Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170829

Catching the safe haven bid. Down by. 6 . I find it ironic that the missile was fired over japan if the yen is the safe haven currency of note. Gold up by. 8 . The highest since the election of last year and the vix jumped by about 20 . The good safe haven move happening all across markets. We are joined by Stephen Engle from tokyo and on the phone is. Aniel tenenbaum he provides regulatory Crisis Management support to Global Financial institutions. Youre on the ground. I want to hear whats happening with you first. What has happened in the last few hours . Has convened his second Emergency National Security Council gathering with his ministers of defense. To discuss their options. This after shinzo abe had a 40 minute conversation over the tone with President Trump calling this a grave threat coming from the North Koreans. Shooting intermediate range Ballistic Missile. Around area north or pyongyang that flew over japanese soil across the Northern Island of hokkaido early this morning before breaking apart and falling into the North Pacific ocean about 750 miles east of japan. In general and has conducted more than 80 missile or Nuclear Tests since becoming the supreme leader. That is more than twice as many as his father and grandfather did. He is ratcheting up the tension. Here on the streets of tokyo a bit calm her. Alix just highlight what you are talking about the bloomberg shows the number of north Korean Missile tests that happened over the last month. Daniel, what does the response of the International Community need to be . Thanks for having me. The response has typically been to escalate sanctions further and certainly with an increase in Nuclear Weapons testing that has happened in multiple instance since summer began. The next step has to be to focus more on secondary sanctions against chinese Financial Institutions that are likely the source of north korean funding. Alix whats the prospect of that happening . There has been noted of the list of additional chinese Financial Institutions that have in supporting the north korean government through financing and transaction. Deals exports. Theres probably some debate within the administration around what the next steps should he. Certainly secondary sanctions would force a choice for china between doing business with these entities and doing business with the u. S. . Relations with beijing would be at risk. The prospects are that sanctions in this circumstance can actually work . Its a great question. They havent historically with north korea unlike iran or libya. They have been part of the Global Economy and wanted back in. North korea has always been isolated. The only way to bring them back to the table is through squeezing the russian and chinese counterparties that are transacting with north korea. This is a new administration. Its a new regime in the treasury and state department dealing with this issue. It is somewhat unprecedented to come up against an adversary sanctionsand assume will automatically work without some kind of dramatic next step. As the decades have gone by various president s have had a decision to make. Ultimately doing nothing was ok because this country didnt have nuclear capabilities. Are we close to an Inflection Point where do nothing is not ok . Regimeeems kim jonguns is pushing forward Nuclear Weapons testing even more so in past years and more than his predecessors. I think were getting close to the Inflection Point. The rhetoric has been toned down over the last few weeks but the threat is still there. A point thate at something more significant is going to have to happen short of military intervention which would come in the form of a more significant designation. Alix we have heard from the u. S. Over the last few days. Still pushing for talks. It seems like it was a more tanks down rhetoric from the u. S. What does japan need to hear from President Trump in the next 12 hours . I think they need to come up with consensus how to move forward. I agree on many of the points with your guest about the lack of progress on sanctions and getting china to do more. I have been on the border with china and north korea at a time when sanctions were in place from the u. N. And you still see the trucks loaded with goods going from china into north korea. Clearly that is not a strategy that is working so where can we go from here . Party talks that include russia and japan, north korea and south korea and the United States and china have not worked. I have been hearing that the six envoys for those countries have been on the phone today to talk about how to kickstart dialogue again. The North Koreans are saying they are not going to come to the negotiation table until the United States and south korea stop their hostile acts and china says dialogue is the way to go. All of the relevant parties have to stop provoking each other. . . We are still awaiting an official response. Thank you, daniel tannebaum. Gold surging to the highest level since november. Treasury yields falling to a 10 month low. We were south of 210 earlier in the session. We could have triple digit losses at the open. Joining us now around the table is ed morse and Kristina Hooper. It make sense that this kind of event happens and this is how markets readjust . Absolutely. In the short term the market is a voting machine. There is a flight to safety and safety has been represented by things like the japanese 10 year, the u. S. 10 year and gold. This is very much a reaction to be expected. The idea that the yen is stronger off the back of an event like this. Walk me through your thinking on whats behind that. It has historically been something of a safe haven. We find a lot of asian investors want to keep their money in that region. The Natural Choice has been to moveinto the yen and to into japanese bonds. Thats where we are headed. We are seeing a stronger euro, stronger yen. Is still ironic. Walk me through whats happening with gold. How much of the rally that we have seen is risk premium . About half. Ay another rally from last month when etf investors started getting into gold after more professional investors were getting out. I think we have seen a remarkable inflow into isdbased etfs but buttressing the safe haven effort at the moment. Alix we definitely saw the big breakout. What is the potential upside . I dont know what the chart readers are saying. Where thespective of gold market is at the moment i would say it is getting very top the end it is likely to retreat. Alix a big overextension. So much momentum, when does it break . Jonathan retail is getting in. Thats exactly right. The retail having a boost from this flow into safe haven. Jonathan what about the weaker dollar story . Do you factor that into your thoughts on gold at the moment . Part of it is the events in the u. S. Of last week. Part of it is the trump effect. I think we will see waves of that going forward. Signals do little hand to each other to know whats going on on set. You can ignore that. Isthe environment globally supportive of risk assets. That means gold. That means other safe haven asset classes. Alternatives like Market Neutral products. I know it seems ironic that money moved to assets like the yen. 2011 theink back to u. S. Debt was downgraded and yet the safety play was a move to u. S. Debt. It seemss even though somewhat counterintuitive. I think we will see a continuation of that trend. Alix Kristina Hooper and ed morse are sticking with us. Coming up, david westin will make a sneak appearance to interview Ralph Schlosstein. Dont miss his cameo. This is bloomberg. Isx Tropical Storm harvey poised to strengthen again before crashing ashore tomorrow on the texas louisiana border. Some predictions are already putting the cost of the damage as high as 100 billion. Findingat 30 of the power is under threat from flooding. Joining us from houston is joe carol. How can you tell me about the flooding has developed over the last 24 hours . It has continued. The floodwaters are still rising. It is still raining. Rescue efforts are still underway several days into this. Obviously on the ground it looks like its going to get worse before it gets better. Alix you talk about the refinings that have been shut down already. What about those that could be exposed on wednesday as the storm doubles that . Back . South of houston and in houston itself the refineries have already been affected your it there is still more to come as the coast to the louisiana charlesnd towards lake louisiana. There is a lot more refining. That we might see impacted. Alix we are looking at video of relief efforts that are underway. Can you walk us through . Thousands and thousands of civilians have joined the coast guard, the police and Fire Department in bringing out boats. Almost every residential in aborhood has flooding metropolitan area of almost 7 million people. Efforts to get people out of their neighborhoods has gone on all night every night for days and there are still tens of thousands of people that need to be plucked out. Alix are they getting food . Are they getting accurate supplies . It has been hampered because all of the roads are flooded. Trucks cant really get in and out. That is sort of a dicey situation. Do you feel like houston is prepared for tomorrow as the storm doubles back . More like ready to indoor. Theres nothing you can really do about it. Folks are not pessimistic. Everybody here just seems sort indoor o enter endure. The spread that is most interesting is wti brent. Thats now over five dollars if you take a look at the bloomberg terminal. Walk us through why that is happening in such a severe way right now. On the brain side the Atlantic Basin market has tightened. The u. S. Exports a Million Barrels a day of oil. Its all into the atlantic jason. The market has tightened because of shippinging down channels and ports. We have brent going up. The u. S. Is exactly the reverse. Production that cant get into a market. Lets talk about the situation in texas. We have outlined three different things. Production, demand and trade. Of the oil once it has been produced. What is critical out of these three things . Infrastructure is really critical. The plans lose production and supply and bloomberg is reporting on a marathon refinery with 500,000 barrels a day of capacity. Supply by sea and they cant get it by pipeline because the system is down. Infrastructure is critically important and it pulls in both directions. If you get no pipeline supply and the jonathan do you have any estimate as to how much damage is being done . Yet what theknow endgame is going to be. We know the weather is moving back into houston. Its moving east into louisiana. We have had 2 Million Barrels a day of Refining Capacity down. It looks like its going to be another 2 million a day. Some of those refineries were down for half a year or three quarters of a year. I think its impossible other than doing scenarios where the end is going to be. Alix the missing piece here is natural gas. Its like 4 now. Now we have the majority of lng exports in the u. S. Moving out of that port. How does that totally change the dynamic and the economics of what we see as we unravel the impact . We are used to seeing hurricanes impact the u. S. As a massive importer. Mirror image of that now. We are the largest exporter of gasoline and easel. Diesel. Significant very part of the domestic economy. 30 of the capacity is around houston. That could all be down for a while. Half of it may down. Where is the ethane going to come from . We consume 1,100,000 barrels a day. If the pipelines arent working how do they get them and how can they export when the ship channels are down . Its a very different market. We were exporting no lng a year ago and now we are exporting 17 million tons. Its a substantial amount. More than half of it goes to mexico. There will be a scurrying for replacement cargoes if the channel goes down. Thats going to very quickly tighten up a market that has looked oversupply. Up friday,oming september coming up later in the week. That means bill gross will be joining the program to react to those numbers. From new york city as we count you down to the market open with futures deep into negative territory, its very much risk off. Youre watching bloomberg. This is bloomberg daybreak. Im taylor riggs. The clock is ticking for google. The Company Faces a deadline today to tell the European Union how it will comply with in order to stop discriminating against rival shopping search services. The eu has threatened google with more fines to go along with the penalty. Its a boost for the euro and german chancellor Angela Merkel who is running for a fourth term. Consumer confidence has risen for a fifth straight month. It is now at a 16 year high. Thats your Bloomberg Business flash. We have what a move seen in the fx market over the last year. Risk off sentiment spreading to Global Markets this morning. Continues to that defy the odds, the euro rising for a third day. In favor ofstors the greenback earlier in the year. The euro has advanced more than 14 against the dollar so far. Kristina hooper around the table. What strikes me as really crazy in many ways is the move divorced from rate differentials. Bund yields have moved over since june. The euro has carried on marching higher. Can you explain whats going on . There are a lot of different forces at work at the same time. Expectations about Monetary Policy are responsible for the differentials in currencies. For example the United States. If you were to look at the economic surprise index for the u. S. It has gone down a fair amount. Expectations are a lot lower for the economy. There is an assumption that the fed will be a bit more dovish. For the euro the expectations are that we are going to start to see tapering because the economy is improving. I expect a stronger euro but i also expect higher bund yields. Was underpinning this move is the expectation of tapering why am i not seeing that reflected in the bond market . Bund yields reflect a variety japanese 10s do the year. As does the u. S. 10 year. I wouldnt expect them to move in concert in this very unusual environment. The last trade over few months has been by europe. Do you still want to buy europe . I think what you want to do certainly that trend may continue for a while. Alix how . Look at the economic surprise index. It suggests significant improvement in the eurozone. Bere certainly the case to made for that. The structural reallocation back to europe is driving the euro higher divorced from rate differentials. Some thing i still dont understand. If its about a structural relocation to europe why did stocks peaked in may and why havent we seen risk assets in europe drive higher . Coming up next, looking forward to the conversation. David westin making a comeback from his vacation for this man, Ralph Schlosstein. As we get you set up for the Market Action today. Some big wins out there. Risk off. Futures are lower. 100 points on the dow. Negative almost 14 on the s p 500. Youre watching bloomberg tv. Jonathan from new york city, you are watching bloomberg daybreak. I am Jonathan Ferro. Risk after the events of north korea and japan. Futures are deeply negative in the United States. Losses in europe as well. The story in the fx market, heres the picture of the four years. It is a weak dollar session with about three quarters of 1 . The euro seeing a twoyear plus high. Treasury yields seeing new low in 2017. 2. 10 on the u. S. 10 year right now. Taylor the United States is considering a response to the latest north korean provocation. Japans Prime Minister is calling the Missile Launch down unprecedented grave threat. Washington and wall street are bracing for the fallout of the most expensive Natural Disaster in the u. S. In five years. Houston has been unindicted with floodwaters from Tropical Storm harvey. Area make it the another 20 inches of rain should of rain. The oil industry is reeling from the shutdown and production. European Commission President had slammed the u. K. Brexit position papers. He said that he read all of them and that none of them are satisfactory. Meanwhile, negotiators say that the eu must do more in the brexit talks. Those talks resumed yesterday. Global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. A responsee do have from the president of the United States in response to north korea. This regime has signaled its contempt for all members of the United Nation, and minimal standards for Acceptable International behavior. Threateningto say, actions only increases north korean isolation in the world. All options are on the table. That is the response from the president of the United States. Lets get over to the market response. 2. 10 on the u. S. 10 year. We are back to that level again. Some risk premiums are victim to the market. The question is what are the options . There will be pressure on china to cut off financing. How do you do that . Jonathan difficult to execute at this point. Lets get over to david westin with a timely special guest. David very timely. We have had volatility in the markets for a few low volatility in the markets for a few months now, but now that volatility is rising after north korea and harvey. Joining us now to talk with someone joining us now to talk about the markets, someone whos dealt with the markets extensively over the years, after cofounding blackrock, schloschloss nine stein went on to establish a record. Welcome to the program, ralph. How do markets respond to these . Andarkets hate uncertainty unpredictability. As you and i were discussing earlier today, the market is really priced fairly if one takes into account the low Interest Rates we have, earnings, and growth in the economy. What has not anticipated and should fear are the events which cause the months of called to disappear. Those can be in the form of international conflagrations like the situation we see in korea right now. They can be in the form of the failure of our u. S. Government to effectively deal with issues like the debt ceiling or passing the budget should it can be the failure passing the budget. It can be the failure of talks between eu and the u. K. Over brexit discussions. All of these things to stabilize the confidence that people have in markets. I think we are fine, unless one of these things or more than one of these things happen. They are almost impossible to predict. David today, we have two different events. When is harvey, and the other is north korea. What is similar between these two events and what is different in terms of Market Impact . Harvey is a tragedy of immense proportions. No american can sit and watch the pictures and not be deeply moved. Market and economy point of view, we do have experience with this. What typically happens from an economic point of view is that you see a little bit of a weakening in gdp by about a couple tenths of a percent. As unemployment goes up, refineries closed. You then get a little bit of a bump in the other direction as the cleanup and rebuilding happens. In the intermediate to longerterm, harvey will be a nonevent from a economic and market point of view. North korea is different. North korea deals with the financialof the western and eastern worlds. Pricesthink about stock which are composed of two things earnings and multiple. What collapses when people are concerned about stability is the multiple more than earnings. David we have seen the reaction in the markets, especially the equity markets, to north korea. We especially seem to be seeing that today. The trend has been some reaction to a return to normal. What would have to happen for us to see a true correction triggered by this . I amis led to some not an expert in this, but i have spent enough time on it to have a strong belief that there is no really good military option in north korea that does not involve risks to probably tens of millions of people on the Korean Peninsula and surrounding area. That is obviously a horrible thing for the world and markets as well. I think we also should not ignore the fact that, coming in the next month or so here in the u. S. , we have a couple of tests as to whether our government can actually function effectively. We have all forgotten how the market reacted to the debt ceiling challenges that we had about three years ago, and how the market reacted about four years ago when they could not get a budget passed through congress. So, those are things that deeply confidence inles the effectiveness and predictability of our government which is, after all, 25 of the worlds economy. David the president and his administration cannot stop a harvey. North korea has been around for some time, and various president s have had a hard time doing with it. So, with the markets be in a different position and it was president obama or president george w. Bush or president clinton . At this point, i do not think it would make a difference with respects to harvey. In the next three or four months, we will have a number of opportunities to observe the ability and stability of our current government administration. The debt ceiling, trade negotiations between mexico and if theand china, and world reaches the conclusion, collectively, that our administration is very difficult or unpredictable to deal with, then that is a negative not only for the markets but for the world economy. David given the uncertainties right now, what is the lesson for the investor . Positiond they themselves right now to prepare for the wide range of possibilities . There have been decades of research on how difficult it is to figure out when exactly to get in and out of the market. I can pretty convinced by that research that no one can do that extraordinarily well. Where, if youle go back in history, people who became very famous for predicting the crash of 87 or the financial crisis in 2008. Unfortunately, one or more of those people predicted it accurately, and then the next seven productions they had were not quite as useful as that one. So, i do not know anyone who is smart enough to figure out what will happen in north korea for the next week or two, much less the next month or two. Im not really certain how the trade issues get resolved. Im not certain how the budget gets resolved. So, i am a believer in what Warren Buffett believes, you want to be invested in equities over the long run. You have to have some exposure to volatility when you do that, but, in the long run, equity values grow with the value of the world economy. There is nothing else out there that does that consistently. David thank you so much, ralph. Jonathan thank you, david. Have the head of Global Portfolio management. It is a risk off day. This is bloomberg tv. Taylor this is bloomberg daybreak. I am taylor riggs. Coming up on thursday, a very special interview with a chairman and ceo. This is bloomberg. I am david westin. We are still here with Ralph Schloss thine ralph sc hlosstein. With some of the top ceos around the world. What are you hearing from them in reaction to the markets today . They are always interested in what is the future direction of the economy and public policy, and how might that affect the Economic Growth and activity . I would say, there is a little bit more uncertainty today. If you went to the beginning of the year, there was a presumption that we would get quite a bit of Regulatory Reform which we have started to see. A reduction and reform of taxation of corporate taxation. Hopefully also, a major investment in infrastructure. Much of the regulatory reduction can be done administratively, so that is not as dependent upon cooperation between the administration and congress, but Everything Else is including the debt ceiling and budget resolution as we discussed earlier. I would say that those things there is a little bit of concern out there over if our government is going to function effectively. Are we going to get some of the changes that will make america more competitive . I think that has caused people to be a little more cautious than they might have been six months ago. David does that mean we are seeing a slower rate of m a today because of the uncertainty in washington . Statistically, there is certainly a slower rate. The environment is still very good. We had a very high peak in 2015 and a little bit lower in 2016. So far, 2017 is a little bit lower. Where it really manifests itself are in the transactions larger than 5 million, the larger deals. Activity in that size of transaction is down not horribly, but it is down from last year. David is that because a ceo is taking to taking into account what might happen with the tax code or trade negotiations . Or is this more of a general sense of unease . The hardest thing to measure in the propensity to do m a is the confidence, or what is sometimes referred to as the animal spirit of corporate leaders. Easy to measure is, equity prices are good today, that is accessible and reasonably priced, the market is going growing at a reasonable rate. All of that supports m a activity. The one critical component which there is no governmental statistic measure of is how confident do ceos feel, and how predictable do they feel the next 12 months are. No one wants to do a deal right out of the gate that looks sort of why did you do that . So, uncertainty certainly damages larger m a transactions. David to what extent are ceos deterred by the fact that valuations are so high . Valuations, you have to remember that the valuation of the buyer stock is also high. So, some of these transactions are done on a stock for stock aces, so you are trading one fully valued currency for another fully valued currency. Second of all, that is very available and cheap. Literally, any transaction that a company does for cash, for creative. That is not the way i believe you should measure a transaction , but, in the short run, it does have a positive affect. With in every core evercores business, you have grown dramatically. What has changed over the last five years or so . Most areas changed medically is the movement of market share from the large, universal banking firms to the independent firms. Vercore has definitely been a major beneficiary of that. Market share of advisory revenue for all the publicly reported companies, so that would be all of the large u. S. Firms. Some of whom have commercial banking backgrounds, and others have Investment Banking backgrounds, all of the european firms, and all the independent firms. Our advisory revenue from those firms has tripled in the past six years, and that is happening because many of the most talented and senior advisory bankers who want to play the role of trusted advisor are migrating from the larger firms to the independent firms. David what caused that . You have been quoted as saying that you do not want b plus b ankers. Why is that . What we do is pretty hard. By ais, to be hired company, its executives and board, solely on the basis of our ideas, our intellectual capital, and our relationships with important players around the world. We do not have a Balance Sheet, and we do not lend any money. There are a limited number of people, many of whom are talented in the large firms, who can do that. Each year,n able to, attract a few more of those people to our firm, and that is what fuels growth. It is not so different from a basketball team. Alix david, thank you. Good to see you. Now, go enjoy your vacation. Ralph, thank you for joining us. Jonathan lunch with Warren Buffett, that is davids new gig. Interview, goes on vacation, comes back and does another interview. I saw him this morning, and he was so happy looking. Alix clearly, we are jealous about it. You can watch bloomberg tv online on your terminal. You can watch any interview you may have missed. This is bloomberg. Alix best buy stock of about 1. 5 . It is seeing its best sales growth in about five years. Amazon did not get them down this quarter. Jonathan big moves there in the premarket. Lets get to a big move this year, the risk across markets. To the newscting that north korea fired a Ballistic Missile over japan. Moments ago, President Trump was least President Trump released a statement north korea has signaled its contempt to the United Nations and is expressing minimal requirements for international behavior. All options are on the table lets talk about what is happening with the euro. It is at about 1. 20 today for the First Time Since january 2015. Joining us now to talk is Richard Jones. It is great to have you on the program. It has not been risk off all year, but it has been in the last 24 hours or so. Why is the euro catching a haven bid . I think the euro is benefiting from a relatively benign and stable political situation. Not too long ago, we were all worried about populism in europe, but that has since died down. The German Market has signaled that it will be friendly. We are going to have a continuation of politics in germany, a partner in france now, and the economic fundamentals in the euro area are quite positive. You can see how this confluence of events and dynamics are turning the euro into something of a haven considering all the legal uncertainty we are seeing elsewhere. Jonathan it is worth pointing out that the rate differentials to not quite match up what we have seen in the past couple of months. What are your thoughts . I think politics have been , and alsoiver economic outperformance on this side of the atlantic. Centralbank policy has taken a backseat. That might come into sharper focus in the coming months, but i would say the positive euro story has been a story of Economic Performance and relative lyrical stability. Jonathan whether the politics of europe reasserts itself later , could that just be isolated to be town in assets italian assets . I think the Upcoming Elections are an elephant in the room, but given everything that europe has come through recently, there seems to be this emerging sort of unity across the region. I think it is not something that we want to poopoo in terms of the italian political risk, but i do not think it is something we are worried about as much as eight months ago. The story seems to have died down a little bit now. Jonathan Richard Jones joining us from berlin, they do so much. Up next, we will talk with Stephen Stanley. A little bit later, we will have mike swell, head of Global Portfolio management. This is bloomberg. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. Jonathan north korea fires a missile over japan. The Prime Minister talks about it as a grave serious threat. President trump says all options are on the table. Yen strengthens, and treasury yields see a new low. Texas faces even more flooding. This taking place in the heart of the nations oil and gas industry. Good morning. I am Jonathan Ferro alongside alix steel. We are waking up to some significant Market Action. Futures are negative i about by about 0. 5 . Treasury yields have been pinned to the floor this whole session. Alix we are seeing this play out in europe as well. The german bunds is a big performer out of this. 0. 6 . Llaryen down 0. 8 in breaking through that 1300 resistance level from yesterday. The vix up about 16 as we head into the open. In the last hour, President Trump coming up strong against north korea in his statement. The world has received north koreas latest message loud and clear. The regime has signaled its contempt for all members of the United Nation and for minimal standards of Acceptable International behavior. Their actions only increased north korean isolation around the world. All options are on the table. Joining us now from washington is kevin cirilli. Kevin so far, no tweet from President Trump, but the white house did release a readout from the president s call with japanese Prime Minister shinzo abe. We have seen quite that ticktock overnight following that north Korean Missile launch over japan. We have to note that the white house is saying that President Trump and Prime Minister abe agreed on continued pressure on north korea and on advocating for the International Community to do the same. Nikki haley is very much going to play a key role here. Announcing and Steven Mnuchin announcing sections against china and russia due to their economic ties with north korea. Alix kevin, thank you. We did receive a reaction from Prime Ministers shinzo abe. He echoed President Trumps stance towards north korea. Japans position matches that of the United States. Launchth Korean Missile poses a grave threat on the international level. I agree with President Trump emergencyst have an u. N. Meeting to talk about north korea. Alix joining us now is bruce klinger. Bruce, you are the person to talk to. What options are on the table . When President Trump talks about military options being on the table, some would jump to it being a preventative attack, but i think we have walked back from what was first perceived as a military option. Instead, i believe the u. S. Is going to try to lead the charge to put more pressure on north korea. Contrary to the popular misconception, there is more to be done internationally and with the u. S. Can do unilaterally using its own laws. Jonathan what can be done . We have seen the u. N. Moving rds ironic twoard pressures,nlike broader economic pressures such as capping Key Resources like coal. They could go to an embargo on coal sales which would be a lot of pressure. Lle question is how we china will follow and implement them. We could increase pressure on china and north korea with the money flowing through u. S. Banks. U. N. Capable of doing these things given that china seems reluctant to explore the things you have proposed so far . What we have seen with the u. N. Resolutions are incremental steps forward. We could have been where we are now a lot earlier had china not been obstructionist, but china is increasingly angry with its ally. So, it allows, incrementally, stronger measures against north korea. The u. S. Has begun to pressure chinese violators of u. S. Law. We saw it recently with some sanctions against china and russia. So far, the u. S. Has not proposed any fines on the chinese banks in contrast with the 12 billion fines we proposed on european banks for funding iran. Need to distinguish between diplomacy and law enforcement. We have held back on in forcing our own laws. Tell china secretary mnuchin has said before that they are not saying china is complicit in in this activity, but we are certainly going to enforce our laws and not that the way from enforcing our laws since a because criminals simply because the criminals are chinese. Jonathan given the point we were at several decades ago with what president s were doing with in the Korean Peninsula, there is this idea that if you wait it is ok because they do not have Nuclear Capability is waiting even an option now . In advocating for a literary preventive strike, it is asking for a war before the really is a war. And simulations, the allies always one, but that was still at the cost of hundreds of thousands of casualties. That was even before we look at north korea as having nuclear capabilities. Alix a few weeks ago, President Trumps rhetoric was quite extreme which gave china a negotiating bargain with north korea. We have to see more strong rhetoric from President Trump before kim jongun changes his perspective . Some would argue that the president s tweets and comments created a fear in north korea and china which allowed for greater pressure on pyongyang from beijing. On the other hand, some were more nervous such as our allies in south korea and japan. They did not know if they were going to get dragged into a conflict between the u. S. And north korea. So, the south korean president even said that he has a veto, in essence, over u. S. Actions in north korea. He said that the u. S. Promised need for south korean approval before we took action. So, negotiating a bridge concern, we could debate that. Great to haves your thoughts. Thank you, bruce. In the markets, risk off is the treasury is the story. In the treasury market, the yields reach a new low for 2017. Lower by sixinding basis points. Joining us now for more is Stephen Stanley and adam cole. Adam, lets begin with you. Lets talk about the reaction in the fx market. Do you expect a stronger euro . I think this story is simply one of markets expecting this kind of risk off move to be associated with capital repatriation. Capital tends to flow home when market risk is adverse. Both of those companies have a strong Balance Sheets for the currencies which appreciate most. So, that is overwhelmingly the yen which is the beneficiary. Since it is a local crisis that is triggering this, but even given back the yen tends to be the beneficiary of risk off moves. Jonathan what about single currency, the euro . What are your thoughts about what is happening with single currency right now . It is less easy to rationalize. It is not a new phenomenon that the euro has been trading as a safe haven for a couple of years now. It has mostly traded as a safe haven. Severe risk off see thethink you would status looking a lot more questionable. Shock morewe saw a of the magnitude like the china devaluation a couple of years ago on the dollar reverting to its traditional status as a safe haven. Stephen, do you think we could also see a dollar safe haven bid . If they get too bad, i think it would get rather chaotic in the markets. We could have some scenarios where it is a last resort type of thing. The next thats here are going here are goingps to be very incremental. If we get china on board, then we could see some progress. I think this is a scenario where the markets are going to forget about it in the next couple of days. If it does become more active, it could become the huge thing. Alix the higher the rise, the harder the fall. That is the thinking with the euro. The you agree with that do you agree with that . Ultimately, yes. Lets not forget that much of the strength of the euro is dollar weakness. Entirelyngth is not but largely dependent upon dollar weakness. It is hard to see what will turn the dollar positive from here if the market continues to pry down. The markets seem to be convincing itself that if the fed hikes, then the data will do the hiking. Jonathan we just got a message on the bloomberg that says forget about a movement in yen. Look at gold. What makes the story for the resiliency we are seeing in the metal at the moment . It has been such an effective hedge for everything going on. Ging in gold is han there. Why is that . The principal of factors is that it does not have a central bank. It has been clear from the fed behavior recently that they will respond in terms of policy. Gold has no central bank, so there is no risk off policy response to a risk off move. There are very few currencies in which you can say that. That is what makes it, in a world of unconventional Monetary Policy, it is what makes gold a haven in ways most currencies are not. Alix adam, thank you so much. Stephen stanley, you are sticking with us. This would have been quite the chatter if this happened a few years ago. Jonathan hyperinflation from central bank stimulus, what happened to that . Alix it is coming, right . Coming up, mike swell will be joining us. We will have his take on what is happening with the treasury market. This is bloomberg. Alix Tropical Storm harvey is not over. You can monitor its track on the bloomberg terminal. It will impact the texaslouisiana border tomorrow after reenergizing in the gulf of mexico. More than a foot of rain is expected to fall as it moves across the United States. Joining us now is thomas stringfellow. He invest in Companies Like shell and bp. We also still have Stephen Stanley with us. Stephen, i want to start with you. The typical story is that this is not a lot of economical impact in the shortterm. In the longterm, there will be a boost. Is that the trend this time around . I believe that is what you will see this time around. Or twoill be a month where the data will likely be depressed, and then things will start to come back. Eventually, you will get rebuilding, and that is where you will eventually get a positive economic boost. Alix in the job market, parttime workers and the weather are things we need to start keying into. How long to the disruptions last for . You have to look at recent storms like katrina. The impact can be for a while. In this case, the effects might be longer, a month or two months, depending on the aftermath of the flooding. Jonathan is this more of a guessing game for economist than it typically would be . Toyes, there is no way really know. The biggest impact that economists are going to be taking about is the relation to Energy Production and prices. This morning, a lot of refineries are shut down, and they have not been able to get back in there to see if there is damage or not. Now, you have this second track which is going to hit another set of production facilities, so this is way too early to have any type of precision. Jonathan what is the guide for the data in the coming months . Data whichial claims never really seems to move, it is going to move a little bit up and down, and it will be all over the place. Energy is going to be volatile. Gdp numbers the will be volatile for a quarter or two. Alix what do you expect in terms of refiners . Their volume is going to be like because of weaker demand to be light, because of weaker demand. With about 50 of the capacity shut down [indiscernible] tom, we are having some problems with your audio. We will try to fix that and get back to you. The broaderking at economic impact, i am looking at how much volume has shifted out of texas. It does make a difference compared to sandy or katrina. What do we see on the trade front because of this . I think there is always a question about whether or not you have Domestic Production imports Like Crude Oil or refined products. I think we will see some more imports, and the prices will adjust globally. I think there is no question about the relationship between the pipelines and shipping that this is not just a golf story here. It is going to be not just a gulf story here. It is going to be affecting other countries. Hopefully, this will be up and running again in the shortterm, but there will be effects for sure. Alix Stephen Stanley, you are going to be sticking with us. The American Red Cross is asking for your help in regards to the disaster in texas. They already have dozens of shelters up and running, but they do expect the situation and crisis to grow exponentially. Your donations will help. For furtheross. Org details. This is bloomberg. Alix the number on friday you have to watch out is the estimate for new jobs in august. When chief economist who has been a hawk so far, what are you looking at for friday . I am not much more below consensus, but just slightly below at 170. I think it is mostly went to be the same. It has been about 180 per month. I think it will be surprisingly strong, because at the labor market tightens, you would imagine that firms have a harder time finding workers. The pace of job growth supposed to have slow down but it really has not in comparison to 2016. Alix what is your expectation for wages . 2. 2 expecting about about 0. 2 . If we got anything higher than that point to percent, that i think that 0. 2 , i think eyebrows would raise a little bit. I think there is still a lot of confusion about lowcarb to low productivity growth which translates into what you should see with real wages. Real wages are low because productivity growth is low. Everyone gets waiting to see 3. 5 or for percent wage growth growth, and we are not going to see that again. Jonathan do you think there is a decent explanation already . Wages to be expect accelerating more than they half. It has been slow coming. I do think we are going to start to see more. It has been a little bit of a surprise, but it has not been as much as people have been expecting. People have been looking across cycles when productivity numbers to just you cannot do that. The bias was that the software was going to keep hiking. The biasing to be starting with the Balance Sheet and then seeing her we are at the end of the year could do you think they should keep their conviction and stay on the path they are on . Right now, i think they are on a holding pattern. They do not have to come to a decision until december which is about four months away. Alix you are one of the most hawkish out there. We have seen weaker inflation. What do you need to see to push back your rate hike expectations . The Inflation Numbers are certainly concerning to me. I would like to see a little g on core inflation compared to what we have seen in the past few months. The economy continues to be strong. I think the gdp growth will be about 3. 5 . The labor market continues to be rock solid. There something you should fall into your view on Monetary Policy . I think there is some relevance. The view has been very consistent that the easier the financial conditions are, the more the fed has tightened. Alix are you worried about the Amazon Effect on Grocery Stores . We will see. I am not sure if whole foods is enough to move the needle, but we will see. Stephen stem it, think you for joining us. Coming up next, we will have michael swell, head of Global Portfolio management at Goldman Sachs. Ascontinue to weigh in treasury yields plumb new lows in 2017. Futures are negative at about 0. 5 on the dow and s p 500. From new york, you are watching bloomberg. It is risk off in Global Markets. One hour from the cash open in new york. Mild risk off tone for global equities. Inative territory bigtime europe with the ftse 100 down by 4 . All 19stoxx 600, Industry Groups in negative territory. The story of the bond markets, yields make fresh lows in 2017. U. S. 10year down 10 basis points. The fx market, a weaker dollar story continues to emerge. The yen with a bid. Sometimes you cannot explain this stuff. Missile over japan, the yen with a bid. Lets get you to the headlines. Lets cross over to taylor riggs. Taylor President Trump this morning says all options are on the table when it comes to north korea. The white house issued a Statement Today after a missile flew over japan and landed in the pacific. The president said north korea has signaled contempt for the United Nations and is increasing its isolation. In the u. S. , Tropical Storm harvey is not letting up on houston, the fourthlargest city in the u. S. Being inundated by floodwaters. More rain is in the forecast. Harvey is out in the gulf of mexico and is set to cross the short tomorrow on the texaslouisiana order. Offshore oil and Gas Production has been hobbled. Buildingump discussed a hotel in moscow three times during the president ial campaign with his lawyer. At one point, the lawyer you know the press secretary for the russian president Vladimir Putin for help on the project. President trump said as a candidate he had nothing to do with russia. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Jonathan thank you. Geopolitics dominating sentiment in the market today. The u. S. Dollar down over one Percentage Points over the last two days. That is just one of the pain trades as people called for a stronger dollar and it rolled over. The yields for the treasury h, we have now rolled over to a new low for 2017, 2. 09 . It is down seven basis points over the last couple of days. To discuss, mike swell, the cohead of Global Portfolio management at Goldman Sachs. These moves add to what we have seen for two big pain trades. What is the biggest pain trade right now . Mike no question, the dollar. It is unexpected the recent underperformance of the dollar. It is related to the treasury move as well. You have to look at the fundamentals and step back from geopolitical risks, political risks in the u. S. , weaker inflation over the last few months, and look at what is going on from an economic perspective. We are talking about second half growth at 3 , not talking about that outside the u. S. , europe obviously lower. While it is a pain trade, it is a value. We think the dollar is attractive now, and we think the fed will resume the course and not slow down. Jonathan what is the strength of the momentum going against you . A lot of people in the last few months have said this position has gotten to be too long in the tooth. We have got to move in the other way. It just keeps grinding lower and lower again. Mike i think positioning is a short form factor and should not drive longterm investment decisions. To theas been a big move view that there will be a resumption of global growth, and there has been a big move in emergingmarket currencies, huge rally this year. We participated in that. We think it has gone too far. You want to think where are the fundamentals. The fundamentals are in the u. S. Where you have stronger growth and the potential for tax policy change, which could make a difference, and at this point it makes sense to really consider getting long dollar. Alix what do you do with treasuries . The same could be said of short positions there. The shorts are trying to get a position on it, but the longest keep crowdingngs them out. Mike i think the treasury market is much tougher to call than the currency market. We are talking 2 . It is not enough to get you excited to get long. It is a risk off asset. If you have a risk up, it is not clear from your that treasuries rallied. Ishink treasuries right now a losing game. From the short side, you have this incredible demand outside the u. S. For the highyielding market, which is the u. S. I dont think this is a time to short treasuries in a large way. I think it is modest. I think there are more things to consider with regard to the change in the Global Economic picture that are more important to think about. I think number one is the currency market. Number two is the credit markets, which we have talked about. Jonathan we will get to credit in just a moment. Longou mentioned getting the dollar against developed market currencies. A lot of people are looking at the euro dollar and getting enthusiastic, are you talking shorting the eurodollar at 1. 20 . Absolutely. We think the number one trade right now is to play divergence and not worry too much about rates, credit. They are kind of ok and dont give you a lot of return. We think the way to make money in bond portfolios is to think about the Global Economic picture. Are there to virgin factors going are there divergent factors going on . We think right now the u. S. Valuation in many different markets is extremely attractive versus europe. We think the rates are valued poorly, so we like the idea of shorting race in the u. S. Versus europe. We think we will continue to see easy monetary conditions in the europe versus the u. S. There are areas of the equity markets we like in the u. S. , particularly smallcap value where we think the divergent growth between the u. S. And europe will have an impact on the small cap equity market. There is nothing priced in in terms of changing tax policy in the u. S. , and who knows what will happen in terms of politics, but there is a lot of alignment of interests right now for tax policy change, so we think small cap can really benefit. Jonathan i have so much to strip out from what you just said. I want to begin with what you started, that you can short the u. S. Bond market against the european bond market. When people look at eurodollar, they say rate differentials dont add up. You ask someone today, we might say bond yields have to go higher, you think bond yields will go lower and the euro with it . Our strong view. It is a longterm view. You have the ecb that is likely to cut back purchases. They have to because they had bought everything that is available and then some. Conditions financial need to continue to be easy in europe, and you have a lot of structural challenges in europe and modest inflation. The differential between the target inflation in europe versus where we are actually seeing it is much larger than in the u. S. We think rates continue to decline and there is a strong structural bid from investors and the ecb for bunds. Alix doesnt that go across your short treasury thesis . You will see a flood of european investors coming into the u. S. Treasury market. They will not want to buy bunds. Mike that is the challenge of having a significant outright short. Calling long treasury or short treasury is hard because of the structural demand outside the u. S. , and if you see weaker conditions, you continue to see money flowing into the best of markets, which is the u. S. Now, so we really like thinking about things from a differential standpoint. We think the currency market with the huge selloff in the dollar versus euro is one way to play it, and the other way is short treasuries versus a duration adjusted amount of bunds. And we think they are likely to outperform. Alix do you see the data starting to roll over . Mike i think it is more that the market is, assuming the ecb is going to be on this significant have to exit, and where we believe that in the u. S. You are moving from quantitative easing to quantitative exiting, and it is clear, we think you are moving in europe from quantitative easing to more quantitative easing over time. What they can do based on significant imbalances that exist across broader europe. Alix the markets are not interpreting something correctly . Shocked mike swell will be sticking with us. In the next hour, Andrew Slimmon, Morgan Stanley, will be joining us. This is bloomberg. Taylor this is bloomberg daybreak. Coming up thursday, michael she chairman and ceo. It is a big week of u. S. Getdata, on friday you Consumer Confidence. , andng sevenyear notes tomorrow august adp employment, and Second Quarter gdp. Thursday, data dump, personal income, personal spending, initial jobless claims followed by pce. Friday is the august jobs report. I want to start with the today. You have the fiveyear relatively ok. What do you expect for the fourweek bill . Usually you dont care, but we do now. Mike right now in terms of demand with the risk off sentiment, there will be plenty of demand. I think the Government Shutdown concerns get overblown, so i think investors in the event there is a discount, treasury securities, they will take advantage of that. The bigger question is longerterm around supply. We think they will issue an enormous amount. In the event of a tax cut, which is a decent chance, that changes the fiscal situation significantly. At the same time, the fed is trying to reduce the size of the Balance Sheet. Just as we had this discussion about being short treasuries, longerterm the idea of owning a lot of government bonds is not a great investment idea. Alix where does the curve in supply come . Mike it will be pushed out as long as the market will take it. I think treasury will try to push issuance pretty long. I think they will try to issue as much on the long end in this environment. Instead of the outright short treasuries, the way we think you can actually generate alpha on fixed income portfolios is not butg long rates and credit more relative value, which we talked about before and the yield curve. Instead of having a bit short on treasuries, we think for a lot of the factors we discussed and away qe is going to occur, the yield curve is likely to shorting the long end. Jonathan i remember someone saying to me that Equity Investors get paid to dream, and Bond Investors get paid to worry. There are some a things to worry about in the world right now, maybe not so much fundamentals, but geopolitics, north korea. Soon . T going away anytime mike we spend a lot of time talking about the noise, the noise out there. Some of the noise matters, and some does not. We do account of what matters and what does not. You have to determine what has a longerterm impact on growth and jobs and inflation and risk versus what is noise that will subside over time. Things like the debt ceiling is a shortterm impact. Toll, youhuge human lose some jobs and productivity shortterm but gain it back longterm, those factors are well thought out in the insurance industry, but in the larger economy there are things you dont want to emphasize too much when you think about that. Geopolitically, there are factors causing treasuries to rally. Your upside is so limited in terms of owning treasury bonds, you have to step back and think about what is going on. The jobs numbers, five months out of seven over 200,000 jobs created with 4. 3 unemployment, and we are kind of at nehru. 0. 1 10th below. Those are the factors that should drive your investment. Columns you have those on a board at Goldman Sachs, doesnt matter, where would you put north korea this morning . Mike it matters more than yesterday. It still factors in as a tail risk, but something you have to keep your eye on. A year ago or two years ago it probably fell into the category of geopolitical risk, but noise. , but it is not something that should change the way you view longerterm investing because theres so many scenarios out there where there will be a resolution to this conflict, not permanent, something that kicks the can down the road. See ther equities, we dow futures off 100 points, should we expect that theme to continue. Continue . Mike given the global liquidity dramatic, that is so i think you will continue to see that until you see more aggressive centralbank ill see. Once you see that shift, and i think you will see that policy shift next year, i think now you have expectations of tapering in september and a 5050 chance of december, but many in the market believe these inflationary pressures that are small and consistent are likely to materialize to get numbers that will concern the fed next year. We think that will cause them to change, but you are in an environment where the in the u. S. Market, strong fundamentals, the jets will be dips will be long. Jonathan you look at treasuries and say the risk reward there, is skewed to it risk and not reward. When you think about policy paralysis in washington, that is a lot of concern for people, but are you saying a lot of the risk has been priced in, and there is still a lot of upside . Mike that is tough to answer given the volatility out of washington, which has been unprecedented. I would say that is another one where traditionally policy in the u. S. Away from centralbank policy is something that would have fallen into the category of doesnt matter much, but you have a lot of things on the table now and more volatility, so it is on the line. That i would say you have this huge trump reflation rally, and that has come off and then some. The risks are to the upside. That is mainly around tax policy. It has positive impacts to certain sectors of the economy. Smallcap Value Companies will benefit significantly from lower taxes. Those are companies that actually pay taxes. I think it will have a big impact on debt issuance and treasury insurance issuance. Is dont care, care, maybe care, not share. Drawing . Who does the alix mike swell, Goldman Sachs asset management, he is sticking with us. Check us out online. You can interact with us directly. Scroll through and rewatch. This is bloomberg. Taylor this is bloomberg daybreak. I am taylor riggs. Advisorylting firm board is being split up and sold out. The deal is valued at 2. 6 billion. Appleske is cast in on strong performance. He received shares of apple valued at 89 million last week. That is the largest amount allowed under his compensation contract. Florida and dominoes are tuning up to test out driverless pizza delivery. There will be a ford engineer at the wheel. The goal is to see how customers interact coming out of their home to get their pizza from a locked pizza compartment. Jonathan the president has just touched down. He will now take off to corpus christi, texas. Battered harvey has houston and the state as well. Those pictures coming to you from marine one at joint base andrews in maryland as the president is set to take off on air force one shortly. Bonds rkets, jump junk bonds are too low for the risk investors are taking. Pimco, goldman, and others are snatching up home loans made before the housing crisis which offer potentially high returns. With us is mike swell of Goldman Sachs asset management. Talking about this move from junk to mortgages. Mike you have seen huge Global Demand for u. S. Assets. We talked about treasuries before. The secondary Asset Investors are buying is corporate credit. They are used to it. You are seeing spreads tighten dramatically. Our view is you are not getting compensated for the risk in credit whatsoever. You have had a significant move up in leverage. They are taking on much more risk. You look at the Investment Grade market, and you are at the tightest level if you look at spread as a unit of leverage. Similar things going on in highyield. We think there is an attractive carry, but it is fine things people are not buying. Securitized markets are a little more complex. We think the nonagency Mortgage Market is an attractive place for returns, and instead of being exposed to that demand from overseas, you are exposed to the u. S. Housing market, which is in healthy shape. Andr things like clos assetbacked securities like government Student Loans are a good place to rest from the kerry perspective. We dont want to confuse people. The agency Mortgage Market is not the place to be the safe haven given the fed is reducing their size of Agency Mortgage holdings. The really attractive securitized rocks that are not is exposed to Foreign Investors make a lot of sense. Mike swell, we appreciate your time. We turn our attention to Hurricane Harvey as the president of the United States boards air force one heading off to corpus christi, texas. The people ofith texas. This is bloomberg. Jonathan north korea fires a missile over japan. The Prime Minister shinzo abe calls it a great and serious threat. Allld trump says options are on the table. Treasury yields see new lows for 2017. Taxes sees more flooding, heavy rains devastate the fourthlargest city in the u. S. Good morning. This is bloomberg daybreak. I am Jonathan Ferro alongside alex still. The market Something Like this, risk off, yields plunging lower by five basis points. We were so 210 earlier in the session. In the equity markets, futures negative about 0. 6 on the s p 500. In the equities market, weaker dollar story against everything in the g10. That is your cross asset risk off picture. Here is alix steel. Alix retailers, this is a have and have not situation. Finish line makes activewear, total down 50 . Their second order earnings below consensus. They expect sales to be well below consensus. They even have the poison pill deal for any potential takeover, bad news. Right side, initially best side. They were up 6 premarket, now down 4 . You have Second Quarter con cells up 5 . You have the company saying this es arengledigit con sal not the new normal. That is what brought the stock lower 4 . 0. 5 . On moving you want to take a look at the fed stocks after what happened over the evening with that missile over japan. Raytheon is up 25 this year so far. Jonathan it is risk off very much back on in north korea. Guests what some of our have said this morning. Contrary to popular misperception, there is a lot more that can be done internationally and the u. S. Can do unilaterally. I think china has been fueling this crisis largely because they get shortterm benefits when the North Koreans do something provocative. We have increased sanctions so much, whether it was just the limits on north grain exports, eventually there will have to be a military response. The next step has to be to focus more significantly on secondary sanctions against chinese entities or Financial Institutions that are likely the source of north korean funding. There is no good military option in north korea that is to probablyrisks tens of millions of people on the Korean Peninsula and the surrounding area. That is obviously a horrible thing for the world and for markets as well. Jonathan joining us from chicago is Andrew Slimmon, Morgan Stanley investment manager. Lets walk through what we have learned in the last 24 hours. How do you filter the latest news from north korea . Noise or signal, which one would it be . Andrew noise, if you only give me those two options. Jonathan what does it mean for todays moves . Andrew shortterm, risk off, but look at the patterns of the isk. Et, they sell on der it is classically a geopolitical risk. North korea is a favorite topic. Anyone that is selling down risk now is late to the game. You should have been doing that in july. From my mind, a little further weakness, but you should be looking to add risk going into the Fourth Quarter. It is a classic setup. Markets,is is, for the this is your classic late august risk off move. Jonathan what is interesting is that many of these moves are not just august they are the whole year. Weaker, goldis rallying, treasuries down, those are not exclusive to august. Andrew sure. The market has run out of steam in july. Dollar weakness has been great for the s p. That has underpinned disappointment coming out of washington. Disappointment out of washington, but dollar weakness has supported earnings. As the Fourth Quarter and the market starts to focus on next year, we will start next year with a pretty good earnings number. That will lead to probably another rally in the market for the Fourth Quarter. Not now, it is too early now. To me, the patterns are consistent with what we have seen in the past. Alix on the flipside, earnings estimates for the first part of 2018, discretionary stocks, starting to roll over. You have Hurricane Harvey and questions of Consumer Spending as well. I hear your catalysts will still be earnings, but where . We are seeing pockets of weakness that could potentially spread. Andrew what is fascinating about this year is classic sell side wall street consensus starts the year two strong and has to bring their numbers down throughout the year. On average, wall street is about 7 to high. That has not happened this year. Wall street has not brought their numbers, which are still around 132 for this year. Is 146. W, consensus i dont think they will bring their numbers down next year because they have not brought them down this year. You are right, energy has been disappointing, although it is a big recovery from last year. I think as we start to focus on 2018, sometime in the Fourth Quarter the market is going to go, that is another 11 earnings growth, and the market is trading at 16 or 17 times that number. It is not cheap. That is where we are going to start. Ill not saying that is necessarily going to happen. That is where we are going to start. Going back to your question, i think it is risk off now. It is too early. You get your ducks in mind and think about what stocks you want to buy as we get through this selloff. Alix the issue seems to be that the markets dont have a lot of wiggle room for negativity. D. C. Orty comes out of north korea, and i get you have a Shopping List, but there is no margin of error. How do you account for these wild risk off events you cannot factor in . Andrew the volatility is very low. To me, that is saying the market is looking to these events. We have not had a lot of volatility. The market has appropriately discounted. The s p is down a couple percent of the high. The bigger story is why is europe down a lot more . In my mind, it is because the euro is strong, and that is increasing worries that european earnings will not be as strong as expected because we have had too much euro strength. It is the reverse of the United States. There are plenty of things to worry about. I just what it twice north korea high on that list as other things. At what when we look the fed may or may not do next, what is implied right now is the next rate move, the odds and one by yearend are below 25 now. What are your thoughts on that after a move like today and the last couple months where the market continues to fade the fed . Andrew absolutely. The two things that worry me the most, much higher on the list than north korea, what happens if the dollar for the u. S. Market starts to reverse strength . In my mind, the story of this year is disappointment in washington has been offset by dollar weakness. If we continue to get disappointed out of washington, but the dollar starts to strengthen, that is the first negative. That would hurt earnings. The second negative is what happens if the fed ramps up the rate of increase is faster and you get pe compression. I think they yield curve will tell you that. As long as they yield curve remains steve, i think that tells you the fed isnt going to raise rates to quickly. Those are the number one and number two things that worry me for equities. Jonathan lets explore one of them. A lot of people are making noise about the fact that you look at the s p 500, a certain percentage of those stocks are moving trading below their 200 Day Moving Average. Underlyingking weakness in the broader index . Andrew yes. I think the point is we have more downside in the market. Still august. We will have further downside been down 1 to 2 on the s p. I think that sets up a good Fourth Quarter. Alix obvious question, what is on the Shopping List . Andrew one of the areas that intrigues us is health care. The reason for that is it is obviously in the growth buckets, and we like Growth Stocks. It has really lagged tech stocks. As investors look at technology doing really well, health care has lagged, and Good Companies with growth rates are trading at substantial lower multiples than technology counterparts, what happens if we get some tax reform . What is so intriguing is a lot of these Large Pharmaceuticals that have a lot of cash offshore. If we get some type of cash repatriation, the market could start to say, maybe these big pharmas will bring cash onshore. I think health care is an intriguing sector. Not all of tech is expensive. I am in the camp of financials as i think deregulation is going to help corporate earnings. The area that worries me, and i was on earlier, and i talked about emerging markets asia. I have seen a lot of money for moneythat gordon poured into asia. That scares me. Jonathan coming up, it is september. That means it is payrolls friday. Payrolls friday. Full reaction, full coverage on bloomberg tv. Friday, bill gross joining us. It is risk off wednesday tuesday feeling. I am getting ahead of myself. Deep in the red. Down 0. 5 on the doubt and s p 500. Equities rolling over in europe. This is bloomberg. It is harvey round to as americas gulf coast braces for another devastating tumbling. Turning us is jacob meisel. He knows the weather like nobody else. Take a look at the bloomberg. This shows the projected path of the storm over the next few days, making landfall tomorrow night between louisiana and texas. What can we expect . Jacob the worst of the storm is over in terms of when capability. Ofis exhibiting a lot extratropical conditions, meaning there is a lot of colder and dry air in the center. That means it is not likely to strengthen. Most of the heavy rain, convection, the thunderstorms are dislodged from the storm center. There are still gusty winds, but the main threat is flooding. Alix lets talk about that. At this take a look flooding math, what am i looking map, what am i looking at . Jacob that is how much rain has already fallen. You are seeing amounts of two feet to three feet in some areas. When the storm is over, you could see up to four feet in localized areas. That is enough for rivers to overflow their banks. Refineries are being flooded. This is unprecedented for the area. Some of the refineries in the worst of it, we dont know how bad the damage is yet because you cannot get there yet. It is hard to know how long some of them will be down. Those that were damaged worst by the winds are starting to come online, but the flooding, there is a lot of variability. Jonathan in terms of where we are in the season for peak demand and how these refiners have to work, where are we . Jacob the summer is winding down. You are not at the demand of the season, but we have labor day coming up this weekend we are seeing a lot of demand and prices reacting accordingly. Gas prices are up, crude prices are down because you dont have refining capability. It is driving prices. Alix this map we are looking at is where we are seeing the effect of the refiners. Red dots are shutdown or idle. Green are still operational. How many more refiners can be taken offline in the next 48 hours, and how easy is it to start again . Jacob we are not looking at too many more taken offline. The winds are not going to take you offline now. Alix you have flooding and saltwater, ocean water. Jacob this is a freshwater flooding event. The rain is still falling across the area. We expect up to an additional put in a lot of these areas. Foot and a lot of these errors. Louisiana is going to start getting their heaviest rain. If you see any go offline, that is the region we are watching for. Jonathan we talked a lot about the magnitude, the power of the storm. Lets talk about the duration. How much longer will this go on . Jacob they will stick around the southern and southeastern u. S. Through the week and into the weekend, it could hit parts of the east coast into the weekend. At this time it will not be anything more than some schatzker the next couple days the impacts will wind down as the storm weakens. \ alix such a pleasure. When you want to marry commodities and whether, this is the guy you call. Thank you so much. Thank you for joining us. For further impacts on what it means for energy, we are with Andrew Slimmon of Morgan Stanley. What do you do with Energy Stocks now . Particularly refiners that have utter margins, but demand will be the issue better margins, but demand will be the issue. What iswe talk about going offline for but we dont talk about what is ramping up elsewhere. As prices readjusting in two to four weeks, i think it is difficult, i run unconstrained equity funds, so i think it is difficult to play these types of rallies. I look at Energy Stocks, and i say i have not met many people that are good at predicting energy prices, so i buy when they are very outoffavor. I dont think they are as much outoffavor as last year. Theirthey are heading for response since december of 2016 2015. Why wouldnt energy be the trade . Question, is a fair but they are not as cheap as they were early last year. They are getting there. I dont think they are washed out. Oil prices are not where they were last year. We will be watching them. Jonathan if you are wondering what the news is, i have been informed that someone is outside cleaning the windows, and it is banging. That is where the noise is coming from. Alix we are focused. Dont worry. Coming up tomorrow, david westin is back for another cameo from his vacation. He will interview Warren Buffett. You dont want to miss that conversation. This is bloomberg. Jonathan risk off for the markets, seven minutes on the catch of it in new york. You are 6 negative, on the s p 500. Yiled yields pushing lower. The fx market, dollar weaker against everything in the g10 space. That risk off bid driving yields to those we have not seen so far this year. U. S. Is your yield on the 10year. Alix euro strength not reflecting what is happening on bund yields. That rally really outperforms on the german safety trade. Safety trade moving into the yen. The vix moving higher, but still 13. You would have thought a few years ago 20 easily. That is not happening today on your safe haven trades. Banks could be poised for a disappointing open as treasury yields grind lower. Andrew slimmon of Morgan Stanley is still with us. It is not about yield. It is about deregulation. I think capital, if it is free to be invested, it will drive earnings much faster. I will focus on the beneficiaries of deregulation versus bank lending or those most sensitive to yields. Alix what is your confidence we will get something done in terms of deregulation . Andrew deregulation is happening. Tax reform, Regulatory Reform, that is the question. Deregulation is occurring. What i see going on in the market, there is a lot of first four tech stocks and Growth Stocks thirst for tech and Growth Stocks. I like financials. There is a great addition to a portfolio as they are not correlated to tech. Jonathan we asked the question on this program whether she has effectively sign for Resignation Letter with that speech on friday . Your view on financials . Whoew look at the people have been appointed since this administration took over to other posts. They are in the deregulatory camp. It is happening. It is not just determined by who the next fed chairman is. Alix how can you help quantify what the aspects of rolling all that regulation back would do . Even if you have cohn in the fed, President Trump, how much more money is there, how much more risk can they take on . Andrew i dont think it is that. I think you need to focus on the earnings potential for the financial companies. I think they have been really stymied over the last few years. You are starting to see it already, they will start to accelerate. As long as you get accelerating earnings growth, you get pretty decent multiples. The storyline is there. That is the factor. Jonathan Andrew Slimmon of Morgan Stanley will stick with us. We are moments away from the opening bell. A lower open around the corner. The opening bell right here on bloomberg tv next. Jonathan futures negative,. 6 on the dow, down on the s p 500 as well. Last week, decent gains in the face of more political turbulence. Strongest gains on the s p 500 since july. Open today, we rollover as geoPolitical Tensions continue to heighten between north korea and premature everyone else. Treasuries, lows we have not seen for quite a while. 210 earlier in the session. Significant on the session on the year. Were down by 10 full Percentage Points today. A stronger yen, stronger euro story and the headlines in g10. 25 seconds in, u that cash open. The nasdaq getting hit the hardest off by. 8 . Test could be the big loser of the day. It could be the worst spot we have seen for the s p for a couple weeks. We are seeing the outperformance. It is off by Broader Energy story. The question being how quickly , drilling into the Fourth Quarter, what does that do for production this quarter . Down by. 3 , it is all about will you see better margins offsetting the lack of volume and what we will see because of hurricane hearty. Harvey. This is about 1. 2 million cows in the houston area. A lot of them have been stranded and you see a big pop in these prices because of them rising for a seventh day. It is a risk off for the market and european stocks cut hit particularly hard. The euro allow 200 Day Moving Average and the euro stocks as well hitting lows. They have not seen since february. How much more of a shakeup can we see despite the fact the euro is actually around highs we havent seen. It shows that stored so the blue line is the euro spot rate. You saw a big jump, 120 euro dollar versus the white languages euro stocks. A tense rollover. You could have a stronger equity market and that if now seems to be reversing. Point onhe breaking the euro dollar when it comes to european equities and how that lines up feeding over to the European Market. North of 120. The rate of change or the overall levels . Hereto discusses andrew. Can you belong just belong european equities and the euro at the same time . A great question and it worries me. There is too much euro strength. That is a reason to be a little more cautious on european equities here. European strength earnings out of europe, just like it is helping u. S. Earnings. Guests a little earlier why gold is doing so well not just today but through the year. He said to me it does not have a central bank because a central bank will not step in and defend individual strength we are seeing in gold. Friend if youour are low european risk of hoping for the euro on the upside . Yes. Guys like me are saying maybe i will buy a gold encased north korea has eager issues that i think it is. Up this year because the fed hasnt moved aggressively. Rate and toease the me, it is not about the euro, but the dollar weakness. I think europe will probably do well with investment because the euro probably starts to roll i think thear but underpinnings for the u. S. Market are pretty good in the Fourth Quarter. At the dollar weakness, everyone says it is euro strength and now, everyone says dollar weakness. I am just watching what is going on and i think the storyline is the u. S. Economy has not overall accelerated the rate we expected. The fed has not moved as quickly as we thought. So the dollar has rolled over and that pushed the euro as the rate of convergence of the u. S. Economy hasnt accelerated and the european economies have accelerated, that is to me why the euro has gone up. I have got to think about the implications. The European Market has started to roll over. Jonathan we talk about u. S. Think the lets talk the financials. Has been made about the valuation spread between europe and the United States. There is a reason for that. Will that change in time soon and are you encouraged by what you have seen so far . Like i am, but i think your point is good. Really after brexit, the value stocks and banks were really cheap. And as thecome back economies improve, these stocks are going to do better but they have already rallied quite a bit here. But i think they will do well. In europe, that would be an area i would focus on. Jonathan i bring of european financials and in todays market, politics is dominating everything and i think it is worth exploring when european politics will reassert itself. So many people were optimistic after Emmanuel Macron but it is completely rolled over in france. We are likely to see the an ounce and of the italian election. Outtakes ineuropean the back half of the year in the way the politics more generally has asserted itself . Absolutely, i think that is a concern but how do that impact your. These . He scanned the section that would be good for european equities. That is a tricky bounds and i just cant answer that one. Jonathan thank you very much. Our next guest says he want to short the market. Youre going against a safe haven trade why . Treasuries. En by we thought there were a lot of people short and they were overestimating the impact of quantitative tightening. There were too afraid of nearterm inflation. Now we want to be short. They have gone too fast. Calix when you take a look at the market and you have the dow gold, the points, and you play the safe haven trade over the next couple of days . I think we will turn right away on treasuries are there might be more runup and we might see slightly lower yields. One thing i dont like is with the dollar coming up, you would ignore normally expected treasury to do well that we would be performing well against the euro. Not happening. Another reason i think treasuries are overstaying their welcome and will push back toward a 220 level. Jonathan summary people are making things up this year, plus two . What you make of that . Of people would be nervous. We of see nothing the people sell volatility. At one of the largest, 1. 4 billion, it is almost quadrupled in size since we had a brief it up back in the middle of august. A lot of people have sold volatility. Will be a lot of nervous sellers. Comfortable now saying vix always goes down, i think if that starts pushing much higher, people start getting stomped out can sitrade and we quick acceleration into 20. Jonathan that was my next question. I think 16 is a level where a lot of people get stuck and 20 becomes a level where people start getting nervous and have to close out those positions. That is the range we are looking for. I think that will work. People are underestimating the damage done in houston north korea and the dysfunctionality. Wind up goingt into the equity market . What to do with the dollar with equities . I think right now, the vix pressure will push it is down. 7 are looking for a 5 to hold back in dollar assets. What will pull back of the treasuries. 10 year or 30 year part of the curve will perform. The other thing is looking at 530. At funds are looking at that where they think that curve will steepening ken. It just broke through the 20 Day Moving Average. There is room to go back to montana rainout. Jonathan does this set the tone . The Political Tension bubbling to the surface, whether it is north korea abroad or here in things happentes, approaching the debt limit debate, etc. . Comethink we will get where the margate will tend to drift slightly higher but periodically, you will get sharper sellout as something hits and people are nervous and it will hinge around the fact that it is just not very organized right now and there is no census on any. Market so and we will get back to tax reform. I think it will be another disappointment and all of those will pop up like north korea did last night and put markets lower until people stop selling volatility and people get more scared. That is the quote of the morning. We are in a Light Trading holiday week. What factors is this playing this tuesday . He see the trends in the morning and they go throughout the day. Say they will look at this and it probably will place additional selling pressure. Until they are back next week or the week after. We appreciate your time. Thank you for weighing in. 11 minutes into the session, a move to about. 4 . Off itama that the risk in the treasury market as well. We are just off the lows now at 211 on the u. S. 10 year. That is the weakness captured by u. S. Dollar. At 120 for the First Time Since january of 2015. You are watching bloomberg tv. Taylor coming up tomorrow, david westin will interview Warren Buffett, chairman and ceo. This is bloomberg. Insurers got hammered yesterday. The s p is down but not some of the insurers. Take a look at names of travelers. And the dip they took monday morning and now they are climbed back to the levels we saw a few days ago. Virginia, managing director and insurance analyst. , and what kind of losses to expect and was the trajectory of insurance stocks . Good morning. Our estimate for insured losses outside of flood losses are in the singledigit billions. Estimates ranging anywhere from there up to over 10 billion dollars. That is separate from him flood losses you see in the media. Budget for catastrophe these here we dont see losses being dramatically outside of that at this point. We think there is some impact on offshore energy. The key differentiator, the key thing to keep in mind is flood losses are not covered under the private insurers you mentioned. That is a good point. Will the struggle through to the we reinsurers . We are the cusp of that. The wind damage will be low, maybe 2 billion. The automobiles that are flooded will be billions of dollars of lost. We are right on the edge of triggering some reassurance. My view is this will mostly be primary insurers, it is not a capital event and i do not think it will make a shift in pricing. We think pricing is very soft for a lot of this is funds. I do not think the storm will change that. Countries are most exposed to commercial properties and how bad could those losses the . Bigger commercial writers will be more mediumsized businesses and for larger risk, you will talk about it european companies. Could be some Business Interruption claims around the it is too early to tell hello play out. If they can get refineries and i do storage facilities, not think it will be a big commercial hit. Texas,many people of they did not have the Flood Insurance they needed. How difficult was it to come up with the estimate . It is a good question. We rely upon risk modeling agencies for information but they have not come out with numbers. We use events and our sense of where we see the losses coming in but it is uncertain science. Most of those numbers are hovering around high singledigit billions for the private market. For the uninsured, we just dont know. Everything i read implies there is a lot in houston so whether the federal government takes care of that remains to be seen but there is a big federal government burden for the storm and it will affect how people think going forward. Thank you for joining us. You have congress issuing more money, how does that wind up working . You would like to think this case is divorced from any of the parts and we witnessed in d. C. To 2017. We have a cash balance as well because of the debt ceiling. It is all interlinked. Out tv you can watch us online and interact with us directly. This is bloomberg. Johnson 180,000 jobs expected to be created less month earlier, we spoke with stephen, a chief economist, for his forecast. We might see little bit of it these are breather in august. Im not much of a low consensus but slightly below it 170. I think it is more of the same. And if anything, it is surprisingly strong. You expect the labor market have a harder time and the pace of job growth is supposed to be slowing down and it has not this year relative to 2016. Is mao winkler and he marketlook at the labor and handed by President Trump and hes wrote that President Donald Trump has been there for months and it is not too soon to make a prediction that he will break his promise to create 25 million jobs because he inherited the strongest labor market in modern times exceeding their supply of applicants. Corporate America Today is struggling to find the help at once. Joining us now is matt winkler matt winkler and like them Michael Mckee. Matt, lets begin with you. Chart they powerful title of which is help wanted, the numbers of unfilled job openings, outstripping. How significant is that spread . It is unprecedented and we have never seen anything like it. The data goes back to 2000, almost two decades. We are seeing a lightning cap between openings in the jobs available. Companies across the country are having difficulty finding the workers they need to fill the openings they have. What can be done about that . More immigrants would help. Job training would help a lot. Much more commitment to education. The kinds of workers that Companies Increasingly need are people with certain skill sets so those are the jobs they tuesday filled. It is coasttocoast, southeast and southwest. Collective you cant find workers, you will take lower quality workers and you will pay them less. That is what they would like you to think. The problem is it is not working textbooksnomic suggest. Wishes he Companies Paying higher wages to fire workers but they are not doing it. A lot of different reasons. No one has a single reason. Is you cannot find the workers. There are all kinds of him that we are not seeing the kinds of increases the fed will be looking for going forward. Jonathan he said if you are not , you are just moaning. How juvenile is it is that debate . Probably every economist will tell you if you raise wages you will find the workers to fill the jobs. A greatnothing like wage to attract people to the position. Is it that theyre not getting paid the right wage . Necessarylls that are for the jobs available, whether ,t is in kansas city or seattle there are positions that require certain skills. They cannot be thought filled no matter what the wages. Plenty of other jobs the field as we speak with people who have relatively little educational background. Jonathan an interesting piece. President ulty is the of the United States will find keeping his promise. Bloombergs Michael Mckee as well. List deal with august when the ninth. Futures deep in the red. We come off of the lows and were down by about one quarter of 1 . The risk off tone gripping the bond market and making new lows in 2017. You are watching bloomberg. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Vonnie from new york, im vonnie quinn. Mark live in london, i mark barton. Welcome to bloomberg markets. Vonnie will have the latest on harvey and also north korea in the next two hours. We start with abigail doolittle. Consumer confidence for the month of august. The actual index is coming at 122. 9, higher than july and very much higher than what we had in the lows. The recovery continues to tread theer and we have a beat on Consumer Confidence number. We of the worst