Lets spend a couple of seconds thinking about the beautifully written speech that president obama said it was an historic speech and it really important one. Tom and some controversy on both sides. Did you see the headline come across the bloomberg from Prime Minister abbe . Many Young Americans died in the war. That is an extraordinary headline to see the president and the Prime Minister with the memorial behind them. This is deeply emotional from my childhood. That is not a church. Although it has bordered on a religious moment. Hiroshima hall, arguably one of the great World Heritage site. Just extraordinary to see this moment. I was caught by the president speaking of a terrible force. We know he will meet with for survivors of that 1945 bombing. Get to the bloomberg first word news. Ine of president obama hiroshima. Historydent obama made moments ago in japan, the first sitting president to visit hiroshima. The president placed a wreath at ground zero. He said the bombing shows that mankind had the means to destroy itself. President obama we come to ponder a terrible force unleashed in a not so distant past. Dead. E to mourn the including over 100,000 japanese men, women, and children. Koreans, a dozen americans. It is estimated the atomic bomb killed 140,000 people in hiroshima. President obama and other Global Leaders meeting in japan pledging to take Global Action on sacking Economic Growth. The group wrapped up their summit at a seaside resort. Germany has resisted calls for an expansionary fiscal policy. Frances president is vowing to defend new labor reform against union resistance. He spoke after police in paris battled protesters opposed to the reform. He said unions cannot dictate reform. Workers walked out earlier this week creating a nationwide shortage and gasoline. Global news, 24 hours per day. Tom thank you so much. Prime minister shinzo abe still speaking. He said he respects president obamas courage to visit hiroshima. I want to put this up so there is an understanding for the global audience of the debate in america. This is from the New York Post a conservative newspaper. This is from ambassador bolton, a conservative in the zeitgeist in america. Some of the emotion and debate within america of the president s historic moment at hiroshima. Francine you know, this is something that has been picked up here, as well. The eu has talked about the proliferation of nuclear weapons. This is something that obama wanted to stop. I understand that the president said at the g7 News Conference that he would not apologize. I understand that from the he will note that reciprocate what president obama has done by visiting pearl harbor. Tom every word of the speech was chiseled carefully. Word, march, ae gesture toward the Bataan Death March of years ago. Right now, we will turn back to what we covered equities, bonds, currencies, commodities. This inadjust surveillance this morning on modest pullback from 50 oil. Vix isks is showing showing immense complacency. Brent crude is down. We talk about asia and the economy. To see iron ore blow through. Some confusion between shanghai and singapore iron ore. This is chinese iron ore. A big deal overnight. Dataine tom, this is my breach. Flatarkets are basically because they are waiting for chair yellen to speak. Oil falling toward 49 per barrel. Gold snapping a sevenday losing streak. Japans Consumer Prices dropped for a second time this month. Are comes as they struggling to square inflation with record asset prices and negative Interest Rates. Tim majors is with us. Stephen majors is with us. We will probably have to talk about treasuries first and janet yellen. The markets are not really repricing. There has been some kind of attempt to talk up the possibility of a rate hike. Im going to say i dont believe it. Ultimately, the fed is not going to do anything. If they are, it wont be in june. Francine what does it mean for treasuries . Blue is indirect bidders. The class of investors including foreign Central Banks and there is just appetite for it. Steven once a blue is high, the white is low. Clearly, there is demand for these treasuries. It is coming from perhaps outside of the country, not just at home. Im struggling with the idea that yields can go up very much. Francine right. Because of this demand. It seems that the conventional thought process is that the fed is going to hike. One thing we have learned in the last five or six years is you dont get conventional outcomes when you have plenty of unconventional policy. U. S. Yields are just as much driven by what is happening outside the country in japan and in the eurozone as they are at home. Steven major, congratulations on your call. Is aim noticing right now look at history foreigners. Uying our paper price up, youll down. Leading to an immense credit distortion. Are we repeating history . On this day of the president s visit to hiroshima. We going to repeat 2008 and other times when credit became so easy . Steven that is a quite reasonable point. Or even this month, but we are storing up for down the road. That period that you are describing was the conundrum period. When yields stayed low, credit spreads stay very tight. It is possible for markets to run hot for a year or two and then finally big fundamentals catch up and the valuations move. There is a risk. It is not one for the near term. Maybe for next year we have to worry about it. Risks areng what the at the moment. There is a very benign environments for rates. That is what really worries me. Clearly, the risks of fiscal policy can be loosened. There is helicopter money being openly spoken about. If rates are cut in the eurozone, they might be cut and no one knows how to price short rates with tearing systems tiering systems. It may go flat. It does not have to go steeper with yields going up. Tom does it go steeper by the twoyear yield in short paper coming in at historic low levels . Steven if the twoyear in the u. S. Is priced unchanged, it should yield less than 50. If the fed goes one and done, then the two should be around 60. If the fed hikes with a hawkish bias, maybe they could move above 100. Most people all seem to be betting on the idea that the twoyear is moving to a lower yield. It just is not right to me. It is most likely the fed is going to do one, maybe two hikes and then they will take a long cause. There is even a chance that the fed does nothing. I do not think twos are particularly rich at this level. Francine thank you so much for now. Stays with us. We have plenty more to talk about. We talk about helicopter money. We bring you back to hiroshima. U. S. Forces dropped a devastating nuclear bomb on barack obama becoming the First American leader to set foot on the soil where so many died. A very touching speech. These are live pictures from japan. Tom good morning, everyone. Extraordinary images from hiroshima in japan. The president getting set to leave after laying a wreath at the peace park. We noticed ambassador kennedy, as well. He visited hiroshima about 18 months ago. An extraordinary speech by both leaders. There is ambassador kennedy. To esident will move this is Eastern Standard Time 1 00 p. M. This afternoon to ontorage, alaska, and then to a latenight arrival in washington. We go to london for the Bloomberg Business flash. Shares of Philips Lighting jumped in their trading debut today. They raised 839 million in an ipo of the Worlds Largest general lighting business. They decided to list the company in amsterdam. Axis says the sale of its u. K. Lighting businesses will generate a lot of income. The decision to sell came after a strategic review. Hedge funds and banks are hoping to cash in on the uncertainty of the brexit vote hours before the results are known. The need for information is huge because there will not be an official exit poll and it is unclear how soon early results will show a trend. That is the Bloomberg Business flash. Francine the world of corporate stories that you need to know about. Thank you so much. We talked about cherry yellen, about Monetary Policy. Steven major is still with us. Thank you so much for sticking around. You wrote a great piece which basically said the real elephant in the room helicopter money. Steven yes. Francine would it work . Steven it is called the real elephant in the room because people tend to think the elephant in the room is it or mp, but brexit or tru the real elephant in the room is helicopter money. The nature of markets is trying to take into account all possible outcomes. People are talking about it. Policy are looking at various options. It exists in some ways in the eurozone anyway. When you have lending taking place at a negative rate, that is almost the definition of permanent increases in base money. Francine is there a danger that it is negative rates if it ever happens, you get a check sent through the door, that the markets get spooked because of the side effects and they are reaching the end of Monetary Policy . Steven we are not at all. This is just a continuum. Over the past five or six years, you have had zero rates, forward , negative rates, and helicopter money. Helicopter money and negative rates are completely linked. World, parts of the negative rates are giving you deleveraging. In other parts of the world, it could be parts of the helicopter process. Youve heard me before that i think negative rates get a bad deal. They are not a good policy, but the point is that it is a continuum and the money has not been deployed yet. Teven, ive got to believe or admit that i have no idea what the second or third round effects are of all this economics and finance. What is the price of negative rates . What is the price of something called helicopter money . Steven there are costs. The question will be if the costs outweigh the benefits, you dont do it. That is why it is a process that has to be discussed and analyzed properly. With negative rates, there has been some increase in lending. You look at the periphery in the eurozone and you can actually see it. At the same time, there has been an increase in saving. So, it is a debate. I dont think that weve got much choice. Unless someone comes up with a better idea, Central Banks will keep delivering a policy rate in line with the mediumterm real natural rate and they will look at ways of stimulating aggregate demand. Oficopter money may be one those ideas. I think people are confusing the whole debate by comparing what was said back in 1969 by friedman and even more recently by bernanke. I think the evolution has been one of the things that does not have to be some reprinting of money. Tom steven major with us with a nice historical perspective. Baccalaureate at Harvard University today cherry yellen. Cherry yellen. This is at radcliffe college. Janet yellen speaking at 1 00 p. M. Today. Francine welcome back. Im Francine Lacqua and london. With tom keene in new york. Theshinzo abe the host of g7, trying to get other leaders on board to sign off on his plan. Lets get more on japan. Steven major is with us. When you look at japan, it seems that shinzo abe is trying to find an excuse not to increase the consumption tax he had promised. Steven yes. Japan needs to loosen fiscal policy at the moment, not tighten it. There are several ways this could be done. Ways to not have this tax hike. Another way is to create fiscal space to loosen tax policy. That is where this discussion of helicopter money keeps coming back. If there was a candidate for helicopter money in the world, everyone seems to think it is japan. Japan needs more stimulus. The boj did not do anything in april. Francine what helicopter work in japan . The problem they also have is getting wage growth up. Steven the need to start getting the money to the right places. They can do it by owning enough of the equities and becoming an Important Party in deciding what happens in various companies. Money to then get right cohorts in society, where it will be spent. Just simple tax cuts may not webecause rich people need to get the money to the right place at the right time. Tom lets go to the bloomberg terminal. 1960,e are just back to to president kennedy. En, we all know that do well during the 1950s. I remember when we did not use japanese products. Orthere goal to keep it flat can japan reinstitute Economic Growth . Steven it is a fair question. Maybe the policy is to manage the decline in a graceful, dignified manner. Perhaps they are going to have to try to maintain the status quo. We talk about boosting growth and recovery, but perhaps a be ful outcome will tom thank you for being with us. We have a special treat for you. Joining us next, callum anderson. And a visit with our editor in chief. This is bloomberg surveillance. Okay, ready . Whoa [ explosion ] nothing should get in the way of the things you love. Get americas fastest internet. Only from xfinity. Tom from london and new york, good morning, everyone. Francine lacqua. Im tom keene in new york. The president heading toward the Marine Corps Air station in japan. He will go to anchorage, alaska and then on to washington for an arrival later on tonight area tonight. President obama become the first sitting president to visit the city destroyed by an american atomic bomb. The pleasant president placed a wreath at ground zero in hiroshima, japan. Mr. Obama said he was there to mourn the dead, japanese and american. President obama since that fateful day, we have made choices that give us hope. The United States and japan forged not only an alliance, but a friendship. Minister, prime shinzo abe, praised president obama for what he called his courage and coming to hiroshima. Shinzo abe said he will decide this summer weather to go ahead with an increase of the sales tax. In the past, he said it would be delayed only if there was a major earthquake or a huge corporate collapse. At the g7 meeting, he warned that the Global Economy faced significant risks of global crisis. In iraq, hundreds of civilians have fled the fighting in the city of falluja. Earlier this week, Government Troops launched an offensive to drive Islamic State forces out of the city. Senator john mccain is proposing a way to boost military spending without busting budget caps. He reduce funds he reduced funds given to our actual war fighting. Money spent on fighting wars is not subject to caps. Donald trump says if he is elected president , you will see a lot Less Government involvement in energy regulation. He said he is promising to obama jobdestroying policies. He spoke in north dakota, the heart of the shale oil industry. Global news 24 hours a day, powered by our journalists around the world. Francine thank you so much. Its summitclosed out in japan with a communique saying Major Economies have strengthened. Japanese Prime Minister shinzo abe failed in his bid to have leaders warn of the Global Economic crisis. He did link it to Lehman Brothers and said he would possibly revise his decision on a sales consumption increase. We are joined by Callum Henderson and our very own bloomberg editor in chief. Thank you both for coming on to the program. When you look at the g7, this is a botched affair. They came in saying, we need to create jobs and have Economic Growth and they did not deliver or talk about either. Callum yes. You are talking about the g7 or the g20 i think you can rename both of them the league of nations. That is what we are talking about. We have longterm allies, the u. S. And japan, and you had an effect humiliation of japan by jack lew, the finance minister, when he warned in japan. Then you had Prime Minister abe lecturing obama with regard to okinawa. If these were friends, i would not like to see enemies. Francine which is a fair point, but it is good for them to talk. John it is a low barrier. [laughter] league of nations is a little bit tough. Thing whereays this each of these meetings, somebodys agenda moves into it. I think shinzo abe is looking for some degree of security, some degree of support so he can call off the sales tax increase. I think he will probably have to go ahead with that anyway. It is not entirely ideal. Lets go over here to the photos. Ian bremmer tweeting on a photo. There it is. Very nice. You have the leaders lined up. The outrage in paris is everybody is being chummy, the chancellor, trudeau, the president. Is allng hollande alone. This goes back to the labor unrest and the new populism in france. Leaders dealing worldwide with populist streaks. That is exactly it. We were thinking about captions for that picture. One could be, can anyone find any growth . We do have rising populism in the United States with donald trump, here with jerry corban, and in france, where we have a backdrop which is declining u. S. Leadership, rising spheres of influence, and on a market perspective, rising structural volatility all of this is. Eeding into popular anger what we have seen in france is a manifestation of it. , i believe as part of the british establishment, you have a passing knowledge of the view outside london. What is your sense of the view of the United Kingdom with brexit and the debate on austerity and budgets what is your view on the debate outside the elites on london . John i like this series of small insults. [laughter] john the answer, i think, is outside there is still considerable anger, particularly amongst old people toward the whole brexit question. Today, you have had an attack on the issue of pensions and people getting cross and angry on both sides with the people who want to leave saying, what is the government doing releasing these statistics at the last possible moment . I think there is an element have muche elites more confidence. Against that, there is this continual worry that even if it is a possibility, it is still a very believable possibility that it could happen. That frightens markets, that frightens many things. People are beginning to go through all the possible consequences. Even if it doesnt happen, the idea that it could is terrifying. Tom i know we are going to address this later at great length, but i love what john said about cross and angry. Some oflly describes the International Relations we see right now. Francine right. Once you look at Foreign Policy or politics in general, it is permeating through how you view growth. Everyone is looking inward at the g7. You can see that in politics in europe and in the u. S. We need to create jobs, kickstart growth. John it is very interesting. There are so many elements whereby small rows are taking over the conservatives in britain, the arrival of steve hill, the advice of David Cameron they are cross and angry and conservative mps are talking about what happens to cameron after that. In america, you have paul ryan, donald trump, all that saga going on. There is an element whereby the economies are stalling, getting into trouble, and the politicians are focused on intraparty rows. Tom lets come back with Callum Henderson and john. I want to talk to mr. Henderson about dollar stability, strength, or weakness. In our next hour, without question, the theme of disinflation. Gloom pushing against the of deflation. From london, from new york, bloomberg surveillance. Francine welcome back. This is surveillance. Tom is in new york. We talked about the g7 being tangled. They have not been able to agree on a recipe to restore growth. Banks in saudi arabia are coming under fresh pressure. Callum henderson is with us. So much for sticking around. What is your take on saudi arabia in general . John did a great interview with the deputy crown prince. They cant really stomach this free idea for currencies. Callum thats right. The currency is pegged and is going to stay pegged for the foreseeable future. Their major product is oil and that is in dollars. 2030,time down the road, perhaps they will revisit that. For the time being, no prospect of changing the pay. There are mitchell fiscal strains, economic strains, a budget deficit ballooning out. Francine john, how do we need to look at saudi arabia . Because there is a new man in charge, do we need to start taking that into account . John there might be economic pressure. I think it is interesting that saudi arabia is an amazing experiment. You have this guy who was 30 years old who is coming in, arguing within his family that they have to deal with the world where they are less dependent on oil. He wants to open it up, he wants to change it. It is one of those moments when you look at a country and despite everything we have been talking about, where politicians are not doing something, here in this inherited, not the person you expect to change things is trying to change them dramatically. You might argue that the fact that you cant drive there would argue that he had a way to go. [laughter] tom let me ask you the blunt question. Does he have control of the aristocracy in saudi arabia . John i think yes to the extent that if you are the son of the king, that helps. And yes to the extent that you have a portion of the royal family, including importantly the crown prince the way it works rather confusingly is that you have the king and that you have the crown prince, the one who would inherit from him, in thencase, not his son you have the crown prince, who is the son of the current king. I think he does have considerable support within the royal family. You are bound to have a lot of ple in any family that big not least because they have been living that way for a very long time. Tom Callum Henderson. Bremmer,speak to ian how badly does saudi arabia need the United States and the United Kingdom . Callum we have written on this at length. Of course, the u. S. Saudi relationship has gone through an important transition. Longterm allies, longterm partners. Oilvery fact that shale and have grown to such an extent in the United States have changed that relationship. The u. S. Has also started to refocus on asia instead of the middle east, which is also changed the relationship. It is a question you asked john. Youn excellent question asked john. There will be resistance within saudi arabia to the plan. It hurts a number of vested interests. Not least the conservative religious establishment and other parties within saudi arabia. There is a lot of uncertainty to go through, even if it succeeds. Francine im getting breaking succeed breaking news. The Brazilian Bank that was forced to sell assets last year is exploring the sale of 50 of its sale in the African Joint venture that it has. This is petrobras. This is according to people familiar with the matter that spoke to bloomberg. John how symptomatically is this symptomaticohn, how is this of what brazil needs to go through . Is the center of many of those things. Btg was the great symbol of , as some inside brazil sometimes referred to it. Then it had this huge fall. Now it is trying to sort itself out and, to be fair, it is doing a good job of it. The problem with brazil is that the politicians do not carry on reforms. In the meantime, you have this rising wave of corruption surrounding de la rue seth. Rouseff. Dilma coming up on Bloomberg Radio today, we will speak on oil. It is good to speak from the commanding heights of daniel juergen. We will speak to him of the president s visit to hiroshima. This is bloomberg surveillance. Tom thrilled you were with us on this friday. Francine lacqua in london. Im tom keene in new york. There is a vote in england in june. I think we will talk about that. Francine is there . Tom i believe so. Thanks, tom. It is a big victory for google over oracle. Google won a jury verdict that killed oracles claim to a 9 billion slice of its Android Phone business. Struggling Valeant Pharmaceuticals rejected a takeover bid this spring, according to the wall street journal. An approach was made, but a price was not specified. Valeant pharmaceuticals has been trying to revive itself after drug pricing practices came under scrutiny. Intercontinental project. A 49mile undersea cable. It will deliver faster online and cloud services. It will be completed by fall 2017. Francine i think we have cables across the atlantic. That is how we get to the show, tom. This is time for my morning mustread. We picked out something that crossed the boundaries between the brexit and the eu. We are still back with john nichols weight and Callum Henderson. When you look at the risks of brexit, risks to the Financial Markets is it clear that we need a plan b or should we ignore this . Callum for a long time, the market was ignoring the risks. There was a very similar pattern thinking ofrket was course the people would do the right thing. Then we suddenly woke up and said, we might not. You have seen a huge spike in volatility the last couple weeks. I think the tory party needs a plan b. In berlin, there is a definite feeling that they are looking at little bit what happens if there is a brexit . Is that an opportunity to push through to get reform in europe going . Make no mistake about it. Angola merkel and the people at the top of germany Angela Merkel and the people at the top the u. K. To stay in. That theya few areas could get progress on, though. Tom john, you have a wonderful prism on this. Are the brexit people organized . Do they have a plan . John their basic answer to it there is a brexit is that then there will be two years of negotiation and in those two years of negotiation, it will go very well for britain and we will be a will to stitch up trade deals. We in the sense of britain rather than bloomberg. We will be able to stitch up trade deals with the rest of the world, we wont be left behind, that the europeans will want to let us in. I think what has happened a lot thanks to what is largely dubbed there remainhere, camp, putting out the message that you cant believe in this thing. British voters are rather skeptical about that and understandably so. If you go to paris or berlin, you get the message repeatedly. Why should we be nice to the british if they leave . These people have just left the club we wanted them to stay in and we have to be horrible to them for the simple reason that we would want to stop other people leaving as well. Tom how does a combined eurasia team react to the calculations, pro and con . The mathematics of brexit. To me, it is comical. Is it . [laughter] this righthave said up to many publications. We see a 40 risk of brexit. A 60 chance of remain. Our base case is remain. Risk that material the wrong thing happens. That brexit happens because of that anger and how upset people are, as you commented on. John it is interesting. If you look at the betting shops, which i do occasionally, they are saying 20 and i agree with callum. I think it is higher. Francine how do you model a Trump Presidency . Callum that would certainly cause huge volatility. It would be good news for stocks in terms of fiscal easing. I think would be catastrophic news for the dollar. Tom very good. Gentlemen, thank you so much for this briefing. A historic day. We really ignore the data this morning. There is data moving without question. The lead is oil pulling back. The news of 50 per barrel this week pulled back a little bit. We will take 49. 02. West texas intermediate a little bit higher than brent at the moment. Hour, we will bring you James Sweeney of credit suites suisse. We will get an update on global fears and fears in america. Inflation and disinflation. We ask you to stay with us worldwide. This is bloomberg surveillance. Before a threeday weekend, recalibrate on inflation on deflation this hour. Amazon drops. Will they drop boxes at the door . In ant to give you love love and friendship. And the president of the United States visits hiroshima. Good morning, everyone. This is bloomberg surveillance , a remarkable friday, may 27. Exceptional to see a president and a Prime Minister at hiroshima. Francine a lot have people would have been very a lot of people would have been very emotional during that speech. Lets get straight to the bloomberg first word. Nejra cehic has more. Nejra president obama became the first sitting president to visit hiroshima. The president placed a wreath at ground zero. He said the bombing showed that mankind have the means to destroy itself. Pres. Obama we have come to ponder a terrible force unleashed in the not so distant past. Dead,e to mourn the japanese over 100,000 men, women, and children. , a dozen of koreans americans held prisoner. Nejra it is estimated the atomic bomb killed 140,000. Eople in hiroshima president obama and other Global Leaders meeting in japan pledged to take collective action on Economic Growth. Seven industrialized nations the group wrapped up their summit at a seaside resort. Germany has resisted calls for an expansionary fiscal policy. In tokyo, passengers were evacuated after an engine caught fire on a Korean Airlines jet. The boeing 777 was about to ande for seoul, korea, seven people were injured out of 319. A warning from the British Treasury on leaving the european union. The treasury says a brexit could wipe 440 billion from total assets held by those over 65. That is a combination of inflation, turmoil in Financial Markets, and a drop in asset prices. The referendum on the eu is june 23. France will is vowing to defend labor reforms against new resistance. Union cannot dictate the law where french refineries walked out this week, creating a nationwide shortage of gasoline. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus i am nejraworld, cehic. Tom . Tom a quick data check. Equities, bonds, currencies, commodities, before we get to James Sweeney of Credit Suisse. H schoen to the market a churn to the market. Ore, the commodity challenge in asia. Francine . Francine i think we are seeing parity on brent and wti. Currently it is at 49. You can see goal down. It was gaining earlier on. Are waiting markets to hear what janet yellen has to say. It is 6 15 u. K. Time it is at 6 15 u. K. Time. James sweeney is with us from Credit Suisse, who did quite good work on inflation and disinflation a year ago, 14 months ago. We recalibrate before an american threeday weekend with mr. Sweeney of Credit Suisse. Lets do the u. S. Economy in a bit, and we will go to japan and the g7 meetings. What is the risk of global recession. Am i worried . That weou have to know are in a slump. We have been in a slump for around six quarters. We have had flat growth in global trade and Global Industrial production. That slump relates to chinese growing investment, and sector shock there that has created a lot of asset prices, fx volatility, and credit market risk. Tom you do this so well with your work. Finance to thef economy. Chair yellen will do that today. Is she going to speak to a global audience today at harvard . James of course, the world will be listening. The fed tends to be a little vague when it comes to global conditions. The u. S. , you get great specifics. Tom yes, but chinas credit story is front and center to every story we do. James when we tried to do is carefully what we try to do trade and Global Growth and quantify it. It is getting a little better in the last three months after getting pretty bad at the end of last year and early this year. To thebles really matter fed and the way the market sees things. Francine but fundamentally things have not really changed. I know we will start normalizing. That is what janet yellen highlighted. Risks,look at the nothing fundamentally has changed from when we had that awful turmoil linked to chinese stocks in january, apart from the fact that the pboc put more stimulus out there. James i would emphasize the global slump is not a u. S. Slump, it is a slump in the u. S. Energy sector, mining sector, and railroad sector. They are not big enough to cause a big employment problem in the United States. Theu. S. Conditions are u. S. Conditions do make a hike appropriate, and why july not june . Brexit is a week after june, so why not wait a month . What if briggs it happens . Francine how do you view brexit . I have half saying it is a concern, and the other half saying why do we even talk about it. James professor ted lockes super forecast says there is a one in four chance of brexit. One in four does not mean it will not happen. It means if you flip heads twice in a row, it happens. If you are the fed, the way you hedge that is by waiting a few weeks. Tom we will get to the fed in a minute. I see history repeating itself. There is a demand for paper, price up, yield down. Thank you for putting that up. We are back to yields on a regressive basis back to 1953, 1954. That leads to distortions. What are the global distortions . James starting in the u. S. , you have basically policy rates way below the growth rate of the economy on the front end, so people look for longerterm deals. Tom japan is below the zero bound. What does that mean for the global, real economy . It has huge effects. James i think it is reflecting weakness in the Global Economy and the sluggishness, especially of nominal growth globally. But i think actually the real problem lies in the other direction. Low policy rates are shaping markets, and they are pushing asset prices up, creating future risks. If markets really take ageold in either direction. That is shaping policy behavior, so it is a twoway causality which is the issue. Francine talk to me about the chinese currencys. About the chinese currency. It to georgekened soros attacking the pound. Withs feel different, even china currency devaluation talks , but it is not different. It just feels different because of the market psychology. Deep are is a very very big difference between whether the dollar is rallying a little bit, and maybe there is some modest capital outflow from china, and an environment where the dollar is soaring and people are trying to get their money out of china fast. That is where you will have pressure. Tom should the central banker of the world raise rates to give her wiggle room and to give the signal of financial normalcy to the Global Economy, or is the price too high . James she should raise rates, in my view. Tom i find it fascinating. James sweeney with us from Credit Suisse. Michael mckee will join us in a moment. We will look at oil, clearly the theme this week, without question. Jason gamel will join us from jeffries from london, with an update on the persistency of oil at 50. Coming up, michael mckee. Francine iamb Francine Lacqua in london. Tom keene is in new york. This is bloomberg surveillance. Lets get to the Bloomberg Business flash with nejra cehic. Nejra in brazil, the banks are forced to sell assets. According to people familiar with the matter, btg pass while is exploring the sale of its stake with petrobras. In 2013 bgg paid 1. 5 billion for the stake. Last november, the founder was arrested in a corruption probe. Shares of Philips Lighting jumped in their trading debut today. The dutch Parent Company royal philips raised hundred 39 million in an ipo as the Worlds Largest general lighting business. It will not be cheap for french insurer axa to get rid of its british unit. Its u. K. Life in savings businesses are said to generate a loss of income of almost 460 million. The decision to sell came after a strategic review. That is the Bloomberg Business flash. Tom the entry ecocourses are eco2013 and 2023. Harvard it is at 10. Before we get to your report, michael, janet yellen is joining with greg mankiw . It is about her career. Greg is going to be interviewing her, but they will have to stick around on this friday before the memorial day weekend. What do you have for us today . Michael we have gdp. It is a revision. The numbers were dismal and they will be revised up. There is another number in the report that will disappoint people. At first first look quarter profits. S p 500 has already reported. See the white line s p, the yellow line, all companies. It is you it is worse when you include every company right now. Corporate profit of the Fourth Quarter down 11. 5 . Why does this matter . You get no profits, you get no investment. Take a look at our second chart here or you can see as profits fall, the white line, business spending, the orange line, the red line drops. We saw that in the durable goods report yesterday. No profits, no spending. For the fed and jenny, can growth hold up . For the fed and janet yellen, can the growth hold up . Tom this is critical to the animal spirit of the moment, right . James labor share is rising, profit share is falling. Tom does that mean wages higher . James yes. That is one of the main reasons profits are coming down now. This is a change in the composition of where the incomes in the economy is going toward labor. It reflects a labor market which is tightening up. Energy,reflects the Global Growth complex, so there is a sector shock passing through, but the bigger thing is that we are moving to full employment and you are having to pay more for workers. Francine it is difficult to quantify, but is the fed looking at 50 at world risk and 50 at domestics, or is it skewed at 70 30 . Fed has said Global Growth the Global Growth scare is fading from their lexicon at the moment. They are watching what happened in the u. S. Economy and are set on a course of raising in june or july. It would be what they see that convinces them not to at this point. For that we look to the jobs report. Janet yellen speaks the monday after the jobs report, and we will get our final clue then. Francine what do you make of mr. Good lock and what he was saying, that janet yellen would pricessh unless market process in a rate hike . Michael the fed does not care too much about it. They would like to see the markets leaning in their direction rather than pushing against them because they do not want to have a violent market reaction. A couple of them have said over the last few weeks that we do not care what the markets are doing, we are going to have to do what they have to do and we do have to break this cycle. Chart ong up the investments. The one with the rectangle box in the lower right corner. Michael and james, this is an extraordinary chart, and something that was signaled by not only ken rogoff and others. Mike, this has been chronic, right . Michael it has been chronic for the last year and a half or so. We have seen profit in the s p 500 companies, and now we are seeing a broader one. Business investment has been really slow. The april minutes of the fed show that. Why here . Is the is there no technological process . Is there no Technological Progress . James it is actually much simpler. If you look at last years investment, category by category, it is mining, railroads. Tom James Sweeney, youre saying that michael mckees chart, going to the light going to the right corner, is because of hydrocarbons. James pretty much. This is mostly the global ,ectoral shock passing through hitting a few sectors in the u. S. James, where do you they are ready to height. What is the one thing that will make them not hike this year . Is something that you see as ugly out there . James there is more than one. There is china risk, there is u. S. Datad i think are not necessarily on a smooth have the Unemployment Rate drift up a little bit, certainly that will stop. The most likely thought of the day is that it will be sideways to slightly up on employment, or sideways to slightly down. Tom you are boring. I am kidding. Can we recalibrate . Where are we . The real question is brexit. Fed officials are telling me they are going to be watching the polls. The polls may be unreliable. They are going to watch the widespreadif it is as it is now and it looks like brexit will be defeated, they are likely to tom are the feds going to watch pittsburgh place in the stanley cup . Michael they are limited. If it goes the other way, they will probably all pack up and resign. Tom michael mckee, as picked third as pittsburgh joins san jose for the stanley cup. Today, San Jose Sharks fan. She will speak at Harvard University. She will receive this is very cool the radcliffe metal. Medal. Radcliffe tom we welcome all of you worldwide. Francine lacqua in london, tom keene in new york. Good friday to you. A threeday weekend in the United States. Morrill day. Maybe you will get back from the threeday weekend. Yesterday nipa he joins us right now from the g7 meetings, northeast of midway the generalization between hiroshima and tokyo. How did this play out in the japan media . Within your reporting, what was the reaction of the japanese to the president s visit . The president and his team did a good job of laying the groundwork. They said he was not going to make an apology, so no one was expecting an apology. They also laid the groundwork for the president to make a very emotional speech and call for peace over war. He talked about the human toll history,roughout human not only during world war ii but throughout the history of mankind. I think the japanese so far have been very receptive to that message. Tom my experience is, with the nation ofth the host a g7 meeting, there is always a domestic agenda. You witnessed that first hand from Prime Minister abe, and he had to bring the domestic agenda of a crisis to g7 leaders. Frame for us how that did not work out for Prime Minister abe. Toluse the Prime Minister was willing to go a little bit further than the rest of the World Leaders when it comes to talking about the risks faced by the world economy. He invoked, as you mentioned, the term lehman, which has many people thinking about 20072008, right before the crash. I do not think many leaders, including president obama, see the economy and the world as in that much dire straits. He took himself out of on a limb in trying to get the rest of the World Leaders to say we are in a deep crisis and on the verge of another crash. Francine something that was in the communique, they delivered a warning over maritime tensions in asia. This was in the South China Sea, and it attracted the ire of china. Yes, china was not very happy with what they read in the communique, especially on the South China Sea. This is something that has been a source of tension in this region for a very long time, and the chinese are not happy to see the american president weighing in and saying that what china is doing in the South China Sea in terms of militarization and building up islands is not in the right path, it is not the right action china should be taking. They are not happy to see that. They do not like to see the other world powers gathering together and basically scolding them. Francine thank you so much. Toluse olorunnipa there. Coming up, we talk about oil with jason gammel. We will talk about the parity we rarely see between wti and brent. All that and much more coming up on bloomberg surveillance. Okay, ready . Whoa [ explosion ] nothing should get in the way of the things you love. Get americas fastest internet. Only from xfinity. Tom good friday, everyone. Lets get right to our bloomberg first word news in london with nejra cehic. Nejra president obama has become the first sitting president to visit the city destroyed by an american to atomic bomb by an american atomic bomb. In hiroshima,eath japan. He said he was there to mourn the dead japanese and americans. Pres. Obama since that fateful day, we have made choices that give us hope. The United States and japan forged not only an alliance but a friendship. Nejra japans Prime Minister shinzo abe praised president obama for what he called his courage and coming to hiroshima. Shinzo abe says he will decide the summer weather to go ahead with a planned increase in sales tax. In the past he has said that the tax hike would be delayed only if there was a major earthquake or a huge corporate collapse. At the g7 meeting, it was warns that the Global Economy faces risk of another crisis. Hundreds in iraq have fled the fighting in the city of fallujah. Earlier this week, Government Troops launched an offensive to drive isis out of the city. John mccain would use funds designated for actual war pricing to buy 18 billion worth of fighter planes, ships, and helicopters. Money spent on fighting wars is not subject to caps. Similare included a approach to the Pentagon Spending bill passed. Donald trump says he if he is elected president , you will see a lot Less Government involvement in energy regulation. Trump is promising to rescind t he calls job destroying he will cancel a landmark climate deal reached last year in paris. Trump spoke in north dakota, the heart of the shale oil industry. Good morning. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world, i am nejra cehic. Speaking of the shale gas industry, 50 a barrel starts with the oil industry. The question is what comes next. Jason gammel is an analyst at jefferies and joins us from their london office. Jason, thank you so much for joining us. First of all, we have parity between wti and brent. That is nothing huge, but it is always nice to mention it. What does come next . Do we need to see oil creep up to about 55 when more producers will come online and bring the oil price back down . I think in the near term the biggest impact is going to be the canadian oilsands restarting their operation. They have been 1. 2 Million Barrels, 1. 4 Million Barrels offline the cause of the wildfires there. Francine, i think as prices get over 50, you will start to see shale producers hedge up their future production and put more rates to work. Francine overall, are you surprised by the fact that we seem to have reached more of an equilibrium sooner than expected , or is this just because of supply disruptions so it does not give us an indication on future trends . Jason i believe that the overall trends of growing demand and declining opec supply are more or less playing out as we expected. We expected the balance to be achieved late q3, q4. Canada comes back online relatively quickly, then we can move it back into a brief until of oversupply, but fundamentals are correcting. Tom let me bring up a chart of oil. Ans has this is approximation of oil adjusted for inflation and adjusted for rising global wealth. Up we go, 1986 right here. The first collapse of opec. Down we go again. What is different now, jason . Are we seeing another 1986, or is this collapse of opec cartel powers is it different this time . I believe it is very different. In 1986 opec had Spare Capacity that was equivalent to about 30 of Global Demand for crude oil. We are in a completely opposite situation today, where global Spare Capacity is less than 2 Million Barrels a day, less than 2 of overall Global Demand. I do think that we are we have been transitioning into the market actually setting the price of oil, believe it or not, which is a great thing. It has taken time because we have had to absorb Spare Capacity, but now it is gone. Tom this goes back to the responsiveness over the elasticity of the market. Ith the move up in oil, is enough to dampen the economics of the United States . Is the higher price of oil enough to slow down gdp numbers . James i dont think so. In fact, as i said earlier, investment has been weak because of energy, commodity related investment plunging. In terms of consumption, the big fall in Energy Prices over the last year has been helping. We are not close to that 100 level that we saw. Just a small move higher. We saw so muchll correlation between the price of stocks and oil. Do you think we have broken that . What were stocks looking at for oil . I believe that the correlation was really more related to oil when it was at very low levels. We did bottom out at about 28 a barrel in january. When oil get that low, it begins to speak to the potential for a deflation and weakness in the overall economy. That is when the correlation started to move into place. With oil back at 50, which is still not a great price for producers, but it signals the Global Economy is in better shape. You can see it the coupling between the equity markets and oil prices. Francine should oil prices worry about an economic shock . Jason i think there is the real potential for the market to be significantly undersupplied by the 20182019 time frame. I do believe that the responsiveness of u. S. Drillers will likely prevent the spike into that greater than 100 pricing level, but i do think and we are forecasting that brent could get over 80 a barrel by the time we get into the 20182019 time frame. Tom jason, when i look at our demandr supply and our of oil, some of it folds into natural gas and the global debate about other hydrocarbons. What do you glean from Natural Gas Prices right now . Pricesnatural gas globally are very weak, and i think we have the situation that that is much more severe in the oil market of oversupply. That oversupply i think is going to be a little more persistent. There is not that much substitution between oil and natural gas, so there is not necessarily any reason why the two commodities need to be linked. And i think we can see a fairly healthy recovery in oil prices but still see very moderate prices for natural gas. Muchld say the u. S. Does stronger fundamentally going into this winter than it did last year. Tom thank you for the briefing with jefferies. And James Sweeney of Credit Suisse with us as well. This is a real treat. I cannot get home after i do bloomberg surveillance. The lines at the paris theater are so long for love and friendship, you can barely get home. All of this due to the backing of jeff bezos and amazon. Coming up, on jeff bezos and the movies with stillman. You are engaged to him now. Marriages for one pothole life. Francine this is surveillance. Lets get straight to the Bloomberg Business flash with nejra cehic. Nejra it is a big victory for google over oracle in san francisco, google won a jury. Erdict oracle had contended that google needed a license to run java programming language to develop android. According to the wall street journal, japans take a divot pharmaceuticals made an approach but did not set a firm price. Valeant has been trying to revise itself after its Business Model and drug practices came under scrutiny. Tech companies have an insatiable demand, so they are teaming up over an international project. Microsoft and facebook would cablea 4900 mile stretching from virginia to spain. It would deliver faster Online Services to both companies in spain. That is the Bloomberg Business flash. Tom nestled between the plaza a Movie Theater called the paris is playing love and friendship, and the lines are truly down the block for the new effort. Our guest is in london with Francine Lacqua. More stillman all the time. When you were on the set of love and friendship, many of the themes of your previous efforts, what was different about this movie . In the other films i had to sort of tell the custom designer or the production people what this guy looks like. In this case, everyone told me what things looked like. It was a big relief. Tom within that relief is taking on the Iconic Images of jane austen. Francine has read all of jane austen. Full disclosure, i havent. Taking ont like something as serious as jane austen . Whit in this case it was the comical jane office and the comical jane austen. This was the funniest piece she wrote. Love and friendship, and i think it is her funniest material. koran gelations congratulations on the success. Did you meet with jeff bezos to get amazon to come on board this soiree . No. in fact, amazon came in late on this project. I hoped to come in with them on other films, and i had worked on them i had worked with them on a tv series called the cosmopolitans. In this case, amazon and a new division were at Cannes Film Festival last year. They did a very good deal for jeff bezos. Debuting the film is in theaters today, then goes on to amazons streaming platform. Is this the future . Whit this is different, and amazon is handling it much better than other companies because amazon respects the theater nature of feature films. So this is going out through Roadside Attractions. A wonderful company. Indside attractions puts it cinemas in the United States. England, her son bought it amazon was the key sale for us, and they have been wonderful partners. Francine i am a film buff. I love going to the cinema, i love going to the movies. In the future, am i going to just sit at home and watch on amazon . Whit not at all, and that is the wonderful thing they have done. They have hired a wonderful team. Bob, bernie, and ted hope, and cinemawho respect the owners and chains, and the experience of going to movies. To see this film and the paris cinema or your local film house is a totally different experience because you are with people who are totally enjoying it and laughing. That is the raising thing amazon is doing, respecting cinema distribution in a way other companies have not. Tom you have been on the cutting edge of this before. I go back to the paris theater starting in 1948. I am still recovering from Steven Spielberg saying that the movie lincoln almost did not make it into theaters. You have the courage to make unique independent movies. Where are you going to be in 10 years . Can a Whit Stillman exist in 10 years . Whit i am glad the model keeps refining in a way that we can keep having films in cinemas. There was a catastrophic moment when the home video market died, and now the streaming market is taking up for that. I hope the sequencing of release will be respected, and that is what is great about what Amazon Studios and Roadside Attractions is doing. This is not going to be streaming soon. If you want to see this film, you have to go to a cinema. Tom were you really going to call the movie the real housewives of Home Counties . Whit yes. Tom congratulations on the success of love and friendship, and on the relationship with amazon. Lets go back to James Sweeney with the linkage into the economy. Crude oil is a little bit soft today could coming up, James Sweeney of credit squeeze on the american Global Economy. James sweeney with our single best chart. Tom this is the moment of the day we do the forex report. Euro store will at cable, the sterling dollar and euro sterling. If you really want to see the correlation of the brexit debate, i am going to become 0. 7633 here in the coming weeks. Francine . Looking atf you were brexit, something we talked about in the last hour is what afterparty does falling apart, it is whether they can regroup or not. David joins us now what do you have coming up on bloomberg . David we are coming off an events andek with geopolitics. The ecb meetings are next week. We also have michael one of Michael Cohen of barclays. All that is coming up on bloomberg. Tom James Sweeney put out a Research Paper 14, 15 months ago on deflation and said get over it. Our single best chart today , a littlek against bit, sweeney and Credit Suisse. The idea there of the duration of disinflation and inflation. Tell me about the duration of inflation. James deflation isnt anywhere, it is in a few spots. Tom is a chronic . James i really think it is the euro centricity of the markets a little bit. Sluggish,ad persistently low inflation in europe that looks a little bit japanlike, and people jump into that being the whole world. That is not the rest of the world at all, but it is true in europe. If you go in your country by country, frances economy is tom we are in the News Business and what to get things going here. But is 2 our american disinflation or deflation . Should we be afraid of where our price change is . James no, it is fine. Tom ok. A lot of people do not agree with you. James i know that. Macroeconomic 2 , there are a lot of microeconomic things that are bad for some people, good for others. There is a lot of stress within it, but that does not mean we have price level instability. Francine if you are comparing europe to japan and tom the u. S. Issks if japanlike, if we have the medicine not to be stuck in that rut for two days what is a prescription for Central Banks needed in europe . James in europe we have seen credit growth, starting to pick up recently. We have seen bank willingness to lend pick up. The equity market has not done so bad the last couple of years. The euro is weaker, but inflation is still pretty low. If i am looking at it, we see an Unemployment Rate falling steadily, and this should be consistent with rising inflation over time. I think the policy measures are mostly right. A little more fiscal policy could probably help that along. Francine we discussed this quite often. U. S. If the world or if the becomes japan, it is not great. They hardly see any gdp growth, their population is getting old and they cannot sustain pensions. But it is not a huge it is not a recessionary environment. Nature is tothat clear the balance sheet, whether it is european banking wish i will not ask you about because of Credit Suisse but in general we have an opportunity with our sluggish Getting Better moment to clear some Balance Sheets. Are you optimistic we can do that . James yeah. We are talking about europe now or tom europe, fannie mae, freddie mac, we have the opportunities to put these things behind them to put these things behind us. Corporate Balance Sheets are getting a little worse because Interest Rates are really low. You borrowed, levered up, and and you have incentives to buy stocks. In europe it looks very different. Bank deleveraging has been a major driver of the disinflation time,rends of europe over so a little more work to do there. Francine we have been dancing around it. Are you more optimistic or pessimistic than you were six months ago . I am more optimistic than i was six months ago. Francine why . James we have been in a global slump for six quarters and we had a nasty spell late last year, early this year as Commodity Prices plunged. Globallyll has not collapsed, and we are passing the shot through the world. It will be over within a year. Tom what are we ring fencing right now . James we are ring fencing the commodity price declines, the , exchangeinvestment rates, and credit markets. Tom is Foreign Exchange the only way to clear the commodity collapse . James australia has not had a recession since 1991, and it is a miningcentric economy close to china. Tom James Sweeney with us. He will continue on Bloomberg Radio with us. Really looking forward to this as well. We have a long weekend. Francine lacqua, you are taking off all of june, right . Francine yes, i am going to fuelshortage france. I will be stranded. Tom we are going to continue. James sweeney again with us on bloomberg surveillance. Bloomberg up next with david westin and company. Chair yellen will be in conversation with greg mankiw. We need a special thanks to all of our japan coverage team. Janet yellen later today, 1 00 p. M. , bloomberg markets. Good morning. Jonathan the fed chair speaks today as a dovish turn waits for yellen. Brexit risk. Vonnie the potential for a Global Economic crisis as Consumer Prices at home drop for a second month. Jonathan to our viewers worldwide, a warm welcome. Im Jonathan Ferro alongside david westin and vonnie quinn. David it is been quite a week that we are wrapping up. We had the g7 that just concluded over in japan and Oil Getting Back up to 50 a barrel. Jonathan and janet yellen coming up as well. It might not be the big one, because she might not comment on Monetary Policy. Vonnie shes accepting an award , but we may have to wait until the next week or two. The