Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

Will shortly go on to what is happening at the ecb and what is happening with mario draghi. 0. 3 . An stocks down to a lot of the impetus will be on Central Banks. A lot of the focus will be on bonds. Leading the stoxx 600 lower, looking at oil. Adding to uncertainty over whether production cuts will actually be extended. Lets focus on the future of the euro area. Five years since mario draghi establishes answer to the jackson hole symposium. You that live as it starts. Investors will be watching closely for any hints on how mario draghi might use the toolkit. He will be keen to convince traders can get back to her target of 2 . A target of 2 . Paul, what is the market expecting from them . High in somens are respect. What is priced in, the ecb will move to action. The kind of feeling in the market is that he has got to. Ive a nod thelast ecb meeting market is looking for more. Asically the front end of the market has ced ecb action, a rate cut inflation is collapsing out of control. The ecb is do something to revive that. You dont have a long and signaling confidence. Francine breaking news, mario draghi is due to give a speech. What usually happens is that we get an advance copy of the speech so importers reporters around the world are free to break what he has to say. He is saying if the outlook does not improve, additional stimulus may be needed. This is an interesting question for bond markets and will affect the way the yield shifts. More qe,talking about some the investors are getting excited about, that could have the opposite effect. Termcould drag down longer rates. Keen to try to puzzle out which of those he might favor. Francine we are looking at the stage being set for the president of the European Central bank to start speaking. Valued euro fairly is the euro fairly valued . The euro is already cheaper. Francine it dropped significantly. We have an advance copy of the speech. Mario draghi is about to deliver, saying further Interest Rate cuts remain part of the ecb tool. Looking at that currency markets will want to see more. Francine you kind of wonder what mario draghi actually has to say to move the currency given the strength in dollar. If the markets think the Federal Reserve will cut Interest Rates, that makes it even harder for the euro to depreciate. The difficulty for mario draghi is that he is stepping down in five months. Here is the president of the ecb. Some of us, for all of us, he was a giant of economic thought. He will be remembered for his landmark contributions in a variety of areas. He had a wideranging influence on policy debate in all the world for more than 40 years,. Erhaps 50 years he will certainly be remembered for the work he did for the Economic Bureau of international research. Only a few of you in this room remember how it changed completely and quickly into the fantastic institution it is today. Beingl be remembered for a perceptive, deep, profound critic of the euro product. I now turn to the forum. This years theme is of special importance, as we mark the occasion of the 20th anniversary of European Economic Monetary Union. Like all anniversaries, that provides us with a great opportunity to look back at the founding ideas of the economic and Monetary Union to discuss ands variances experiences gained over the last two decades and identify key factors and policies that will determine success in the future. Once again, we have the privilege of having here profound thinkers, first order economists and participants from around the globe. Let me thank you all for the intort that you gave making this conference that started six years ago, to making this conference a success. Session, we look back at the Economic Performance in euro area, assess degree of market convergence, channels that brought it about and how it impacted Economic Growth. Recognized,been even before the single currency came into being that a high degree of convergence was needed to ensure Monetary Policy would be transmitted evenly across euro area. Supporting Monetary Policy ecb would undertake. We will also discuss challenges we faced during ecb, during the last 20 years, notably in conducting Monetary Policy for the whole of euro area. The program is forwardlooking. We will discuss key factors that will likely includes growth. Francine that was a speech mario draghi gave last night. There are a couple speech is going on. This is a prerecorded speech. Lets now listen to the real president draghi live, realtime. Panics that had rocked the u. S. Banking system in the late 19th and early 20th century. The euro was introduced 20 years ago in response to repeated episodes of exchangerate instability and the need to secure the Single Market against competitive devaluations. Ecb was established as the keystone of the new economic and Monetary Union. The first decade of the monetary byon was characterized macroeconomic conditions with limited volatility and steady Economic Growth. The second decade has seen profound shifts in the prevailing environment, including both financial and sovereign debt crises, and our Monetary Policy strategy has had to adapt with it. I would like to discuss this morning why this evolution came about and how it was achieved and what the past 20 years can tell us about the ecbs Monetary Policy in the future. Mandate is given by the treaty, price stability. Definedverning council price stability as inflation 2 over range of 0 to the term which constitutes the ecbs objective. 2003, governing council clarified that within this range, it would aim at a focal point of below but close to 2 , which remains our mediumterm aim to this day. This was a formulation that differed from the standard inflation targeting framework of the time, which is typically based around a point target for inflation. There were sound reasons why this definition was put in place. In common with Central Banks across the world, pcd faced macroeconomic environment ecb faced a macroeconomic environment that was defined by low volatility in modern stock. With the distribution of shocks to inflation, almost exclusively to the upside. Cb Energy Prices rose by 80 between january, 1999 and september, 2008. Under these conditions, establishing a strong reaction function against high inflation was seen as crucial to anchor Inflation Expectations. To orizing aim of close below 2 would seem to imply a stronger commitment than a standard inflation targeting regime. But, Monetary Policy in euro area faced a special challenge. The ecb was a new central bank, heterogeneous Monetary Union which created a particular imperative to establish inflation credibility, establishing a commitment to control inflation was seen as critical to cement lower Inflation Expectations across the euro area, especially as moderate inflation was a relatively new phenomenon in several member states. Years, 1999, inflation had averaged 3 in 10 of the 12 original members. The declining inflation in many countries in the runup to the economic and Monetary Union was in large part due to expectations of joining, as well as to a number of extraordinary actions taken by National Authorities to meet the convergence criteria. 1989, to 1999, longterm Inflation Expectations have 2. 5 n from a range between to 4. 5 in the four largest euro area economies to below 2 acrosstheboard. It was the task of the new central bank to lock in moderate inflation environment and it did so successfully. Over the next decade, Inflation Expectations internalized ecbs commitment to keep inflation down and remain below 2 . This process of building inflation credibility had implications for the ecbs reaction function. As a matter of accounting stabilizing headline inflation largely caused by volatile components must mean core inflation adjusts downward. Rolling cross correlations between Energy Inflation and core inflation show that an episode of high Energy Inflation between 1999 and 2007 was period ofd by a rapidly softening core inflation. Between january, 1999 and september, 2008, headline inflation in euro area averaged 2. 35 while core inflation 2 raged 1. 7 and exceeded less than 15 of the time. Banks in other advanced economies face similar challenges and adopted similar strategies. Differences in mandates and length of track records in fighting inflation led to differences in how much energy price passed through to headline inflation, others were comfortable accommodating. In usample, Energy Prices and headline160 , inflation averaged 2. 9 . The Federal Reserve reacted less to headline inflation and core cpi inflation averaged 2. 2 . Areapshot was, euro entered the crisis, having succeeded in establishing its antiinflation credentials but underlying inflation dynamics were perhaps relatively weaker. This was not immediately inflation stayed at fairly elevated levels for more than four years after the crash. Monetary policy responded decisively to the Global Financial crisis and dish inflationary threats seemed to pass quickly. It seemsght, reasonable to conclude that the inflation process was vulnerable to a shift in the environment, which is what transpired from around mid 2012 onwards. Point, headline inflation in euro area began what was a prolonged downward drift and core inflation fell by almost a percentage point from mid2012 to early 2014. Factors which help explain the switch to a disinflationary trend. The distribution of shocks to inflation moved strongly downside in the amplitude of shocks increased. Graduallye shocks dissipated over the years following the crash and the sovereign debt crisis. , driven demand shocks at different times by domestic demand and external demand instead became the dominant source of microeconomic fluctuations in euro area. Negative demand shocks have waited on euro area inflationary by more than one percentage point on average since the start of the crisis. The second factor was a change in the macroeconomic policy mix. In the first phase of the crisis, fiscal and Monetary Policy had eased in tandem, with fiscal policy loosening by a total of 3 potential gdp between 2008 and 2010, thereafter the stance of monetary fiscal policy decoupled. Turnedea fiscal stance contractionary in response to the sovereign debt crisis, tightening by four Percentage Points of potential gdp until 2013. Euro area was mostly in recession. This contrast to the United States, where fiscal policy is of the the initial phase. Risis, by 6. 5 5. 5 ofhtened by toential gdp from 2011, 2013, when the economy recovery was underway. Forced onto a differential path by the need in some countries to reestablish fiscal credibility but on aggregate, euro area did not have less fiscal space than the United States. Public debt levels were similar in the jurisdictions. The key difference was, fiscal stabilization in the u. S. Took place at a federal level, while euro area lacked a central instrument to act counter cyclically. Policy mix is also relevant when it comes to the Financial Sector of policies. After the crisis, it was inevitable Banking Sectors in advanced economies would have to deleverage, both to cover losses and refocus business models. United states insured this process happened quickly and banks around 500 failing were resolved by the federal deposit insurance corporation, while struggling banks were stress tested and recapitalized through the troubled asset relief program. 20082011, u. S. Banks improved leverage ratio by 1. 6 Percentage Points from 7. 2 to 8. 8 . Response in euro area was more sluggish. Despite being more leveraged than the u. S. Peers before the crisis, euro area banks improved , from 3. 7 to 4. 6. This was achieved more through shedding assets and less through capital. This reflected the fact that due to the fiscal rules, public support for banks was concentrated in countries with fiscal space. Without a common resolution framework, only 50 banks were resolved in euro area in this. Continued tosector drag on the euro area economy, which was especially pernicious given the importance of the Bank Lending Channel for financing. Sum, ecb faced an environment where there was an increasing need to counter demand shocks and an increasing burden on Monetary Policy to do so. Our strategy therefore had to adapt to new circumstances in order to continue delivering our aim. Monetary policy responded first in the summer of 2012, by acting to diffuse the sovereign debt crisis, which had evolved from a tail risk for inflation into a material threat to price stability. Outright monetary transactions established our commitment to counter risksanted denomination in sovereign debt markets and acted as a powerful circuit breaker. Activated,as never the effect of its announcement was equivalent to debt of a largescale asset purchase program. Spreads in Vulnerable Countries failed on an average of more than 400 business points over the next two years. Omt was analysis. Gdp and priceinds effects of omt were broadly in qe thatth estimated for took place in u. S. And u. K. Lingering effects of the sovereign debt crisis dented the capacity of this stimulus to counter the new disinflationary trend. The delayed Bank Deleveraging process in euro area began to accelerate with banks further shrinking Balance Sheets and paying back central bank loans. Bank Balance Sheets declined by 20 Percentage Points of gdp in 2013 alone and at the end of 2013, credit growth to private sector was contracting at a rate of 2. 4 relative to a year earlier. Side, risknd appetite in private sector collapsed, with investment subtracting 1. 6 Percentage Points from gdp growth, 2012. In 2013, byagain cutting main refinancing rate twice from 0. 75 to zero when 25 and by seizing the opportunity of european banking supervision. Weried out a super steer the balance repair toward a positive macroeconomic outcome. Thanks strengthened bank strengthen Balance Sheets. That put Banking Sector in a stronger position to transmit policy. At this point, euro area economy was hit by a further downward shock to inflation in the form of a 60 collapse in oil prices in mid2014, which forced inflation into negative territory. With inflation already weakening, expectations began to be affected. As the scope for further Interest Rate cuts was no limited it became increasingly clear our reaction function needed to evolve to address new challenges. Indeed, since our policy framework has never been systematically tested by persistent disinflationary risk, ecb had not yet had a chance to demonstrate its intolerance for inflation remaining below its aim for a protracted periods of time. At the same time, there appeared to be uncertainty about which tools we would be able to deploy if the effective lower bound were reached. Economies,ther major ecb had not resorted to largescale asset purchases during Global Financial crisis and aftermath. Some questioned legality of asset purchases, some questioned it even now, by the way. Legality in europe and effectiveness in the bankbased economy. If uncertainties were not removed, it was a material risk that falling inflation could become self fulfilling. The public could begin expecting a smaller Monetary Policy response to future inflation under shoots and revise expectations further downward. In other words, credibility now relied not just on perceptions of ecbs commitment to our aim but also on perceptions of our capability to fight lowinflation. We responded to this situation in three ways. The first was by clarifying the symmetry of our aim. Definition oftity price instability was instrumental in establishing credibility in the first decade, its a symmetric formulation may have led to misperceptions in a lowinflation environment. Thus, we may clear, our policy aim was to get symmetric. It was symmetric around the level we have established in 2003, below but close to 2 . It is achieving the same over mediumterm that steers our policy decisions. Clarify thatwe symmetry meant not only that we would not accept persistently lowinflation but also there was on inflation at 2 . As i emphasized on a number of occasions, mediumterm orientation implies inflation can deviate from our aim in both directions so long as the path of inflation converges back toward that focal point over the mediumterm policy horizon. Our responsert of was to lay out tools we would use to counteract downside inflation risk, which began with the speech i gave in amsterdam in april, 2014 that described three contingencies and instruments we would use to react to them. Unambiguouslyed we had no taboos about resorting to unconventional measures. There was nothing institutionally or legally special about euro area that prohibited policy from adding accommodation once the lower bound was approached. Third, as various contingencies operationalized reaction functions by launching a series of new instruments we brought through the zero bound by lowering deposit rate to negative territory, we launched our targeted longterm refinancing operations to provide incentives for banks to lend and implemented a largescale asset urges Program Purchase program of securities. These measures were deliberately designed to work as a package and eased the stance through complementary channels working both through banks and the wider metrics of Capital Markets. Policyative rate challenged Market Expectations that when rates reached zero, they only go up and not down, which helps cure the distribution of rate expectations and depressed short ad of the riskfree curve, key benchmark for the pricing of bank loans, asset purchases in tandem compress yields at the longer end of the curve, pushing down Mortgage Rates and at the same time making bank lending more attractive in riskadjusted terms, and transmission was cost and with lowering increasing Competition Among banks. Over time, we also enhanced framework with state and date based for guidance, allowing us to rotate the marginal tool for determining policy stands for asset purchases to Forward Guidance as Economic Outlook improved. Today, this Forward Guidance links are expectations on the path of future rates to the path of inflation toward our aim, leading to automatic easing if the convergence path toward 2 is delayed. Evidencea mountain of these instruments have been effective. Negative rates have proven an important tool in euro area and more so than they would have been in an economy like the United States. Haveederal reserve didnt negative rates in part due to concerns about their effects on the money market industry, which are key intermediaries in the u. S. Financial system. This factor is less relevant in euro area ands many market funds have been operating as variable Net Asset Value funds and therefore are more flexible to extend duration to seek additional returns. Area is ae, euro relatively open economy for its size with total trade making 51 of gdp, compared with 27 in United States. This means impact on negative rates on inflation and financing conditions via Exchange Rate is more powerful. In short, faced with a new environment of Downside Risk and limited conventional policy space, ecb showed it had no shortage of tools available to respond. Unconventional measures proved suitable substitutes for conventional ones. Using market prices to contract the socalled shadow short rate, broadly inovided line with recommendations of Monetary Policy rules as suggested by recent academic research. Our capacity to react in this way was made possible by the flexibility embedded in our mandate, a flexibility confirmed by the recent ruling of the European Court of justice. Purchase are asset a legal instrument of Monetary Policy in euro area and emphasized broad discretion of the ecb in using all our tools in a proportionate way to achieve objectives. However, although we have seen the successful transmission of Monetary Policy to financing conditions and from financing conditions to gdp unemployment, the final legs of transmission process have been slower than we expected. Strengthening no as a slack in the labor market diminishes. From wages to prices, remains weak. This may reflect changes such as globalization and digitalization, which mostly have an impact in the pricing chain. Weakness canlical delay which prices pass through as firms select to squeeze margins rather than raise prices and risk losing market share. In this environment, what matters is Monetary Policy remains committed to objective and doesnt resign itself to t oo lowinflation. As i emphasized at our last Monetary Policy meeting, we are committed and not resigned to having a low rate of inflation forever or even for now. We have described the overall orientation of Monetary Policy as being patient, persistent and prudent. Patient because, faced with repeated negative shocks, we have had to extend policy horizon. Persistent, because Monetary Policy will remain sufficiently accommodative to ensure sustained convergence of inflation to our aim. Prudent, because we will pay close attention to underlying inflation dynamics and risk and we will adjust policy appropriately. Ins orientation is expressed our current policy framework, which allows us to adapt our Forward Guidance and react flexibly as macroeconomic situation involves. That was illustrated by Monetary Policy decisions taken at our meeting earlier in june. Risk outlookrd, remains tilted downside and indicators for coming quarters point to lingering softness. Risks prominent throughout the past year, in particular, geopolitical factors, the rising threat of protectionism, vulnerabilities in emerging markets, have not dissipated, and the prolongation of risks has weighted on imports, exports and manufacturing. Improvement,e of such that sustained return of inflation to our aim is threatened, additional stimulus will be required. Deliberations, members of governing council expressed conviction in pursuing our aim of inflation close to 2 in symmetric fashion, just as our policy framework has evolved in the past to counter new challenges, so it can again. In the coming weeks, governing council will delivery how instruments can be adapted commensurate to the severity of the risk to price stability. We remain able to enhance Forward Guidance by adjusting bias and conditionality to account for variations in adjustment path of inflation. By the way, this applies to all instruments over Monetary Policy students. Further cuts in policy Interest Rates and mitigating measures to contain any side effects remain part of our tools. App still has considerable headroom. Moreover, the treaty requires our actions are both necessary and proportionate to fulfill our mandate and achieve our objective which implies the limits we establish on tools are specific to the contingencies we face. If the crisis has shown anything, it is that we will use all flexibility within mandate to fulfill mandate and we will do so again to answer any challenges to price stability in the future. All these options were discussed at our last. Meeting. What matters is our mediumterm policy aim and inflation rate below but close to 2 . That aim is symmetric, which means that if we are to deliver value of inflation mediumterm, inflation has to be above that level sometime in the future. Fiscal policy should play its role. The the last 10 years, vertical macroeconomic adjustment has fallen disproportionately on Monetary Policy. We have even seen instances where fiscal policy has been procyclical and countered monetary stimulus. If the unbalanced macroeconomic mix in euro area in part explains the slide to disinflation, so a better policy mix can help bring it to a close. Monetary policy can achieve objective alone, but especially in europe, where public sectors are large, it can do so faster and with fewer side effects if fiscal policies are aligned with it. Space byng fiscal raising potential output through reforms and Public Investment and respecting the european fiscal framework will maintain Investor Confidence in countries with high public debt, low growth and low fiscal space. Expansion in the other countries may have limited, National Fiscal policies remain constrained. Work on a common fiscal stabilization instrument of design should proceed with broader scope, especially renewed determination. Euro wasnclude, introduced 20 years ago in order to insulate Single Market from exchangerate crisis and competitive devaluations that would threaten sustainability of open market but it was also a political project that relied on the success of the Single Market, would lead to the greater integration of member state. The vision of, our forefathers has gone relatively well. Imagine, where the Single Market would be today after the Global Financial crisis and rising protectionism had all countries in exchangerate. Instead, our economies integrated converged and coped with the most severe challenges the Great Depression and that leads me to observations. First, the integration of our economies, within the convergence of member states, has also greatly increased. Exchangerate between euro area countries are about a half those between advanced economies with flexible Exchange Rates or countries linked by competitive exchangerate. Misalignment, this has fallen by 20 in the second decade relative to the first. Second, about convergence. Dispersion of growth rates across euro area countries, having fallen considerably since comparable 2014 is to dispersion across u. S. States. About prosperity growth. No, again about integration. This process has been driven in large part by the deepening of European Value change, with countries now significantly more integrated with each other than the United States or china are with the rest of the world. Most countries export more with each other than with u. S. , china or russia. Areah, employment in euro has reached record highs in all euro area countries but one, stands above the 1990 level. Having said that, to the remaining institutional weaknesses, our Monetary Union cannot be ignored, as the cost of seriously damaging what has been achieved. More would suggest the integrated our economies become, the faster should be the completion of the Banking Union, the Capital Markets union and the faster the transition from a rulesbased system for fiscal policies to an institution based fiscal capacity. The journey toward greater integration that our citizens and firms started 20 years ago has long been far from finished and with broad but uneven success. Overall, it has strengthened the conviction of our peoples, that it is only through more europe that implications of this integration can be managed. That trust may lie in our common destiny. For others, it may come from the appreciation of the greater prosperity so far achieved. For yet others, that trust may be forced by increased and unavoidable closeness over countries. Be that as it may, that trust is now the bedrock upon which our leaders can and will build the next steps of our economic and Monetary Union. Thanks. [applause] thank you. [applause] draghi, that was mario president of the ecb, with a dovish talk in central portugal, saying the prospect of more stimulus a midweek inflation amid weak inflation. See inflation can expectations Going Forward. It has been quite something. This is bringing back to june, 2018. The president set the tone for the annual forum. He noted ecb can amend Forward Guidance and rate cuts remain part of our tools and asset purchases are also an option. Lets get some reaction. Paul, markets were moving a lot. Looking at yields, the italian 10 year bond yield, claiming 12 basis points. Similar move for german bunds. Overall, this was the kind of speech we were expecting, but with a dovish tilt. Ul he has done his best to emphasize they have more tools at their disposal. Bond markets getting record low yields across chunks. Germany, french 10 year bond yields approaching zero, showing that drag lower by ecb across markets, helping stocks. We were down before he started speaking. Banks trading, bond yields not necessarily good for lenders. That is coming positively across markets. Francine how much madness are we going to see on the credit . Arket if you look at the spread between negative bund yields and corporate bonds, there is a massive shift. Paul this downward pull from government bonds, seeing really large issuance in recent weeks, which has taken bond sales yeartodate by as much as 20 . Credit coming to the market with confidence at the market. The Lower Borrowing costs for Companies Across the euro area is great news for companies, they can refinance at lower rates but on the other hand the risk is it continues to inflate and at one point it will come back to bite. Francine italian assets are loving the dovish draghi. Is that the big winner . Paul if you look in terms of outright yield move, it is the biggest. That is what you would expect. Ecb has a bigger pool of debt it can buy and italy, so there can be more stimulus there. There has been a big risk premium priced into italian bonds because of the political risks. Ecb can do a certain amount to question that. Investors have more confidence moving into italian bonds. It is not just italy. Yield spreads across euro area, spanish 10 year bond yield, below, who wouldve seen that five years ago . Greek 10 year bond yield, record lows. Everyone can benefit. Francine how quickly are you expecting a hawkish turn from one of the big Central Banks . Tension to the fed tomorrow. What will we learn from them . Pricing in the market is quite aggressive for fed cuts now. The Federal Reserve repeats its message, it will be patient, the market will take that as hawkish, rather than a dovish private. That could cause a tantrum. Francine thanks. Coming up on bloomberg, we speak to the former ecb chief economist. Dont miss that interview, live from the forum in sintra. This is bloomberg. Francine this is bloomberg surveillance, im Francine Lacqua in london. Moves in bonds across the world. Treasuries, five year, fiveyear, inflation and euro. It moved. Towardraghi nudging stimulus. Head of emergingmarket external debt at pimco, this is a big deal when you have a big central bank being so dovish for em. We have seen dovishness from the fed. Fomc this week. Material for ecb to sound dovish, almost precommitting. That is important. Think of all the countries in central and eastern europe. These are countries that have trade ties with germany, france. It makes sense. One of the big parts of our portfolio has been specifically going to the romanians, croatias, albaniasa of the world, though they can benefit from more trade and bond valuations can do well. Dovishness from ecb. Francine ecb is different from the fed. Given what he said today, which feels like the smaller cousin, what does it mean for the fed . Yacov it is too early to extrapolate. A general sense, nothing important, i. E. Nothing critical, i. E. No cut this week, there is certainly room for the fed to signal intentions for the rest of the year. It feels like markets are getting over excited with regards to the trajectory of fed cuts for the rest of the year. Perhaps, it is worth tempering enthusiasm. Francine you think they are over excited . Markets thathe they will cut rate in july. If you look at global picture, it makes sense. Yacov how much of an insurance cut does the fed undertake . Is there a move to take back the december hike, which in retrospect seemed too far . There is a move to do something. Some of that discussion about three cuts over the course of the next few months may be premature. It is fair to say, it is starting to point in the direction of softening u. S. Growth, but just starting. It still bears watching. Trade or is this Something Else . Yacov it is a lot. There was a scare on the back of u. S. Threatening mexico with tariffs and we saw that u. S. ,day in figures from capturing the first 10 days of the month, peak scare. The china trade war is starting to take its toll. On the one hand, on the chinese economy, but to some extent on sentiment and u. S. As well. And plentylenty more more on the question of the day, which is what the fed does after ecb today. Dovish tilt from mario draghi, the one thing we need to know more about. We need to look at Asset Classes. Bloomberg surveillance, continues in the next hour. Tom keene joins me from new york. This is bloomberg. Francine watching every syllable. More ecb stimulus prospect, highlighting growing risks are increasing the case for action. The june meeting begins as Central Banks keep the door open to cuts. Timing may become clearer this week. Hong kongs embattled leader makes a personal apology. Protesters bow to keep flooding vow to keep flooding the streets. Tom, it is almost a whatever it takes moment. Tom no. Francine mario draghi nudged closer. Viewers know how i hate the word stun. That is what i observed. It was stunning, the market move in the shift. Everyone led with the headline, all of this welltimed before the fed meeting. Francine all of it. You wonder whether it will influence forgive indication, dovishness out there. Monthrea rising month on and the june Investor Expectations coming out, much worse than expected. We will delve deeper. Bloomberg first word news in new york city. Facebook unveiling a Digital Currency, it wants to eventually rival the dollar. It is called libra. It will be a stable coin, a Digital Currency living on the blockchain, to establish government securities. The goal is to avoid massive fluctuations in value, at the earliest, it comes out next year. Coming up later, we speak to the head of the initiative, david marcus, the Vice President of messaging products. Hong kong, there is not a timetable for restarting the legislative process after suspending the controversial extradition bill, which led to massive protests. There are growing calls for her to quit but she emphasizes she intends to finish term. Trump seems tod downplay the attacks on ships near the persian gulf, the president touting, that the attacks were minor. Asked if he is considering military action against iran, he answered, i wouldnt say that. The pentagon is sending 1000 troops to the region. The british economy will probably flatline in Second Quarter. The bank of england wont raise Interest Rates until well into next year. On thursday, central bank will announce its next decision on rates, following disappointing economic data. Global news 24 hours a day on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Thank you. Data check. I had to rewrite it 20 minutes ago after the draghi bombshell. Equities up. Curve flattening, a two day trend, where longer dated yields have come in more. Euro crushed. No other way to put it, off the draghi speech. Next screen, please. Markets, on the great bull market. Andification, to year 0. 74 . A greater negative yield. I brought in the euro just because. Because, eurouse, is the name of the day. Stocks turning higher after that mario draghi speech in portugal. Bonds rallying. Comments from ecb president easierfuel to hopes for Monetary Policy. That could have implication for the fed. European stocks gaining. Eurodollar, the one that is moving. President draghi said additional stimulus, including rate cuts, may be needed if Economic Outlook does not improve. Tom elegant chart, deutsche bank. Euros, german tenyear, a gorgeous chart. The idea here of wellbehaved on the moving average. Almost twodown standard deviations. We are learning more about negative rates every day. Tom francine we are hoping to learn more about inflation. That is what mario draghi was looking at. This is my chart of the day. Ecb chart of the quarter. Five your, fiveyear forward expectation, from june, just one way it is going, down. Mario draghi set the tone this morning for the annual form. He said additional stimulus will be required if outlook does not improve an inflation does not strengthen. Stephanie andemy, yacov. We have all angles covered. This feels like a big moment for the markets. It hearkened back to london. Stephanie we learned from him himself that you cannot lock the president into anything, the first thing he did was reverse the rate increase of his predecessors. He is enjoying his final two months ability to nudge governing council in the direction he wants to go, which traditionally has been the last for years in the direction of more stimulus. It was a clear message. In the way he told the story, it was quite a wideranging speech, he told the story of the first 20 years of the euro in a way that left us thinking about how important it was for them to make clear their ability to have this toolkit. Whoever comes after me, this exists, you cannot mess with it, and you may have to use it soon. Francine talk about eurodollar. 185. S currently at 1. It is a sharp move, but it is more Dollar Strength. Strong,r wasnt so would euro have moved more because of the comments . Jeremy possibly yes. Euro has come off on the basis of these comments, draghi has reemphasized that the toolkit is available. He is leaving that in the hands of his successor, the name of whom we do not know. In a sense, it is interesting looking at expectations. I look at that way gillooly regularly. It has fallen dramatically in the last month. Ecb press conference earlier this month, he downplayed impact of Inflation Expectations becoming d anchored. It seems to be moving back toward the fear underlining the fact that there is potentially more work to be done. Tom i know pimco has done this research. Is there a trip point where ever more negative yields become truly impactful upon market . We are getting to where negative yields really are coming down. Is there a trip point where they begin to affect the system . Yacov we are already seeing some of that pain in banking. Ector with 11. 5ghters, trillion negative yielding debt week, world, as of last after this most recent ecb speech, anticipating only going up. I was looking at french 10 year yields approaching zero. Does that goes up, the flipside is we get even more of a push into emerging markets, certainly people, the search for yield is back on. The more Central Banks and developed markets, the more puts there will be into em. Tom let me show the germany chart. I look at the twentyyear swiss as well. It is simple. Nonlog. Convexity of the 10 year yield is a stern ore. Do you have a comment . Stephanie what was striking is, those people, financial institutions, often in germany or switzerland screaming about negative yields, got no support from mario draghi. It was striking he highlighted negative rates were effective in eurozone relative to u. S. Because there was not same reliance on Mutual Fund Industry u. S. Has an because eurozone is so much more open economy, therefore you can have that operating through the Exchange Rate in a much more effective way, when using negative rates. It was interesting that for those not wanting to see the short end of that immediate Monetary Policy, got no support at all. He thought that was why this came back on the table, as a result of this speech. They cannot do a great deal about negative yields further out. That is part of the dynamic of the market. They have drifted down, even sometimes when ecb didnt want to. Francine does this give us indication of what we could hear from the fed . Jay powell will probably be means, i and say, that need to also some more dovish . Stephanie people will be looking at language carefully. We are not expecting a change. Seemnk, he wont want to to be trying to get ahead of ecb. You could argue ecb is catching up to where others are. It goes into the mix. He will be thinking about the dollar euro dynamic. Francine tom we welcome all of you, the bombshell of mario draghi speech in portugal, he has moved the markets dramatically on stimulus. Let us listen. Rates haslongation of weakened on exports and manufacturing. In the absence of improvement, such that sustained return of inflation to our aim is threatened, additional stimulus will be required. Tom we welcome all of you worldwide. Stephanie flanders, jeremy cov with us today. He mentioned manufacturing. Was that a veiled statement about trump and his trade wars . Yacov look, i would say trade wars are certainly affecting the global economy. They are probably more painful for china, for europe. Theyre starting to bear fruit, impacting sentiment in u. S. Seertunately, even if we this ahead of g20 between trump and xi, our view is the trade war will go on. Certainly in electoral season in the u. S. , the campaign has started for 2020. There is an angle of political convenience to have china as an issuesand unresolved around intellectual property, i. T. , human rights, which is something that is may be by democrats and republicans, both sides in the u. S. Congress. Trade war probably continues. Francine we will get back to italian assets and euro. What does it mean for corporates . Credit market, this has huge implications. Yacov we have been defensive for some time. Part of that is where we are in cycle, part is valuations, and now certainly that is compounded by u. S. China trade war, where the tales have gotten fatter for the u. S. Economy. The fed is there. They have room to stimulate. The market is already pricing cuts, as we discussed. Nonetheless, in terms of the next six months, 12, 18 months, our preference is to lighten up positions and wait for better entry points as we can see further wobbles in the economy due to china and weaker u. S. Francine thank you. Bloomberg, we speak to the former ecb chief economist, peter price. Dont miss that interview live, 8 30 a. M. Live in new york. He will have something to say inflation. And this is bloomberg. Is always, we will act as appropriate to sustain expansion, with a strong labor market and inflation near 2 objective. We are attuned to potential risks. If we saw a Downside Risk to outlook, that would be a factor that could call for a more accommodative policy. Im nervous about low inflation rate. Even though we expect it is temporary, that by itself could be reason for more accommodation. We will have to look at how things are evolving. Mixed signals around china and europe. What is important for us is to keep an open mind and keep being data dependent. It is too soon to make a judgment as to whether we might or might not take action. I would rather be patient and let unfolding events. Tom talking too soon for judgment, maybe that has changed in the last 60 minutes as mario draghi shifts the global debate on central banking at the conference in sintra. Go tonie flanders, lets the theory of what the fed does. Do you think they got heads up on the speech . Stephanie they might have had a clue what is coming. Jay powell is in conversation with mario draghi. Of all the people around the governing council of ecb, mario draghi has a better understanding and is more of the u. S. Monetary mindset than many of the other central bankers. This,aid, the tone of even though the market is reacting strongly, the tone is more of a catch up to where the fed was and other Central Banks have been for a while. If you are jay powell and you say, has the world changed . Arguably, it has not, as a result of this speech. Jeremy, lets get out in front of the morning meeting. Are you going to change your call on the fed for june or adapt to july . Jeremy we will not be changing our view for june. I would agree with stephanie, in the context of ecb playing catchup. Ecb has a slow reaction function by virtue of its collegiate governing council process. It is very much the case, expectations will be tested. It is not necessarily implying we will move to immediate policy easing from the fed. The next move will be lower. We have to wait later in the year to see how the data does evolve to the course of Second Quarter and how that backdrop plays out. I dont think the fed wants to use limited ammunition cyclically. Francine is the dollar to strong . Jeremy if you look at export not, you could argue it is in terms of Material Impact in trade backup. The bigger dollar story, it is somewhat overvalued, if you think about the underlying dynamics in terms of growth trajectory diminishing, fiscal backdrop more challenging and political risk, it favors a cheaper dollar environment. We are also seeing other Central Banks increasingly and progressively more dovish, making it more difficult to see that dollar selloff playing out. Francine 87 priced into the market, fed cut in july. How does the fed view it . Do they feel boxed in. Stephanie there is a great agreement on july. After that, all hell breaks loose. There was a great calm earlier this week in the bloomberg, there is an unusual degree of variation in what people think will happen from there. That tells you jay powell has a lot of room to maneuver. He can tilt the market in the direction of where he wants to go in terms of telling people what the reaction function will be and how they will be looking at data. He has never, when you look at the most dovish language, there has always been, as always, as we would always, he always softens the language, that he is not been, not actually put his neck out, as firmly as mario draghi did today, and his past speeches. Tom well said. Stephanie flanders and jeremy stretch, we will continue this discussion. A chart to break before we talk about the fed special. Bloomberg dollar index. Range bound feel, moving averages converge. We will come back and talk to jeremy about this at some point. Our fed special tomorrow, led by scarlet fu. This is bloomberg. Credit will continue to do well, because earnings are looking pretty good. Youre still having the flow throughout fiscal stimulus into corporate earnings but the future looks bleak. I want to sell rallies. High yield through 400 basis points. Tom price up, yield down. Off the draghi comments. Amazing, Capital Gains lockedin. Solid upper singledigit returns to fixed income so far this year. Francine bob michael, one of our regulars. It was a sharp turnaround. Sharp turnaround from what he had been saying. He was bullish on the other Asset Classes, as recently as one week ago. If he is on the money right now, earlier this month, they boasted total return highyield forecast, 2019, 12 . It is interesting, charting things he said. Tom we will see how we do with credit. 2. 05 , need to know is, to year yield, price up, yield down this morning. Francine this is what mario draghi said 19 minutes ago, about the prospect of more ecb stimulus, weak inflation. President of the ecb in portugal saying additional stimulus required if Economic Outlook does not improve. A lot of Market Participants are seeing this as dovish. We look at euro, bonds and bunds. This is bloomberg. This is surveillance, tom and francine from new york and london. Theervatives will vote in second series of ballots to whittle down the candidates. Boris johnson is the favorite to win. Lets get back to jeremy stretch. Pound movement, what is priced in . Boris johnson Prime Minister with a second referendum or general election or nothing at all . That andt is priced in then it is murky what his policy will be. Processot sure of the or the procedure. We are starting to see debate internally about the risk of fresh elections being held and negative connotations that might imply for sterling. If we see sterling rally, it is more of an opportunity to sell those rallies. Lift butmay well get a i suspect investors will be getting selling into that because boris is a favorite. Farcine what do we know so about where he takes us . There is a new Prime Minister in a couple of weeks who sets the course for brexit. Stephanie if you talk to anyone in brussels, there is few options open because they are not open to renegotiating in a fundamental way, and that clock will be taking. Yes, youcould could invoke article 50 are you could crash out which would leave an enormous amount to be resolved, or you could manage to get some way theresa mays deal past. There are not a great deal of options and although Boris Johnson has a reputation for flexibility, he has so nailed his colors on this even he would be struggle to be as flexible as he has been, because reneging on this perceived promise would destroy the conservative party. I dont know where i saw it. Suggest is he wants to clean house of the may cabinet. Are there enough bodies around that support his approach to brexit to file cabinet . Stephanie what you have seen in the number of heavyweights who have previously been not like Boris Johnson it all, like matt hancock, the Health Secretary and others associated with the Mainstream Party who have come out in favor of him. You see a long list of people saying, i agree. I do not think he will have a shortage of people. If you look at the list of luminaries behind him, what is he going to do different . Tom i dont want to put any pressure on new, but who will be the chancellor of the exchequer for Prime Minister johnson . Stephanie that is something that is causing a lot of discussion because the perception has been you have to promise it to somebody to get their vote. He has had so many people falling over themselves to support him, he will not need to give it to someone in return for their support. He gets to choose who he wants. There are so many different Boris Johnsons out there, we dont know who the next Prime Minister will be. We only know what his name is. Francine any indications that you have i have heard that to bejohnson will want international but will want someone at the boe. Jeremy we can talk about not knowing the identity of the new ecb governor, we do not know that about the bank of england either. There his desk is the whole agreement of possibilities. Johnson is a bit of a political chameleon so we do not know how he will reflect that. Whether he will be a fiscal disciplinarian as a chancellor, or you look at some of his telegraph columns that include fiscal giveaways, we will see how that plays out in the changing of the guard. Appointments,t of the boe and his cabinet. Stephanie, thank you so much. Jeremy stretch stays with us. Lets have a look at your Asset Classes. Tom a lift up in the bond market after the draghi shock 90 minutes ago. Betty better equity markets. A 14 handle on the vix. That is a stunning twoyear in germany in the 10 year, even more so and the 10 year, even more so, 2. 05 . , ase are lower yields greater negative yield across the german space. Pulledushed from a one 1. 12. Viviana donald trump warning immigration agents will start making mass arrests. He tweeted the target is what he calls millions of illegal aliens. Officials say immigrations and Customs Enforcement would focus on more than one Million People issued final deportation orders. Congress will question President Trumps top trade negotiators since talks with china collapsed in may. Robert lighthizer is likely to face tough questions on the decision to boost tariffs on 200 billion dollars of chinese imports. Over to canada where the Prime Minister is said to give the green light to a major oil pipeline. Oil Companies Want to expand the thee from alberta to pipeline faces legal challenges and pushback from environmentalists. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Facebook is unveiling its own cryptocurrency, expected to debut in 2020. The goal is to avoid massive fluctuations in value so it can be used for every day transactions. They are placing their hope in crypto saying it could one day rival the u. S. Dollar. How big a deal is this . We have been trying to figure out whether facebook or google or somebody is becoming a bank in this brings it into that direction. This is huge news, just for the nash of cryptocurrency nation niche of cryptocurrency. Facebook taking that technology and infrastructure from bitcoin and others, and applying it to payments. Potentially it has big consequences. You have Global Regulators talking about big tech encroaching on finance, and other words companies that have Huge Customer bases facebook has over 2 billion active customers, more customers than the china and u. S. Have citizens if they can be plugged into an online payment system, that is a big deal, not just for crypto but for the Global Financial economy. How much francine time will investors give it . How do we measure success . In the next couple of months or longer term . Alastrair we need to wait a bit longer. Will not go live until next year at the earliest. Facebook is announcing it is a stable coin and they are announcing their partnership constructed such that it is not just a facebook venture. At will come from a partnership and mastercard, visa, uber, others. The overarching structure, there is two ways to tell how successful it will be. People say it has to be successful just by virtue of this size and reach of facebook and its partners. Morethan a few tom than a few people totally disagree with what you said, including a french finance minister who was scathing at the idea of a facebook currency. It will be backed by a collection of low volatility assets. You have got to be killing kidding me. How do we get full faith and credit . Alastair facebook here is potentially creating an alternative Financial System. Whether it succeeds or not, it waits to be seen. Crypto and finance people are , andsting this is serious the comments from the french finance minister and others saying this needs to be regulated, we need to keep a check on this because it is potentially a threat. Tom what about a threat to Money Laundering . Dream oflike it is the every criminal around the world. Alastair that has been the big criticism, but from what we know thus far, to use the facebook ain, you will have to show government authorized identification, your passport or drivers license. Laundering should be present here. Francine thank you. Today joeet, later weisenthal will talk to the man leading this initiative, david marcus. We will have plenty more on that and we also look at facebook premarket. This is bloomberg. The prolongation of risk has weight on exports and manufacturing. In the absence of improvement, such that the sustained return of inflation is threatened, additional stimulus will be required. We remain able to enhance our Forward Guidance by adjusting its bias and conditionality to account for variations in the adjustment path of inflation. By the way, this applies to all instruments over Monetary Policy stands. Further caps in policy Interest Rates and mitigating measures to contain any side effects remain part of our tools. Tom mario draghi, a bombshell this morning, moving markets. The driving of ever negative yields in europe. Ae 10 year germany down to. 30. Marcussen, what was the room like . What was the response as draghi spoke . What we heard this morning was in some ways very reassuring. It was the wellknown draghi who told us the ecb has the ability that messagend came across incredibly clearly, as we also heard from the soundbites. There are a couple of important takeaways. Draghi reminded us europe needs to complete its institutional structure with the Banking Union , with the Capital Markets union, and also reminded us that running fiscal policies at the National Level may not give enough of a spillover, so in a nutshell, if we have the idea german a should run a massive fiscal stimulus, that may not be enough to support growth in the euro area. He emphasizes the need for europe to have a fiscal capacity , which is something i can strongly agree with. Tom there is a heritage of ofiety general going back mathematics. Have you calculated out where the size of negative Interest Rates begins to impinge on the Financial System . Depends on really how those negative Interest Rates are set up. If you just have a cut on the deposit rate today, that would become an additional headwind for the banking system, and we have seen how equity markets respond to the idea of further negative rates. Just thinking at an absolute level, it would present a headwind. It was clear from president draghis message they would be measuresng mitigating to prevent this from becoming significant. We immediately think about things like tiering. If it comes with a good tiering system, there is room for the ecb to cut rates additionally into the negative, and the euro area being a more open economy than the u. S. , what respond more through the currency channels. Clear, the ecb is well aware of the headwinds that come to the Financial System potentially from the negative rates, and are prepared to come up with mitigating measures on that. Francine it was very clear that going into the speech, the market wants to know whether the ecb has the tools to deal with it and whether they were ready to deploy. It is pretty clear mario draghi will deploy it, but will the market keep testing the ecb to see if they have the tools . Michala the other message i thought was clear from president draghi this morning is to say the Central Banks cannot be relied on to do everything on their own. He emphasized i keep repeating about the Banking Union, Capital Markets union, but i think it is important what the fiscal union to recognize europe has the capacity to complete these institutions, but it is critical that we do that. If we keep relying on the ecb fix all the problems, that is not a viable solution in the longterm. That was also clear from what we heard this morning. My answer in the short term is yes francine let me go to jeremy stretch. We are talking about the u. S. Dollar and euro. Someone is basically asking what did the fed due to gold. Does this dovishness change Asset Classes . Jeremy potentially, because if we will see further discussion of lower rates globally, those assets which do not have a relative yield like the gold price may find some residual value. We will see the u. S. Dollar coming under pressure and a lack of inflation. Those factors play positively in terms of the gold market and price. It will be the case that the unintended consequence of these processes may well be that the very well remains supported and potentially continue to climb. Francine jeremy stretch continues with us. Michala marcussen joining us from portugal. We will bring live coverage of the ecb forum with an allstar panel, including mario draghi, mark carney, and stanley fischer. London, at 2 00 p. M. In 9 00 a. M. In new york. This is bloomberg surveillance. Meats shares of beyond art opening at a record high. Shortsellers are feeling the heat. The stock is up almost 600 . Costhas caused short shortsellers 560 million and mark to market losses. The biggest maker of bicycles says the era of made in china is over, telling bloomberg they saw the writing on the wall early on. Giant started moving production to its home base in taiwan after President Trump threatened beijing with tariffs. That is your Bloomberg Business flash. Tom thank you. Jeremy stretch with us, an extraordinary morning with mario draghi moving currency markets. Do we have dollars stability and Dollar Strength pushing against massive consensus . See a morewe do patient stands from the fed in the context of tomorrows event, that might risk a degree of consolidation in the dollar, because we have seen a rebound in some of the dollar indices of late. Markets have priced in potentially too aggressive policy from the fed. I was reading an article whether the fed should consider moving in 50 basis point increments, which underlies the degree of discussion in the market. If we see that, we might see a degree of residual dollar bounce over the next couple of sessions. What . T tom against what is your euro call . Jeremy it has been pressured by events and we have revised back our euro call in light of the language used in the press briefing earlier this month, because the conditionality for the Forward Guidance has changed and risk factors in terms of uncertainty. If those crystallize, we can safely say the market will discount more aggressive responses from the fed. I am not sure whether we revise our euro trajectory lower, but we may see that waterbased dollar rebound broader based dollar rebound over the next sessions instead of changing the broader trajectory of the forecast profile. Francine if you look at renminbi, it is all about the trade concern. Will it touch seven and does dovishness from a central bank change anything . Jeremy that is a threshold that has been a wellworn topic and seems to be the case that the chinese authorities are trying to reduce the influence of that in terms of the importance to the market. It will be interesting to see if and when we get back to those levels, whether there will be a more relaxed stance from the central bank authorities. If we see the fed maintaining a more prudent stance, i think we dollarcnh moving closer to the one dollars 63 threshold 163 threshold. China continuing to do more to stimulate and reduce the domestic francine jeremy stretch, thank you so much. Coming up, dean curnutt and Sebastien Galy. This is bloomberg. Were the slowskys. We like drip coffee, layovers and waiting on hold. What we dont like is relying on fancy technology for help. Snail mail we were invited to a y2k party. Uh, didnt that happen, like, 20 years ago . Oh, look, karolyn, weve got a mathematician on our hands check it out now you can schedule a callback or reschedule an appointment, even on nights and weekends. Todays xfinity service. Simple. Easy. Awesome. Id rather not. Tom this morning, mario draghi stuns the market. Additional stimulus will be required. The german tenyear plunges, directed an ever greater negative yields. Returns, hugely anticipated dean curnutt. Weak dollar Sebastien Galy anticipated it is out there somewhere. This is bloomberg surveillance, live from new york, tom keene and Francine Lacqua. Thatoth looking to was something to see mr. Draghi moved the markets. Francine bonds and stocks are up. The fact that the ecb president fueled some stimulus hope, we have had a huge move and the markets. Eurodollar puts everything in perspective, dropping below 1. 12. This was a big deal. He gave it his best shot and it seems to have worked. Tom we are lucky we have two wonderful guests. Right now in new york city, here is viviana hurtado. Lam says there is not a timetable for restarting the legislative process after suspending the controversial extradition bill that led to massive protest. There are calls for her to quit and she emphasized she intends to finish her term. China supports her. She has apologized to hong kong. Donald trump downplays the attacks on chefs ships in the persian gulf, saying they were very minor. When asked if he was considering military action, he said he would not say that. The u. S. Is sending another thousand troops to the region and iran denied they were behind the attacks. The british economy will probably flatline in the Second Quarter. The bank of england raise Interest Rates until well into next year. They will announce their next decision on rates and thursday, following a slew of disappointing economic data. Facebook unveiling a Digital Currency at wants to rival the dollar, called libra. It will be a socalled stable coin. The goal is to avoid massive fluctuations in value. At the earliest, libra comes out next year. Ofwill speak with the head the digital initiative, david marcus, Vice President of messaging products. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Tom equities, bonds, currencies, commodities, free money, equities live. Spread, a real shift to the growth questions. Oil,ine mentioned euro south a little bit. 15. 09, and the support of the morning, negative zero. 30 on the german tenyear, 2. 04 moments ago on the yen u. S. 10 year. Francine it is all about the euro and it is amazing to see it drop below 1. 12. We saw a corresponding drop in developed market yields. U. S. Togged the 10 year its lowest since 2017. There is a dovish tilt and that is the story throughout the day. Markets gaining 0. 7 . Ecb, draghi nudging the indicating that lingering risks are need for action. Mr. Draghi the prolongation of on exports and manufacturing. In the absence of improvement such that the sustained return of inflation is threatened, additional stimulus will be required. We remain able to enhance our Forward Guidance by adjusting its bias and conditionality to account for variations in the adjustment path of inflation. By the way, this applies to all instruments over Monetary Policy stance. Further caps in policy Interest Rates and mitigating measures to contain side effects remain part of our tools. Francine joining us now is matt listening toas that press conference. How dovish was mario draghi . Matt if you think about it, he is talking about the fact that they have a bazooka and they are able to use it. He justified some of the measures they used or could use in the future by citing court of justice opinions backing their autonomy. It was incredibly dovish. He referenced tiering because they could lower rates further and mitigate the effect. Giving different regions different rates, or some depositors a break on negative Interest Rates. He mentioned throwing at the capital key. The limits they face on quantitative easing on their own, they can lift those if they need to. He is basically saying any tools they want, they will use, and their performance shows they are willing. They have not been able to move the needle on inflation. They can drive the euro and yields down, and move markets, but can they boost inflation and Economic Growth . Francine that is my chart of the day if you look at the fiveyear, fiveyear inflation swap. What can they do to spur inflation . He is talking about lowering rates further. You see money markets pricing in another 10 points of lowering. He is talking about more quantitative easing and it goes beyond buying National Debt and into corporate debt. What is the line between quantitative easing and Monetary Policy and fiscal measures . He called on more fiscal measures from governments around the world and noted those in debt are limited by their actions because of e. U. Regulations, and those that have a surplus, mainly only germany, do not want to spend and do not see the spillover effect of the spending for other countries that needed. He is between a rock and a hard place and is using Forward Guidance in this speech to convince markets to get behind him. Tom matt miller, thank you so much. We are advantaged with two really important guests. Us and deanly with curnutt. Adjusthave to adapt and to what mr. Draghi said . Ecbstien we expected the to go more dovish. The question is what is the impact . Tom do they have a bazooka . Sebastien they have a huge bazooka, and my experience working with them in the past, they announced negative or Interest Rates negative Interest Rates to explain how they will impact short data to Interest Rates to the currency, and then they come out with Interest Rates. The market does not believe them. Second Interest Rates negative Interest Rates, the italian curve and great curves should be much lower. Greek curve should be much lower. Tom what do you do listening to him . Dean the Central Banks have got a tool kit, monetary toolkit that acts specifically to asset prices. The concern i have as we have a slowdown globally in the real economy. It will be effectual to the extent that we will never know how much the Monetary Policy stimulated the real economy. Necessary,hand is more fiscal stimulus, and it is not in the cards. Francine if you look at what president draghi said, he has the tools and is willing to use them, but he is stepping down. How can we be sure the next ecb president has the same resolve . The next ecb president will likely be a hawk but he he will be faced with the same situation. The germans have an incentive to see easing from the ecb so it will be the same thing. There might be a delay and the question is really what kind of measured they would prefer. And negative Interest Rate has an impact on the currency and the fixed income curve. Quantitative easing will benefit mostly italy and greece. Corporate credits, they would eventually be some Central Banks that are used to doing this kind of credit risk. Others may not used to be. It is a question of the instruments which may be used. Francine do you agree with that . Dean ultimately, investors need to step back and ask the Central Banks carry a heavy stick and can move markets for time, so you have to trade with the central bank. They are ready and willing to do more, possibly much more. The fed is telling you the same thing, so you have to acknowledge the power of the toolkit. It is quite viable. On the opposite side, we have to wonder close to the zero balance for europe and asia getting closer to the fed, how much will flow back to the real economy when the data suggest things are slowing. Tom dean curnutt with us, Sebastien Galy as well. There is so much to talk about. Dean curnutt wandered in with a phenomenal chart which i have forcibly stolen. I will probably use it and not give him credit. The former ecb chief economist in the 1 00 hour. From new york and london, this is bloomberg. This is bloomberg surveillance, tom and francine from london, and we are debating facebook. The Digital Currency, all you need to know about the Digital Currency called libra. Markets,ptical on the others less so. Facebook gaining some 4. 2 premarket. Tom and is not a currency. Francine what do you want to call it . Tom it is an invention. Interviewthal has an with mr. Marcus on facebook. It is not a currency. Francine they call it a global Digital Currency but we are going to push them on that. Lets turn to our other top stories. Viviana analysts predicting apple could be seeing weaker than expected demand for iphones. Trade tensions have hurt sales in china. Jp morgan cutting its forecast by 4 . There are concerns bands to huawei will hurt iphone demand. Supposed to have an 8erprise value of roughly billion. Partnersh firm mkm crunching the numbers and saying they are impressed by slack numbers. That is the Bloomberg Business flash. Tom thank you so much. I am going to rip up the script with Kevin Cirilli because it is always important when we talk about war. 42 things to talk about today, but only one percolating across the zeitgeist, the talk of a war with iran. You have got to be kidding me. What to the chairman of the joint chiefs of staff think . Kevin behind the scenes, the state department is confident iran has been behind the tanker mining incident last week. Interviewed a republican congressman from illinois, and he would like to see the administration go further, and he believes this would warrant villa terry response. Military response. He was praiseworthy of President Trump for the restraint he has used. Field areatic primary campaigning that there is no appetite for military conflict, but President Trump is set to kick off formally his Reelection Campaign in orlando, florida tonight. It will be interesting. Tom what does the pentagon think . They have got to be quiet and demurrer to the still valiant population civilian population, but what do they think . Kevin they are saying this is iran lashing out and trying to say that they want to make some kind of Economic Impact on oil markets in the equities oil markets in the energy sector. They feel, according to the u. S. Perspective, that because iran has been so incredibly isolated economically because of the sanctions, this is iran essentially having a temper tantrum. On the flipside, the administration at the state department saying there is no chance at all in the shortterm that the u. S. Is going to lift economic sanctions, especially after what tehran just did. Francine talk to me about his approval ratings. Are pretty low despite a Strong Economy and the fact that he has the advantage of incumbency and a wellfunded campaign. Kevin there was this back and forth yesterday and the past couple of days about the president shaking up his polling team. According to the sources connected with the trump campaign, they were rolling their eyes that showed battleground losses of trump to biden. They say it is waived too way too early. All of the chatter on the democratic side has been the surge of elizabeth warren. She has been able to capitalize off the summer momentum and has crafted a narrow position to the middle of senator Bernie Sanders but to the left of biden. Next week is the first debate in miami. I will be there. If warren has the stage alone among the toptier candidates, biden has to fend off Bernie Sanders. Going to continue with dean curnutt on the dynamics in the market. Coming up, the fourstar general stanley mcchrystal. An important time to speak with him on iran and the straight of hormuz. This is bloomberg. Bloomberg surveillance, francine in london, tom in new york. Dean curnutt and Sebastien Galy with us. This is the bond volatility versus the equity volatility. They are tightly linked, and things changed in may. 2018, you hadk to more equity volatility than Interest Rate volatility, february 2018, a growth scare at the backend of 2018. Changed and ite speaks to the dispersion of the views of what the fed will do next. The fed is quite challenged to interpret the data. Do they move quickly because the market decided they should move quickly or should they be more patient . Tom do you see acceleration in gamma . Is it simply trades gone wrong and people are covering, or is there an acceleration . Dean there is some acceleration. If you look at bund versus u. S. Yields, it has increased dramatically. I am not surprised to see draghi and the 10 year at 30 pulley down u. S. Rates pulling down u. S. Rates. Tom this goes to the linkage of draghi and powell. Are they truly independent . Sebastien there is some form of evenl coordination, including the chinese to a minor extent. It is interesting to see americans are not protesting europe going for more negative rates, which means there is probably a deal between the americans and europeans that they would basically get a weaker currency on the others. Francine how would you actually describe the relationship between the ecb and fed . They are about to meet. They looked at what president said. How does that change their tilt . Dean if the europeans go for more sebastien if the europeans go for more quantitative easing, that will flatten the yield curve and will send investors searching for highquality liquid assets, which are only to be found in the United States. Tom what happens if barclays right wing is 50 basis points . If we get an arthur burns like rate cut, what does that due to to the greek letters . Dean rate cuts happen more quickly than rate rises. The 25 dips every quarter, that is behind us now and the 50 is in the cards. It would take a sub par employment report. How does the market greet it . It is impossible to know. That would be giving the market to some extent what it wants. I am looking at lower rates and thinking, is there a selfcorrecting mechanism . , housingffordability becomes more affordable, or are lower rates a symptom that we have a real problem . Francine we will be back. This is bloomberg. Hey im bill slowsky jr. , i live on my own now ive got xfinity, because i like to live life in the fast lane. Unlike my parents. You rambling about xfinity again . Youre so cute when you get excited. Anyways. Ive got their app right here, i can troubleshoot. I can schedule a time for them to call me back, its great you have our number programmed in . Ya i dont even know your phone anymore. Excuse me . what . I dont know your phone number. Aw well. He doesnt know our phone number you have our fax number, obviously. Todays xfinity service. Simple. Easy. Awesome. Ill pass. Bloomberg surveillance surveillance,. A scathing interview, Joe Weisenthal will be on best behavior with david marcus. A very interesting interview. There is a lot to talk about. You see this with facebook launching up x percent and having a good run. Stars are in at 9 30 but mr. Weisenthal is greeting us on this important story. There is no way this is a currency. Our article says it will be based off of securities. Joe it is currencyish. And jeromedimon powell and Randy Quarles do not care about ish. Why is zuckerberg different . Joe there will be a thing called libra. Presumably you will have a wallet with x number of libra in it. It is currencyish. It is backed by traditional financial assets, currencies and government bonds and banks. Any wallet we use that is digital or any credit card, what is it but a digital number . Tom the french finance minister is out saying, right. 582,000 dollars i have to give to the United States, this sounds like a gift to god. Joe traditional cryptocurrencies are designed to be decentralized. Tom your design is an agent for criminals. Joe i put it a nice way. This is not designed for that, and they make very clear and the white paper in their documents, anyone dealing with this has to deal with traditional banking regulations, means it is much less like a cryptocurrency as we know them and more like the payment apps. Joe, the nice one is in the doghouse because i am the one calling it cryptocurrency on air. What it means is by 2020, i will have a mobile phone and i can use a payment system. We can call it the digital wallet package facebook has. Will it get traction, and when can you find out if there will be traction, the first few months or longer . The there is no entity in entire world that has facebooks size and global distribution, and that is an enormous leg up. Methods these payment around the world. It is fragmented. There is no entity that exists and is huge virtually everywhere , outside of china, the way facebook is. Layer on top of that epee were payment network, it could be really big. A medium forthis payments . If it is, does it cut out the riffraff donald tom was talking about . Paymentss a medium for and it attempts to cut out the riffraff because it is backed by traditional currencies. They are going to have to comply with traditional antimonday launderingantimoney regulations and anticapital controls. If people could use libra to evade it, they would shut down the project quickly. Tom i am holed up in my phone. I can move money around with banks. Why do i need this . Sebastien because you want to avoid capital controls. Tom my word, they continue. Sebastien it is not pretty. A makes sense to have unionized transaction, which is the dollar. You are trying to get some of that liquidity out. It might work in small economies like bolivia. Forhere is a demand dollars, there might be a demand for libra. Tom i think the coverage has been responsible. What will you ask him . Joe i will ask him about that, someone in bolivia or venezuela wants to obtain libra for the purpose of moving money in and out of the country, whatever it is, how will they stop it . L this currency be able will this currency be able to do that . Law enforcement will not be happy if they cannot. Francine who will regulate this . Is it Central Banks . We dont know. Joe that is the issue. Z ell apphis ell that is based in u. S. Banks and the regulators of a u. S. Based payment app are straightforward. It is u. S. Regulators. When you start thinking about how Something Like that could be made equivalent on the global stage, it is pretty unimaginable. Tom Joe Weisenthal, thank you so much. This is a really important interview coming up with mr. Marcus. Right now in new york city with our first word news, here is viviana hurtado. Viviana donald trump warning next week immigration agents will make vast arrests, tweeting the target is what he calls millions of illegal aliens. Immigrations and Customs Enforcement would focus on more than one Million People issued final deportation orders. Congress will question President Trumps top trade negotiator since talks with china collapsed in may. Robert lighthizer will likely face tough questions on the decision to boost tariffs on 200 billion of chinese imports. He may be pressured over the replacement treaty for nafta. Justin trudeau is set to give the green light to a major oil pipeline, expanding it from alberta to vancouver. Increased mean a 15 in daily shipping capacity. The pipeline faces legal challenges and pushback from environmental activists. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Hurtado. Ana this is bloomberg. Tom we are going to go to Sebastien Galy. Just publishedos his title mario is back. To start with, the ecb easing will likely be accompanied by fed easing. Do you assume that, a joint central bank qe . Sebastien you get the fed and the central bank easing. The market has gone over itself. Tom is the punch bowl sloshing over . Cerevelos,to george as it down 20,000 . Dean we have seen such a change in Monetary Policy expectations. Tom is the vix where it should be . Dean it is pretty fair around 15. We have a macro model that looks at the vix which breaks it down to ism, which is falling, corporate politics, which are strong. It is about fair value. We talked about the move versus the vix, the market in equities is not moving around much. Realized volatility has been reasonably subdued, so it is hard to justify vix north of where we are. At what when you look the market will look at in the next five to six months, is it all Central Banks or will they figure out that geopolitics is alive and we do not know what happened with the trade concerns . To look atways have geopolitics and wary there is something the markets cannot price. These risks do not fit into an excel spreadsheet and there is a lot of geopolitical uncertainty. Central Bank Uncertainty is quite significant as well. My sense is the powell fed is market friendly and they want to do the right thing. They are concerned they remain the only game in town, that this is the only pathway to try to restimulate an economy that is slowing. The biggest concern is that the economy is slowing at a speed they may not be able to counteract. Tom the first and second derivatives are extraordinary. Sebastien galy and dean curnutt. Do not forget Joe Weisenthals interview. Tomorrow, the fed decides. Scarlet fu put together a tremendous show with her team, smart conversation about a fed that has changed after what we heard from mario draghi. In the absence of improvement, such that the sustained return of inflation is threatened, additional stimulus will be required. We remain able to enhance our Forward Guidance by adjusting its bias and conditionality to account for variations in the adjustment path of inflation. Policy ratesand and mitigating measures to contain any side effects remain part of our tools. Still hasp considerable headroom. We will use all the flexibility to fulfill our mandate. Tom mario draghi today, shifting markets. He stunned markets. Historic, more negative bond yields across germany and europe. With us, dean curnutt and Sebastien Galy. I could show a fancy chart, but i think we forget where we came from. Bring up the single best chart. We have showed it too many times. Normal,are back to 2008, up we go u. S. Balance sheet, quick u. S. Response. Japan takesro lag, off and euro catches up. None of this is in the textbooks, is it . Sebastien none of it is, but they have adapted very slowly. And did what was necessary took a necessary decision to reflate. Tom the nation did not retire the failed net of the previous expansion. Sebastien correct, and the banks which still are deleveraging. Do you know what the derivatives are on deutsche banks Balance Sheet . Talk about retiring bad debts. Do you have a clue of the nominal makeup or residual makeup . Dean not really. I know having worked at a couple of large banks, it is a complex organization. Tom you are willing to admit this on air . Dean it is complex for sure. Francine when you look at the inflation forecast, are you more worried about europe or elsewhere . Sebastien worried about the Donald Trump Administration relative to china. People vastly underestimate the probability they will slap tariffs on the rest of the imports to the United States and the impact should be nonnegotiable. It has an impact on European Growth because there is a decent amount of exports from germany to china, which is slowing down. The chinese are being hit intentionally at a second time when real growth is around 4. 5 relative to the 6. 4 they announced, and likely declining and going slowly and eventually taking up. Taking up. Ticking up. Francine do Central Banks need to think about things differently . Sebastien i remember having a discussion with an old professor years ago because i did not understand these dynamics. He explained it that as the population ages, potential growth and expected inflation fall. We have a problem with demographics. Tom lets get out with dean curnutt, the gloom crew on friday to get to the miserable weekend, they will say the equity market is disconnected from reality. Is that true . Dean it might be. It is hard to say, but when you look at the implied probability of rate cuts versus an equity market at an alltime high, that is the disconnect. The bond market is seeing something from a fed expectation standpoint derived from a slowdown in the economy but does not seem to show up in equity prices. , corporatelain it profits have remained reasonably strong so this next round is critical to see if there is any further deceleration in corporate profits. A concern i have is we had this big selloff in q4. The selloff ended because powell did a massive aboutface and that is now fully in the markets and more. The fed easing cycle is impounding these rate curves and equity markets expect this in some ways as well. I am wondering what further easing does for the real economy. Tom David Rosenberg mentioned as well, thank you to douglas cass for mentioning mr. Rosenberg. Sebastien galy and dean curnutt, thank you so much. Coming up, a conversation with the ecb former chief economist in the 1 00 hour. Please stay with us. This is bloomberg. This is bloomberg surveillance. Meat are beyond opening at a record high. Shortsellers are feeling the heat. The fake meat maker is up almost 600 since its ipo. Shortsellers 560 million in mark to market losses. Maynese conglomerate be getting back to bigticket deals and may make a bid for ,ayers Animal Health unit which could fetch up to 9 billion. They could team up with private equity partners. That is the Bloomberg Business flash. Will have aro and i complete block on the conspirators comparison of spam beyond me. Spam. Francine spam . Tom it is a Great American food, one of the four food groups. Hehael mckee with us, changed michael mckee. Draghi frontline chairman powell . only that he gave his speech sooner in the markets do not believe they can do their job and get their mandate fulfilled. Breakevens Going Forward tom bring up the chart. He says it is better than beyond meat. Michael if you look at the breakevens, they are rolling over we are blue, they are white. The markets are telling us we will not get inflation. After the fed meeting, you should show the Market Reaction and the breakevens reaction because that will tell you whether the market thinks jay powell got things right. Tom are we on the edge of arthur burns . Do i have to get a pipe flour out . Michael we are going back to a wheremaybe the 1930s, people do not know if policy will work. That is why i am watching these breakevens because it will tell you whether the markets think a rate cut will do anything. If mario draghi cuts rates or jay powell cuts rates, do we get inflation . Do we get faster growth . That is not clear. Francine the markets just want to know about the results. We all remember when mario draghi was in london talking about that whatever it takes moment. Is that what the market wants to hear, that they are prepared to go to any length . Michael particularly equity markets, they want an additional sugar high of rate cuts and will go higher, but how long does that last . If trade wars do not go away, you have a huge weight on the u. S. Economy and the German Economy that drags down europe. You have a problem with the overall outlook, that the markets are driving a downshift. Can the Central Banks turn not around over a longer period . Francine let me cut you off, because President Trump is talking about president draghi and his latest wheat. Tweet. Mario draghi Just Announced more stimulus could come, making it unfairly easier for them to compete against the u. S. They have been getting away with this for years along with china and others. Discuss. Sebastien that was the part that did not make any sense, the u. S. Was so calm about the fact that ecb was pushing than negative Interest Rate the negative Interest Rate. If you want to attack the Interest Rates, you go for quantitative easing whereas negative rates often target the currency. Theeduces significantly possibility of getting more negative rates out of the ecb. Corporate bonds will probably increase significantly. Tweet, student trumps maybe he is conflating something. Dollar. Vantaged by the it has not broken out to new strength. Michael the interesting thing about it, the dollar going into most fed rate cutting cycles is falling because it is a sign the u. S. Economy is weakening, but the dollar has been strengthening. That tells you about the market expectation for growth or relative growth. Tom did your question change for the press conference what this draghi moment . Michael it may. It has to thread a tight needle. Tom interesting, all of a sudden the fed meeting takes a renewed interest. Thanks to our team for blowing up the show about 10 minutes before we went on air. Sebastien galy, thank you. Tomorrow, michael mckee. At comcast, we didnt build the nations largest gigspeed network just to make businesses run faster. We built it to help them go beyond. Because beyond risk. Welcome to the neighborhood, guys. There is reward. Beyond work and life. Who else could he be . There is the moment. Beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. Take your business beyond. Further cut in policy Interest Rates and mitigating measures to contain any side effects remain part of our tools. Alix draghi wakes up the market. Yields plummet to record lows as ecb president mario draghi says rate cuts are still he told outlook worsens. The fomc kicks off its twoday day meeting with economic data. Investors opt for the safety of treasuries. And strategists from Credit Suisse and jp morgan reverse calls made just two weeks ago as investors brace for turbulence. David welcome to bloomberg daybreak on this tuesday, june 18. Alix, you said mario draghi woke up the markets. He also woke up President Trump because he almost immediately responded. He said mario draghi Just Announced more stimulus could come, but made it unfairly easier for them. They have been getting away for years