lacqua with tom keene in new york. tom: it is a quieter economic day after the festivities with janet yellen yesterday. give us some perspective on that better than good number. : it is better than expected but only a touch. first quarter gdp growth has been revised up, but i think what we worry about in europe is that we are becoming a little bit like japan, that we need to get used to this slower growth rate. we will get paul donovan's thoughts on that, but let's get to the bloomberg first word news. istanbul, a car bomb targeting a police video has killed 11 people. seven police officers are among the dead and no one has claimed responsibility. two new opinion polls show the u.k. referendum on leaving the european union is too close to call. the poll for the daily telegraph says 48% of those definitely planning to vote are in favor of staying in the eu, with 47% wanting to leave. another poll conducted by the times has the remain forces tiered, 43% to 42% hillary clinton now has enough delegates to claim the democratic presidential nomination according to the associated press. they are factoring in the delegates she has one and commitments from superdelegates. she got the news in california, the largest of six states up for grabs today where she is in a tight race with bernie sanders. hillaryanders says clinton is depending on super doubt -- superdelegates and hopes to change their mind. labor trouble may slow down france's economic recovery. send -- the seine is at its highest levels in three decades. protests against the government's labor reform plan are costing up to $22 million a day. in peru, wall street investors say it is a too close to call presidential election. counted,of the votes there is about half a percent separating the candidates. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world, i'm shery ahn. equities, get to bonds, currencies, commodities, a quieter week. futures up seven. yields churn. the euro stronger over the last two days. hourshilling in the 6:00 really pushes against the oil bulls. the vix showing, that is a well number, 13.12. level, brent0 crude $51 a barrel. and then we look at the sterling cross. sterling, im going to call the brexit debate from here with a 146.03 -- 1.4603 sterling. i'm glad -- francine: we look at the pound on a minute by minute basis as the polls are very close. back and it was unclear whether that was because of the brexit or a fat finger. you,is what i picked for the south korean won. it jumped the most in six years after janet yellen quelled speculation about the rates -- about the rates being raised. tom: where else are you going to get dollar one and aussie dollar ? let's wander over to what janet yellen talked about yesterday. this may be my chart of the year, i have not decided yet. forget about the blue noise. that is their quarterly data. average froming eisenhower over to the one slow down, the double recession of 1980, and it shows this massive , andver in productivity how unusual it is to have a soggy productivity data. the efficiency of the american economy really only challenged twice like this in a good 60 years. francine: that is quite a chart. i picked something to do with oil linked to cross shell. u.s. rigging count back and focus. the white line is the u.s. rig counts, brent in purple, blue is wti. that is the biggest gain since december according to baker hughes. this puts in a chart what we have been talking about, that these levels, shale producers come back online. tom: very cool. francine: let's talk more about and the linkage that has with inflation and monetary policy. paul donovan is the economist at ubs. janet yellen with the speech of the month. did we learn anything new from her? she was very tempted. tepid.d -- she was very paul: i miss paul volcker. at least with him he took the view. yellen is delicately balancing on the fence. i do not know whether she has been scarred by what happened in 2008 and feels uncertain, that we got this very, i'm going to tell you how wonderful the economy is and we have a litany of risks. i think they are going to hike and i think the inflation story justifies that. nearly every inflation number is above its 20 year average except for the headline, and that is the oil affect. for goodness sake, take the decision, put us out of our misery. i think that is what markets would respond to. tom: the problem -- francine: the problem is they keep saying fed independent. is it a blip or something more sinister? when any economist says data dependent, it does not mean the fomc has been clustered around the bloomberg terminal. the point is, you are not supposed to react to a single data point. this is one of the most divided statistics on the planet, is highly inaccurate. we know the numbers have been revised at least three quarters. we should be looking at the trend, and the trend is telling us the labor market, the job vacancy rate is at a record high . the duration of job vacancies is at a record high. wages are rising by three and a quarter percent, having leapt in the last 18 months. we have got a reasonably tight labor market. if most inflation indicators are above their 20 year average, we probably have got an issue. tom: give me an update on the financial side of this discussion and that is expressed their negative interest rates may be more than anything i have ever seen. there is the idea of a chronic weight of negative interest rates. how much baggage is negative interest rates to central bankers and the real economy? paul: the way i think of negative rates, it is nothing to do with monetary policy because the impact on the economy is nothing like a normal change in interest rates. it is a fiscal policy. banks, itings, tax on is basically a tax. that does act as a constraint and we saw this with the ecb. they will go up to the fact that negative interest rates are a tax on banks. what we got last mark was this complex, we will tax you hear and subsidize you hear. effects in switzerland, the ubs home country where banks are raising mortgage rates in turn -- in response to negative interest rates on deposit, because they have to have a revenue stream. a good example of the consequences of negative rates. tom: to be quick, what will it mean to the major banks of europe? , but asou work for ubs a general role how are you supposed to make money in a financial system with negative rates out that far in maturity? ecb wasis is what this trying to a dress, subsidize funds for lending. they are trying to give back with subsidies on bank lending. whether it works or not, it will take some months to see. tom: paul donovan with us from ubs. us in theing with next hour and joining us as well, gerardo rodriguez of blacklock. -- black rock. on e.m. and their central banker, janet yellen. ♪ francine: i am francine lacqua in london, tom keene in new york. this is "surveillance. mary: general motors ceo barra says the largest u.s. automator -- automaker is undervalued. she says that gm can handle a downturn and sustain profits if the economy slumps in the next few years. >> we are going to focus on doing the fundamentals, making , andusiness more efficient investing in technologies like autonomous and conductivity and electric vehicles. fuel cells that will change and lead the transformation. shery: we will have more of that interview coming up in the next hour. deutsche bank is normally the go to lender in europe's largest economy but it is missing from the largest takeover. it does not have an advisory or financial role in the 62 $.5 billion bid for bayer. has sat out the merger wave .nd crop chemicals samsung may come out with two new smartphones with a bendable screen according to people familiar with the matter. one of the phones would fold in half like a cosmetic compact and the other would have a five inch screen that unfurls into a display as large as eight inches. francine: thank you so much. royal dutch shell has outlined its vision for the future and it's capital markets even today. cut spending further and increase savings after their record purchase of bg group. they have to adjust to the oil slump. ryan chilcote sound down -- set down with the ceo. -- youou see at a levels see it at levels where we have to do more we will do more. we have more in our tank in terms of deferring and canceling investment programs. we can work much harder on acquisitions so and i'm not so worried. francine: ryan chilcote joins us. he says he is confident and they can work it out but bottom line, it is extremely difficult for a company like shell to adapt to this new reality. ryan: i think shell is really saying two things. they are going to cut costs as quickly as they can. if you look at capex and the expend, just a few months ago they were talking about spending $33 billion this year. a month ago they were talking about spending $30 billion and now they are talking about $29 billion. the second thing they are saying billion we get to $25 it is shooting ourselves in the foot if we cut any beyond that. francine: how are we sure that they continue investing? this is something we talk about -- talked about with the energy secretary of the u.s. is there a concern if big companies like shell pullback from investing in the oil price sheets back up? ryan: that is right, but i think shell sees its role as playing the long game, and i think they are cautiously optimistic about the oil price. if you listen to them carefully, what they are saying is they expect and are banking on getting to a $60 a barrel oil price i-20 20. that is -- by 2020. barrel him about $100 a and he said maybe never. this is a company that is not particularly bullish about where we are in the short-term. the acquisition in the energy industry, a want to make sure they digest it without any indigestion. francine: that is a great way of putting it. ryan chilcote with the very latest. paul donovan is from ubs investment bank and he is our guest host. the price of at oil, the correlation between the stock market and oil has been quite strong. now it is a little bit less .orrelated overall do we need to look at it as a benchmark for global growth or is it different? paul: you have hit one of the key issues, with shale what we now have is i think more of a corridor in which oil can bounce around. the past relationship of oil to growth is not necessarily so good because shale, you can turn shale on and off. means, and thet imf has done a lot of work, we probably stay within a fairly rigid corridor. $80, but you stay within that. tom: is opec dead? dutch look at what royal shell is doing in nigeria. nigeria is blowing up on the niger river in the swamp, in the delta where they have all of their oil might. it is blowing up. is it a symptom of an opec that is flat on its back? paul: i do not think we should write off opec entirely. clearly the dynamics of oil supply have shifted but opec still accounts for a large supply of oil. within different parameters to be able to have an impact on the margin. we still get the tense moments ahead of every opec meeting. you guys still cover every meeting and that tells us something about the relevance overall. perhaps the structure of the oil market has changed and opec still has a role to play. tom: paul donovan with us. futures up eight, dow futures up 67. i am watching german yields turning. on this discussion of oil in our next or -- our, gary shilling with a scathing note on oil to revisit low $30 a barrel. must listen, gary shilling in our next hour. ♪ tom: good morning, everyone. bloomberg "surveillance." francine lacqua in london, i am tom keene in new york. paul donovan is with us. i looked at german manufacturing. i had never done this chart before and it was job dropping how it slowed down, taking it more of a chronic chart. this is the four year moving average of german manufacturing. the blue circles are where they would like to be. they are not there. is this because of the euro? what does germany need to do to jumpstart manufacturing? paul: the issue is the german economy. germany sells to europe and does not really sell to the rest of the world. we know what has gone on in the eurozone. and thesells to asia united states but that is a relatively small part of its economy. it is the eurozone story which has been part of the problem. within that pricing power has been relatively weak. a have not been able to increase the value of their overall production domestically that much. we are now starting to see that change and starting to see this creep in. today, theta we had domestic economy is just starting to show signs of lives -- life. the companies that are the backbone of germany are starting to get credit and that is helping the economy on a domestic side. tom: can they do that without a mid-level and small level banking system? absolutely. looking at credit in the business sector, the most important source is other companies. company is what dominates and it has been improving, or house because of negative interest rates. large companies do not want to hold cash on balance sheets so they are happy to lend it out. tom: paul donovan with us with ubs. i believe there is a vote in the united kingdom coming up in a number of days. , up on bloomberg peter krause from alliance bernstein a.b., their ceo. from new york, from london, bloomberg "surveillance." ♪ tom: good morning, everyone. london, york, from francine lacqua and tom keene. here shery ahn. new pressure on bernie sanders to exit the race for the democratic presidential nomination. according to the associated press hillary clinton has enough nomination, win the including those she has one in commitment from superdelegates. polls show she is in a tight race in california with bernie sanders. she is depending on superdelegates that do not vote until july 25. a car bombing in turkey has killed at least 11 people and wanted dozens. said --s and eston ball in istanbul said the bomb targeted a police vehicle. meanwhile, turkey is once again threatening to suspend the refugee deal with the european union. the warning comes from the turkish foreign minister who says if the eu does not make good on its promise to let turks visit europe without a passport, they will block refugees. judges at the european union's top court have rolled on a case that could spread the fight over whether the u.k. leaves the eu. one of the biggest issues in the brexit campaign is how the eu deals with those seeking asylum. a little more than two years ago, india's prime minister could not get a visa to the u.s. this week he will a dress a joint meeting of congress. visiteded yesterday and arlington national cemetery. the u.s. sees india as a market -- fromrything for everything from f-16s to iphones. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world, i am shery ahn. tom: a victory lap. inhave been out front informing you on a dearth of productivity. janet yellen got the word yesterday. michael mckee brings us some brilliance on our efficiency as a nation. michael: you have been very efficient with this. janet yellen yesterday talked about why this matters. we have had a lot of job growth and low gdp because productivity has been low, and that hurts you and companies in your wallets. productivity has been running at a rate of about half a percent less the red line you can see on this chart. ands the average tween 2000 2010, two and a half percent. you can see wages have been depressed by low productivity. they came down after the financial crisis and the have stayed down. , it isproductivity rises not clear whether that dump is going to repeat. -- bump is going to repeat. tom: when do wages go up? that is what she says is the big debate and economics, why this has happened and what you do about it. it is not clear the fed has much of a role, the companies are not investing. a lot of uncertainty. we talked about that with does lockhart from the atlanta fed yesterday. productivity and wages when up and topped out after the tech double burst, and we had recovery after that recession, and downhill since then. we are not seeing productivity growth or household median incomes rise. trumphis is why donald and bernie sanders exist in america. that is the median income. in thes low as it was late 1980's or 1990's? michael: it ties with 1995 is basically what you are saying. to what: it is similar we have seen in terms of any here although to a smaller basis . i wonder if it is pushed by qe. there's is a similar problem when it comes to productivity in the u.k. i want to go to paul donovan, you have done some research on productivity. are we measuring it right? paul: so much has changed in the global economy in the last decade or more, we are trying to see the world using economic tools that were crafted in the 1950's. in one instance, companies are not investing as much as they used to. they do not have to. yesterday, i was working in our amsterdam office and i was on bloomberg, and i am working from my laptop. laptop.p, not ubs' i am subsidizing shareholders because companies do not invest anymore, people invest and adapt their technology for the environment. we are seeing is really big changes coming through in the way that we work. a growing conviction amongst economists that the data we are using is just not fit for perfect -- persis -- purpose. francine: this goes back to what we talked about it or market. this -- about labor market. this is from one of our users. you see the red, and this is the fed labor market conditions index. you say they are measuring it wrong because it does not take into account flexible workers. aul: it is difficult to get handle on things like self-employment. we have a demographic shift in the united states so one of the things is the unemployment rate goes down as people voluntarily leave the workforce. out ofcentage of people the workforce trying to find a job is falling. people are taking early retirement. probleml, really big and this is coming back to the populism, we do not have one labor market in the states anymore. there are three, skilled, semiskilled, and low skilled. skilled and semiskilled are very tight and that is where the wage focus is coming in. tom: what did we learn from janet yellen yesterday? michael: we are keeping our options open. it is possible they could do something in july. tom: so i can take off all of june? michael: no, we have a brexit vote, we have a lot to do. tom: it has been a challenge for america and as francine mentioned, for the united kingdom as well. coming up on bloomberg radio, we are thrilled to bring you richard greenfield and walter piecyk of btig. we will look at the state of expertise onter's the land of tim cook. ♪ francine: these are live pictures of tom keene. picturesque picture of tom. before the u.k. votes on whether to remain in the eu or not, there are no clouds on the horizon but we did see a little bit of a move on sterling earlier this morning. we are trying to wonder if it was a fat finger or whether it is linked to some positioning ahead of that referendum. john healy is the secretary of state for housing and planning. paul donovan is also joining us to talk about the referendum and what it means for the europe investment. you are from the remain camp and we have heard the arguments that a lot of people on your side make. as an investor or as a normal person on the street, how should i read the polls? john: you should read the polls as finely balanced, closing. you should see the level of interest rising. tom: should i believe it? john: it is all we have got to go on. in a sense we are all working in the dark beyond that. those views are mixed just like the polls so we have to rely on the polls for what they are worth at the moment. and we have to continue to maybe argue it. it, i am a labour mp and we are firmly for remain. party, firmly for remain across the board. francine: it is very difficult to model. it is very difficult to firmly say what happened if brexit were to prevail. will house prices in london collapse? john: it is hard to say. there is certainly a chilling effect in housing and development, and that will be the case across the board. i was at a conference this morning where i have spoken and city investors were saying the same thing. the word uncertainty characterizes everything. if we vote for leave it is unchangeable. i think some of the argument has poorly served the public because it has been overstated, a combination of wishful thinking and scaremongering on both sides. , think all economic analysts england, or bank of our own treasury in the u.k. may disagree about the scale of the economic hit, but people agree there will be an economic hit with consequences and uncertainties. tom: we have a phrase in the united states -- "if i am elected, free beer." you have got to get out the vote. i am from the distance across the atlantic and everything i read about brexit and remain is to get out the vote. john: i have not got free beer to offer people. i am doing it from a heavy industrial area, still a manufacturing area. by talking to people and trying to bring it home in bread and butter terms, pounds and pence in their pocket. why we should remain. tom: within that is the idea of what would happen one year or two years out. what is your research on what will happen in a two-year process if we do have brexit? paul: this is where so much of the uncertainty comes in because the whole key in the event of a referendum decision which leads to the u.k. leaving is what terms does the u.k. then get. that, i it goes beyond think, and this is one of the criticisms i have of the u.k. treasuries. they assumed if the u.k. leaves nothing changes in europe. i think that is unrealistic and i should imagine the government in berlin thinks that as well. that fact changes the u.k. economic outlook. how do we deal with a europe that is perhaps more southern european in the absence of u.k. participation? john: that is an unknown. u.k.,own unknowns are the if it does vote to leave it is not just uncertainty on the 23rd of june. remain ather we try to member of the single market, which is at the economic heart of this. strategy, there will be a time we try to negotiate with 27 countries we just stuck two fingers up at. francine: you could argue you are at desk in a more powerful position because the u.k. and jerk -- the u.s. and germany cannot afford to lose the u.k. happens, can we save automatically it goes down 30%? paul: i do not think you can be certain about it because the key issue is the u.k. runs a large deficit that is funded primarily by foreign direct investment. the question is what happens to that in the wake of a no vote? are we going to pull out our foreign investment? in which case we have a complete disaster for sterling. do we get people who will wait and see or do we get some halfway? john: i would agree with that. i think what is hard to do is put on certain figures. i think everyone is agreed there will be an economic impact. you do not have to like george osborne or entirely believe the will be to know there an immediate and profound impact on our economy. i have done quite a lot of work on trade and the idea that britain on its own can get that are trade deals on better terms than a big, single market, 28 countries together. with the u.s., with china, i think is with the birds. that is my worry, that when we try to place the deals if we get to the negotiation table, what we will be able to strike will be worse. this is emotional, and you have the two parties that are in motion and really fighting. we still have three weeks t. booth will think about? i do not want you to make arguments on either side. what do you think about? john: this is a head and heart debate, and as a politician you might be described -- surprised. i want people to take a heart headed economic view. part of our fabric has built up over four decades and it is the consumer rights that we take for granted, environmental standards, workplace rights that are guaranteed by europe. those are the sort of things that in practical pounds and pence terms do matter to people that are challenged quite clearly. francine: and others would disagree with that. tom: what you need from your prime minister in the next couple of days? the: do not exaggerate scale of the impact. concentrate on the economic uncertainty. britain's place in the world as an international nation, playing a lead part in nato and the united nations and also in the european union. to his colleagues, i think he's being dragged down at the moment withintical rivalries the conservative party, so our main advocate is diminished. there is a big job for us to do in the labour party which we are getting done because we want to see britain remain. tom: john healy, thank you so much. secretary of state for housing and planning. futures up seven, dow futures up 61. the euro, 113.68. from london, from new york, stay with us worldwide. ♪ tom: good morning, everyone. the yen pulling back. -- 106, of six, 107, 107. here shery ahn. according to the wall street journal, the second round bids was due yesterday. verizon is competing with the yahoo! assets. the head of general electric's power business says lack of financing may delay more than eight alien dollars of sales opportunities around the world -- $8 billion of sales opportunities around the world. he says the gas turbine division is looking for -- francine: time for our morning mess read -- must read. contest,usion of a talking about the u.s. presidential race, that ran longer than clinton or anyone else anticipated will put new pressure on sanders to end his insurgent campaign. on clintons a burden to find a way to unify her party after a sometimes bitter fight. let's speak to marty shanker out of washington dc, great to have you on the program. what is the one thing that hillary clinton needs to get right? bernie sanders needs to make sure he steps down gracefully and supports her. marty: she needs to make sure she unified the credits behind her without alienating sanders' fervent supporters who have an emotional tie to bernie but not to hillary. francine: it is all down to who she picks for vice president? marty: i think that would have a significant calming affect on sanders' supporters. my personal view is i doubt very much she would bernie sanders as revised presidential running mate, but somebody who ideologically meets some of the criteria that bernie sanders has set out would go part of the way of energizing her base. tom: when a reporter speaks to republicans on the hill, what are they hearing? marty: they are hearing a lot of concern over donald trump's rather vitriolic rhetoric over the judge's issue over the last that wes, and the fact had this great scoop yesterday in a conference call and how he is not tacking down but doubling down. that is causing some trouble. tom: marty shanker from washington. enought really convey for a global audience, the mix of where we are. in the early evening every day of trying to keep score of mrs. clinton and mr. sanders, and mr. him withd the idea of his own campaign. francine: it feels a little bit like grexit in the sense that guys like paul donovan have to figure out how to model the election, because we have never had such a candidate. tom: it will be interesting to say the least. rodriguez, a good time to catch up with the gentleman from black talk. -- blackrock. the regime change in brazil. gary shilling will be joining us as well, reaffirming a weaker oil. paul donovan from ubs, thank you. ♪ tom: janet yellen, actual progress in calling markets this morning. plunge under $20 a barrel. in this hour, gary shilling on his deflation. mr. trump feels the burn. mrs. clinton turns her attention to defeating republicans. maybe we will see that tonight when the results come in. good morning, everyone. this is "bloomberg surveillance concha -- this is "bloomberg surveillance ," live from new york. rex it really heats up. fat finger on sterling today. the proverbial fat finger. francine: there was quite a spike up. remember over the weekend we had the first calls indicating that 50/50.is then today it rallied inexplicably. either there is repositioning or there is the proverbial fat finger. tom: let's get to our bloomberg first word news with shery anh. shery: in istanbul, a car bomb and would people more. several police officers are among the dead. no one has claimed responsibility. kurdish rebels have carried out deadly attacks in istanbul and ankara since last year. the referendum on leaving the european union for britain is too close to call. 48% of those definitely planning to vote are in favor of staying in the eu, with 47% wanting to leave. another poll conducted by "the 43-42.has it at hillary clinton has enough delegates to claim the democratic presidential nomination, according to the associated press. the ap is factoring in the delegates clinton has won in commitment with superdelegates. clinton got california. polls showed she is in a tight race with bernie sanders. sanders says clinton is superdelegates. house speaker paul ryan is coming out with policy plans as a way of uniting republicans divided by donald trump's candidacy. ryan's first proposal, overhauling -- calling for changes in welfare and aid programs. and flooding and labor troubles may slow down france's economic recovery. have calledecutives on government officials to assess the flood. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus i am sheryworld, ahn. tom? tom: thanks so much. valeant -- i would not normally touch on this -- but it is a drama that is out there. they cut their forecast, revenue a little light. i want to make clear the press release has revenue up 9%, but on an ongoing, organic basis, there is a revenue decline. we will have much more on that through the day from our pharmaceutical team on valeant. stabilization after the janet yellen speech yesterday, with the stock market doing very well. futures advancing and up six. you wonder if we will see dow, 18,000. i will call it risk-on on oil. next screen, quickly. 13 -- thethe vix vicks, once -- youcine: i want to show currencies of australia and india rising after the nation's central banks kept interest rates unchanged. tom: we talked with michael mckee about this. the four-year moving average, productivity showing how unusual the challenge is, the rollover is. we will talk about emerging markets in this hour. francine: i am looking at oil rigs, tom, in white. the rigs out in blue. wti and purple -- the biggest gain since december, only the second edition this year. it is important because it really shows the fact that there is so much more focus on shale producers. tom: there we go. we love to have gerardo rodriguez with us from blackrock. he has served the public of -- the republic of mexico and he has a unique perspective on emerging markets. also, he played basketball in mexico. can the warriors or cleveland comeback? gerardo: i think they will. they have a pretty strong team. may still be yet to come, so i very much look forward to a tight race to the title. is centralmr. curry basketball player to the world. gerardo: the fed is clearly relevant for what happens. however, i think the markets in emerging economies have had enough time to accommodate for a potential change in the fed narrative, sort of a fed cycle. there are other elements that ,ave become more relevant particularly having to do with global economic activity and china and the risk. tom: if it is a bear market in emerging markets, do you buy straw hats now, or do you have to wait for other signals before you can go long e.m.? e.m. in general has come a long way from the macro adjustment that was going through the temper tantrum in 2013. from the macro perspective, you see the healing is advanced. the currency is doing a lot of the heavy duty of sort of fostering these adjustments. what you have in a e.m. right now much more benign environment that will allow the asset class to perform. we do not have a catalyzer yet, and that has to come from economic activity -- in particular, manufacturing export which has been stagnant for three or four years. tom: francine? francine: there is something that really caught my eye today. the pboc's deputy governor this morning saying that they would benefit from a fed rate hike. , awould point to a u.s. stronger u.s. economy. is he just talking for the sake of it to appease the u.s.? what an interest rate hike not be extremely hurtful for the chinese? gerardo: to the extent that the fed is able to raise rates, as we all expect, on the back of a stronger economic growth momentum in the u.s., that has to be positive for the world in general. so in that sense, not only china , would rest of the world be better off as the fed goes to a more normal interest rate environment. there you see the other aspect of the unknown unknowns of these monetary experiments going on around the world, in terms of financial stability. to the extent that we go back to these more normal interest rate thoseios in the u.s., risks coming from a potential disruption of the financial sector would actually decrease. ifncine: the problem is that it also leads to a dollar rally, that would suppress the chinese. gerardo: absolutely. if you look at what the fed has been doing, they are calibrating the response based on pretty much the evolution of the dollar. it looks like the zero lower monetized transition through the currency has become much more powerful than people expected. tying financial conditions through the stronger dollar is clearly hurting the rest of the world. the fed has recognized that. i have not seen a more -led fed, trying to calibrate based on how the u.s. economy behaves based on the dollar and the negative feedback. tom: do we risk as exporting their inflation and disinflation into america? gerardo: absolutely. the way i would put it is that through a stronger dollar, the fed has got concern on the positive growth momentum, through the consumer in the u.s. , is at risk of being exported away through the external account. so you have this element of an interaction with the u.s. economy with the rest of the world that has not been very relevant in the policy framework that the fed is trying to -- tom: let's come back and we will speak on inflation and disinflation here with gary shilling, whose oil call is enough to get your attention. much more with gary shilling on deflation. this is "bloomberg surveillance." good morning. ♪ tom: good morning, everyone. from new york, from london, "bloomberg surveillance." "avid westin of "bloomberg is up entirely too early. toid: what a privilege, tom, be here with you and francine. what more could i want? tom: he traveled to detroit, where he spoke with the engineer who tried to engineer general motors' futures. >> to make sure that we are maintaining a -- breaking even at a $10 million or $11 billion market. when you look at what is happening in the last recession, making sure we have a breakeven point at that level is very important. tom: this is maybe my favorite ceo. she did the engineering thing -- david: it was like going home. what did you -- david:at did you learn? a lot of people say she has done ok because car sales overall have been growing, something like 17.5 million per year. what happens if it turns down? can she manage that situation? she says they engineered it with their balance sheet, and they can break even at 10 million or 11 million overall. tom: isn't there a debate with what breakeven is, with ford, with volkswagen? is her break even same as goldman sachs or morton stanley -- or morgan stanley? david: they want to invest through the cycle. they want to make sure if there is a downturn they can keep investing in new product, and that is by taking people off line. --: i cannot get a cadillac i cannot get in a cadillac anymore. the roofs are too low. to themt is important what they do. the biggest question for wall street really is why their stock price has not been up. they are lagging s&p 500, even toward the bottom in car manufacturing. this is what she had to say about why stock prices are struggling. mary barra: there is an industry affect right now. a love in the u.s. market, as it largesignificant, where a percentage of our profits are made, there is a big concern of, are we at peak or are we headed to a trough? one of the other areas with all the transformation and what has sharing andh economists, people are saying it is a cyclical business, and as we come out of the cycle, what will be different? weathering the storm, she is trying to change withntire nature of gm, ridesharing and autonomous. tom: francine, jump in on general motors. francine: david, it was a great interview. she was arguing that people do not really understand the business model, saying that they can withhold anything and that they are undervalued. we just heard her say that almost everything is undervalued. is she believable? david: this is what she thinks. the audience can decide whether it is believable. she thinks tesla, which has an almost value -- which has an , is seen it more as a tech company. she wants to cgm more as a tech company. more investments in tech three she wants to turn gm from an auto company into a tech company. gerardo: i think there has been a lot of hype on the teslas and the apple car and those ideas. clearly, the car industry is ripe for a technology transformation. but one has to think of who is better positioned for that. the traditional manufacturers with all their expertise, trying to incorporate technological elements in the industry, or is it coming from the outside? i would tend to believe that for the established industry, it has to be easier for them to tap into technology. we notmary insisted that just talk to her but church read chief lieutenants because it is a team effort. to a person, they say that they carsncorporate into their the new technology. car that was the dump you owned as a kid? david: it was an oldsmobile cutlass. it was orange, a coop -- it was orange, a coupe. tom: david westin, thank you so much. more with the interview with mary barra with david westin later this morning. look for that in the 9:00 hour this morning. futures up six. stay with us. "bloomberg surveillance." ♪ francine: this is "bloomberg surveillance." i'm francine lacqua in london. tom keene is in new york. police have killed 11 and wounded dozens in istanbul. turkey's president said attacks -- policearatists have said a car bomb in istanbul has killed 11 and wounded dozens. we also heard that the turkish prosecutors did not allow the media to actually report on this. what does this show us? talks betweenace the government and the rebels ended last year, and you saw more attacks on this kind. is partragically, this of a broader deterioration in the security situation in turkey is,d the pkk, my impression were probably never serious or certainly had elements inside the pkk that never wanted to compromise to a political solution that the negotiations two years ago might have implied. at the same time, president for mores on a track political authority in turkey. the political context of these attacks is so much more negative than it was two years ago. francine: are these attacks and excuse for, as you put it, president erdogan to centralized power -- to centralize power? robin:: president erdogan believes turkey will be a stronger nation if it has more centralized control under an executive presidency. however, that exposes some of the deep sectarian lines as they exist throughout turkey, much as they exist in lebanon, iraq, etc. turkey has a large kurdish minority, which he himself has been trying to integrate two years ago. right now it seems to be going in the opposite direction. the pkk are a ruthless terrorist group. civilians get killed in these actions and they do not care. it is tragic to see turkey, which was on a track potentially to a more positive solution, be in such a negative place now. francine: for the moment, president erdogan seems to suggest that it is the pkk, but we have no confirmation of that. agreementer have an of peace between the rebels and the government? at the moment, president erdogan is targeting the main party that represents the tp,dish community, the h -- this group, by doing very well in the last two series of elections, thwarted president erdogan possibility to have the super majority he needs to change the constitution and create a more executive presidency. so the group that might have provided more of a political outlet for kurdish instincts is under assault from president erdogan at the moment. this provides, i believe, space for a terrorist group like the pkk to come in and take advantage of it. tom: if these headlines were out of new york, out of paris, london, brussels, whatever, they would be front and center and we would be riveted by them this morning. how would you recommend that western leaders respond to these headlines that we conveniently remove from our day to day life? robin:: the problem is people are tired at the moment of the instability and the terrorism we see around the world. by the fact ofed where the u.k. is going to leave the european union. the u.s. is riveted about whether there will be a president trump. we all face such deep internal problems and contradictions within our own societies at the moment, we haveto be able to apply really judicious thought -- we have no space to be up to apply really judicious thought. tom: mr. trump says he is not a fan of nato and how is nato doing this june morning? robin: nato is headed to a talk and warsaw next month. nato is growing up to understand the more dangerous security environment it now faces. you are asking a limited number of nato members spend more on the fence, and i think nato is starting to get its act together. have -- tom: we have to leave it there. coming up, gary shilling on oil, on deflation. lower oilll on prices? futures up six. "bloomberg surveillance." ♪ francine: i am francine lacqua in london. tom keene is in new york. this is "bloomberg surveillance." let's get to first word news with shery anh. shery: there is new pressure bernie s press, hillary clinton has enough delegates to win the nomination, including the delegates she has one bank a commitment from superdelegates. polls show that hillary clinton is in a tight race in california with bernie sanders. isders says clinton depending on superdelegates who do not vote until july 25. he is hoping to change their minds. a car bombing in turkey has killed at least 11 people and wounded dozens. authorities in istanbul say the bombing targeted a police vehicle. no one has claimed responsibility so far. since last year, kurdish rebels in islam state have claimed responsibility for a number of deadly attacks across the country. turkey is once again threatening to suspend the refugee deal with the european union. this time the warning comes from turkey's foreign minister. he says if the eu does not make good on its progress -- on its promise, turkey will not help with the influx of refugees. staying on the effigy issue, the -- pean union top court the court says that asylum-seekers can fight decisions to send them to another eu nation to process their application. one of the biggest issues in the brexit campaign is how the eu deals with those seeking asylum. a little more than two years ago, india's prime minister could not get a visa to the u.s. arrived inodi washington and visited arlington national separate -- arlington national cemetery. the u.s. is india as a market for everything from f-16's to iphones. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus i am sheryworld, ahn. tom? tom: he is the physicist out of amherst. gary shilling basically invented market economics a few years back. barrel, ine bucks a think, back then. his definitive book is what i call the blue book. this is the one volume to read. this book is almost 20 years old, and that is the book to read on deflation. oil -- gary, you have a new note out on oil. why will we go down on oil? bring up the chart, if you would. we are back up at 50, and you say we are going to roll over. why we are why about going to roll over? gary: inventory. the tanks are filling in rotterdam,n amsterdam, antwerp. when you get the tanks full, it has to get dumped on the market. tom: you have a lot of good company. jeff currie at goldman sachs. you have a boldness to your call. amplitudee impulse or that makes oil breakdown? is it the saudis? .ary: yeah, it is the saudis obviously they are trying to get out of the oil business, and this new crown prince is making that very clear. the reality here is that when you are in a price war, it is the marginal cost of production which will determine the price. it is not the cost of the budget, $96 a barrel for the saudis, the cost of drilling new holes. it is the marginal cost once the holes are drilled and the pipes are laid. less in the persian gulf. i think that is where we are going to go. francine: let me bring you back to my chart of the hour. this is according to baker hughes, how many oil rigs were put back online. it shows that nine oil rigs returned to operation in the u.s. in the last week. it means we should be more concerned that our production rebound -- that of production rebound will indicate recovery, right? gary: i think so. when you look at fractures, these guys are amazingly versatile. a lot of them can make -- when you look at frackers, these guys are amazingly versatile. the idea that these guys are permanently shut down -- this is not opec, which i think the cartel is effectively finish anyway. a lot of these guys need to lotuce the alternative -- a of these guys need to produce. the alternative is to go bankrupt. price exceeds their marginal cost, they will produce. they desperately need the cash flow to service their debt. but opec are nowhere to be seen, right? even saudi arabia are trying to wean themselves off oil. saudis have been the swing producer. they do have some excess capacity, but i do not think they are all that relevant anymore. they are pretty much close to their capacity. is: gerardo rodriguez listening carefully to $20 a barrel. what does that do to your world? gerardo: it has been a conundrum for emerging markets. 67%, when you look at the equity market cap of 67%, we are supposed to be better off with lower oil prices. that just has not happened. a high intensity of use of credit into the expansion cycle of oil and energy dynamics. what it means is that now with lower oil prices, the exposure is pretty widespread in places where we did not imagine. so oil prices have been going down, and financial markets have reacted exactly. in ther example, philippines, a non-oil country. gerardo: you think about china, india, you think about many the -- and the consumer. that has not happened yet. i wonder if your forecast is correct and we go back to $20 per barrel, whether that is going to happen. we have probably seen a global recession. the evidence is clear. when oil prices go up, stocks rally. it is really in effect saying the financial risk exceeds the benefits of lower oil prices on energy consumers. tom: let's bring in francine lacqua in london. francine: one of the questions i had for gerardo, and this is something we spoke about when it comes to defaults -- a lot of these energy producers, be it oil or the companies that make components for oil in emerging markets -- once the fed starts normalizing, if oil goes down or stays stuck at this level, will we see more copies defaulting in emerging markets? gerardo: i think that the increasing leverage in the e.m. complex, which is our reality especially in the corporate , the corporate increased leverage in the e.m. is right there, and it is mostly associated with the mining and energy data complex. it is not necessarily in the manufacturing space, but it is related. i am very sensitive to oil price dynamics. we already saw some of that in the high yield when oil prices were going down. as they have gone back toward the $50 mark, we have not heard that much about it. but certainly that would be back on the table. , are we alllling clear on inflation? up, orave cleveland cpi do we have more deflation, more disinflation? gary: i think it is still a deflationary world. you look at eurozone, u.s., china, they are declining. you even look at consumer prices in this country, and if you take out some ridiculous things like the idea that everybody rents their house from themselves, owner-occupied rent, cpi has risen in the last year 0.4%. tom: we will come back with gary shilling and gerardo rodriguez. coming up, we speak with a republican strategist. i love this guy -- ron bungee -- , on our presidential politics. ♪ francine: you are watching "bloomberg surveillance." to theet straight bloomberg business flash with shery ahn. shery: royal dutch shell is making more spending cuts. you're a possible largest oil -- company --rgest oil shall has cut thousands of jobs, renegotiated contracts, and sold off assets to upset slumping oil prices. cashr first priority for has to be reducing the net debt, and that is what we will focus on over the next few years -- bringing debt down, making sure that if we get back to levels of debt that are consistent with a strong aa credit rating from both agencies. he says if oil prices go lower, there are other places he can cut costs. fromche bank is missing yours largest takeover -- from europe's largest takeover. the bank is advising german chemical giant basf, which has sent out the merger wave in crop chemicals and seed. ab inbev is trying to clear another regulatory hurdle blocking its takeover of sab miller. union unhappy with the plan has threatened to appeal a regulator's recommendation that the brewery deal be approved. that is the bloomberg business flash. francine? francine:. what we are watching today and tomorrow. we start off at 7:30 a.m. new york time, the u.s. house financial services committee on plans totails replace the dodd frank act. indian prime, minister modi will be with president obama in the oval office. he is in washington for a three-day visit. he will address congress tomorrow. and then we of course have to watch and a brexit movement -- any brexit movement and currencies. tom: to our global audience, i need to apologize to what is going to happen here. we are going to try to have an intelligent conversation about republican politics in the united states. i love having ron bonjean on. it barely describes his years of experience in the trenches of republican warfare. let me cut to the chase. when i look at the recent debates over anti-semitism, when i look at the back and forth on race within your republican party, this is not a conversation that mr. kyle, mr. gutierrez, and mr. lott would ever have. how do you right this ship fast? donald trump is recognizing he needs to get back on message and back on track. last night on television, donald trump started to say -- started to back off of what he was saying. i hope he starts to refocus his campaign. he needs to get back on the economy, back on national security, and he needs to get back on attacking hillary clinton. he cannot get into this racial whatsand, dealing with looks like a personal then that i, dealing with -- dealing with what looks like a personal then ,ata -- a personal vendetta dealing with a lawsuit. he needs to move forward. he is the presumptive nominee. paul ryan has gotten behind him. now he is starting to freak everyone out by going too racial. tom: tell me your experience with the collective memory with these phrases. are they phrases that are remembered by whatever anybody's phrases or are these that drift away and are forgotten in the third week of october? is a political phenomenon. what he says today may not necessarily be the third week of october posner's in. but the democrats -- the third .eek of october up message trump will use his megaphone and his earned media, which can equal those of that, and i think we will be in a different place. it looks to me like he is beginning to recognize that you cannot stay in this position. he is losing republicans, even though they feel like they have to support him, or else hillary clinton will be president of the united states. they are losing their vocal support at this point. francine: it is unclear to me what track he needs to get back on. living here in london, you see a who keeps candidate flip-flopping. we are not even sure exactly what he believes in. i mean by "back on track," is that he needs to focus on jobs, the economy, and national security. economy -- the weak jobs report came out on friday, he did a good job. he said hillary clinton be more of the same. he needs to stay on message. he allows himself to get off track and get in high profile, ettas or fights that take him off message. it creates trump tv 20 47. the challenges that it can turn off tens of millions of voters who will not vote in a primary but will vote in the general. tom: is donald trump listening to people like you? i do not see it. is he? ron: no, no. donald trump is listening to himself and close members of his family and advisers. he keeps his own counsel. you can see that. he has finally hired upholsterer in the last couple of weeks, recognizing he is in a general election. he does not really concentrate on data beyond polling, but in terms of getting out the vote, data and grassroots and all that stuff, he is not interested in all that. he believes the power of his megaphone is good enough. he is a wholesale politician, not a retail guy shaking hands at diners. he likes to talk in front of large crowds, do the twitter thing. it is a different scenario for the republican party. francine: talk to me about the democrats. bernie sanders is still not bowing out. how important is it that hillary clinton has a clear run at the white house? let me rephrase it. run,e does not get a clear does it help donald trump? ron: hillary clinton has been fighting a two-front war, which has been fantastic for donald trump. if he can keep focusing on her. the challenge for hillary is that she is trying to consolidate the democratic party, and bernie sanders and his supporters are extremely angry with regard to the ap's call of her being the presumptive nominee last night. supporters, it looks like they are trying to depress the vote. if bernie sanders can pull off today, that will be a huge problem for hillary clinton going into the convention. she will be weakened, limp walking in. that is why she is being careful about declaring herself the presented nominee. tom: thank you for the briefing, ron bonjean. you can move forward to 5:00 p.m. tonight, "with all due respects," mark halperin and john heilemann bringing you an update. they will go and look very much so at california tonight. ♪ tom: foreign-exchange this 122.ng, euro-yen that was a true pause in yen strength. forexwe go with our report. right now we look at the emerging markets. we look at our emerging markets right now. gerardo rodriguez is with us from black rock, and gary shilling as well. brazil -- there is a regime change, right? gerardo: absolutely. brazil has changed the corner in terms of politics. it has turned the corner likely in terms of economics. it is still a difficult ride for president hemmer, that what he has chosen so far -- from president temer. two ministers in the period of a week have had to resign. prepared to push pensional fiscal and reform. we can expect some stabilization in brazil, some challenging political dynamics. but gradually the environment -- gary: how can you say they have turned a corner iago you look at the history of brazil and argentina, and these countries have political problems that are nonstop, nonstop chaos. they do not know how to run their economies. why is there any confidence that the current crop will do better than their predecessors? -- the: one has to secular decline in argentina, with a massive -- from an investment perspective, you want without being captured in the secular dynamics. another you suggesting lulu like surprise in brazil? economies inging general have a strong track record of managing crisis, managing difficult circumstances. what they do not have, however, is a good track record in managing prosperity. what we are saying in the case of brazil -- what we are seeing in the case of brazil are strong economic circumstances that the country is possessing relatively well through the institutional channel. that has to be positive for brazil. soy: doesn't mean they have much growth potential and resources that they can just confuse the hell out of it politically and still survive? gerardo: they are actually not surviving. look at the case of dilma. they had huge windfalls coming from commodity price boom. they misused that, and that has caused her the presidency. that is what is supposed to happen. gary: it is as bad as the ,apanese with their approach what their approach could have done with brazil's resources. tom: thank you very much. francine, where are we on brexit tomorrow? francine: we are where we are now, with uncertainty. how do you measure success in a country that has seen so much political and evil -- so much political upheaval? london,ncine lacqua in and gentlemen, thank you so much here. "bloomberg " is next. tomorrow on the program, ira jersery of oppenheimer funds. ♪ just 1%he s&p is now away from a record high. need to break through the resistance that shut them down four straight times. chair janet yellen all but ended the speculation of a summer rate hike. investors turned their sights to september. david: hillary clinton has reportedly secured enough delegates to make her the first woman in u.s. history to win the nomination of a major political party. ♪ welcome to bloomberg . i'm david weston along with amanda lang. jonathan ferro is off this week. stocks are nearing fresh highs. we have some great interviews lined up. two big ceos are joining us. amanda: and one is an exclusive with you. the gm annual meeting is today.

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