did the grim survive? -- groom survive? mrs.ine: i am an official but i and sticking to my name. we are getting breaking news coming in line with estimates. rate,is the unemployment compare that for germany at 6%. cpi is what we really wanted to -.1%.n, coming in at this is the fourth month that we are seeing negative inflation, deflation across the eurozone. in line with expectations, no move on the euro. tom: one of our themes this morning as price change, inflation, disinflation, and outright deflation. to get your workweek started, here is vonnie quinn. korea's latest attempts to build a ballistic missile appear to have failed. the tried to launch missiles in violation of the united nation resolution. better relations with the philippines under its new leader. the chinese president sent a congratulatory message to the philippines' incoming president. he says he hopes they can work together. to put relations on a healthy track. iraq, government forces are making progress in their attempt to retake the city of falluja from the islamic state and have captured 80% of the area around it. he wrapped started surging into falluja. the strike against oil refineries and france is starting to hurt the construction industry. they cannot deliver to building sites because of fuel shortages. in the u k, a new poll shows supporters of the european union still lead those over who want them to leave. want to stay in the eu and 46% want to pull out. the referendum is june 23. tom: thank you so much. , currencies,ds commodities, yields churned higher. nymex a little bit higher off of where we were on friday. 13.93 showing the complacency well under 14. 9.20%, oner yield, of our themes this morning is catching up with the dots. yen, 110.98 and gold really has my attention. just a lousy week for gold. caroline, what you have? caroline: a lousy start to the week when you open up in the u.k.. every single industry group declining. when you have the adobe results not living up to expectations, concerns about the slowdowns in sale, vw down 2.5% and the emissions scandal has been hitting vw. yields push higher for basis points, coming over from the u.s. treasury selloff. tom: let's look at u.s. inflation. -- your over you year-over-year. here's the nice rising inflation, maybe too much inflation before the crisis. this is a persistent disinflation, down near 1.2% on a regression. recent bounce up, other series interrupt here. vonnie: they are all roughly between one and a half and two points. tom: that is the mystery. caroline, what do you have today? caroline: i am going global because there's so much talk about the fed it is feeding into the emerging market. we have to talk about the flash crash it seemed to have occurred today in chinese training. -- trading. this shows the volatility, and nervousness building into china because we have seen depreciation in the yuan but no real -- by equities. are we seeing volatility in the futures market that did not feed into the underlying index? globalization,t inflation data we are getting, and the effect of the u.s. on the global market. give us first of all your view on the so-called flash crash that occurred in china. how are you adjusting -- addressing the speculation of a rate hike? are people getting worried? >> i think a little bit. we saw in the last month a focus on the chinese currency. thatwas the big left over people did not like to see a major and sustained decline in the yuan. weeks and months i think the chinese have understood the chinese are -- if the dollar does continue to rally because of rate hikes as we have seen in the last few weeks, just because the dollar is showing a chinese depreciation does not mean the world in china is going to suddenly collapse. stocks,mes to chinese this is not the freest most on manipulated stock market in the world. it does have influence from the authorities that we do not see elsewhere and this is a warning to investors. it still looks a little expensive so it is not something should pilestors into, but equally the narrative of chinese collapse is not something we are going to see. caroline: do i pile into europe? it seems to be promoting money supplies and we have money supply data out of europe. ared: i do not think things well in the eurozone but we saw some strength. unemployment out of germany today, but we saw italian unemployment go up to almost 12% . you have a mixed picture in europe as we have seen for a while. we like most of the european assets because the ecb is involved in those and the economy is recovering. the stock market still looks a better value from our point of view. you still get paid to wait in europe. i also think we are potentially near the peak of the activity now. all of the tailwinds we have seen in europe is yesterday's news. i think we will see a little bit of slowing in the soft data. i am interested in the forward news and what i cannot figure out, as we frame for june are the markets ahead of the fed , bank of england, and ecb, do the central bankers have the upper hand with a are dragging the market toward some outcome? david: i think you have seen a range of fed speakers in the last few weeks lowly the markets up toward a place where they are pricing in a rate hike at some point in june or july. i think they are very mindful of the potential turbulence we will get from a brexit vote if the u.k. does vote to leave, which is why i would probably pick july over june. theythe ecb side, i think have pretty much done all they want to do for the time being because their actions are having an enormous effect. of: within a broad theme getting into june, are they getting any help from anybody else or is it central bankers on their own? they look awfully lonely to me. david: they are getting some help from somewhere. the austerity years in europe have lessened. government spending providing a little more support than it was. france, theke government a 60% of gdp. at the same time you have seen good reform in places like spain and italy but those have slowed somewhat. i do not see unfortunately the euro zone economy ring able to lessen its reliance on aggressive monetary policy anytime soon. you have the bank of england that was looking at a fairly strong economy three to four months ago and now we have had a big slowdown in the data. you have brexit risk and they are on hold. act will probably have to to support the economy if we leave. tom: nice framing of the moment, and the calendar for june is going to be a little bit busy. an early jobs report, june 3 this time. hour, carln our next weinberg will join us to give .ou a framework for your june from london, new york, bloomberg surveillance. ♪ caroline: welcome back, i am caroline hyde in london with none other than tom keene in new york. it is time for your bloomberg business flash. is the deutsche bank focus of a u.s. investigation into rigged auctions for government debt. the investigators narrowed their focus after requesting documents from 22 primary dealers in treasuries. deutsche bank says it is cooperating and has no reason to believe it is the focal point. in china, stock futures plunged by the daily limit before rebounding. the futures exchange is investigating. the emissions scandal hurting volkswagens bottom line. profits fell 86% from a year ago. they maintained their outlook saying revenue will drop as much as 5%. the stock is lower this morning. caroline: it is, indeed. worstone of the performing on the stoxx 600, dragging down the entire auto sector. keep a clear eye on what has been happening in terms of the stocks in germany, let's get out to chris reiter. , ofing us from berlin course we still have david stubbs with us. chris, talk us through the numbers because there were some items that seem to inflate the profitability but sales are still lagging. is it all about the emissions scandal? chris: yes. the provisions that you , itioned, the one off gain was basically a currency adjustment for the 16.2 billion euros they set aside last year for the scandal. they set it aside and now it is working for them. gain, they would have had a decline in operating profit for their quarter. that is chiefly because it would have been really bad if it was all about the volkswagen brand. it tumbled 86%, the prophet in the quarter. a big drop in that is at the epicenter of the crisis. tom: help me with the redesigned vw. i saw a tv ad last night during the stanley cup finals of the press sought and they are sat.ing it pas is it a redesigned vw? chris: that is still a work in progress. the ceo is working through his neck strategy and he will present that in the next few weeks. tom: how have the german people responded to this? , vw is u.s. audience much bigger than the vw brand. is it front and center or just a business story? chris: volkswagen is not there volkswagen. it is very much tied into germany and german mentality so the support for volkswagen is in germany is really strong. it is a huge employer, especially in lower saxony which owns 20% of the company, has close ties with the workers so combined, they dominate control over the company. it plays such a role in that state but throughout germany as well. our other carmakers taking market share from volkswagen? chris: we have definitely seen it in europe. they have lost market share consistently every single month since the crisis broke. they have been losing some market share and in the u.s., they have been hemorrhaging market share. they were hardly a player before and they are even less so now. and one of the things we saw in quarterly results, their profit in china has stumbled as well. about 27% and that does not come into the operating profit figure. much.hank you very david stubbs is with us and david, with jpmorgan. we will talk to neville hill about this in a minute. the german economy is still a dominant but almost dysfunctional economy with europe. discuss the internal domestic demand of the german economy. is it there or still stagnant? david: it is certainly there. has a healthy consumer sector and a construction boom on the back of what is a building housing boom, they be even call it a bubble. appreciation of houses in a range of the metropolitan areas, this is an economy that was one of the few not to have rampant house up right -- appreciation before the crisis. the narrative about germany's with laborecline participation and the population declining have been swept in the way by the inclusion of almost a million migrants that we have seen in the last year or so. in the medium-term growth seems to have been pushed up and in the short-term it is causing a fiscal stimulus. germany is absolutely the bedrock of the growing core of the euro zone economy. getting exposure is more challenging than you might imagine. if you want to get exposure to the germany housing market through public equities, it is quite difficult to do it. seems still cash to be splashed. we will keep an eye on the property market in germany. a quick check on how the markets are performing, we have plenty of data out of germany. unemployment at record lows. 1%.x 600, still up 2/10 of others are your worst performing sector today. -- autos are your worst performing sector today. ♪ caroline: welcome back, i'm caroline hyde in london with tom keene in new york. you are watching "surveillance." it is my morning must-read. he is an ally of angular merkel -- angela merkel. speaking to bloomberg and there is a great quote saying, no contingency plan. there will be no new negation nations afterwards, talking about the brexit. if the british people vote we will accept the boat -- vote and there will be no new negotiation about another opt out deal. warn, there is no going back for this. i would say, when the events change, i change. and reallys with us to both of you, i feel like a foreigner -- wait, i am. there is great article on the generational divide of the remain voter, or the b voter. david stubbs, do you sense that divide? david: it is very clear from the polling and anecdotal evidence there is a very strong love for the eu in the younger generation and a willingness to vote for it, and that is the opposite that you see in the older generation. i think this is why the polling situation is somewhat confused. most of it does not control for the likelihood to vote and in almost every country, older people tend to vote at a higher percentage. even if the polls show there is a large victory coming from the remain camp, that does not control for the likelihood that people will go to the poll. i think this is why it will be a close a referendum. tom: caroline, what do you think? we know what side of the divide you are on. what do you think of what the older people will do within brexit? fearine: this is a great factor, exactly that, at the older generation tend to vote and have a more likely desire to exit. the galvin's nation of the youth, this is what we will see galvangalvin's nation -- ization of the youth, this is what we will see. tom: a conversation on a momentous decision for the u.k. neville hill of credit suisse for the challenges of europe. ♪ get ready for the rio olympic games by switching to xfinity x1. show me gymnastics. x1 lets you search by sport, watch nbc's highlights and catch every live event on your tv with nbc sports live extra. i'm getting ready. are you? x1 will change the way you experience nbcuniversal's coverage of the rio olympic games. call or go online today to switch to x1. tom: good morning, everyone. caroline hyde in london. francine lacqua on holiday. i am tom keene in new york. we welcome you to our conversation on economics finance investment and financial relations. vonnie: some unexpected praise for edward snowden. former attorney general eric holder said he performed a public service. he says snowden should still return to the u.s. to to stand trial. the u.s. launching a campaign to keep republicans in charge of the senate. they are calling the campaign saved the senate and it is being led by republicans who support donald trump and those who oppose him. almost 46 million people are living and modern slavery. australian-based company says commercial sus work -- sex work -- the number of afghans affected by war has doubled and the afghan -- global news 24 hours a day powered by 2400 journalists in more than 150 news bureaus around the world. we are joined by our next guest of the hour, neville hill, head of credit squeeze. david stubbs remains with us. a wealth of knowledge we are digesting today. i want to divert our attention. we have the ecb later in the week looking keenly at the cpi data that has just came out, remaining negative. are we expecting anything? >> is going to be difficult to change too much. i think this is going to be very wherehere holding meeting they effectively try and argue that implementation is key at this point rather than any radical me change in policy. in terms of their forecast, i think there will likely be a strong upward grade to inflation. if you look at the long-term forecast for inflation, 1.6% in 2018, i think they are going to struggle to revise it up. caroline: it seems to be the battle of the fx is over with draghi and he is looking at getting money into the hands of the economy and companies. it seems to be working relatively speaking. what a rethinking of the fx battle, will that come back on? could there be a haven trade if we do see nervousness come into buying of risk? neville: it is possible. i tend to think the market is concerned about what the ecb's function of fx is overstated. last year the euro was not an important indicator for the ecb. of --onomy needed a bit from a weaker currency against the backdrop of what remains global trade growth. if you look at what is happening to the euro zone economy, domestic demand is burgeoning. what is really coming online is corporate spending, business investment, and i think that is partly thanks to the ecb's ongoing loosening. on yourgratulations research peace and your real identification of stock versus flows. you say basically, the flows are moving in the right direction. -- withpe going back your optimism -- is europe going back to where it was or we are all long and it can move on to a better, more vibrant time? neville: i think it can move on very slowly but what is prohibiting it from improving dramatically is the absence of any stimulus in fiscal policy. that i think would be a game changer. what we have at the moment is a means of underwriting a reasonable or startling recovery. the opposite would be a lot worse, but i think one of the issues we have not come up against is this perpetual in europe isdebt still very high and that is going to be a big problem for the eurozone in terms of public debt and private jets. in terms of what is happening to the debt ratios, they are improving markedly and the interest you have to pay on that, is coming down pretty dramatically. tom: what is the price of the free lunch? us a. draghi is giving free lunch, i get how vibrant economies can deal with that. how does italy or portugal deal with easy money that leads to i thinkows? neville: europe is not issuing a free lunch. the free lunch that is available is much more stimulative policy from germany. the monetary stimulus we are seeing helps in two ways. it does allow for italian and portuguese corporate to continue to do love her, and part because they are not paying -- continue delever.r -- thosest way to fix nonperforming loans is to fix economic growth and deliver some sustained economic expansion, each is what we are seeing at the moment. as things like unemployment rates drift down so we should see nonperforming loan ratios drift down with a lag. what is at play here, and what is critical for us to see is that continued underwriting off the recovery we have got because over time, that is going to heal a lot of the problem areas the eurozone still faces particularly with bad debt. vonnie: are you concerned with , is there anything that could derail any kind of recovery in europe? neville: i think the weak link still remains the banking system and to be fair, the ecb has done enough for the time being to be able to remove a lot of the tail risks that emerged earlier this year. i think the big risk that still so mucht there, is not to migrant crisis but the ongoing political risk in southern europe which i regard as a function of the high levels of unemployment. we are focused on the u.k. referendum on june 23 but three days after that we have a spanish general election, the second in the space of six months which the last time around we saw effectively the whichl left-wing party disagrees with a lot of the policies that have been implemented, at the bequest of the eu being rejected. if you look at five-star in greece, and that remains for me the most acute risk in the eurozone. caroline: david, agree? are we still going to be seeing a lack of physical -- fiscal heavy lifting? david: exactly. i think we have seen a lessening of some of the austerity pressure but that is very different from a proactive fiscal surge. there is an element of the ecb trying to keep it show on the positive, andwth eventually bring business investment back into play and that is happening. it is a positive story. neville points to the political risk in southern europe and he is absolutely right. one other place that does not look great is italy, unemployment went up again in italy, 11.7%. market ways the potential of some kind of systemic risk if things were to go really wrong, i think that is a risk. tom: it is a lot of macro talk and very valuable. what does it mean for markets? longer mean lower for and we have to reassess what asset values are? for thes it mean movement of markets over the coming weeks and months? david: it means lower for a longer in the european government bond market. the policies the ecb has implemented are not going away anytime soon. we still like investment grade and high-yield market as a way to play a gradually strengthening european market to allow companies to pay back those debts. the market is intriguing because so much has happened and yet the last couple of years have been disappointing. the european stock market is really not the economy. it is exposed to global economy and some of those drags, maybe they are bottomed. all of those things have to do is move to an improving domestic story. mysteries as we move into june. continueand i will with david stubbs and neville hill in a moment. later today, a conversation with a laureate from yale university on the housing market. robert shiller on our lower for longer exuberance. this is bloomberg "surveillance." ♪ tom: francine lacqua, caroline hyde held in court in london this morning. caroline hyde and tom keene. michael mckee on jobs this friday, june 3. neville hill with us from credit squeeze, david stubbs from jpmorgan. when was the last time you and i talked about strikers? michael: it has been quite a while. the payroll report is a key to let the federal do and we are probably going to get a lousy number. the verizon strike settled not in time to get payrolls. counted as working -- look at the chart. the last time we had this many workers out on strike was 2011, coincidentally also a verizon strike. the month before that 2011 strike, we had 117,000 jobs and the next month, zero. tom: great chart. government adjust for strikers? michael: they do not but there are some complications. every phil and worker that verizon has gets counted as a job. they said there were 31,500 verizon workers off the job but some of those will be offset by additional workers hired i the company so you cannot say it is a one for one relationship but it is going to have a significant reflect test effect on payrolls. it is -- effect on payrolls. hours worked were down by 1/10 and the hourly earnings which were up 4/10 the july before were down 1/10. possible to know how it affects the household survey differently? michael: it does not affect the household survey differently. it is almost from another time, another place. is this a one off or is there a chronic new unrest looking for higher wages? michael: it does appear to be a one-off. 2011, itto go back to happens every so often. they count up the number of people that were off the job and they get these spikes. it? this is not europe, as strikes your regular rather than regular ones. to be fair, i think the state of the u.s. labor market is very different than that in continental europe. there is a lot of slack. there is not that sense of and deming structural problems in terms of consistency -- sense of endemic structural problems in terms of consistency. europe i think you have a long way to go and you have to see the unemployment rate is 9% before you see generally confrontational labor problems i can focus on driving up wage growth and putting pressure on inflation that would be a problem for the ecb, we are a long way off. a verye: david, you are good man coming in on your bank holiday. we look at some of your charts and you have been trying to look into some of the manufacturing and u.s. income that has been going on. set us up for payrolls. how much of the wage element will be paid attention to? slightly slowing wage growth, without be supporting a june/july hike? david: today we have got personal income and spending, consumer confidence as well. savemers continuing to their incremental wage gains, we need to see fast nominal gdp growth if the wages are going to pick up. on the demand side it means households are spending their additional wages. yes, the employment report is going to be important but this is all kinds of distorted for this one month. vitalal income absolutely , and the two big surveys of activity, manufacturing and on manufacturing, employment components in there as well. if those are weak you have to assume the job growth is going to slow. julythat goes back to the meeting david was talking about earlier. 150,000 on non-term payrolls? michael: 160,000 is what it was. tom: you are suggesting it could be lower? not know how many economists have incorporated these into there's. tom: megan green with us on bloomberg radio this morning. she wrote a brilliant note on the state of the american economy. caroline hyde in london, i am tom keene in new york. stay with us. ♪ tom: good morning, everyone, tom keene in new york. caroline hyde in london. let's get to the bloomberg business flash. vonnie: oil is set for the longest run of monthly gains in five years. is up more than 85% since hitting a 12 year low in february. make an expected to agreement when -- limiting output. jaguars and land rovers and u.s. and china, it is ramping up sales. a new convertible suv will be unveiled later this year. disney's alice through the looking glass came up short. it brought in $34 million over the four-day weekend, far short of predictions. apocalypse grossed $80 million in line with estimates. caroline: i did not get to spend nearly enough time in the cinema . we are back after the long weekend. a busy week ahead, let's get into the data we are going to be watching. 8:30, we get u.s. spending and income data from the commerce department. it will be a crucial look ahead on how the fed will respond. brazil released its first quarter gdp report and on thursday, the ecb meets to review rates and stimulus. tom: that will be interesting, to say the least. maybe the jobs report gets more visibility but the ecb could be very interesting in that press conference as well. let's look at the american economy through the prism of those holding court in london, david stubbs and neville hill. david, you have an absolutely spectacular analysis of america's personal savings rate. you dovetail this with what corporate profits are doing but i thought the chart was great. years,taken it back 30 the long-term decline in our our risinge versus income and a lot of noise in the crisis, mostly in the denominator as the incomes went down. a recent recovery in the personal savings rate, what is the paradox? is very interesting to see a strengthening economy and labor market and rising asset prices, and saving rates rise alongside it. that big decline you talked about that lasted more than a decade was a match by an increase in almost every asset class you can name. bonds, stocks, and the housing market before the crash that led to the great recession. the interesting thing is that you have seen savings rise when the economy actually is in pretty good shape. this is causing the corporate sector to be under some stress. profits have dropped. the have been spending a lot on dividends and buybacks and cap x that something has to give. we need higher sales growth to pay the workers the extra wages. that is hard if you do not have the spending coming from the household sector. if the households just start increasing their savings, the economy will boom. if they continue to say that, who knows what will corporate's will do? tom: neville, do you see the same dynamic in europe? neville: it is not saving as much. one of the interest things in -- interesting things in europe is a powerful surge on consumer spending on autos and durable goods. in the u.s. you have seen some of the oil price went to the consumer to be saved, and europe that is the opposite. recessionshad two and the last seven or eight consumersas a result, have not been buying cars or ipads and all of a sudden the have got the cash and they are out doing so. the u.s.rasts with where the drop in auto and retail sales were in 2009. there's just not enough pent-up demand to drive that ratio that david is looking for. tom: neville, thank you so much. jpmorgan, wefrom will consider does continue the discussion. joining us, carl weinberg. zakaria is going to stop by with his book on a liberal education. we have another liberal our coming up on surveillance. ♪ june beckons, and with it, said meeting and brexit vote. within this hour, carl weinberg on your chronic austerity. yields are higher -- the dollar stronger, gold weaker. janet yellen tracks the markets toward the dots. american discourse we do not debate. in defense of america's liberal education. good morning, everyone. this is "bloomberg surveillance ," live from our world headquarters in new york. i'm tom keene. caroline hyde is in london. brexitd you learn about this weekend? caroline: it still remains a throwing match. what interests me is how much the rest of the eurozone is getting a self-involved, particularly leaders. angela merkel's own allies started to weigh in, desperate to remind us that you have once and that is it. we will not be able to renew or dge.enish -- or re-ple just outlining what her allies are saying, how much it matters just to us at home, but outside the u.k. as well. tom: the euro debate about brexit is just as interesting. right now, an interesting tuesday. first word news with vonnie quinn. vonnie: north korea's latest attempt to launch a ballistic missile appears to have failed. in the past, some north korean rockets have exploded in flight. in iraq, government forces are making progress in their attempt to retake fallujah from islamic state. they recaptured about 80% of the territory around the city. the iraqis -- tens of thousands of civilians are still trapped there. in europe, small amounts of stimulus to get prices rising. fell 1/10 ofrices 1% in may. the central bank is trying to boost prices by cutting interest rates below zero. in the united kingdom, a new poll shows supporters of the , 51% of those surveyed want to stay in the eu. 46% want out on june 23. and the warriors beat oklahoma city in game seven of the western conference finals. -- up, cleveland and in the first game of the stanley cup finals. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world, i am vonnie quinn. tom: it is a golden season. it is exciting. it is a huge cultural thing. basketball is on fire, absolutely on fire, and hockey as well. this is great for business, great for revenue. it is very exciting. the super bowl and football gets all of the play, and the world series. this is great. there it is. on we go, basketball and hockey, into the very late spring. breaking news now, and energy transactions. -- westar energy of topeka, it is another indicator of we need to merge to urge, and below $50 a barrel. caroline: g xp -- vonnie: gxp is based in kansas city. tom: a lot here going on. the westar energy, it is a bit of the misleading name. it is much more of the utility business as well. more of that all across bloomberg through the day. let me get to the data check. it is sort of after a three-day weekend. rebounds near $50. a big -- the vicks showing the complacency within the markets. now 1215. caroline: we open up on this tuesday morning in the u.k., neither -- nearly every industry group down. down 2.9%. strip out the one-time items, the fx boost, and this is a company that is hurting because of the emissions scandal. money comes out of u.k. guilt, the bond market selling off as we open up after the day off on monday, and they follow u.s. bonds below us. tom: let's have a cart below the horse, horse below the -- it's have a cart before the horse, horse before the cart hour. significant disinflation under the two present level over a good four years, and a little bit of a rebound, nowhere near the overshoot that jenny yellen would speak of. -- that janet yellen would speak of. a theme for the hour. caroline, what do you have this morning? whatine: my theme is potential u.s. rate hikes due to the market. we are hearing great stories on the terminal about shorting china. i want to show you it seems to have been a bit of a flash crash that occurred for one minute and one minute only. you will see that we saw a 10% on the futures market. it did not affect the underlying index. remains trading higher overall in china. so much concern. meanwhile, the yuan depreciation continues. that happens when you have liquidity. that's when you have illiquidity. -- when you have illiquidity. tom: it is wonderful to have carl weinberg with us. usually he attends an international crisis moment when things are blowing up -- japan, china, brazil, whatever. it is nice to have you here. carl: i don't know how you can say that. tom: it is a group effort. you studied with lawrence klein. can you measure the economy -- can we measure the economy as mr. klein taught us after world war ii? carl: he really believed that the numbers told him what was happening in the economy. if you just look at the quarterly data, that is all you needed to know. today we have a much more detailed view of what is going on. off of timesumbled where we wanted fancy mathematics to do it for us. would you define austerity, and do we have global austerity? carl: i think we have had global austerity, and now we are in global neutral for a lot of countries. we have seen some fiscal stimulus appearing in japan. people in france want to do the same thing. we see the u.k. squeezing a little bit. cap and the -- canada is easing. we have seen some cracks in the fabric of austerity, which is a good thing. if larry klein were here, he would look at the events of the world, but it is not over. everybody has been looking for the recovery. we are still reeling from the shots of 2008-2009. tom: internationally, are we anywhere near getting back to normal? i mean, where are we? we are in the summer of 2016. we are pushing nine years this august. carl: that's right, and we are looking at world gdp that is hardly back to where it was when we started this hearing industrial production in europe is down 12%. in japan, 17%. there were more people in japan working in 1988, industrial production higher in 1988 than it was last month. how can we talk about any prospect of recovery with those kinds of figures out there? caroline: we had data out of japan today. it seems to be still up to the boj to tackle this. when can we see governments like japan taking back the sales tax hike and supporting fiscally? carl: you can see them taking back the sales hike as soon as today. everybody is talking about him doing it. for goodness sake, is that really the right thing to do? tom talked about austerity and ending austerity. japan's fiscal problems -- they are depopulating. they need people, not more fiscal stimulus. they do not need more government, or bond purchases by the bank of japan. the economy loses people, gdp goes down. that is econ 101. i think japan is really a basket case doomed by its debt, and nothing they are going to do is going to be up to help them. the data from japan last night was appalling. is that itod news was slightly less appalling than the month before. caroline: how much of a basket if wes britain becoming end up seeing a movement out of eu? the same in the u.k. as japan is experiencing? carl: the economy was getting into trouble long before that. foreign capital flows have been part of the u.k. expansion. we have had this record deficit on the current account, have a counterpart to that has been money coming in to finance it. that money has come from places that reduced commodities like oil and other commodities. the slowdown in capital inflows has come as a predictable slowdown in the economy. brexit or not, the u.k. is slowing. it is really none of my business which way brexit goes. i do believe, though, that either way we will see the u.k. economy slowing in a substantial way over the next year. vonnie: do we get any kind of ecb, orhange in the even in mario draghi's rhetoric? carl: i'm hoping he will finally tell us how he is going to buy corporate bonds. he has told us he will buy $20 billion a month now. we still don't know how he will pick which bonds to buy. our volkswagen bonds german bonds? they are produced in eastern europe and the united states. is he going to buy volkswagen, the m w, mercedes? volkswagen, bmw, mercedes? i hope he will tell us the secret formula that the ecb will going to be -- that the ecb is going to be. you mentioned world gdp. here is world gdp back 20 years with a presidential four-year moving average. here is the nirvana of the moment before the crisis for world gdp. we came down ugly but we have rebounded. why do we feel so miserable if we have come back not to where we were but pretty close? carl: is that the growth rate or the level? tom: that is the year over year growth rate. levelgraph out the world of gdp. it has not come back. draw up the level of g7 or world industrial production. tom: which is a lot worse. carl: we are down 10% from where we were in 2008. we have seen a period of growth after the crash, but we have not recovered. tom: we will look at industrial production with carl weinberg. coming up later today, lori at robert shiller of yale university. look for that in the 10:00 a.m. hour. ller on our exuberance. "bloomberg surveillance." ♪ tom: good "bloomberg surveillance" morning. right now, i was a bit distracted this weekend, i don't know about you. megan murphy is with a spirit she will be hosting "bloomberg " this morning. carl weinberg is with us. did you get on a harley this weekend? megan: i did not. i saw a lot of harleys. give us an update on the back and forth. what i find interesting is cleveland is july 18. is there an urgency to get to the convention, or would mr. trump like to keep it as far away as possible? over theat you feel weekend is an urgency to get this true sense of him as a candidate and consensus behind him, particularly with the paul ryan thing hanging over him. what we are seeing is a push and a huge push on fundraising, a huge push on how is he going to -- tom: is it working? megan: people are coming forward, just not in a very organized fashion and with enough money to give you the jumpstart you would think. he has a lot of ground to make up. tom: you are such an insider. would you explain to us why money matters? hillary clinton has a lot of money and mr. trump doesn't. what does that mean? hasn'tmoney actually mattered as much as it used to. freeber, he gets so much media, called earned media, in washington. so far it has not really mattered. he has raised his own money, far less than other people. traditional as her thai xing -- traditional advertising has not broken through. coming up after the convention, he is going to need money to advertisinghrough and hit her hard in the key swing state demographics. whether or not it is true and his true juggernaut phenomenon can break through that necessity for money -- we are talking about he needs to raise $1 billion. is that a realistic number? are we talking something even different than the $400 million, five hundred million dollars? that remains to be seen. caroline: give me a sense, once the money starts fueling in, where we will see hillary clinton? she is trying to paint donald trump as the ultimate insider in terms of money, he is out of touch with americans, he's a billionaire who owns casinos. to benefit nothing you and his proposals have hurt workers. they will use his connections to try to paint him in much the same way they did with romney. but he is such an unconventional candidate. i am not sure the attack strategies will make much difference. vonnie: what is the next important policy thing that he does? megan: we will have to wait for the convention. energy, foreign policy. i think you will have to see it on econ. that will be big, when he will do with his market strategy. tom: we will talk later about our discourse and liberal education. william kristol is trying to nurture a third candidate forward. is it you? megan: at this point it could be almost anyone. -- themney rumor likelihood of that happening is incredibly low to nothing. but it is still -- it persists .ut there until trump gets up on the stage, you will have people talking about it. tom: can i admit that addicts like you, this must be fun? megan: it is fun but it is also going to be brutal, and people type ofbe ready for the cycle that we will see here and the kind of attacks. tom: megan murphy, "bloomberg " this morning, leading the charge for our washington team as we go to cleveland july 18. if you need more of this fix, you can do that. "with all due respect," mark halperin and john heilemann -- they love the stuff, on the discourse of clinton. it is beautiful in washington this morning. ♪ tom: "bloomberg surveillance." caroline hyde in london. good morning, caroline. we will talk to forensic aria in a minute -- two very exact area -- thing ande redux washington still has no true rival and will not for a very long time and faces a growing number of constraints. the reality is that america remains a leading power and can achieve its objectives only by defining broad interests, working with others, and creating a network of cooperation. that, alas, does not fit on a campaign cap. the united states, it is something now. i am trying to stay out of the political debate, we have not seen this. carl: we have seen the rise of the emerging world, which changes the ability of washington to project its power. of thee point of view concept of economic policy for the world, it is no longer america sneezes in the world catches a cold. like 15% of world gdp, the g7 combined does not add up to as much as -- use towards bush senior as our timeline, we had trade, advancement on uruguay. good stuffe so much that it is impossible to go further? megan: -- carl: you can never do enough good. you can never let -- you can never able as will trade enough. as the chinese have said to us many times, the wilpon's largest emerging market -- the world's -- est emerging market and i think it clearly has been a step backward, and may be an example of some of the obstacles we will run into. without looking at where presidential politics might take us on trade. say it does not mean that if the u.s. sneezes we will catch a cold, but how much is china affected by rate hikes and the shivers that run down the spine emerging markets? type a lot depends on what of said tightening we will see. the baseline plan is for a little tightening over a long period of time. at least it is small compared to the big problems they face, which is that commodity prices are down and are a lot poorer because of that. 40% of the world economy is generated by countries that produce commodities in one form or another, including some development countries, some developed countries like canada or norway, australia, south africa. the emerging world, i think, has much bigger problems to do with , potentially to five-basis points. on a wonderful book on america's education system, in defense of liberal education. zakaria. ♪ caroline: welcome back. i am caroline hyde in london. tom keene is in new york. it is a down day on european stock markets. let's get to first word now with vonnie quinn. vonnie: oil refineries in france -- supplies cannot get to sites. to strikeers began more than a week ago because of labor reforms pushed by francois honan. 's president is sending a congratulatory president -- a congratulatory message to the philippine president. hoping that the two sides can work together to put relations on a healthy track. in the last three years, the number of afghans displaced by war has more than doubled. one point 2 million, according to amnesty international. policies says that meant to improve those conditions by those fleeing war has been blocked by policy. former attorney general eric snowden -- the biggest business lobby in the u.s. is launching a campaign to keep republicans in charge of the senate, according to "the wall street journal." being led by republicans who support donald trump and by those who oppose him. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world, i am vonnie quinn. tom? tom: bring up the single best chart right now, if you would. i think this is interesting. this is maybe my chart of the year. it is too early to call that. it is real gdp. we will show this later in the hour with carl weinberg and fareed zakaria. i want to switch this from real gdp to nominal gdp. there is a huge debate over whether smart people in economics should target nominal gdp. should they? carl: i don't get it. other people might, but i just do not get it. , pricespendent action should be an object of policy into and of itself. that is the ability of prices that is a target work aiming for, and looking at nominal gdp, it skewers the gap between what is happening with prices and within the real economy. tom: it may obscure price dynamics, but our prices squeeze lower, much like the time of arthur burns and before the great inflation? if you squeeze the price changeup, what does that do to your models and all that? carl: my model works on real demand. focusing on the impact of population growth, on the economy, will be so much more important than going to nominal gdp versus real gdp as we move forward. i think we are in for a period of price stability. the underlyingt pulse of the economy will be driven by changes in the number of people we have buying and selling. tom: that goes over to what you said brilliantly earlier on brexit, caroline. how nice to be english. because you have all those people coming in. caroline: yeah, and how long will that remain? it is a big debate among the technology areas. we have had a real growth in start up presence in the united kingdom, particularly in london but also in the north of england. how much will we see brain drain creep then? at the moment we have so much coming from the european union. when we rather it go to ireland? will be see not only demographic changes in terms of the aging population, but also -- tom: it goes to your work on japan. within this, are we setting ourselves up for an exhaustion us --for an exhaustion genousn -- for an exo shock? have only seen a reduction of about 800,000 in the number of unemployed britain's, so brexit campaign is arguing that the economy is creating jobs for foreigners rather than for people at home, and that is a big part of their campaign. but the 1.6 million people who came in is a big part of the growth story because that is 1.6 million more mouths to feed, people to close -- people to clothe. it is not so much doing the right thing on policy for the people who are there, but getting more people into the shops. caroline: how much do you focus in on some of the policy debate that engulf the whole of the eu policy? that has been the migrant crisis as well. how much is that affecting germany going forward and its growth prospects? surely there should be more people to be a will to work. how much will that be a concern and put stress on the economy? carl: i am so glad that you mentioned employment in germany. did they neglect to notice the retail sales report? deep -- the retail sales have declined. industrial production has declined in four of the last five months. thoseality is that indicators are untested in terms of being able to predict anything, and where looking at hard figures showing the economy is not doing all that well. there is a big debate in germany coming up. i am concerned that as we move forward, once we get past brexit, the next question might be a grexit question, with germans being unhappy with their economic performance. they may be wanting to take the same path that britain did, questioning the value of eu and eu membership benefiting their economy. caroline: really? -- vonnie: really, you think germany might take a vote on it? german savers are losing income. inare looking at gains people who -- if the english can ask the question, why can't the germans? areie: oil prices stabilizing around $50 a barrel. does that mean that we have an emerging market crisis off the table? carl: not at all. the only thing you can say that is good about $50 a barrel is that it is better for producers, but we're still down 20% -- but we are still down 27% year-over-year. us, carl weinberg with high-frequency economist. later today, robert shiller. there is so much to talk about. not only a modest housing economy with the boom up in median prices that we saw in recent weeks. robert shiller on america's exuberance this election season. this is "bloomberg surveillance." ♪ caroline: good morning and welcome back. im caroline hyde in london. tom keene is in new york. vonnie: the unemployment rate in germany has fallen to the lowest since -- the german jobless rate is now at 6.1%. unemployment for all of the euro area held at 10.2% last month. later this week, officials will the ecb caner sustain an economic recovery in the region. there is a slowdown in demand. -- thes are at capacity group reports that passenger traffic grew last month. "alice through the looking glass" came up short. it brought in $34 million over the memorial day weekend. the box office winner was the marvel comics winner "x-men: apocalypse." tom: here is what you need to know. over the years i have thrown exactly two books at my children and said "shut up and read it or there is no more money." fareed zakaria's "post-american world" is one of them. it sold 12 or 13 copies, but it changed the discussion on our international relations. carl weinberg is with us with high frequency economics. fareed zakaria joins us now. he also works at the death star over at the central park west. wonderful to have you here. congratulations on this book. to me, the mystery of it is that -- asian memorization. you say americans with all of asian,or, trying to be you say be careful. why the you believe that? fareed: we must copy the countries that do really well, and that is south korea, singapore, china. the interesting thing about those places is, they emphasize large-scale memorization. they emphasize repetition, and not only is that not a particularly useful set of skills in general, it is particularly useless in an age where you have at your disposal cangs like google or you find knowledge quickly. what you need is creativity, thinking laterally, the ability to problem solve. we are going from our core strengths, which is thinking out-of-the-box, trying to become engineers, and that will not make america great again. tom: i grew up in a core curricula. i got lucky as an aerospace engineer in -- i had the great blind luck to live here. attracted to was come in corbett did not end up studying one. i wish i had more grounding in some of the areas -- i was attracted to common core, but did not add up studying one. the strength of the american system is that you can indulge her passion. one day you are interested in physics and you can do that. one day you are interested in poetry, and you can do that. one day you are interested in history, and you do that. but it leaves gaps in your knowledge. it leaves gaps about stuff that you do really need to know. i would argue for some kind of balance, where you do not want to give away this really extraordinary thing you have in the united states. every other country in the world, you are forced to study a canonical set of subjects. in the united states, you can mix and match. so mix and match, but at the same time make sure that you do not have too many gaps. happened without political discourse? if we are in search of a liberal education, you and i have been chronicling this political season. it is exceptional how ugly the discourse is. how do we get back to a better debate, a better discourse? fareed: fundamentally the problem is, we are scared. we are scared that we are losing ground, that we are being and if you think about donald trump's rhetoric, it is all about -- tom: are we scared about what bill cohan calls about -- about what bill cohan calls a disgruntled american? fareed: the united states is doing extraordinarily well in the world. there are nine global technology platforms in the world. these platforms are essentially moneymaking machines on a multibillion-dollar scale, transforming industries. there are nine of them. they have 65% to 95% market share. chrome,ing about google microsoft outlook. the next two coming up are airbnb -- all of the money in the world is being sucked out and transferred to one small part of the world, silicon valley. we should not be feeling so down. tom: it is scary to think of you and me with airbnb. caroline hyde, step in. caroline: on this side of the atlantic, the debate here is always inclusion when it comes to our education. are we helping the less well-off? what about the market in that respect in the united states? problem of inequality is absolutely real. it is happening in every country in the world. here the gap is bigger. they are talking about it in china, india. i do not think anyone has a ,lear answer as to what to do universal basic income being something that we talk about. but it should not obscure the -- the economy in the united states is extremely dynamic and we are dominating all the major industries, the present and the future, from telephony to social networks. the united states has revolutionized its energy profile. we are the largest profile of liquid hydrocarbons in the world. we are demographically vibrant. to me it seems that, given these attributes, we would be entertaining the idea that we are finished, we are defeated. the rhetoric of decline and gloom and doom seems odd. i can understand other countries feeling like they are trapped. vonnie: carl, i know you want to ask him something. carl: you are very inspiring with your opening statements. it is creativity versus open execution, and it seems to me creative, andis asia seems to be winning in terms of growth, in teams of -- in terms of dominating the global economic situation. conclusion?right the gdp numbers are so much faster in asia and so much closer -- so much slower in the u.s. i think when you are starting from a lower base, you can have cheaper arbitrage. but then you max out. play -- wasle to able to pay cheap labor and got quite good in some areas -- video games -- they were quite innovative. but they cannot do the kind of a cross-the-board creativity, inventing the next industries. that has proved to be very difficult. is,ink the real challenge how do we do compared to our other advanced industrial countries? not how do we do with south korea or japan. south korea is still at $15,000 per capita gdp. at 55,000. how do we do with germany or japan? in those areas, we are very dynamic. tom: in defense of liberal education, page 62 -- jane -- or shouldp ross our kids do minecraft? which is it? fareed: i have a son who plays video games, so i have this debate every day. i think learning how to use computers well, including programming, is almost like learning a language, a crucial language of the modern age. if you were to ask me what is more important, to learn the language of come cutera coding or the language of -- of computer coding, or french, it is not even close. but i do not think it is a substitute for broader disciplines like physics or english, which are much more substantive. thismy family is watching eed, go and saying, "far away." fareed zakaria will continue with us on radio, "bloomberg surveillance" on radio. this is a very good book for parents who -- what do you learn? manchurian or -- if you do not learn chinese this summer, you're going to die. "in defense of liberal education." caroline? as it is on long audible and they can listen to it as well, i am sure many a kid will be digesting it here in -- autos are the poorest performing sector. ♪ "om: "bloomberg surveillance from new york. it is quiet today. euro,en showing stronger and everyone come as caroline hyde mentioned earlier, is watching the yuan. 6.57. a grinding, we can and renminbi -- a grinding, weakening renminbi. caroline: i want to go into that. coming up shortly, it is "bloomberg ," with david westin, megan murphy, and jon ferro. to priceou want action, go to china. not only did the market have the biggest day of the month, but a bighigher, story, and a lot of conversation there. --the week ahead, a huge huge in vienna, hotels are sold out. the ecb, then payrolls friday. event risk dominating the week. tom: let's go to our single best chart. we brought it up earlier. carl weinberg is with us, from high frequency economics. nominal of real and gdp. this is real gdp, showing the frustrating decline in part of the last -- in the backdrop you can see the volatility. the nominal chart does not look all that much better because inflation has become narrow. talking about dynamism, we need to find new dynamic systems of economic growth. ,s that what this is all about frankly, the search for the new new? carl: we need something new in the world to drive our economies forward. we need something real, like the race for space, the way that it moved the economies forward in the 1850's and 1960's. that was a driver of investment. now we need to come up with the next new thing, and i do not know what that is. but this notion of secular stagnation has to do with the fact that there is not a lot of new stuff to invest in. we can make more of the same old stuff, but we need this creativity we were just talking about in the last segment to move us into the next phase of growth. we have had plenty of cheap cash floating around. going outseem to be there, raising debt, selling bonds. are they investing in the right places? m&a andworried about buybacks rather than new investment? carl: you just said the keywords, "new investment." we can invest in better, cheaper, replacing some of the labor costs, but at the end of the day we need something big. maybe electric cars is something good to look forward to. that is the sort of scale we want to think about in order to drive the next wave of investment, the next wave of growth and prosperity. tom: carl weinberg, thank you so much, from high frequency economics. really a lovely reset this morning as we look forward to a most busy june. caroline hyde, thank you so much. "bloomberg " is next on bloomberg television. "bloomberg surveillance" will continue. we will continue right now with fareed zakaria as well, "in defense of a liberal education." this is "bloomberg surveillance." ♪ david: -- jonathan: global bond markets retreat. yellen says a rate hike would likely come in the months. david: chinese stock futures plunge by 10% before snapping back in less than 60 minutes. decision, opec meeting in vienna. investors are braced for choppy markets. jonathan: a warm welcome to bloomberg , i'm jonathan ferro alongside david westin. from your long weekend and malcolm back to megan murphy, our washington bureau chief. megan: it is jobs week. david: we also have some terrific guests for you this morning. mark otten osseo will talk