up its Nuclear Weapons. At the party congress, kim jongun said he would use Nuclear Weapons only if his country comes under nuclear attack. Firefighters in western canada may get a break. A cold front moving through the area may bring rain and forecasts show the fire moving east. The fire had forced a cutback of 40 of the regions oil output. It also led to 80,000 people fleeing the city of fort mcmurray. Russia marks the 71st anniversary of the defeat ofn nazi germany. President Vladimir Putin met with soldiers and spoke with world war ii veterans. Lobal news 24 hours a day i am vonnie quinn. The russian army presenting beautiful pictures. Tom and i saw the death of the oldest world war ii veteran in america. Ancient. Time is marching. Right now, lets move to the data check. A reset for your monday. Features up five. What dynamics on the 10year and twoyear yields did we see at eight 30, 8 31, and 8 32 friday . Xy almost 95 and oil of a little bit. Canadian wildfires, extraordinary. , 14. 89. I put the german twoyear up as well. Nch but that isu your reset. Lets go over to the bloomberg again. Bond, the fedield meetings along the way, higher yield, no, wrong, down we go. Standard here is two deviations and the extension out. We are back to where the markets are distant from where the fed is. Vonnie the market pushing back expectations for a fed hike after the jobs report. The backend didnt react so much. We have spreads widening. It is a fascinating chart. We are back to where we were last year. Tom you need to get to the june meeting. Lets begin the discussion with that framework. Erik nielsen is one of the great euro optimists. He is with unicredit and he has been more than correct about a resilient corporate europe even as policymakers flounder. How do european policymakers adapt and adjust to the jobs report and the feds responsibility in june . Erik on average, the europeans would welcome a gradual normalization by the fed. It would take some of the pressure off from the ecb to keep finding new instruments to push the easing policies still needed in the eurozone. I suspect you have a lot of support for a gradual couple of moves this year. Tom but what is the catalyst for a couple moves . Within the huge debate and indecision, what is the catalyst if it is in jobs for some big report . And saywould step back the odds are that the fed is quite behind the curve. If you look at the United States labor market, it really isnt in good shape. The threemonth average, you are still running at 200,000. The job reports are fine. Unemployment very low. You have seen the quite tight labor market pushing wage growth or income growth, running at about 2 . Interest rates really have no business being down here. It is not so much reacting to a number but having good enough numbers to normalize. Final quarter of last year, the markets and we four all looking for Interest Rate and suddenly most people are saying we will be lucky if we get two. Erik they came into the year hikes, then they got fooled by the market uncertainty , the big selloff in the first six weeks of the year, and that took First Quarter out. ,f you now look at the median it probably was just four, and then they dropped another one. It looked like a big move, but maybe not quite as big as it sounded. Q1 disappeared. As you indicated, i think you have Something Like a june set up. I guess they would go in july, assuming that britain stays in with the market deals with this brexit business. Vonnie if the fed did move in june, would it cause turmoil internationally as well . Is the market looking more than the fed is . Erik i have not met a single Portfolio Manager who thinks theyre going to do anything this year. I wrote this in my notes yesterday and my email has been bombarded with people who say, you are man. I find that peculiar. I think the macro data are good enough. Bill dudley came out on friday night and said, one city was a little low, but it hasnt changed my thinking. Clearly, ifid very the market doesnt get it tom the New York Times with a lead on mr. Dudley and the new york fed chief believing central bank is on the right track. There we go. We are on the level here at bloomberg. This point, doesnt it seem like there has been so much messaging, the fed pushing it out there, the economy doing well, the labor market doing fine. We may moving june. The market is in responding to any of this isnt responding to any of this messaging. Erik that is a big risk. I think the fed is at risk of having lost a bit of credibility because of not doing anything. For it is really high time them to restore the credibility. Could you imagine that we would leave 2016 with no hikes at all . We came into it with them saying probably four. That is going to be an even bigger problem for their credibility. Tom interesting to see. Ive got to go over the bloomberg here. Fomc go. I forgot what date the june meeting is. June 15, i can remember that. Erik nielsen with us. Our reset on a monday with john writing joining us. Two great and different jobs reports at 8 30 that the fed is on the right path. With erik nielsen in london, this is bloomberg surveillance. Tom good morning. Bloomberg surveillance always from new york and london. Francine lacqua scheduled to join us in the next hour. Im here with vonnie quinn. Right now lets get to a Bloomberg Business flash. Vonnie the imf is warning of a real estate double in denmark. The danish and almost four years of negative Interest Rate. The imf says authorities need to lean against the wind on a home price increases. Apartment prices in denmark are up 50 since 2009. In france, total has agreed to , 1. 1 billion. Saft makes batteries for industries that include transportation and civil and military electronics. The ceo of the worlds biggest shipping lines as negative Interest Rates are hurting the industry. Moellermaersk tells bloomberg the Industry Needs consolidation but negative Interest Rates make it easy for banks to keep week shipping companies above water. That is our latest Bloomberg Business flash. Tom thank you so much. Nielsenlsen erik with us from unicredit. Switzerland out with better news, which is deflation, but less deflation. Theres a number of ways that the swiss do inflation. This is the all in cpi yearoveryear back to the beginning of the American Financial crisis. Heres the great battle for stability. Heres the shock and all of downright deflation. As you predicted, the vectors improving. Hasr it escaped europe escaped the fear of deflation . Erik i think they have. I never worried that much about it. I think we understood quite well what he did and where it came from. Debt is filled by households, the risk of men deflation bad deflation is not aiming one. Your chart was very illustrative. Does oil folding to the new europe calculus . Newdoes oil folding to the europe calculus . The oil price is always like a oneyear effect. In has increased the income and basically put a longer term prospect of growth and inflation coming back. Now we get the latest oil price increases, a faster hit into inflation. If there were still some remaining fear of deflation, i think that is going away now. We found great instability within saudi arabia this weekend. See inow, as we seachange over the weekend, im sure many of you have heard the aged oil minister of saudi arabia is out of the door. Shahine is with us. The new minister is lined up with a new regime of royalty. Tell us about the new minister and how he will deal day today with the king and deputy crown prince. Alaa as you said, the new minister is part of the inner circle of the deputy crown prince. We dont expect any fundamental change. Hes going to defend the saudi market share. The change will be more on the domestic side. This is part of the vision to turn around, from an oil and gas company into an energy and industrial conglomerate. Tom behind you in dubai is the fcclaimed and beautiful di building. Im told that riyadh wants to redux this. They want to open their society, c equivalent and become more a part of global capitalism. Is there any met that the traditional royal family can do that . Alaa they are trying to. They are setting up a financial district in riyadh. This project in particular is dotted with a lot of problems. Dubai is, as you said, wellestablished as a Financial Center in the middle east. Others have tried to do that. Abu dhabi tried. They havent been able to unseat dubai. Let alone the challenge domestically for the saudi society. It is a Tall Mountain to climb. You ask yourself how many financial hubs does the middle east need at this stage. Vonnie how much is he a puppet . He did go to the april meeting ha and agree to a freeze only to uturn at the last minute. Alaa so now that deputy crown prince appears to have a greater say in oil policy. The minister who was replaced was negotiating the freeze deal with opec. Before the meeting, deputy crown prince told us in an interview that his position is still the same. Unless everybody agrees, there will be no freeze. When the meeting started, we saw what happened. We saw what the russian and venezuelan counterpart said, that he did not have authority to negotiate. That points to the rising influence of the deputy crown prince. With bloombergne news in dubai. Let me do a data check as we move forward. Futures up. What a turn on friday. 1. 79 . Oil elevated some of that off the massive canadian wildfires heading towards saskatchewan this morning. This is bloomberg surveillance. Tom good morning, everyone. It is exceptionally boring week, which means we have to pick it up. Vonnie it is never boring in economics. Commerzbank writing this morning that the u. S. Central bank does not increase before election is a common prejudice. We have analyzed behavior of two past president ial elections and cannot find prejudice. We are talking about september year, not june. But theres nothing to suggest the fed would move before a u. S. Election. There is no evidence that the fed pulls its punches. Saying,cials have been we are not going to worry about the u. S. Election, but there is an election they are concerned about in june, the brexit vote. Weve had several Officials Say that if theres any indication the british might vote to leave the eu, we dont know what that means for the global economy. Vote is ae brexit week and a day after the meeting. They are going to be looking at the polls. The polls in england have been notoriously unreliable. Tom the Federal Reserve of the United States of america is going to go british poll watching . They are, believe it or not. Something could happen in the global economy. They dont know what. If they can wait until july, they will. Vonnie why isnt the market believing them . Why is a twoyear yield not moving . Over the past week, weve heard fed Officials Say several good the numbers are enough. If they keep going like this, we want to raise rates in june. Tom explained this chart. This is way too complicated for a monday. Come on, mike. The key is, do people spend money . Wages and salaries and average Hourly Earnings have been going up significantly over the past year. Tom the yellow line is the fed line. They have been watching this. They want the numbers to go up and they are doing it. That donnelly suggests strength from the consumer side, but the possibility of some inflation. Tom erik nielsen in london, which of those two lines do you like . Do you look at the yellow line, the headline, or the bluecollar doom and gloom of average Hourly Earnings . Erik we are on the headline, tom. Tom does nielsen know he can give longer answers . What is this, your first time on air . Tell me about the yellow line. Erik as we talked about before, i think theres a real disconnect between economic reality and the market. It is not only in these two lines. It is in so many places where Market Sentiments are more gloomy than the underlying macro numbers have come around to be by now. The u. S. Is a good example. Tom erik nielsen with us. Mike mckee and i will advance this on Bloomberg Radio this morning with oliver chan and dana kelsey. Coming up, we advance the economic discussion. Hes really quite good. Ten of Deutsche Bank on an interesting and nuanced view of what the fed will do. It is monday. It is bloomberg surveillance. Good morning. Tom good morning, everyone. From new surveillance york and london. Lets get first to the first word news. Oil saudi arabias new minister is expected to keep the country pumping oil at a record pace. He was appointed over the weekend. Some higher cost producers out of the market. The philippines voters are casting ballots in a hotly contested election. Is a controversial there who holds mayor who holds tough on crime. Journalists have returned home after being held captive in syria for almost 10 months. Turkey and qatar out in the release. Helped in the release. Donald trump is questioning the need for Republican Party unity. On sunday shows, he was questioned about lack of support from paul ryan and other republicans. Meanwhile, wall street is giving a boost to hillary clinton. 53 ofh, she received oosts from executives, up from 36 in march. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. Tom thank you so much. Most no. Path that that is longterm and consistent depreciation of the South African currency. It has moved over 20 years from four to 14. 89 to the dollar. Rhodope is minister to the president and the cabinet member who has lived the South African political experiment. We are honored that the minister joins us this morning. Give us this day of south africa. We have seen depreciation of the rant. Give me the optimistic take on the future of the nation. Thanks for the opportunity. Firstly, we indicate that we are part of the global economy. We are not isolated. We do not live on an island. What is happening in the cloak also affects us directly. Low down in china also, as a nation of coming from 300 years of colonial rule and 40 years of apartheid, we have to do everything in our power to strength the economy. Our plan is an initial Development Plan and it ensures that we reduce levels of unemployment, inequality, and poverty. Doing all of this in the context of the recession. That is the context. Tom we seek global wall street exiting africa. It seems to be part of every strategic business plan. Usually when did too big to fail is a time fort opportunity. What is the opportunity for africa to south africa to reclaim its econom . We are very resilient. You will recall that last year, a statement indicated our aims to consolidate our budget and that we should not increase our expenditure spending. Our financial prudence in managing the economy. You can only do so when working with the private sector. That is why we are working very closely with the private sector to make sure we stay the cause and also invite Foreign Investment into the South African economy. You will recall that our president announced a onestop shop where all investors would come to one window, one door, and which all issues tend to be addressed. Vonnie how do you anticipate to bring stability to the country after so much instability . Weakeningafrican rand over 30 just this year alone. Investors need you to stick around for a while, right . Tech equalle bit of difficulty. Hishink the minister for visit from johannesburg. As we look at the new globalization, i find it interesting, the backdrop of africa with china investment. It is the great unspoken. We all remember the congo deal. China is the marginal investor in these frontier economies. Isnt it . Erik thats right. It has been a phenomenal 10 years of massive investment in africa, but also south america, for the chinese. Clearly to be out there with the pilates are produced and needed for the chinese growth longterm. The story in africa is the same. They come in with previous on the side, whatever the local minister once, you get it from the chinese. Tom i think what is so important here is save the polarity between columbia and nyu the chinese are not having that debate. Vonnie they are all in. One of the companies we have heard recently is going big in south africa is barclays. To ask you, how does a country like south africa deal with the currency that i mean 25 , 23 weakening you can see the dollar to disappear. Gigantic challenge to have. As long as i have done an economist in washington or new york, there is no that wants tot see south africa 60 years in many ways, they have been quite successful, but we have to take into account the slump in commodity prices. We also came into this with the famous franchise five. South africa was one of them because they lived a little young there means beyond the ir means at the time. Vonnie is a 9 bond deal sustainable . Rik it is sort of i would like to see a little lower, to be honest with you. Tom some perspective from erik nilsson on africa. We will come back on europe and the fed. After thet hour, controversial jobs report, we hour. Packed you will learn about partial differential equations. Tom not in chicago, in london, evans. s the most interesting economist out of pittsburgh. Straight talking is always unpredictable. At arancine lacqua is panel in london. Extremely welltimed. Right now, extremely welltimed, a discussion on oil. On saturday, we saw the changing of the minister of oil. When you saw the shock and awe, were you surprised . I was not surprised. He had been the head of oil for 21 years. He had been retired for a time. I remember him mentioning to me that he wanted to retire a few years back and spend time with his grandchildren. He was joking saying that now the grandchildren are teenagers and dont want time with their grandfather. It was not a surprise, per se be been in thead making for a while. Domestic dynamics of this new machine, this change. What does it mean for the price of oil . Do you assume it means lower for longer . I think what we will see is saudi arabia will double down on the strategy or market share. I think, in general, its suggest that global prices may be with us for more time. Vonnie we have had a runup in prices with the alberta fires. The fire, and increases in price related to the wildfire, may help saudi arabia use that as a weapon against opec producers. Do you see a linkage . Will open reducers respond to the increase . No. Essentially, the wildfire is a big deal with the market. Linked toi theity refinery pipeline. This is not the disruption happening, as we saw, last month, when there was a strike. That was 40 days of tinker oil to the United States. Here, the disruption is happening around the United States. It is a pretty big deal, and will be the oil market this week. A ceo saye hearing that consolidation cannot in the industry, even though it is badly needed. Tinker businesses that should be going out are consolidating. Erik i think that is true. I hate negative rates are you have to be very clear about this. I dont pay argument was quite a good one. Exactly what you want in Monetary Policy now is keep businesses afloat that otherwise would have gone out of business. Whether it is the Energy Business or shipping, i dont think the economic model was a good one. Tom ken issa just you all blas on twitter. He is on air with us, tweeting while he speaks. Great to see you adding value on twitter. That goes to the news flow. What is so changed for me, and i learned this only during the cyprus thinking crisis years ago, all of these policymakers need to deal with news flow. Whether it is the saudis, janet change has twitter economics because of the speed of information . Erik i think it has indeed. The whole internet has changed. Information flow, and more importantly, communication has become much more complicated. With therome last week former Prime Minister of italy, who has a famous quip. I said, how can you do policy when asked to be 40 characters 140 characters. Am you are on twitter, as i an funny. What is your single tweet this morning on how oil will change after what we have seen from the saudis . How i put this in 140 characters this is complicated i think we are in an unprecedented time for oil policy. Many oil traders have only been one minister. We are going to have to learn. The market, the Interest Rate, and wall street will have to learn how the new minister communicates to the market. The market has gotten very comfortable to reading speeches. Now, we have to learn to read the new one. That will be very complicated. Tom thank you. In our next hour, i dont believe he has a twitter account. He wrote the book on ben bernanke. America,ris of bank of merrill lynch. It is bloomberg surveillance. After a jobsay report what a jobs report it ,as confusing, nuanced interesting. We will talk about leicester football. We will do that. Right now, she does not care about leicester slop football vonnie i absolutely do. Here is another example of a company battling with washington. Twitter cuts off data to spy agencies. Were not supposed to buy it. They had been buying it for surveillance for two years. The European Central bank will do what is necessary to reach its inflation goals. His is according to the ecb speaking in london, they say the central bank needs time for the measures they took in march to work. They said 2 inflation markets. Insney and shanghai shanghai is a popular attraction. An estimated 30 thousand visitors were at the park yesterday. Run. Had begun a trial tom they change it for every market. Im not sure how successful they are. It is a question for the very successful walt disney company. Hat a nuanced conference lets look at the chart on the recent depreciation. Curving upward very sharp note on chinese depreciation and strengthening dollar dynamics. Often your asian team, it seems the discussion that they are having on china is really a on the u. S. Dollar. Why is that . Erik for a long time, it has been what looked more like a dollar. G china on the now, we have had a bit of dollar weakness. It is basically saying that we are in for 36 months we we could see it take account of the weaker dollar. Tom it is very interesting to see the weaker dollar. From where you sit, Ken Janet Yellen affect the dollar like the chinese . Complex right now. The central bankers dont seem policies. Ate drama aboutl the tra what happened in shanghai. Maybe they went to disney world, and got confused. Who knows. Basically, the message from the fed to the chinese, japanese, is it would be good to g hold off a bit. China look at,es in terms of indicators . At the clear that looks stock market. To the chinese . Erik they do, but they still have a bloody nose from last year. I think they got nervous, and would try to stimulate more on the domestic side. Vonnie what would a seven level, which you are anticipating, do for the chinese economy . Erik it would be probably marginally supportive. They arer story is trying to stimulate on two accounts. One is the one we all talk about and worry about which is the investment side. Inc. At the end of the year into next year, the growth rates will be ok. Living negative rates. We talk about it in america. From denmark, your heritage, and in italy, youedit are in the land of negative credits more than anyone i know. How does this turn out . Erik it is a crazy experiment where central bankers have gone my opinion. End, in it is deeply unnatural. The banks, in general, managed to absorb the loss. Nothe resell side, with a packed them on, they have found a way to charge for anything. You almost have to pay to get through the front door. It is amazing how they have packed on the costs. Tom thank you so much. From denmark and unicredit as well, beautiful advance this discussion on this monday. What a confusing jobs report. It was absolutely baffling them the move lower move lower. Coming up, we advance this conversation with john wri reiding. Must watch. Bloomberg surveillance. Tom names making news in the news this morning is the great divide over what the fed will do. Yellen. Hour, on janet a weapon of war and, on algebra and isferential equations, why our plane delayed . Vonnie you mentioned the 10 year yield. The quality of the jobs yes, we are down. We will hear more about that. Tom retail will be most interesting. Lets is nancy conversation on s. Onomic here is money. Vonnie british Prime Minister David Cameron appealed to the countries patriotism. Today, he set the u. K. Has a National Interest in preventing future conflict in europe, and that requires staying in the eu. Cameron i understand why some peoples heads and hearts are torn. I understand and respect the views of those who think we should leave, even if i think that leaving would inflict real damage on our country, our power, and the world. Vonnie the british referendum is june 23rd. We expect to hear fo from the london mayor this morning. Greece has taken another step to unlocking another round of bailout money. The measure will raise taxes for most people. International creditors will meet this week on whether it is enough to give greece more aid. Northkorea says if korea wants to improve relations, they will have to give up Nuclear Weapons. They say they would use Nuclear Weapons only if their country comes under a nuclear attack. Firefighters fighting the fire prediction show the fire moving east. It has cut back 40 of the regions oil. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. Tom a quick data check. That gets my attention as well. It is the monday after jobs. Quiet day. American oil gets a pop here. Some of that is canadian oil, as vonnie mentioned. Negative rates, we will talk about that. That will bear close watching this week to see what that actually does. The yen, weaker as well. Over to the bloomberg, we will talk about that in a minute. Down we go. Higher Interest Rates. This is the expectation. We moved back to the low end of standard deviation. Vonnie this is roundabout where we were expecting. In one meeting. To it like arthur burns. We need to recalibrate. For our global audience, that can only mean john ryding of rdb. John, you wrote a blistering note on friday, saying, consensus is wrong. Explain your theory on friday. I think the market underestimates with the fed is likely to do. The fed has caused a Real Communications problem and created what is a catch 22 situation. Influence the market. You get into problems. Financial conditions are easier than they were back in december, closelyfed is monitoring them. How does the fed leads the market, and the central bank set the tone for the markets when the central bank itself is following the market . Every time the fed is expected you get theing, volatility, and the fed says, we cant go. Over communication. You do Cycle Research which goes back decades. Is part of it. Ns do you come to the same conclusion that the Federal Reserve is over communicating . Probably. Shiftis a bit of a regime on communication. It is a tough thing to do because they are data dependent. They tried to say, as you see on the chart, they were very optimistic, as was the consensus that this was going to be a great year. 2016 was going to be a great year. We were going to have all of these rate increases. I think that is actually what we are dealing with here. You start the euros, and people realize, no, we not going anywhere. Slowing down. They have to back off quite a lot. R word at the beginning of the year, that was overdoing it. People got happy again, we are not going into a recession. When the dust settles, we are still slowing. The job report on friday shows here over here johns rate job rates, just above a twoyear in 2015. Ng peaked the same with gdp, sales. Vonnie they were looking at the headline number this time around, apparently. John, let me ask you to respond. In previous years, the first , but thiss been weak year, the First Quarter is akndwiched between two wee quarters. Well, but thegone fed has been talking about this disconnect with gdp. There are two economies. We have been running 200 thousand job gains per month. On the economic expansion, seven years old, we have been running 2 or 2. 25 percent on gdp growth. What is the disconnect . It is productivity growth. We have such low productivity growth. Dietary policy cannot face Monetary Policy cannot change productivity. If you look at the economy through the lens of gdp, things always look slow. Tom bring it up, if you can, john ryding invented the concept of the putting green. I cannot even see the putting green. How far are we from the putting green . Pretty far. Youre not in a real great hike cycle. Tom what do your indicator show right now . You step away from the structural which is productivity growth, and look at the cyclical. We are probably stagflation light. We are still on growth in the slowdown. However, the sick whole indicators have been pricking up perking up. The measures of inflation have come off extremely low levels and started to rise. Chair yellenn says she thinks it will take 23 years to get to her target. It will happen sooner than that. If we go back to the old days, the dual mandate, inflation and growth, we will see a conundrum for the fed. You will see the word global showing up. About you are talking stagflation light. Do get any increases this year at all . In. , it will give them some reason to hike. The growth will not let them do it. Mind you, there has been a lens on real wage growth. If you have some inflation, it will undermine real wage growth. It already has. Lasts been falling since fall. This is why the jobs numbers tom youre squirming. There are two things. Unemployment, which is close to the feds estimates of full employment. And, we are heading towards inflation problems. Thise seven years into recovery and the fed funds rate is at 7. 5 points. I totally agree, but the thing is, you can renormalize, but what will you replace . There will be demand for doing something. There is no growth. The central bank has been under pressure. Tom john, this is absolute critical. On came the guy who said, just do something. John maynard keynes. Are we back to the keynesian moment of 1936 . The fed has been in a keynesian moment for the last seven years. This is a communication problem. Rate, oil prices are moving back up. Tom a lot of other people saying that as well. Later this hour, ancine lacqua from city week in london, she will bring us comments from charles evans. We will do that here in a bit. Bloomberg surveillance. Morning, everyone. Bloomberg surveillance worldwide. We welcome all of you this morning. I am tom keene. Right now, on bloomberg is the . Flash. Mberg business vonnie prices were posted earlier this year from a surge of rental investors trying to beat a tax hike on rental properties. The irs is warning of a real estate bubble in denmark. They have had almost four years of negative Interest Rates. No country has done that longer. Apartment prices in denmark are 2009. Since the ceo of the worlds biggest should remind say that Interest Rates are hurting that industry. They tell bloomberg that the shipping interestrate needs consolidation, shipping Industry Needs consolidation, but that is delayed. That is our bloomberg is this flash business flash. Tom there it is. Our for you. Ed h now, we go to dubai. The old minister out, the new minister in. We are honored to be joined by ad in dubai. How do the neighbors react . Is thatnk what it means the vision 2030 that saudi arabia has announced, which is looking to really turn around the Saudi Arabian economy from an oilbased, Oil Dependent economy, to one that is based on return and investments is well on the way. This is changes in staffing, getting the right people in positions of authority. That will have by far the biggest economy in the region, and will have a radiating impact to other countries. Tom the reporting over the weekend used a lot of the interview that are John Dingells had with the deputy prints. The question is how broke is saudi arabia, and for that matter, abu dhabi or kuwait . They are not broke they still have a lot of money. Saudi arabias reserves are still over 500 billion. It is still one of the largest reserves in the world. The issue was not that they were broke, but they were going to go broke. One of the senior officials told us that if they were going to continue spending the way they day, they would be broke in 10 years. Vonnie we had someone saying this morning but are they, saudi arabia, exit stage left. I think the strategy between opec and the oil market will remain the same. If anything, this reinforces the strategy. It includes the insistence that if there is to be a freeze with all of the world oil producers, iran has to be part of it. Vonnie it is a question of influence, right tackle how much power will he have right . How much power will he have . He will be the oil minister of the Worlds Largest oil exporter. In terms of power, he will be implementing the changes that saudi arabia is under going. I think the power of saudi arabia will go probably beyond the oil market as they will be investing tremendously in nonoil sectors. Tom thank you so much. In dubai, this morning. What did the cycle say about how oil affects your cycles in the American Economy . Is oil a good thing . Sensitive industrial material prices include oil. These are good cyclical indicators, particularly in manufacturing activity. We are in the global world. That is probably the one global cycle there is. People talk about a world is this. The trade, industrial stuff, that is where you see it sink up. Again. Ing up the chart we all know that there is a j , and then oil clicks in with a vengeance. By quick advantaged oil . Pick have gone through to price increase cycles in the midand late 1970s when we learned big moves in oil prices are bad. When Oil Prices Fell by two 1996, there was growth on the low side. Disadvantaged people have to adjust the fastest. When oil prices fall, producers have to cut back, or they lose money. Oil producers have to cut back from other things. That cut back can be overdone. I think oil has been a true supplyside shifts. E have to drop the price investment in oil in the u. S. Has fallen 75 . That has been the adjustment that has started to bring prices up. The Saudi Oil Minister committed to maintaining saudi output. Oil prices are up. Tom we will have to leave it there. We will come back here. We have a lot to talk about. A quick data check as we go to break. Equity markets, futures up five. 56 on american. This is bloomberg surveillance. Good morning. Morning herenasty at bloomberg surveillance. Ets go right to john ryding. Robability distributions a 50 chance of winning once in every 3500of thrones years, so less than to traders, fat tails. Icester were put together at a cost of 57 million pounds. Icester betting on le Going Forward . No. They were ridiculed. Landbring this over to the and the idea of fat tails once every 3500 years. There was an article in the underdogsthat said are romantic, but in the end, you have bet on the winners. We have this no probability distribution. Unlikely events are very small probabilities. Capital was a classic example. Swiss revaluation was another one. People use these risks models and calculate the risk model of recent distributions. All of a sudden, encourages people to take a lot of risk. Tom this is fascinating. With johnme back economics to fed. Ss the a few years ago, we did not get recession, but we got sluggishness. The economic discussion will advance on bloomberg this morning with Deutsche Bank on the interesting u. S. To mastic economy. Futures up six. Bloomberg surveillance. [ soft music ] e. T. Phone home. When you find something you love, you can never get enough of it. Change the way you experience tv with xfinity x1. Shoah, ha ha. Ew artist. Show me top male artist. My whole belieber fan group. Its not a competition, but if it was i won. Xfinity x1 lets you access the greatest library of Billboard Music awards moments, simply by using your voice. The Billboard Music awards, live sunday may 22nd, 8 5 pacific, only on abc. Node qualifications with the 28 e. U. Countries. Of he is the former mayor london, mr. Johnson. Leading the charge. It is a different boris johnson. The news over the weekend, the mayoral shift. This has happened for generations in london. We now shift to our bloomberg first word news with vonnie quinn. New oilsaudi arabias minister is expected to keep the country pumping oil at a record pace. He was appointed over the weekend. The saudis have put priority on defending market share. That has driven some higher cost producers out of the market. Iran has testfired another ballistic missile. Officials say the missile had a range of almost 1300 miles. In march iran sat off set off an International Outcry by testfiring another two missiles. The country says the tests to not violate the Nuclear Agreement with the west. In the philippines, voters are in the middle of a hotly contested president ial election. Roderigo had 11 point lead over rivals. He is the controversial mayor of developed city. Donald trump is questioning the need for Republican Party unity. Shows, theay talk likely gop president ial nominee responded to a lack of support from House Speaker paul ryan and other top republicans. Trump said he has been blindsided but that the party may not need to be unified. Wall street is getting a financial boost from Democratic Front runner hillary clinton. In march she received 53 of the donations from Financial Services executives, up from 33 in january. Many donors shifted their support from republican candidates who dropped out. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus i am vonnieorld, quinn. Tom this is all anybody in economics talked about over the weekend. From the washington post, Catherine Rampell tom this up all the most of the known world and really shows where we have come. Lets go to the arabic right now. John is going to help us out as well. Arguably the equation. This is change, the chocolate sauce of the derivative over here, and what is critical here, john writing, here is the rate of change. And here is the rate of change of this s year. And then we go to the classic Second Derivative of this. Did i do ok, professor . John i think the black scholes. Odel is more dangerous it isial equations like an episode out of fringe science or someone is going to bring down a plane. Tom the concept over to ,eometry over to basic algebra to the dynamics of differential equations. I do not think it looks like arabic, does it . To put theire fears into all kinds of things, and that is what you have here. There is the state of fear, then mistrusts, and it shows up in very funny ways. Otherets bring up three and acclaimed italian economist and we thought we would do that this morning. These are other guys at risk on airplanes. Nouriel roubini, he is not even italian. But Nouriel Roubini has to be on the short list. And on the short list, Carl Riccadonna with a name like that, the Aerospace Engineer out of princeton. Vonnie we were joking earlier about equations on a plane. Equal to snakes on a plane. Woman who this is one says she got scared and there was an effect that just rippled. That is what happens. You are a great series and new york city. How did we get here . Lakshman oh, my gosh. I was thinking about coming in to talk to you today, and the fed and this, and i am reminded of carl sagan. Extraordinary claims require extraordinary evidence. And poor evidence, right . Tie it back to macroeconomy. Here we get scared. We have a big recession. We go to our model, we go to a used to work, and we hope it is going to work. You get a crazy, extraordinary experiment on the economy with all of this negative low and negative risk, the qe, all that stuff. And the assumption was somehow we were going to get back to business as usual. Productivity growth when you look at the low trend growth, it was knowable back in 2008. We saw the trend growth was going down. We understood shortly thereafter why it was going down. Yet we keep doing the same experiment that is not going to work. Tom john, this occurred on the same weekend, the history of london naming a new mayor. Translate for us, working at the bank of england and the fed that hee the moment became mayor of london. John there is the fear of refugees, that london votes for follows the nation of islam. It is a very interesting moment and contrast. We had the shoe bomber. We had the underwear bomber. Now we have the equation bomber. Our irrational fears and people have irrational fears on planes take us to . I think london is arguably in a more rational moment. And thank you for great coverage of this, catherine ll, of the washington post. Vonnie, what do we have . Vonnie freeportmcmoran is selling more of its interests to china. Tom i did research on it when i was 17. It is a metal coming out of the rocky mountains. Vonnie this China Company the larger point here is that freeport is selling more assets and will divest even more. Vonnie quinn, well done. Coming up, Francine Lacqua. Evans ofith charles the Federal Reserve system of chicago. The comments on Federal Reserve policy. This is bloomberg surveillance. Tom good morning, everyone. Bloomberg surveillance from london. Tom keene in new york, Francine Lacqua in london. Francine, tell me about what it is like having a central banker from america lecture the british elite. I have to say, first of all, Charlie Evans, the chicago fed president , was out of sorts because we are at cricket grounds in south london. He was not expecting to know all about cricket. Did offer a little bit of advice, or at least was trying to take it in stride. There are a lot of questions about how you handle Political Risk and a possible donald trump presidency. He remained very classy and elegant. What we managed to ask him about was the strength and growth of the u. S. Economy. He believes that even if it is too soon to raise rates in june, there will be rate rises by the end of the year. Charles after a weak First Quarter, i expect the economy to grow 2. 5 over the remainder of 2016. The National Unemployment rates should edge down further. Charlie evans believing that the u. S. Economy should grow at around 2. 5 for the rest of the year. And that the u. S. Labor market has been quite strong for quite some time. Tom tell me about the trump comments. I guess it is lost in translation. How does the fed official comment on one of our president ial candidates . He was quizzed by a member of the audience, asking what donald and trump has been suggesting, the fact that if you do build a wall, whether mexico pays for it Charlie Evans was extremely elegant. He said he would he said it would not be advisable to do anything like that, that it is too soon to comment. He said president ial candidates may change their mind if they are put into power. Elegantly said. President evans comments, what will be the trigger to get mr. Evans and others to provide action . John what is interesting is that charlie and he was at the atlanta fed conference charlie was the second most dovish in my opinion. On the fed policy, in terms of moving of rates. Dovishbeen consistently in saying the market looks to be underestimating rate increases. Implycomments implicitly there is messaging. It has been a key relative process. The feds communication policy has messed up some messed up so that the market does not believe what the dots at the fed are saying, and now you have one on the dovish spectrum saying likely passingre the fed policy markets. Francine it was interesting charlie showed a slide plots, and was putting off the critics on the dot ots. At the moment, the markets, we are hearing fed Officials Say the markets are not believing it. John but which fed official hasnt given us that guidance . Now they are saying that her comments are the only ones that matter. So janet yellen has to come out now traditionally in may, the chairman of the fed has had a joint Economic Committee i believe it is a testimony occurrence. She needs to go out and say that june is a live possibility. She is the one that matters and she is more dovish now than the guidance from other fed officials. So should janet yellen have to come out and say june is possible. John, do you, think she should come out and say june is possible . After all, june is when we find out about brexit. John brexit comes a week after the june meeting. And then come september, there will be Something Else people worry about. The u. S. , with a 5 unemployment rate, 2 core inflation, and we have rates at a quarter to a half percent. You have two stories earlier about the damage of lower negative Interest Rates and terms of the danish Housing Market and in terms of shifting and in terms of shipping. Tom lets look at the great distortion over here, the dot chart. This is a year ago, the red line near the green line. September, december. The red line comes down and down. John ryding, this is a market ever farther away from mr. Evans and where the rest are. Described it as, we are trying to barter over something, and i say i will sell it to you at 10, you will buy it at two, so i cut my price to eight. Oh, you moved, now i am going down to one. Lakshman what youre seeing play out is the credibility makes Lakshman Achuthan age. Lakshman how many second half rebounds have you heard about that have not shown up . This is it right here. You were saying earlier they are trying to communicate, getting all tripped up on their communications. The problem is they will probably have to talk about it if for no other reason, headline inflation will be headed up, the pc deflator will be headed up toward their target. All thisroblem is, communication, they pointed to the fact that real wage growth is a concern because even though the jobs numbers seem ok, everybody is upset. Why . Because there are americans in the employment population ratio with a High School Degree or more. That is why the fed is saying, look at real wages. If an inflation goes up, real wages get undermined. That is already happening. This is not going to go away. People do not trust the feds credibility. They do not trust the establishment. About thell talk noncall and bring that over to john rydings optimism as well. Francine, so much. On assignment with london with c evans of the chicago fed. Coming up later, a readjustment, a recalibration. Futures up five. Dow futures up 40. This is bloomberg surveillance. Stay with us. Tom breaking news. Became for what you wish for in terms of the exogenous shocks. Haschancellor of austria stepped down. The party chairman. Much more on this throughout the day, but there is somewhat of a surprise that you would see maybe folded into the economic quiet of the recent quarters. A monday,report on not much going on. We are going to make and vanilla. The yen weakens nicely now. 108. 00. And the sterling as well, just a jumble within fx this morning. Debbie west and a jon ferro mr. Farrow jobs the conversation to what do you have . Jon more on australian politics as the chancellor steps down. The longest serving leader in the more on the austrian politics as the chancellor steps down. The longestserving leader in the european union. S far as the markets are concerned, i call it federal confusion. A lot of people do not expect the fed to do anything next month. Big investors do. We will break that down. So jon ferro, thank you much. Francine lacqua on the austrian minister. Francine . Joncine i was going to ask , but i will tell you, i think it is significant because we often talk about the fact that it is difficult to match up all this political uncertainty, and how we deal with the refugee crisis, so this, the austrian chancellor stepping down after a very middle ground governing party, social democrats have lost more and more votes to, frankly, antiimmigration Freedom Party candidates. This is one of the first situations that we have seen in europe leading leaning not only to the right but to antiimmigration. Tom Lakshman Achuthan is with us. He had a call for recession, did not get it. He was widely criticized what he actually he absolutely nailed the vector of the temper of the tempered nominal gdp. There still the sluggish the sluggishness you called for years ago . Worstan 2012 was the nonrecession in u. S. History. Tom it feels like that right now for a lot of americans. If you have a High School Degree or higher, eight out of nine have not seen any recovery out of the recession. If you are less than eyes High School Degree, you had a pretty good recovery, but those are lower paying jobs. That is what they are. This is why there is not a lot of faith in the next plan. So when you see the Central Banks have kind of run their course, the shift is over to the fiscal side. It all over the place, all over the world come and you had krugman speaking with abe not too long ago. They need the fiscal equivalent of war, when they look at the charts. That is what they are looking for. Tom where are we on the helicopter money debate . That was a big debate this weekend. I would look at our view, which is we are going to have 200,000 job creation for several years, which is what we have had. We look at the slow gdp growth story. What does it tell us the number one problem is . Low productivity growth. If someone can show me any argument that says easy money will boost productivity growth, then i will buy into this policy and that will fix our problems. Causeshink easy money people to make those mistakes. Speaking of austrian, the austrian economics view of investment, rates that are too low lead people to make bad investments. Tom francine, jump in here. Francine actually, i tom well, we lost francine within that moat within that remote to london. Quickly, on investment. Beenman everybody has talking about incoming, including the fed, saying that is where we are going to get some drivers for growth, and low and behold, it is not there. ,ould you bring to productivity such as it is, you see a goose egg, where private investment would usually go in. When you look at why would a company today invest gekko utilization is not stretched. They are not making a lot of because the contrary the cyclicals are not doing well. And the confidence is not there. Absolutelyas been phenomenal. Thank you for coming in on a monday morning. Vonnie quinn had the quote of the morning equations on a plane. Vonnie well, it was relevant. Om molybdenum there we are. Coming up, we will continue the discussion. Bloomberg on television, and john ryding on Bloomberg Radio. David new oil chief but same strategy . Saudi arabia expected to produce crude at near record levels. Jon and the most influential Bond Investors say the u. S. Central bank is still on course. Trade data disappoints, and the peoples daily is warning of rising debt. David welcome to bloomberg. Here with jon ferro. Amanda lang is joining us. Welcome, amanda. Amanda it is great to be here. I did not bring my hat. The Kentucky Derby was quite a raise. We have a number of guests coming up. In a rare and exclusive interview, jim coulter will weigh in on how the private equity market is changing. Bank of america, head of global economics, ethan harris, will talk about how fridays jobs