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tv   Bloomberg Surveillance  Bloomberg  June 2, 2016 5:00am-7:01am EDT

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>> tomorrow is jobs day. we consider the underlying confidence of america, back and forth, back and forth. the markets define the first days of june. vienna is sold out. the e.c.b. and opec have a disagreement. it's gorgeous in vienna. speaking of gorgeous, we have caroline in london and i'm tom kean. e.c.b. and opec, it's packed.
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>> how on earth can anyone get a hotel room right now? tom: they can't. some substance may come out of it. i'm watching more e.c.b. than opec. i think it could be interesting. caroline through "surveillance" for the five hours this morning. but right now to bloomberg news. >> the opec ministers are in a meeting this hour with production policy atop the agenda. delegates familiar with the situation think saudi arabia is ready for a deal with opec members in an attempt to mend divisions. no formal offer has been made. the e.c.b. is in vienna for the rate decision. economists see no change on the horizon. the president will brief reporters after they set policy. the projections are set to reinforce the monetary easing that the e.c.b. is struggling to meet inflation goals.
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angela merkel is headed for another conflict with the turkish president. the parliament is voting on condemning the ottoman empire killings and deportation of armenians as genocide. france, russia and other nations recognize the events in world war i as genocide. the u.s. state department chief cyberdiplomat says it's too early to proclaim a u.s.-china agreement. the u.s. is closely monitoring whether china carries out intrusions and theft of intellectual property. nine months ago president obama and the chinese president vowed they wouldn't condone hacking to steal commercial secrets. news 24 hours a day powered by our journalists and bureaus around the world. tom: let's get through the day to check quickly. the prime minister's' domestic
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speech yesterday, the euro is .ack to 112 on to the next screen. , at an crude, iron ore the bottom is singapore iron ore. there's two quotes, shanghai and singapore. this is singapore and it plunged, 4486 is a big quiet moment. caroline? caroline: let's go to european stocks, tom, because we're flat heading into the e.c.b. meetings. banks leading the charge as well as oil and gas as many speculate whether we'll see a production cap again. a meeting of minds potentially is bako peck in vogue and energy up. nikkei, i wanted to point out the moves in japan and we see a
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lack of fiscal still has called for by the oced yesterday. the pound is up, dollar up of course and just weaker across the board. we have david cameron taking part in the first of a debate in the referendum campaign later today, tom. tom: i would note that in yen terms in the last 12 months, e japanese index is down 19, .19% and inollar terms down 8% as well. vonny: there's no point in hedging currcywise because it costs too much. tom: the cost of the hedge is a huge issue. let's go to bloomberg right now and we're juggling four or five stories into the weekend of this four-day workweek in america. this is the unemployment rate in america. this is a cool chart, i call it the d-mackey chart who think it's driving down to 4.0% in unemployment.
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the long term structural decline in unemployment over a good 20ears, dipping down to 4%. here's a nirvana of the 1960's and back to the eisenhower years. i don't think we've framed yet where we are versus the last half century. vonny: phenomenal for think this is going down. tom: it goes back to the two americas and some of the tensions we see in the presidential derby. what do you have this morning? caroline: i'm focusing on oil because there teams to be chatter with opec putting in place a cap in production. why do we care when we're looking at this particular chart. a history of disobedience is a great chart focusing in on where opec has continually decided to raise above where it has been on the production cap. if you just focus in on my time line, you can see over the course of a decade the purple line here is where the cap was and the blue line is
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consistently where opec continued to produce. well above. at one point 3 million barrels more than the cap and they're looking at 32 million to see the cap coming in. it's already above that. tom: really cool chart. very, very good. vonny: keep all eyes on vienna. we can't be distracted from that key city because we have opec and mario draggy as the e.c.b. will release their rate decisions. we're with the global head of asset strategy. great to have you on the show. give us a sense so many macrothemes today, we're basing ourselves for later in the week but today kick us off with the e.c.b. should we be holding our breath for anything? >> the central scenario that these guys won't announce any new measures. the press conference is largely going to be focused on the details of the implementation
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of the q.e. program announced in march. we have other things kicking off. the risk is the euro may go up higher in case we see a revision in the forecasts. caroline: are we seeing any sentiment, any hope that the euro zone could work more on a monetary policy basis or is that all off the table now and all focused on getting money in the corporate hands via the targeted lending program? guest: i think the euro is quite well designed and will prove to be somewhat effective. having said all that, i think over the past 69 months there has been evidence that some of the easing has started filtering through at least as far as activity is concerned. the issue remains inflation but let's not forget inflation is a global issue, not just a euro zone issue. tom: good morning. i'm fascinated where
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hydrocarbon currencies will go. uni credit has a deal with the russian ruble, is there an opportunity for our viewers to consider the dynamics of hydrocarbon currencies? obviously canada but much more the ruble. what's the play there? guest: i think from a currency perspective, i think both the ruble as well as the canadian dollar that you mentioned are due to upside risk as far as canada is concerned, you mentioned it but if you'd like to enlarge it and lk about the aspects of valuation. i would say the canadian dollar is significantly undervalued. my expectation is we're going to be in a multiquarter appreciating basis. and having said all that, i think 130, 1 in dollar level is getting quite interesting again. tom: is that a true dollar
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fact? guest: i think overall we're quite bearish on the dollar. in e just say i think june, it will be irrelevant in the sense whether these guys will hike 25 basis points in june or july, it's not really important for an exchange rate that has priced in so much and is so heavily overvalued as the dollar is. tom: caroline, let me show this quickly off the bloomberg. we can do this with our individual graph worksheets that we have. i did this a couple weeks ago for the new prime minister of canada, the idea here of long term looney weakness, the commodity miracle and recent rebound. and what our guest is talking about is for canada to come in stronger which certainly is very apparent on the chart. caroline? caroline: i want to get into the dollar effect as well on the flip side.
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why are you feeling that the dollar is overvalued? why are we not going to see more dollar strength? guest: there has to be a point that the it is priced in. we can't keep talking about monetary policy divergence and keep seeing further dollar strength. let me lay out how i've seen the dollar having played out in the past and where to from here. i think second half of 2014 the dollar rallied largely fundamentally driven. the first half of 2015 it meant that real rates relative to the rest of the world remain pretty much flat and the dollar kept on rallying. it stayed overvalued largely because the other central banks pushed back in order to ensure their currencies remain weak. but these have started changing and it's quite interesting the chart you showed before, the decline in the dollar started
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in mid january and was the first central bank, the bank of canada that basically said enough is enough. further currency appreciation may actually pose a risk to the outlook. tom: i like the idea of central bank saying this is what we're doing and who we are and we've seen it from canada. we'll continue this conversation. coming up on bloomberg television on bloomberg radio, s not a monetary theorist, the most interesting fed governor. look for the conference this morning.
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carol join irkse welcome back. i'm with thom kean in new york, i'm in london.
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let's go to the money flash with vonny. vonny: the b.o.j. inflation target is a medium long term goal. sakahiro says it's having a tightening rather than an easing effect and could hurt the japanese financial system and is the latest blow to economics and comes a day after the prime minister postponed april's sales tax increase until at least 2019. they're selling 7.9 billion of stake in alibaba. the largest investor of the commerce giant wants to bolster the cash position and pay down debts and establish a new trust by investing $5 billion in alibaba receipts and will share shares back to alibaba. a high profile international effort to isolate israel economically is coming offshore. foreign investments hit a record high last year of more than $285 billion and it's
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tripled since 2005 when the so-called boycott and sanctions movement began and that's our latest cycle. thom: we take pride in our data. the yen, we had a 1.8 print on dollar yen. 108.83, stronger yen overnight as that follow-on on the b.o.j. vonny mentioned. caroline: where is the target? where is the economics that aren't kicking in? we have to be focusing on oil as well. opec is up about .2%. the delegates say oil output ceilings could be reintroduced at the talks at the minister meetings in vienna. there's still a squabble to be ad over who should replace the secretary-general. ryan, is therein agreement on an output cap a real prospect nd should we care about a cap?
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ryan: i think there's a chance they'll get a cap and we should care about whether they're able to agree on a production target because it would be a sign of unity. i mean, people are writing off opec, saying it's irrelevant. the ministers are aware of that and they know they need to stop bickering and agree on something so a production cap or agreeing on a new secretary-general would help them do that. tom: ryan, is there any idea where the terminal value of oil is? are these guys flying blind in their oil economics where there's just one big political discourse? ryan: i think they are flying a little bit blind. i asked the u.a.e. oil minister about that and he said he didn't know what that price is. the problem is the saudis, for example, could be more or less comfortable with the price where it is where you have the venezuelans that are really suffering with a price like
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this. i think that if we were to see oil travel to $60 a barrel by the end of this year, most of the ministers would say that's ok. their concern is that 50 is as good as it's going to get for them in 2016. tom: if i look at t-live, for those of you with a terminal, t-i-l-v-go is what he's doing in vienna. ryan, when i look at the excitement of oil, you've been to 45 of these different meetings, what's different this time? ryan: look, this is a chance or opec to find unity. nine out of the 13 ministers in the room have been in their jobs for less than two years. the most powerful of them, saudi arabia's oil minister was just appointed one month ago. so if there ever was an opportunity for them to bridge
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their differences, because the differences within opec are massive, this is it. i think there's a feeling if they don't pull that off at this meeting, that's going to send a signal to the market, much more powerful than what they do with their actual policy. whether they bring back that production target or not, that they can be relevant in the new -- with the new realities of the oil market. tom and caroline? caroline: how are they coping with the reality of ryan chill coat, we saw you in the media scrum of getting in the face of this of these producers. what's the feeling like when you're trying to get out of thesguys how close they are to an agreement? is it all about the focus of iran and the frustrations there? ryan: i think the ministers are cautiously optimistic and like the direction of the travel with the oil price which has gone up 85% since the lows of february and disagree on why they arrived where they are and aren't happy with oil at $50 a
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barrel and want it to continue to rise. you listen to the gulf countries, they'll tell you it's because their strategy of not intervening and leaving it to the market to fix itself has been brilliant and that's what's working. you talk to the venezuelans or the nigerians and they say not so fast. we've also had some pretty major supply disruptions so they're very concerned what will happen in the second half of the year with more supply coming back online and they're concerned about the fed raising rates and the dollar getting stronger. so cautiously optimistic is what they were. tom: thank you very much, ryan. we may double barrel him and have him look at the e.c.b. meeting there. what we know for certain, the next hour, from australian's we'll look at the prism there. from london and new york, "bloomberg surveillance."
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carol join irkse 10:22 in london. with tom keene in new york. it's time for your must read. i'm focusing on greece. because it's been written about the sheer privatization that can be going on. and it is written, earlier this month the government announced the formation of a privatization superfund to sell off state-owned assets and scoped the sale of 50 billion euros in state assets and comes close to the scale of the privatizations we saw in the 1980's in britain under
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margaret thatcher. there is a but and if they win from the privatization, they have to cut the red tape. this is why the entire piece is called, greece, don't just sit there, undo something. undo the red tape. rather usefully we have a greek in the house, the global head of assets strategy. i wanted to bring you back to the greek question when it comes to the e.c.b. in vienna. there's talk that we could once again see jeez's banks using greece debt as collateral. we'll never see the easing, we'll never stop seeing the e.c.b. buying greek debt, corporate? in any way? est: i think the e.c.b. would like to wait a bit in order to get a decision by the i.m.f. as to whether they indeed -- basically all we have right now is a suggestion that the i.m.f. would like to get involved into the program but so far it will have to be a number of steps that greece will have to take
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in order for these things to be fulfilled and therefore for the i.m.f. so give the green light as far as its corporation and the program is concerned. i think on the whole, things are moving in the right direction. this is what the latest report showed us. probably the germans got a bit more and the i.m.f. would like them to get. but, you know, it's something we've been saying all along. it's a one-way street for greece. itill have tosort -- have to put its house in order and cut red tape. it's not going to be easy. the longer it waits, the harder it becomes. tom: if they get a restructuring, will greeks abroad begin to invest back into the nation of greece? will they send their money back to greece? uest: i think that the key question, right? my general view is that what has really been holding a lot of flows coming into greece,
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not just from greeks bringing it back to greece but also from foreign investors is largely uncertainty as it relates to a highly unstable fiscal system as far as taxation is concerned and as far as provision is concerned. as long as this is not sorted t, inflows to greece are not going to come back. caroline: talking more about the e.c.b. and the final three weeks of campaigning in the u.k. ahead of the referendum and we talk to the germany's european committee chairman about germany's contingency plan. stay tuned. .
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tom: good thursday morning. caroline hyde in london. i'm tom keene in new york. we have a press conference from mr. draghi and opec.
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ryan chilcote and the rest of the bloomberg team. right now to our first word news. vonnie: thanks, tom. closing off north korea's access to the international financial system. a u.s. proposal would prevent foreign banks from using their process financial transactions on behalf of north korea. u.k. labor leader jeremy corbyn that brexit would affect jobs and job security. prime minister david cameron will field voter questions in a
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tonight.v special residents of the canadian towns devastated by wildfires are heading back home. the wildfire began may 1. the blaze curtailed more than one million barrels of daily crude output. soccer superstar leonel messy is due -- messi is due in court today. the argentine star and his father are accused of failing to pay taxes on image right. -- image rights. global news 24 hours per day.
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painful for a man who is seen to be the best footballer in the world. not pretty to be messed up in tax issues. i want to talk yen. we saw it advancing significantly against its peers. the strongest we have seen it since may 13. japan's prime minister held back a widely expected fiscal stimulus package. we have got to dig deep on this japanese story. are we not seeing action by the , butese monetary policy also when they are shooting against the wind at the moment, not everything they do, they cannot get saying for their yen or bangfor their yen,
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for their buck? >> they are giving up in this affects -- x story. work ifetary policy can it is getting support from the fiscalront. it seems to me that the japanese finally seem to be getting it. i think they are making a step in the right direction. caroline: but not getting it enough to meet market expectations. why hold back on the package if it was so baked into the maet? are definitely concerns about the debt in japan. in that respect, fiscal policy cannot be seen as he coming to expansionary. i have no strong view as to whether we will get there eventually. , ashings start to get going
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the holding back of the crease in consumption tax starts filtering through households, the column is going to pick up, bringing debt to gdp a bit lower. cycle of good potentially more fiscal stimulus coming into play. -- fiscal policy is reaching its limitations. tom: this is dollar yen. we've shown this a million times. the boj wants to go here. here is what they got. the recent rollover getting everybody's attention. trade weighted yen over the years had aubstantial weakening. within that is they have to work -- within a continue
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on. are there adjacent neighbors in yenge of young dynamics -- dynamics? i think they are monitoring closely what is happening on the foreign exchange market. , the newly that adopted inflation target -- from that perspective, its main job is not really to be influenced. tom: to bring it over to interest ras, are they going to export deflation? we know they can export goods. are they going to export deflation to everybody else? i don't think so. i don't see them moving from
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here. think they're are pretty much done on this front. the only an stent i could see them doing something is if the moves become quite disorderly. where do you see inflation dynamics picking up most in the world? >> there is definitely some pickup in the u.s. is problem with inflation that it is a global phenomenon. i don't believe that the eurozone is in the same state as japan was back in the 1990's. there seems to be a global factor. to some extent, these factors could be driven in the relationship between inflation and the labor market.
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you need to have some wage growth in order to start seeing inflation ticking higher. i think we are going to start seeing that in the u.s., first in the u.s. and then the rest of the world is going to start joining in, helped by the pickup in energy prices. tom: very good. tomorrow, as we go to the 8:30 moment of the jobs day, we have the person -- perspective of alan krueger. on theur stellar guests american labor economy. ♪
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welcome back. i'm caroline hyde in london with tom keene in new york. we are three weeks from the u.k. referendum. we go to berlin, where the head of the european affairs committee for the german bundestag and joins us. worried are you? how much risk is there that the u.k. could exit the eu? decision of is a the british people and great britain itself if they want to stay or not. advantage, have an that is very clear to me. when great britain will get out of the european union, they will lose the market. it means they have to certify all the goods that they want to export in the european union and that will have a great price.
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it will cost competition and it will cost jobs. what seems to be helping the leave campaign is that the eu will have to find compromise, it will have to look after the u.k. and make decisions quickly because it cannot do without the u.k. what is your view of that? >> one point is quite short, we need reforms. that is not the question. we have the treaties and the treaes aeadyre alr compromise to open the treaties means to open the box of pandora. we have to find a common solution and this is not so easy
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. as i said, i hope that great britain and the british people will take you wise decision. caroline: what happens if that pandora's box is opened? when we openedt the treaties, we have to be very, very careful. -- last treaty changed last changed in 10 years. to bed the improvements more effective, but finally to for another treaty debate 10 years is not going to help. the challenges are too high. we have to be very, very careful. times has anncial absolutely spectacular analysis about how the united kingdom will vote. sobering to see
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that the conservative nonunion center parties to say that they you not vote tuesday in the -- eu. considering the polls now, i'm a little bit hesitating. the final poll is on the 23rd of june, when the people have to decide. one point is quite sure. if great britain is going out of the european union, this will have an impact for foreign investment, not only for german foreign investors, but for foreign investors from the whole alsoean union, but worldwide. when great britain is not any longer and member of the european union, it is not a member of the single market. that means that the united
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states is also looking at little concerned on the whole debate. but as i said, it is a decision of the british people, that they have to take. tom: it is nice of you to say that. where are the german people on this? there is obviously an historical divide. talked about historical legacy on bringing europe together. what do the younger people of germany desire when they see the united kingdom want to away? generation wants to live in a european union with all our european values, sharing, democracy, peace, social welfare. the european union has enormous chances, especially with the young generation. i think the british young
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generation is thinking in the same direction. , these wishes should also be considered, the young generation of the british people. caroline, george parker's study in "the financial times" is absolutely stunning -- the difference between 60-plus and under 30. it is amazing, the polarity. theline: and trying to get younger population voting. i want to get to the point of what you do to overhaul the eu from within. your younger generation want a tighter union and greater unity within the eu, but how do you do that when you have such an issue as immigration on your door?
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before, we have to make the european union also attractive for the future. if we look how other countries and regions outside the european union are looking on our , we got the nobel prize for peace a few years ago. why did we get it? we are solving our conflicts in a peaceful manner, a peaceful way, with dialogue. this makes our union also very attractive. britain, they have to think about all of these different ideas, and especially which chances they want to offer their own economy, their young generation, and finally, i hope that they will take it was decision. caroline: we thank you very much
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indeed. very much focusing on today, david cameron will go for his first referendum debate, trying to calm some immigration fears that have been rejected by the leave campaign. concern must be a daily call from declined to speak to. how do you strategize? the pound has taken a bit of a beating over the past week or so. >> it is difficult to trade it because volatility has skyrocketed. it is extremely expensive to .edge right now potentially, the only thing we have concluded, is basically buy the yen in this environment.
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the swiss franc has largely decoupled from risk on, risk off. euro sterling -- it is going to be extremely binary. you can get extremely involved in playing the odds. thank you very much indeed. now, let's have a quick look at thee we are trading at moment. we are continuing to see a flat day ahead. ♪
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good morning, everyone. tom keene in new york. caroline hyde in london. here's vonnie quinn. tom, thanks. global airline earnings are set
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to be higher this year. the international air transport association says the impact of lower fuel costs is making up for a slowdown in passenger growth. that extends record results from last year, when carriers generated revenues of $35 billion. limitedry testing als bids --cted by out buyout bids. they call the approach from the buyout firms opportunist date. china's investors are piling into hong kong equities. they are looking to shelter against a weakening currency and a worsening economic outlook. according to data compiled by is the latesthat
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bloomberg business flash. the foreign exchange and international economics. let's bring it over to america. why is there such an indeterminate view on u.s. dollar right now? all, the rally in the dollar we have seen in may, it has to be highlighted that it is seasonal to a certain extent. strongly, has rallied sharply, and broadly in may, which tends to reverse in june. ,s far as our view is concerned the dollar has priced in far more than the rate markets have priced in. in order to support the dollar
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at the current level or higher, you need to imagine a far more aggressive strategy by the fed, which don't think is likely. tom: let's go to the chart. the blended old chart. up ins that massive leg dollar strength. a little bit of a rollover. vonnie: there is a little bit of a bunch both ways. tom: it is a jumble here. it is clearly linked to federate policy. what economic data will force the fed's hand? lookinged is definitely at inflation data, price growth, and wage growth. they are aware that the labor market is solid. we know that. the labor gains on a monthly
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basis are rising nicely. i don't think tomorrow's number is going to be a make or break unless we see a catastrophic reading. we are extent, interested in the filtering from the strong labor market into the wage market. as long as they see that, they are going to go ahead with gradual tightening, probably a bit more aggressive than what the marketers next -- market expects. having said that, i still don't think the dollar is going to benefit off the back of it. caroline: how much does the u.s. bank remain a global central bank? >> there is no question they are still the most important central bank. can see that in september. we had the china scare in august and then the fed spooks the market in september.
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tom: thank you so much. a brilliant overview on where we in our international economics. we are looking at vienna, at the ecb meeting later today. areously the opec meetings also in vienna. confidence on the american economy. from london, from new york, this is "bloomberg surveillance."\ ♪
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tom: tomorrow is jobs day. we consider the underlying confidence of america.
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back and forth, we go forth and back. -- the ecb and opec consider shades of disagreements shades of the discussion from ryan chilcote's motel 6. caroline hyde in london. caroline, really extraordinary. the ecb meeting in an hour and 45 minutes. caroline: absolutely. so much focus on the inflation targets in vienna. will they start to bring them higher? will we get any detail on the corporate bond buying? we will touch on oil in our next session, as well. here is vonnie quinn. vonnie: opec ministers are in
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closed-door meetings with production policy atop the agenda. arabia arabia -- saudi is ready to mend the vision. no formal decision has been made. the ecb is also meeting in vienna about its latest rate decision. resident mario draghi will brief reporters. updated economic projections will show that the ecb is struggling to meet its inflation goals. flight delays worsen. the civil aviation administration says that the average delay for flights was 21 minutes. the biggest reason was air traffic control issues, followed by the weather. hillary clinton is set to unleash a major foreign-policy attack on donald trump.
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the former secretary of state has repeatedly called donald trump a loose cannon and plans to contrast her foreign-policy experience with his. dayal news 24 hours per powered by our 2400 journalists around the world. tom: let me see if i can get the data check right this time. i miss to the yen last time. bonds, currencies, commodities. on to the next screen. showing a little bit of elevated volatility. eased backh has been it little bit. the ramifications off the abe speech, iron ore is trying to catch a bid in singapore. caroline: fascinating what
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happened in japan. down 2.3%. we see the fiscal stimulus not coming in. line with thee in sales tax. david cameron, the first time we get a referendum debate tonight. tom: very good. we are going to focus on the american economy. let's focus on the unemployment rate. it is rare to get down to this vicinity near 4%. the structural decline in the unemployment rate over the last 20 years, we are in pretty rarefied territory.
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>> how far will it go before we see some inflation hitting the economy? tom: caroline, what do you have? caroline: i'm focusing in on vienna and opec. there is much expectation that could we see a cap, a level being chosen of production by opec. but this is a history of disobedience. this is my chart, showing in the blue what opec production has been over a decade and where it should have been. this is the target. they continued to produce more than their target. they agree on a target today, whatt does not show you the level of oil production will actually be. tom: we are thrilled to bring stevenphen reshoot oh --
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ricciuto. he cuts to the chase like nobody i know. where is the chase right now? i believe you say confidence matters. >> the u.s. economy is doing ok and confidence matters. cycle is probably going to be the longest business cycle in america's history. you are moving down to lower unemployment rates. you see the sharp diversion that is happening. i think the lead toward inflation is much less worry some. tom: is the end of the , the fed dealing with things as distinct as ever? steve: the fed has not realized the transition that has taken place, from excess demand to excess supply. the fed used to still follow the
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world of depression and it created the great inflation and now they are following the world of excess demand that they are creating the risk. "the age of oversupply." if that is the case, what does an oversupply mean for fed policy? steve: what they really should do is instead of taking the punch bowl away, before the party get started, they should economy get buzzed. economics, get a buzz on steve miller band. "space cowboy" was their best song. caroline: i would have to agree. talk to me about assets. if you feel the u.s. fed should let the punch bowl keep going,
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they are unlikely to -- you are saying go for corporate bonds in this environment. steve: without a doubt. the balance sheets are very healthy. it is a function of balance sheets more than it is earnings. forward, the real issue for the corporate market is really whether or not the balance sheets deteriorate. even the fact that we have put extra leverage on the system right now is starting to roll over because we are reducing share buybacks. when we look at duration structures and set burdens, the corporate sector is healthy. caroline: what about the energy sector within corporate? do you see a bottom in the commodity cycle at the moment? is it time to get back into energy? really a function of the currency.
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i think the dollar would devalue overtime if the fed left it alone. i think we have had that environment where the currency would support the energy markets. pushot expecting an upward that a loteality is of people can make money in the energy space. >> at what point would become a problem? steve: we are not even at the fed's target. the answer is we can let it go quite some time. the world is not adding to the inflation pressures, it is putting downward pressure on us. we run the risk of importing deflation with the past the fed is going. the fed is going. you don't want to be in deflation as the world's largest net debtor.
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we have things all pushing inflation to the upside. tom: let's trot out a chart from a few days ago. ok, here is the pce inflation. this is good, this is the overshoot, the effervescence precrisis crisis. ?re we out of this trend or do you need an overshoot to say we are all clear? steve: i think you do. it has rolled over quite nicely. to slowates are going down. tom: i'm going to go to tears here. it is amazing how we can shot out -- trot out charts from a few days ago. steve: that is the one they say they are using. is ag your point, there difference between inflation and cost-of-living.
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the reality of the situation is the inflation numbers, as they make sense in terms of the compositional shifts in the economy, you've got it rolling over and you are well below the fed's target. this concept of getting to higher rates is very preemptive. we import deflation, that is a problem. tom: we are looking forward to continuing this discussion. who will continue the discussion -- he is a different governor. inare really interested things like regulation and dodd-frank. on television, on radio this morning. ♪
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caroline: welcome back. i'm caroline hyde in london. with tom keene in new york. $7.9 billion of its stake in alibaba. they want to bolster cash position and pay down debt. softbank wants to invest $5 billion in alibaba. forecasts for china's run at the fastest pace. a five low, as traders increased debts. a proposed takeover of the london stock exchange may result
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in hundreds of job cuts. they expect to lose the next 700 positions. thank you very much indeed. let's return to the discussion of oil. we are trading $49 on the nose. the head of european oil and gas research joins us in the london studio. are you more bullish on the sounds coming from opec unity? >> i think the market recognizes that the market is rebalancing. i think opec is maxed out in terms of most of its production.
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see more demand, a little less supply. toward the end of the year, we are going to get a rebalancing. opec could make that happen quicker by doing something on the supply side. is disunity within that organization that is going to make it very difficult to achieve. caroline: how much higher will oil go? >> we believe $60 per barrel by the end of the year is within sight. we think by the end of next year, we could be as high as $70 per barrel. maybe not in a straight line, but that is the vision we have. not believe inho your theory of $60 or $70, how do you clear the market? what is the microeconomic view of oil that will allow us to get there? >> we have to get a position where we see draws in inventory.
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we need to see significant draws . we need more of that. we need more of the 3-4,000,000 barrel draws. we need economic activity to be pretty intense. we need to see u.s. and non-opec falling quite sharply in terms of reduction. tom: what is the marginal player? in vienna, the marginal player is in the meeting room with everyone including the saudi's. who is the marginal smaller opec producer? >> i think it is going to be interesting to see how some of these fragile players within aboutwe are talking nigeria, venezuela, algeria, are becoming marginal players. if they collapse, we could see a
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clearing, as you say, quite quickly. >> what about the size negotiations or the search for a new president? are these things entertaining you at all? 1 i think we are just kind of -- >> i think we are just kind of playing around with the superstructure of things. , the worries of the collapse of some of these weaker members of opec, i think that is what the market is focused on right now. caroline: who wins? which oil companies, which producers start to reap the rewards? >> to dig majors have done a lot in terms of cutting cost and cutting. -- shell --g major talking to us next week. shell is a stock we have been recommending for some time
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because we like the growth outlook. lngike the fact that the and all the businesses complement shell very well. we are looking for highest energies from that transaction. don't think shell is going to give us all the answers next week, but it is going to be an interesting play. tom: interesting. an optimistic view. ian reid, thank you so much. i guess there is a u.s. energy policy, we will let you know on "bloomberg markets." are u.s. energy secretary -- a wonderful, interesting academic. that is later today. "bloomberg surveillance." ♪
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tom: welcome all of you from around the world. to a domestic morning must-read. this is always wonderful from justin fox of "bloomberg view." this is on housing. it does not really taken economics degree to understand that when homes get more expensive, housing becomes less affordable. the great have and have-nots divide. it is something we feel. havesa subsidy for the that serves no distinguishable
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economic purpose. this is a chart that i amended from justin fox. this is case-shiller normalized to median household income. ,he have-nots are getting by think mr. sanders and mr. trump, and here's the mortgage deduction crew bouncing back and bouncing above. this is a social chart to say the least. >> without a doubt. there are huge social problems, which is why you have the political framework that you have with donald, hillary, and bernie. it is a real divide that has unfolded. part of the reason it has ofolded is the real coward the unions and that shift. tom: what i want to focus on -- it is how housing, case-shiller,
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folds over to rent. rent is justt of ugly. is it ugly in the cities or nationwide? >> there is a demographic shift to rental properties, especially as the population gets older. of thosea lot less headaches of a one-family home to worry about. you have these demographic shifts that are helping support it everything is a luxury rental now. you can't find affordable housing in any major city. everything has gone into the luxury rice category. when you adjusted for that, you will see the shift. it is all about the shift to everything as a luxury product. every car has gone upscale. the same is true with every house. granite, stainless steel all rolled into. is to get are
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granite kitchen. caroline: it is a phenomenon in london. certainly, the government is trying to put in affordable housing, but affordable housing is still 400,000. i asked steve what other political measures would be needed to bring this down? could there be the political force to bring about affordable housing? is the ability there to surprise the market? steve: the reality is, there is. i'm not sure that the election that is coming up in november is really going to change that dynamic. the reality that tom was talking about with regard to the haves ad the have-nots, we do need
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major structural reform in tax policy in the united states and we needed to go beyond individual tax rates and deductions, we need to look at changing america's focus on investment to being a three-month target. get rid of the capital gains tax flows now. years asless than five ordinary income. tom: we will see if we can do that. the old, the present, and the new gridlock. how about a data check? we needed. 4902 -- 49.02. ♪
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♪ tom: good morning. i am tom keene. we have a chart of the day. right now, our first word news.
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wants newe u.s. restrictions to close off north korea's access to the financial --tem, become this country they want to deny them funds to acquire nuclear weapons. it would prevent foreign banks to use their accounts in dealing with u.s. banks to process financial transactions on behalf of north korean banks. the u.s. state department says it is to early to claim eight u.s.-china -- nine months ago, president obama and the chinese president vowed they would not condone hacking to steal commercial secrets. president of canadian oil companies devastated by wildfires returning home to assess the damage, 80,000 people evacuated from fort mcmurray
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after wildfire that began on may 1. it destroyed about 10% of the towns structure and curtailed one million barrels of daily crude output. a soccer superstar doing court, accused of tax evasion. a cast a spotlight on financial dealings of elite sports stars. ofand his father are accused failing to pay taxes of image demandingosecutors sentences of 22 months each as well as payment of taxes and costs. donald trump is losing business to mexico, a prestigious golf tournament, the pga tour says the championship, and event that attracts the world's best players is relocating to mexico city. he told supporters yesterday in california, if i become your president, this will all stop.
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news 24 hours a day, from more than 115 euros. i do not think he meant golf. tom: fascinating the article you know that will come from many news organizations about the state of his business or name association or properties. i have not seen that article, that will be most interesting. right now, we focus on foreign exchange. i want to do my single best chart. remain indicator, i looked at cable, sterling dollar, i like europe but i am trying to stay out of the debate. you have lived in london. great analysis of demographics
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is morning. where will this break? strong sterling as a lower series? --ally based off the boat? vote? >> a 10% swing and sterling based on the outcome. tom: up or down? >> yes, over few months, it did 10% swing based on the outcome. tom: the future of the uk macroeconomy, does it remain, the 10%, falling to gdp analysis? analysts from a number of the organization, the treasurer from the uk, everyone talking about this issue. prettyro outcomes are extreme in terms of where we could go. on what the dollar
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will do even be cautious view of economy, an tentativeness we feel any jobs report and end the fed meeting june 15. what is your call on the dollar? >> we think the market has gone a long way over the past two or three weeks and try to reprice the odds of a fed hike over the summer, up to the data to justify that. for the dollar to do really well, to keep rising in sequentially more and more great hikes, not just about 1 -- tom: how many rate hikes this year? > >> one. that is not enough. tom: james sweeney is looking for a few more. vonnie: looking for -- >> looking for two. tom: caroline, jump in here. ,aroline: the ecb meeting later
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it emerges as to whether the euro goes weaker or because of the dollar strength, whether it strengthens, stimulus is done from a monetary perspective any data seems to be picking up. right, we saw decent numbers out of germany recently, some divergence, in my view, the , thecan go higher midterm dollar has done quite well in terms of pricing and the possibility of federal hikes. looking at european outcomes, as oil prices go up, the ecb members becoming more confident that the inflation numbers in europe can go up. there is some risk that over the summer if the polls tighten in the u.s. and donald trump catches up with hillary clinton, a risk premium needs to be priced into the dollar and the euro starts to look at a safe haven at that point. inange to think about it
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terms of the history of europe but it could be a interesting six months. caroline: go into the political story more. it seems as though you're feeling if donald trump gains in the polls, people could be terrified the u.s. will exit from globalization. >> that is right, we have tried to coin the term trumpxit. what would happen if the u.s. tries to dial back its engagement with the global economy? a bigger issue in my view. look at the g7 leaders statements, on the section of trade, asked yourself how much of the statement would donald trump be willing to sign off on? the key issue from my perspective is, the market has done little to price in that risk, something we need to think about.
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caroline: fascinating. that we should beginning getting concerned, particularly about mexico, who hurts the most by trade unwinding with the u.s.? is a big portion, canada, lesser, southeast asia, the european trading seems to be automobile related, not much of a change there, mexico is the biggest unfortunate casualty and unfortunately for the mexican economy, they are in a stage of trying to transition with the deregulation process and it would be great if they continue down that path, it can bring mexico into the north american environment, they are the biggest casualty. caroline: what kind of tipping point are we? some developing markets are about to break the bank, whether saudi arabia, or on the brink of collapse, venezuela. need tof the issues we
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consider when trying to figure out how aggressive the fed can hike going forward. aboutst about u.s. data, the rest of the world and the feedback mechanisms into the u.s. economy and that is why i think we need to be cautious in terms of assuming the dollar can rally a long way based on the fed hiking rates. tom: the chart of the day, , overne, a boston idea the wall, over the turnpike, over -- a boston thing about baseball, you killed it with this chart, opec production and the opec quota, extended reduction, this white line comes way down, showing the chronic overproduction we have seen in opec. where is credit suisse on these meetings and how about effect dollar dynamics?
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>> we feel the excess supply is starting to unwind naturally at this point. some of the non-opec supply versus demand picks up gradually . we do not assume it will be a big problem for markets. regardless of the outcome. for the dollar, a lot of the dollar, they keep trading -- key trading partners are oil-based economies like mexico and canada, if oil prices go up, the trade value of the dollar goes down. tom: within your cautious view, do we see the man destruction or less demand within the u.s.? >> potentially from the u.s. and from china. sign it is in the middle of a debate, they are debating where they will go and i think they are try to build the middle class, they will lead to a softer chinese environment which is the real risks to the demand side of the equation, everyone
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seems to say demand comes up, i do not know it does. vienna,they are in the that is the chart to watch, bloomberg radio, coming up tomorrow, alan krueger of princeton and jim glassman to brief you on the market economy and william gross will join us. not only on our economy but on our bonds. ♪
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caroline: welcome back. breaking news. amplifying the divisions between germany and turkey, it seems the
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german parliament has cited the 1915 and 16 ottoman campaign as genocide, it passed by one vote and one abstention. the lower house is approving the armenian genocide resolution stands. has taken itskey ambassador out of germany, tensions rising at a time when the immigration problem, this will spark concerns within divisions of the eu between turkey and the eu. tom: an extraordinary headline. this goes back to pre-world war i, within world war i, i like what you said about one vote, it passed with one vote. extraordinary headline. wethew miller in germany and will have much more throughout the day and into friday. caroline: let's get to our
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flash.rg business/-- airline: -- >> global earning said to be higher than estimated, the national air transport association says the impact of lower fuel cost is making up for a slowdown in passenger growth. likely to reach $39.4 billion this year. last year, when carriers -- astralian -- have rejected cash offer from u.s. buyout firm bain and advantage national group, the bid undervalues the company they said. it called the approach opportunistic. main dollars 300 and uber, they're trying to diversify with more overseas
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acquisitions. uber's the disinvestment received in line with the company's previous valuation. has our theme in this hour been the american economy, we will have alan krueger, glassman, and william gross with us tomorrow, you have a twist. >> everybody was quoting yesterday was tight labor markets were widely noted, wages grew modestly and price pressure group in most districts. if that is the kos, why are americans so gloomy and how come the demagogue gumby nominee of a major political party, go back to that sentence, wages grew modestly. this is personal incomes over the last 50 years. since ronald reagan took office in 1980, the annual percentage gain has been going down.
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people are not making more than they did. they are not feeling better about their prospects. the basis of donald trump's support, the lesser educated white male worker, plotting against expectations for their incomes in the future, personal income is the white line, the orange line, they asked people what do you think your income growth will be over the next year. divided by the education level and people with a high school education or less do not see any gains in the future. you could call that the trump gap. tom: start us out, alan krueger is adamant about to america's, not you -- two americas. americasart shows two but there may be three, you have to take the 1% out but most americans feeling the same thing. the income numbers for
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everybody, the percentage gain going down. particularly acute among the lesser educated group. >> i think it is the reality of the situation, bernie sanders would not be doing as well as he if this would not happening. she is picking up on that root cause and donald trump is filtering into that. a reflection on what is happening in the political environment. reflate?we is that feasible? >> it has been hard, japan has been trying for 25 years. not very easy to do, that is why my thought process is led this thing run, get hot, let things happen, it has not gone terribly hot, no major inflation environment, let this thing go. do not be preemptive, do not take the punch bowl away before the party get started, let's get a buzz going. making an and johnson
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acquisition, $3 billion, a company, privately held focused on marketing and development and distribution. in personal care products. protonix.and dynamic.ok at the wage you are looking for one rate rise and james sweeney has another rate rise, what should we observed on friday to look for rising wages if they are there? >> i do not think the average earnings are a good measure. the personal income numbers are the reality. i go further and looking at the wage and salary component. that is the dominant issue. if you look at the combination of aggregate hours worked, times hourly earnings, that is a fairly good surrogate for the
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wage component in the personal income. tom: we will look for that tomorrow. next threere for a hours as well. we will come back and consider the world of foreign exchange. from new york and london, a struggling yankees new york, bloomberg surveillance. ♪
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tom: good morning. i am tom keene. yen with a 108.98. even stronger. we will discuss that in a bit. the -- caroline: plenty to digest ahead of the ecb. coming up, bloomberg go with david westin. what do you have lined up? >> i try to lease the surveillance jet to go to vienna but i was told tom keene had
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it locked down the whole summer. more on opec in vienna. the ecb as well. a great guest lineup. reserve's been through low -- dan/ . any news conference from mario draghi. tom: and ecb meeting coming up, near zero attention with a few other attractions. what happened to parity? happened?uro, what >> the weak performance of the rest of the world over the past year. the appetite of european investors to keep channeling money overseas to higher-yielding destinations, emerging markets, then disappeared with the poor
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performance in those markets over the past year. it will take time for that to restart in a weighty markets would like. if you get to parody, you need since there's a large capital output in europe. euro 1.40ro dollar, and everybody rode up a massive amount of parity from -- stronger dollar, weaker euro -- >> everything changed in february where we did not know what would happen. last year, exactly the same spot. tom: is it about the euro for dollar dynamics? inflation.n or the united states has a comfortable inflation environment and overtime that fights against all the interest rate trends and keeps the environment going, what the
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dollar should the value relative to everybody else, that is one of the problems struggling for japan, they have difficulty evaluating its currency because it is locked in deflation. once people realize that europe is locked in deflation, look for the europe to start going up dramatically. week inig talk all this , please call to arms governments help us out, we need fiscal policy, are we going to start seeing that from japan, from germany? to get the rest of the g7 to agree to the idea that there is a global crisis potentially in the pipeline. the others did not sign off on that, it did not make the final draft, japan will go it alone to this point. you see the 2017 sales tax hike, delayed to 2019.
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there is talk of another fiscal move. scale we ares the talking about does not seem sufficient to create attraction. nobody else is joining in, generally -- we are a long way from a point to which fiscal policy becomes the driver of global growth. tom: thank you. great update on oversupply. caroline, thank you. interesting,t howard will join us, we need an apple update, goldman sachs reduces their price target. good morning. ♪
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>> will he press european leaders to do more? david: saudi arabia is considering a surprise deal with fellow members of opec, a new
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oil minister looks to make peace within the cartel. >> as the federal reserve and disclosure to a federal rate hike, we look at the labor market in america. ♪ viewers while wide -- worldwide, a welcome. a string of markets moving events, they: event risk, i call it exciting, what a day ahead. >> what we learn goods of markets going forward and a lot to cover. >> great guest to help us through every step, we will talk bank rate and monetary policy and more in a bloomberg explosive -- inclusive. >> andrew will reveal his


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