Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

Lacqua in london. Stoxx 600 gaining. Optimism on the u. S. China trade war truce waning. Focus onear yield, Central Banks in the fed. President exclusively on surveillance tomorrow. The cut extension. Crude oil 59. 08. We will hear from irans oil minister. We focus in on iran and sanctions from the u. S. Opec extending production cuts into 2020, as the worlds , talks inporter vienna were wrinkling. The commitment to a ninemonth extension is solid, strong. Not only are recommitting to individual commitments to conformity from all countries. Tariffsd trump says against mexico are off the table, after the country stepped up efforts to stem the flow of migrants from Central America to the u. S. Trump said mexico is doing a great job and having a big impact on migration. Australia cutting the key rate for the second straight month. Policymakers attempt to provide support to a slowing economy. The Bank Governor lowering a key rate to 1 . Italys government lowering the deficit in a bid to comply with eu rules. Rome is hoping to avoid sanctions for failing to rein in their debt. It is expected to be over 2 of output, much lower than the 2. 4 seen in the april draft budget. Deutsche bank discussing reportedly with regulators about lowering the capital buffer to help finance impending restructuring. The german lender talked to the ecb about the reduction. Authorities are positive about the plan. Accused u. S. Aoc Border Agents of using psychological warfare against detained migrants. She said they were told to drink water from toilets if they were thursday. She took part in a congressional visit to facilities in texas where undocumented immigrants are being held. 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. Im viviana hurtado. This is bloomberg. Words fail but we understand there will be an investigation. Airbus and boeing dispute leading to more tariffs. The u. S. Published a list of more than 4 billion eu goods, including meat, cheese, cherries, olives. The eu has a similar case against boeing. The latest punitive measures will add to strained ties between washington and brussels. What does it mean for the markets . Jackie. Nd us. K you both for joining we had optimism about the trade truce between the u. S. And china. The next day we focus on europe and the markets do not know what to do. Trevor that is a good setting up. We are always nervous when President Trump starts tweeting about alltime highs. It is almost like he uses that as an opportunity for something that would push stock prices down. Startede g20, tweets coming out. He surprise people by being conciliatory with china. We are starting to see messages again. Political risk at the moment affecting stock markets. Francine how should we deal with the Political Risk . Jackie the Global Economy seems to be balancing on a knife edge, precipitated by u. S. , and any question a more tariffs coming into play increases the risk of recession or the risk of recession around the corner. That is impacting market nervousness. Francine is there a modus operandi of President Trump . He goes to the brink. Even with china, expert saying yesterday, what we could try to understand is that this is not a superior, state or country in the next 10 years. This is more immediate. Operandirumps modus is to manufacture many crises and then solve them by backing away. Crisis, he solved it, crisis, he solved it. The massive tax cut helping corporations and billionaires, he has renamed that, that is the legislation. Francine if you trust that, and it means he would always solve the crisis, so we shouldnt worry about eu tariffs, or should we . Tariffs havehina not stuck as far as he was threatening at some point. Real things are happening which are adding sand to the World Economy. Trade tensions and the many trade war, negative for the World Economy. You have to set it against the fact that you have lower inflation than people were expecting at this stage in cycle. China having stimulus. That does not feel like we are close to the next recession, as it felt like last year. Francine what do eu tariffs mean for europe . These are not carmaker tariffs. This is cherries and meat. It will increase prices for consumers. The bigger economic repercussion is more protectionism generally as retaliation or reciprocal tariffs come into play. Economyct on the global is physical. Trump has been vocal in his bashing, persuading Interest Rates to go lower. Im not convinced that will happen to the extent that the market is expecting. That would be a risk for global stock markets. If they say, dont cut. Are expectations to entrenched . We are expecting a cut this month. I think it is important that the fed wants to maintain expectations, keep the door open to further cuts. What seems to be happening go is to be happening, is that they are rethinking the inflation target. Growth is slowing. Global pmis were quite low this morning. It is a rethinking about whether the fed should have an inflation target or average inflation target and as it changes in structure of the way they are addressing inflation, which says to me the rate cut, whatever happens to growth. Francine thank you both, jackie and trevor. Staying with us. Up next, live in hong kong after protesters smashed their way in. We speakext and later, to the vicechairman. We talk all things coffee, italy and trade in 30 minutes. This is bloomberg. No doubt, it has a negative impact. We dont resist sanctionsis unfair against iran from the United States. Francine that was the Iranian Oil Minister speaking to bloomberg a few minutes ago. More of that exclusive interview later. Saudi, asews out of the opec plus holding on, extending cuts. The Saudi Oil Minister says he is 100 competent on the deal today, that he Sees Oil Demand picking up. They need to minutes apply in the wake of trade tensions, possibly having an impact on World Economy. Straight to the Bloomberg Business flash. Viviana frozen Flagship Fund still waiting to access the money. The fund will remain locked. There is not a timeline to reopen. That could take one for more than one year to liquidate half of the portfolio. Was to protect interest of investors and to give the time to execute the strategy as we have outlined, a shift in the portfolio from liquid to more liquid. Ensures we protect the interest of investors. Viviana china closer to merging the biggest chipmakers. That would dwarf international rivals. Chinas shipbuilding and state shipbuilding are planning a joint strategic restructuring. They create everything from aircraft carriers oil tankers. That is the Bloomberg Business flash. Francine protesters occupied and ransacked the Hong Kong Chamber on monday, after a dramatic escalation against the china appointed government, prompting police to fire tear gas to clear the area. What is the mood today . Hi, francine. Most of business and operations of government resumed normal although the government headquarters remains shut. We have the Legislative Council president today saying, after the storming of the chamber, it remains a crime scene. The council will not have meetings for the next two weeks. Repair work will take a while. All in all, business back to normal, traffic back to normal and we will wait to see what else is coming from the government for the rest of the day and the next few days. Francine i have heard various aspects of this. Does this feel like a win to beijing . Fion we talked to some of the analysts. In the short term, some of the moderates in hong kong could gravitate to the government. They may have more sympathy for the government given what they have seen last night here, however, again, this is really about trust in the government. The fundamental issue is whether people trust the government, trust the institution and whether the government will resolve some of the issues, the demands of protesters. Francine thank you to our bureau chief in hong kong. China will scrap ownership earlier than planned, according to the premier league, the latest up by policymakers to open up the 44 trillion financial industry to competition. This comes after the u. S. China trade agreement. It remains on course despite broader political tensions. Im notnd jackie, exactly sure how we should do reforms in china and how we should view debt, cracking down on capital outflows . Trevor but im focusing on is the degree to which china is easing policy to offset the slowdown. As a global investor, it is critical to work out whether the economy will it celebrate or not accelerate or not. You have heard about micro easing here and there, in terms of the ratio cuts another stimulus but we are not seeing a big easing a policy. There is irony. The more difficult the trade talks are, the more likely it is china will use policy more forcefully monetary side to offset potential damage. The fact that we are seeing piecemeal easing and the trade friendly, may delay potential recovery in chinese economy. If they overall, stimulate internally, what does it mean for the rest of the satellite, em countries . Do they suffer or benefit because supply chains moved to them even if pboc is inward looking . Trevor they benefit from a stronger chinese economy. When they were in City Building phase, there was a more direct exporting. Now we are seeing more targeted stimulus. Australia specifically and cutting Interest Rates. It is a different kind of stimulus. Money aggregate in different pieces, there is easing on the way. It was massive. Chinese slowdown, 2015, led us to think the World Economy was going into recession then. 2018 was again causing recession fears. China is pivotal for the World Economy, even if it is not building cities. Francine is china the number one financial risk . Market,in terms of the it feels like it is a oneway transfer of intellectual property and the announcement about access to the Financial System it feels like a gesture in the right direction. I would still question whether we have a real intention of access for western businesses to go to china. Francine do you think the intention is to open . Consumption is picking up. Trevor intention to open up in a limited way. The world is watching hong kong closely. Hong kong was set up as a one country, two systems framework. Protesters are worried it will be two countries, one system. The way that is done will affect the likelihood of Hong Kongchina generally becoming the Financial Sector generally. Francine thank you both, staying with us, jackie and trevor. Next, pay to lend. Yields on twoyear bonds drop below zero. This is bloomberg. Francine this is bloomberg surveillance, im Francine Lacqua in london. Twoyear italian bond yields have dropped to zero for the first time in more than a year. Italys deficit is now expected to be over 2 of outputs, much lower than the 2. 4 seen in the april draft budget. What do youackie, do with italian yields . Yield to bea lot of had in european government markets, on a twoyear basis, you are buying a bond which the ecb will buy off of you if necessary. Years, people will be watching closely to see what the deficit turns out to be. Forecasting a deficit of more throwing anort of insult to the face of the eu, because of the budgetary rules. You can seekhing forgiveness for after the event. Francine great chart. Most of them are negative. There must be a better bargain. Jackie trevor said, there really is a hunt for yields across european markets. There is nowhere to look. That is why there are a lot of bond investors, Fund Managers looking for alternatives where mandates allow them to do that. Available ining this market, even unto years. Francine we talk a lot about leaders having to find people to fill the top jobs, possibly a female as the head of ecb. Does that change your outlook . Trevor i dont think it does. You can analyze things to the hundredth degree and work out differences but whoever takes over at ecb will be aware of the sluggish growth, the need to keep stimulus going and the need to keep the eurozone together. Those things are firm. Crisis situation that is where it comes out. How towill be pushing ou cope with the italy debt problem. Francine thank you both. Jackie and trevor, staying with us. We just had a summit update from eu leaders saying they seek to break the impact. Ca, one of thebi bestperforming commodities of the last quarter. This is bloomberg. Francine taxing eu goods, the u. S. May add tariffs on whiskey pasta. Hong kong with protests, the political crisis here opec extends output cuts. We will speak with an oil minister. This is bloomberg surveillance. I am Francine Lacqua in london. , we have the contenders trying to figure out how it changes at the dynamic of brexit, how they can differentiate themselves, Boris Johnson against jeremy hunt. Pmi falling to 43. 1. Uch lower than expected having an impact on pound. Lets get straight to the market moves. Big drops from Funding Circle , shares tumbling 18 , the ipo last september, the biggest drop on record and their lowest price on record. They have their outlook for the year with Revenue Growth at 40 , slashed to 20 . Ab inbev on the rise, shares up nearly 2 . Unit,ipo in asia beer said to be the biggest ipo of the year, they could raise as much as 9. 8 billion, putting it at a bigger Public Offering been uber. N wpp, they had been talking with private equity firms including apollo, but the pain capital billion by the 4 issue is without competing bids, perhaps investors are disappointed and wanted a higher number at the evaluation. Francine thank you. Lets get to the bloomberg first word news in new york city. The Trump Administration is turning up the heat at the eu, adding 4 billion worth that eu goods of a list it could hit with tariffs as a longrunning dispute between boeing and airbus with the u. S. Trade representatives estimating each year eu subsidies to airbus cost 11 billion of economic harm to the u. S. Hong kong embattled leader condemning demonstrations and the storming of the citys legislature, tear gas was fired at hundreds of people flooding into the building and the chief executive says protesters used excessive violence. Violence and vandalism by protesters who stormed the Legislative Council building. Over some time. This is something we should condemn because nothing is more important than the rule of law in hong kong. Ownership limits for Financial Companies one euro event planned for china, the 2020. R says by in ownership of Security Firm teachers, businesses, and Life Insurance companies will be allowed. The next round of trade talks between the u. S. And china is already underway according to donald trump, stopping the stalemate between the countries, washington announcing it would hold off on imposing new tariffs as talk with beijing restart. Cortezria across your accusing u. S. Border Patrol Agency of using psychological warfare against detained migrants, saying they were told to drink water from toilets. Visitth a congressional where an document immigrants were undocumented immigrants are held. 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. Opec will extend production cuts into 2020 and attempt to boil oil prices is Global Demand falters, after theings ministers confirmed agreement for a ninemonth extension with the Saudi Energy Minister says support came from all members. The commitment to a ninemonth extension is unequivocal, very solid, very strong. But ily are we committed have heard individual commitments to conformity from all countries. , our opecannemarie reporter spoke to the iranian oil ministry. Discussion weg in ad on putting resolution that clearly shows and declares this framework, this charter has no impact on based on its statute and mechanism which has a decision, it was very important for us. Another thing was some countries , we believe needs to receive a commission from their government and we mentioned it as a resolution. And we agreed that the presidency and presidency of this new charter should rotate annually between the member countries. These were the main changes in the charter. You are under a lot of pressure at home from hardliners. Are you confident the iranian government will back this charter . Yes, i do not think we face difficulty because this is a nonbinding, not Organization Corporation cooperation between the member countries are voluntary. I want to move on to iranian oil. You have said you will not address export in production levels but can you give me a sense of how dramatic they dropped since the sanctions . Open and disclose the way and manner we are doing this. The United States could put more pressure. Have you seen an impact on the iranian economy . No doubt. It has had a negative impact on our economy. Against thisist legal, you legal you. Estin we are finding ways to turn the sanction and export our oil. Reports you are still selling to china and even europe, you cannot name names but can you confirm you are still selling to some customers . I cannot say anything. The Oil Market Wants to know how much if at all iranian oil is still leaving the shores and borders of iran. Some statistics are out there. I know. It is the right of the customers and producers to know the marketsbut these manipulated by the United States. This is the difficulty and forced against and against us sayhe United States not to many things for the benefit of my mission. You still want to sell oil. You can confirm that, iran still wants to sell oil . Yes. It is clear. You said without oil sales to very difficult for europe to import oil. Do you think that means that would derail andit . Good. Will not work francine that was the Iranian Oil Minister speaking to our reporter on the sidelines of the meeting. Tightlipped about the amount of oil being shipped from iran because he does not want to give any tips to the u. S. Trevor greetham is with us and jackie bowie. Opec is staying hold, saudi arabia, russia line, they content with a lower economic backdrop. How can they make sure they put enough oil but not enough so the Oil Price Collapses . The economic backdrop suggests if they want to maintain the price they should be going through production cuts but on the other hand detentions between iran and the u. S. Could cause a disruption to oil going through the strait of hormuz and resulted in a shortage of oil. You have production cuts and a geoPolitical Risk that could Push Oil Prices densely higher. That is what people substantially higher. That is what people are focusing on and in my lifetime there has been five global recessions and all were caused or worsened by an oil shock and we are 10 years into u. S. Economic expansion and the risks are building the commodities will at some point in the next few years rise quite sharply and a terrorist for what other whites a relatively positive picture of single centralbank easing. Francine do you agree . Jackie inventory levels closely we can see what is being drawn down from stockpiles in terms of oil inventory, we have seen that brought increase week on week and stockpiles, as they start to reduce, that will have an impact from what opec must do with production cuts. Francine thank you both for joining us. And Trevor Greetham stays with us to talk coffee. Rebounding from a 13 year low, with their will talk vicechairman. Interviewiew our is coming up next. This is bloomberg. Francine welcome back. This is bloomberg surveillance. We will have plenty more on hong kong and your markets. This is what we are talking about now, prices for arabica are finally on the move after years of oversupply, their beans jumped 60 , rebounding from a 13 year low. Billionsuess runs 27 of produced every year. With the market entering consolidation, what does the future hold . Please to welcome the vicechairman, Giuseppe Lavazza. An annual visit to talk about arabica coffee. Expand . You want to is there a part of the world you think presents good value where they want to drink good coffee . Consolidation, our industry is headed to take on this big train, we invested a lot of money over the last three years, 1. 5 billion euros, mainly in acquisition in the most important geography where lavazza wants to grow. We want to keep doing our business, focus on coffee and being a Pure Coffee Company and focused on highquality coffee and the major graphic for us is the United States geography geography for us is the United States, france the Second Market for lavazza, italy, our homeland, the u. K. , germany, and australia. Francine your biggest competitor in the eu, do you have partnership plans . M a is a part of our strategy and we are also looking for new alliances, we are near to announce a new partnership with pepsi in the u. K. That is one of the most important markets for us. A new iced cappuccino. Lavazza product. Tap into the ready to drink market which is booming and growing a lot, very focused on young consumers, millennials. Francine my millennial to the left does not drink coffee. Spend my allowance already. Francine anything else that looks attractive at the moment . 2018 has been a year of asition, we have about drink division, bigcompany, 350 million u. S. Dollars revenue, mainly in the u. S. And u. K. We have a process of integration of the company. And we will have a year of thension, mainly on growth, lavazza brand and the process of integration of our company. It is clear, we need to reach the threshold of 2. 2 billion thatues in euros in 2021, is our goal, and to become more international. Our Share International sales is 64 every year and growing but we want to reach 70 . Francine still planning to ipo . Not yet because the company is producing a lot of cash and weekend finance all of our plans without any special issues. If in the future we foresee some important operations, we are open to this opportunity. Arecine coffee prices quite trading with the beans and concerned some competitors and you could be in this trend of buying cheaper coffee beans and you are competing for cheaper coffee. Is that right . The market is very competitive and we have every kind of competitor with different price positioning. We are very high price position and competitors are very low. To be a part of this big trend of expansion globally, the main response is to have a big portfolio with different products, not only for i tell you and companies i tell you italian companies. Italian heritage with copy is highquality, espresso and other different products come instant come ready to drink products, instant, ready to drink. Francine do people say i am craving for a lavazza cup of coffee . A lot because we engage consumers with different products and force them to open the portfolio to new products designed especially for each grand slam. Francine and we have good weather. Giuseppe lavazza and Trevor Greetham both stay with us and we will focus on china possible coffee expansion in china and asia. To a chief speak executive. Dont miss the interview at 10 00 a. M. London time where we will focus on banks and Deutsche Bank. This is bloomberg. Economics, finance, politics, this is bloomberg surveillance and i am Francine Lacqua in london. Fallsn twoyear yield below 0 since the First Time Since 2008. U. K. 10year gilts yield falling since octobert 2016. A Movement Overall with european bonds. More thoughts from my guests, Giuseppe Lavazza and Trevor Greetham from Royal London Asset management. We talked about your business, possible ipo, you said it was not the right time, what do you do with china . How big can the country before you . Giuseppe it is a big bet. Coffee moving the first steps in china. Perhaps not a priority. China is a seed market, lavazza does not have the right Business Model yet to take on this important market that china could be in the future but we are working on it. Not a priority. Francine when you look at Companies Consumer focused, not speaking about lavazza with the ipo but in general how much focus is on the supply chain or how much of the focus is, people will always need coffee or twofaced twofaced toothpaste. Novor people drink coffee matter the economy but other things are luxury items or reliant on innovation cycle, coffee is a pretty stable kind of commodity people would normally drink. A lot of innovation with new products. We are talking about some of the unusual markets like in japan where you can get from a vending machine a hot and sugary can of coffee. A specialist market. Francine how many espressos do you have a day . Not not less giuseppe less than three but not less than 33. [laughter] francine sounds like the oil price range, three and 33. Thank you, what a fun conversation. Giuseppe lavazza, vicechairman of the Lavazza Group and Trevor Greetham. Bloomberg surveillance continues with tom keene from new york where we will talk to the Hsbc Private Bank chief Market Strategist looking at trade, china, a little bit of movement with italian bond yields after they lowered their deficit spending. Looking overall at stocks in europe, a little bit mixed. Enthusiasm over the latest u. S. China trade truce which has waned a little bit. Juncker ready for the eu leaders summit. This is bloomberg. Xfinity mobile is a Wireless Network designed to save you money. Whether you use your phone to get fit or to find the perfect gift, youll use less data with a network that automatically connects to millions of wifi hotspots and the best lte everywhere else. So you save hundreds of dollars a year on your wireless bill. Xfinity mobile has the best network. Best devices. Best value. Simple. Easy. Awesome. Click, call or visit a store today. Francine taxing eu goods, the u. S. And may tariffs on american cheese on cheese, whiskey and pasta. Hong kong picks up the pieces after historic protest leaves a government building ransacked, the worst crisis since 1997. But extends output cuts content is gloomy Economic Data around the world. This is bloomberg surveillance. I am Francine Lacqua in london and tom keene in new york. There is a big move when it comes to yields, they are about a 14 month low, shorter end of the and the u. K. With guild. We look at brexit and the deficits and your world of u. S. Politics. Tom the yield story is fascinating. One day is fine but todays in a row is two days in a row, extraordinary. This may be banner of the year, eu 2. Did you think that up . Was that an intern . Gorgeous. It. Rapoport killing francine after banner of the year. The longrunning dispute with airbus and boeing may lead to tariffs as the u. S. Published a list of 4 billion worth of eu goods that could be targeted as washington accuses europe of unfairly subsidizing airbus sales, the eu has a similar case against boeing. President donald trump has dropped the threat to impose tariffs on mexican imports, saying mexico has done a great job in trying to stop the flow of migrants from Central America and that has had a big impact on migration. Theyreg is where cleaning up after historic protest left the legislature ransacked, streets were listed vowingbris, their leader to push back against further violence with hundreds of riot Police Chasing away protesters who invaded the Legislative Council chambers. Opecs dominant producer saudi arabia has pledged to keep doing the heavy lifting, the oil cartel was forced to extend efforts to counter the u. S. ,hale boom into a fourthyear opec agreed on continuing production limits for another nine months. We just boko the saudi arabia an energy minister. We just spoke with the Saudi Arabian energy minister. A can lead to meeting the unequivocal and my confidence where the market is going, i see demand picking up strongly in the second half of the year. The ninemonth being sufficiently long to bring inventory down and balancing the market. I am positive and optimistic and think we are in a good place. The Saudi Arabians say theyre willing to keep cutting more deeply than their quota commitment requires. 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. Tom equities, bonds, currency, bonds, bonds, bonds front and center after the big day yesterday, the pullback but the rest record x px where futures were negative five. Your roach oil turning and oil churning. 14. 21an oil, the fix after a 13 handle and the 10 year yield was 200 moments ago and that should be on the screen. The german tenyear is extraordinary. Sterling weakness. That is very similar to my get a check, european stocks going higher with a little bit of a mixed session in asia. I say higher but theyre pretty much flat with the enthusiasm yesterday over the u. S. China trade truce waning but oil is fluctuated as investors tried to bit rot the opec extension tried to figure out the opec extension on the oil price. The Australian Dollar is strengthening after they cut rates but suggested a further cut may not be warranted. Tom breaking news in the oil transaction, we have been watching for what seems like years, saudi arabia will take anir oil company and effort ipo, this is not a unicorn but a giant of the oil business. They did the bond transaction, francine, a little soggy on the opening, i do not know where the yield is on the bond effort we saw. But they tried and equity effort. Try an equity effort. Francine on the back of the saudi markets being shunned from investors because of political tensions following the death of democracy death of jamal khashoggi. Saudi aramco will restart preparations for a mega ipo. Tom yields, this is an extraordinary chart, i have never seen a chart like this, the german twoyear, 10 year, the twoyear when negative, down a sustained twoyear. This leg year and a new leg down here in the 10 year yield. The acceleration, that is fancy gamma ofut, the german tenyear. Francine you have german twoyear and i have italian zero,ar, zero, below think about that. A bit the ecb could buy some of these bonds but italys government lowered the 2019 budget deficit in a bid to complete with the eu to compete with the eu. A longrunning dispute between airbus and boeing may lead to more tariffs as the u. S. Published a list of 4 billion worth of eu goods that could be targeted range of from cherries to meet and cheese, pasta, whiskey as washington says europe is unfairly subsidizing airbus and the eu has a similar case against boeing. Strangeng will have to ties between washington and brussels. The concern is terrorists are coming and going tariffs are coming and going, how can President Trump operate . Does he barth harder bark harder that he bite or should we be worried about the tariffs . The you is concerned, mark rather than bite the eu is concerned, bark rather than bite. In europe it is clear, they did not want war with anyone and to put tariffs on shares and cherries and whiskey is laughable and the u. K. Au will desk eu will i do not think they will be bipartisan agreement in the u. S. To go for a trade war with europe. Francine do you agree . From a european perspective the tariffs are small, you were talking about the market having a significant rally in the u. S. And around the world on the back of the hope that we will get a trade deal and detail risk of a further deceleration. A lot of good news is in the price, markets are hoping for a resolution on the trade side and Interest Rate cuts. We will not get both of them and that is why we took partial profits on u. S. Equity at allocation. Francine what does that mean . Go ahead. Tom hsbc has had the most amazing equity call of anyone. The doubledigit call was an act of god in december. Now what for hsbc on the equity markets . It was the equity call and give credit to the fixed income on the treasury. We had this asset Price Inflation happening on the back of the hopes for the end of the Interest Rate hike cycle and now. Opes of the cuts that will no longer be a tailwind for us as three to four cuts are exaggerated. We probably only need two. That will not be the tailwind any longer and we think equity markets will have more of a difficult time to make a significant impact. In ae still exposed and conservative Investment Strategy with implementation. Going up 17 i can understand why, what do the low yields in bonds signal to you as an Equity Investor . The low yields are there because the finest of the yield curve due to structural factors, we have structurally low inflation because of globalization, we are globally competing on the labor market and the technology where consumers are able to compare prices which keeps inflation low and Central Banks can keep Interest Rates low as well. Overd with the rate hikes the last few years was a normalization of policy and not fighting inflation. That is done and we will cycle slowly and we can have one or two cuts because we do not need more. Francine do you agree . Shortterm, yes, longterm, inflation will be back. Years, each 10 decade will add one billion people on planet earth, it took the first 1800 years of this earth to get the first one billion people. Eventually inflation for food, water, air will kick in and no one is immune to that, inflation will be back when the technology and the globalization of labor will end. , the breakve years even in europe, 1 price, wrong because eventually inflation will kick in but it is a question of the environment. Francine we will talk about that next. Davide serra and willem sels both stay with us. Coming up in the next hour, Morgan Stanley Investment Management fixed Income Portfolio manager at 6 00 a. M. In new york at 11 00 a. M. In london talking about yields and treasuries and oil. This is bloomberg. Tom good morning. Francine lacqua in london and i am keene on lexington avenue in new york. We will talk about hong kong in a bit. Of with us is willem sels hsbc and davide serra. We will get to eu banking in a bit but i want to talk about the math of chronic, negative yields have reached a new level of length on the xaxis. Do you worry about the chronic nature of negative Interest Rates . Yes, i do at there was a report the other day which concurs with our view and it is because, how can you have inflation when in europe if you youin 100 euro, ecb gives 99. 6 . To understand how that can accelerate inflation, 70 of eu banking assets are in smaller bank,and the de facto Smaller Banks need positive to threerate, zero years. Growth and ifg you consider the Unemployment Rate in europe, it is close to the alltime low, 7 . Last time when unemployment was at this level rates in europe were 2. 5 and as a result it makes no sense to keep cutting rates from negative territory because you cannot spur growth out of nominal rates. It means a longer environment, you cannot be out of the market and mr. Kerry. Miss your carry. You need to click the coupon in the kerry and that is why we invest in three to four year bonds, Investment Grade and highyield and sit on it until maturity. Francine let me bring you back to my chart. Italy twoyear yield below 0 , why go into it . On a that the ecb would buy it back . Willem for difficult and the eurozone and we prefer the u. S. Market, often people are not heads from the currency perspective which is important variable to consider, which market you choose. More opportunities in the u. S. You still get some spread. You need to pick and choose. The opportunities are less. You need to meet more active to be more active. You do not sit on the buy and hold position. Tom what do these yields due to the left tail . I was talking to an intern about left tail risk, the malleability, the dynamic of the system right now. When you have all of these low yields what does it do to the left tail . Davide what it does is forces risks. In taking undue you can see it in some of the yields, single Big Companies are paying, basically it forces investors to take undue risks and creates a further liability on the pensions side. , which havetensions been funded, looking at a yield which cannot be reached and as a result and 10, 15 years we will pay the price of much lower pensions they expect and where lowering potential growth. Shortterm negative rates are a shock. You can take it if you have a virus for five days like antibiotics. If you are on them for a year you will not get better and probably be more sick. What is needed now in europe, a bit of fiscal leadership used inever, it can be particular given where growth is and the fact we need infrastructure, whether green or technology, the remaining investments we can make with the current level of deals probably value enhancing for business. Tom an important conversation on these new low yields. Davide serra and willem sels with us. Nextnet sour, in the hour, a to break a debate about immigration. This is bloomberg. The conference will start with issues on housing. Francine a News Conference with opec has started, a continues briefing the press following the meetings understanding there will be more cuts coming. Iran trying to find ways to export oil with sanctions from the u. S. We spoke to the oil minister of inn earlier indiana vienna. It has a negative impact on our economy. We do not resist against this sanctions not legal against iran from the United States. Are finding ways to turn the sanction and export our oil. Reports you are still selling to china and even europe, you cannot name names i know but can you confirm you are still selling to some customers . I cannot say anything more. The Oil Market Wants to know how much if at all iranian oil is leaving iran. Some statistics are out there. It is the right of the customers and producers to know the figures. Manipulated byt the United States. It is not our difficulty, it is difficult he imposed us by the United States difficulty and post us imposed us by the United States for securing the benefit of nations. Francine that was the Iranian Oil Minister. What a great exclusive you had. What are the tricky point investors are trying to figure out about iranian oil and oil prices in general . It is about who is still buying and how much is left in the market. Over 2 Million Barrels a day they were producing and exporting before the sanctions and now we think it is about 300,000 barrels per day. Where is it going . We have seen tankers in the ports of china which releases cargo, china is likely a buyer that we have seen reports of potentially some iranian oil inbe under another country europe, he said they are not officially selling to europe. Who is still buying and how much iranian crude is in the market . It is not officially counted for. Francine iran says that one day deeper oil cuts may be needed. At the moment how difficult is the balance between the supply pressures and the Global Growth concerns . I think Global Growth concerns and the demand pressure on this group is so highlighted at this meeting because they are extended these cuts not just until the end of the year but into 2020. They say supply will cross demand and these opec next year. The group is clearly worried. How grim is the picture . We see opec market share getting much less, that is why he says they will need because to be deeper. Tom thank you. Coming up, hong kong, the day after, our team at our hong kong bureau. 12 00, driving forward the conversation on hong kong, ian bremmer. Futures at negative three. This is bloomberg. Most of us dont know how much data we use, but we all know were paying too much for it. Enter xfinity mobile. Americas best lte with the most wifi hotspots, combined for the first time. When youre near an xfinity hotspot, youre connected to wifi, saving on data. When youre not, you pay for data by the gig. Use a little, pay a little. Use a lot, just switch to unlimited. Get 400 back when you buy the new lg g8. Call, visit or click today. Good morning, everyone, Francine Lacqua in london, tom keene in new york. An extraordinary day for surveillance, yesterday covering hong kong. Just extraordinary what we saw in the news forward through the day and into this tuesday. ,ur bureau chief in hong kong fiona lee. How normal is today in hong kong . right now, business has been back to normal and traffic has been back to normal. The government headquarters is shut today but will remain open tomorrow. What remains shut is the Legislative Council where the protesters are storming. The president came out and said it remains a crime scene and the police are collecting evidence. Tom you led our reporting yesterday on hong kong. How important was social media to the protesters . For those in support of stability, to communicate their message. Fion i think for the protesters a lot of described the movement as leaderless. We have seen communications through a messaging platform like telegram and they also made use of some of the local forums for communication. Police,government and social media is not important to get the message out and they condemned last night at the Legislative Council. We are seeing chambers of commerce condemning the violence last night. Francine is this a win for beijing . Beijing the media condemned the violence and some called the protesters extremists. We will see what else comes out officially, but for now, the medial consensus of the and the people more gravatars toward the government. It does not look good. Tom thank you for the coverage over the last 48 hours in hong kong. Everyone adjusting to trade out of osaka and the path forward, including in darwin, australia. Rba is the head of the talking about the realities for australia and the shocking low rates. Prepared torba is richest Interest Rates again if risks of thed the Global Economy turn to the downside. Trade, we stay with donald trump saying trade talks between the u. S. And china have resumed. He told reporters negotiators have been speaking by phone. Jinping,ting with xi mr. Trump said he would hold off on more tariffs. China is seeking to open up its financial industry to foreign players. It will be allowed a whole year earlier than allowed. Xandra cost ceeo or test said migrants were told to drink water from toilets if they were thirsty, taking part in a congressional business visit. Former Vice President joe bidens league is lead is sinking. In the first major polsons last week, his support poll since last week, his support has fallen. Harris putting binding on the defensive when she confronted him on his opposition to busing to integrate schools. 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. Francine the twoyear italian bond yields have dropped a low zero for the first time in more than a year as the government lowers their 2020 budget deficit. The deficit is expected to be just 2 above output, lower than the 2. 4 draft budget. This expected . Complying more. Ith brussels government had been sending good noise to brussels the past couple of days ini, all the talk he has been doing in the past few days, age sure to leave the meeting shortly after it began made sure to leave the meeting shortly after it began. Both political leaders of the government where there when this compromise was adjusted by the government. The key thing remains the budget for 2020 that will be discussed in the autumn. Tom love the construction going on in italy. I am sure you are working on something out of the 14th century. What do low yields mean for the people . Every society has a different reaction. What do they mean to the average person in italy . Alessandro it basically means spreade terrifying everyone talks about in italy, maybe if they are not clear what it is about, as lowing lower. Sustainable remains which means the populace government in power can continue policies. The League Reached a new record in polls, 38 on monday. That means the government has more and more support. Tom thank you so much, get back to work, and do not use any two by fours that are not straight. Francine. They are putting a new gucci next door to our store in room. Francine i think they are fixing the form. Forum. Davide would like to talk duty but lets talk the Italian Economy. Davide there are two ways to look at it. The private sector is still rocking ahead. Exports were up about 5. 5 sent, and the northern industrialized economy remains the fifthlargest industrialized nation on the planet. They import more than france and the u. K. And have been doing so. The noise keeps on expanding. We have the public side where the public that have been wasting money. Basically getting people to sit on the couch and you have a situation where you are short of temporary jobs. Basicallyt find on a temporary basis. You are stuck between the two investo as long as you in the real economy and not italy, you are fine. The populist government wants to keep spending but they want to stay in government. The fivestar movement right now has lost more than 50 of its approval. Inncine how do you invest only northern italy . What do you do with comments that there could be a parallel commodity. Before, if plenty of small and medium caps in index, wille the export until they are fully globalized. This conversation is just noise. Italians, if of you touch their wallet or the euro they will shoot at you. They are happy when they look at russells. Brussels. You led to the immigration crisis. You guys are not helping us. That is where the conscious is, so the 38 percent approval for inis money to take care of our nation. There is 0 risk they will vote to leave the euro. Tom it is moving the can down the road. Europe thatview on everybody moved the can down the road into 2020 . Davide there is no risk of the integrity of the euro zone to be compromised. He broke down the Italian Economy. The bond market is supported by ecb policy and that is generating possibilities. From an equity perspective, italy to fight the challenges of the managed toet and has perform in line with the rest of the market. If there is a continuation of weakness, it could it could underperform a little bit, but the free market free money help the equity market. Tom what is the state of the italian banks with these low yields . Davide on one side, it allows italian banks to sell btps because basically what happened over the last two and three years, as soon as yields went up on fear of this noise, the banks have been buying it. As the yields go down they will sell. As a result, it is a particularly positive environment for making capital games. The nonperforming loans keep shrinking. Thankse last five years, to the ecb pushing hard on this, the number of npl has more than half. The institutions are becoming profit. Unicredit, they have been printing a 4 billion euros to 5 billion euro profit over the last four to five years. Francine we will get back and talk about monte dei paschi. If you look at the european countries, would you prefer greece over italy . Spain makes sense, but what does grace look like . Willem within the investment spectrum, greece is still outside of the spectrum usually for the bulk of our clients. Italy, spain look more attractive because of the yield. If you believe the coherence of the euro zone is there and you ,dopt a buyandhold approach but clearly even there there is more opportunity in the corporate space. In the debt market there is opportunities as well. Sels and david sarah with us. Davide serra. In vienna, Annmarie Hordern is there with manus cranny. The gentleman from saudi arabia is speaking on the strength of the cartel and aramco with a new large ipo. This is bloomberg. Surveillance, Francine Lacqua in london, tom in new york. We had a one or call wonderful conversation with the future of e. U. Banking. What is the shelflife life of Deutsche Bank as we know it . Davide i think Deutsche Bank finally has accepted that there is no role for having a Goldman Sachs in europe and there is a huge need for serving german and continental clients. Them to start doing what most convectors expected, it from this global ambition retrench from this global ambition and focus on the core customers. Tom this is off a bank of America Research note of a 5 billion euro cash call which would dilute shares down to five euros per share. Article about costcutting in new york and people packing their office and ready to exit at any moment, do you see a future for Deutsche Bank in new york . Willem they have to have a presence. I think in some businesses, they have been losing money for many years and they are better off shutting down and biting the bullet. If they were to do that, the longterm profitability will go up. Deutsche bank today is an 200emely safe institution, 50 billion of unencumbered cash, high equity, has passed the fed stress cast test. It cannot make money because of too much cost and it must go through a serious costcutting. If you are not healthy is to go on a harsh diet. They have no choice. Francine costcutting to raise capital . That is a key question for the stock and the fact that Deutsche Bank has passed the stress test in the u. S. , they do not need to raise capital and the issue would be for the ecb. You can probably go through a temporary redaction in the capital level if you are capping lots of costs, as long as the profitability trajectory comes back higher than yesterday because the level of cash and capital on the Balance Sheet are an alltime low. Francine i have a story saying what the ecb did not say about monte paschis bailout. Did they handle it correctly . Davide i think they did because time the Italian Economy dropped 10 points in gdp. As a result, if you have a one in 175 year shock, your playbook is to build stability in the system. What is the total cost of the bailout the Banking System in italy . Less than 0. 5 of gdp. In the u. K. , it was equivalent to more than 20 and the u. S. Was more than 10 . Has the ecb done a good job . The cost of the Banking System for a one in 200 year shock is only. 5 of gdp. Well some redtape be bypassed . Yes. Do i support draghi . 100 . Breaking news out of the ecb. Rush for as see no july rate cut. His mandate is up and there is more and more speculation that a female leader such as Christine Lagarde could get the top job at the European Central bank. Tom they are managing the message, country to country from australia. I would expect to see news out of the fed on how they are managing the message. Much more to talk about with davide serra. Our, a timelym. Conversation with mark isola pimco, their chief executive mark husel of pimco, their chief executive art officer. This is bloomberg surveillance. Aramco as resuming preparations for a mega ipo. Last year, the offering was put on hold but they have held talks with a group of investment banks to discuss potential roles. The crown prince insists it will take place in 2020 or 2021. Weatherford firing for bankruptcy protection in houston, struggling with an eight billion dollar debt load while Energy Producers are looking for ways to cut costs. Test filingalling is the largest since the 2014 downturn. Francine the European Central bank, minutes ago we had a flash saying ecb policymakers see no reason to rush into the july rate cut and tom is saying that is pretty much cosmetic, and yet pointollar moves, one 1306. 1. 1306. Is still with us. , itne who could replace him could be a frenchman or a german , or maybe they need a female president. Does it make a material difference to policy . Becausein a way does the chairman of the ecb matters for leadership. It is a six people board with broad experience. Particular ecb in has always been a very meritocratic institution. The fact that mario draghi probably saved europe because he was the only man in town who took a decision at the time of crisis, and there are enough candidates who can fill that job. Tom is this anybody but a german, is that what this comes down to . Soide no, i dont think because the issue is the key problem is he has been voting against every decision of the council in the past five days. Every time you get the choice and you say, i am against the council, it is unlikely someone will say, why have you changed . I find it fairly ridiculous the fact that he is voting against every decision and now that he wants the job he said and reality he did not mean it. As a result, you cannot have someone who has voted against the action of a central bank and give them the chairmanship. At would not make sense. Francine coming up in the next hour, jim caron. We will talk a lot about some of the yields lower on the short end of the curve in europe. Tom this morning, after the surge in the s p 500 and new lows in australia, german and italian yields, the strangest of julys. Jim caron on what bonds until stocks. Hong kong staggers into a 23rd year of beijing control. David tweed continued considers the debris of monday. People let the mexican border, the view from del rio, texas, the view of mexico from chattanooga, tennessee. We are live from new york, tom keene and live from london, francine. I need a boris up date update. How are johnson and hunt doing . Francine you are brexit free, i am not. Hours, wet 48 to 72 had policy on both of the candidates. The main differentiating point, jeremy hunt says he is not going to break down parliament or push them for a no deal brexit. Boris johnson is intimating he would and would not pay the divorce money to the e. U. We see stark differences and then we have 160 thousand conservative members to vote for the next prime minister. Tom let us turn to fed policy. We heard from the ecb and the rba. Tomorrow, we will hear from the cleveland fed. Loretta mester is the mathematician of the crew and we will talk to her tomorrow about her reaction functions forward, giving the stunning low rates, really looking forward to speaking with her. Right now with our first word news, viviana hurtado. Longrunning between airbus and boeing may lead to more tariffs. Washington accuses europe of unfairly subsidizing airbus sales and the e. U. Has a similar case against the u. S. The president says mexico has job trying to stop the flow of migrants from Central America and that had a big impact on migration. In hong kong, they are cleaning up after historic protests left the legislature ransacked. Leader isbacked bowing to push back against more violence vowing to push back against more violence. Saudi arabia pledging to keep doing the heavy lifting. Forced they are agreeing to production months,or another nine manus cranny speaking with the Saudi Energy Minister. A critical commitment in terms of numbers, countries to meet their obligations, that is number one. Unequivocal in my confidence where the market is going. I say demand picking up strongly the second half of the year and i see compliance improving and the length of the agreement is sufficiently long to bring the balances down and to balance the market. Viviana the saudis are willing deeper thaning their quota commitment requires. 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. Changed,fractionally equities, bonds, currencies, opec oil. The euro a little bit advanced over the weakness yesterday with a huge surge in equities off of the sunday and saturday news. Nowvix with a 13 handle, 14. 22. The german tenyear, we will speak to jim caron about this in a minute. Weaker sterling. Francine stocks are mixed. They started the day up and they are faltering a touch. The enthusiasm over the u. S. China trade truce is shifting, dollar drifting, treasuries rising. We saw the news from australia, and the dollar Australian Dollar is strengthening after the Central Bank Cut rates but suggested a further cut may not happen. Tom Central Banks manage the message. I want to show the Second Derivative of these yield moves. The german twoyear, german tenyear, the slope year and the further slope year over the last three months. Francine . Francine i have the italian twoyear below zero for the First Time Since may 2018. It gives us a picture of what the markets want. Italys government lowering the budget deficit to avoid a showdown with the e. U. , for now. Tom one of the most interesting guys in the fixed income space, jim caron is that Morgan Stanley. He has been an astute student fixed income, price up, yield down. There have been times it is gone the other way. Jim caron joins us. Put in the plate the moment we are in, after your decades of work. How odd is this july . Jim it is extremely odd. When we have Economic Data weakening but we are not in the throes of a financial crisis, so what and the world is going on . Are at 35 bunds basis points and spain is only trading about 30 positive basis points. Worldow do you link your into the equity world . How do you link jim carons world into the stock market . Jim i will think about Interest Rates and discounted cash flows, meaning any cash i get from an equity, the present value at a lower rate increases the present value. When i do that, it increases the valuation of that stock, so low rates increase valuations for equities which is why equities are staying stable. Tom our repricing in a new terminal rate and actuarial assumptions . Jim i think that is the right question and the answer now is yes. Look at where 30 year long bonds are in the u. S. And globally. When you have longterm rates, you will look at that Interest Rate and discount cash flows at that rate. That increases the present value. It is a valuation question. You can ask if equities are overvalued, but is it overvalued for this level of Interest Rates . Many people say no, not really. Note expected to be about 2 as maybe about ok. Saying maybe are it is about ok . Fairit seems to be roughly , relative to where Interest Rates are. Fed to cut another hundred basis points so where does the 10year note go . 1. 75 or get down to 1. 5 . It makes valuations easier. I am not making a fair value call on equity markets. If i look at it from a rates spective, as rates go down our view for Recession Risk is yearonly 25 in the next and rates are going down. Rates are going down in the face of data that is slowing and not collapsing. You are typically looking at a recession in nine or 12 months and we are not seeing that. One of the reasons i think riskier assets, not just equities but highyield and investmentgrade, these assets are increasing in value in lockstep. Francine what would it take for the 10 year treasury yield to be at 1. 75 . Jim it is a range. If we believe the market is correct and the fed funds rate is going to 1. 5 some time next year, as long as there is a slope in the curve and inflation expectation, what the yield points, 25 to 50 basis 1. 75 10year note what makes sense. Just as long as it was a positive slope in the curve. Tom we are having a pro conversation and there is lots of dynamics and mathiness in that. Retirees in every nation are getting absolutely crushed. Is this no more than the financial elite crushing the people . Jim i think this is a global systemic issue, and i believe we are in a bit of a liquidity trap , meaning we dont have any choice but to lower rates but lower rates do not help equity valuations. A lot of retirees do not necessarily own individual stocks so they might not be getting a boost from that. It makes it harder, the liabilities and the pension fund get harder to meet by municipalities and state and local governments. It is in many ways a devaluation of someones retirement. When you lower that rate, it lowers their potential for income over time so that is a devaluation. Francine jim caron of Morgan Stanley investment antigen, stays with us management, stays with us. Joinsow, Loretta Mester surveillance at 6 00 a. M. She is delivering a speech on the Economic Outlook in london. This is bloomberg. Best day of the year 3, 2, one. Do, ind i did what you looked at the weather last night on the eastern seaboard from new york up to boston. The weather looks to be on the edge of perfect, which is really cool. It is quite something to behold on the charles river. Up the river, down the river from harvard. Boston pops with our team right there. Kevin cirilli is with us, our chief washington correspondent. I want to talk about the next step on the border wall debate, aoc making a storm in the new york papers. People are taking secret images and photographs in detention centers. This is bogging down republicans and democrats. Kevin precisely. As congresswoman has emerged one of that to factor progressive leaders de facto progressive leaders. Whether or not her rhetoric will yield bipartisan reform or a pause button, that is what folks are hoping for within the next 24 hours. In terms of a longterm solution to this, it doesnt appear likely. It appears there would be a budget conclusion or a budget to provide funding to better budget elipsis to provide funding. It is really a crapshoot. Tom let us start at the bottom of the pole. Poll. There is 47 people at the bottom with no support. Why dont these clowns just give it up with their 1 and 3 levels . Kevin i am not going to mince words. I think, if donald trump became president , why not them . That is keeping them in this race. I was struck by the cnn poll from june 28 to 30th during the debate. Hairs come on a Harris Kamala harris is right behind joe biden, but senator Elizabeth Warren also in the top tier of candidates, edging and neck with senator Bernie Sanders. If you combine Elizabeth Warren and Bernie Sanders poll numbers , they take the top spot 30 . Now you are starting to see the factions where 30 of the Democratic Party is rallying behind a democraticsocialist canada. That will play out in the long term candidate. That will play out in the long term. Francine what is going on in u. S. Detention centers . Kevin it is a nightmare, an absolute nightmare. Last week when i interviewed the rnc chair, she called it an absolute crisis. , butuched on what aoc says i will bring the republican perspective. What they say and the chairwoman said, they believe it is time for democrats to work with President Trump. It is locked in this political backandforth. Both sides are increasing the rhetoric against them. It has really been it has captured the nightmares of america as we head into the fourth of july. Tom kevin cirilli, thank you so much. Chuck fleischmann of chattanooga, tennessee, actively involved in the debate over the border and the funding of the detention camps francine mentioned. Stay with us with jim caron. This is bloomberg. Viviana this is bloomberg surveillance. Lets get the Bloomberg Business flash. Saudi aramco is resuming preparations for umag ipo. Last year the offering was put on hold, but aramco has held talks with investment banks. The crown prince insists that will take place in 2020 or 2021. Anheuserbusch and bevs asia unit is seeking up to eight billion dollars in its hong kong Public Offering. Budweiser the new brewing eight pack is set to begin july 19. Francine tomorrow, Loretta Mester, president of the cleveland fed joins surveillance at 6 00 a. M. Talking about the fed, lets get back to jim caron. We are talking about yields and the levels that you can see. What do you do with inflation . When does it pick up . Jim when growth picks up. The idea behind these insurance rate cuts by the fed is to stave off recession, andss if that succeeds in one year time in time, we will need to see wages rise so the growth and the jobs market strengthening, and the other is oil prices. They have gone up but been stable and is not creating the inflation impulse we thought it might at this stage. Until you see inflation moving ither toward the 2 target, will be tough. This is a global issue. Inflation globally is coming down, even in many emerging markets, which makes that asset class attractive. Francine oil has been pretty much stable. The last five recessions were either caused or accentuated by an oil shock. Is this time different . Jim it is, because the decline in yields and what is going on in europe in oil is dislocated from an economic event. If you dropped me on mars and said, read this newspaper, tell me what is going on, what do you think will happen . I would say, there will be a recession. An economic slowdown is taking place and they are doing this to avert a recession. The data is slowing and pmis have dipped into that recessionary territory, that other factors do not show a high probability, so therefore we are getting lower rates during a time where the economy is not slowing as much as the rate markets would say it should be. Tom the german tenyear comes down near record lows. Greater negative yields in germany just as jim caron speaks on surveillance. Leveraged loans, bias and others are looking away from full faith and credit to the ghosts of 2007. As 2007 now . Give me a primer on leveraged loans. Jim the market has been interesting and it has been a popular loan. When rates are low and people are worried the rate might go up, this is a floating rate hike. People are being yield hogs they are going up and down in quality to get a few more beats, and it is seemingly an interesting solution. Low,are saying rates are what i want a higher yield and if Recession Risks are higher in the future, default risks are lower. The problem always comes in when the credit quality deteriorates. 2006, i lookack to younger but jim caron looks great over the years. Vogratzs genius, today at 5 00 p. M. Surveillance, Francine Lacqua and tom keene. All in our hong kong office, a major shout out reporting on the streets of hong kong. In the last 24 hours, i would david tweed has followed up images our david tweed has followed up with images. David the Legislative Council looks like a post apocalypse movie when they look at the damage that has been done. You can see the Side Entrance of the Legislative Council and you can see they have smashed through these windows. It is quite extraordinary. There must have been about 12 windows smashed in. If i can show you exactly what has been going on, you can see the source of weapons they were using to batter through the windows, and these are the sort of hat they have been using to protect themselves. They are using masks to cover their faces so the police have not arrested anyone. I want to show you something here that is mind blowing, these are protesters who came and were so organized, they knew they could take those former fence here and rip off these metal slots, rip them entirely off the wall and use them as rams going in through the windows. It is extraordinary when you consider what has happened here by this group of protesters who went inside and trashed the place after police withdrew. The big question being asked is why did Police Withdraw . Was a tactic for the government to say they could lame the violence of the protesters and try to swing blame the violence of the protesters and try to swing the public mood against those demanding democracy in hong kong . Tweed. E that is david lets get straight to the first word news. Trumpa president donald sews trade talks between the u. S. And china have resumed. He told reporters negotiators have been speaking by telephone after meeting with xi jinping in japan. He said he would hold off on tariffs while talks continue. China is speeding up efforts to open up its financial industry to foreign investors. It will be allowed by 2020, a year quicker than expected. Sayingswoman aoc migrants were told to drink from the toilet if they were thirsty, evidence they are using psychological warfare against immigrants. An investigation is underway. Former Vice President joe bidens lead is shrinking. The first major poll since last weeks debate has his support falling from 32 to 20 2 . Harris atas kamala 17 . She confronted him on his opposition to busing to integrate schools. 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 it is one of the most interesting congressional districts in the United States of america and stretches across four states. Tennessee, georgia, alabama all the way to kentucky. Chuck fleischmann of tennessee from the Third District is with us, and we will speak on the border, but i want to go to the revitalization of chattanooga. It starts with bringing in volkswagen and amazon. As the president helping you continue the revitalization . Rep. Fleishmann the president has helped every state in america, no question. Chattanooga has been a model that others have learned from. We have no state income tax on wages. We are estate that has attracted and kept businesses. What did Jeff Bezos Bezos bring to you in chattanooga . Beenfleishmann amazon has a strong supporter and employer, but amazon and volkswagen came later. We built it. Corporate america came and has been outstanding. Tom this is from a colleague of congressman fleischman. The warring parties care more about proving the other side wrong than making any type of progress for fear of the other side getting a political win. Formersman her is a undercover officer in the cia and im appalled we are not maximizing the use of intelligence to does nine and disrupt these transnational smuggling networks. Immigration has taken an abrupt turn and everyone is in an uproar. What is the response . Rep. Fleishmann we have got to go to the root causes of why thousands, perhaps close to a Million People will try to come illegally to the United States streaming to mexico. ,ealing with the root causes dealing with Companies Like mexico that have been very porous and the past. What the president said is you have got to stop the flow on your southern border. We have got to have more technology, more humanitarian aid. We have to stop the crime and the drugs and the disease. We have a broken immigration system. Tom lets bring in Francine Lacqua. Francine we are hearing about people who were told to drink water from toilets if they are thirsty. Do people lose their jobs . Rep. Fleishmann if there are any abuses, that needs to be dealt with in the most harsh terms. Causes,look at the root literally hundreds of thousands of people overwhelming the hardworking men and women of cbp, i have been to the border in been in rooms with people speaking up to 30 languages. It is a National Threat to security and we have to do something. There is a humanitarian crisis, but as people come through , long and other countries before they get to the United States they are being abused. Men, women, children, we have to address all the problems. Francine that is another thing we will touch on. Peopleieve Border Patrol who do not treat emigrants with respect should lose their jobs immigrants with respect should lose their job. Postu think people who things that are disrespectful should lose their jobs . Rep. Fleishmann i think we should engage in more civil discourse. With everyone, i try to be civil. We knew a we need a new era of civility. The border is a crisis with a capital c, but the rhetoric got so heated we have to get back to being polite and kind to one another before we move forward. Tom you are a minority member of the house. Speaker pelosi caved and went with the republicans. Here is the reality the president wants to pick up emigrants nationwide. There is some bad people immigrants nationwide. There is some bad people. You have an ecuadorian restaurant in your district. Do people from ecuador in your district need to be afraid that ice will pick them up . Is that what this country is about . Rep. Fleishmann we are a country that has laws and legal immigration. I came from italy and austria and hungary and england, came and went through the legal process. Millions of americans, proud immigrants, played by the rule. Compromise in be washington . The socialist democrats, the democrats,losi moderate republicans, and an arch republican party, can we find compromise . Rep. Fleishmann on areas like infrastructure, i think so. I wish there were more areas. Thank goodness President Trump has done a good job with the economy and taken up tough issues. So much has been left to the status quo and that has not been good. President trump has been a catalyst for positive change. The rest of the country needs to. Ollow tom you have a president of antiscience. Explain why we need to fund science. Rep. Fleishmann i have had many conversations with him and he is proscience. Tom tell me where he is proscience. Fleishmann rick perry we fell to fifth place under the Obama Administration and we are number one fastest and smartest in oak ridge manufacturing in america. The chinese got in the space and what we did with advanced manufacturing in oak ridge tom where are you on huawei . Rep. Fleishmann i am very concerned. Tom did the president cave in osaka . Rep. Fleishmann i would not say cave. He has so much to deal with and we have to protect american technology. One of the greatest abusers have been the chinese. Tom we are out of time, through our conversation. We will drive forward the political debate we are hearing in investment. The governor of montana not polling well overnight, but governor bullock is a really interesting democrat surrounded by republicans. This is bloomberg. Stay with us. And the consequences of this trade amtek war and cold war trade and tech war and cold war is the beginning of the decoupling of the Global Economy. We will have to resume the entire disquieting supply chain. That will lead to disruption and if this escalates, there will be a recession. Tom fired up on american and Global Economy, he appeared at a bitcoin event where he tore into bitcoin. James best chart now with caron of Morgan Stanley. It is the 10 years, but we went logarithmic. We have seen it before, a plunge in yields like this is not uncommon. What is different as we migrate down to 2. 01 . Jim we are getting this in a coordinated fashion during a time when we are not getting the severe there is no obvious crisis. In 2008, there was an obvious catalyst to make this happen. Central banks are moving toward qe and maybe the ecb is doing the same thing. The rba just cut Interest Rates and the policy rate is 1 . The yields used to be very high and they have come straight down. We are seeing something symptomatic of a liquidity trap going through into the global market. Tom what does that inertial force due to Financial Stability and the short paper market . Jim it is difficult to get any yield. It makes shortterm funding and financing cheap which could be dangerous. We are not seeing people lever up the way they use to, so if this was 2005, 2004, you would see more Financial Leverage in the market. What we are seeing instead is a grab for longer dated, high quality bonds. That is one reason you are yields coming down and spain, u. S. Treasury yields coming down. One of the most crowded positions we have this year as peoples positions in cash and positions in high quality bonds. That is extremely different than last year. If we think about this last year , the market was more risk on and we know how that ended. This quarter, we have been risk off almost the entire year. You doe overall, what with the negative yields on german bund banks german bunds . What happens in the next six months . Jim two things. Wean asset manager, when look at our portfolios and think about negative yields in germany , i have to think about the Currency Exchange rate. I will buy my i will buy , so essentially i and up picking up basis points. That yield is not 30 basis points, it is 2. 7 . The 10 year in germany after i do the fx, im getting 2. 7 in dollar terms, so you will get global flows into europe. As a european trapped in euros, that is where the savings and their return on savings is getting hurt, so their hope as it goes from 30 basis points two 50 two 100 to make a capital appreciation, or there is no reason to invest. Francine as the dollar overvalued . Jim think it is a little overvalued. I am slightly dollar negative. With the onset of the fed potentially cutting rates over the next 12 months, the dollar will weaken. Fall ands starting to we are lower than where we were at the beginning of the year. I think we could fall 3 to 5 . I think we will get a weaker dollar, which is good for Global Financial conditions. Tom this is just an intraday chart for the german tenyear, jim caron singlehandedly driving it to a further negative yield. Andge plunge down yesterday a new leg down yesterday to 0. 364. Economists away from your world talk about getting a greater amplitude more amount of negative rates to begin to affect incentives in the system. Are we near that or are we still on the fringes of the bravery of enormous negative rates . Jim the more negative we go, it has marginal effects so i do not believe that. Where i am with this as we are saying you can put rates at 35 basis points, 50, 100 and germany and it will not make that big of a difference because you will not spur economic activity. Tom what you heard is the single most important comment today and reminds me of David Folkers lindo of Deutsche Bank. This is an arch distinction types like jimal caron versus academic economists who think there is efficacy to negative Interest Rates. Francine it is interested does interesting to hear jim say interesting to hear jim say it is different if you are in dollar investor. Jim caron stays with us. Tomorrow, Loretta Mester joins us from london, 6 00 a. M. New york time. We will ask about Dollar Strength and treasuries. This is bloomberg. Viviana this is bloomberg surveillance. Lets get the Bloomberg Business flash. Weatherford filed for bankruptcy reduction in houston, struggling with an eight billion dollar debt load. The chapter 11 filing is the biggest in the industry since the 2014 downturn. Buy capital is in talks to an exclusive stake in Cantor Research market, valued at 4 billion. It is part of the push to cut and they want to simplify the deutschegiants bank talked with regulators about lowering its capital push as a way to restructure. They have spoken with their german regulator and the ecb. They are considering whether to cut up to 20,000 jobs. That is the Bloomberg Business flash. On she changed the debate global wall street yesterday, publishing an article on the cardboard boxes at Deutsche Bank and the beers being taken up lunch, the emptiness, made more with severalng exiting to bank of america. It is moving in real time and it seems like every day and week we see exits out of Deutsche Bank. Tom what is the urgency getting this done in july . What is the urgency . Waynd is very urgent but probably will not hear about it. Tom why . Everybody is on vacation in the u. S. And it takes a while to get headcount reductions in order. Francine let me jump in when i comes to capital raising, you and Deutsche Bank discovering discovering this lower buffer rate with regulators. Investorsay we saw reacting positively but bank of america saying this could lead to a 5 billion 5 billion euro capital raise, sorry. You see people weighing in with skepticism. This potential plan about buffers, isital this good for the credit quality of Deutsche Bank . We saw the cost of credit lower for ensuring the riskiest debt, and very mixed responses and today we see the stocks down again. Tom congratulations on really stopping new york wall street yesterday with the story that everyone picked up, on the cardboard boxes at Deutsche Bank. No cardboard boxes at the cleveland fed, she is more than active. Tomorrow in london, a conversation with Loretta Mester of the cleveland fed, looking forward to that discussion. New record low rates in germany. This is bloomberg. Good morning. 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. Europe tries again. Leaders are back at it today after 20 hours of negotiations that have yet to come up with new eu leadership, and italy tries another budget. Markets think twice about the g20 trade truce, touching records, but backing off. And it is unanimous. Opec Oil Ministers agreed to extend cuts for nine months. Saudi aramco is dusting off plans for its huge ipo. Is it really worth 2 trillion . Welcome to bloomberg daybreak. Im david westin, here with lisa abramowicz. Thatsteel is in boston for boston spectacular. Lisa we are looking at a live shot of the white house, currently proposing new tariffs of the european union. I love the way you put it this morning. You get more tariffs. Alix