Transcripts For BLOOMBERG Bloomberg Surveillance 20170921

Im nejra cehic. Still seeing a little reaction from the fomc meeting. Ive got the stoxx 600. We were seeing stronger gains. It softened a little bit. We are still up 0. 2 . Stronger dollar against most major peers. Bloomberg dollar index up 0. 1 . It did gain more than that in yesterdays session. The 10year yield rising two basis points. We are at 2. 27 . Pretty steady right now. Also keeping an eye on crude oil. We are a little lower in todays session. 50. 52 dollars a barrel. Weve also got breaking news for you. Leaving its key rate unchanged at 0. 5 . Lets get the bloomberg first word news. Sebastian the bank of japan kept its monetary stimulus unchanged, but a dovish board member opposes the decision. He argued there was little chance of reaching the banks inflation target and the effects of the current yield curve program werent strong enough. That was an unexpected dissension on a board chosen by Prime Minister shinzo abe. The u. S. Secretary of state has told european allies the Iran Nuclear Accord hasnt stopped the country from destabilizing the middle east. Comments cames after President Trump said he had made his decision, but wouldnt reveal what it was. Puerto rico has been offered help from President Trump after it was battered by a second major storm. Maria made landfall yesterday with winds reaching 155 miles per hour, causing potentially billions of dollars of damage. The entire island was left without power. A mexico, the death toll from 7. 1 magnitude earthquake has risen to at least 233. Rescue and Recovery Efforts continue. Many offices have remained shut. Macron says europe needs to change to offer more opportunities to the middle classes. Speaking at the Bloomberg Global Business Forum in new york, the french president said the continent needs more vision and less bureaucracy. This new europe has to provide a place for our middle classes. That is our main weakness. Way to progress when youre middle classes dont have any perspective in this environment. Sebastian global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im Sebastian Salek and this is bloomberg. Nejra thanks so much. We just broke that headline from norges bank, keeping its key rate unchanged at 0. 5 . Lets look at the norwegian krone, strengthening against the 0. 5 against the euro, hitting its strongest level in more than a week. Also strengthening against the dollar. Janet yellen has admitted that the fall in inflation this year is a mystery, but the central bank has signaled it is still on course to raise Interest Rates again in 2017 and sees three more rate hikes next year. What the committee decided at this meeting, to maintain its target for the federal funds rate, we continue to expect that the ongoing strength of the economy will warrant gradual increases in that rate to sustain a healthy labor market and stabilize inflation around our 2 longer run objective. Nejra the hawkish forecast caught investors by surprise and sent the dollar and bond yields higher. What was more expected was the feds announcement that will start to reduce its 4. 5 trillion Balance Sheet. Lets bring in a fund manager at Jupiter Asset management, and chief economist at indo suez wealth management. Great to have you both on set. Lets start with the dot plot. Dots on the bloomberg. If i click on this previous button, there we go, you can see it compared to what it was like previously. Marie, saying that markets were caught by surprise, that is debatable. It wasnt a huge reaction in the dollar or treasuries. We saw curves flattening. Perhaps the markets dont think we are going to get as many rate hikes as the fed says. Why are the markets not buying the dot plot . Marie it is a good question. The consensus produced by your firm has shown a large consensus amongst economists for this view, and for the third rate hike this year. That consensus has not been reflected in market pricing. The probability of a rate hike based on the pricing of the federal funds futures has been very slow to realize that this third rate hike might be coming. As an economist, i have been mystified why the rest of the markets didnt see that this is actually the game plan. Im one of many economists who is expecting an announcement like the one that ms. Yellen made, and this third rate hike was part of our scenario. Nejra you believe in the dot plot for 2018 as well . Marie yes. It depends on extraneous factors and moves in the dollar and oil prices and all kinds of things. Scenariolooking at the that comes out of the numbers at the moment, broadly speaking to percent gdp growth, that warrants the hint theyve made quite strongly of three hikes next year. Nejra has i was mentioning, we did see curve flattening. The 230. The 530 and it is coming, leveling off a little bit after the flattening we saw after the decision and press conference. What does this mean for financials . Do you see it continuing . I think the problem is that theres very low inflation. The idea is that because of this mixed data, the dot plot is telling us something. Regardless of what is going on, used on unemployment, [indiscernible] the long end is having some problem in picking up. They think that because theres no inflation and because we are focused on Monetary Policy, the impact of raising rates is how ish impact raising rates now going to have on future growth. That is probably why weve got this flattening. What does it mean for financials . It is not the greatest scenario, stillthink the fed believe that inflation is going to pick up. I would expect this flattening to reverse and start to see some pickup. Nejra what about the dollar . At the moment, historically, you think the dollar has some scope to be picking up, is that right . Marie it always depends on what horizon you look over, but from early 2000 or so, the dollar is still only just in a strong dollar environment. Int puts this depreciation to focus. Depreciation has been about 7 yeartodate. Nejra it actually could fall further. Marie there is that possibility, for sure. We need to understand that the dollar is by no means a weak dollar fundamentally today. Against the euro, we have to ask what are the differentiating factors that would warrant for a sharply diverging Exchange Rate scenario. Those factors are hard to find. The economies are both growing at 2 at the moment. If the fed pursues its Interest Rate hikes, we will get a larger interestrate differential. The gdp differential is zero. People need to understand that europe is doing just as well on gdp as the u. S. Nejra thank you both, guy de blonay and Marie Owens Thomsen. Stay with us. Plenty coming up. Mario draghi keeps ecb watchers on their toes with three public appearances in as many days. Bigesa may prepares for her speech in florence, but will it unlock brexit talks . This is bloomberg. We dont talk about destroying countries. We talk about finding peaceful solutions. When it comes to that, we share with the United States and with others in the world the belief that the behavior in pyongyang is completely unacceptable, extremely dangerous, not only for the region, but for the entire world. Nejra that was that you Foreign Policy chief speaking at the Bloomberg Global Business Forum about north korea and President Trumps threats to totally destroy the nation. Lets get the Bloomberg Business flash. Sebastian commerce bancshares are higher amid fresh merger talks. A german magazine is reporting that the German Government would favor a deal with bnp paribas. Reuters says unicredit expressed interest. Some analysts see it as unlikely. An indian mining billionaire plans to spend as much as 2 billion on angloamerican shares, the equivalent of 9 of the company. He says he doesnt intend to launch a takeover. Hes already built a more than 10 stake in a british minor that has been benefiting from a recovery in commodities. The u. S. Securities and Exchange Commission says a hack may have allowed cyber criminals to make illegal profits. The regulator said it discover the breach in 2016, but only learned last month about possible illicit trading cases. Nejra thanks so much. Ecb watchers will be kept on their toes. Mario draghi has three public appearances scheduled, with the first one later today and executive Board Members will also speak at several events around europe. This comes ahead of next months crucial policy meeting, where the governing council is expected to make a decision on its qe program. Andl with us, guy de blonay Jupiter Asset management, and Marie Owens Thomsen, chief economist at indo suez wealth management. As all the speakers come out, are you expecting the markets to have a little more volatility . Guy yes. We had a relatively low volatility period, especially this summer, and now everyones back at their desks and were going to have decisions that are going to affect direction of travel. Marie, when it comes to how the ecb goes about reducing stimulus and deciding when to stop it altogether, how important is the discussion on how it goes about reinvestment . Marie i think we need to remind ourselves that they are still expansionary mode. Less, but still expansion. This is important in terms of global liquidity. The u. S. Is reducing liquidity, but Central Banks are still adding liquidity. Autumn, went, this would expect the ecb to announce this reduction. If it happens in steps of 20 billion or something more linear, does that matter to the markets . I think not. There is still expanding liquidity. Now the program is designed to end at the end of this year, and any prolongation is a prolongation. Im glad that marie brought it back to the fed. We didnt have time to talk about the Balance Sheet earlier. Do you think the fed should be using it as a policy tool, and you think u. S. Banks are going to pick up any of the slack . Guy the shrinkage is going to tighten financial conditions. Way, it is going to be acting as a Monetary Policy tool. Wantusly, the fed doesnt to ignite it. That is one thing to put aside. I suppose that at the end of the day, we have the beginning of the great unwind that is going to be put in place in october for the next few years. As marie said, we are still printing 150 billion a month, generally speaking. The real effects of the shrinkage starting only in u. S. This october, and tapering from the ecb going into next year, we have to look at two years out to start to feel the first signs of this tightening. Nejra thank you so much, guy de blonay and Marie Owens Thomsen. Up next, beat or a miss . How given could make gauging earnings harder next year. This is bloomberg. Nejra you are watching surveillance. Breaking news here on ryanair. The ceo saying they are dealing with Significant Management failure. Hes commenting in dublin, apologizing to shareholders for cancellations, and expects to react, date more than 95 of customers by the end of the week. You can see ryanair share price their over the week down more than 8 , and it is down 2. 6 intraday. Working out just how good or bad a companys earnings are is going to get tougher next year as europe redraws the Way Investors pay for analyst research. The overhaul of Financial Services rules will lead banks to reduce coverage as a price war forces them to cut costs. The practice of comparing conformance with consensus in the drive to make markets more transparent. It could lead to more dramatic swings in stock prices, especially for smaller companies. Still with us, guy de blonay and Marie Owens Thomsen. Marie, let me start with you. So much talk about the impact on research. Where do you see the biggest risks . Marie first we have to congratulate ourselves that this is actually happening. Financial Research Market was oligopoly. With a very captive audience. I think it is sanitary that this is being broken up and we will have more competition in this field. Arguably banks like ours, have been rather passive with respect to how it wants to see this research. That is really strange. Up until now, the suppliers of research would put out whatever they want to write about, and consumers would have to cross their fingers. I came across a number that perhaps need to be fact checked, but somebody claimed that only 1 of Investment Banking and Brokerage Research is actually read. We can take that as a measure of dysfunction in this market, if the new regulation makes this market more efficient. Nejra we are getting all these numbers as to how much the sell side might charge for research. We dont know how much the buy side is willing to pay. Guy, are you starting to assess which might come out best out of this, and how that might happen . Whether they absorb the cost or pass them on, whatever . The best model for Research Houses are going to change, but i think it is just the way we see research that is going to ultimately change. The price would be more conflated because of less Research Houses looking after a number of stocks, probably going to focus on the liquid ones. Perhaps the price would be more complicated. That could be also quite good. More upside, better opportunity. I think the way we access asearch, we might have subscriptionbased access, and once you are within the portal, youve got the possibility to pay for specific products. It would completely change for the research, and the buy side will have to be more selective. Nejra guy de blonay and Marie Owens Thomsen stay with us. I could talk about this topic all day, and i almost do. We have a new show, focused on financial regulation, every weekend from 8 00 p. M. On friday and through the weekend. Do try to catch it. You can also watch it on the bloomberg and bloomberg. Com. Up next, we talk brexit. This is bloomberg. Nejra you are watching bloomberg surveillance. Im nejra cehic. Lets get the bloomberg first word news. Sebastian the bank of japan kept its monetary stimulus unchanged, but a dovish board member opposed the decision. He argued there was little chance of reaching the inflation target within the projected timeframe and the effects of the Current Program werent strong enough. That was an unexpected dissension on a board chosen by Prime Minister shinzo abe. The u. S. Secretary of state told european allies the Iran Nuclear Accord hasnt stopped the country from having a destabilizing role in the region. Rex tillersons comments came after President Trump said he had made his decision, but wouldnt reveal what it was. Puerto rico has been offered help from President Trump after it was battered by a second major storm. Marie made landfall yesterday with winds reaching 155 miles per hour. The entire island is left without power as the storm flooded parts of downtown san juan. In mexico, the death toll from a 7. 1 magnitude earthquake has risen to at least 233. Rescue and Recovery Efforts are continuing in and around buildings reduced to rubble. Many offices remain shut. Macron said europe needs to change to offer more opportunities to the middle classes. Speaking in new york, the french president said the continent needs more vision and less bureaucracy. To bes new europe has efficient and provide a break for our middle classes. There is no way to progress when youre middle classes dont have any perspective in this environment. Sebastian global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im Sebastian Salek and this is bloomberg. Nejra just got some breaking news for you on Public Sector net borrowing in the u. K. A couple of the numbers, the u. K. August deficit narrowing from 6. 9 billion pounds a year earlier, so the u. K. August budget deficit at 5. 7 billion pounds. The estimate was for 7. 1 billion pounds. As we look at sterling, pretty much treading water in todays session. Pretty flat on cable. Now, still with us, guy de blonay and Marie Owens Thomsen, chief economist at indo suez wealth management. We are getting these numbers through as weve got a lot of brexit news this week. Theresa may due to be speaking a little later today with her cabinet. What she is weighing is whether a discuss the e. U. Demand for brexit bill of tens of billions of pounds. How much action in sterling are you expecting on what theresa may might say . The beste im not person on market timing, but i think sterling has room to depreciate further. The one indicator i like to use as a gauge is the current account. The u. K. Runs a current account deficit, structurally, i would argue. When we talk about Exchange Rates and the impact on the real economy, i think the markets over focus on the export side and forget the imports side. If a country is insensitive to prices, you will continue to import the same volume, so depreciation can weaken your trade position. Nejra guy, weve had quite a few calls from business, concerned about the pace these talks are taking. When youre looking at financials, what concerns you most about how this is going to unfold . You need to see or hear some unity between cabinet members, a clearer direction of travel on how to approach the brexit situation or decision, and that hopefully will get a bit more on the speech later this week. When it comes to Monetary Policy, we are starting to unfortunately realize that the last 10 years of the growth weve seen in the economy has been fueled by more borrowing, collapse of saving rates, and unfortunate quantitative easing increased on the back of brexit. Now it seems as inflation peaks around 3 , it seems the Monetary Policy is not having an effect anymore. About the impact on currency and where the economy is going. The normalization of Interest Rates has to happen. That is what we have to live with for the next few months. Nejra weve seen the gilt yield really spiking, the highest since february. 10year yield at 1. 3 . Before this, people were saying gilts are expensive. Are they more fairly placed now . Marie again, we have to ask ourselves how things are going to evolve for the u. K. Outside of its relationship with that you do we think that growth can continue to be reasonably healthy, and the country can do well and finance itself . If that is the case, theres no particular reason for yields to rise and no reason to worry about the ability to fund itself. We have a country that is structurally running a current account deficit and a budget deficit, so twin deficits. Before leaving the e. U. , you have to have a pretty skewed view to think this is going to end well. Nejra guy, looking at the correlation between sterling in the ftse 100, that negative correlation is back. When you are looking at u. K. Banks, how do you view them versus european banks . Guy obviously youve got the biggest question mark on impairment and the evolution, but also the fact that the ftse domestic companies, it seems that Foreign Investors are not willing to take a view and stay on the side, so valuations remain depressed until we have a better understanding of where the economy is going to be in five years time, depending on the relationship with the e. U. , that is obviously a different approach. Nejra thank you so much, guy de blonay at Jupiter Asset management, and Marie Owens Thomsen at indo suez wealth management. Great to have you on the program. Next, the moment of reckoning approaches for greece as it enters the final year of its current bailout. We will speak to the chief executive of the Athens Stock Exchange. This is bloomberg. Nejra you are watching bloomberg surveillance. Im nejra cehic. Lets get a check on the market. We are still digesting the fomc decision. The stoxx 600 up 0. 3 . European equities are bid. Eurodollar is higher. A bit of a weaker dollar against the euro. Flat against the pound. At 1. 3499. Ng generally a bit of a stronger dollar story. There im showing you the u. K. 10year yield. The 10year treasury yield is steady. Highest actually the for the 10year gilt yields since february. As greece enters the final year of its bailout, the country may be about to face a moment of reckoning. Markets remain wary over concerns the rescue program will drag on. There are worries about greeces ability to stand on its own once the program ends. The chief executive of the Athens Stock Exchange, socrates, is with us in the studio. Great to have you. So, with one year to go before greece is scheduled to exit its bailout program, we are seeing a bit of nervousness. Last week was the worst since june 2016. Do you expect that nervousness to continue . As a ending year of a bailout, i must say, from the other side, potential volatility is the lowest we have seen of the seven years. 15 first time it is below volatility. From our point of view, important here because weve seen an increase that is price driven. Nejra in terms of sectors, ive got a chart here im going to get up for you. If we look at performance, this chart, bad times for greek stocks, but even worse for the banks. Youre seeing this. This is normalized since 2013. We are seeing declines here. You are saying volatility is low, but if you look ahead, are there any sectors attracting more interest . Are the banks attracting more interest . Socrates the banks are volatile and they have the most liquidity, but i believe the most discussed sector is the real estate sector, where we see an interesting discussion. Sector andy consumption in goods sector are important. Always, the banks are very accommodative. Nejra im wondering what you think the impact of the german election might be, of course the impact on the imf participation in the bailout, how closely you watch that, and how you think it might translate into the stock market. Socrates i can say that the stock market is suffering from turmoil in increased volatility. Believe this will not show harmful as it was in the previous years. It is important for the growth of the Greek Economy to have the improve their bonds, to issue bonds, and the most that now is the main focus is how the growth can be financed in the Greek Economy. Stability is a prerequisite. According to our experience during the previous seven years. List discussion after the german election, i hope. Nejra im sure you are well aware of the approach of myth into. Interestingly, the Budapest Exchange is intending to actually pay brokerages to follow its smallcap stocks. The idea is to mitigate the situation where there might be less liquidity. Would you consider anything similar . Socrates first of all, you are very right, but for the future of europe, the most crucial discussion is how we can set up an environment where they can finance the expansion of growth. One of the issues that we have opened in recent years is how we can show that we are organizing in london and new york in september. I believe we have achieved this issue. Under the method to that we are mentioning, the issue is who is going to pay the analysts. Initiative at the Budapest Exchange that is interesting. The bigger issue is how the industry not only in greece, but all over, would transform the pricing in this area, and how thisrs will segregate commodity. Im not sure that this is clear yet. Concerned you at all there might be an impact on liquidity on the Athens Stock Exchange . The large cap participants are liquid and having the activity that is needed. Mentioned, there is this issue for liquidity, but we have a history in the greek followingre they are in terms of liquidity and activity. By the time that a sustainable environment is set up. Nejra thank you so much, socrates, chief executive of the Athens Stock Exchange. Cookxt, apple ceo tim tells the Bloomberg Global Business Forum why he believes the proposed end to the program to protect socalled dreamers is the Biggest Issue of our time. This is bloomberg. Nejra you are watching bloomberg surveillance. Im nejra cehic. Breaking news about china. S p cutting china to a plus from minus with a stable outlook. The yuan not moving much on that at the moment. We are generally seeing weaker yuan. Lets get the Bloomberg Business flash. Taylor commerzbank shares are higher on it fresh merger talks. A german business magazine reporting the government would favor a deal with b. N. P. Paribas. Reuters says unicredit has expressed an interest. Some analysts see that as an likely. Google has agreed to buy part of hpcs engineering and design team. The off of that business is taking on some 2000 employees with experience working on pixel devices. The deal comes as a nonexclusive agreement with htc intellectual property. Defended hiso has Sustainable Development goals. Call was speaking to Francine Lacqua at the Global Business forum. What you have seen is unilever in the last nine years with a 290 shareholder return. We have years of 8 compound dividend growth. Anyone who would have invested one pound in 1986 now has 80 pounds. Our longterm compounded growth story is working as well. Taylor that is your Bloomberg Business flash. Nejra thanks so much. Apple shares fell the most in more than a month yesterday over claims that demand for the iphone 8 is substantially lower. Said that securities preorders in the u. S. Were below those for the previous two versions and demand in china is even lower. Apple ceo tim cook spoke yesterday. Megan murphy asked him about immigration and the Trump Administrations plans to end the deferred action for childhood arrivals program. We are pushing extremely hard on this. Think, the Biggest Issue of our time currently among all these big issues. This goes to the values of being american. This is, are we human . A track ofng in morality . These people, if you havent met apple, we have many that came to the u. S. When they were two years old. They didnt exactly make a decision to come. They came here, they only know our country, this is their home, they love america deeply. When you talk to them, i wish everyone in america loved america this much. They have jobs. They pay taxes. They are pillars of their communities. They are incredible people. To me, it would be like someone coming to mike and saying, i just found out you arent really a citizen. You need to leave. This is unacceptable. This is not who we are as a country. Thatpersonally shocked theres even a discussion of this. This is one of those things where it is so clear, and it is not a political thing, or at least i dont see it like that. This is about basic Human Dignity and respect. It is that simple and straightforward. On the broader subject of immigration, if i were a country leader right now, my goal would be to monopolize the worlds talent. I would want every smart person coming to my country. Because smart people create jobs , and jobs is the ultimate thing that creates a great environment in a country, a land of opportunity, he land where everybody can do well if you work hard. These are the things that drive people. It gives people a sense of purpose. Aggressivee a very plan, not just to let a few people in, i would be recruiting. Think i went to ellis island on sunday, because i myself what it was like to come to the country. If youve ever sat in the great hall, and one of the benches that were there in the early 1900s, you can feel the people in that room. You can feel both the anxiety and the hope. That is where we all started from. Maybe not ellis island. Maybe it was virginia like my family, but we all started somewhere. We are all descendents of immigrants in the United States. Nejra apple ceo tim cook speaking at the bloomberg level Business Forum. Bloomberg surveillance continues in the next hour. Francine lacqua and tom keene in new york. This is bloomberg. Francine s p cuts chinas Credit Rating to a. Janet yellen brushes off the mystery of low inflation signaled for rate hikes by the end of 2018. The hawkish tilt. He wont trump says reveal his decision over the Iranian Nuclear deal. Good morning, everyone. This is bloomberg surveillance. Our last day together this week, tom and francine in new york. It has been quite an eventful week. We have the china news and we are looking at the u. N. And President Trump. Tom it shows the interdependencies of what is going on right now. I thought the jumbles of the press conference was fascinating yesterday which finally became clear with michael mckees final question. Francine we will get more on markets. Lets get straight to the bloomberg first word news. Taylor in puerto rico, Hurricane Maria has made a bad situation worse. The storm knocked out power to the whole island. The threatens to continue population i said this. Puerto ricos aging electrical infrastructure had already been battered by hurricane irma. In mexico city, there is a race against time to rescue a young girl in the rubble of a school. 230. Eath toll is now dozens of buildings collapsed and dozens more are in danger of falling. Back in the u. S. , the u. S. Secretary of state is urging allies to make changes in the Iranian Nuclear agreement. He spoke hours after President Trump said he had made a decision whether to walk away from the agreement, but would not say what it was. Hasapan, the central bank decided to keep its monetary Stimulus Program unchanged. The japanese economy is growing faster than expected and the Unemployment Rate is at the lowest level in two years. The s p has cut its china Credit Rating. This comes amidst the ongoing deleveraging strategy for the worlds secondlargest economy. Global news 24 hours per day powered by more than 2700 journalists, this is bloomberg. Francine thanks so much. Tom let me go through the data check. Reaction to the fad and then it got really, really new wants to as people try to glean where chair yellen moves ahead into the final month of her tenure. Equities closing at record highs. Oil not part of the story. The euro weakened dramatically in the 2 00 hour yesterday. The 0. 2 s red 0. 2 spread was almost nudgy. The vix hit 9. 36. We are going back in that direction. That is a remarkable statistic of quiet essence within the markets. There is the shock and awe. When Michael Bloomberg said he did not understand where equity markets were. It was good to see mr. Bloomberg voice what so much of the opinion we get from our viewers and listeners. Higher yields against a relatively stable yield curve. There is against the global reality, which is gold plunging and staying there. Francine i just really like the word nudgy. Tom with great credit, the press conference got more coherent later and mike mckee ended with a very strong question on asymmetric tendencies. Francine im looking at my data point. The dollar Holding Gains against most major peers. Tom you got yen in there. Good. Francine high Interest Rates and Balance Sheet reduction for the fed. One thing i want to mention was yen, it hit a twomonth low. Im glad you looked at the two year yield edging further toward 2. 3 . Almost all Government Bond yields in europe followed it higher. On to china, arabic breaking news of the morning. Credit ratingt for china. Lets get straight to beijing. What is the underlying reason for this . Reacting to are something which movies were reacting to death moodys were were reacting to earlier this year and that is the sustained unsustainable growth in chinas credit. Which has wrong all kinds of alarm bells and raised fears about some kind of hard landing if the government cannot get that leverage problem under control. Francine looking at headlines for the s p. They believe chinas Monetary Policy is largely credible and effective. What is the implication of a credit downgrade . Does it have an impact on currency . I think, in a sense, the impact is pretty limited for china. China is a country with a huge store of domestic savings and a still controlled capital account. , for example, greece in the european sovereign debt crisis, more Asian Countries during the Asian Financial crisis in the 1990s, china does not rely on foreign funding. That means there are not so many investors paying attention to it s p says. At the same time, this is clearly negative mood music for china. Downgrade, weys saw china moving pretty aggressively. Tom how will they respond to this . Music. E phrase mood it really captures the serial ethereal energy. This happened after markets in china closed. They will have the advantage of taking stock after a day of trading in europe and the United States. They will be able to see whether this is playing out as a big shock or something that markets are playing out in their stride. This is significant, we will see china moving to put a floor under what happened here in the asian trading day on friday. They would not want to see any volatility at of that critical Party Congress in october. Tom thank you for the analysis of china on short notice. Our Bloomberg Intelligence chief asia economist. Ramificationse when they open for trading in china tomorrow. Ron temple is at lazard asset management. Heads are spinning off what we saw yesterday. To reset wonderful day in a hugely tumultuous september. I was thinking about you guys tong on set and the pressure respond to yesterday. I saw the fed continuing on track. In terms of takeaways, they remain somewhat more hawkish than i believe they should be in the next 12 months. They are easing down the longerterm fed funds rate. I see an economy gaining momentum. What i want to see is continuing wage gains for the middle class that power the economy for the next few years. I know there is a view that the fed should raise rates so that they have ammunition to lower rates in the next recession. I completely disagree. Tom every third or fourth question, she would get into this, to beus arethat, to be sure they making it up as they go . Arent we all making it up as we go . [laughter] tom yes, but i found it fascinating, particularly compared to Governor Carney and mario draghi. She would answer the question within a series of what ifs, including mike mckees question at the end. I think she is trying to do as little as possible. She introduced a tightening of Monetary Policy and then she was trying to do as little as possible. Trying to keep them is unchanged as they could be. Beyond that, then they make the policy changes. Francine i dont know if this is theology, it feels bigger than we ever have had to when we look at the fed, is flechette at 2 or are we ok with inflation at 1. 6 . Bricklin everybody wants higher inflation. It is a question of when it is going to come. Most economists think inflation is a lagging indicator. It is a question whether those idiosyncratic factors that are Holding Back Inflation right now are going to stay. Tom two press conferences in a row. Cell phone bills. Francine what models do you look at . If the phillips curve is dead . Ron part of where i want to give janet yellen a view of certainty would be spurious at this point. No economy has a view of certainty with what is going on. We see Unemployment Rates, we see underemployment rates. We have seen the relationship between wage growth and employment and it seems to have changed. In the u. S. And japan and germany. For a fed chair to say we know where things are going would be wrong. The downside of transparency is you leave with a muddled message. We look at this and say we still believe over the next 1224 months than wage growth will trend higher as the market gets higher, but honestly, that is a belief. Tom the muddled message of dow. We are going to continue this discussion. I know that francine is really looking to florence, italy and an important speech by the minister may. Coming up in our next hour on inflation, unemployment, asset will jointephen roach us of yale university. This is bloomberg. Taylor this is bloomberg surveillance. There is a report that italys biggest bank is interested in buying germanys commerce bank. Germany italy has expressed interest. No one involved is talking on the record. Google is trying to boost its growing hardware business. It has agreed to buy part of htcs engineering and design team for 1. 1 billion. By owning a manufacturer, google gains tighter production over its pixel smartphone and other devices. Htc is based in taiwan. At the Bloomberg Global Business Forum, we have been speaking with the president of ghana. He tells francine that his country must supply control more of the supply chain. Towe have to find a way control the raw material to the finished product. That is where the value is. So far, either out of negligence difficulty, or the of mobilizing the finance, we have not been able to do it. Taylor that is your Bloomberg Business flash. Weeki put out a tweet this from the legendary stanley crawl and he always went to cocoa first. Lets put up a cocoa chart. We are back to 1970 pricing. Here is the huge cocoa boom from the 1970s. Look at this plunge off a cliff. Francine this is what we were trying to address. Ghana is responsible for 60 of the worlds cocoa production and they earned the equivalent of 5. 5 of the value chain. He is thinking, im producing 60 , i get 5. 5 of the chocolate market, im going to team up with ivory coast to try to figure things out. Tom coco cartel. Vienna. Oing to go to francine lets turn to geopolitics. The u. S. Secretary of state has confirmed that the u. S. Plans to renegotiate the Iran Nuclear Deal despite allies saying they think it is working. We were touching on it yesterday. The confusion is if you are an ally, you have your ally the u. S. Saying i know what i want to do, but im not going to tell you yet, when are we going to find out . It is going to be a very interesting few weeks. There is in october 15 deadline where donald trump has to report iran isess whether abiding by the nuclear accord. It will be interesting what kind he makes to congress. The european allies and russia all think the deal is working. It will be an interesting argument he has to make. Francine when you hear from the heads of state and the allies, they say, if you alienate iran or mess with iran, there is a risk that they could become north korea in 10 years. That is definitely a concern. The iran accord, which was worked out with great difficulty has, by most measures, delayed their nuclear program. If the United States basically blows up that deal, a lot of people think they are just going to accelerate that program. Tom lets move on to the drama of the moment. The New York Times and senator mccain. This is really emotional with senator mccains grievous illness. A nice essay. Where are we on grahamcassidy . To my mind, it is an unbelievably risky tom a leader in instabilities. The leadership of the gop has been undermined by the inability to repeal and replace obamacare. If they move up to a vote next , to and failed to overturn pass that bill, it is really going to undermine their ability to govern. Tom there is no other news this morning but mr. Mueller. Is that all the president will focus on . He has been very disciplined. As opposed to a couple of months ago when these reports come out. Tom too early to tweet this morning. [laughter] yet dawn is breaking. That is his chief of staffs discipline. He has told them, do not talk about the russian inquiry because it could have implications for the investigation itself, but it is a very interesting week coming out of the white house. Reports yorks Times White House sources. It is unclear why anyone in the white house would leak this information. To what end . It really does not make a lot of sense. Robert mueller is obviously moving to the actions of the president in terms of the investigation and that threatens his presidency. It does. Francine that is something we will be following closely. Coming up later this hour, we speak with wolfgang issuing or about the iran deal and about the threat of north korea. That interview, 5 30 a. M. In new york, 10 30 a. M. In london. This is bloomberg. Francine this is bloomberg surveillance. Francine and tom from new york this week. The bank of japan will keep its stimulus package unchanged. Ron temple is from lazard asset management. About the know divergence between boj and fed . Should it weaken the yen . Ron overtime. Thatad thing from japan is it seems that the boj is the only game in town when it comes to what is going on in japan. Abenomics has three arrows. We have one. Bank of japan has a tough task ahead. Mentioned, theyre kind of out of arrows. Their last hope is still barely alive. They have to convince people it is still working while other folks around the world are giving up on the program. When does the fed complicate matters significantly for boj . Ron if the fed stays on track and raises rates one more time this year, three more times next year, it makes life easier for the boj. It is actually a benefit. We will be back with our guests. For more bloomberg stories, be sure to pick up the latest issue of Bloomberg Businessweek. Right now, worldwide, we featured the difficulties of facebook and one mark zuckerberg. You are looking, of course, at the it is actually beautiful. Tom it is mark zuckerberg. Francine this is your market check now. Some ofs to do with fed the 10 year yield. Dollar holding on to gains in the wake of the fed. European bonds following treasuries lower. Investors are trying to figure out what to do with the fed. This is bloomberg. Tom bloomberg surveillance in new york. Francine lacqua and tom keene. Normal is aal and huge news flow this morning, including the rate reduction out of china within the last hour. Right now, lets get an update on the hurricane. The strongest hurricane to hit puerto rico in eight decades is likely to make the financial crisis there worse. Hurricane maria knocked out power across the u. S. Commonwealth. Puerto rico is trying to restructure its massive debt and the government has warned it is messing out of running out of money. Special Counsel Robert Mueller has asked the white house for documents related to President Trumps decisions as president. Is investigating russian meddling into the election. Isator Lindsey Graham pushing fellow republicans to support his Obamacare Repeal bill even if it is imperfect. According to the associated press, he told sean hannity on the phone that everybody will be held accountable. Republican leaders have committed to holding a vote by the september 30 deadline. British Prime Minister theresa may may try to jumpstart stalled brexit negotiations. Credit cut chinas rating. They downgraded the country to the ongoing deleveraging strategy for the worlds secondlargest economy. In japan, the central bank has decided to keep its monetary unchanged. Ogram the bank of japan still remains far from its 2 inflation target, but the japanese economy is growing faster than expected and the Unemployment Rate is at its lowest level in two years. Day,l news 24 hours per im taylor riggs. This is bloomberg. Francine thank you so much, taylor. North koreas foreign minister has ridiculed President Trumps threat to annihilate the country. He told the United Nations General Assembly that the threat is akin to the sound of a dog barking. Aftermments came a day President Trump threatened to wipe out north korea. Chairman, thank you for joining us. Let me kick off with iran. If donald trump and the deal with iran, what does europe do . , lets hope this is only hot air and it is not yet decided. That is what i hope. If the United States walks away from the iran deal, this will be in major setback in various dimensions. Setback for major the role and the credibility of the United States in international politics. Second, it will be a major setback for our effort to keep iran under wraps for the next decade or so. If the u. S. Walks away, iran may walk away and we may have the reemergence of nuclear activities. Third, and most importantly, if the u. S. Walks away from the iran deal, how are we ever going thatplain to north korea it would be better to negotiate with the International Community , including with the United States, than to build more missiles and Nuclear Weapons . From the u. S. Walking away to north korea will be just keep doing what you are doing. Thats terrible. Francine who can actually diffuse the situation . Is there a specific role europe can play in a mediating phase . Well, i think the message needs to be, it is not a happy message, and as a confirmed transatlantic person, im really ,orry to say this, i think we the europeans, we need to say to the United States, if you think that you are going to reinstate sanctions against iran, you will have to do it without us. You will be really america alone. That will create all sorts of business and economic and political tensions. Is that what President Trump really needs at this point . I wonder. Tom ambassador, it is wonderful to have you with us today. I want to go back to your International Relations study of years and years ago. I would assume right now is not in the textbooks. What would you like to see in leadership capabilities from secretary tillerson . All, i think that isaking tough to dictators not, often, by itself, always wrong. In that sense, a week ago, if you had asked me, i would have said donald trump and the Trump Administration has scored a success in getting a unanimous decision at the United Nations on north korea in getting the sanctions enhanced. Au know, im not against tough position. Tom right. But what my textbook would suggest is that if you want to put pressure on iran or on north korea or on russia, for that matter, youve got to show them the door through which they can walk out of the room or come into your conference room. Alonere alone, threats are not going to work unless you show them there is going to be an incentive if they follow your proposal. And the incentive tom you mentioned you are a confirmed transatlantic person. This President Trump give up risk giving up all the gains from the Atlantic Charter . Have a, i think that we historic phenomenon of change year. Years, last 60 or more my country has celebrated the fact that after world war ii, we have finally joined the west. Who exactly, what exactly is the west . The west for us in germany has been symbolized by the president of the United States. My generation admire john f. Kennedy, the Younger Generation admired barack obama. 200,000 germans came when he spoke and was only a candidate at the time. So, what i think is now happening is that we are losing that symbol of the west, which used to be undisputedly the president of the United States. Childrenexplain to my that they should think of President Trump as the leader of the western the person that represents the values of dignity, of human freedoms that the west stands for. That is a very serious problem. Tom a remarkable statement, ambassador. If Angela Merkel is reaffirmed that the chancellor of the new germany, do you suggest that she should project internationally, as we saw from Conrad Adenauer and another time and place, is merkel the one that has to push the west dialogue forward . Let me be very frank about this. Orre is no way that germany germany and france or germany, france, and the u. K. Could replace the leadership role of the United States. We need the United States. Need the u. S. President presence in europe. We need american involvement in the middle east, in the areas of tension surrounding europe. So even if we have serious, fundamental disagreements, there is no alternative to close cooperation. I think we will simply need to do everything we can to work as closely as possible with the. S. Working with the u. S. , of course, means not only working with the white house there are 50 states, there are governors, there are senators, there are congressmen and many of them know that some of the jobs in their districts, in toir states are owed investments from european companies. There are many, many areas through which we can work going is even if the going to be a little rougher than it used to be between the white house and european chancellors. Symbols away from the you were talking about, do you believe amongst all the noise, that the Trump Administration is actually fully committed to transatlantic defense . Or you believe that the alliance has lost credibility . Is it actually lost power . I have always felt that, of course, words are important, but facts and action is even more important. If you look at the facts and the there can be no doubt that the United States remains committed to transatlantic solidarity, to nato, to the famous article five. Lets not forget the current reinforcement, military reinforcement, that has taken place in the baltic states, etc. Have been led not by france or germany or the u. K. , but by the United States. In my own mind, there is no doubt that the United States is a firm leader and partner in the north atlantic alliance. But, of course, some of the tweets and some of the talk that we heard during the campaign and earlier this year was not really very helpful. Tom ambassador, thank you so much, we look forward to meeting you in our london studios. With us this morning from berlin. We are going to continue with your morning brief on bloomberg television. Bloomberg daybreak and Bloomberg Radio coast to coast. Digital worldwide. This is bloomberg. Taylor this is bloomberg surveillance. Lets get the Bloomberg Business flash. We have been talking with africas richest man at the bloomberg Business Forum. He spoke with Francine Lacqua. Im looking at acquisition. Pretoria cement company in south africa. We would be able to agree with them. Consolidation and again think it be the right thing for us to go in and consolidate. Taylor tim cook also spoke with us at the Global Business forum, defending the daca program. If i were a country leader right now, my goal would be to monopolize the worlds talent. I would want every smart person coming to my country because smart people create jobs. Taylor the Alibaba Group chairman jack ma who wooed President Trump earlier this year says people should stop looking to manufacturing to drive economic growth. Manufacturing will never bring a lot of jobs. In the last 200 years, manufacturing brings jobs. Today, because Artificial Intelligence and the robots, manufacturing is no longer the main engine of creating jobs. The Service Industry is going to be the main driver for job creation. Talking about manufacturing, we should not talk about made in china, made in america, it is going to be made in internet. Taylor that is your Bloomberg Business flash. Tom we need one chart, one chart to sum up that day yesterday fed day yesterday. Rate, thee fed funds rate that chair yellen talks about, the thing you move around, adjusted for inflation. It has not been normal since 2008. We just cant get it to the normal fed funds rate. This is an on fixed income market. As ive said repeatedly, the keel on the sailboat is broken. Do you see any moment where we get stability back in the fixed income market . Bricklin right now, what we are learning, is that every time the fed raises rates, that inflation does not seem to go back up. Tom what a shock. [laughter] bricklin it tells you that rates cant go that much further, so expectations dropback down and we see that kind of snapback. Tom the snap back. Ron, you were brilliant on this. She cant give certitude and her discussions. With that said, what should the fed speeches look like as we stagger to the next meeting . Ron the fed speeches should continue reiterating that the target is 2 . By the way, overshooting 2 is perfectly fine. Tom that is what Governor Carney wants to do and he cannot do it because of the negative wage growth of the united kingdom. Francine let me bring you over to my chart. Hilary clark, thank you, this is an awesome chart. , andu look at the quirks basically shows you that the term premium seems to be acting as if hikes were nearing an end. What is going on in terms of correlations in the markets . Ron i think the market does not believe the fed can do what they say they are going to do. Effectively, the long end of the curve is pricing in rates that just are not going up. Tom this is critical, francine. Macro economic advisers, they are at 1. 7 this quarter. The atlanta gdp numbers coming down near 2 . Francine can you expect a huge correction very fast or is it going to gradually get readjusted . Ron i dont expect anything that i say shortterm or is it more of a gradual adjustment. The markets have a pendulum swing. We are in part of the pendulum swing where people say it is not as strong. Eight or nine months ago, we were worried about reflation. I think we will see the markets get more optimistic about where we are going in terms of growth. Tom now time for some surveillance research. How is your cell phone bill . [laughter] tom is it tmobile . The guy with the magenta tshirt. It is his fault cell phone bills, with the move by at t and verizon, offering these unlimited data packages. Tom it is their fault [laughter] bricklin they give us more for the same price and that meant prices went down. These are the idiosyncratic factors that are going to go away. We can only offer unlimited packages once, there is no double unlimited. In thee the only person world that never has a phone bill that goes down. Tom that would be true. I wonder if they have the tmobile package. This has been great. Michael mckee was lights out yesterday. Francine he was. If you want to ask questions to ron and bricklin, this is what you do, you go to tv. You steal some charts. Guests questions through tom and i. This is bloomberg. Canadaeu trade pact kicks off today after a series of delays. Union president says it encapsulates what europe once its trade policy to be. The canadian Prime Minister also praised the deal. We need to now make that next of talking about a progressive trade agenda. It means actually putting forth progressive trade deals. Francine when you look at canadian dollar, canada has quirks. Bricklin we have seen output boosted for canada. How much other stuff is going on in canada that is more sustainable . They are very reliant on the output gap. They are starting to raise rates right now. Tom that is a great list litmus paper. The two trudeaus. Of pierre sr. s term. The blue, we come back up, that is where we are right now. This is a unique productivity model in canada. Is the urgency there to make canada a new canada . Bricklin the urgency has been there for a while. I think just about the last maybe seven years or so from the bank of canada, they focused on competitiveness, where their economy is, how to boost that competitiveness, productivity, and output. It is a really tough challenge to do. You have to tackle it on the macro prudential side and set the appropriate rates. It is a longterm game, but they are focused on a much more than other economies. Tom ron, it is about the dutch disease. The geography of the moment. Canada is so close to the u. S. Is that still the relationship that matters or can it be a more independent canada . Ron it is hard to imagine canada being completely independent given the trade relationships you mentioned. To your point, there have been some changes that are positive and i think that is great. Tom this will be very interesting. Thank you so much. We will continue. Shout out to tim oneil at bank of montreal the did a lot of the original research 20 years ago on that border between canada and the United States. You get lucky. We have Stephen Roach on the fed. Yes, we will talk to him about asset bubbles, the fears of the equity markets. We have Stephen Roach on a day when s p reduced the Credit Rating on his china. He will begin the next hour on china. Let me give you some data. What an interesting market off the fed meeting. The basic idea was gold under 1300 and futures a little bit underweight. This is the most unloved bull market i have ever seen in my life. It is remarkable. Day after day, dow record highs. No one cares. This is bloomberg. Tom chair yellens speech, yields higher and cold plunges, day after day, bull market continues. Maybe Prime Minister may will have a room for of you as she viewres a room with a as she prepares for special counsel mueller makes a special request, how will all the president s men respond . This is bloomberg surveillance. I am tom keene with Francine Lacqua. Chinantrudes and that is but not shocked that reduce the rating after moodys. Francine it is not a shock but quite a big deal. It is the first time they have done it since 1991. They also lowered the rating on a three forward banks that primarily operate in china. You have to look at the implications. Tom do not show china when i am trying to straighten out my bow tie. There is serious news and hurricane leads the story. Puerto rico without lights. Oh,or yes, in puerto rico Hurricane Maria made a bad situation worse. It and knocked out power to the whole island and potentially cost billions in damages. It cap it helped push the island in two exodus. In mexico city, a race against time to rescue a younger girl trapped in a school rubble. 230. Eath toll is now dozens of buildings collapsed and dozens are in danger of falling. U. S. Secretary of state Rex Tillerson is urging european counterparts to make changes in the Iran Nuclear Deal. He spoke hours after President Trump said he has made a decision whether to walk away from the agreement but would not say what it was. In japan, the central bank decided to keep the monetary stimulus plan unchanged. It still remains far from the 2 inflation target but the japanese economy is growing faster than expected and the Unemployment Rate is at the lowest in two years. 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. Francine . Check. Data a little pause in equities. The curve is remarkably stable after the set a meeting but he yields after the fed meeting but yields are higher. The vix is remarkable 9. 0, 9. 3 is the low of july and we are not quite back there yet. We will speak to Stephen Roach in our next section on the bubbles in the market. Gold under 13 an ounce. ,rancine the dollar advanced wti following equities. Up a little. European equities are being led a touch by banks and also bonded treasuries lower. This is after the boj cap to monetary stimulus unchanged and the yen touched an 18 month low. On to china and the s p cut the Credit Rating to a from aa. This is the first cut since 1984. The Rating Agency sites sit sites the risks. Cites risks. Joining us now, Stephen Roach, yeley University Senior fellow and former chairman of Morgan Stanley china. Really, kind of a china expert altogether. Professor, thank you for joining us. Is it a big deal . The Rating Agency followed movies. We know there is a debt problem. We do. I cannot believe you even report what the rating agencies do anymore. These are notoriously lacking indicators and they are the last to know anything. If there a fire in of the roman everybody left and they say i think the smoke detectors are going and china has a debt problem and china has talked directly and explicitly about its debt problem for a number of years. You can be critical of china for not having moved aggressively to orce its stay on enterprises. They set up a Committee Government wide, state council wide managed by president xi jinping. They have hiked their domestic Interest Rates to address this. They have made some personnel changes in the regulatory area and they are likely to appoint a new central banker who is very focused on Financial Stability. This is not new news. This is old news. And in the s p, i think, is the last of figure it out. Francine because the way the markets are trading, i do not know if it is true, there could be market reaction. And algorithm selloff or Something Like that . Stephen roach there is more to try to decipher this move than to figure out the latest on the icythmic algorithm response. In debt ise on china china has the largest reservoir of savings in the world. It owes its debt to itself. When we have a debt crisis like we did in asia and the late 1980s, the less time the s p mistakenly lowered its debt rating for china when china was actually saving asia from an ever deepening crisis, there was a lot of external credit that fled those markets. This is not the case in china with 47 of its gdp held in the form of Overall National savings. You associate china with and the idea of a dysfunction and codependency between china and america and your book highlights of this. Can we have a normal dysfunction and a normal codependency with china when we have this administration . Stephen roach fair point, tom. It does not seem anything to normal about our relationship with other nations in a this administration. The point to stress, codependent relationship is when one Party Changes the terms of the engagement among the other reacts. Engagement, the other reacts. As we go ahead and file a complaint with the wto on china , theypose tariffs on them will respond by imposing tariffs on us and pulling back at treasuries. That will be of significant consequence to the United States. Tom i thought of you will we heard the language at the u. N. How do you suggest that the chinese leadership will respond to the rhetoric that the president said on north korea at the u. N. . That he would destroy north korea . Stephen roach i dont think they would respond directly to it at all. It raises an important point, tom, and that is china certainly does have enormous leverage with north korea as their Major Trading partner, accounting for, ive seen variety of estimates, 75 to 90 of fuel and food. I think the World Community should certainly put pressure on a north koreas main external provider of fuel and food and that will certainly include china. Francine how does the trump need toration, do they get closer to china to convince them to put pressure on north korea . Could beoach it through economic ties, latenight phone calls or through explicit action were a Broad Coalition of nations come to china and say we want you to change the way in which we are providing support to this rogue regime. First bank thank you so much. Stephen roach of yeley university stays with us. Francine thank you so much. We will be asking black rocks about deals. That interview 5 00 a. M. And this is bloomberg. Taylor this is bloomberg surveillance. There is a report that italys biggest bank credit is interested in buying germanys commerzbank. They have expressed interest to the German Government which is the biggest shareholder. Nobody is talking on the record. Our hosts ceo tim cook spoke to us at the Bloomberg Global Business Forum and defend the daca program. If i were a country leader right now, my goal would be to monopolize the worlds talents. Person want every smart coming to my country because smart people created jobs. Taylor at the Bloomberg Global Business Forum, we have been speaking with the president of ghana, one of the biggest Cocoa Producers and he tells Francine Lacqua the country must control more aspects of the supply chain to make money. To getave to find a way the raw material to the finished product. , there is negligence on our part or the difficulties in mobilizing the technology and we have not been able to do it. Taylor that is your Bloomberg Business flash. Tom thank you. What you have been waiting for, Stephen Roach. We need to hear from chair yellen. What an Interesting Press conference. Chair yellen nothing is set in stone that you see in the summary of projections, theres a great deal of uncertainty around them. Not only is their disagreement but uncertainty. Fomc participants have been revising their views over time as they will continue to do so. Tom chair yellen, what a joy to have Stephen Roach with us, now at yeley university. Now at yeley university. I made this chart for you. It goes eva longer than Stephen Roachs career. It is the slope of the dow. Even longer than Stephen Roachs career. It gets deeper again for slope matters. It signals your leadership of the debate over asset bubbles. Isnt that what you heard yesterday in the press conference . Was it rationalization including the market ever higher . To myn roach thanks breath caught a lot of things but never a shingle. Tom, i have been called a lot of things but never a shingle. Onceade after the crisis, inflation target, always an inflation target or. Central banks are having a really hard time normalizing Balance Sheet when inflation is low and they should not to be an inflation dependent exercise. It should be driven purely by Financial Stability and by lines like you show me on this chart. If you look, i looked at this last night and preparation and i know that tough questions tom you prepared for hours. Stephen roach i knew francine was here. [laughter] funny, tom. I looked at central bank Balance Sheets for what the bsi call all advanced economies. The numbers are very clear. Period, 2008 to 2017 the balance shes expanded by sheets expanded by about 3 trillion and nominal gdp for the same economy expanded like 2. 5 trillion. There is excess liquidity, go over 5 trillion which is driving lines in the chart. Take it out. In marvin king was stunning his criticism of what we are doing and about the sharpest comments was the language all of our viewers and listeners witnessed. It seemed like a verbal struggle of Forward Guidance to rationalize where we are right now. What do you want a new chairman to rationalize . The new chairman to do to change the dialogue that you have been so critical of . Stephen roach it is pretty weple the crisis is over, still have policy levers largely at emergency crisis determined settings. Let us return on a methodical tois, the policy levers normal so we have a the ability to control our economies the next time we have a problem. Very simple, tom. Tom the guidance is telling me he has no savings account. The guy driving me in the car tells me he is getting no money. The public is living with what steve is talking about. Stephen roach and he is flying a youre in it . Yes. Francine at 3 30 a. M. In the morning. One of our favorite charts. This is term a permanent. For our radio listeners, we will bring it up. Term premiums. The difference between the 10 year term a premium and the difference between two and 10 year bond. The spread versus the term premium. Historically, as if the fed maintained these levels for long periods would keep it depressed but not messily cause inflation to decline a bus not necessarily cause inflation to decline but not necessarily cause inflation to decline. Stephen roach inflation has puzzle huge postal for Central Banks around the world and chair yellen said it explicitly in her press conference yesterday. And, i think it reflects that we ofe very subdued pace aggregate demand in the Global Economy host crisis. Post crisis. Central bank thing that the ll both supply and demand that they control both supply and demand, that has been the disconnect in this post crisis period. Advocatehy i am a big of national normalization around to their targets. They need to get the policy levers back into a more normal configuration less they run the risk of more bubbles. Tom we will continue the conversation on normalization and will bring up the dots to upsetfessor roach. Professor roach. The social policy and politics of mr. Zuckerberg, this is bloomberg. Are thrilled you are with us. Francine lacqua and tom keene on speaking terms. Im politics as well. Marty schenker joins us running out of our government operations. Dr. Roach of the yeley university as well. I want to go to the headline news. A big distraction at the u. N. And every newspaper leads with mueller. What is different right now for this special counsel . Request fort in a special documents, it is not a subpoena but a request and they seem to be complying. It will force the white house to come together with a legal strategy. Tom this white house is different attorneys and theres great dissension. Marty i do not know if theres dissension but they need to come together. The Legal Counsel and his personal counsel and they have to together agree on what they needed to turn over. Francine how do you teach the us teacher this to your students . About all of this . Stephen roach as little as possible. I am teaching my usual course of china so we talk about the trump china interplay especially offagain, onagain propane bromance with xi jinping. Francine we had a great conversation earlier and we tried to figure out what it meant for our allies. Lets say trump pulls out the iran and deal. Know,body can taper, you influences. Marty the europeans made it clear that even if the u. S. Pulls out of the iran deal, they intend to stay in it and keep iran to that, to the terms of that deal. It is possible that our compliance will even continue if the u. S. He pulled out of tpp and was to renegotiate nafta and the free trade deal and put up a wants to pulle out of the iran deal, are there any deals the United States is committed to and has threatened the nato alliance, are there any deals we are committed to . If so, what does it say about the role of engagement . Marty that is the number one criticism this administration has is that they certainly are able to talk about what they do not want to do but do not talk about what they do want to do. He has not really pulled out, he is threatened trade war with china and has not done anything. He has threatened to put tariffs on steel and has not done it. You have to wait and see. Stephen roach we pay no attention to what he does . Marty we Pay Attention to what he says and not what he does. Tom very good. The conversation radio with the formere chairman Vice President candidate. This is bloomberg. Tom bloomberg surveillance, it is a gorgeous new york. It has been unseasonably warm. We have celebrated high 70s and 80 degree weather. For new york. R maybe tomorrow, almost diminished traffic. We will have to see. Francine we need celsius. Waiting figure out for theresa may and Boris Johnson two, back. There is a cabinet meeting. To come back. Tom where would you rather live . Francine florence. Tom can we get a picture . Francine very serious, here, a lot of dust Boris Johnson stole the limelight Boris Johnson stole the limelight by saying maybe i will resign and maybe i will not and i will give my vision of brexit before my boss. He seems to be getting back on track before the very important speech tomorrow. Tom we will have very full coverage across florence and the Prime Ministers speech. To our first word news. Brexit, british Prime Minister theresa may may try to jumpstart the negotiations. She is said to be considering whether to accept the eus demand for a bill of tens of billions of dollars and will make a landmark speech tomorrow. Hitstrongest hurricane to puerto rico in decades is going to make the financial crisis worse. Hurricane maria knocked out power and damage may be in the tens of billions of dollars. Puerto rico trying to restructure its massive debt and the government warned it is running out of money. Special Counsel Robert Mueller has asked the white house for documents related to Donald Trumps actions as president president s. It includes the firing of his National Security and fbi shows a, the indicator howl for of a net that mueller is casting. Senator Lindsey Graham is pushing his fellow republicans to support his Obamacare Repeal bill even if it is imperfect. According to the associated press, graham told fox news sean hannity on the phone that everybody will be held accountable. Republican leaders have not committed to holding a vote by the september 30 deadline. And in japan, the central bank has decided to keep monetary stimulus unchanged. The bank of japan remains far from the 2 inflation target but the japanese economy is growing faster than expected and the Unemployment Rate is at its lowest in two years. 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. Tom . Francine . French president indicating he is open to changing the European Union treaties. Speaking at the Global Business forum in new york, he said of the changes he is pushing through are intended to get from the credibility he needs to change european institutions. In a few months or years, you will have other countries saying i raising and am not ok with this europe without an agreement but a lot of constraints. We need more vision, less bureaucracy and objectives and indeed neutralitys. Globale joining us is event manager founder and former executive producer who helped us yesterday, congratulations on a successful forum and still what does is Stephen Roach. The last time we spoke to you we were in paris to talk about the election, has anything changed . Ceos are not changing their mind about the perception with emmanuel macron. Done but hes very has the support of the business community. Businessto many, many at a big conference we hosted a really expecting president macron to implement his programs especially on the labor law. There is no change and even yesterday at the Bloomberg Global Business Forum, a few french politicians attended and they were supporting like it or not. What i mean is what we hear about the drop of civility and , amazing perception win. Francine youre talking about Structural Reforms that people can hire and fire more and growth, will that fix some of the backdated concerns that france has had which is mainly youth unemployment . Richard attias there is no choice. [indiscernible] the president tried to reform the labor law. Today, 90 of the french people, very recent polls, are expecting ever form. Even in the Big Labour Party were nothat 2 of them marching on september 12 against of these reforms. Happens always what will to us . Once again, dialogue about how to hire ceos would be or to fire, let us make it very clear, it is important to avoid the role perception. There is no choice. Youth has the highest Unemployment Rate, 9. 5 . No choice. Macron said yesterday he would make a big push on what was a success in germany which is training. Tom give us a civics lesson on french legislation. With a good idea on the u. S. A u. K. Is he a dictator that can round on this through or a Legislative Assembly push back . Go ind attias he would front of the assembly and a vote what happen and we will see what happens. I think he will be supported by the congressman because he has a huge majority in the french parliament. He has a huge majority. If a buy any potential risk, if it is not approved, he would definitely publish a decree and has a right to publish a degree. Decree. That labor law to change. Tom when i see him, he loves to areo the forums a you how does he speak to the french people . Is he a different macron what he speaks the labor union or whatever . Richard attias he is not a very this summer, he did not really talk to the french people. The speech yesterday was his first public in two or three months. Tom why . He was on vacation . Richard attias no, not a vacation but the probably have in france, the minute you talk to the media, they will try to find a reason to criticize you. Tom that would never happen in the u. S. [laughter] Richard Attias he is not choosing to build twitter a lot. Be on twitter a lot. , his personal position is probably to act before going in front of the french media and the french people. Yesterday, we caught up with a foreign finance minister and we are talking more integration after the president , the commission was saying we need a common finance minister for everyone. A lot of Asian Countries are looking to europe to see is a zone can work if these countries can come together. What is your take . Stephen roach the asians are looking to europe to see if a zone would work and probably making a huge mistake. It has been a Dysfunctional Union since the start. And it has been hanging together by the skin of its teeth in the post crisis period. The problem with economic integration is whether it is in europe or asia or nafta is that sort of panon regional rooms rules requires nations to give up their sovereignty over what they right tos there own set rules and of their own nations in their own nations. Theme of President Trumps speech and to hang onto the sovereignty as if it is the only thing that drives them. How does it work without enforcement of an integrated financial or political framework . Francine it goes back to what the french people want, it is unclear whether that more whether more people want integration and you talk to citizens. the measure with the french people the majority of the french people want to be european. And probably today, the extreme right party which was really against the marine le pens party is starting to slow. The Vice President left of the party yesterday so they are facing a new crisis. The idea of living europe is not of leaving the europe is not really in a the air. If people want stability and starting the process of leaving from some European Union process would create more instability. if they want to be part of europe and if there is a youth unemployment problem and agrees or spain or an immigration problem in germany, they do not want to be engaged. They want europe on their terms. Stephen roach you know, immigration is a real issue what they do not directly connect anymore, i think. , they seemigration immigration more from Eastern Europe and more from africa and this is where they are concerned. They would like today to be open for what they call the highquality immigration. That was one of the first decision of macron to give visas , threeyear visas to a different doors, for experts. Eurs to tech tom Richard Attias, thank you. Stephen roach will continue. Dots with Stephen Roach. Do not forget on Bloomberg Radio , a terrific way to answer that question, what happened while i was sleeping . They give you a global and domestic brief. They do that on bloomberg daybreak. This is bloomberg. Taylor this is bloomberg surveillance. The Bloomberg Bloomberg surveillance special Global Business forum special. One person said we need to grade a more democratic europe. Option thatnot an a betterbe relieved by situation. We need Growth Potential and also to create a more democratic europe. The difference, france will advocate for support and germany culture andthere is the commission will [indiscernible] a united union and that is why we say it needs to be inclusive. With a pledge to grade one million new u. S. Jobs by 2021 said people should stop looking to manufacturing to drive economic growth. Jack ma i the manufacturing will never bring a lot of jobs. In the last 200, manufacturing brings jobs. Because of Artificial Intelligence and of the robots, manufacturing is no longer the main engine of creating jobs. Service industries is going to be the main driver of job creation. Talking about manufacturing, we should not talk by made in china are made in the u. S. , we should talk about made in the internet. Taylor and africas richest man talk to two Francine Lacqua. Talk to two Francine Lacqua. Talked to Francine Lacqua. So companies in south africa, i hope we will baby to agree cthem some meant ement companies in south africa, i hope we will be able to agree with them. Taylor thats your Bloomberg Business flash. Tom Stephen Roach has been looking for the dots. The chart of the dots. 2017, wrong. 2018, 3 wrong. 2019, we are not there, the green line below the level of 3 and the real news is we do not get the 3 out to 2018. It has been wrong, wrong, wrong. The markets do not agree in your theory is normalized. What do you mean they have to normalize . 18 of a point every time . Stephen roach dots, explained to your viewers what they are. Tom they are guesstimates by people who are good people who have been wrong, wrong. That is all it comes down to. Stephen roach my point on normalization is it is not an inflation independent exercise and yet, if you look at the minute and you hear chair yellen talking about is the outlook for Monetary Policy, inflation is used in every paragraph as the most important point. Policy needs to get back to into it was before we went this horrific financial crisis, a methodical, almost mechanistic way to return the dots to normal. Tom stan fischer agrees with you. There is a massive of fear jim conditions. Jump conditions. Were reis about instability worries about instability. Can you guarantee stability . Stephen roach i cannot guarantee anything. But the fed, ecb, bank of japan and bank of england has done nothing but inject exes liquidity into Financial Markets over the last nine to 10 years. That is the recipe for instability. Ofing excess liquidity out bubbling markets is the only road back to Financial Stability. Sure, they have to take some risks on the way and there may be some adverse repercussions associated with that, but that is the challenge for independent central bankers to withdraw the axis liquidity. There is a breeding ground for from the system before the next accident happens. Francine you say Stanley Fischer is gone but isnt janet yellen mcgahn . We are a couple of months away. Janet yellen gone . We think that is the case or if she gets replaced, would it be by somebody even more dovish . Isphen roach Anything Possible with political appointments coming from the Trump Administration. Fairport is it saying is we do have at least on paper, an independent central bank and they need to figure out what their mission is right now. If they are still targeting inflation in a world where there is no inflation, they are making a fundamental, strategic mistake potentially of epic proportions. Francine what should they be targeting . Full employment on gdp . Stephen roach the fifth the mandate news to be rethought and put explicitly in the mandate of the fed and need to target Financial Stability and a period where theres a huge amount of excess liquidity in the system. Goal. S the one inflation comes back, they can focus on inflation. Francine thank you so much. We will be back with Stephen Roach. Coming up is bloomberg daybreak americas. Alix were covering the news of the morning like china and at the fed. Usold hamm will be joining at the back end of the show to talk about what he sees in the oil price and he thinks it should be a lot higher, no surprise. And he has specific reasons why and when you have Energy Industry in the u. S. That is over fracking, he is a great voice to have to. Tom alix steel, thank you. You can watch Stephen Roach. You can come over here and roll over previous settlement as you alongeal my down chart with three regressions. This is bloomberg. Equity is attracting large amounts of money, why is that . It has outperformed every other asset class and that is why it continues. Money is comic a tough private equity firm is coming into private equity firms like mine. Mr. What a joy to speak to rubenstein not only about financials budgets contribute to american history. There was a justification private equity and Stephen Roach is with us. The backdrop is single digit returns. Do you subscribe within your normalization to the fed we have a new regime, a new set to lower returns, dovetailed a drop or lower nominal gdp . again, i do not want to be too hard on Central Banks, but they have distorted the terms. They have managed asset prices post crisis. When David Rubenstein talks about the returns of private equity am a he is right, but the hurdles equity, he is right, but the hurdles are low. A reason for getting them out of the asset the setting price, they are not put on this planet to determine returns on a whole variety of assets. Will continueoach with us on Bloomberg Radio with a David Garrard and myself. Forenow, for rent the ze. She will be in london. Francine i will be in london. You talk about money and this is what we are thinking theresa may will focus on the. You look at brexit negotiations and they have stalled because the eu say you all of a divorce all and they refute owe us divorce bill and the refused to talk about. Maybe you can start a talking about what the divorce looks like. Tomorrow, it is an important speech by the Prime Minister and we will give you full coverage in the early hours. This is bloomberg. Stay with us. 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. Chair yellen brushes aside inflation concerns, unveiling plans to unwind the Balance Sheet before the yearend. Chinas Credit Rating is cut for the First Time Since 1999, just before the Party Congress next month, and Prime Minister may considers the need to discuss billeed for me your brexit worth tens of billions of pounds. Good morning, good morning, this is bloomberg daybreak, im jonathan ferro. Futures are dead flat, grinding up four days of ends on the s p 500, and four records on the trot as well. Dollar bounces back, we are up about 1 10 of 1 , and treasury yields keep writing higher. We are up about two basis points on the 10year. Upx we have the dollar yen, by 2 10 of 1 , and the