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tv   The Pulse  Bloomberg  May 11, 2015 4:00am-6:01am EDT

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guy: greece's future. with the country due for a big payment, finance ministers need to discuss releasing funds. francine: stepping up stimulus. china lowers rates for the third time in six months. we look at the impact on debt and property prices. guy: cameron's cabinet. we are live in downing street as the u.k. prime minister prepares to announce his new business secretary. good morning. you are watching "the pulse." we are in london. i'm guy johnson.
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francine: and i'm francine lacqua. euro area finance ministers convene in brussels today. greece will be front and center of their discussion. greece is facing challenges on several fronts, the euro sliding as a debt payment is due tomorrow. chancellor angela merkel faces domestic pressures to give up on greece. guy: tom mackenzie is in brussels. marcus bensasson is in athens. tom, what will this meeting deliver? tom: you might be thinking, here we go again. greece faces some very concrete deadlines. that is a 150 million euro payment to the imf tomorrow followed by another one in june and a huge payment to the ecb in july and august. expectations being dull down because of the tensions between the two sides. recently the french finance minister coming out, saying that
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to reach an agreement, we have days or weeks. it follows comments by wolfgang schaeuble, saying, warning that greece could accidentally default. and jeroen dijsselbloem saying that greece has not done enough. great prime minister alexis tsipras saying he is going to take a tough line on negotiations and also saying he wants to see some kind of agreement that supports what greece has already done. they need some kind of positivity from this. the ecb's role is crucial. if the ecb doesn't see some kind of progress on these reforms they have been battling over, then the ecb could further restrict access to financing for greek banks. francine: market is, what does greece hope to get from the eurogroup meeting? do we know anything about tactics? are they going to be more
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friendly than they were last time? marcus: well greece is looking for a positive statement. it is worth noting that this is going back compared with previous meetings, including that acrimonious last one in riga. so often, the meetings have been talked about as self-imposed deadlines to be reached. the greeks have been looking for more funding. this time, they are just holding out for recognition of the progress that has been made so far. they are saying an appeal will be closed in may, but we need something from the other side. over the last week we spoke about the improvement in the process and the tone after that reshuffle.
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from the creditors' side, we have been hearing about this in terms of the process as a difference of substance. there has also been some retracing of red lines. if you look closely at state asset sales, that is a lot less of a redline. some of the key ones such as pensions and labor reforms, if you look at what aspects of those are crucial on the greek side, you can see things being toned down a little bit. but the greeks need the recognition of that. all -- guy: all the noise i've heard suggests that they are going to make the 750 payment. is that the story you are hearing in athens? marcus: we think so. we keep on hearing, we never know quite when the money is
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going to run out, but they do have the money for tomorrow, we understand. we have been hearing the same record for a long time. a month ago, we had the minister , the interior minister saying he would pay wages and pensions. this is indicative of the faction that exists within syriza that does one that choice to be made. the longer it goes without the prospect of agreement, the more strengthened they are within the party. guy: ok, thank you very much indeed. marcus bensasson and tom mackenzie joining us. francine: that brings us to today's twitter question. should greece default? tweet us. guy: let's try and get some answers to that weston. the portfolio manager of pimco is chuckling. should it? >> the only people that can default to it is the
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institutions. they don't need to default. it depends on how you wanted to find default. in terms of a disruptive default, i don't think there's any -- francine: what do you make of the noise we have heard from the french finance minister? how do you default accidentally? michael: you default accidentally if you run out of time in negotiations. francine: but that is not an accident. michael: it is if you don't intend to. you could argue they run out of time and people are worried about the greek negotiations running out of time. none of us know when they actually run out. we could all speculate. most of us would speculate that is early next month. if they are going to do something, they've got to do it in the next few weeks. we don't know that. there's no guarantee.
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we know they've got these payments to the imf and the european institutions, but they've got pension payments as well. our expectation is, they can make it through this month, and that's why you are seeing this kind of negotiation. guy: how brave the you think the greeks are and how brave do you think the institutions are? you could engineer a situation on either side where you force somebody into a default but then you have this month leeway. that produces a month in which you have to get it nailed down. that takes quite a lot. michael: i think neither side wants to go down the route of default and exit. you can see that in the greek polls. the greeks don't want that. guy: if you don't have cards to play, you have to engineer some
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cards to play. michael: it looks like the cards the greeks were playing were to stay as long as they could. i think one would have to look at the shift in personnel on the negotiating team as partially railing back on that. and obviously, the ecb has a lot of cards to play. the ecb has them on a pretty tight leash with the banking system. if the move is going to happen, it has to come from the greeks. francine: how do you play this in the markets? michael: our assessment of where the market is, is about a 30%-40% chance of a greek default priced in. we would say on the balance of the moment, we would take the under on that. as we all know, there is that risk. francine: thank you so much mike amey. guy: what else is on our radar?
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the bank of england governor mark carney will reveal the latest rate decision today. market sentiment shifted after the election victory, putting the banks well offset. francine: china's central bank has cut interest rate for the third time in six months as it ratcheted up support for an economy grappling with a debt overhang. the people's bank of china produced the 1 -- reduced the one-year lending rate and cut the one-your deposit rate. guy: despite china's faltering growth, a ceo tells bloomberg he has a positive outlook for the world's second-largest economy. >> the key is some very strong fundamentals. you see that china is going to be important going forward. renewables will be very important.
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francine: here's what else we have coming up this hour. next, prime minister david cameron prepares to make the final appointment to his cabinet. guy: at 9:30, we go live to beijing to assess the impact of china's rate cut. francine: at 9:50, the new piece of russian weaponry. guy: we are talking battle tanks today. up next, why cameron's minuscule majority could cause him a few problems. we have the latest from downing street next. ♪
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francine: welcome back to "the pulse." we are live on bloomberg tv and radio. guy: fridays shock u.k. election result, the conservative party now has a majority in the house of commons. it be a little problematic for the prime minister when it comes to the issue of europe. anna edwards is at downing street this morning. that slim majority means david cameron's backbenchers, their leverage, a little better now. anna: good morning to you. the subject of europe is going to be key during this parliament. keeping the backbenchers on site, making sure he can pass the legislation he wants is
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going to be one of the preoccupations. he has a majority of just 15. that compares to 1992, when the majority was 22 seats under john major. that conservative government was torn apart when he tormented by the subject of europe. something many in the conservative party might be mindful of. with that in mind, david cameron has suggested that george osborne is going to need -- going to lead some negotiations with europe, to renegotiate the relationship between the u.k. and europe. greece is very much on the agenda. a migration crisis also on the agenda. meanwhile, business leaders have been speaking out suggesting they want the u.k. to stay inside the eu. the cbi has said they want a campaign for the u.k. to stay in the eu something that perhaps david cameron will have some sympathy with. a lot of the focus is who is in
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and who is out. francine: in terms of the cabinet, i guess it is the position that used to be filled by lib-dems that needs to be refilled. do we know who will become business secretary? anna: business secretary is still up for grabs. all eyes on the door behind me. we have seen larry the cap making a few entrances and exits. chris grading also going in. he was just as minister. now leader of the house of commons. in terms of business secretary position, sajit david has been mentioned for that role speculated about i should say. matthew hancock has been speculated about. but we don't have any confirmation yet. we know that george osborne is reappointed as chancellor. iain duncan smith is back in charge of pensions and welfare. that could be a crucial role
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given what we know about the conservative plan for cutting back on welfare spending. look out for some key women to be named as well. david cameron once a third of his cabinet to be female. guy: thank you very much indeed. anna edwards joining us from downing street. francine: bank of england governor mark carney will reveal his latest rate decision today. we are joined by bloomberg's jennifer ryan. it is quite a big week because we are expecting that inflation report. jennifer: think about it. the announcement of the rate decision is delayed until today. policymakers were meeting last week. amid that uncertainty you could see a really big argument for them not to do anything. on top of that, inflation is still at zero and their target is 2%. guy: jen, talk us about the
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market moves and how economists are changing their forecast. we got carney speaking later on. where is the current forecast versus where we thought the bank was? the last two weeks have been incredible in the bond markets. jennifer: it has been rather curious. as soon as the election results were announced, markets pushed out there rate expectations to the third quarter. what we are looking at is 18 months of no change in interest rates. there's two things that are interesting. on one hand, it is such a long time when you've got nine quarters of rose, oil prices coming up. on the other hand, you've got carney speaking about the bank's new forecast so why not wait until you hear what he has to say? francine: jennifer ryan there, our economic correspondent. guy: mike amey still with us.
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when do you think the next hike is? michael: the headline inflation is not really the deal. i think the issue is the core inflation rate. core inflation rate is roughly at 1%. it is quite sensitive to prices. with sterling going up there's a debate as to how quickly that feeds through. i suspect it is not all in those numbers. it wouldn't surprise me if the core inflation rate went down. if core inflation goes down, the underlying price still looks benign. why risk hiking rates until you have not all the ducks lined up which would be core inflation going up and wages going up? i think early would be the middle of next year. the core inflation rate is going to be trending down. guy: is the peak in the cycle
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increasingly getting the work? michael: the market has been doing that for a while. our best guess is that the highest they could get the base rate would be 2%, around there. maybe 2.5% if you are lucky. the biggest rate cycle postindependence is 175 basis points. there's two arguments there. if you start at zero, then -- [indiscernible] the other, is how much spare cash the consumer has got. i think 150, 200 basis points rate cycle is the most you could see. francine: [indiscernible] michael: that is a very interesting question. if you look at where it has been so far, there was research suggesting that if you tighten
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regulation, a lot of it in the service sector has been where prices have fallen. i suspect that is to do with regulations. we need a more highly regulated financial services industry. in the long-term, what you've got to do is create a flexible labor market. you've got to get employee skills up and keep education levels of. that's not something that happens quickly. what happens is, we probably had too much and now we are getting the payback for that. francine: we will be continuing the conversation with pimco portfolio manager mike amey after the break. ♪
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guy: welcome back. you are watching "the pulse." we are still with mike amey. we should talk about china. i want to carry on. we are in a situation at the moment where, picking up on what you said before the break about rates staying low for a long time in the u k and elsewhere, the pension industry is in real trouble. how do we get ourselves out of what is a colossal hole, and how much responsibility should central-bank take? michael: they've made a bet,
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which is better to inflate asset prices and get a bigger bang for your buck for the economy as a whole. the winners will from the losers. the winners, basically are corporates and individuals who will borrow more money. the losers are those who need to invest in long-term fixed-rate assets, where the yield is -1%. those are the guys who take the hit. the risk and this is the thing that worries policymakers, is if the deficit is so large, i think the latest numbers are about 350 billion pounds then if profits start to fill holes rather than reinvest in the business, that is a classic environment where you don't get a productivity
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boost because the money is being diverted. it is not a productive hole. that is a problem. the u.k. regulator has historically given companies some wiggle room not to relentlessly plug holes but if you are the cfo, you look at that big hole and you wonder. it is a genuine issue for productivity as well as how we get ourselves away from zero. francine: what is your take on china? do they have the situation under control? michael: we think they have to do more. we don't think this is the last rate cut. they got a 7% target. i don't think any of us expect to be there at the moment. they are trying to counterbalance some weakness in the domestic economy generated by some weak performers of domestic loans. at a point in time where the dollar has been going up if you are linked to the dollar, that
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is a problem as well. we think they've got more to do. guy: chinese stocks go up? michael: i think so. guy: all i'm hearing is evidence that stocks go higher. michael: discount rates are going to stay low. notwithstanding day-to-day volatility -- guy: if you are a pensioner and you've just been freed of holding an annuity again, stocks are looking increasingly like the asset of choice. michael: you are being pushed out of risk-free assets. that looks like the case for a while to come. you also got qe going on. the bank of japan still in full-blown qe. qe is supportive of risk assets. francine: all right, mike, thank you for coming in. guy: up next, a third rate cut for china in the space of six
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months. we will ask our beijing bureau chief why the world's second-largest economy is stepping on the gas. francine: just a reminder, you can follow us on twitter. we are talking about greece possibly default thing. should it? tweet us. ♪
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francine: welcome back to "the pulse." greece will top the agenda at a meeting of area finance ministers in brussels are in the company need some acknowledgment of progress. the meeting comes a day ahead of a deadline for greece to repay 750 million euros to the imf. guy: david cameron is appointing his new cabinet. business secretary is still up for grabs.
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the foreign secretary will lead the renegotiations with terms with the eu. that is expected to dominate the agenda as britain face -- faces a referendum on staying in the eu. francine: there was a sharp rise on friday after a military crashed over the weekend. flights were suspended. a spokesman for airbus said test flights will continue until there is clear evidence of mechanical failure. guy: the chinese sec -- central bank has cut interest rates. it coming is grappling with the debt overhang and a slump. in another they are raising limits on what pace can pay favors. let's go to our beijing bureau chief. why did they act now? this is the process we have seen
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them going through? guest: it is the third rate cut since november as you mentioned. what is happened lately is alice he makers have looked -- they are staring at some depressing numbers. imports are down. exports are down. the property sector which accounts for 20% of the economy is sluggish. there are 10 million units in oversupply in the property sector. what the government once to do is check -- cut these rates and give businesses an incentive to borrow money so that they can lend for big projects. francine: have chinese officials done enough to get growth back on track? guest: that is the big question now. what we are seeing is -- the issue is companies are severely overburdened with debt.
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are they going to take this as a chance to go in borrow money and invest in those big projects the government wants them to? it may end up allowing these companies to refinance existing debt at lower rates. it will allow them to squeeze their way through this debt overhang and get back to a situation where they are not feeling the pressure so much. guy: in a sense of how much more needs to be done it, where people talking about? this is an ongoing process. how far through it are we? guest: i think this is certainly not the end. economists that we have spoken to in the last day or so anticipate another cut in interest rates in the third quarter. they have many policy tools at their disposal. china is unlikely to let the current to depreciate too much.
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they can cut the amount of money that banks are required to hold on deposit and that would free up money for investment into projects. francine: thank you so much. he is in beijing. guy: more on the chinese story on the bloomberg website. the stock market suddenly goes south. find out which our it is. you can go to bloomberg.com. francine: it is actually a 1:20 p.m. david cameron and his relationship with the rest of europe. guy: this is a quick snapshot of the financial markets. equity markets are having a huge day on friday. today that is not a bad
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performance all things considered. we will take a break. see you in a moment. ♪
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francine: welcome back to "the pulse." guy: shares are spiking. there is speculation that they may come together. that is something of a shopping spree in the offering. caroline hyde has the details here it guest: maybe a merger.
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that is why we are seeing a 17% spike. this is what is being reported over the weekend. it came in the french press. both were talking about considering a merger. preliminary talks so far, it is still early stages. they have not discussed the price point or the structure, according to people familiar. this is a little bit of a blast from the past. in 2007, we had to companies considered combining back then. he was the chief executive at the time. our main objective is to create shareholder value and we do that independently. now it looks as though there -- they are revisiting this merger. overall these are u.s. companies to a large extent.
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they have operations in belgium and the united states. they get 60% of their sales from the united states. this is where it makes a value set. 400 to 600 million euros is what they could aid. they are saying they could be expanding margins in the united states. the profitability has been under attack because there is so much competition. they have had to invest in an internet operation. it could make sense from a savings perspective and create a giant. 60 billion euros in sales is what they are currently bring it in. they have the market capitalization. let's see how it stacks up versus some of the big european players. sales almost $100 billion. the french player for international is a big retailer.
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the market capitalization is smaller than what they would have. they would have $28 billion. it would still be good in a sales perspective. we have $60 billion altogether. this would be a juggernaut in the retail space. they would help cut costs in the united states and become that much of a bigger player. with the same thing that happened in 2000 happen, is all just murmurings of a merger right now. so far, both companies say that they decline it to comment. francine: thank you so much. these murmurs are sending share crisis -- prices a crazy. guy: you never know. we have certainly seen that in the past. they still talk about that.
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the conservative victory at the election means that they are firmly on the cards. how is this reflecting on relationships on the condit. francine: we are joined by the chairman of the british german association. in terms of what david cameron has to do, he needs to do a u.k. referendum. he has to rally the troops. he is going to try to negotiate. guest: we have had a few hours sleep after the hectic thursday and friday. the reality is on friday morning in berlin, german politicians woke up with mixed emotions. on the one hand, they were pleased to see prime minister cameron back at number 10. they believe this is something that they can do business with. they have a good relationship with merkel.
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they have an anxiety about what might happen now. as we sit here on monday morning, a referendum is coming down the track and it's coming down very fast. it could be as early as next year. that has a huge impact on the shape of the british/german relations. guy: we have not heard from german businesses. they want to know what the result is going to be. we are now past that. what do you expect to hear from the investors in the u.k.? guest: i think we are going to see over the next few weeks of rising intensity. it will be a sort of regular drumbeat. british companies and also german companies in the u.k. have direct interest or -- affected by the outcome.
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we forget how big that sector is. the u.k. is the largest destination for foreign investment in germany. there are 450,000 jobs directly employed by german companies in the u.k.. they like to do business here. they like to invest in the united kingdom. the possibility changes that dynamic. as any business would do, it's going to try and look after its own interest. there is change here. i think this -- businesses look for the responsibility to make up the case. francine: what is the case? what do you tell the british citizens to make sure that were we to have a referendum vote the outcome would be for the u.k. to stay in the eu? guest: the u.k. has been the
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destination of choice for overseas investment. it's not just german companies. if the u.k. were to leave that's not going to change overnight. it does make the united kingdom a lot less attractive and a lot less competitive. why would you if you were airbus consider decades worth of future investment if the u.k. is on the outside of of the single market and the trading block? it's going to be necessary for companies and look closely at what happened in the scottish referendum. i think this argument is going to be framed in a different way. the conservative party conference lacked october, they challenged this and said you should not have a voice in a referendum.
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that was an outrageous thing to say. it was almost an anti-democratic thing to say. companies will choose to ignore that advice and they will be on the front of it very quickly. guy: thank you very much indeed. we look forward to the debate. francine: now we have top headlines. the justice department is reaching a settlement with five thanks. that is one more than previously reported. the fifth bank is said to be the europe base bank. they are expected to plead guilty to raking antitrust rules. guy: parliament has a tight runoff election. there was a sharp defeat in the first round. his support has plunged to just 32.6% in a few months.
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he has responded by announcing plans for a referendum on public financing of political parties. francine: the king will be a noticeable absentee. his decision to stay away may be seen by some as frustration over washington's iran policy. guy: still to come on the program, russia flexes its military might as angela merkel visits for the the celebrations. what is next for vladimir putin? we will discuss when we return. ♪\
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francine: welcome back to "the pulse." we are streaming live on bloomberg.com. guy: russia's military might was on full display this weekend. the new battle tank is a new generation of fighting maciel -- machine. take a look. >> they have suffered over the
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past 25 years of investment. there is a long legacy of armored fighting vehicles with over from the cold war and a new system was needed. this is the new generation of biotech. it features and unmanned main deterrent. it's the first modern tank. the gun it cannot fire antitank missiles. there is an introduction of an active protection system. they will be sensed by the vehicle. the battle tank may be 5 million u.s. dollars. the reported high-end cost is likely to include research and
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development costs. it is due into service next year. it will only do so in small numbers at this point. francine: that tank made its debut this weekend. also making an appearance was the german chancellor, i go merkel. her visit raise questions about her commitment to economic sanctions against russia. guy: let's talk about that. merkel's visit to moscow, let's talk about that first. these two have a relationship. a lot of people are trying to read the tea leaves of how that relationship has evolved and where we are now. she attended the celebration. guest: the relationship remains frosty. she went to moscow on sunday,
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the day after the celebration. she left a wreath at the tim of the unknown soldier and in so doing, she said we recognize that the soviet union lost millions of people in world war ii and we recognize germany's responsibility. she did not go to the parade on saturday. she wants to say that we are not celebrating their militarization or what they are doing in ukraine. it's an important distinction. she has not seen vladimir putin since february. she used to be the goto person to liaise with him. francine: she speaks russian. i think vladimir putin has distanced himself. she is the only one who can actually do that link between the western countries and russia. guest: i think so. they had a press conference late
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on sunday after they left the wreath at the tomb of the unknown soldier. she said that the annexation of crimea was illegal and criminal. she is saying this next to the president standing next to the podium in front of a russian audience. that is audacious. she is not backing down. she is leading the coalition of european unions 28 nations in imposing sanctions against russia. if we learned anything yesterday, she sees no need to lift sanctions. we have this broadcast by several european actors. those won't get lifted in june. i think what merkel is saying yesterday is maybe they should not get lifted then. she is still offense and she is not going to make any chummy comments in front of the press until she is certain that there is going to be progress in
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ukraine which she said she has not seen enough of. guy: the tank. this is a big evolution for the russian military. vladimir putin has spent a lot of money on the russian military as of late. guest: the re-armament program is about $400 billion. it is massive. the armada t 14 is the most iconic product or export. there was a good showing on saturday in front of everybody. the tank itself will cost about $8 million. i'm not sure how you break that out. it supposed to take on the abrams. which is the american tank, it goes faster than the american tank. particularly after one of them
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stalled right in front of lenin's muzzle liam on tuesday or wednesday at a rehearsal for the parade and was stranded for half an hour he sat there. it eventually got out of there. i think people say that's impressive, this is something me to watch and learn more. they had a good showing on saturday. there was this embarrassing incident earlier in the week. it might not be until september when we get the big arms show in russia when we see some live fire exercises to see how important this tank is. it is the newest, baddest tank produced by anybody out there. it is meaningful to the russian military. this could be completely robotic in future generations. it's like what people do sitting in nevada with american drones
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but a tank on the battlefield. it will help russia strategically and geopolitically creating annoyances to american military power around the world. francine: we know there is going to be a next her size in the mediterranean later on. it is involving submarines. china and russia together. guest: we learned that they are going to swap rate on cyber security. what a mix. guy: one man who does know something about russian tanks he has walked into 10 downstream. does he get -- 10 downing street. a lot of questions are being asked about that. francine: we will be back in just a few minutes. a second hour of "the pulse" is
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coming up. we will be talking about greece and the u.k.. guy: we saw the film industry we will talk more about it when we return. ♪
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e for the third time in six months to support the world's second-largest economy. we will look at the impact on the debt story. francine: cameron's cabinet boris johnson will be part of it. guy: good morning to our viewers in europe.
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a warm welcome to those just waking up in the united states are in i am guy johnson. francine: this is "the pulse." guy: greece will again be front and center in discussions. they are facing challenges on several fronts. and imf payment is due tomorrow. angela merkel is facing pressure to give up on greece. thomas what are we going to get out of this meeting today? guest: it looks like the best case scenario would be a statement of positive intent from the eurogroup. that is with the greeks are hoping for. and that would give the ecb space to allow banks to access emergency liquidity funding. the central bank is keeping the greek financial system afloat. they need a statement of positive intent, that there have been moves forward nailing down
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the details of some of the sticking point reforms that have held up the two sides. things like taxes tangents -- pensions. that will have to move at some point if there is going to be a deal. it is causing entrenchment on both sides of this. the hard-liners in germany are saying may be the euro would be stronger without greece. that is the first time we've heard that. on the greek side, there are members of the government in greece suggesting on defaulting on some of the loans. not the imf, but defaulting on the ecb. those positions will become more difficult to entangle. this comes as the french foreign minister of finance says time is running out. they have dies -- days and weeks
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to get an agreement. greece could accidentally the fault. the anti-and finance ministry says time is running out. they do need a statement but we are unsure if this will come together. time is the essence. francine: in athens, what is the game plan for the greeks showing up the meeting? how are the negotiations going to play out? are they going to be aggressive? guest: we have seen a roller coaster of emotions through the weekend with negotiations stalling and getting on a better page. there have been some mentions in the greek press that the payment tomorrow is at risk. we have information from greek officials saying that will not be the case. it is a negotiating tactic by the greek side.
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we have to wait a few hours to see what comes up. greece is expecting a significant or symbolic sign that there is progress in the talks so that the ecb does not further take liquidity of the banking system. in a few hours, we will understand how things are going. we get a positive statement and i think greece will buy it's time and look forward. this will come from may until the end of june. guy: what you hearing at this imf payment tomorrow. it seems like the money is available. this is the start of some payments that will be do over the summer. guest: that is correct. there have been some talks of the liability of releasing it.
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that is not the case. i think the greek government has a longer term plan on its mind the moment. the two payments may not the met by customers at the moment. this is why it is important that they keep liquidity in the system. that will not happen if we see something negative out of the eurogroup today. the ecb was wanting to give greek -- greece the benefit of the doubt for another week. francine: thank you so much. guy: our twitter question of the day, should greece default? let's try to get some answers to that. we are joined by richard jeffrey. would it be smart for the country to say enough is enough? guest: i have been saying that to you for some time.
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greece is going to find itself in a chaotic situation. i think it would be better weren't to be outside the euro making decisions for itself and seeing the devaluation and it's currency. it would get the economy on the road to recovery. francine: would it be better for them or better for us? would there be a humanitarian crisis? guest: no. it would be far better for them. they would have to get the institutions back in place they could run monetary policy. they do need to run that -- sounder fiscal policy. there are cultural changes they will have to make. i think that would lead to their benefit. trying to pretend that economies as different as germany and greece can survive under the same monetary umbrella has been
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proven wrong and this is just going to be a long painful death for the economy. guy: if you were to see that story emerge you would see a huge boom in greek tourism. how quickly put the country put itself on an economic trajectory? guest: it would be hard work and it would be painful. they would need new loans. there would be a lot of processes to go through. if the greek economy and currency were on its own and going downwards, there would be lots of tourism. that is a big earner for greece. francine: think that the greek government is thinking of this? if we would see a default or an event that would lead to greece leaving the eurozone, would it
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be a moment? would it mean a credit crunch around the world? guest: i don't think it's a lehman brothers moment. that had a contagious affect in the financial system. i think this is be an isolated event within the system. the bank of england set a couple of months ago that if anybody hasn't written off greek debt already i don't think this is a major threat to the european monetary system. it would have major implications for greece. greece is in chaos inside the euro. it would be in short-term chaos outside the euro as well, but at least he could take decisions into its own hands. this is the least palatable option in the short term. guy: the anglo-saxon world if greece would leave would rip the euro part? guest: what we are trying to
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judge are the political forces within the european union itself. public statements are not what they believe will happen. they are trying to put a line in the sand. the problem for those european diplomats and politicians is if the project is not successful or constantly moving forward, they fear it will drift back. there are a lot of people, not just the u.k., a lot of countries who would set this back a little bit and don't want a full physical union. francine: thank you so much for that analysis. guy: we have plenty more still do, we are going to look at our radar. the bank of england's latest rate decisions will the made today. the bank will offset fiscal polity by keeping rates
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rock-bottom until later next year. francine: china is cutting interest rates for the third time in six month. they are grappling with a debt overhang. they are setting the one year lending rate. they will cut the one your deposit rate by the same amount. guy: he has a positive outlook on the second-largest economy and the demand for oil. >> this is a very strong issue. china is going to be important going forward. renewables will be very important. francine: we are live outside downing street. david cameron is putting the finishing touches on his cabinet. guy: boris is in it. we will talk about the details
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when we come back. ♪
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guy: welcome back. you are watching "the pulse." we are also at danny street. the conservative party has a majority in the house of commons. that can be problematic for
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david cameron. we have seen a few high-profile figures arriving and leaving boris johnson among them. what do we know? guest: just as you come to me we have a stream of senior tories trying to see if they have a seat at the top table as cameron tries to put a finishing touch to his cap -- cabinet. we heard about some of the big guns staying in their seats. we heard a bit more about who gets what. boris johnson was here earlier this morning. he has just left her in we have confirmation that boris johnson will be attending the cabinet. he will focus his attention on mayor of london. his term expires next year.
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that is his focus in the short term. keep an eye on some of the tory women who have been checked for great things. we have seen a number of conservative women arriving this morning. david cameron has made no secret that he wants one third of his cabinet to be female. she has treasury experience and she is going to be the minister of state for employment. she will attend cabinet. that is amber rudd leaving. she is going to be the secretary of state for energy and climate change. nicky morgan is going to stay on in education. she took that on during the last government. peter stole will be a full member of cabinet. the rise of the tory women is one of the things we are talking about. there was a surprise visit from boris johnson. francine: it's like being called
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in by the headmaster. you don't know if it's good news or bad news. that's a we need to get to the bottom of hearing how does he deal with the backbenchers? guest: that is going to be a big issue. you might remember back in the early 90's, john major had a majority when he started that government. that was quickly toward a part it was torn apart in that particular era. many of the conservatives will be fearful that something similar could happen now. it will be important for david cameron to keep the backbenchers on his side so he can push through some of the legislation he wants to bring into. we have seen speculation in recent weeks about what the renegotiation of the
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relationship between the u.k. and europe is going to look like. the chancellor is going to have a beefed up role in negotiating the role of the u.k. with the rest of the eu. the french finance minister was saying he did not want to see any big change. that is the stance of the french of taken before. this is an uphill battle for the u.k.. we are keeping the backbenchers on side. many of them are skeptical. the tories continue to arrive behind me. guy: anna edwards is at danny street watching the stream of cabinet hopefuls. francine: that is a photo opportunity. that is great. guy: there is no door handle on the door at number 10. francine: we are talking about the u.k. and we are getting a picture of the cabinet and what
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david cameron wants to do. the big concern is the referendum with the eu. will they realize? guest: i do think scotland is going to be an issue for the markets. cameron has indicated they are going to get a significant three of physical autonomy. that will begin to neutralize that issue. uncertainty over the european union, that is potentially damaging. the first is i don't think it's going to damage consumer sentiment. it might have an impact on investment in the u.k. that is a very small part of the economy. i don't think it will be majorly damaging on growth. guy: should the bank of england raise rates?
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when should it raise rates and how high will they end up going? guest: i think the consensus is that this pushes out the timing of the first rate hikes. that is not necessarily true. i think the more predictable environment will result in the process normalizing monetary policy. you've got to look at the general economic drop. one of the things i think we might see happen in the u.k. near the end of the year is a little bit more inflationary pressure coming through earlier than anticipated. i think that might be the trigger of the rate increase, especially if wage settlements go up. francine: what is your favorite play with equities? guest: if we see some more inflation come through near the end of the year, i think that will be a broader story. i would fear for bond markets in
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that environment. we've seen some turbulence already this year. i think we could see more of that over the remainder of the year. i would be concerned about bond markets. i think the u.s. market is past its peak margin point. less emphasis on u.s. equities mainland europe looks a lot more interesting with growth picking up. that should leave to margin improvement as well as turnover improvement. i think there is more interest there and they have qe ongoing. francine: he is the chief financial advisor. guy: the shanghai stock market is surging. we will give you the details when we come back area and ♪
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francine: welcome back to "the pulse." we are live on bloomberg television. the chinese central bank has cut interest rates for the third time in six months. the economy is wrapping with debt overhang. the central bank is raising the limit on what takes can pay as favors. why did policymakers act now? guest: if you look at the data
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from the last couple of weeks, they are looking at some troubling trends. exports are down and imports are down and inflation is down. we are creeping into deflation it. bloomberg's own calculations suggest that economic growth is slipping low to 6.4%. with the government is saying is we will make money cheaper and get out there and borrow money and use it to invest and buy a home. they are trying to do it they can to spur spending and drive that growth back up to 7%. guy: how much more are we expecting from policymakers? how close to getting back on track are we? francine:guest: we are expecting another rate cut in the third quarter.
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policymakers have other tools at their disposal. they could reduce the amount that banks are required to keep in reserve. they have a lot to do. the problem is what we face in china is a situation where there is already a great deal of debt. the debt overhang is huge in china. we may see a situation where rather than take out new loans, the interest rate cut will allow some us so we's to refinance loans and get themselves back on to miss -- more secure financial footing. guy: you can find out much more on china on the bloomberg website. suddenly, the stock market in shanghai went into reverse. you can go to bloomberg.com. francine: coming up, where is the u.k. film industry heading?
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guy: we are looking forward to that conversation. what can we expect in this next parliament? you can follow us on twitter. the twitter question of the day is should greece just default? francine: we have had some great responses and we will have those for you at the end of the hour. maybe this is too painful? maybe this is just a drawn out car crash. maybe they could go out of the eurozone and and a couple of years they are back on their feet. guy: we will take a break and see you in a few minutes. we have many more conversations to come here on "the pulse." we're going to talk about the
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u.k. film industry when we come back. ♪
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' european headquarters in london. greece will top the agenda at a meeting of area finance ministers in brussels. the country need some acknowledgment that there is progress. the meeting comes a day ahead of the deadline for greece to repay 750 million euros to the imf. guy: david cameron is a point in his new cabinet with a roll of business secretary still up for
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grabs. some roles have already been filled. george osborne and philip hammond will lead the renegotiations of the terms with the eu. that will dominate the agenda during this parliament. francine: airbus shares are on the slide after one of its military planes crashed over the weekend. flights of been suspended of the a 400. test flights will continue until aim mechanical failure is presented. guy: let's find out what else is going on. jonathan: this is not the color of the map you would expect to see. friday was an exception. the best gains in stocks so far this year. losses are on the periphery and marginal losses are 2/10.
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that of course is one of the biggest stories airbus. in london, we are up by one third of 1%. the big game is on the ftse. their relation to china is pretty obvious and you don't need me to explain. look at this. great equities are getting fatter. greek banks are getting battered this morning. euro bank is off by 9.3%. you can see that nervousness as we go to brussels and the meeting with greece versus everyone. there is no deal in sight and a payment to the imf tomorrow. that means greek yields go a little bit higher. we see much bigger moves over in greece and we are seeing today. they are up for basis points.
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i think we go back to that story with these huge gyrations in the global bond market. there is a taste of that this morning it. they state higher this morning. there is some action in the bond market. the fx market, there is a weaker euro. this one is not the only one is not the only when i am watching this morning. it is weaker against the dollar. this is a bank of england non-decision. every single economist is expecting no change today. the economic forecast for the bank of england and the governor speaks. does that mean tighter fiscal policy? does that mean looser monetary policy? francine: investors are still split a met.
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tom keene joins us from new york. nice to see you. what are we looking at today? tom: we will go to francine lacqua in london and talk to her about what she learned over the weekend. i thought the coverage was absolutely fantastic. i thought we were way out front on some of the nuances of that election and looking forward to talking to you further about that this morning. we will talk with morgan stanley. they are way out front on the decline in commodities. we will talk about the super cycle. china. we will talk to the dimer funds economist. we will talk about the nuances of the jobs report on friday. francine: i am looking forward to being on your show in an hour
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from now. guy: the modern military of russia was on display over the weekend. this was the most talked about innovation the battle tank. it is described as a new generation fighting machine to replace the soviet era tanks. let me show you. >> the russian military has suffered over the last .5 years. there is a large legacy left from the cold war. a new system was needed. this is the new generation of battle tank. it features an unmanned main current. this is the first modern battle tank like it. the gun is reported to fire
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guided antitank missiles as well as shells. this is the introduction of a hard to kill active protection system. incoming missiles will be sensed by the vehicle. the latest u.s. abrahams tank would be $7.5 million. the high unit cost of this tank would include the research and development costs. it is due in service next year. we expected to only be in very small numbers at this point. francine: it made its debut at the parade. anglo marker also made an appearance. she made -- paid tribute to the
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russians were killed in world war ii. guy: let's get the detail of the subtleties of how we should watch this relationship evolved during --. she went for something and she did not go for the main celebration. she talked about the difficulties in the past. the message was quite clear. guest: the relationship between vladimir putin and angela merkel remains frosty. she went to moscow on sunday to leave a wreath at the tomb of the unknown soldier. she did not go on saturday, to the big the day parade were all of the russian hardware was brought out onto red square. she wanted to say we are sorry for world war ii and the millions of russians who died and the soviets who died as a result of it. i won't celebrate demilitarization of russia
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given what is going on in ukraine. should had not seen the russian president for three months. she said the annexation of crimea was illegal in criminal. if you want to make nice with someone and move on, you probably don't do that in front of their press court. francine: she showed up. what does that mean for sanctions? guest: to answer that point, she showed up and none of the other western leaders showed up. i think the way she looks at it is it's important to not be an affront and not not go and pretend like you're not paying attention to russia. what she did in terms of sanctions i think is affirmed to everyone that germany is against the lifting of sanctions. the sanctions will remain in place, even if somebody tries to defect. there will be that union
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necessary to keep them imposed until at least the end of the year and she is waiting to see vladimir putin take some serious steps before she warms up again. guy: the tank, they always named them after the year they come in, how important is this tank to vladimir putin and showing that russia is a frontline fully invested military machine? guest: this is the first russian tank to be produced in decades. even as the country is in a recession, they are spending lots of money. a lot is happening the last few decades since they developed the t 72 and the t 90. this is very important for russia. it can be important for the export market. for patriotism and restoring the
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military-industrial complex, it's important. is it as good as an abrams tank? we saw the tank at the rehearsal. they had several of them crossed the red square. one of them actually stalled right in front of lennon's mausoleum. it was there for half an hour. they tried to tow the tank. it got mixed reviews. saturday worked out very well. thursday one of the tanks stalled. the final judgment will be passed later in the year when we see the military capability of the tank. it's a big deal at its important symbolism that they are rolling this out. francine: thank you so much on the latest from russia. we have breaking news. guy: we've been watching the goings-on at downing street all morning.
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we have that confirmed. the saliva picture coming from downing street. francine: this is a replacement. you can see his twitter feed. he is announcing this on twitter at the same time. guy: crucially, they need to deal with the backbenchers. he needs to meet them. the us is the 1922 committee. he has a very critical meeting. he has a very slim majority. keeping them on board is going to be one of the critical tasks he faces. it will be interesting to see how. that is a misspelling, let's not
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worry about that. we will see how that emerges. we will see how that meeting goes. francine: coming up, we go to the movies and talk to the film business.
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francine: welcome back to87 "the
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pulse." guy: the star wars blockbusters will be filmed in the u k. will the election results keep the strong run going? one of the leading film financers is with us. it is nice to see you. we have a new secretary for business. what you want from these guys? >> the tax credit which has been a big boost for production. the reason that films like star wars have come here is because of the tax credits. they have crossed over into television, which is a boost. francine: there was indication that would stop? or it would be reversed?
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it seems it you will contingent have that support. >> i think there has been an increase she the original tax credit and that has expended toward television. i think it's been working extremely well. guy: do you think you will get more? the you think there is an expectation that what we have seen in terms of the commitment is just a start and there will be much more to calm? >> i would like to hope so. every studio for the last year has employed tens of thousands of people. the economy is booming. if there are more things to do, that would be terrific. francine: are you concerned about people like netflix? >> they are our major vendor worldwide. i think it gives consumers a
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different choice of home. it makes it easier for them to watch great movies on television. i think the cinema is the strongest it has ever been. it has grown for the last 10 years, through the crisis it was one of the few sectors that kept growing. i think it's a very popular form of entertainment going out for the evening. it is low cost compared to other forms of entertainment. guy: does it matter if the u.k. is in the eu are not? >> we are based out of los angeles and we make films globally. it would not really impact our business necessarily. i think at the moment we have such a strong u.k. business that i don't think it will make a difference. francine: are there any plans? even if it does not make a material difference, it might make a difference for you base operations. guest: i think because of the
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language, english language films are the biggest worldwide. i think it makes sense to keep the business in the u.k.. guy: do you have any issues with visas or things like that? how many of those are u.k. based? are there any problems with visas? is it true in the film industry? guest: we found that on your budget movies 90% of british technique and's -- technicians and drivers, that is where the reinvestment is happening. francine: is it more difficult now? the you feel under more pressure to have great content because of the cannibalization?
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other guys are trying to get a piece of the pie. guest: the growth of wi-fi and television and the massive choice across channels and streaming and subscriptions makes it harder for the leave home. as long as you invest in original content, commercial projects, we made "the hunger games" and we also make tiny british films. we expected to be a big success it. guy: how will this abuse in -- distribution change? how does it of all from here? guest: next stages? i think digital is the growth area. i think the acquisition of dvds
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is detained and has been for years. it is still relatively robust. the growth in digital has gone up to hundred percent in the last 18 months. people are streaming through web suits -- websites. they want to consume content and that way. they are just watching it on demand. guy: is there any margin difference in the way you distribute? how much does it cost? guest: commercially for companies like lions gate, it's more lucrative because there aren't physical dvds. you are streaming right to the home. the margins are better. guy: does it change the gap between cinema and release on dvd? guest: it's currently the same gap. it's either dvd or a digital
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release. francine: thank you very much. guy: the setting raven king will be a noted absence at cap david. his decision to stay weight may be seen by some as frustration over the iran policy. we will talk about that in a moment. ♪
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francine: welcome back to "the pulse." we are streaming on the ipad and bloomberg.com. guy: adjusting decision for the bank of england. guest: we're watching it. we are predicting all the uncertainty and inflation is still at zero. francine: what are we expecting? guest: the movements of reflected that we've got a conservative government that clears the way for the conservative fiscal policy. guy: in terms of what is
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happening, people are watching the fiscal squeeze. that translates to the two offsetting each other. how big of a squeeze we going to see? guest: there are two things to think about. on the one hand is a political story. cameron has a very small majority. the economists i have spoken to have said that he's got the majority. he's got it in terms of clarifying. will he win the day in parliament when he's got to present that physical plan? the question is will he be able to maintain that squeeze? there is the question of how strong the economy is. if you are thinking about the election creating uncertainty, now you can see growth pick up again. the economy itself is strong enough to with a stand -- withstand higher rates.
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what we are going to be looking for our comments about how the economic your will look. we've got a fiscal plan in store and an improved picture in europe. we could find growth elsewhere. we could shape up in the oil passes. guy: i want to start writing a book about how may times marathons are mentioned. this is not a sprint, this is a marathon. francine: thank you so much. guy: that is it for "the pulse." keep right here on bloomberg television. tom keene is live from york coming up next. francine: you can find us on twitter. the question of the day was should greece default? we have had some good answers. i have one here.
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guy: we have had guests on the show saying we should get out of the. we will continue after this break. "surveillance" is up next. we will see you tomorrow. ♪
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tial camp david summit on a rant. -- on iran.
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china staggers. they cut the target rate. will the people enjoy a beijing cramdown? it is monday after tony blair and mr. man -- they savage miliband. good morning, everyone. this is "bloomberg surveillance ." we are live from our world headquarters in new york. i'm tom. joining me, brendan greeley. here is vonnie quinn with headlines. >> there is another showdown increase today. the countdown for emergency funding. the government of greek prime minister alexis tsipras is under the gun to come up with a list of economic reforms. its next hurdle comes tomorrow in greece has to pay $840 million to the imf. china pot's central bank is trying to jumpstart the economy. the people's bank of china is cutting interest rates f

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