yesterday after those minutes from the federal reserve. you can see the euro-dollar pretty much unchanged, off 0.1%. let's look at how european stocks are doing following the recession lower. the stoxx 600 off by 0.6%. european stocks set for there were drop in more than a month. thanks underperforming. part of that down to the minutes we got from the fed, signals that the federal reserve may look at shrinking the central banks balance sheet. also, about equity prices being high. you are seeing a weaker dollar, stronger yen. if you look at the bloomberg dollar index, we seeing that recover a little bit. it is ever so slightly higher. euro-dollar, we are also closely watching after comments from ecb president mario draghi. 1.0646.lar at the bund yield one basis point number as well. now let's get the bloomberg first word news. saidtian: president trump an apparent poison gas attack in syria which killed more than 70 people has changed his thinking on the civil war. he called heinous actions, the u.s. president said it is his responsibility to respond to the crisis. >> it crossed a line of lines for me. when you kill innocent children, innocent babies, babies, little babies, with a chemical gas that is so lethal, people were shocked to hear what gas it was, that crosses many lines. sebastian: the minutes of last month's fed meeting show most official support a policy change that would begin shrinking the balance sheet this year. the minutes showed most of the fomc continues to seek gradual rate hikes. there is a split over the prospects of inflation eventually moving above the fed's 2% goal. gary cohn is set to support a policy that could see wall street firms separating their consumer lending businesses from investment banks. according to people with knowledge of the matter, the comments were made in a private meeting with lawmakers. they said the former goldman sachs executive favors underwriting securities. the u.k. prime minister has met with saudi arabian energy minister as she tries to convince aramco to pick london for its initial public offering. that is according to a u.k. government official. saudi's deputy crown prince says the sale could value the company at more than $2 trillion. analysts reckon it could be much lower. argentina's president said his government has no plan b for the economy and is confident he can slow inflation and stimulate growth ahead of key midterm elections. we are leaving argentina being a predictable and reliable country, but still there are minorities that think that maybe any past time was better. sebastian: global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm sebastian salek and this is bloomberg. nejra: thanks. within the last hour, ecb president mario draghi has said there's no need to deviate from the wording of his existing forward guidance. that is because the central bank still needs to build sufficient confidence that inflation will meet its aim and remain there even in less supportive monetary policy conditions. >> there are grounds for being cautious when assessing the durability of the inflation outlook. for us to be confident that inflation will indeed stabilize around our aim, we would need to see clear evidence that underutilized resources are declining and feeding through more convincingly into domestic price formation. nejra: let's bring in themos fiotakis. so great to have you. good morning. listeningi can see, to the speech from draghi, there's not a huge change here in what he's been saying all along. why are we seeing a lower euro and bund yields tick lower? themos: the market has moved a little too hastily to expect the hikes would happen reasonably soon. i think some of that is being priced out of now. we're also entering the 20 last days before we get into the french elections. there is a little bit of a wave of people taking back some optimism out of european assets. nejra: interesting that you mentioned that repricing in the market as well. i've got this chart that shows how the money markets started pricing for that april 2018 increase. we got a number of dovish onments from peter press others and we've seen that really fall off here. from someg to hear other ecb officials today as well. what are you expecting the rhetoric to be? themos: clearly that move was premature. we never really bought it were backed it. , europeant six months central bank inflation forecasts are going to be showing that inflation will be stable. if oil prices stay here, we probably will have between 1.3% to 1.5%, which means that the ecb needs to decide. they cannot extend qe further. on the other hand, they cannot be too hawkish. the most likely signal from the ecb once we go past the french election would be that at some point they start ramping up their qe, probably the end of the year, but they refrain from hiking or changing their guidance for a time as well. nejra: and what about the deposit rate? themos: i think that if they started raising the deposit rate while tapering, the signal would be too hawkish. probably that will stay quite dovish guidance well into 2018. nejra: one of the key things that seems to be coming through is that the ecb and mario draghi are not convinced that inflation is going to be sticky, that we're going to see it sustained. do you agree with that? themos: inflation for now has reached a peak. if oil prices stay where they are, we will see inflation not just in europe but also in the u.s. stabilize the low 2%. moderate obviously some of the expectation of the areet globally that we going to see extreme tightening pressures anytime soon. that will have a bigger impact on the dollar. nejra: if you look along the curve, how are you sort of pricing that? themos: when you look at the bund curve, the opportunity is the other way around. when they start tapering, when they start reducing the amount of bonds they buy, you see a repricing because the european curve is well below where it should be even in the absence of any kind of change in monetary policy. the reason is basically the way they are buying bonds. once they stop or taper, they 0isque repricing of 30 to 4 basis points higher. nejra: themos fiotakis from ubs stays with us. fed officials favor shrinking the $4.5 trillion balance sheet this year. we will bring you the details. the stakes are high as president their trump prepare for first meeting. will there be stocks or smiles? this is bloomberg. ♪ nejra: just going to bring you a headline with seen crossing the bloomberg. donald tusk said to the meeting the u.k. prime minister theresa may in london to discuss brexit today. we will bring you anything we have on that as we have it. you are watching "surveillance." let's get the bloomberg business flash. sebastian: unilever plans to buy back 5 billion euros of stock and divest its business to boost its share price. soapnglo dutch maker of and mayonnaise also said its dividends will be increased by 12%. the moves are the result of a strategic review after that unsolicited heinz offer. >> things changed. we have more cash generation now. we will be looking at continuous m&a activity, but we recognize that we have the capacity to do a share buyback and a 12% increase in dividends. sebastian: young china sorting trading after its pizza hut chain helped beat estimates. sales climbed by 2%. analysts had expected growth to be flat. the result signaled a strong start. internet billionaire jeff bezos says he sells $1 billion a year in amazon stock to fund blue origin. the revelation came as bezos, the world's second wealthiest man, unveiled the design of a space capsule that blue origin plans to use to launch paying tourists into space within two years. that is the bloomberg business flash. nejra: the minutes from the federal reserve's latest meeting show most officials backing a policy change that would begin shrinking the $4.5 trillion balance sheet later this year. the dollar and treasury yields fell on the news and as the fed also said equities are quite high relative to standard valuation measures, the s&p 500 swung to a 0.3% loss on the day. the biggest reversal of its kind since 2016. still with us is themos fiotakis, cohead of fx and rate strategy at ubs. investors got what they were waiting for in the form of the signals of balance sheet reduction. given what we've seen in the market reaction, and if i just bring you to this chart where you can see the curve steepening, it did stephen for a fifth straight session. that is the longest streak since september. is the market interpreting what the fed said about balance sheet reduction as affecting the rate hike path? themos: it does affect the rate hike path. to be 100% fair, part of the reason why the market is priced some is also blending in of the potential issues regarding the unwinding of the balance sheet. we have done a thorough study on the balance sheet effect. obviously if bond yields start to sell off, start to rise, because of the tapering, the unwind process, that is not very good for equities. but what will matter the most is when they start unwinding the balance sheet. if they start unwinding the balance sheet in the middle of 2018, it is all priced in. if they start unwinding it early 2018,e 2017, you could see a little bit of an impact on stocks. nejra: so that signal that it could happen this year was key. sure. would it be preferable for markets, for the fed, to taper reenlistments down gradually or stop them all at once? one reduces the risk of volatility. the other is easier to communicate. themos: gradual is probably the path. as long as things are gradual, the market will always price the probability that these things will either be scaled up or down. the more aggressive these things are, the bigger the market impact it has. nejra: how does the fed, if it is gradual, communicate that in such a way to sort of not make the markets think the balance sheet is more than background noise, not take the attention away from the actual rate hike path? themos: that is the difficult balancing act for the fed. whatever the fed does, the market will price the probability that somewhere down the path of hikes, there could be a probability of recession, in the market will never fully price the full unwind of the balance sheet. this a lot of discussions in different blogs by officials about the scale at which this can realistically happen. fed isly speaking, the quite focused on delivering a message of very gradual overall tightening. we think this is generally the kind of sense you get. nejra: i wanted to ask you about financial conditions. this is a chart showing how financial conditions have eased as the fed has been raising rates. the fed also warning that equity prices are quite high. what is happening here and what does it bode for the future? themos: this is not a particularly new phenomenon. it happened in previous cycles. the fed always assesses its monetary policy as to the impact on financial conditions. it is never about the short rate. it is about the overall impact it has. what has happened since is, atly the end of 2016 the same time as the fed has been raising rates, you have seen a very sharp acceleration in the pace of growth. i'm talking about a transition from an expectation of growth to something closer to 2.5%, which is where most expectations has shifted. that acceleration tends to be the time that equity markets tend to rally the most. while the fed has been raising race, this has driven strong equity returns and has undone some of the tightening. going forward, we have seen big acceleration, which means the equity market is not as strongly easing financial conditions. therefore send messages need to be put in perspective. nejra: thank you so much. themos fiotakis is staying with us. later today, david gura will be interviewing former u.s. treasury secretary jack lew. you don't want to miss that at 6:00 p.m. u.k. time. up next, how will president trump and china's leader get along when they have their first face-to-face meeting later today? this is bloomberg. ♪ nejra: you're watching "bloomberg surveillance." by nejra cehic. chinese president xi jinping and donald trump hold their face to face meeting today. the trump administration's tough talk on trade, north korea, and the currency will cast a long shadow over the meeting and the summit comes at a delicate time for xi in what is the equivalent of an election year in one party china. mark mobius says a good meeting is vital for the u.s. president. trumpna has to save because he said the failure with the health bill in congress. going to come to something that will be positive with trump. trump has to announce something positive. the chinese have to give them something you can bring to his constituents. i'm reasonably optimistic. nejra: can both leaders save face and leave the meeting with wins? let's get the thoughts of themos fiotakis, cohead of ethics and rate strategy at ubs. two personalities here. are the two leaders going into this on equal footing or does one of them have more to lose or gain? themos: i think they both realize this is not a particularly easy scenario for anyone and i think both sides have a lot at stake. i think there's also pursuits on different sides. it remains to be seen to what extent some of the rhetoric of some parts of the trump administration become the center of the agenda and to what extent xi is willing or interested in finding a middle ground. the good thing is that they are meeting. nejra: what do you think might become central to the agenda? there's a lot of talk over what might come up. what are you expecting? themos: i think that what the markets expect foremost is something on trade and some sense that trade will not become an issue going forward. there's noextent -- little tension and there's high-level tension. border adjustment tariffs are much higher level tension. generally speaking, that and the geopolitics around the korean peninsula is also important. nejra: currency manipulation might stay off the table, especially given the fact that we see the yuan has been pretty range bound. themos: part of the reason is also because the dollar has stopped strengthening as well. i think that is a little bit of both. the currency manipulation issue, historically, across treasury secretaries, has been a very political decision. whether it happens or not will depend on how things go from here. nejra: a lot of uncertainty over what exactly will be discussed. how do you price this in the markets, or can you not really? themos: the markets have made up their minds about how to price it. for instance, when markets have been looking at the issue of u.s. trade, they have been pricing a hefty premium in places like mexico. in asia, i don't think we have seen as big a premium priced in. the risks there are a little more skewed. nejra: themos fiotakis from ubs stays with us. president says his government has no plan b for the economy. we will bring you the best of our exclusive interview. this is bloomberg. ♪ nejra: you're watching "bloomberg surveillance." let's get the bloomberg first word news. sebastian: president trump says an apparent poison gas attack in syria has changed his thinking in the six-year civil war. deploring what he called heinous actions, the u.s. president said it is his responsibility to respond to the crisis. >> it crossed a lot of lines for me. when you kill innocent children, innocent babies, babies, little babies, with a chemical gas that is so lethal that people were shocked to hear what guess it was, that crosses many, many lines, beyond a redline, many, many lines. sebastian: ecb president mario draghi says there's no need for him to deviate from the existing forward guidance because the central bank needs to build sufficient confidence that inflation will meet its aim over the medium-term. in the u.s., the minutes of last month's said meeting show most officials support a policy change that would shrink the balance sheet this year. the minutes also showed most of the fomc continues to see gradual rate hikes conducted in what they call a passive and predictable manner. there is a split over the prospect of inflation eventually moving above the fed's goal. gary cohn is sent to support the policy that could see wall street firms separating their consumer lending businesses from investment banks. according to people with knowledge of the matter, the comments were made in a private meeting. they said the former goldman sachs executive favors banking going back to times when oldman focused on trading and underwriting securities and companies like citigroup issued loans. theresa may and european council president donald tusk will meet in london later. a spokesman says they will discuss brexit. the meeting comes as tensions grow the between britain and the e.u. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm sebastian salek and this is bloomberg. nejra: thanks. if you want tok, watch something alongside this show on your bloomberg terminal, had to live go. john cryan is being at a german banking congress in berlin. he says capital markets union would help europe compete with the u.s. he also said the european nonperforming loans problem is a little bit overblown. you can follow that on live go on your bloomberg. has told's president bloomberg his government has no plan b with the economy and is confident he can slow inflation and stimulate growth. mauricio macri spoke to erik schatzker. >> we are financing the fiscal deficit, bringing in dollars. obviously in a flotation --hange market you will have the more you borrow, more dollars come in, you lower the dollar local price. that's why we need to reduce the fiscal deficit. there's no other way. >> in a perfect world, you would have less inflation, lower interest rates, a weaker peso, and stronger growth, but you can't have them all at the same time. that me ask it this way. what's more important right now, stimulating growth were fighting inflation? >> you have to do both things at the same time. with lower inflation, we have bigger chances to grow, and you are defending the salary value of the workers. that's my name compromise. i need to defend the salary of the workers. that is reducing inflation. reducing inflation will accelerate growth because you will give more certainty to those ones that have to invest. >> what about that six-month period between now and october when everybody has to make a ,ecision about how they feel are wages rising, are they getting the jobs? >> the wages are going to rise with the new negotiations, and together with the reduction in inflation and we're going to have in the rest of the year, they will feel -- they will assume, and they will see that more capability of purchasing goods, and that will be something very good for everybody, and that will affect their humor. >> nejra: that was bloomberg's erik schatzker with the president of argentina. still with us is themos fiotakis, cohead of fx and rate strategy at ubs. if you look at south america, i'm wondering what your assessment is and where you perhaps see opportunities in risk. we've seen political risk resurfacing in venezuela, ecuador, paraguay. themos: the pickup from the presidents comments, the trade-offs between growth and ,nflation are a lot more vague and there's upside in fighting inflation and promoting growth at the same time. , liketin american region number of parts of emerging markets, they're coming from a period of weak growth in specific pockets. you have had some disruptions in financial markets and some assets are priced like that, as are certain pressures, particularly at the end of 2015, middle of 2016, so there is a little bit of recovery process in places like brazil. there is more space with inflation coming down for central banks to ease and that should promote the process as well. and there are some pockets of value. we have been recommending investors to be long carrying brazil, hedged against some other currencies in g10, or for instance we have argued that even relative to a little bit , ther fundamental growth peso in mexico has been on the cheaper side. there, we had seen opportunities. although a big chunk of the trade is behind us, there's still opportunities in trade. obviously one has to hedge to risks. the first one is obviously commodities. the second one is how commodities and demand for the latin american region is affected by the fact that at some point probably at the end of the year, beginning of next year, chinese economy will moderate in terms of its pace of growth, which typically is very important for the region. nejra: you've said we are looking at the broader e.m. space as well. how are you going about that, especially taking the fed into account as well? first, you have to be selective across assets as well. what we have argued particularly recently is that in a period where global growth is not gaining momentum, you cannot bet on assets that require that momentum to perform. you can also get a risk off becomes ae, so carry lot more dominant as a strategy, and local currency has been our preferred asset with emerging markets, more than currencies or credit, or equities. class, choose the right kind of battles -- and we mentioned some examples like brazil hedged against the commodity exposure with some g10 economies, and obviously differentiate. we have never been particularly positive about the prospect of outperformance in the currencies of south africa or turkey. interesting. thank you so much, themos fiotakis. stay with "surveillance." we get the latest on brexit as european council president donald tusk is said to meet theresa may in london later today. in the next hour, we are live in florida ahead of president meeting in xi's mar-a-lago. ♪ nejra: you're watching "bloomberg surveillance." let's check in on the markets. anna edwards has been following the action. some of the weakness we've seen in u.s. equity markets in asia and the european session really being driven by concerns about the fed balance sheet, things paul ryan said about the difficulties of passing taxcutting legislation. it was also one of the things the fed said that caught investors a little off guard. that was the red flag around valuations in equity markets. they said some of them looked a little bit high. here's a standard valuation model. ratio for the stocks for the s&p versus global equities. the s&p is trading at around 11% more expensive than global equities. that has been a topic of discussion. not quite in irrational exuberance, but certainly giving investors some reason to think. sometors in unilever got reasons to think. we got a flurry of news surrounding the anglo dutch food giant, and there's been a lot of expectation ever since we got ,hat approach from kraft heinz from warren buffett and co. in the united states. it really gave the board at unilever a lot to think about and the stock has been outperforming. investors were into submitting something. they got a buyback and a higher dividend and more cost-cutting. they also got a review of the dual management status. we will watch for details. the euro responding to what draghi had to say. draghi confirmed that he didn't see any reason to change his forward guidance policy. nejra: thanks so much. donald tusk will meet prime minister theresa may at downing street this lunchtime to discuss the way ahead on brexit. tensions grow between britain and the e.u. over the exit from. a policy maker says that when it comes to raising u.k. interest rates, it is better to be late. speaking at bloomberg european headquarters, he said that with the benchmark rate at a record low an asset purchases and imperfect substitute, the boe has less room to ease measures than to tighten. >> i do not think the mpc has as to tighten. ease as my view is that in such circumstances, a rate hike that turns out to be premature is a more serious mistake than one that turns out to be somewhat late. caution is warranted. -- withtill what this us is themos fiotakis. we're also joined by ronan carr, equity strategist at merrill lynch international. great to see you both. welcome. themos, do you agree? themos: we think the next move by the bank of england will be towards easing. wages squeeze,al which will hurt consumption. investment intentions are pointing south. at the same time, what you have is that construction is a lagging process. once you start all this real estate activity, you cannot scale it back, but we don't see additional growth. towards the end of the year, overall growth will start slowing down. n, what is your view on equities as we embark on this brexit process and these negotiations? it is very much a function of the global markets and the global economy on sterling. if we get a leg down in sterling, the ftse will be ahead of that. we're much more cautious on domestic equities. we agree that the consumer is coming under a lot of pressure. look at retail sales and consumer confidence. we are quite cautious. the ftse could do well because commodity prices and sterling could have some downside if these talks go badly. emos, you are bearish on sterling even as the market is getting increasingly short. themos: to us, again, there is a slowing economy. the current account, despite the recent improvement, it still points to the fact that the weaker currency hasn't particularly driven a rebalancing of the economy, and that is without assuming any kind of pressures from brexit. to me there's a lot of discussions in the market. it is surprising how with all this surprising strength in the data, all this hawkish shift by the bank of england, sterling is not a lot more stronger, and that is an indication that the underlying tensions in the economy are brewing, and the option nobody is for a weaker currency. nejra: surely what is not helping is that we've got gilt yields coming down. questions over whether this yield could push towards 1% is coming up ever so slightly. more and more questions over whether this rally is becoming overstretched. how does this feed into your thinking? perspective,ur it's really positioning cautiously around domestic banks, domestic consumer-focused sectors. they have in some cases been poor performers already. we feel it we are beginning the process of multiple profit warnings in some areas. i think the resilience we've seen in sterling is perhaps reflective of positioning short-term, but to us, the balance of negotiations is still tilted towards a negative outcome, and the risk of a leg lower in sterling, which would exacerbate the pressures on domestic sectors. we're still very cautious on the consumer-focused nejra: sectors and domestic banks too. nejra: themos fiotakis and ronan carr stay with us. we dive back into the market after european equities follow the u.s. lower. this is bloomberg. ♪ nejra: you're watching "bloomberg surveillance." let's get the bloomberg business flash. here's sebastian salek. to buyan: unilever plans back stock and divest its business to boost its share price after fending off a takeover bid by kraft heinz. the maker of dove soap and hellmann's mayonnaise said its dividends will increase by 12%. the moves are the result of a strategic review the company undertook after the heinz offer. group, which is backed by alibaba, has created a robo advisor application to manage the wealth of regular chinese and hong kong investors. the service target anyone who has a bank account in hong kong with at least $800. the company ceo told bloomberg the company should not be seen as a risk to existing businesses. >> we don't want to destroy anyone's business. soment to cover the gap of traditional institutions. sebastian: internet billionaire jeff bezos says he sells a billion dollars a year in amazon stock to fund blue origin, feeling his dream of sending people into space. the revelation came as bezos unveiled the design of a space capsule that blue origin plans to use to launch paying tourist into space. that is the bloomberg business flash. nejra: european stocks are lower today after minutes from the fed showed policymakers may shrink the central bank allen street later this year. let's get final thoughts from themos fiotakis and ronan carr. , let me start with you. you think that you should buy the dips in european equities. ronan: we do. the biggest thing right now is that there's an earnings recovery going on. it is underpinned by the synchronized nature of the upturn in growth globally. 50% of european earnings come from the rest of the world. we've had many years now of mediocre earnings growth. margins are quite low. now margins are recovering quite quickly. this fundamental improvement in the underlying earnings is quite important. the under performance of europe versus the u.s. has been driven by underperformance on the earnings side. nejra: themos, you've talked about the fact that we've reached week return for u.s. equities. is europe the obvious place to move to? obvious, wouldn't say but likely. we are more positive on the european stocks relative to our strategy views on the u.s. is process as the data shows one where you are recovering from a multi-year hiatus due to the crises. obviously we've got the political risk out of the way. if we get the ecb starting to adjust yields from extremely low levels through the end of qe, that means we will be positive from a macro perspective. but there are risks. beyond the political risks, the question is, if we have reached peak acceleration in growth, does europe have that extra space to accelerate? nejra: that sort of brings me onto the reflation trade. you've got some interesting ideas on how to invest around this and perhaps any sort of pullback we might get from it. i think we are past the stage where it pays to take a very binary view. overall, we still like exposure to some reflation trades. our preferred ones are the oil sector in europe, which has had a big pullback come a but now looks very cheap, and european banks, because they have the most kind of gearing if the ecb does head down a path towards normalizing. there's definitely some of the reflation trade that we would be happy to own in europe. there are others that look more fully valued and we are less inclined there. nejra: themos was talking about political risk. we have to talk about the french elections. as you talked about it, low probability, high impact. ronan: i think i agree with that. it is quite binary as we see it. if le pen were to win, it opens the possibility of a frexit. that is a very negative scenario, we think. if she loses, i think the focus returns back to fundamentals, and the fundamentals we think are pretty good. there's even upside risk that you get a reformer can push through some reforms. people have talked about lowering corporate tax rates, labor costs. even without that, i think the underlying growth fundamentals are quite good and the focus goes back to that once we get past the election potentially. nejra: thank you so much. themos fiotakis, cohead of fx and rate strategy at ubs, and ronan carr, equity strategist at merrill lynch international. what a packed show it has been. "bloomberg surveillance" continues in the next hour. guy johnson will be joined by tom keene and they will be talking to jon moulton. you don't want to miss that. this is bloomberg. ♪ it is a divorce. lawyers will be president. the prime minister of the united with the eu meet president today. no word on who gets the place .nd provence all the pomp and circumstance of the winter white house. trump will meet the president of china. north korea is on the agenda. not.is and stephen bannon's future is topic one in washington. a blunt force for white house tradition. good morning. this is "bloomberg surveillance." is in charge of the divorce in london. this is a big deal. sometime today, the two parties will meet. will get going. you saw the reaction of the pound, sterling softening when the news broke that the meeting would take place. this is where the rubber meets the road. lawyers will be getting busy. who has the prime minister's back? who is supporting her as they have the meeting today? guy: let's have fun with this. should we say boris johnson? good way to go. our first word news, here is taylor riggs. said thehild -- trump gas attack in syria "crossed a lot of lines for me." he has changed his mind on syria and president assad. a one that they will take action if the security council fails to act. the u.s. has expelled a russian spa -- a russian spy. authorities say that he posed as a banker while serving as a russian agent. he was convicted of spying and spent almost 30 months in prison. according to buzzfeed news, he and two others, try to recruit -- as he served of one of president trump's advisors. gary cohn is supporting a policy that could radically reshape wall street's biggest firm. sachsrmer goldman president told lawmakers he would like to separate wall street's consumer lending businesses from their investment bank. that would bring back the depression era glass-steagall act which was repealed in 1999. in asia, south korea says they have detected a ballistic missile. they say it has a range of 500 miles. that means it is capable of reaching anywhere in north korea. -- theth the korean south korean military isn't commenting. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i am taylor riggs. this is bloomberg. thank you. let's get to the data. equities, bonds, currencies. a churn to the market, a little bit steeper over the last couple of days. oil is churning with the inventory data pushing to a stop in the rally in oil. yesterday afternoon. the next screen -- i butchered that data check -- that was terrible. and then i do currency checks. 6.90 -- we have the festivities in florida and the turkish lira is making for a new weakness. not record weakness but there it is. guy: we did just get news from the indian central bank. they have left the benchmark unchanged. but the outlook in terms of the great expectations of economists at the federal bank are expecting has been revised the upside. indians are expecting something reasonably positive going forward from here. this seems to be something that seems to be getting more traction. tom: let's look at a chart that i will show three times through the morning. i will do it on facebook live later. this is trade weighted remnant the. nimby -- stronger rim here is where the unpack. and here is the strength of it over 10 years. that is not currency manipulation. a stronger chinese currency is bad for chinese exports. and when we say they exploit or -- will say it is baloney. guy: let me show you a charge related to what is happening with the french stock market. these are options. outstanding options. you can see this bike here that takes is all about two 2012. that is where we are now. what is interesting is a few. macroeconomic well.ts around this as the ecb has been a big deal this morning but now is not the time to change the ecb. mario draghi speaking in frankfurt this morning, saying not strongflation is enough for the bank to alter monetary policy. >> from today's standpoint, i don't see cause to deviate from the indications that we have been consistently providing in the interaction rate statement to our press conference. fed minutesest signal the central bank may be ready to shrink the $4.5 trillion balance sheet this year. "stock iswed that quite high." let's kick the conversation up with christian schulz. l much of things happened yesterday which i'm trying to get my head around. the market to the little bit of a tumble. it could have been comments from the fact thatut tax will take longer to get going. it could have been the comments on the fed about the stock market. what they said about the balance sheet. what are you looking at right now to get a sense of where risk is right now? christian: all of these issues are on the radar. the fed minutes as the fed potential moves -- another to hikes this year, we expect them in december to announce they will reduce the balance sheet -- that is one thing to contend with. the policy uncertainty in the u.s., which has grown particularly since the failed attempt to repeal obamacare, it is another thing to contend with. there are other problems outside the u.s. to deal with as well. u.s. relations to other countries and traders. and also, to contend with, indicators of economic activity of p are to be showing a strong start to the year. now maybe my european buyers are more bullish year than someone who is more focused on the u.s. but that is what we have to contend with. the economy is doing relatively well at the moment. guy: the adp numbers may be a lead indicator of the payroll on friday. the question i'm struggling with is -- and i will let you talk -- does thes. here fact that the fed is going to reduce the balance sheet mean that they will delay hiking interest rates? do they go together? or do they not go together? talk to me about the relationship between the two? originally, the idea was that interest rates would go to some sort of level threshold that would be considered normal and then the balance sheet reduction would start. now, if we are right and we are going to see another to hikes from here and then we start seeing a balance sheet reduction , i think that could be seen as a bit of a shift. we are expecting more rate hikes next year. another three. at the sametwo hats time. on one side, the balance sheet is becoming a more pressing issue. in the u.s. interesther hand side, rates, because the expectation that the economy is going to do better as we get fiscal stimulus, it will continue to rise as well. tom: good morning. help me out with your european notes. i thought it was brilliant on the bundesbank. inre does the bundesbank fit mario draghi's mathematics for the next 12 months? are they the same force they were one year ago or five years ago? ecb is in ahe different context there from the fed. but he could say that in the past three years, behind the u.s. in terms of the cycle so eventually we get to the point when that strategy at the ecb will also get more scrutiny. i think the comments we had this morning from the ecb point to the direction that there is still some time. therly, the bundesbank is most hawkish member of the government counsel and would see that slightly differently. yesterday, he was talking about in a years time, we would be over.if bond prices were i think a lot of people in the government counsel would see that differently. but that is the basis clearly there. tom: let's continue with christian schulz. guy johnson mentioned, jobs day tomorrow. speaking of the american economy, an important interview from david gura. in conversation with jacob lew the former treasury secretary for president obama. i'll is interesting. that is a 1:00 p.m. this afternoon. this is bloomberg. ♪ tom: good morning. this is "bloomberg surveillance." migrate down to palm beach, florida, the festivities today with the president beating with the president of china -- holding court at the brazilian beach club. kevin cirilli is ready for a palm beach breakfast. let's start with the basic idea that all of our viewers worldwide want to know -- why are they not meeting at the white house? great steve holland has a story on this in reuters about why this actually happened. and frankly it is because trump feels more comfortable at the winter white house. and chinese officials reportedly were a bit unsure of the fact of what to make of why they were not meeting at the white house. on they have since gotten board. i think the arrow came with the warm weather. expect to seee today? do they meet in front of a hotel? do they meet by the pool? i am serious about the pomp and circumstance. this is a big deal. how does this happen today? as 12:30, trump and mike pence will debate -- will depart anders air force base and will arrive here in mar-a-lago at 2:30. they then head into a series of private meetings and around 6:30, they will be joined by to have dinner at mar-a-lago. they have that until sixth: 30 and we are expecting a gaggle from the white house press secretary from sean spicer on air force one. tom: that is helpful to get is the agenda. bluntl question -- the question -- will stephen bannon be on air force one? help me here is what is happening on the national security council. did the events yesterday occur with an urgency because of syria and the chemical attacks? kevin: a little more than an the press spoke on conference, jennifer jacobs broke exclusively that stephen bannon had been removed from the national security council. i am told from sources that he is maintaining that this is not to be taken as a delegitimization of his role within the white house. however, others are saying this is exactly how the should be taken. his securitye clearance but this is the rising of national security adviser h.r. mcmaster -- he was the one who replaced general flynn after general flynn reportedly misled mike pence about his communications with russia. guy: we leave it there. we are looking forward to your coverage, kevin cirilli. a bloomberg international government executive editor. good morning to you. the chinese need things to be polished and organized. if you wear the protocol guy traveling with the chinese premier, how nervous would you be? john: you would be nervous. if you're running this trip, there is very little that could go wrong. the closest equivalent you'll get in the united states to no beion -- so they will looking at all the different things that could go wrong. and they are hoping that president trump doesn't offer him a round of golf because in china that is seen as a sign of corruption. guy: is there an expectation of what the americans are second to come out of the meeting and what the chinese want to commend the meeting? that there is a sense trump has his expectations too high. there is only so much you can achieve, especially with the chinese, in a two day meeting. there is a lot of that trump wants to get done but there is some concern in beijing that trump is expecting too much. guy: what is priority number one? john: for the chinese, to go off without a hitch. we forget the fact that it is important that people need to get to know each other. probably the biggest achievement for the chinese will be to come out of this with a sense that both trump and the chinese president understand each other on a personal basis. that is the big thing for the chinese to get out of that. on the u.s. side, they want something on north korea and trade. that trump made a big deal of in the u.s. election. that code should rethink of this meeting as a book ended event? what has been clear about the meetings being held with the 24-48 hours that afterwards, you get a tweet storm happening. as you only that is something that will make the chinese nervous. the meeting happens and then you get the reaction? else, the above all chinese value predictability. what makes them skittish is the prospect of an average tweet. or an aggressive tweet. saying that things were difficult with the chinese. the chinese president needs to be able to come back to beijing ahead of the big reshuffle and he cannot give his opponent and rivals in the chinese political he hasany evidence that and manage the meeting in an effective way. he can give the impression at -- trump mustp respect him. they might say something that would undermine the chinese president. , thank you soer much. this is what we love to do is ring and a guy like john fraher synthesizing our knowledge and in the next hour, ring in a true expert on china. a privilege today to bring you stephen roach. anddes on china politics economics. stephen roach will join us in the next hour on the new china. this is bloomberg. ♪ guy: imf london. tom keene is in new york. let's talk about the ecb with mario draghi laying out criteria earlier. resolves verylity much on the ecb mind right now. you can see this as stated of late. part of that is you to expectations that the ecb may tighten monetary policy. christian schulz is still with us. 2% ond to be up nearer to a sustainable basis for the ecb to get comfortable. the five-year five years which mario draghi made us pay attention to is not signaling that. christian: not yet. that theng speculation ecb may be doing something earlier, may be hiking rates earlier than previously expected inflationives down excitations by so much, it indicates that the rise in expectation that the forecast is strongted on expectation. and that is what mario draghi highlighted. the rise in inflation must be independent or sustainable, even if the ecb eventually starts hiking rates. tom: this is a great chart. i don't have a banner for this. me, from the to financial crisis of 2007, the white line is nominal gdp in the united states. down it goes and then up. the blue line is the struggle of europe. granted, things are better now. here is the key question for mario draghi. is euro-sclerosis in place? euro-sclerosis in the fact that growth is lower in europe that it is in the u.s. is lower and fair. we have seen structural reforms in countries like spain and portugal and greece and ireland. but we have not seen these sorts of reforms in big components like france and italy. we have elections in france and there are some candidates who do propose strong forms which could really make a more sustainable growth. but i think there is a lot of work to do. still, at the moment, cyclically, it looks like europe could be outperforming the u.s. again this year. last year, again, the eurozone was growing faster and at the moment, i would say the upside -- tom: that is good. we need to get the animal spirits caught up. maybe it will be derailed here in europe. we have a lot to talk about this morning. kevin cirilli is in florida. what a shock. let's have an energy secretary who is a real scientist. we did that in the last administration. -- is the -- even looks like a real scientist. that is a conversation at the 1:00 hour this afternoon. stay with us from london. from mar-a-lago, florida. this is bloomberg. ♪ cirilli with a 6:00 a.m. tee time. willresident of china arrive later in the afternoon, along with trump. golf time be lots of for kevin cirilli. mar-a-lago florida here on an important day for the chinese and u.s. relations. stephen roach will join us in the next hour. right now, with the first word news, here is taylor riggs. trump begins today's of meetings with the chinese president later today. the summit is being held at the president's resort in mar-a-lago, florida. he has now to deliver an ultimatum to rein in north korea. he will also talk trade. senate majority leader mitch mcconnell says democrats have time to change course on the supreme court nominee neil gorsuch and avoid the "nuclear option." have the say they votes new to block the nomination. mitch mcconnell says if that happens, they will change the rules to allow a simple majority vote. and one of the states critical to trump's election victory would be the hardest hit according to the boarding tax -- to the border tax. the report was sponsored by a conservative group linked to charles koch and david coke. to saudiay's trip arabia this week turned into a lobbying mission. she tried to persuade aramco to pick london for what is likely to be a record-breaking ipo. she is trying to present britain as a financial sector. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i am taylor riggs. this is bloomberg. guy: thank you. donald puts will meet theresa the britons growth over the exit for the block. christian schulz is still with us. jon moulton, good morning. kristen scholz said we are heading for a soft exit? jon: he is wrong. be or craddick and subject to elections. the mechanics of negotiating a friendly deal are improbably capable of being done in two years. in fact, 10 might be a challenge. so while we may get some bits of it may actually be sensible to assume that it will be the way and save acrimony trying to get to a deal that cannot be negotiated. guy: we could have a transition time and we can be friends at the end of it? the indeed. and that is my soft brexit. in the long run, britain will exit in order to control immigration. i don't think you can negotiate that path the brexit over the next few years. i think if you can't negotiate that -- a hard or chaotic rigs it -- rather than giving yourself more time and doing a soft brexit in order to get to it -- in the long run. so i don't think the disagreement is as big. jon: the whole point though is that if you go to transition times, you better start negotiating those soon. something you should negotiate for everything. it will take five years. christian: i think so as well. i do think that coming through in the u.k. government -- if you look at what happened between july and the conference in october, the peak of hard brexit rhetoric, and since then, the -- perhapsion immigration controls won't come in and the ecb may have a role in that. i think there is a role working with expectations so that perhaps it won't be as clear cut -- a clean brexit is not on the table. guy: they seem to be coming together. tom: we are talking divorce today between the prime minister and maybe these two will get together when we are done. jon moulton, let me come to you. of londone basic idea is fine. three percent real gdp in the united kingdom. here is the four year moving average of economic growth in london. there are very few places that can say they are this successful. basic want to know, the conversation at every moment is that the united kingdom is going to become a trading juggernaut to assist in getting real gdp back to 3%. what is the past to be in the england of 150 years ago? what is the path to be a global trading juggernaut? travel, i think, is the right answer. we will not be as dominant as we were when it did 50 years ago. but we do have the opportunity. we don't have to be saddled with the ludicrous level of regulations known as the eurozone. we can get better trade. .etter trade deals done it will take between 5-6 years. day-to-day assume with your leadership that you need a week sterling? we have select people who come 115 and 110about and 108 and 105 sterling. do you demand a weaker pound sterling? think you demand one, do you? you will probably get one for a while and so far it has been helpful. economy going. will it drift lower? no idea. it is far too complicated. it is driven by a lot of other things. it may be that the pound goes up against the euro. withany peas of good news the pound -- a heavily shorted currency -- is there any upside? or is it symmetric? that it is as far down as good news will drive it far up? christian: financial variables, there is a lot of bad news but a lot of risk of a hard, chaotic brexit present so i don't see the downside to be that much. get a long transition time -- you see the upside. upside is quite limited in general against individual carriers. in general, it is limited. we still have a big current account deficit. it has come down a little bit now but in general, it is a current account deficit. the u.k. has a huge deficit and it has a surplus in services trade. any deal with the eu is likely to make the services trade less sustainable while the goods trade deficit is likely to still be there. so i do not see a big upside for the sterling. guy: talk to me about what your portfolio companies see as a result of what is happening right now. you have an aerospace company. does the weaker pound have a material impact? huge. am delighted to say most of our sales are in dollar and most of the sales are in sterling. x,: so if sterling is down what is y? jon: a 25% change in profits. tom: very good. we will continue with jon moulton and christian schulz. tomorrow, jobs day. having bill gross right after the jobs report. you see that on radio and television. this is bloomberg. ♪ tom: -- guy: time in london. tom keene is in new york. the project don't end with exit. it continues with the french presidential race with the republican candidate francois insisting francois hollande is behind the revelations he hired family. in greece, creditors are closing in on a deal to unlock desperately needed aid which could lead to an election. us is jonholz is with moulton. with france, you can probably see france outside your bedroom window. do you see any good outcomes in the french election? jon: no. doesn't tick the box for you? jon: it looks like it will be messy and the candidates are not great. guy: not great economically? jon: economically and some of the policies that might emerge could be very unpleasant. fair chancee's a that marine le pen will do better than expected but that is just a feeling. four-one against as president but if she does then france will be an interesting place. is pro-europe. more europe is the answer. if he wins, as is expected right now, can we expect more europe and where will that take us? we haven: if he wins, to revise down our forecast. and why would that be the case? our base case has been that , theois fillon center-right candidate wins. thee wins, he would have opportunity to blend his program of tax cuts and labor market reforms. have similar good ideas in terms of reforms but what partly -- but what party will he have to implement that? he has to work with the socialists or the president or the right and it will be difficult to implement. and you would expect a growth expectations to go down. france aretions for positive. tom: i want you to dive in here together. discuss this with jon moulton. our theme on the morning must-read is populism. we have another one coming out in the next hour. jon moulton, help me here with the solution to populism? rather than implement a structural policies to promote economic growth, european policymakers are pursuing economic populism by promising high returns at little cost and consistently delivering the bare minimum. it is hardly surprising that many europeans have been tempted theolitical outsiders -- author's reputation precedes him. this allusion to populism is simply more economic growth? jon: that would be the best answer. the other solution is that populism prospers fails and we drift back into intermediate territory which i think is a likely event. you are more optimistic? christian: i think eurozone country so far have been resisting populism a bit better than the anglo-saxon countries. what we see in -- they tend to disappoint and fade away. that has been the case in finland with the original true finns. the government has been declining and that is the case in greece. --t is the case -- sort of although they never got to power. so tested by reality, populists become pragmatic and decline or they fail together. jon: populists have no sensible economic plan. there are large nations across the atlantic with similar problems. tom: i didn't know that. is moulton, help me -- theresa may a populist candidate? no. she is more popular than some. she is actually doing pretty well in the polls. she hasn't made any mistakes. i think she is viewed as a safe pair of hands. has she communicated to the british people what is about to happen? because shelly, doesn't know. she has not been high on detail. is: expectation management that we start off with the single markets and then that disappeared and then -- jon: if you haven't got a clear idea of what is going to happen, expectation management is a very bad idea. you stand the chance of being incredibly wrong. the negotiations for brexit are unpredictable. eggs like gibraltar arising as a big issue -- nobody was talking about that. you invest in the u.k. with that level of unpredictability? jon: it is certainly not helpful. havepeople expect this to a greater effect on the economy. why you would invest in the u.k. is because you have faith it will come out of it in good shape. sunday will have that field and some don't. it is almost generational. christian schulz, let bigger to you on the global recession a few years ago. i heard you say earlier that economic growth is getting better. for the liftcredit in economic growth? or is it just that time has moved on? is more important in the populist candidate? has time moved on? there are many parts to success. the ecb deserve some credit. their policies seem to be working. i think they do deserve credit. i think china deserves a lot of credit. the turnaround in confidence indicators was about february-march last year, which is when china started with theng the economy necessary stimulus. so china, the oil producers as well, by rebalancing demand and supply, stabilizing oil prices have somewhat cut off the crisis. they also get some credit. you could argue that financial markets and policymakers, who dealt well with the brexit event and with the trump elections, they also deserve some credit. that if you take out one of these pillars that the whole thing collapses again. it isn't just because of china or europe or others. and it is not successful in implementing tax cuts and the regulation that global tax rate will falter. i think that is reassuring in the end. is there but it isn't enormous success. it is better, confirmed to a decade ago or two decades ago. the economies are quite weak. weak but ithey are think they are in the right direction. globally, it is a problem at the moment in the emerging economies. they are not growing as fast as they were, they are being dragged along a little bit by the advanced economy. and whether they have been sustained or whether their business models have been sustained worth the dollar keeps rising or events economies keep raising rates -- i think that will be the big conversation. guy: we have to wrap that up there. jon moulton will be sticking around. we will also talk about separation of the glass-steagall. christian schulz, fascinating. jon moulton will stick around. and we have barclays news coming out -- to ask barclays libor traders have been cleared of breach rigging. this is bloomberg. ♪ taylor: this is a "bloomberg surveillance." let's get the business flash. the european union is cracking down on what he considers cheap chinese steel. china has been hit with a five-year tariff as high as 36% on a type of steel -- regulators rejected calls from the european steelmakers for levies on steel from russia, ukraine, serbia and brazil. you know letter is taking steps a make sure -- fighting off takeover bid from kraft heinz. the consumer product giant will buy back $5 billion in stocks. there also selling their business made up of slow-growing brands. still, the company hasn't ruled out growth by acquisition. >> exchange. hopefully, we have more cash generated now so we will be looking at continuous and mende activity to stimulate growth. at the same time, we realize we have the capacity to do a share buyback with a 12% increase in dividends. in february, kraft heinz would through the takeover offer days.only two that prompted you know letter to undertake a strategic review. that is the bloomberg business flash. tom: thank you. yesterdayou heard was everybody falling off their washington. gary cohn took a meeting with senator warren and others back in 1932 -- 1932, glass-steagall, one of four acts. and then you move forward to the revolution of 1998 which was the merger of citibank and salomon smith barney. resident clinton a year later came out and said glass-steagall of 1932 is dead. to give his perspective on what gary cohn said, our michael we forced jon moulton to stay with us. to talk about decades of legislation. michael, i have to ask this question -- is gary cohn talking boyd blanck finds book? is that what is going on here? michael: well, if you look at relative winners and losers, if that were to come about, jpmorgan would be a big loser. goldman sachs, less so. from a relative perspective, it would hurt them less given that they have zero deposits and less of a retail presence. a lot of that would depend on if you split these things up, how do you write late each of them? and could investment banks avoid some of the designation? moulton, helping with this. this could have occurred if senator warren had taken gary cohn to opening day at henley to see the boston red sox. is it an imaginable in london that we can see a split up of regular banking and investment banking and underwriting? jon: it has been much talked about. it hasn't really happened. there have been minor moves to actually separate the two. at the moment, they are firmly linked together. and they carry with it risks. thatve seen many times banks ruin themselves. over here,d to call casino banking -- and high street banking. so personally, i think there is a good case for some degree of split. it is difficult to define. cohn withry expectation management? saying he will show you this and then this? michael: it is entirely possible. it is tough to know how much support there is for legislation along these lines. in the past, there has been bipartisan support for this idea. throughing that congress is a much different matter. tom: michael moore, thank you so much. jon moulton, thank you for being with us today. very much appreciated. in the next hour, with the president of china visiting mar-a-lago, we speak with stephen roach this is bloomberg. ♪ . this is bloomberg. ♪ vonnie: all of the pump and circumstance of the winter white house, this thursday. president trump will meet the president of china. north korea is on the agenda. mr. bannon's future is topic one for all of washington. consider general mcmaster as a blunt force for white house tradition. on economic growth, on your next globalization, stephen roach of yell university. good morning, this is bloomberg surveillance. guy johnson in london, kevin cirilli in florida. lots to talk about. it really is a historic moment. what will we be looking for from this meeting? guy: we will be trying to understand where the protectionist impulse goes. great: 20 the underestimation's is the size of the european economy. they will come in with a vengeance if this trade relationship with china gets messed up. we are sticking with that meeting in the u.s. president trump begins two days of meetings with president xi jinping. the meeting will be held at the president's resort in mar-a-lago. he has vowed to deliver an ultimatum to deal with north korea. they will also talk trade. an apparentump says gas attack in syria crossed a newsf lines and in a conference, the president called -- an affront to humanity and says it has changed his mind on syria and its president, bashar al-assad. a white house economic adviser is supporting the policy that could grab -- radically shaped wall street's biggest firms. the former goldman sachs presidents told -- president told lawmakers he would like to bring back the depression era glass-steagall act which was repealed in 1999. is premised or theresa may meets with the eu president in london. it is their first face-to-face meeting since may formerly triggered the start of brexit negotiations. tusk says a trade agreement can only be finalized after the u.k. leaves the eu. this is bloomberg. vonnie: i want to get to the data checks. the curve steepening, moving it right on, jobs day tomorrow. there is emerging markets. the south african rand was weaker. guy: 2340, big line in the sand. euro-dollar, funny on the charts, you got mario draghi being super dovish. the euro goes back up again. india feeling pretty optimistic about their economy. tom: i want to show this chart at least three times. rollover.eveling and -- the managed float of 2005. up we go. strong the whole way up. this is not currency manipulation. i think it is the polar opposite of exploitation. we will talk to dr. roche about this. up, french election coming let me show you a chart. is options, the outstanding zombie options and you can see this goes back to 2012. a huge spike in the interesting skew.is the rescue -- the we could see a positive outcome. tom: i love when they go to cross moments. that was fabulous. right now, we just had breakfast in palm beach, our kevin cirilli is in florida with the president and air force one. air force one is flying in. plane ashe mood on the they greet the president of china? kevin: a lot to talk about. north korea going to dominate the talks between resident xi jinping and president trump -- president xi jinping and president trump. president trump arrives at about 2:30. they will have a series of closed-door briefings with the president of china as well as senior administration officials. 6:30, president trump and first lady trump will join the president to china for a private dinner at mar-a-lago. mr. ross and mr. navarro be visible at these meetings? kevin: they are going to be talking about trade as well as treasury secretary steve mnuchin . here in florida, all eyes are going to be on trade and whether or not president trump can hash out some type of trade agreement deal with the chinese after a bruising campaign in which he meticulously hammered china for what he feels as currency manipulation. guy: what for the people -- what with the people who voted for trump the expecting from this meeting -- be expecting from this meeting? kevin: first and foremost, they're going to be expecting where exactly this new and administration lies in crafting out and aggressive trade policy. when you get into specifics, whether it is on a nuclear energy deal for auto trade and terrorists, the chinese have a lot to gauge about where exactly president trump stands. a point i would make is he has not said as forcefully since taking office he that he would -- since taking office that he would label china a currency manipulator. were executive orders issued last week suggesting that they are going to be taking a strong block at whether or not countries such as china are going to be taking advantage of the u.s. and that they are calling further studies. yesterday, we heard in the press conference, north korea is going to be dominating a large part of these discussions. tom: we will see much of kevin throughout the day, i'm sure. stephen roach has provided leadership to all of wall street and academics with optimistic perspective on china. decades,anley for inventing a wall street act on china. he is now at yell university and joins us now -- yale university and joins us now. we are thrilled to have you. china in the next block and that i want to talk populism. right now, i want to recapitulate why guys like you are so upset at wilbur ross and peter navarro economics. what did they get wrong about our relationship with china? stephen: they are fixated on the bilateral tensions in a multilateral relationship. they suffer from what i call trade and deficit disorder. with.s. has deficits hundred -- with 101 countries around the world. that is a multilateral problem and is a reflection of our shortfall of national savings. when you don't save and you want to grow, you run big deficits to attract foreign capital to keep you growing. if you put pressure on one of them, china is the lightning justthen the chinese piece go somewhere else and it taxes american middle-class workers as a result. thatis a flawed strategy does not take into account the macroeconomic imbalances that the united states has faced. how will china respond to an overt presentation today of ross navarro economics? stephen: they have heard it before. tom: but face-to-face? stephen: they're going to hear the campaign rhetoric of candidate trump, which was then tight -- very anti-china. china was the lightning rod of his america first campaign. it was very attractive in securing an extraordinary victory, so the chinese will hear it and they will respond in kind. they have their own agenda in terms of their own domestic and global initiatives, whether it regional investment plan, the asian infrastructure investment bank, their own version of an regional trade. they have their global agenda and the u.s. is looking inward, are two approaches that are very different. tom: let's go to guy johnson. guy: what economic policies would you advise the administration to pursue? what are the changes you would make and do you see any of them coming down the pipe out of the white house or the treasury? stephen: the one area that i have stressed and others have stressed is taking advantage of the fact that china is rebalancing its economy, opening up consumer and services markets on a scale and scope of world has not seen a long time, so we need to focus our policies in getting access to those markets and there is no better approach to do that than through this long and arduous to negotiation for a bilateral investment treaty between the united states and china. the president claims to be the world's greatest dealmaker. what better opportunity for the art of the deal that to push through on a bilateral investment treaty? all of us engaged in the u.s. and china, our relationship with love nothing better than to see that. the cross rate has long been an area of focus for politicians. the president has incorrectly accused china of manipulating the currency. they did certainly do that historically, but in the last few years, they have been trying to defend their currency from falling. nots a false issue and of -- and not of great strategic importance. tom: this will be out on itunes and podcasts. we will do this across all of our digital platforms. we will come back and really talk about the fabric of the nation to make you brighter about the pressures that president xi jinping faces as he travels to florida. forget, my colleague on surveillance, later today, a conversation with jacob lew, former treasury secretary. this is bloomberg. ♪ taylor: this is bloomberg surveillance. investors are likely to buy out almost all of deutsche bank shares being offered. more than 95% of the shares have been spoken for. the deutsche bank offer ends today. the share sale is the centerpiece of the ceo's turnaround plan. in london, just go former libor -- two former libor traders at barclays have been cleared of late-breaking -- rate rigging. tom: yale university owns the high ground on the thinking and study of china. it goes back to the great johnson spends, over 50 years. stephen roach of yale university joins us. there is an a kind -- iconic photo of you and a panda outside chengdu. were you hugging the panda or was it hugging you? it was a mutual attraction. and is ra long part of my legacy. tom: here is the chart that all the panda warriors worry about. this is a chart from 60,000 feet. the slope is what matters. the fear of china is the greater slope of china. they are growing faster than us on a per capita gdp basis. what does america need to fear about china or how does china sell itself to the people of america? stephen: that's a better way to put it. the china of that line you have drawn is a china that historically since 1980 has been driven by investments and exports. it is more of a producer model. they made the decision to morph into an increasingly consumer model. america isnity for to be able to better align our strengths with the coming changes of the next china, being able to sell goods and provide services to an economy that is going to transform itself over the next 20 to 30 years into a more consumer led society. that is why i and others come to this view that to be able to crack that market through a bilateral investment treaty is sell goods and provide services. we are not generating as much growth at home as we need to, to fully employ our workers. we need to tap markets overseas to do that. know better market is positioned to provide the external demand than china. guy: have bigger problem is the south china sea going to be? the u.s. is upping defense cd -- defense spending. how big a problem is this going to be for the u.s. and china as they work their way through the trade story as well as the military story? stephen: i'm talking strategy, economic opportunity and trade, but circumstances have an uncanny way of getting in the way of these issues. whether it is north korea, south china sea, east china sea. is are issues that the president is going to have to grapple with. he is going to have to be good at multitasking. that does not appear to be his natural strength. he does not have a choice. to balance all the circumstances against the strategy is going to be a big challenge for the trump administration. tom: this conversation is so important. we will come back. i want to talk about the populism of china. our coverage from florida, the president of the united states meeting with the president of china. kevin cirilli is there, including our entire china printing -- print team. from london and new york, this is bloomberg. ♪ tom: good morning. single best chart, we will renew it with stephen roach. this is the chart the president needs to see. the blue curve is before the managed float of 2005 and up we go with a persistently strong chinese yuan. it has been an elegy -- elegantly managed float. are they manipulating the currency? is the volume out of washington on manipulation valid? stephen: it's not. the good news is the treasury has given us three metrics to define whether or not any country is manipulating its currency. it's bilateral trade imbalance with the united states, which is large, its current account surplus with the world, which is now below the 3% threshold that is perceived to be worrisome and thirdly, the direct purchases or sales of a currency by a central bank, and right now the chinese are going the other way and have been for the last couple of years, in buying to prevent it from falling. lawrding to statutory enacted in 2015, there is no manipulation. this is not a case at all and the administration should know that if they bothered to read the statute. guy: do you think the trump administration would like to manipulate the u.s. dollar? stephen: the president said he definitely prefers a weaker as opposed to a stronger dollar, but that is political preference rather than explicit strategy. we spent years talking about currency wars. we don't talk about them so much anymore. are they over? did they ever exist? stephen: currencies are a way that a country has a way of getting a competitive advantage with its trading partners. in a world where growth is at a premium, the currency angle can be important. stronger,were currency wars would be of far less consequence. tom: we will continue our discussion through the next half hour. today, dr. money is a former u.s. energy secretary. independence, look for that in the 1:00 hour. on,ttle it going particularly among the emerging-market currencies. south africa actually gets a bid, this morning. the turkish lira was weaker. doing a little bit better, right now. this is bloomberg. ♪ guy: bringing some decent weather in the british capital. the pound a little bit softer against the u.s. dollar. waiting for the meeting between theresa may and donald tusk. president trump begins today's of meetings with china's president, gigi paying, later today. the summit is being held at the president's resort in mar-a-lago. the president has vowed to deliver an ultimatum for gg ping to deal with north korea. -- for xi jinping to deal with north korea. democrats say they have the 41 votes needed to block the nomination of judge neil gorsuch. mitch mcconnell says that happens, republicans can change the law to allow the confirmation with a simple majority vote. one of the states critical to president trump's victory would be the hardest hit by a border tax. michigan would suffer the most from a 20% tax. the report was sponsored by conservative reports. the british prime -- the british prime minister's meeting -- visit to saudi arabia turned into a lobbying mission to convince aramco -- theis trying to promote u.k. as a financial center once it leaves the european union. tom: what this now is stephen roach as we are going china, china, china. we are taking a break tags -- take -- taking a break with -- it is killing savers. up to 20 years, but your expertise is in short-term savings. there is tons of money, there. how bad is the distortion? >> what we are finding now is that markets are not focused. the plumbing is working, that is a key component. people who were looking 2-d risk are going to be impacted greatly and what you are finding more is inflation rates are generally increasing, but admittedly not as high as bankers would like. tom: this is something that is a key question. help me with the rate of change of inflation. is inflation going to come up faster so that the real yield is lower in the coming years? jerome: one of the things you see even if it is subtle. when you look at that subtlety coming off the zero balance, you see as a favor, maybe not even noticing it. moving from a inflation rate --t is some 1% -- is sub 1% that is the key metric is that purchasing power over the next five years is going to be something that is pretty hard to preserve from any perspective, whether you are looking to save, and particularly for those with challenging income situations. this whole normalization process of moving to that normalization on the fed balance sheet in fact -- impact savers pretty profoundly. normalization phenomenon is predicated on a glacial increase in inflation. the ice thaws a little bit quickly. is not theyquestion didn't -- not the numerator, but it is the done nominator. the amount of money you can earn by being safe is pretty well ceiling. money market rates have moved at a fraction of the rate that benchmark rates have. this is just something to highlight, that the cost of being on the sideline is more and more of a damaging effect to the saver positions. the normalization process is going to be slow. tom: i would love to bring in guy johnson. guy: i heard this at an event the other night. is a greaterm stuff place to hide out, it's a great place to be defensive if you're worried about what's happening. is there value here? what me through the mechanics of what actual value looks like -- walk me through the mechanics of what actual value looks like. jerome: it means different things to different people. it could be investing in the money market, but if you take incremental steps to the enhanced cash state and what i mean is take -- not taking a lot of interest risk is the damaging risk perimeter we have with a short-term portfolio. there are ways to earn income above benchmark rates. helping to preserve that purchasing power and balance that savings versus income trade-off. for us, what we find value in is not being in this market but -- what he market funds. -- money market funds. just because we have not been focusing on it for the past 10 or 20 years does not mean it is not important. when folks are looking to de-risk, the short term is actually an interesting place with the caveat that they want to avoid taking too much interest rate exposure at this current point in time because this process creates uncertainty along the way. i'm sure you wake up in the middle of the night remembering when the swiss central bank removed its cap. h centralve the czec bank doing the same thing. it, but theed central bank is moving its currency cap. there has been a lot of pressure building up in the system, but the bank is ready to mitigate excessive moves as necessary. tom: you can see the movement here, really on a historic day for eastern europe. the idea of the check currency czech currency moving up. this is the healing of eastern europe and is a symbolic move to see a country buffeted by the irresponsibility's of europe. it is a big deal to see the little nation saying all clear, we are doing better. stephen: that is not a particularly uplifting chart you are showing. that is a cascading waterfall. glad guy brought that up, it's a small thing but ever the less important. jerome schneider, thank you so much for being with us. he will stick with us on bloomberg surveillance on radio. we are interviewing jack lew, this afternoon. bill gross, we will discuss with him the battles of fixed income. this is bloomberg. ♪ guy: coming up shortly, bloomberg daybreak: americas. talking about the chelsea points difference. there he is. >> can you hear me? guy: i can hear you. >> fantastic. i want to talk about the tug-of-war between the politics and the markets. we are talking about exactly that. -- 80 peopleout 80 report in the united states and the estimates for payrolls on friday just inching up. tom: i would go with the idea of payrolls going up. looking forward to that. lets you to our bloomberg business flash -- let's get to our bloomberg business flash. stocks arechinese too expensive in almost 20% job and textbook -- text -- highest level in more than six years. mobius also told bloomberg he believes president trump may be able to claim a victory after his meeting with china's president. >> china has to save trump because he has had the failure with the health bill in congress. i think that they are going to come to something that will be positive for trump. he has to announce something positive. the chinese have to give him something he can bring to his constituents. i am optimistic. says gigi payne's intent will be to build a smooth relationship with the united xi es -- gigi payne -- jiping's intent will be to build a smooth relationship with the united states. plane and off the there was a morgan stanley signs, welcome to hong kong. how is the american investment community doing when they get off the plane in hong kong or beijing or shanghai or chengdu? how is the battle, day-to-day in china? stephen: it is definitely more competitive than in the early days when there were only a few of us really engaged and involved in the markets. that's fine. i think doing business in china is very different than it was back in the 90's and early 2000's. i'm going to go back to a book from johnson spence. you told me about this book years ago. this is the one volume to read. i got this book from professor roach. talk about the great continent. what would be the language you would be using with him about the mystery and baggage we carry about china? what would you say about trump's great continent? stephen: the message from the book that you cited is that we in the west have always been seeing china through the same lens that we see ourselves. we really have to get inside of the chinese perspective and that is what this meeting in mar-a-lago should hopefully inform president trump about, and that is about trying to get inside the perspective that the chinese president has in looking to the issues that they face in trying to transform their economy. donald trump has done a good job in getting inside the skin of the american people in terms of the strengths and weaknesses of the u.s. economy. the purpose of the -- the purpose of the meeting like this is for both leaders to sit down and look inside of themselves and try to come up with a vision. tom: or a dialogue. stephen: or a dialogue they can both share. guy: can i ask your advice? the focus obviously on the united states. we also have a big meeting today between the eu and the u.k. the u.k. wants to think of itself as a global powerhouse. any chance and will china be a pop -- a part of that? stephen: good luck in all of a sudden becoming a global power for the u.k. not to try to minimize the history of the great united it is a small country, a proud country with a great heritage, to be sure. of being onotion its own, to be able to exercise more independents in global obviously an forrtant aspirational view your country. to better integrate itself with china and other countries around the world is an important part of that global vision. how you get from point a to point b is a work in progress. bilateral more important than multilateral? aephen: we live in multilateral world, but that does not mean you can't do important bilateral deals. that is certainly important for u.k./china relations. tom: of the forward to what we will see today. it all comes back to help people communicate. they will have a press conference. what body language, what message do you want from president trump, today? stephen: the message that i would like to see is one of engagement as opposed to confrontation. the two have figured out how to talk with one another, rather than -- the president has taken on board some of chichi brings ingping's -- xi j issues. i think we can see some movement in these positions. we could see some dialogue that goes away from pre-scripted talking points. that would be terrific. around with stick more conversation to come with you. if you want to be joining in the conversation we are having, you can use the ib function to talk to the team. this is what it looks like. you can also access video streams and listen to the radio and you can access tom keene's charts. this is bloomberg. ♪ tom: breakout the jimmy buffett, it is palm beach. kevin's are really in palm beach with reports throughout the president of china visits with president trump. good morning. bloomberg surveillance from london and new york. let's do a foreign exchange report. the perspective of -- the perspective of jerome schneider. euro/czech currency pair. eider ofto mr. schn camera and he told me this is one of the new indications of a looseness or freedom with financial systems in europe which will lead to a clearer picture of where everyone settles. getting rid of cap is a good thing to do. let's get to our morning must-read. this is important. despite a populace propelled wave of political to mold, -- here is the question i have never asked, does president xi worry about the populism of china? i would wager he does. heal -- he has a complex calculus of the people. stephen: he is a politician and his primary appeal to the chinese people is through what he calls the china agreements. china rejuvenation, the dream of promise to the chinese people that they are on a trajectory toward an improved standard of living and he needs to deliver to his constituency in many respects just as much as president needs to deliver to the american constituency. tom: can he deliver a system that will clear financial distortions and get to a better china? president obama would talk about a better america. can he get to a better china and clear markets at the same time? stephen: he has to deal with a lot of financial issues, whether it is debt or shadow banking or currency related issues. this is not the primary touch point, and these are strategic wills that he -- that he -- his main task is to deliver, as president trump, jobs, better income and in the case of china, rural urban migration, improved infrastructure and a daunting environmental challenge. he is certainly mindful of the demand that is put on him in delivering on this china dream. see to the chinese president trump as a populist? stephen: they definitely see him as someone who is very much focused on delivering jobs and better opportunity for the american public. to the extent that he perceived correctly or not as china being an impediment to that, they view his domestic populist agenda with great trepidation. guy: we were talking earlier about the fact that populism tends to fizzle out in authority. is that part of the thinking? stephen: i don't think they think trump's agenda is going to fizzle out. the quote that tom just had up there says it all, to the extent that growth is stronger, then that will undermine some of the populist issues that are right on the surface. tom: thank you so much, we greatly appreciate the opportunity for you to be here. jeff kendrick just publishing on the euro check -- euro czech. he feels strongly it will not roll over into advantage for hungary or poland as well. today, our coverage from china, from florida and also david gura with jack lew. look for that in the 1:00 p.m. hour. markets stable as we look to florida through the day. the south african rand is better today. the turkish lira is better in the last hour. beachcirilli is in palm with our entire print china and asia team. we will give you coverage through the day. westin, alix steel and jonathan ferro with important conversation on daybreak. all of that coming up. 70 degrees this saturday. in london, they get to 70 degrees in july. this is bloomberg. ♪ jon: the federal reserve has a new communication problem. what does it mean for rate hikes? currency manipulation and north korea -- president trump welcomes the chinese leader to the united states. taking thinking back to the old days. bringing back glass-steagall. it warm welcome to "bloomberg daybreak." good morning. thehe equity market with federal reserve weighing in on valuations. what do you think about that? futures up .1%. treasuries on offer on the margin. alix: time for the morning brief. at 8:30 eastern, initial jobless claims. 9:30, john williams is speaking on a panel in frankfurt. what will he say today? 6:45

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