>> disney expecting record times, have cap the visitors can stay to four hours. it opens to the public on friday. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you. as global markets react to trade says he, ray dalio views the u.s.-china conflict is more than a trade war. he calls it an ideological conflict. stanley, james gorman, exclusive interview in beijing. of the world's gdp is tied up in these countries. to have a major trade war would be bad for both. everyone understands that, i think. i hope they do. american and chinese ceos understand it. there is a resetting of this relationship, which makes sense, after 30 years of incredible economic growth in china, there needs a resetting. there are things on the trade side that are being addressed. do i think this will devolve? no. there is too much self-interest in keeping this thing on the rails. the question is, if it doesn't happen by the g20, late june, i am not sure about exact timing of when we need some form of resolution but clearly negotiators need to come to the table and figure this out. that will take decades to get done. we need to get the train on the tracks. >> what are the global economic implications if we get a full-blown trade war? frankly, a lot of that is priced in. now, the 10-year is right the s&p has been moving, unfortunately it is not in isolation. we have brexit in the background. there are other things in the u.s. political environment. i cannot predict exactly what would happen. the two largest economies in the world do not serve themselves well by engaging in a full-blown trade war. there needs to be more adjustment and transparency we need to get things back on the tracks. consumer sentiment has held up in the u.s. until now. >> it is interesting. fragile.t psyche is the market itself on core fundamentals is fine. 3.5% unemployment. who thought this was possible a decade ago? there's plenty of liquidity in the market. the issue is the market psyche. there is more downside risk than upside. more people think the market is heading down, potentially going to recession, which inverted yield curve word suggest -- would suggest. that is why you're seeing at any point in time, when macro stories hit the news, whether it is prime minister may announcing her resignation, shock election results in australia -- around the world, you are seeing things that are triggering market reactions and it is more negative news than positive news that is driving it. >> how concerned are you when you look at three months, 10 year? >> it is the leading indicator of safety in the last 50 years. i saw former chair yellen last night say, that could mean that or it could mean that it is time for the fed to cut rates. that surprised me. is beinghe fed decidedly neutral at the moment. i personally feel that is the prudent thing to do, to cut rates ahead of hard evidence the recession is coming, is to use firepower, and they don't have a lot of firepower. francine: that was james gorman speaking exclusively to bloomberg. john, head of global multi-asset strategy, is there anything we are not blaming on the trade war? >> that sometimes feels like that, doesn't it. it is worth looking at, in terms of it being an important feature in how capital expenditure and trade flows are actually going. way in which the the economy has developed over the past year, consumer in the u.s. is doing well. better begun to see signs of improvement in the housing market which makes up 70% of u.s. gdp. that looks fine. capex and trade are these low points. more in the stock market. francine: can you have a recession in the u.s. and have a strong consumer? john: realistically, no. typically recessions begin when you have imbalances, when consumers bring in spending patterns, when the job market begins to falter. the underlying strength of the u.s. economy is resilient at the moment. this may be what is allowing certain factions within u.s. to press harder within the trade war. the economy in the u.s. looks reasonably stable. francine: what does a trade war mean for your portfolio investment? a great piece written by one of our opinion columnists says, it does not change the outcome of the economy. and maybe accelerates it. they may be brought to the front by 24 months. john: you can argue that. look what happened with the fed. francine: you don't agree? john: what is important to remember is the way the trade war can effectively work is it can dampen sentiment. that is where you get the feedback loop. it can accelerate responses. reaction toe market the impact of trade on global to pivotd the fed dovish late. there is an argument for that. certainly, could it bring forward responses and accelerate, perhaps. 70% plus of the economy is doing well. where the difference comes out is, the stock market is not u.s. gdp. companies are much more geared to the industrial cycle, global trade, then the u.s. economy is. that is why we see the dichotomy between benign economic figures for domestic u.s. versus a more asset market set up globally. francine: john bilton, thank you, you stay with us. the credit bears have arrived. pimco soundes at the alarm on the corporate debt market. that interview, next. this is bloomberg. ♪ francine: economics, finance, politics, this is "bloomberg surveillance," i'm francine lacqua in london. a crucial moment for the global telecoms industry, the global rollout of 5g. will cost huawei companies billions more and lead to lengthy delays. the u.k. begins the technology nationwide today. anne-marie is here. >> it is a new era. it could be 100 times faster than current standard, with speeds that reach 10 gigabits per second. 30 to 300king gigahertz range, super data. higher frequencies means less range. you need more coverage, more antennas. upe data means a big step for the internet of things. downloadingies, full high definition feature films in seconds. ns more money. then there is the huawei factor. president trump's crackdown could mean removing the equipment altogether. ee and vodafone have already dropped while way. -- huawei. eileen, welcome to the program. amory was going through the coverage, more speed. , can we build it without huawei in europe? eileen: it is really expensive. that is the point. people using the equipment without a political issue, on the existing 3g and 4g networks, so yes you could use alternative vendors. you're probably going to have to rip out equipment. that will cost you. francine: it is different in the u.s.? up.en: it is the same set you will be investing more in competitors equipment because huawei has traditionally been cheaper, and they were researching earlier than their competitors. francine: we are having it rolled out in certain parts of the u.k. today, minimally. a couple stations and london, here and there. ee has launched six cities today and another 12 within the next 18 months. full coverage is not promised until 2023, in terms of really using the full potential. francine: do you look at tech stocks? john: we look at tech sector, it is such an important driver in china and u.s. as a bonde look at a proxy. when we look at china and the u.s., stocks accrue in the tech sector and what it is doing for the u.s. is making the tech sector a higher beat to the market. is leading to 500 the u.s. to be more cyclical and less defensive. francine: to governments understand -- do governments understand what is in these networks? eileen: i hope they do. i am not sure they do. trump has signaled he might include the huawei situation with the trade package, suggests this is more about politics and less about bona fide security issues. it feels quite political. it is not a tech lead conversation. it has clearly got other nuances. francine: the political spat, we talk about trade war's -- is it actually a tech war? who leads technology? the way we run our lives for the next three decades? john: this is part of the issue. at the moment, there are clear elements of the trade war you can point to. what is the subtext? ultimately, there are elements of the strategic outlook in both countries which are less comfortable with the idea that we are moving to an economically and technologically different part of the world, where china and the u.s. both have influence. there is strategic subtext that we cannot ignore which suggests even if we move toward a deal, that may not be completely comprehensive. it may tackle some elements but leave certain elements still to be decided. reality is, this trade dispute is perhaps the tip of the iceberg to a broader strategic positioning that will be happening with china and u.s. over a three to five year basis. francine: thank you both so much. brexit,p, the latest on as the conservative party ship, we speak with james cleverly. coming up, we talk facebook and tech giants. this is bloomberg. ♪ blasted: nancy pelosi facebook for refusing to take down a doctor video of her. she says the company acts as enablers of interference. facebook are pushing to take an active role in combating information and protecting privacy. eileen and john, it is always the same questions. regulation. do we break these companies up? eileen: i don't think they catch a break. that is probably warranted. they are in the bullseye. that is the right thing. they are serving as a proxy for the tech sector, observing the potential people tech issues. this point with nancy pelosi. the video is also on youtube. fox news has been well-known for broadcasting doctored videos. facebook is absorbing the heat. outlets andltiple channels proliferating events and news that are not necessarily true. facebook will take the brunt. they are the biggest. francine: from who? the new commission in europe? the u.s.? i think all the regulators are taking a look. european regulators have always been proactive. there, they are leading from the front, which is great. the u.s., the federal trade commission is looking into it. facebook has accepted a charge of potentially $3 billion it might have to forgo in terms of a penalty. all of the above. francine: does it unlock value if they get broken up? john: if i think about tech sector generally, the big thing the regulation risk tech sector as a whole, has not gone away. it is one of the least regulated sectors of the major industry groups. we need to be careful as we look globally. u.s. are capturing headlines but we cannot stop watching the tech sector, probably over time facing more regulation, with more regulation comes more cost. there are those that feel that the incumbents will bear it. it also raises the areas to competition. long-haul, that could be supported for the tech sector as we know it, but certainly a sizable change in how it does business. francine: thank you for joining us. john and eileen. brexit.p, politics and this is bloomberg. ♪ more than a trade war. ray dalio sees a risky time ahead in the u.s.-china spat. morgan stanley sees a correction in stocks, but not a collapse. 2% trade tensions expert talk a lower yields after warning shots from economist and the yield curve. we hear from pimco. and searching for signal. 5g comes to london as the u.k. prepares to roll up the next generation data service. and the van on that equipment -- clement sets a a dangerous precedent. i'm francine lacqua in london. let's get straight to stock movers. these are ones that we discussed yesterday. i wanted to kick off with axel springer. that stock is skyrocketing today. this is a company that has been under pressure since the u.k. decided to not make their passports with them. they are also signaling weaker operating profit. the third one i want to discuss today is first group. they finally separated the two companies, francine. special counsel robert mueller has broken his almost two-year valid silence making his first public statement since his probe of president trump began. you cannot reach a conclusion of trump obstructed justice but stop short of a full exoneration of the president. >> and after that investigation, if we had had confidence that the president clearly did not commit a crime, we would have said so. we did not make a determination as to whether the president did commit a crime. let's go to derek who ran the news team and covered washington for more than a decade. what were the highlights of mr. mueller's statement? >> i think the highlights were that mueller got on camera. everybody has been wanting to hear from him especially since .his report came out democrats wanted him to say more and get into the ideas of why donald trump wasn't charged with some amount of obstruction. republicans keep looking for the words "no collusion." neither side was happy with what they got. mueller went out there and tried to reinforce his written report. there is a thing in the u.s. where if you put something out in writing, that is fine. i don't know how many people read it. he has gone out and said what he said. maybe that changes a couple of minds. -- sayly didn't see much much beyond his report. does it change anything? what could happen next? >> no. it definitely doesn't change anything. because the math. couldestion on what it change, does the house go forward with impeachment proceedings? makerats really have to that decision and their leadership really doesn't want to do that even though some presidential candidates do. in the senate, will they go for impeachment? they are not. the math on that doesn't really change on that. think one member of congress thinks there needs to be impeachment. does this continue to unsettle the u.s. political environment? it absolutely does. francine: thank you very much, derek wall bank. let's get straight to -- derek wallbank. let's get straight to first word news with viviana hurtado. viviana: the trade conflict will continue according to ray dalio. he rest the u.s. blacklist of huawei amounts to weaponizing export control. china may not sell rare metals to american companies. plenty for investors to feeling just about at the moment according to ceos. markets are fragile because of a worry about the trade dispute. isworries an inversion concerning. >> it is concerning. look at what germany did. it shows how anxious the markets are. there is more news to be anxious about then there is to be positive about. israeli prime minister benjamin netanyahu fail to form a government and opted to call new elections. it throws the trump administration's peace plan into question. he could not couple together a coalition government. it is the first time in israel history thisael's is happened. dilute thesal would french state control over read all -- renault. in tokyo, theg alliance released a statement saying that they had open and transparent discussion about the merger. and star wars: galaxies edge is the largest addition to the park that opened in 1955. the company is expecting brexit -- they are crowds and capped the time that people can stay for four hours. global news 24 hours a day on-air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. francine, back to you. francine: let's talk corporate debt. credit market risk is at an all-time high. chiefthe view of the investor at pimco. it manages $1.7 trillion in assets. they spoke to jonathan ferro after the company released a forecast for the asset class. cracks by far the area of most concern for us at pimco is the credit markets. >> we have the riskiest credit market that we've ever had. >> we will have a recession in the next three to five years. >> the last five to 10 years, we had massive outperformance of assets over the real economy and we think that era is coming to an end. we now entering an age of disruption. -- we are now entering an age of disruption. francine: it is crazy when you look at what the credit space is doing, what treasuries are doing, and what the german two-year is doing. what does it mean for the state of the economy and for asset classes? >> a fully there was a one line answer. if we look at what is driving treasury markets first, that probably gives us a bit of a clue as to what is going on in credit. ultimately, there is repricing and growth expectations. on the factng in that jackson hole could change the way that we think about inflation. we could take a more proactive approach. it also reflects supply and demand. global yields are quite well correlated. we have just come through two months in europe where the next supply, once you take into account coupons and redemptions, is a negative. there are lots of things growing on -- going on. at the underlying economy in the u.s., the baseline is going ok. not spectacular. it is looking trend-like. what does that mean for treasuries? israel --25 and 2.70 it would not reflect the strength of the u.s. economy. there is certainly a risk. if we could get a further scare around global growth, particularly those hedging mortgage books. but the reality is the fed value range, it is being pretty resolutely on hold. we think we are towards the bottom end of that fair value range right now. what does that mean for credit? we don't see a recession in the next 12 months. and we have a very easy fed. under those circumstances, while there are some cracks showing as your interviewees have alluded to, the absence of a recession with relative daily -- relatively easy monetary policy, it is a class that you have to be mindful of what you are dealing with. love asking smart guests this question because we put it in our market blog. all of our people are watching and coming on the program. and what will kill the 2019 ? obal bond rally wax all else equal, it is a for the commitment from the u.s. and china that it will continue to work towards a meaningful deal. it is a pivot around the g20 for more constructive language. at the moment, what we have seen from both sides have scored points back at home but it has shaken up the global economy and made it worried about how much should it pay for forward growth? even though forward growth has not changed that much. i think that we can push that risk a little bit more. and in a month like june where the next supply in europe against the swing the other way, we could begin to see some modest upside in yields. i stress modest. francine: our guest stays with us. stay with surveillance. we speak to the latest candidate to enter the race for the uk's top job. is next.view and the biggest ever expansion of disney's original theme park in california. we will bring you a look at the billion-dollar project. this is bloomberg. ♪ is bloombergs surveillance. i'm francine lacqua in london. let's bring you the most read stories on the bloomberg terminal. radel you warns of a risky time ahead in the u.s. china trade war. a roadmap to to present treasuries. story, third most read morgan stanley and chief gorman.e james theresa may announced her departure as a leader of the conservative party and prime minister of the u.k.. my next guest is the latest -- to us, you just put your hat in the race. how would you deal with it echo -- with it? >> until brexit is resolved, it will top the many important things we need to talk about. made in thent we general election, that can only be done with goodwill between the u.k. government, the irish government, and the eu. ideally, we leave with a deal, but we've got to leave. renegotiating with a new commission. what happens if they say no? published onorce the 11th of march. that is the sticking point. that is where we've got to focus our attention and that is where the answer lies. if we can get that resolved in quick order or if we can have a path to resolution, i think we can get this deal to the house. -- through the house. if we can't get out without a deal, we have got to leave anyway. even though that is not my desired outcome. on october 31 or are you prepared to extend? >> extension breeds indecision. i have talked to business people all the time and the uncertainty is killing them. we have got to be decisive and we've got to make sure that we .eliver on the promise >> but you leave parliament behind you. >> parliament has rejected every single option. we leave with a deal, we leave without a deal, and we don't options.ose are the and parliament at some point has rejected each of those options. francine: would you be in favor of a second referendum? >> all you're doing is adding more time, more uncertainty. , the political risk as well as the economic risk of not leaving is pretty substantial. we need to be aware of that. is difficult to understand what parliament would get behind. change tome kind of understand better what they want? >> it does not look like a general election would produce a result in a more inclusive than the one we have at the moment. it is entirely feasible it would be an even more fragmented parliament. we need to stop kicking the can down the road. we need to be honest, decisive, and we need to stimulate growth in the economy. but isn't brexit the impossible task? there are three options but there are 25 ways of getting to those options. >> and those roots are a distraction. there is always some excuse for not confronting the difficult decision. ultimately, u.k. politics will have to either leave with a deal, leave with no deal, or not leave. francine: were you shocked how badly the conservatives did? >> we knew it was coming. it was painful nonetheless. until we deliver brexit, it will be impossible for us to have a proper conversation about the other things that matter to lives,like jobs, their school for their children. that's what we need to get back to. francine: will you be one of the final two to get forward? >> if i do not think i could be, i would not have put myself forward. francine: can you take on boris johnson? minister was not being selected for the party. and i want the opportunity to prove that to the party and the country. francine: how much experience do you have for that job? >> i have plenty of experience. trend goingat the around the world, people are rejecting the same faces in the same arguments. they are bracing for something new. we want to have a credible chance of winning an election and governing the country. we need to look different, sound different, and offer something new. years. they will fall if you don't get the top job, would you serve under prime minister boris johnson? >> i'm not going to speculate about not being successful. iam in this because i think have the ability to build a team, make tough decisions, and communicate those decisions. that's when i bring and that is what i am fighting to keep. francine: what happens in the next 10 days? it's not a campaign bus. >> not a campaign bus. it is talking to you in your viewers. i anddemonstrating that the people around me have a plan for the u.k. and it is talking to him peace. the first electorate are my conservative colleagues in parliament. the next election is the wider party. broadest election will be from the british people and we have to have a credible message to take to the country when that election comes. francine: think you for coming on and i hope to see you again. the former deputy chairman of the conservative party and now in the leadership campaign to be the next prime minister. and john from jpmorgan asset management stays with us. it is the biggest ever expansion of disease original theme park in california. we will bring you a close look at the hotly anticipated billion-dollar project. this is bloomberg. ♪ francine: this is bloomberg surveillance. we were speaking with one of the contenders to replace theresa may as prime minister. the concern is that we don't really know it to do with u.k. assets. we do not sterling is volatile. the three outcomes is we either leave the u.k. with no deal, we leave with a deal, or there is no brexit. >> it certainly feels as if that is a reasonable sort of set up. this before it has gone on. seeing is the full workings of the u.k. constitution put under the microscope. back to the euro zone crisis, 2010 to 2012. one of the things that batted markets around a great deal was the lurching back and forward in the public debate. and i think that is something that markets find very difficult to deal with. sterling at the moment is bearing the brunt of it. we think it is probably discounting to outcomes. one where we either get no brexit or a significant delay. the other that are certainly rising. or we can get no deal. how much has it risen by? there is a very wide range of outcomes, but i think it is fair widespread the results we have seen from the european elections, it is difficult to deny that there has been an uplift in the two risks. some have no brexit or sort of extended delay, there is a trade similarly with a good deal. pricingink sterling's an uncertain outcome right down the middle. francine: think you so much, john. bloomberg surveillance continues in the next hour. we will be talking to the chief executive of switzerland. this is bloomberg. ♪ the latest innovation from xfinity isn't just a store. it's a save more with a new kind of wireless network store. it's a look what your wifi can do now store. a get your questions answered by awesome experts store. it's a now there's one store that connects your life like never before store. the xfinity store is here. and it's simple, easy, awesome. francine: more than a trade war, ray dalio sees a risky time ahead in the u.s.-china spat. tumblingstanley sees stocks but not a collapse. warning shouts from an economist and the inverted yield curve. london as theo u.k. prepare's to roll out the next generation data service. banning their equipment a dangerous precedent. good morning, everyone. good afternoon if you're watching from asia. we will spend a lot of time looking at bonds. i know we have been looking at the credit market quite extensively. james gorman talked about the german two-year. but also the eu talks are struggling to gain momentum. it is kind of an underreported story. with that,ngly agree folks. this came up over the last 12 hours. all of a sudden china-u.s. and all that is going on in the market. i thought mr. gorman was really informative yesterday. what about the major transatlantic linkage and how fragile it is right now. put it simply, the u.s.-eu trade talks struggled. is that the next frontier for a trade war? will delve deeper on that. here is sebastian. >> the trade war the u.s. and china is escalating. is putting exports of american soybeans on hold. the have been no orders to continue with the so-called goodwill by. china is the world's biggest buyer of soybeans. trade talks to the u.s. and europe have stumbled. it has been 10 months since president trump and jean-claude juncker struck a truce clearing the way for negotiations. talks have done little more than avoid auto tariffs. it is likely to complicate negotiations. ceo does noty's see a collapse in coming. he says the market has more downside than upside. the fundamentals are solid and any recession would likely be challenged in court. the justice department has a new demand. officials when the two companies to lay the groundwork for their own network. are beingnd sprint looked at for the deal. global news 24 hours a day on-air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine and tom? and a quieter market and what we have seen the last three days. so where we are is shocking, but nevertheless, we have an equity bounce. the euro turning with some dollar strength over the last 48 hours. next screen. from the 18, almost 19 levels. we saw 24,000 yesterday on the dow. closing above that yesterday. that is a most 500 points down. -- almost 500 points down. that is stability. are you throwing your hat into be prime minister, francine? francine: not yet. but we do have 11 people in the running. and we spoke with the latest contender. i think investors are struggling to figure out the latest developments in this global growth outlook. i would point that treasury yields are studying and the pound kind of still moving sideways. yesterday was an extraordinary day. , goingonths of planning to newport beach to speak to the executives and the strategists at pimco. the overlay on top of that and exceptional bond market and it made for most interesting television and radio. here is jonathan ferro and dan i onten -- dan iveson corporate credit. >> by far the area of most concern for us is the credit markets. specifically relating to corporate credit risk. >> we have the risk is credit market that we've ever had. credit markett that we've ever had. we look at the quality aspects of it. we think credit spreads are pretty tight. particularly given a recession in the last three to five years. and whether it happens in six months or two years, that's very .ard >> over the real economy, we think that era is coming to an end. an extraordinary set of conversations out of newport beach, california. it later in the morning, the leader at morgan stanley really pushing against this theory. here is james gorman. >> definitely not systemic. i understand what systemic risk is. the epsilonorman on of the equation. it is a great theme we have heard about from any number of people, that they don't see the instability from the short-term paper market. mentionede schneider is out of singapore. they are quite good at synthesizing markets. ink, if you were to publish the evening in singapore, will do right about this bond market? -- >> overall, the market is stressed. there is probably a chance for a pullback in bonds. i don't think that they are misaligned. the u.s. economy is set to slow down significantly in the months ahead. we have not yet factored in that the trade war situation has deteriorated massively. the u.s. economic forecast has not changed. it has shifted incredibly. for the first time in eight years, i have become structurally bearish. i think yields are not going to bounce a long way. it is important that investors don't get concerned. the short-term yields will probably go too far too quickly and are going to affect short-term banks. francine: what we need to happen to have a 10 year yield that 2%? >> we don't have any inflation so's not like yields have to the top side. why would the yields go even lower? if we are going to be heading towards a u.s. recession, we might need the said to jesus -- the fed to do something extraordinary. since october of 2008, it is quite dramatic time to remember. downturn insudden markets and the economy, which we should do given that we have thatl on trade war accounts for 20% of global output. during the downturn coming later this year, we need to cut super aggressively. it is already priced in. that means that yields will probably be much lower over the next year or so. but this is not a theme that we need to trade in the next 48 hours. francine: think he so much as always for the insight. , chief us, simon derek currency strategist. and head of european investment office. think you look for joining us. , it yield for the 10 year is like the ghost of christmas past. what are the chances of that happening? >> i think they are scared about the trade war. i think it's as simple as that. we can talk about the chances for recession. this rally has been driven by fear. it has been driven by fear of what the trade war potentially means. do you think there will be an easy outcome in the clash between the u.s. and china? weeding some of the backdrop about the negotiations that have taken place. have you changed your allocation in anyway gekko -- in any way? >> we have made a couple of changes. clearly, the asset class would be directly affected by the escalation of the trade war. this currency is very closely linked to what happens in china. the change we made was to go alongside market currencies with high-yield. rupiah, indonesian youe market currencies give that yield with a lot of uncertainty. tom: what is your call on dollar direction? >> we have had a low volatility market for months, driven by the fact that geo differentials work at their lowest levels lever. -- lowest levels ever. we tried to find some kind of yields that lead to volatility. summit, you can see it happen anyway. and you have the story building. i think the dollar can start to move here. i think people can be surprised by the pace at which it can move. i think people are not positioned for a radical shift in valuations. francine: is the dollar too high? >> not at all. let's go back. but the way markets are reacting. each reacting the way they did. what currency would you want to own going to summer of 2008? the dollar. i don't believe the dollar is overvalued at all. francine: maybe the deutsche mark. that's another story. you.uests, thank a stay with us. coming up, making huge gains and lending a trading debut in the next hour. we'll talk to chief executive brian duffy in the next hour. this is bloomberg. ♪ surveillance from studios in new york and london, summarizing where we are after the image we have seen the last number of days. ,all price up and yield down moving in the equity markets. and francine, crossing all that is a really nice compendium of conversations at bloomberg that really talked about the differential between full faith and credit and the corporate credit markets. let's go to a good conversation with our guest now. you.e speak to it you really have to handle the corporate credit market. do you agree that we can have a very serious differential where the yields come out on the corporate credit market and the spreads wide not like they did six months or seven months ago? i think that depends on how much the economy slows down. and going back to the previous discussion of potential recession. that is when you are really worried about more corporate defaults. if i look at that the economic activity, it is still a pretty decent level. it is a pretty decent level. now obviously, the dispute between the u.s. and china escalates significantly, and there is no scope for a quick resolution, they can really hurt the u.s. economy. and that is when we start seeing the defaults rising. much does this is how the trade dispute escalate? and the length of think is important. there's downside for both leaders of china in the u.s. and allowing this dispute to carry on for a very long time. i'm not sure president trump would want to go into an election with the u.s. recession -- with the u.s. economy going into recession. whatine: let's talk about ray dalio is saying. at the u.s. and china tit-for-tat is a serious ideological conflict. morgan stanley's chief executive told bloomberg exclusively that it is time for discussions to get back on track. devolvethink this will into a full trade war? i don't. there's too much self-interest keeping this thing on the rails. we need to take a bet on how the president measures success. if you wants to find a deal, you say that this is going to peter down and they will find a way. think he'll be reelected if he is at war with china, then the markets need to watch out. >> i take the slightly more pessimistic light. all of this discussion, we're not really fully factoring in china's role in all of this. it was a fascinating story yesterday. the discussions that were taking place during the trade story between mr. mnuchin and mr. lighthizer. he said the china felt the u.s. had gone way too far. ont it is designed to push that currency competitiveness side. all those things were a step too far. and the messaging since then has been very robust. clear sign that china will not be stepped on anytime soon. they don't like to be seen relenting. to expect an early resolution to , i think was we get closer to the presidential election, it might shift. right now, both sides are playing hardball and keeping to those battle lines. let me bring you to one of the morning must-read. our columnist writes that the trade war needs to fire the pr team. he goes on to say that someone vaguely related to the terrace -- terrace -- to the tariff spat concerns related to chinese president xi jinping, it alters timing and not outcomes. are we putting too much on the trade war? changes, but also thinking about the recession, does it change the economy fundamentally? will have a trade war an impact on the economy. we have already seen it. just going back to the conversation, what will happen going forward? i think there are a couple of dimensions in the dispute. trade dispute a about tariffs and you can define it more broadly. a competition between the u.s. and china in terms of economic and political, technological, everything else. these elements are both in this dispute. this dispute is more likely to be resolved at some stage. is probablylement going to be for a long time to come. deal, it is still not going to resolve everything. and i think we're going to continue to come back to some of these elements. does ubs as a research house see a lessening of investment by reparations already because of the various trade discussions? have seen -- we have to remember that corporate's don't change from one day to the next. typically, they have a long-term horizon. decisions,erm delay or delay starting an investment. that is a result of uncertainty. but we have not seen the material in plans. it might come if the trade war continues. is the litmus paper is risk on-risk off, is the trade on here? >> yes. simple as that. these are low volatility environments. the reality is that people stay away from the negative yields and currencies. look at what happened in the first three days of january. at one point we were trading 105 and 104. you can find a very narrow interest story. absolutely. it we have seen it many times before. what are some of the other currency. that we should look into? some of the more unloved or unknown? >> i think certainly watching what is happening in the korean won is the case story and that has huge echoes from the summer of 2008. look at the hong kong dollar. it is as if the markets were goaded into saying, what are you going to do to protect that? it is all about china. tom: lots to talk about here. very rich discussion as well. let us continue. francine: tom, i have a good chart. tom: let us come back. this is bloomberg. ♪ >> this is bloomberg surveillance with your bloomberg business flash. first group shares are up the first time in a decade -- the most in a decade. first group is valid to shareholder pressure to break up the company. those pledges were made by ceo matthew gregory. gregory is not the right person to lead the company, they have said. must is pushing tesla employees to catch up on demand for electric cars. pushing teslas employs to catch up on demand for electric cars. 43%as since shares down this year. 43%t has sent shares down this year. and a crowd is wildly anticipating the star wars attraction.e it is the largest addition to a theme park that opened 40 years ago. -- over 60 years ago. that is the bloomberg business flash. tom, francine? francine: u.s. president donald trump's move comes at a crucial moment for the global telecoms industry. the cost is already significant, but it will cost billions more and lead to link the delays for the service. across the pond in the u k, we begin deploying the new technology. joined by matt, bloomberg intelligence senior telecom analyst. they are both still with us. i have a million questions. that ineally build europe or will it delay indefinitely? >> not indefinitely. but all of these operators have .esigned it into their networks finding alternative supplies for their part of it will take time. francine: what does this frequency mean for the consumer? in the short-term, it is about much faster speeds. and i think in a short term, you will not really notice that because the 4g network is already pretty quick. until you a few years have amazing gaming experiences on the bigger devices that you will notice a difference. 5g? is the u.s. behind on is thee: -- francine: u.s. behind on 5g? >> they are a little bit ahead. adjusted frequencies. and so they are probably a little bit of -- a little bit ahead. but not by much. i look at 5g and i know the u.s. is its own wireless chaos as well. what this 5g mean for our viewers and listeners on day one? i go to the store, i get a 5g phone. how does my life change? -- >> in the u.k., it changes because you will be paying extra for the service. you will not see much difference. you might see a little bit of speed difference and you will have a shiny new phone that people say looks interesting. think it is not going to be a transformational experience for quite some time. francine: i am streaming you live and it is worth me paying so much more. i am prepared to pay the price. look at tom keene on bloomberg surveillance. is 5g gucci? francine: it is, but we are not telling anyone. you can catch our full interview talking about some of the technology at the forefront of this trade war. founder, and our he wasl this weekend -- speaking to tom mackenzie. this is bloomberg. ♪ >> as set forth in the report, after that investigation, if we had had confidence the president clearly did not commit a crime, we would have said so. we did not make a determination as to whether the president or did not -- we did not. tom:tom: mr. mueller was a vietnamished officer in and led the investigation on the lockerbie bombing. there he was yesterday, a rare there he was yesterday, a rare appearance. it isit is expected in all of te media, he passed the baton to congress. what are you looking for next? >> one of the things i'm looking at is that so far there has only been one republican in the house amash of, justin michigan, who i covered for he came to washington. he is iconic but has had nobody join him. nancy pelosi is saying they want to continue with the investigations, but in terms of impeachment, i have not seen the needle move. needle has not moved on impeachment. , but there are so many other investigations. forget about the mueller report and mr. mueller. what is the next thing to watch? of thei think one biggest things i am watching for immediately next is how the house and senate deal with subpoenas. there is a lot of investigations, but the homan thread as they want to haul -- common thread is they want to haul trump officials in front of congress. you have people like hope picks who are saying no -- hope hicks who are saying no. congress as an institution has not dealt with refusals to the scale before, certainly not in generations if ever. how the institution of congress deals with the, i think is a thread that will carry across every single investigation that the house or senate is looking at. francine: does the mueller statement on camera change anything? does it change the timeline or the fervor among democrats or nothing at all? derek: i don't think it does change too much. he sort of read the report. if you did not read the report, you might've heard something new. it seems off the initial reaction, it was just confirming some priors. the only change i have seen is hardening of some democrats for impeachment. i have not seen much change on the republican side. thank you so much. let's get straight to the bloomberg first word news. chancellorgermany's angela merkel visits the u.s. to ate a commencement address harvard but will not go to the white house. the turning point came last june when president trump discussed the agreement she had with other g10 leaders. benjamin netanyahu's victory celebration was premature. he could not form a new government, so israelis will vote again. netanyahu was stripped up by one time coalition partners who dalio foreseesy a risky time ahead in the u.s.-china trade war. it amounts to weaponizing export control. china may respond by not selling rare metals to u.s. companies. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek. this is bloomberg. 11, aight now, futures up nice bounce to the market. italy, this time it is different. there is a new italy and after the e.u. elections we see headlines coming across the bloomberg, subtle headlines. they are actually a really big deal. this is mr. sal vini. francine knows a lot more about this than i do. he is saying he is looking at ,he stability and the finances and is defensive about the idea that italy needs investment and italy needs to grow again. this has been written up in "the telegraph." i want to touch on this as an idea of how things have shifted in italy. you see it in the spread market. can no longer be contained, even by the mandarin class. carlo borghi -- who i believe is lead -- wei in the are not greece. we don't need anything from anybody and we are in better shape than france. say italy is not america. it is not a sovereign economic country able to borrow on its own coin. we go to our bloomberg government reporter, this is a new italy with spreads widening. let's begin with the central tendency of these complaints. italy is not greece, right? john: that is right. basically the graphic illustration of the change in the balance of power in rome, the deputy premier, minister of the interior meeting the finance bringing and salvini with him top league economic advisors. he explained the focus has to be on investment and tax cuts. tom: what is so important is this time is different. it is a new discussion on italy. ini's back? salv does he have the power within italian history to actually affect economic growth change? point, successhe can be harder to demand than defeat. salvini is the big man and the coalition of his ally as much weekend. -- weakened. keepni needs the couple to going to push his measures through. he is strong, he has got more influence, and is a dominating force, but there is the weakening factor of five star plus. we have the establishment front led by the president and the finance minister and foreign minister. they are the ones last year who pushed for a negotiation and compromised with russell's. -- brussels. francine: two quick questions. does the financial -- finance job and does his mr. salvini really want to fight head-on with the e.u.? john: tria came under massive attack by five-star last year during negotiations with brussels. he has a better image with the league. it all depends on how much salvini can get his way. on the clash with brussels, salvini is hunkering down. he was provocative in the election campaign. there may be a compromise. francine: thank you so much, from rome. let's get back to simon derrick. italy, what dot we understand about what the leg ahead wants? does he want a fight with brussels or is he trying to raise the populist front? of therly, the results european elections put him in a stronger position. he still cannot form a government that would have the majority. he still will have to rely on a partner, even if it calls for a fresh election. bet is tobet -- best continue with the current alliance and see how far he can get with brussels. the force that will determine some of this conflict is the market. if we see spreads flattening out, that will bring negotiations back to the pressure -- to the table and put tossure on salvini compromise with europe. francine: we have a great chart looking at the spread between btp's and german boones. -- bunds. we will be speaking to the pimco chief executive. miss my conversation. this is bloomberg. ♪ francine: this is bloomberg "surveillance." morgan stanley's chairman and chief executive weighing in on the dispute between china and the u.s. and german bonds. between china and the u.s., the partnership needs to be worked on and a good thing as the relationship is being reassessed. james gorman spoke to bloombergtv. gdp is40% of the world's tied up in these countries and a major trade war would be bad for both of these countries. everybody understands that, i hope they do. u.s. and chinese ceos understand it. we have got a resetting of this relationship, to make sense after 30 years of incredible economic growth in china, there needs to be a resetting. certain things on the trade side need to be addressed. full tradego into a war? there is too much self-interest and keeping this thing on the rails. some say if this does not happen by june 20 -- i am not sure by the exact timing -- but clearly negotiators need to come to the table and figure this out. not everything, that will take decades, we need to get the train back on the tracks. >> what are the global implications of a full-blown trade war, meaning trump pulls the trigger on 25% tariffs? james: what you said about where the 10 year is right now, where the s&p has been moving, unfortunately it is not in isolation. we have brexit in the background , the u.s. political environment , elections coming up. there is a lot of macro noise. i cannot protect what will happen if the 250 billion tariff number kicks in, but the two largest economies in the world do not serve themselves well by engaging in a trade war. the u.s. runs a surplus on services and china runs a surplus on goods. there needs to be more transparency and we need to get this back on the tracks. tom: the always interesting james gorman, mathematician of morgan stanley, quite interesting given the tone. beamish.s now is freya . as simon derrick well.emis -- with us as what is going on in china, when you read the mandarin press, the beijing, hong kong press, what is the discussion we do not see? freya: huawei has changed the tone on everything, from the media side to the political rhetoric. we see a clear watershed moment and huawei is seen by the people of china -- if you can make that generalization -- as a national champion that needs to be upheld. the reason why we are not writing off a trade deal and we are holding that as our base case by the skin of the teeth going into the g20 meeting, between xi and trump at the end of next month. there is still the possibility this recent escalation intentions has been a horrible mistake, with the chinese over playing their hand. understandably, misinterpreting he trump's indication that thinks the u.s. economy is weak. as we found out, mr. trump does not think that is the case and thinks his position is strong, and has pushed back against the so-called chinese backtracking. there is the possibility for the chinese to do a u-turn, but at the moment we think there is a deal in the pipeline. chinabs has a heritage in which is decades, half a century or more long. what does your asian team say about the likelihood of a constructive solution? themis: it is still our base case that we could see a resolution of the trade dispute. that is our base case. hasrly, the probability come down since the escalation recently. that is still the base case. the probability of this dispute being prolonged and escalating is still something like 20%, 25%. there is a material probability of these carrying on for quite a while. francine: when you look at the things we have been following closely, the key seven level for the renminbi. will that be breached or will they do everything they can for it not to get to that point? freya: it seems they are trying to go for the stability side of things while there is still hope of a trade deal being made. we see evidence of that in what the currency itself is doing and also probably that will come through in the fx reserves, although they have other ways of propping up the currency. that stability mantra is still being spoken, but going forward, if we are wrong about the trade deal i do not see the incentive for the chinese authorities to stand completely in the way of essentially what is market thanks for very little on the diplomatic side of things. there are risks in allowing the romney be -- renminbi to depreciate. of therall impression chinese government balance sheet as they have the space to manage the fallout from escalating financial tensions, if they do it in a proactive way. the strength of the renminbi tensionsing and these escalating from here is a real one. francine: what happens if from nimby touches seven? banks do not agree on the consequences -- renminbi touches seven? banks do not agree on the consequences. simon: we have seen the hong kong markets, and the reality is, it is a question of how to dampen the impact of the move through. if you had a radical move in dollar renminbi, really sharp ites, it is easy to see how feedthrough and negative volatility in australia. if china leads into the move, this never works for the foreign exchange markets. if it leads in and dampens the volatility, at stages the occasional bear market trap to -- it is apecial problem. tom: we talk about changing investment in america and europe, the turmoil over trade war's. what has been the change of investment in china of smaller businesses, of the corporations that are maybe not attached to the government and the fco's? what has been the dynamic? freya: this is a critical point because in q1, we saw a monetary and credit loosening. distortedty data was so we had the hope in the markets this was a recovery. arctic conditions are still too -- marketa recovery conditions are still too tight for a recovery. we have a different dynamic for monetary policy and china where they are trying to rely more on the private sector and finding out where the term pushing on the string means because they have not had that. this hit two sentiment is having an effect on capex and the monetary loosening. we have been downgrading our second-half estimates. ,he household deposits growth which is a key leading indicator we look at, that has been slowing down as well. the recovery is in a bit of a shaky place. you soeya beamish, thank much for the insight into china, and simon derrick. of ubs, thankmis you so much. market this morning versus the bond frenzy we saw the other day. uber is lowering the barrier to drive for those who have no car and little cash, going nationwide with the program at tested in california. the flexible car leasing start up. drivers who complete 70 trips a week can offset the payments. ferrari will tell you anything you want to know about its first production hybrid car except the exact price. it comes with a combined 1000 horsepower and well-run and electric only mode for close to 60 miles. the price is somewhere between $334,000 and $1.3 million. drafted a comeback for its 737 max 8. regulators will determine the timeline. they spoke to cbs news. >> directly as a leader of this company, it is unfortunate, i cannot change what happened. what i can commit to is that our company will do everything possible to ensure safety going forward. sebastian: that is the bloomberg business flash. francine: watches of switzerland, the biggest seller of luxury timepieces have gained almost 70%. we are joined by watches switzerland. right? price where is pent-up demand from? brian: we are overall confident. oversubscribed overall. the pricing was recognized as being very responsible. francine: does that mean too low? brian: you could arguably say that. we are very happy with the valuation of the business. francine: what does that mean for expansion in the u.s.? last time you were on we were talking about an ipo. brian: we are already in the u.s. we have a busy and -- business and florida. we have opened at the wynn resort in las vegas, in new york in soho, and hudson yards. we are having a good experience in the u.s. we love the market. we have all of our systems in place and we are trading well. tom: joining us now is brian duffy from the most dangerous store in the royal exchange. the business has always been a fractured is this. you are a marketing whiz with polo from years ago. how are you going to market watches and differentiate yourself in an exceptionally crowded field? how will you differentiate yourself from the cozy corner at harrods? brian: harrods does a great job with everything they do, including watches, but we are a specialist. we have been in the industry a long time. people want to know that you are getting expertise, heritage, and choice. selfridge's and harrods are very good retailers. how do we differentiate ourselves? a better technology play advance. we are active in digital media. we have storms that are very welcoming -- stores that are very welcoming, and we appear to the younger audience. tom: speaking of the younger audience, if you strap a hermes strap on a luxury watch, i guess that is -- how will you battle against the apple watch? brian: there is a lot of hype but it is a different product category than luxury watches. there are cheaper ways of telling time than buying a beautiful rolex. there has been no impact on luxury watches from smart watches, apple or any others. peopleh sews only 1% of -- research says only 1% of people consider one a replacement for the other. francine: do you have any concerns about having access to some of these timepieces if there was a no deal brexit? brian: it is not going to be directly impacted in terms of a selling place between the government, so there should be no fracture. francine: do you worry about sterling and pound volatility? brian: if it happens, we hope it is relatively short-lived. we are buying dollars from the u.s. so the bands are always correct pricing to cover margins. riodso not get sustained pe of disinflation. tom: there is a mystery of how switzerland does it, how do they put out so many luxury units $5,000, out to the text of the world? where does the manpower come from? how do they deliver their watches worldwide? brian: you are looking at particularly the 20th century of investment introduction -- and tradition, great schools of watchmakers, and great investment by the major players. huge -- hugely invested, advanced technology. they do a great job and products, and marketing. in switzerland, you may be interested -- museum and geneva, how do they hold off the big conglomerate -- in geneva, how do they hold off the big conglomerate? brian: they occupy uniquely a wonderful space. toy are from 20,000 up 800,000 watches, many of them with long waiting lists. development, rarity, exclusivity, and craftsmanship at the highest level. francine: thank you so much for joining us. up 16% for watches. the next hour, chris rupkey. tom will look at trade. we will look at the major things building in the market. i would do treasuries and markets. ♪ ♪ morning, finally a quiet and the markets. the flight to bonds pauses. the tensions of the slower growth/recession reality. clarida will speak. lots of solid talk about a solid economy. uber will report earnings and whatever. within the earnings call, what could go wrong? this is bloomberg "surveillance," live from world headquarters in new york. i am tom keene, francine lacqua in london. good morning. i want to go to a little bit of a shift. francine has been knighted by italy and has a unique jenna will look. -- genoa look. today is the first day on the great italian budget fiscal economic debate. the winds have shifted. francine: the winds have shifted for italy because matteo sell salvini istteo asking over and over again for italy to spend more money. he is still in the same coalition what the five-star, and awkward coalition because they do not have much in common. europeans need to let of spend. we do not want their austerity program. shifting the debate and making investors nervous, i am looking at the spread between germany and italy. it is tangible. tom: i like how you did that chart graphic. what i will say within all of the italian debate as they really go after the idea that they are not greece, and what about france comes up in a lot of conversations with political leadership. first word news and london with sebastian salek. sebastian: the trade war between the u.s. and china as escalating. beijing is putting purchases of soybeans on hold. they have not received any orders to continue with goodwill buying and do not expect that to continue. trade talks between the u.s. and europe have stumbled. in has been 10 months since president trump and jean claude juncker struck a truce aimed at clearing the way to negotiations. talks have done little more than avoid auto tariffs. that is likely to complicate negotiations. morgan stanley ceo does not see a collapse and stocks coming, but told bloomberg equity markets have more outside than downside -- upside than downside. any recession would likely be shallow and short. the justice department has a new demand for approving the merger between t-mobile and sprint. they want the companies to lay the groundwork for a new wireless carrier with its own network. they were considering additional concessions that could win approval for the deal. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm sebastian salek and this is bloomberg. tom: thank you so much. equities, bonds, bonds, currencies, commodities. a lift to the market, futures up 12. the dollar index is lifting up. on to the next screen with oil on bid after two difficult days. the vix 17 right now. there is the dow close, about a 500 point move. a lift this morning. not caught aly has bit over the last two days. atncine: i am looking european stocks climbing, futures up, but investors are nervous about what happens in the global growth outlook and trade. treasury yields near their lowest since 2017. i am looking at pound because we have 11 candidates wanting the prime minister's job. we are trying to figure out their policies, and investors and pound are in a wait and see mode. tom: fed officials never spoke on the dollar, treasury did that, and that all blue up in the financial crisis -- blew up in the financial crisis. dollar strength recently, let's look at the bloomberg. this is the bloomberg dollar index and this is really good math. that grind has been there with a move over the last year and a half. we have had some dollar strength, but not waking up to new highs. francine: i want to spend 20 seconds looking at the spread between german and italian yields. in the last hour -- and the thing is, the cards have shifted a little bit because that the e.u. elections with the league taking more power. anance minister that has been counterbalance to the league says he will maintain and a reply to the e.u.'s request for additional debt that it would harm economic recovery. this is for our international audience, the e.u. and european commission has rules on how much a country in the euro area can spend, something matteo salvini has been pushing against and mr. tria seems to be backing him. tom: on bonds, a most eventful and informative 24 hours, speaking with james gorman of morgan stanley. here is the set of moments of jon ferro's valuable visit to newport beach yesterday. let us likes and to salute -- listen to selected pimco executives and strategists. >> by far the area of most concern at pimco is the credit market, specifically corporate credit risk. >> we have the riskiest credit market we ever had. it is true when you look at the size, duration, and quality aspects. >> we think credit spreads are tight, particularly given the view that we think we will have a recession in three to five years. >> we are hoping for more difficult environment and if it happens in six months or two years is difficult to call. era inave been seeing an the last two to five years. we think that era is coming to an end, and we are entering an age of disruption. tom: important comments and particularly from yucca and fels. -- joachim in asia at the summit, they pushed back on the certitude of recession and spread widening. here is mr. gorman. james: definitely not systemic. i understand what systemic risk is. no. tom: may be james gorman alluding more too instabilities in the short term paper market. all of this is convoluted soup. he will be having soup at the economic club of new york today with richard clarida. christopher rocky -- chris rupkey is perfect to talk with. what do you interpret of the bond move we have seen, price up, yield down? chris: i don't really like the bond market rally. tom: in what way? chris: i know when a big rally gets going it is great and stuff. i feel the short-term outlook people are trading down yields and depressing yields for longer-term investors and bonds. a lot of your bond returns over years, it is30 based on reinvestment risk, what yield can you get to reinvest the coupon interest? when they drive the rates down, it makes me afraid that what happened to europe and japan will happen here, where yields go down close to zero across the curve. i don't like it. a lot of the rating agencies, we did work with them. a lot of the sovereign debt risk among countries is if you have a higher interest rate in the country, that is good for the country -- the rating. you need some sort of interest rate. i feel rates here, 2.25% for the 10 year feels too low. francine: what would need to happen in your mind for yields to reach 2%? chris: not a whole lot, but it has been pretty odd. i do not know who is trading these markets. the other day we came down to 2.25%. we did not go much lower than that. it does like -- it does not feel like it is trading completely logically. we have heard that customer volumes are down. something is not right in the way it is trading. what would it take? i don't know. whenever we break a new level like 2.5%, people talk about the next level. could this be -- francine: could this be a canary in the coal mine or is it market quirks? chris: i think it is bond rallying. one of the hallmarks of bond market rallies, it is not that far, but one of the han mark -- hallmarks of a rally as it rejects news that is positive for the economy and goes with the negative news and embraces that. we completely forgot about the new consumer confidence the other day. ida going to mention a rate cut? chris: i think he is on the sidelines and we are in a good place. tom: full coverage of the vice-chairman's comments as well , and full coverage on the logistics of america, the pulse of america coast-to-coast. that can only be the gentleman from the south, david abney of ubs. good conversation on the bond market. ♪ ♪ in the report, after that investigation, if we have had confidence the president clearly did not commit a crime we would have said so. we did not. the very careful words of the special counsel. a decorated career in vietnam, and his work with the fbi on the lockerbie disaster, and many special counsel's and prosecutions. mr. mueller leaves the justice department yesterday. summing up the zeitgeist on this moment yesterday, viviana hurtado. the world stopped at 11:00. viviana: it was a surprise announcement. a lot of people were trying to get clarity that came from mueller himself that they did not see in the report. he went back to the mueller report and said, these are my findings. he pushed it on the u.s. constitution that says anything that would need to go forward would be the task of u.s. congress. tom: clearly those are the headlines today, the zeitgeist moving forward, and now it is congress. let me go to the great silence of republicans. well that change? won't,: right now, it because there is a legal calculus that the former special counsel was able to lay out. he was looking at suggesting what would be a political calculus. it is not just the republicans who have supported this president, with the exception of justin amash. the focus and onus is on the house democrats who are tasked with moving forward with impeachment proceedings, and what that would look like. francine: as we look at the press and coverage, we did not learn anything new if you had read the report except the words "insufficient evidence" kept cropping up. the specialt means counsel was able to use his investigatory powers and was not able to find the legalistic determination of what that evidence, specifically when it comes to obstruction of justice is. this is where it becomes , a house and mueller proceeding of impeachment would give the house the ability to launch a new investigation and delve deeper into what any of this sufficient or insufficient evidence would be. the question today in going forward is ahead of the election , does house speaker pelosi, do the democrats, does the u.s. senate have the will to move forward -- house have the will to move forward? well, chris as rupkey. this is removed from our world, it is a distraction and is about confidence. what you see in the confidence of the consumer and business? chris: they are diametrically opposed. consumers think current economic conditions are the best since the year 2000. tom: where is business? chris: business is tanking, mostly manufacturing. i wonder how many manufacturing sentiment surveys of purchasing managers can we react to? that was a major reason why bond yields fell last thursday. manufacturers are concerned. but must be trade related. andly chains are disrupted they are paying more for raw materials. tom: you speak to the confidence of the nation as well. what is your fed call? i cannot envision you calling for a rate cut. chris: i am not a rate cut person. i have a rate hike later on this year in december. got stopped,e they they went to the sidelines, the fed. they should never have told people rates could go up or down. you give the bond market in inch, they will take a mile. as soon as the fed started saying they could go up or down, when you say they could go down it is all the bond market here's. people are thinking potentially the fed could cut rates and it is based on the fed language. francine: that is a really punchy call on a rate hike. what does it do to dollar? chris: dollar is pretty calm. a lot of these markets are really calm. i wanted to think the dollar would go down and cut commodity prices going up, but crude oil is not going up that much. tohink we are probably going stick here right around where we are, dollar-euro. maybe it comes up to 1.14. francine: chris rupkey stays with us. ,oming up, dr. ben carson housing and urban development secretary will join bloomberg tv later. they will ask him about housing and about dollar and what the fed should do. this is bloomberg. ♪ ♪ tom: bloomberg "surveillance tom: francine lacqua in london tom:oomberg "surveillance let usne in new york -- go to an important opinion piece. the former governor of the bank of england has been controversial, pushing against governor carney on the theme of leave and remain. the best way forward would be for the two main parties to develop clear, opposing positions on brexit and put the question to the voters on that shed another general election. since the 2016 referendum output in britain has grown slightly faster than in germany. i guess governor king has his own unique place in the debate, but one of them is that the economy is doing pretty good. is that right? >> governor king is pointing out that the economy is not in a disastrous place. clearly the economy has lost relative to where it would be had the brexit vote not taken place. there has been an uncertainty upt which some studies put 3% of gdp. former governor king's piece is heressed to the gridlock and is looking for two potential ways out, one, a referendum, otherhe rejects, and the which he embraces is a new general election. that is highly controversial, not least because the party of government is doing appallingly in the polls. francine: what are the chances of general election? to have antive is it general election inventory? therese: the tory party and in the european parliamentary elections did not clear double digits. what we can say is the most successful political party in the history, that is appalling. could you go through a scenario where they would want to general election? possibly if you had boris johnson as a prime minister. it would be a gridlock parliament. what could he say to the people? let's have a general election, i will implement your will. he steals the brexit party turf. it is a long shot. francine: will he delivered no deal? therese: boris johnson will deliver whatever he thinks is necessary to keep boris johnson and the conservatives in power, that is the short answer. tom: thank you so much for the translation of merv and kings were. mervyn king's work. the next week, the president of the united states travels to london. a better bond market this morning, a weaker japanese yen. worldwide, this is bloomberg. ♪ at comcast, we didn't build the nation's largest gig-speed network just to make businesses run faster. we built it to help them go beyond. because beyond risk... welcome to the neighborhood, guys. there is reward. ♪ ♪ beyond work and life... who else could he be? there is the moment. beyond technology... there is human ingenuity. ♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. sebastian: -- ♪ francine lacqua and tom keene. i want to point out the bond markets, a different view than 90 minutes ago. we had higher yields for the first time in ages, and that has reversed to a flat to year and 10 year yield. there is noise out of italy. francine: i was surprised and captivated with james gorman talking about bunds in germany. we are doing the spread between the italian and german 10 year yield. let's bring up a chart to show you where we are. this is as matteo salvini and debating how to deal with the e.u. and how to inject more investment into the italian economy without aggravating europe. churn, a movable feast of the german yield and separately the italian yield. i am not sure what to make of it. things have shifted in the last number of days. let's get a news briefing in london. chancellor angela merkel visits the u.s. to give an address at harvard and as a sign of her growing unease with the u.s., she will not go to the white house. ansident trump scuttled agreement she had bout with g7 leaders in canada. benjamin netanyahu celebration was premature. he could not make a government. he was stripped up by coalition up byrs on -- tripped coalition partners who could not agree. a bill that would allow the purchase and possession of those 21 years of age and older has moved to the house of representatives. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm sebastian salek. this is bloomberg. francine: morgan stanley's chairman and chief executive does not expect a full-blown trade war between the u.s. and china despite the anxiety on the markets. james gorman spoke with bloomberg. 40% of the world's gdp is tied up in these countries. to have a major trade war would be bad for both countries. everybody understands that, i think, i certainly hope. the u.s. and chinese ceos i have talked to understand it. there is a resetting of this relationship, which makes sense after 30 years of incredible economic growth in china. .here needs to be a resetting certain things need to be addressed. do i think this will devolve into a fall trade war? i do not, because there is too much self-interest in keeping this on the rails. some people have said if it does not happen by the g20 in late june -- i am not sure the exact timing of when we need resolution, but clearly negotiators need to come to the table and figure this out. not everything, that will take decades, but we need to get the train back on the tracks. >> what are the global implications if we get a full-blown trade war? james: a lot of that is priced in. what you said about where the 10-year is right now, where the s&p has been moving, unfortunately it is not in isolation. we have brexit in the background , the u.s. political environment , the election coming up, so there is a lot of macro noise. i cannot predict what will happen if the 250 billion in tariffs kicks in. the two largest economies in the world do not serve themselves well engaging in a full-blown trade war. the u.s. runs a surplus and services in china runs a surplus in goods. there needs to be more transparency and we need to get this thing back on the tracks. asia at a gorman in morgan stanley china summit. we have chris rupkey with us. joining us now from washington, meredith sumpter. go, i am getting in touch with my inner periodic table and rare earths. you lead your essay talking about rare whiskey and frozen vegetables. we are all wound up about rare earths, but this is about basic commodities, this back-and-forth on tariffs? meredith: that is more so about politics and the political incentives of both sides to track toward some kind of progress on a deal. at eurasia group, we think markets are underestimating the risk in this relationship of where things are going. at this point, we should expect a long, hot summer, to quote a tennessee williams play. tom: we will have to look that up, see what liz taylor is doing. if i look at i cannot read chinese, meredith sumpter can, what do you read in the chinese media? meredith: an uptick of nationalism that has lessened the moderation beijing exhibited until a few weeks ago. the real red card here for china was the u.s. placement of huawei on the entity list. this is more than about trade for beijing. this is about washington looking to contain china and keep china down. be aocus is on, will there deal at the g20? we are saying, do not expect a deal or a truce on tariffs at the g20. this will place the president in a position where he is more likely than not to place tariffs on the remaining 300 billion of chinese exports to the united states. francine: is this a fight about level supremacy over the next 10 to 15 years? where will china end up? in their they use arsenal to get back at the u.s.? meredith: there is talk about china using these tools, but we do not think it is likely because it is so against the economic incentives of beijing, the selling of treasuries, the using of its currency as a political tool. this is something that would cause a potential capital slide and loss of confidence in china's market at the time beijing knows it needs economic resiliency to wait out this economic threat, political threat from washington. is allowed to be brought to its knees, if trump does not intervene to save huawei, there is a good probability china would look to make selective use of rare earth or hitting back at u.s. companies to respond to that provocation. that aside, we do not think it is likely beijing will make a litter coal use of its currency or selling u.s. treasuries -- francine: can the pboc have a handle on this? meredith: there is an uptick and stress, but not anything that is causing beijing to panic. over the last several weeks we have seen moves on the financial side and of the pboc to employ certain macro tools to allow it to mitigate the economic pressure from this trade confrontation over the long-term. just as important if not more by xiant, you see moves jinping in beijing to prepare the chinese people for what they see will be a long economic confrontation with washington. tom: i got an email from brandon from mayfair. glad you are watching us from hedge fund land. brandon chastised me for saying the chinese language, making clear what i call -- what is called standard mandarin. i was so wrong. have you calculated what all this means for american gdp? bloomberg economics tried to go through the mouth. markedmark -- have you down gdp because of the growing tensions? chris: the back of the envelope calculation would be if we go to 25% tariffs -- tom: full tariffs. chris: that would be 125 billion. that would hit the gdp somehow. either the consumer pays it or the supplying chain of products goes up. about 0.7% is worth gdp. you will put the market down to 1.3? chris: no, because i'm starting at 2.5. tom: i am trying to study before the clarida lunch. chris: i have 2% something next. tom: chris rupkey, always optimistic. 2010, courageous in 2009, pushing against the gloom will never recover crew. outdith sumpter, i am going and getting babble chinese and i'm piling into that mandarin. in the hotel that and i lasted about 20 minutes, trying to learn chinese. meredith, thank you so much this morning, with eurasia group. huawei will not go away. it is an important interview. this is truly exclusive, the leader of huawei this saturday, in its entirety. this is bloomberg. ♪ tom: bloomberg "surveillance," we welcome you all this morning. i want to make clear, the markets are better, the bond market is, with a higher yield, and has subtly reversed itself in the last hour. the two year yield, 2.10%. james gorman mentioning the two-year german yield yesterday. how about a single best chart? as we get ready for and hisirman clarida speech before the economic club of new york, this is an important point on the inflation-adjusted fed funds target dutch target rate. -- target rate. fischer'stanley report on altar accommodative. ultra accommodative. the fed has driven us out of ultra accommodative. chris: the primary argument at this stage, there is no recession so it would not be your father's style rate cut when there is job losses. some of the doves on the committee think inflation is low and have been missing their inflation target. it has been below 2% for quite some time, and they are getting anxious. the not think the public -- public doesn't care if inflation is 1.5% or 2%. nobody is talking about inflation like they used to do. the public does not care. they will not start cheering and a stadium when the fed gets inflation to 2%. it is an academic exercise, so i hope they do not cut rates to get inflation up. tom: we will see richard clarida at the economic club of new york. i did not take an uber to work. i took bentley. francine: the bloomberg bentley. it is the first time we get these uber results and we will whether to understand the concerns wall street had are justified or not. tom: i will be looking for the uber executives with their watches of switzerland watches on as they do the conference call, so they can be posh. worldwide, this is bloomberg. ♪ francine: this is bloomberg "surveillance." expect more volatility and lower returns from a frothy corporate credit market, courtesy of pimco. the top executive warned of a late cycle build of corporate leverage. dan iversen and manny roman spoke exclusively with jonathan ferro. a lot of what we are trying to do is anticipate the next investment opportunity for our clients. we talked about credit, credit issuance. a lot of us are outside the united states with emerging markets across asia and pockets in europe. our growth areas are focused on where we anticipate the best return. you have to start sometimes multiple years before the opportunity is out there and ready to be realized upon. that is one of the key areas of our focus, resources with a tilt towards credit. jonathan: let's talk about private credit markets. is that an opportunity? >> it is something we have been doing for 11 years. it is an opportunity that will become more attractive when the business cycle turns. >> how scalable is it? >> it will never be as scalable as what pimco does on the liquid side and it does not matter. opportunities are because of what banks used to do that do not do anymore, for us to do those things. it goes from lending against real estate to buying securities in housing to being able to opportunistically do direct lending, to value private credit transactions with -- which if managed properly and constructed the right way should get a 10% to 12% business fee. that is an opportunity for us and others. jonathan: it is an incredibly competitive environment and we have talked about areas of froth. consistent with our views on corporate credit on the public side, that is where we see the court -- the froth, erect corporate issuance inside this -- direct corporate issuance inside the space. -- is a sector that despite the global financial crisis being 11 years past, where we still see fractions in markets and opportunities for investors on the private and public side. that has been our focus, looking to harvest opportunities. howimportant -- >> important is that liquidity premium you can get for markets? >> it is twofold, probably a couple of percent, and i am so oversimplifying. people get compensated for liquid the liquid -- ill premiums. there are people who can own this and it is one of the most interesting risk premiums. it is also a way to structure a transaction where you think you have an edge and where you understand an industry better than most, and we are going to are part of what we currently doing very attractive and other things, not so attractive. we are cognizant of that. >> the liquidity illusion is something you have talked about in the past. do you think enough people are focused on that? you have talked about financial markets on her ability as the for ale -- vulnerability more gap he market. fundamentally in terms of structure, it has gotten weaker. >> people talk about it. people are aware of the risks. then you will have a voluntary -- volatility event like the fourth quarter of last year and it appears people are more exposed to these less liquid areas than the rhetoric suggests. volatility has been low the last several years. we have to take a look and feel the markets from a day to day trading perspective to know when you shift, there will be overshooting. we do not believe this will lead to another financial crisis per se, but it will lead to disappointment in overshooting. francine: that was jonathan ferro speaking to the chief executive officer and chief exec -- of pimco. -- when it reports first-quarter earnings today, the ride-hailing giant has fallen some 45% from its stock price. sweeney is with us and he adds value. when uber comes out with earnings, people want to know how much money are they losing and what they are doing to be better than their competitors. isl: this she really profitability, or the lack of profitability. consensus efforts have the company losing about a billion dollars and three-quarter -- $3 billion in revenue. in terms of the whole ridesharing business, how do you get the profitability? the company did not make a good case on the roadshow that it had surpassed profitability in this business. shareholders are concerned and we are seeing that in the stock, off 11% from its ipo price. francine: what does the chief executive need to do to convince investors to stick around? paul: i think it is a long-term ceo, he needs to give investors a sense that they know how and when they will get profitability. the concern for this business model, unlike others like facebook or google is most of their expenses are variable. as they grow the top line, their expenses grow with them. they have to subsidize drivers and riders and pay insurance for the riders. all of those things are variable. it is hard to see how this company, even as it scales, turns a profit. .rancine: paul sweeney will with bloomberg as we be sharing exclusive conversations with the leadership of pimco, and we have a special show on huawei. to thekenzie speaking huawei founder and chief executive, and traders want to know what is the outlook for global growth and how does the trade war play out? this is bloomberg. ♪ ♪ >> i don't think we are looking at a collapse. i just think we are looking at taking some of the excitement out of the markets that has been building the last six months. alix: the ceo of morgan stanley says that is priced in. the 10 year yield's next move. aberdeen selling treasuries while pimco says to buy treasuries and play defense. and it is europe versus the u.s. euks go nowhere as the fights multiple fires. welcome to "bloomberg daybreak" on this thursday, may 30. i'm alix steel alongside barry hold -- -- barry rent alongside barry rid holtz -- barry rithol

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