Criticizing germany. He says the u. S. Has a massive trade deficit with germany and the germans pay far less than they should for nato. President trump says it is very bad for the u. S. , but it will change. In berlin, indias Prime Minister says his country has made a quantum leap in economic ties with germany. He spoke after meeting with Angela Merkel. He says the two leaders are made for each other. Global news 24 hours a day, powered by more 2600 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. David donald trump called his first foreign trip a home run, but some in europe saw it differently. In europe,ion rally Angela Merkel suggested that europe might not be able to rely on its stead fed you steadfast United States. She returned to that subject today. Ourur chins anemic transatlantic relationship and the statement i made recently is due to the fact that in the face of the present circumstances we have additional reasons for us to realize that we have to take our fate in our own hands in europe. David joining us from berlin is tony teach cap, bloomberggermany bloomberg editor. You must a sense from germany. Are we overreacting in the United States because we will go to news that germany is thinking maybe to have to go their own way . Tony it depends on what you mean with going their own way. Strengths isys its global trade relationships and that was sort of the context andthis statement by merkel i think there was an important clarification which owners which is in the clip we saw, she talked about the current situations. To my mind, she is not saying we need to throw out the transatlantic ties, but we do need to look, in so many words, at the person who is currently in the white house. David as far as we know, what gave rise to this . Was it the thing that specifically happened at the g7 or the nato meetings or was it President Trumps remarks that were quite separate from that . Tony i think it was a buildup of things that came to a head at last weeks nato and group of seven summits. It has been building for a while and i think it is fair to say there is a tone of exasperation for now in what merkel isnt saying. It is about trade, its about climate, the paris climate pact which President Trump is hesitating on, and sort of a range of other things. You could say that merkel has kind of said i have to put my foot down at least for the time being. Jonathan if you read some of the headlines in the United States you would less believed denouncement of the postwar consensus by chancellor merkel. If you look at the german press and the pictures that went with us with it, this was a campaign. My question is whether the chancellor would have made these comments if she didnt have an election in a couple months time. Tony jonathan, i think it fits into a kind of narrative that is developing in germany about the Trump Administration, which is that precisely what merkel is that these old certainties we had about the u. S. Which is basically since 1945,otector the defeat of not see germany nazi germany are no longer certain and i feel like a lot of people are feeling that in germany. A lot of voters for yes, it is an Election Year and merkel has done very well. She has been in office for almost 12 years. She has done well being this anchor of stability for germany and german voters through her conduct of the chancellery. Jonathan thank you very much for joining us. Around the table with us in new and fromason schenker london, Chris Watling, ceo and chief Market Strategist of longview economics. Chancellor merkel has been criticized some any times in the past for not being bold enough and for failing to make any real waves on the diplomatic stage. She is doing that in a significant way. How important is the Transatlantic Alliance . Central andnk it is sort of at the center of the Global Trading system along with connections in asia that really sure up the with the Global Economy works. I would not over read what she is doing. I think she is probably negotiating. Has obviously been quite strong tour germany on the trade deficit and paying for nato and i think this is a little bit of pushback from Angela Merkel to address the balance as she sees it. Jonathan i think the president in the minds of many people brings up some valid points. The president tweeting this morning that we have a massive trade deficit with germany and they pay far less than they should on nato in germany. On the trade deficit, is it the approach of the president that is wrong here . The idea he fails to recognize Something Like comparative advantage and the reasons behind the trade deficit. Deficit istrade widely misunderstood by this administration. It is clear to me that they are focused on the supply side of the economy and forget the demand side. You need to understand that there is much more of a consumer culture in the u. S. Than in germany and that i think is based on the way to credit markets are set up in the way the Mortgage Markets are set up and the way the Consumer Credit markets are set up which encourage consumption more than they do in germany where you get a higher savings rate and a low occupation lower occupation owner occupation. I think thee administration is wrong in focusing solely on the supply side and ignoring the demand side of the equation. With connect all of this the vid business of financial worlds. Of drama,like a lot but it may just be a negotiation. Doesnt really affect markets and businesses . Jason i dont think of the end of the day that it is really going to affect that much. His is a lot of posturing it is a lot of puffing up at the end of the day. Something tony said a few minutes ago was that the u. S. Was the protector of germany. Germany is one of the biggest armies in the world and it was during the cold war that they needed protecting. I dont think too many germans protect the russians are going to roll across the continent anytime soon the way they did during the cold war. I think that now this might be about things like Climate Change trying to be a consensus. David is what is going on right now between the u. S. And europe going to affect any investor today . Does any investor wake up and say i am going to change my investments because of this . Chris on a day by day basis, not at all. We are in a bull market and we will remain in a bull market whilst money is cheap and the economyd continues to expand. What you are seeing is this very slow chipping away at deglobalization that we have had over recent decades which underpins a lot of the Earnings Growth trend and a lot of longterm Earnings Growth. It is important. It is one tiny step in the whole puzzle, but it is a move in the wrong direction. As jason said, it very well may blow over and come to nothing. Clearly, trump is causing friction in the global set up. Jonathan Chris Watling, you will stick with us along with Jason Schenker. On the diplomatic stage, it raises questions because it is not the condition of the pros. You make a speech in nato and article 5. They did not do it. People, that is what they voted for. Coming up, we discuss that, the old world order is alive and u. S. Allies are in damage control mode. We are joined by nick burns of the Harvard Kennedy school and the former u. S. Ambassador to nato. Live from new york. You are watching bloomberg tv. Emma this is bloomberg daybreak. China Investment Corporation is a front runner to buy according to a person familiar with the situation, the company could fetch 13. 4 billion. Blackstonened by group. In the eurotiment area fell for the first time this year. The measure of executive and Consumer Sentiment remains higher to the remains close to the highest level in a decade. In germany, commerzbank sent out early retirement offers to about 3000 employees. People familiar say the offer includes a 34,000 they wanted cut 9600 jobs over four years. David the honeymoon period just may be over. If president bullard says the markets are to maintain gains, washington is going to have to deliver on policy expectations. Business confidence numbers shot up after the election. The president was perceived as more probusiness than the previous administration. Washington does have to deliver at some point and i think that is a concern Going Forward whether the honeymoon period would end at some point and maybe the reality of american politics would settle in. We will see if that happens or not. I think the jury is still out on all of that. David still with us is Jason Schenker of prestige economic and Chris Watling of longview economics. We have talked a lot around this table of whether or not the s p staying where it is is because people expect the trump to deliver something or on the contrary, whether there are fundamentals supporting the market regardless of the Trump Administration. I would go for it regardless. I remember the day when we used to say it was terrific when Nothing Happened in washington and now we say if things dont happen, it is terrible. Markets move up because money is plentiful and cheap and economies are expanding and results are growing as a and we had terrific First Quarter earnings and the fed has been really slow in terms of raising rates. Money is loose, all is good and that does not mean we wont get volatility. Ce in generally, i would not be concerned about trump. I think there is far too much prescribed to his ability to move the market inq4 and his inability to move in q1 or q2 if you like. David is it just a coincidence and these things would have kicked in anyway . Jason if you look at a graph of technicals, the 120day moving average, closed above that level the day before the election which was a strong buy sign and clipped losses. We havent gone below it since. I would disagree with chris because i do believe there is a lot hinging on these tax cuts. Most of my clients are corporate and they expected it back in october. They expected a recession by the end of this year. At the beginning of april, only 11 expect a recession and it is not a reflation trade i think we are seeing, i think it is a theluation trade because lower Corporate Tax rate affects private Company Valuations in a discounted cash flow model and this is something that valuators are currently doing. We think of Corporate Companies , theres of market cap are also dcf models that analysts use and they have to put in lower tax percentages to account for the probability of these tax cuts. That lower tax rate boosts the value of every company in the entire economy. Jonathan Chris Watling. Ofis it is a great point course, tax rates help, but there is no correlation between valuation and returns in the stock market over the last hundred years. Two lu valuation is the key is not what it is describing market, it is flows and liquidity and that is the bottom line. The marketrgue that is expensive today as you would have argued in 1997 or 1998 and it would have gone up another 40 . Help,rse tax cuts particularly so unfunded, but liquidity is the key in my opinion. Jason i think the most important equation is and if we are looking at historical peuations or looking at ratios. I think it is expectation minus reality equals disappointment and if we dont get tax cuts, you are going to see selloff. I really think so. Jonathan we will have to enter in that new equation in the textbooks. Chris it sounds interesting. Maybe that is right, but the s p is at a record high, so how much disappointment is priced in there . There is struggling with pricing tax cuts so we should already be off the highs and we are not. Jonathan Chris Watling, you will be sticking with us and Jason Schenker of prestige economics. You know what you need after a long weekend, just the guests to talk to each other. David sit back and do nothing. Jonathan Michael Oleary will be joining us. If you have trouble getting from london to you nor new york and this man was this man smiling over the weekend with the woes of British Airlines in london . You are watching bloomberg. David this is bloomberg. Opecs agreement to extend yet to impress the market. All prices falling with crude dropping below 50 a barrel. Jason schenker is here to explain why. Explain exactly what is going on with opec because the markets dont seem to be buying it. Jason this is a surprising thing and i think at the end of the day that they are not really looking at some of the most important data. There was a big buildup ahead of the meeting and i think what you what might have seen is profit taking on this decision i dont know if people were expecting a more robust decision, but you saw a rollover of production cuts involving 24 Different Countries rolling into what is going to be the biggest driving season in history in the United States through march, miles total miles driven on is up 1 year over product inventories have been falling. I would be very careful about this drop in prices. There is a lot of upside. David have they effectively created a floor . Jason it is difficult to talk about where exactly a floor is, but i would say there has been a supported trend generally since ofil of last year, april 2016 where you have seen almost an unbroken trend of lowers of lows roca in a little bit back earlier this month after that weak chinese manufacturing pmi. Solid this week a little bit better than the april number which dropped sharply, i think that will be a good sign for the Global Economy and supportive of prices. It will be critical for indicating global growth. If those are ok, you are likely to see Oil Prices Rise especially with summer demand. Jonathan lets get into the supply side of the story. We have almost fully recovered the plunge we saw in the count and production in the United States. Does that cap out anywhere . Is that something you need to look for . Jason there are a couple of things going on. They are up over 125 yearoveryear for oil. There is a lot more shale on. Ling going we saw relatively steep decline curves so i think we will see this continue and this is one of the things that at the opec meeting in vienna was a big discussion. There were analysts and delegates and ministers debating what are we going to do about opec production as we look at shale oil ramping up . I think there is still more upside to production in the u. S. David what about compliance because it was remarkable compliance in the first agreement, but it was a time of the year when they were going into maintenance and you have the russians who were at least slow to comply if they are complying. Should we be more concerned about compliance under this new agreement . Jason i would be less worried about it because we are going into a period of peak demand. Earning a period of peak seasonal demand, that should be easy to get compliance because you are going to see likely the revenue rise so there is less of an incentive to cheat because revenue will rise. During winter months, i think that was a bit more of a challenge because Global Demand could be weak and that weighs on prices. If they want a total revenue number, they have to sell more barrels even at the lower price point. If we see prices remain supported and trend higher as the Global Economy accelerates modestly this year and next year, there will he supported oil price. Rebalancing quickly never seems to happen. It seems to be six months off. Do you see it this time . Jason i think you will see it later this year or the beginning of next year. A gradual rise in oil prices is what we have seen since april of last year. We have had more than a year of rising prices and i think they will continue rising in europe, but i really think the demand side those chinese manufacturing pmis, those of the numbers to watch. You sound like the governor of the bank of japan, it is coming, inflation back toward the target, dont worry about it. Opec skeptics point to the saudi aramco arabian ipo. What do you say aramco, what do you say to that . Jason i think this speaks to compliance because saudi arabia is bearing the brunt of production cuts and they have a toy explicit incentive adhere to their cuts because they need to prioritize Balance Sheet over income statement and if they keep with those cuts and that supports the forward curve than when they go to to do their ipo, that will support their valuation. What happens after that . It will probably depend more on where the Global Economy is. If we cbs economy strengthen over the next couple of years, i dont think we will be worried about 50 oil falling into the 40s and lower. That will not be the story if we see the economy accelerating even modestly on a global basis over the next two years. David where is oil at the end of this calendar year . Jason i think we will be in the bid 50 range. I think we are a little higher than that lack next year. Jonathan Jason Schenker will be staying with us. Coming up, we will be speaking to nick burns, the Harvard Kennedy