Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

Seeing a little bit of a pause. But if you look at the stocks europe 600, a little bit of poor data out there and the prospect of more dovish appointees to the fed. Im also looking at the with the nomination of Christine Lagarde take over the ecb. All of this with euro area june the services pmis, a touch better than i expected. But pmi in general has been disappointing. The u. S. 10 year yield is below 2 at 1. 95. Overall, quite a big move from yields. This is what is coming up on surveillance. Dont miss our interview with loretta melzer talking inflation and treasuries. First, lets get straight to first word news. Waller and judy shelton are present trumps latest nominations to the Federal Reserve board. Of researchrector and was the professor of economics at the university of notre dame. Shelton is an informal adviser to the president and spent decades outside mainstream economics. Her unorthodox views could attract opposition. The Trump Administration abandoned its hardfought battle to have a Citizenship Question to the 2020 census after the u. S. Supreme Court Challenge its purpose. It is a sharp rebuttal to the white house. Last week, President Trump said he would look to the latest census after the court but the plan on hold. Europe is struggling to recover after suffering its worst reaction to an opec meeting in more than four years. Concerns about the Global Economy are overshadowing the decision. Rushes Energy Minister tells us opec and allies will respond to any disruption in the market. The market can change very quickly, as can the situation in shale production. Guarantee that the rate would be maintained in the future years. This is a highly uncertain and risky sent and risky sentiment. Rate the u. S. Beat england to secure a place in the final. The lionesses missed a penalty less than 10 minutes from fulltime. The u. S. Will now face the winner of todays semifinal between the netherlands and sweden. Tesla jumping in late trading after setting a new record. The carmaker handed over 95,000 cars to customers. That exceeds the best set in the last quarter of 2018 and alleviates the worst fears about demand for teslas vehicle. Global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine . Francine thank you so much. Christine lagarde is set to succeed mario draghi as ecb president , the first woman to take the job and the first politician, having been fences frances finance minister. She is one of the key appointments finally agreed to buy eu leaders after weeks of horsetrading. Angela merkels defense minister is to be the European Commission chief, another post never held by a woman before. Belgiums Prime Minister will become president of the european joseph boro borrell is coming the european policy chief. Is this a done deal they will be voted through parliament . Good morning, francine. Political leaders stuck in a room for 19 hours would only put it to a vote if they were 100 sure it would fly, otherwise it would be a humiliating defeat for everyone here, especially if we take into account the days it took to get to this agreement. By Christine Lagarde is seen as a different the rest of the procession. We do expect a little bit of pushback when it comes to the commission. The European Parliament wanted someone to run in the european election, there could be some pushback. But the idea is that despite the criticism, they will be voted through them that is the most logical step given that leaders for days and only put it to a vote if they are sure it will get cleared. Francine between Angela Merkel and mental macro who is the winner in the job tussle . Merkel got a commissioner, but it came with a hefty price. She of state from the councils, keeping an eye back of. Backhoe. Back home. She knew there could be serious repercussions. Not many outside of germany know who she is or what she does. The flipside to this is that a manual macro will tell you that he was the real winner. Aimed for complete parity and has a french woman at the European Central bank. He is a team where all of them speak french, he made a reference to that in his speech. But crucially, we knew he hated the idea of a citizen candidate and it is fair to say that concept is dead. So it is a very good night for a mental macro in brussels. Francine fabulous, thanks for the update. Joining us for the hour is hans redeker from Morgan Stanley. Good morning, and second of all, what kind of ecb president with madame lagarde be . Hans she has proven she is quite capable. In the imf, she was quite outspoken when came to the court nation of policy and fiscal policy regulation and Monetary Policy. So in her new role as ecbs use that fore will them point out what europe is lacking. And europe is lacking a banking given, fiscal integration is urgently required. That actually means that we will have an ecb president who is going to reach much more into the political scene and i think that is going to be good in respect of european reforms. Francine do you worry about Monetary Policy . Day, jayd of the powell is also a lawyer, trichet was an academic by trade. What do you worry about the mechanics . Down to how she can manage people, and at the end of the day, you need a strong Economic Research department to rely on. And you have to be guided by those guys in respect to what you think is required from a Monetary Policy point of view. So i think that she can make a judgment and that is very important. I think the judgment is more important than of in this case, how you have been educated. Itself thatreveal she can reach out into the Political Class to make sure what europe is lacking. Is it lacking Interest Rates . No, not really. Europe is lacking safe assets and the fiscal integration, political integration. Francine what does it mean for euro volatility . Hans you see what is happening in this morning. Volatility has again moved lower. What is important for the marketplace at the next few months is something different. That we should use Monetary Policy where it is still powerful. And the other places where Monetary Policy has become less impactful, europe and japan belong to the class. You need to look into alternatives. You have toation, look into fiscal policy responses. So when you are going into negative Interest Rates and , youg nominal bund yields wonder how far can those bund yields move in an environment where Inflation Expectations are falling rapidly . What we have seen is that Inflation Expectations have been falling more rapidly. We have seen what we call at Morgan Stanley a deflationary increase in real yield. Last the last time we saw that was in early 2016 in japan. Did see the ecb cutting rates in negative territory which of the market integrated as a major policy mistake. Yields went real yields are showing this decrease, you have to be aware of this will not be good for risk appetite. You need to be aware that equity markets are trading rich, and what comes to a the inflationary increase, then it is time to go the other way. Francine hans redeker from Morgan Stanley stays with us. In the euro area, what can they expect from Christine Lagarde . That is coming up next. Plus, tesla accelerates. Elon musk beats expectations, delivering more than 1000 cards a day cars a day. This is bloomberg. Francine this is bloomberg surveillance. On the women and men set to take over the leadership of the european union. Here is how some key players have reacted to the proposal that the imf chief Christine Lagarde heads the ecb. I have known madame lagarde for many years. I am absolutely sure that she will be very independent. Is somebody lagarde we knows very well in ireland. She will continue the policies of mario draghi. Alle believe that she has the necessary skills in order to head the European Central bank. I do believe that Christine Lagarde has the enormous broad experience. She knows how to cautiously address the issues. She will be very committed and engaged. Francine lets get another take on what madame lagarde will need for euro area of Monetary Policy. We are pleased to be joined by the former Vice President of the ecb, vito constantia. And hans redeker still with us. Always a pleasure to have you. Is it an issue that madame lagarde is not a trained economist given that Central Banks have to become more creative . Vito she has been heading the imf since 2011 where, of course,. He got a lot of experience she is very experienced in leading these institutions, which is very important. She is respected by the financial sector. She is a good communicator. And she knows all the european problems. The imf has been engaged in europe in several programs and herself was participating in clubmeetings at the euro and the council on these matters. And hasnows all that supported the bold policies the ecb had to take. So these are very important points to highlight. Me, they mean for she ensures a lot of continuity and that the ecb will continue to be a crucial safeguard of the euro. How different these think Christine Lagarde will be from mario draghi . You seem to be intimating that the policy path will likely be the same. Vitor in big Central Banks, Monetary Policy is did the is decided by committees. It is important to is the president , i not trying to say the opposite. But nevertheless, it is important to have skills to build consensus and to listen to the opinion of all of the members of the governing council. She is very good at doing that, in my view. So i absolutely trust that she will do all right. B wish her bombshells bon chance. Er francine does this bring into question the ecbs Financial Independence . Vitor i dont think so. At the imf come a she already had to show independence from governments which she criticize from time to time. Not doing what was necessary in economic terms. She has already a track record in doing that. So i think she will take to heart the nature of the institution of the central bank. She will, of course, respect the very important feature of the central bank, which is its independence. Francine let me also bring in hans redeker. Welcome madame lagarde advocate for more fiscal actions to help economies . And will she actually be heard . I hope she is going to become much more of a political person with respect to making sure the european integration will be put forward. When i hear this criticism and people saying that she comes up. With a certain reputation, many people saying it is dovish, i think it is always liked the year like the institution you are working for. ,n the early part of my career ascolleague was regarded soft but became one of the most incredible bundesbank president s we ever had. Let her do her job and give her the chance to succeed. Vitor, will madame lagarde be able to push the Financial Support better given her diplomatic skills . Vitor lets hope so. I certainly expect she will be outspoken in that respect. Momentsl know, at these , Central Banks in particular cannot do the job alone in view of the fact that monetary policies are already very accommodating. If the if we expected downturn becomes significant, fiscal policy will have to become active, much more active. And im sure she will grasp the point herself. All right, vitor constancio, former Vice President of the ecb. We will be back with hans redeker from Morgan Stanley. Tesla shares jumped at the Company Announces a record quarter for deliveries. But is demand here to stay . We discuss that next, this is bloomberg. Francine this is bloomberg surveillance. As a record soared quarter of deliveries alleviated the worst fears about demand. The carmaker handed more than 95,000 cars in three months, overtaking the previous best in the last quarter. Joining us is alex went, a bloomberg tech opinion columnist. Investors seem to be loving these figures, were they unexpected . Yes, they exceeded almost all analyst estimates. There were some concerns about demand heading into this quarter , having seen quite a significant dropoff in the number of deliveries. Nonetheless, there remains a lot more data than we need. Such as what price with a selling the cars, what does that mean for the Gross Margins . The sense is they were delivering them with discounts or not a huge amount of profit. So the numbers themselves are an indicator but do not tell the whole story. Francine cap elon musk keep can elon musk keep it up . It depends on if demand is Strong Enough to pay what they need for this customer which justifies 61 times earnings valuation. People are looking for the increase, but there is no evidence they are growing that free cash flow. There are a lot of questions the need to be asked from an investment standpoint. Igneous actually increase stuff on the bottom line and that is not really happening. Francine does tesla have the right people in place . They do not have many people in place, that is an issue. In the topge churn executive ranks and it is hard to tell if the replacements are not any good. Previously, they hired people from established carmakers with a strong reputation, but a lot of them have left. It is hard to tell if the new figures are up to scratch. Francine thanks very much. Coming up, we also speak with the governor of the sweetest central bank. Catch that interview around 11 a. M. London time. Up next, the new boss of ecb, Christine Lagarde. Plus, to trump nominees for the fed that are a lot more dovish than what we have. We discussed yields. There is a big move when it comes to the bond extending gains and the u. S. Holiday. Tomorrow is the fourth of july. We discuss all of that shortly, 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. Francine the time difference between d. C. And frankfurt is six hours. The real difference is in the ata. The rates debate. Bloombergs london hair quarters are watching for the rate cuts. And tesla shares soars after a record quarter of deliveries. Has elon musk won back investors confidence. Good afternoon if youre watching from asia. This is bloomberg surveillance. Im francine laqua. Were getting p. M. I. s falling to 50. 2. Anything around 50 indicates expansion and is a picture for pound 125. 53 and doing a the Prime Ministers. And now what is moving the markets. Bloomberg is reporting broad com is looking at buying the ecurities firm semantex. Share funds are trading at a one month high. The Prime Minister frontrunner in the u. K. Boris johnson will review taxes on things like sugar. Still sharing trading more than 2 upwards. And nordex, the maker of wind turbines. In the Second Quarter the orders doubled, most orders coming from the u. S. But getting a big boost when it comes to share prices, up nearly 9 , francine. Francine thank you, dani. Lets get to the first word news. Vivianna. Christopher waller is director of research at st. Louis fed and previously was professor of economics and the university of notre dame. Judy shelton is a formal advisor who spent decades with her unorthodoxed views. The trade war could lead to a widespread slowdown requiring a major policy response according to the bank of england mark carney and says the u. K. Faces the additional threat of a no deal brexit and reiterated his review of a smooth divorce could lead to higher Interest Rates. The intensification of these global trade tensions have increased the Downside Risk to u. K. And Global Growth. The way we conduct policy today is we have to deal with the impact of the uncertainty around those events and how they influence the behavior of households and businesses and Financial Markets. Viviana lee iacocca died at the age of 94 and came to prominence 1960 when he was named general manager of ford and they see his crowning achievement of saving chrysler from going bust in 1980 and curber ushered in the eara of the celebrity auto executive. Bloomberg powered by more than 127 journalists in more than 120 countries. This is bloomberg. Francine as the i. M. F. Director Christine Lagarde looks to take the top job lets look at the likely next governor of the e. C. B. In action. He dresses like a brit. He utters a few words. He doesnt choose his body language. He doesnt drive fast cars. Yet. Hes the quintessential italian. Speaking foreign language] clearly the unbalance is a net positive and we strongly support the decisions that have been made notably by the e. C. B. In relation to the euro zone. Concentrating on the positive and focusing on the key issues of the people of europe is in our view an immediate and urgent response that needs to bring together Monetary Policy, fiscal space wherever it is available and those reforms that will actually deliver value for people. In terms of monetary policies, always better for all political leaders to let the Central Bank Governors do the job they have to do and preserve and secure the independence. The feds around the world are called different names, e. C. B. , Central Banks have to operate under the basis of data. They have a mandate. Francine now lets get the take of our guest who joins us and also hans who joins us. Hans says give lagarde a chance and at least she can ignite the fractured europe. Do you agree with that . I hear the concerns of her profile perhaps because of the Vice President of e. C. B. Already, a central banker by formation so a two stop position for the First Time Ever held by a lawyer or politician. On the other hand, shes coming from a very good reputation. She has strong network, credibility, and more importantly for markets, we know already from the comments we just heard that she will provide continuity. Thats the key feature of markets, continuity after draghi. And in a sense we avoided the worse Case Scenario for markets where we could have a disruption, for instance, with a german president. So a net positive as she just said. Francine hans, let me go back to you. We have a chart looking at the volatility dropping to the lowest levels in 2007. Are you forecasting a change in Forward Guidance of the e. C. B. At the july meeting . Will use ink they since we saw a weakening of the economic circumstances externally and most of all our Inflation Expectations have come down so it would be logic for the central bank to ease further from here. You also have to think about what are you going to achieve with additional easing . When you look at the yields already at a very low level. So how much is the Additional Bank receiving when bunde yields are at point 04. What europe and the rest of the leaders need is a demand impulse and the demand impulse with respect to europe will change from the deregulation and from the american side, it may be required to take it to a lower level. You look at the Deflationary Forces of the u. S. Dollar, look at the global position in dollars and look at 80 of bank credits for Global Trade Finance is in dollars. You make the dollar too expensive, you kill trade. And if you have the valuation of those dollar liabilities as being too high, then you reduce the collection required in the markets for the creation of domestic money. I think that needs to be urgently changed and means its not the e. C. B. In the driving seat is actually the fed. Francine frederick, do you agree with that and are you expecting the economic prospects of the euro area to darken and what would that mean for what madam lagarde could do in terms of pushing for fiscal policy while being inventive with Monetary Policy. Frederick this is the important point for lagarde, she will very much agree in what has been said as far as fiscal policy being in the driving seat and policy in berlin, for instance, and provide continuity of draghi and then from the chief economist speaks on monday and i think he hinted not only as a small rate cut that may not achieve a lot but theres a easing coming since september, exactly. And the idea would be to be credible and lay the ground for mething longer and bigger, increasing limits. And this will have an impact on markets and is already priced in to logic in my opinion when bunde. The 10year i think july will be a transition meeting to see about cutting rates further and might come as soon as september and more likely and i would welcome it actually, comeing to be more powerful and efficient. Francine do you expect the e. C. B. Chief economist to actually grow an importance of the role because madam lagarde doesnt have an economic background . Fredrik absolutely. We have a Vice President and president , for the chief economy switches, already a crucial position at the xecutive point will design policy and policy proposals which eventually will be endorsed. And the second important the head and is a financial job and can think of liquidity, q. E. And issue limits and here again we need with to replace covier credentials. Froim looking at the german 10year deal. Can it keep going . Hans buned yields will yield where youll see a turn in the u. S. Dollar and many would argue from the perspective of allower u. S. Dollar meaning eurodollar coming up and higher euro with that. Im convinced you need a turn round in the unit to provide reflationary impulse into the Global Economy and if that is developed bund yields can go up and only under those circumstances so we have to see what the fed is going to do in july and thereafter. The recent independentizations of the fed are not promising and i see what was said the other day and then you have the San Francisco fed, the governor putting cool water on the prospect of aggressive rate cuts by the fed. Im afraid it would be a mistake. Francine and in about an hour and a half in the studio well talk about the fed some more. Hans and frederick, both stay with us. Stay with surveillance. And trump with two nominees for the fed and speak to someone who has spoken against a rate cut. Our interview with the cleveland president at 11 00 london time today. This is bloomberg. Francine this is bloomberg surveillance, im Francine Lacqua in london. Lets get to the business florida in new york city with viff anna. Viviana. Viviana playing the groundwork for the most dramatic overhaul in recent history. Bells would be part of the german plant to cut its nonprofitable businesses. Over to the u. K. Where the latest report underscores the need for a revamp of supermarkets. Sales falling in the First Quarter since the planned acquisition of walmart as the unit collapsed. Stansbury joining other retailers in bad weather and remodel their stores. And this after the dealmaker left to become the spanish bank chief executive and the job offer later rescinded in a dispute over pay. Francine President Trump announced the latest nominations to the Federal Reserve board and two nominees likely to support easier policy. Mr. Waller was professor of economics at the university of notre dame. And judy shelton is an informal advisor to the president. She spent decade outside mainstream economics and her un rthodox views could create conflict. Hans, first of all, we have quite a move lower when it comes to yield. The 10year yield at 1. 95 and this is where we see the 10year over the last year and a half or so. Do yields go to 1. 75. What would it take to get to that level . Hans well certainly see if you continue the u. S. Dollar over valuation with the creation of additional Deflationary Forces that come with that and would take the u. S. Bond yield to lower levels. But then we have to think about something different. And i think theres one point to discuss the 10year nom instant bond yield level but discuss what will be the future slope of u. S. Yield. I think what were going to see in the next few quarters is a steepening of the u. S. Curve and there will be a steepening with shorter Interest Rates will fall faster than longterm Interest Rates. We are looking into the inflow of long term capital into the United States. And you look at that relative to the slope of the yield curve and you see a disconnect. The flow of funds into a Long Term Assets in the united the , we have to reset morning and its come significantly lower and showing a complete disconnect with the still current slope of the paints a tells you it picture of weakness which the central bank erects. Francine where do you see treasury is going . Fredrik we could see some short Term Extension and would depend also on the next fed meeting and the communication around the sequencing, the base, the expense to which the fed could cut rates with Interest Rate cuts are more than that with the circularity which forces them to act at some point. If we have a correction in Market Expectations which is much lower than the fed does, with we key see reseepening in the short term if they buy the fed would cut twice, for instance. And inflationary pressure, not very significant in the u. S. Either and its true there are temporary factors that could fade over time. Maybe well have to wait until next year to turn it down but push higher in the long end of the curve. Francine getting breaking news, a comment from mr. Nowatny saying he feels confident about lagardes nomination. Hans, we also heard there are two possible nations, President Trump, what is the likelihood one gets passed through given the fact one is so unorthodoxed. Hans it could change the way the central bank will act and have an impact over the next few quarters, i doubt it. So we preach a lot into that but its estimated maybe the institution at times may change. May over time turn into a more devilish institution but in the near term i dont think this nomination has any impact on the market income. Francine heam rate cuts are you expecting from the fed this year . Fred rick two, july and september. 25 basis points. July is getting more clear in terms of the communication around the shift because you dont want to send out some decision. And then the view they could only cut by 25 basis points and ultimately on the fed it depends on the Global Economy outlook as well. We are counting on the rebound of china in europe to some extent which also could help the feds. Remember the feds was too loud given the state of the world and Global Economy that related to trade and also europe and could help the margins oppose at some point later this year. Francine thank you so much, a strategist from Morgan Stanley. In the meantime were getting breaking news on tesla. Tesla at 75 premarket trading after the beatdown on deliveries. Oil is struggling to recover from the worst reaction from an opec meeting in 2014. Well discuss the Market Impact next. This is bloomberg. Francine economics and politics. This is bloomberg surveillance. Im Francine Lacqua in london. Oil looking to recover after suffering its worse reaction. Still with us is hans redeker from Morgan Stanley. First, i dont know you see oil in a range of 40 to 70 which is of no use to anyone. How do you see oil impacting your forecast . Hans when you have opec which is restricting supply and at the same time you see oil price declining and oil industry going up. We will have today Oil Inventory release and you know that there are significant demands being on its way. I mentioned in the oil market, we have noticed significant declines in oil demand to south korea, the United States, japan has been the most significant moves and those will weigh on the oil frarkt. Francine getting breaking news out of the nikkei, a japanese company, saying amazon looks fed to shift some production out of china. Things like that according it h. P. And dell will move 30 of their noteboob out of china. How does it change things chinese pends on reaction. It needs to be domestic demand driven and i think they are forced by this announcement and news, they are forced to be quicker in that and i think that initially this negative o. E. M. But not beyond the date. There are other factors driving the emerging markets and that is people have no other place to invest. Francine thanks so much. Hans redeker from Morgan Stanley. Oming up, loweresta mester speaking to us exclusively. This is bloomberg. Francine the time difference between d. C. And frankfurt is six hours but the difference is in the data. The bearness of the bailout. The rate debate. Trump to the fed and bloomberg to london. And the case against the rate cut. Tesla shares surge after a record quarter of deliveries. As elon musk finally won back investor confidence. Good afternoon if youre watching from asia. This is bloomberg surveillance. Tom keene in new york. The interview of the day speaking to loretta with a big move in treasuries overall and and rate cuts re arent warranted. Tom we have eight hours to pack in but loretta mountainwester could extend to a onehour interview with all we have at the e. C. B. And brussels as well and we really entered another round of the globalry quidity perhaps others are calling it. Francine lets go to bloomberg for the elections. Maria, can we be so sure ristine lagarde and ursula von der leyen will be confirmed by the department. Not many people outside germany know what she does could get this job. Ultimately it took three days to get here. Angela merkel deployed a lot of her own Political Capital and you would think european leaders wouldnt put this to a vote if they werent 100 clear it would be clear. Split elections means pushback but the vote ultimately goes through. Tom who were the losers in the vote particularly for dr. Von der leyen. Instead of the loser i would look at the bigger winner and that was macron who won is under parity 22 and got a french woman at the European Central banks who doesnt have experience and raised eyebrows. And everyone on the team speaks french which is something he made a reference to and a close friend to macron will lead the council. The loser perhaps Angela Merkel who got the Commission Job for a german but ultimately lost a lot of her own Political Capital here and criticized by the christian democrats in germany and the socialists. Er government depends on the fpd and are sad a commissioner was chosen to lead the job. Francine now to bloomberg with news in new york city. Eres vnchings iviana. Viviana President Trump picking two nominees for the federal board. Christopher waller is the conventional choice and judy shelton has spent time outside mainstream economics and has been criticized for her unconventional views. Christine lagarde will be the first woman to run euro legacy policy. The i. M. F. Managing director was nominated to replace mario draghi as head of the European Central bank and jeff as the e. U. s economy needs fresh still has. Oil looking to rebound after the worst reaction to a opec decision in five years and prices falling 5 which overshadowed a commission to extend production cuts another nine months. The man who led ford and sage chrysler through bank has died. Lee iacocca was one of the first celebrity c. E. O. s and his consumers changing taste led to the ford mustang and chrysler minivan. His came ubiquitous with bestselling books. He was 94 years old. News 24 hours a day, powered by more than 2,700 journalists and examiners. Tom thanks so much. We look at a stunning data check. Equities continue to advance but all about bonds and the seismic difference this morning as we see a new abrupt curve flattening from the quiet of the last two weeks. The vanilla spread in the United States comes down to 21 basis points and euro turns on to the next stream showing the bond market. The twoyear deeled from 176 to 4 should be red on the screen. This off China Economic data, 1. 95 . As you mentioned on europe, negative yields. Madam lagarde welcome to frankfurt. Weve reached a new area of debt for these yields . Francine if you think about it we had a couple calls for what it would take the yields to go to 1. 75. I would look at gold because theres a Little Movement with gold extending some of the gains p. The euro pairing a small drop and had purchasing data for the region provides slightly higher and looking after the trend is doing it. Tom we went back and forth on this last night in london, its been a joy, particularly at avos to speak to lagarde and at ursulas selection. I thought guy had a smart comment on the uproar in germany over this replacement from mr. Ewinger. This is hults the weakest minister in the government, merkels government, the eermer european said. She cuts a lonely figure in berlin and mr. Chazan said ms. Miguel quickly identified as an ally in her efforts to modernize the c. D. U. And in 2005. Its time for a victory lap. Francine lacroix nailed vander line three or four years ago, her importance within the new germany. Lauren francine i pictured two m. M. R. s on Christine Lagarde. International flavors. Lets start with the italian one and they basically start what lagarde gave toive anca trump and in that you see two confidences and at the same time lagarde and the United States knows each other because she worked there for years as International Affairs going and french physically pambingly saying if you look at madam lagarde shes getting a lot of flak and not being an economic economist but similar to a profile of jay powell, another lawyer, joining us now for the hour. Kwlobal investor global nvestor chief executive. Do policies under madam lagarde differ to what weve had under mario draghi. A bit early to say. I think mario draghi is doing Everything Possible with his deral silence he will be maintained under the successor. I think lagarde is a very redible choice and has massive effect and a surprise markets can be surprised today. Francine does europe or the erment c. B. E. C. B. Need a politician . Because you could argue it needs more fiscal pressure and certainly can come from the Banking Union or something to agree on. The e. C. B. Needs to act politically more. It will be critical for the e. R. B. To meet its targets and it is supported by physical policy. But she will need to do something draghi didnt do. She will need to rethink the Monetary Policy framework. The e. C. B. Lost traction of inflation since it happened and the e. C. B. Doesnt understand what it going on. And i think maybe not having an economic economist is a good thing to ask questions before we give answers why have we failed to eat our targets. Tom thrilled with you and your work are here. What in gods name is going on in germany. Im thunder strubbling from the wer over m conrad adeno her the political debate within conservative germany. The social democrats were debating whether they should leave the coalition. I dont think they will in the end but they are seriously disillusioned by the fact merkel hasnt consulted with them. The issue at stake there are two issues at stake. He first issue is this was a unilateral decision but the other one is the whole of germany has brought into this, the parties in the european porlment decide who their leader is. And that was diswounted by decision yesterday and me picked a person out of the blue, not an ppe and didnt stand election and was probably in the afternoon of that day she would give you per physician. And the process is wrongs. It isnt what it s. And also she is considered on the left as a failed politician and not german army nd the is in complete disrepair and mack ells plane almost forced to leave because the emergency is you will graduationable to she minute dine up for her opposed. And she cant even lead her department. Tom what does she need to do to replace yunker . We understand her to replace draghi, how does she replace younger particularly with the backdrop of brexit . Shes not sure shell get the job because it is a nomination. Lagarde is assured the parliament cannot shut out lagarde and advise the council which they wont. Its the president of the. Uropean counsel, and the conference has ato assure her. Theres wrangling going on in the backdrop if the social democrats and screen no to her and that was the change we took in the morning. If they continue to say no, the whole thing will have to go back to the council to pick another candidate. Its an open question at this andreance from global investments. Clevelands head president loretta here. At 6 00 a. M. In new york, 11 00 a. M. In london and discuss the case for no Interest Rate cuts. This is bloomberg. Tom extraordinary news. Francine lacroix, im tom keene in new york. A stunning day to review china p. M. I. s are grim. The yield market moves with curves flattening. Around that is the politics of our finance and investment. We are thrilled this hour to bring you wolfgang of euro intelligence with his knowledge of germany and andreas, i dont want to get you in trouble with elia ifened elian. Let us link politics to finance. What is the stress now in the continent of a new round of ever greater Interest Rates. Hat experiment, is it working . Andreas it depends what lens you put on it. Its working in that it rebuilt the system to a degree and caused the Financial System to collapse 10 years ago and item not working and weve been talking about it on the show for many years, redistributing wealth in an undesirable manner and continuing to the rise in populism. And making it very difficult for the Banking System and there are a number of lenders in the euro zone that are suffering because they have these excess savings they have to pay interest on compared to their reserves. But hard to be profitable. From that perspective its not working and the e. C. B. Needs to find a way to not only deal with that issue but wolfgang mentioned it earlier, the same challenge the fed has, no inflation. Francine what to do with that. That is a 10year bund yield looking to drop past the deposit rate. Has that lost decade for germany . Andreas its in reference to japan and you heard me say before i think thats slightly thats over jimple flying heffeds but japan generated a t of g. D. P. And pacing problems and indicative of the fact markets lost confidence in the ability of the Central Banks to delivery on their policy framework. Tom andreas with us and lovely gang, well continue his forward now not only on two new fed nominees well discuss later but an update after china and after osaka, novarro of the white house at the 8 00 hour. This is bloomberg. Stay with us. Viviana this is bloomberg surveillance. To the business flash. A number of Big American Companies reportedly may shift substantial production out of china. According to nikkei, h. P. , dell, h. P. And amazon are considering whether to make the move. No one is commenting. Last year apple hinted it might need to raise prices because of tariff products made in china. And at yesterdays close symante counter had a market view of 17 billion. For broad com it would be a expansion to the more Profitable Software business. Tesla soaring. In the Second Quarter the electric carmaker delivered more than 75,000 cars and exceeded the previous best mark at the end of last year. This quarter could be a bigger test for tesla and this week the tax incentive for electric car buyers was cut by half. Thats the Bloomberg Business flash. Francine how to brexit and the two candidates to be next Prime Minister have vowed to rip off the backstop. And they continue to block a no deal exit. And new england governor says the higher they go it would lead to higher Interest Rates. First of all, given the appointments at the e. U. Top jobs, how does it change with how they deal with brexit . Hans it should not change anything at all. Because nothing will take effect until november and if both candidates are right theyll take the u. K. Out of the end of october and should be no overlap on the exit with brexit instead. And the first day everyone in the e. U. Will take office. The first day will be possibly of a no deal blexity so theyll start their terms in chaos and ter that there will be problems to nend the withdrawal treatment over a period of time and eventually have a free trade deal and will take a long time, much longer than the candidates think. Francine does it actually change we were talking off camera and had different reviews what donald trump did for the e. U. Who is the right thern in that job . Wolfgang Shawn Michelle will take a similar line and tough on the u. K. Should the brexit thing go into overtime which may still under johnson or hunt, it may go to an extension and in that case we would have a leadership in the e. U. You dont want to extend except for elections or a second referendum. Michelle is very clear on that. Donald tusk has been encouraging the u. K. To hold a second referendum. The frankfurt belgian leadership is not doing that and will be a difference in approach and also be much tougher in trade negotiations. Tom does it matter were talking about a former head of luxembourg and now a defense minister thats not well liked. Are the other people going to have the stature to go of a Prime Minister hunt . I think think they will. Im probably overappointing the appointment and the next to see that is Christine Lagarde. And we rightly focus on this issue. The other jobs important to anyone that lives in brussels but not as important to the rest of the world and they matter in germany because people were not consulted and it is a domestic political issue and not fundamentally opposed to having a christian democrat as and shes clearly not the person at least junko got a good deal conversation with donald trump. She is not doing that. Tom Wolfgang Munchau is fired up. Stay with us. Fed nominees once more. This is bloomberg. A brit. Esses like he utters a few words. He doesnt choose his body language. He doesnt drive fast cars yet. He is the quintessential italian. Mario. Preoccupe. We support the decisions that have been made by the ecb in relation to the euro zone. On the positive, focusing on key issues for europe is an urgent response that needs to bring together Monetary Policy, fiscal space formsit is available and that will deliver value for people. To let the Central Bank Governors do what they have to do and preserve their independence. The fed all around the world is called different names. Central banks cooperate on the basis of data. I have a mandate. Francine that was christine ,agarde talking about draghi the ecb, and Monetary Policy. If you look at the european economy, will we see a slowdown and will we see a change in Forward Guidance in july . Andreas we are kind of in a slowdown. The question is will we go into recession . I dont think so, but draghi said recently that in the ,bsence of an improvement additional stimulus will be required and we will have to see what happens here. That is what the markets are anticipating. Francine how are the markets looking at Christine Lagarde . Soon tolittle bit too know what she wants to do, but she is a supporter of unconventional policy tools. Is there a limit to what the ecb firepower could be under lagarde . Andreas i think wolfgang said it quite well. In ecb president and a fed president that is more closely linked with politicians and making sure that Monetary Policy and fiscal policy are more in sync is probably what is required. Conventional Monetary Policy the way we learned it 30 or 40 years ago is not delivering the theory wasat the predicting, so we need to go in a different direction and figure out what is wrong. Tom what is that different direction . The word that has come up this week is liquidity trap. Maybe it is something original. What is the original treatment lagarde and others have to apply . Andreas i dont know. Mehink cleverer people than need to figure that out. All that has been tried has not really worked. The phillips curve appears to be dead. We need a new policy and Economic Framework to get inflation back to target trajectories. Tom Andreas Utermann and Wolfgang Munchau with us. Here is viviana hurtado. Viviana china may buy some u. S. Farm products as a gesture of goodwill. The volume will likely be smaller than before and purchases include corn, soybeans, and pork. Iran has a warning for europe. If it does not comply with the nuclear agreement, tehran will increase their a richmond dutch enrichment. Enrichment. Enrichmenturanium could give iran enough to produce a nuclear weapon. Scorings and immigrants a win over the trump oninistration, who gave up putting a citizens that question on the census. Citizenship question on the census. Englandy, the u. S. Beat and in france, they play the winner of sweden and the netherlands. 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 thank you so much. Lagarderame the news of and maria tadeo in brussels, but the Economic Data this morning in china which has driven rates lower. We discussed the markets with Wolfgang Munchau and Andreas Utermann as well. Anz is worldwide. How do you perceive the slowdown in china . Is it a legitimate recession . ,an you put a statistic, gdp which signifies a slowdown . Andreas i think the manufacturing pmi measures are below 50, although they have not really deteriorated further in recent months. What is encouraging is that services pmi remains positive, has not changed significantly. To talk about a fullblown recession is probably premature. China has slowed down and is not growing the way it was. We will have to see whether adjustments can been made beyond farther weakening of further weakening of the renminbi. Lets be clear, this is not unexpected. With the rebalancing we have been talking about, was always going to produce a slowdown in manufacturing and the Capital Investment cycle, and hopefully pick up in the services side. Tom there is a hopefully, a dangerous word. We are doing a lot of hoping now. Lets begin with the basics of the market. What do those record low yields signify particularly in italy . How unstable is that . Wolfgang it is very unstable. It is basically telling us in europe, there is no need to speculate against italy because italy is clearly solvent with negative yields. [laughter] wolfgang there is no question of a default, but the concern is now growth. The government is not addressing the problem. There is no magic Monetary Policy anyone can employ for this to change, so this essentially said says we need to look at monetary and fiscal policy in a different way than the past. Francine well Christine Lagarde push for fiscal policy and will she convince politicians now is the time to do it . Wolfgang that is a good question. If there is anybody who can do this, it would be her. Whether she would do it is another matter, but Christine Lagarde is in a position, dealing with political leaders all the time, she can tell them into their face, you have got to change this. The german debt break has been a unilateral deflationary mechanism that is not something you can put on German Television without being mocked. This is something that needs to be said, truth to power, and she can probably do that. Ncine are you worried sorry, tom. Tom please. Francine do you worry there are too many politicians at the ecb, or do you assume the chief economist will take a bigger role in they will balance each other out . Andreas i dont think there are too many politicians at the ecb. You could say there were too and it wasticians not working so things have to change. Tom i was going to Say Something cute about a ivanka trump but we wont go there. Int a shock, somebody Monetary Policy has actually had to run a budget. Plus plus. Uge plus can we get to a mechanism of fiscal advancement in europe, or is that a pipe dream . Andreas you what think that you can. Wolfgang has just set it and written about in the past. Without different redistribution mechanism in the e. U. To help some of the country suffering from the relatively expensive euro, without a revision of the tight fiscal policy in germany, and germany playing a more locomotive role in europe, it is difficult to get out of this delays. I malletts. Malaise. I am not sure Christine Lagarde policye it but fiscal will probably result in something less orthodox and more expansionary than we have seen in years. Tom we will continue, please stay with us. This is bloomberg. Loretta mester, in the next hour, of cleveland. Good morning. Not a quiet holiday week in the markets worldwide. This is an extraordinary set of statistics. The 10 year yield drives below 2 . Story, thes its own rba ready to cut rates. There is the agony of japan. Onncine, can you comment that german statistic now . , go back to Marvin Goodfriend it is basically unimaginable. Francine we asked Andreas Utermann about it a while ago and he said, we do not have the same demographics although there are parallels with japan. How do you interpret that number . Wolfgang we are business secular, no question. We are in a form of secular stagnation. I believe it is fiscal. We can get out of it if we let fiscal policy do the job, but with a declining demographic and fiscal retrenchment, that is what we end up with. Francine we have been talking about a repricing for a year and a half. When will it come . What is the catalyst . Andreas bond markets need to have the sense that the Central Banks will exit qed. Qe. We thought it was done and we have seen a rapid reversal as the markets digested this and repriced risk assets, which the central bank did not like. We need that to happen again and we need some Growth Numbers to be positive, continued low unemployment, and core Inflation Numbers edging up. Without that, it is difficult. Tom we dont have the over leverage of august of 1998. If we come in with a multijobs report on friday after the reportof moldy jobs on friday after the fourth of july, is this a fed, Loretta Mester, are they going to have to get out front and do an emergency 25 basis point cut . Andreas i would not call it an emergency cut. T is priced in the markets are pricing in four cuts a year. Not, it is priced in the markets and i think that if. Question of when, not tom how unconventional are we now . Mark carney wants to escape and go back to the imf. How unconventional is the moment for central bankers . Wolfgang it is unconventional. I believe they have run out of tools. They have marginal tools left. They might go back to qe but i do not think it will make much difference. 60 of then government bonds of their country, the ecb is owning 20 and it could get higher, but what good will it do . Well let driveup core inflation . I doubt it. By factors outside of the monetary sphere and the idea that policy can always do the job, i disagree. Francine even for the fed . Wolfgang the fed has more room for maneuver. Francine are they central banker to the world . Wolfgang they are, this is clear. That is the one still functioning economy we have, the United States. They will be testing the same limits. It is not just a european thing. We are in a global world of secular retrenchment. Andreas one of the surprising matters i think is the market is relatively relaxed in response to this increased politicization of the Central Banks. If you default, that will undermine the credibility of the central bank and will have an impact on the currency. Francine is that because transit President Trump is criticizing the fed so much that they are doing their job, they are not think politicized . Andreas it is a sign of the fact that the markets have concluded it is not working the way they have tried with qe and we have to do something different. That is not necessarily worse and might be better. Wolfgang markets probably have more help then politicians in the central bankers. Newslets go to corporate on the way out on tesla. They delivered, simple as that. There have been lots of exits of Senior Management and manufacturing management. 33 ,musk, shares down delivered with a vengeance. Tesla, a record quarter and up smartly premarket in the United States. So much to talk about as we drive forward in the next 15 cleveland. Ster of viviana this is bloomberg surveillance. Amazon will higher more than 2000 workers and the u. K. To develop its latest technology ventures. The employees will include engineers, software developers, and data scientists, raising amazons british workforce to almost 40,000 people. Occidental is pushing back against carl icahn who wants to replace for members of the board. Support stockholders that isplan is not the Bloomberg Business flash. Tom right now, lets bring up a chart, this is an extraordinary chart, it is not logarithmic because it is negative Interest Rates. Withis the german twoyear massive persistency down, and the rollover you see right now. Want to showhau, i how absurdly low these Interest Rates are. Way, waybound is way, up here. We cannot continue this, can we . Wolfgang no, we cant. Well, we can and we have seen what happened in japan. It is not healthy and something needs to be done. Bankbility of the central on its own to lift this has severely limited. It will have to be tom what is the immediacy for Deutsche Bank, commerzbank, and the finance system of germany . Banks havehe german traditionally needed higher Interest Rates and they have been saying they need positive Interest Rates because their Business Model relies on this, what they are adjusting like everyone. I have never bought into the story that negative Interest Rates would completely destroy the german Financial System. They are adjusting and buying risky assets, so they are diversifying out of the overreliance on the money. Francine what should Deutsche Bank become . We talk about Deutsche Bank every day. It is unclear whether they need to raise capital or how many cost cuts they need to do. Wolfgang they are in talks of restructuring without having to go through a rights issue. Deutsche bank is a puzzling financial institution. I believe it should have been broken up a long time ago, emerged and bought, and probably sold to a foreign institution, but that is not possible in germany. Francine it is too late now. Wolfgang i agree. Francine should they get rid of the u. S. Unit . Wolfgang i suspect the restructuring will be fairly dramatic. That is under discussion, yes. Does she have to do in her first days in brussels . Tadeo it isby maria likely she will be selected. Days 1, 2, 3 in brussels . Wolfgang if she is appointed to the job, if brexit goes ahead as dealing she will be with a massive fallout because you will have lorries being parked in front of c alais. Goest, if the brexit thing into a prolonged asian prolongation, she and the commission will have to deal with that. I guess brexit will be at the top of heard agenda her agenda one way or another. Francine Wolfgang Munchau, thank you. Coming up the next hour, the interview we have all been waiting for with Loretta Mester arguing her case against rate cuts. Tom we will talk about the discussion we had with Loretta Mester 24 hours ago. Things have changed. New low Interest Rates, difficult Economic Data of china, as Loretta Mester and her fed, are they central bankers to the world . Lagarde inine brussels, and frankfurt. 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. Tom this morning, grim Economic Data out of china. Yields plunged to new recent lows. Curve flattening indicates recession. Greater negative Interest Rates in europe. Sides men ship in brussels. Lagarde will replace draghi. Well replace will replace juncxker. Loretta mester on Central Banks living a global liquidity trap. , fromrg surveillance new york and london. Francine lacqua, what is your single observation this morning . Francine we spoke to a number of market disciplines in favor of the appointment of madame lagarde. Half of the people in the press say she does not have the economic credentials and does not have the theorist approach to Central Banks. The other half which are real people in the markets, say she may bring these country Heads Together for more fiscal policy and may get something done. Lane of has philip ireland, who is better than good. At look back. Lagardee known madame for many years and im absolutely sure she will be very independent president of the European Central bank. Christine lagarde is someone we know very well in ireland. She will continue the policies of mario draghi. We believe she has all the necessary skills in order to head the European Central bank. I believe Christine Lagarde experienced enormous. She knows how to cautiously address issues and she will be very committed. Tom the leaders talking madame lagarde yesterday. Francine we have a lot of international copy. We went to the newspapers and i picked out two things. Talking about the death stare madame lagarde gave to ivanka trump. We had something in the french newspaper arguing that there has been pushed back because she is a lawyer but jay powell is also a lawyer. 10 year treasury yields dipping to their lowest as investors many the prop that members of the fomc are leaning towards lowering the rates, the president of the cleveland fed laid out the argument against a cut. We are pleased to welcome Loretta Mester to the program. What kind of data do you need to see to say lets cut . Ms. Mester we are trying to assess whether growth is slowing to trend or whether there is a more significant slowdown going on. Me personally, i would like to see more data on the business side because we know Business Investment has been weak. I would like to see more employment reports so we get a sense of whether last month report is going to be weaker but whether it will slow more than expected. I would like to see more readings on Inflation Expectations because the last has gonesurvey data down, but the levels seem more they have been. I would like to see more data on that side. The consumer side of the u. S. Economy has held out pretty well, so if you saw that deteriorating, that would be a red flag. There is a possibility growth could be flowing more than expected. Slowing more than expected. Francine if the fed cuts, are you worried the markets are dictating what the fed should do . Ms. Mester i dont worry about that because i know how the fed works, and my colleagues go in discussing a whole panoply of data. We do not discount Financial Markets because they are an important factor in assessing where the economy is going, but we look at many factors and some of the real side data, and the information we get from business and consumer contacts, that is very helpful and a time when you were trying to be forwardlooking. Tom an important conversation with Loretta Mester out of barnard mathematics and princeton. We welcome all of you. Mester, this conversation was important 24 hours ago and is ever important now. Is new phrase early july liquidity trap. You know this from krugman in 1998. Are we headed towards a global liquidity trap . Think that i dont is how i characterize things. We are trying to assess where economies are going. Growth outside the u. S. Has been slowing and that affects the u. S. Because of linkages to Financial Markets, and through trade channels. The uncertainty around trade policy has been a factor in clouding the outlook. Slowdown in Global Growth in china and europe has been a factor affecting the u. S. Economy, so these are things we are keeping an eye on. When we think about Monetary Policy in the u. S. , we are thinking about how the economy in the u. S. Will do over time and calibrating our policy toward that. Is thee of the risks idea of goods deflation, global disinflation folding into the normal inflation of the service sector. Do you see data now, or is there a risk that this drag on the Global Economy will pull down . Ervice sector ms. Mester we need to keep an eye on the inflations data. Is inflation will move gradually toward 2 , but data from this year that was softer means it will take a little longer. I still have that is my most likely outcome. However, you do have to think about the underlying trend in inflation. And alsot is cyclical, some of the structural factors, things like businesses with new models of how they are competing with one another, price setting behavior. Consumer francine can you still say the fed fund rates is below neutral . Ms. Mester i think the fed funds rate is about neutral now, but as the economy dictates, we need to move our rate. That instead of being a Sustainable Growth scenario we are entering a weak the economyrio, will move down and that will be a reason to move the policy rate down, but i do not have enough evidence to suggest things are necessarily going there. Francine what have your business contacts been telling you about investment and hiring, and is it linked to the trade tensions or Something Else . Ms. Mester businesses in our district we are more representative of manufacturing trade is definitely a concern. The trade uncertainty as a rising concern. Many say, we have not changed our investment plans and we are on track with what we planned. A few may be say, i am rethinking a few may be saying, i am rethinking that. Others are taking it in stride and saying, i wish the uncertainty were over but i am still on plan. Tom i want to go back to first principles. Michael mckee would suggest we go back to econ 101. Tax tariff just and import on the businesses of your cleveland Business District . Ms. Mester i dont view it like that because there is deadweight costs. If you reorganize your supply chain to get away from the tariffs and do it in a way that it is not as efficient, that a deadweight loss. You are not collecting a tariff or being efficient. Tariffs are a tax, if you will, either on the business who absorb it in their margin, or they try to pass it on to consumers in their prices. We would like to get to free and fair trade. Part of the thing that our firms are telling us is the uncertainty around trade and tariff policy creates a problem as they plan out what they want to be doing. Lost a deadweight loss spelled hanoi . Nature of a mercantile president is extraordinary. You are in the heart of what america has to deal with, with this trade war. How would you recommend the fed assist us through President Trumps trade war . Ms. Mester we have to take given policies outside of the realm of economic policy. The uncertainty created by some of the policies and changes in policies, we have to take that as perhaps a headwind to growth and think about our Monetary Policy in that context. We are not in a position to give advice to the president on his policies. He is pursuing policies that he thinks are correct. We take them as part of the economic environment and assess where we think the economy is going and calibrate our policy. Francine is finding qualified workers the number one problem for the u. S. . Ms. Mester in our district it is, and the number one problem small district is small problems Small Businesses are facing across the board. Thing they tell us our businesses, they cannot find qualified workers. Francine President Trump picked are likelyinees who to go with easier policy. Do you go with the politicization . Ms. Mester i have no reason the nominees no reason to believe the nominees or prospective nominees will make it more or less political. I have been going to fomc meetings since the end of 2000, and every meeting we have been to come we never talk politics. It does not enter the room. We are trying to assess economic and Financial Data to know where is the economy going as best as we can, and to calibrate our policy. Certainly, you do not want to have short run political factors influencing Monetary Policy. Tom we have a firm surveillance rule, we do not do it in august but we do it in july. The fed policy designed to get years has 7, 8, 9 been a colossal failure. Are you at a Research Point yet with the cleveland fed on inflation where we need to bring down the 2 benchmark to something new for a new terminal value in america . Ms. Mester as you point out, we have an Inflation Research center. We are looking at all aspects of inflation to better understand dynamics. It is interesting that you say should we bring down the target, because others have raised suggested we should raise the target to give us a better chance of being lower bound. There is no one answer. There are structural factors affecting inflation going forward, but that means the monetary factors are probably going to take a little bit longer term than in the past. I still think my forecast is that the most likely path will be inflation gradually rising to 2 , but we need to understand more about inflation dynamics. Tom i dont want you to get with jay trouble powell. In germany, they have philip lane of ireland. How much help will madame lagarde need from your world to do a good job in frankfurt . How does she bring forward the economics for the decisionmaking . Ms. Mester the ecb is a Strong Organization with great economists. Will do quiterde well and will be open to investigating all aspects of the economy to set Monetary Policy in europe. I think she will do a fine job. She has a good staff to help her as needed. Francine is it odd that you have two x lawyers heading heading two Central Banks . Ms. Mester it is an interesting aspect. We have different backgrounds and diversity across the table. We have a strong staff at the reserve banks and the board of governors. That leads to a more to a better policy making environment. Tom let me ask you about the great dissenter. Change, do regime idea on the xaxis that you get to a regime change, or well it e. A. Continuous function fed into the future . It be a continuous function fed into the future . Ms. Mester there is all kinds of models. Great research question. When you get towards the zero lower bound, the economy can act differently than one it is a way , so that is a fine theory and we have to take those models into account. I have no problem with jim having that view of the world. I personally think we are not near that, but we have to remain open to seeing how the economy develops. Francine is there one thing economists misunderstand about the World Economy . Ms. Mester there is probably many things, because it is always a research question. We are trying to do the best , our our models, our data anecdotal evidence we gather from business context. We are trying to pursue the same goal. Are always focused on the same goal. We might have different views on what is appropriate to get there. Francine what a pleasure to have you with us, cleveland fed president Loretta Mester joining us with a great conversation. Tom i cant believe you said that, two lawyers running things now. Francine like us. Tom we are barely on speaking terms. Comments, ande they are different than 24 hours ago. We do this with our michael mckee, and we are thrilled to to getou Kathleen Fisher the conversation started. Usually i would go to Michael Kathy to i am going to start. Are we anywhere near the instabilities where the investment world sees the shock of these low Interest Rates . Kathleen i dont think we are there yet, but we can look at japan over the past decades and see that low rates are not a panacea. There may be too much emphasis on what rates can do. Comments weres very important, other things need to be factored in. Point,at is an important with all that we heard in that interview. It is all about japanification. Lagarde has to deal with the japanification of europe. Some kindding towards of american japanification . Michael he can make that argument. It is not clear we will get there. We dont know what would happen if the trade war suddenly went away, but the fed is a hammer in search of a nail and as kathy pointed out, it is not clear at all that Monetary Policy can affect things that are going wrong for american business. One of the most interesting things Loretta Mester said his companies are saying they are not adding to Spending Plans but are not changing their current plans. They are not spending and that does not bode well for the economy. Francine when you look at the world and u. S. Economies, well the trade tensions ever go away or is it the new normal that there are moments of peace and moments of tension so that automatically impacts chief executive spending . Michael that is an interesting point in the sense that it may not be trade, but it is always something. In many cycles, something comes up in the banking or political systems that creates uncertainty for companies and they have to manage it. You wonder even if donald trump to suddenly take off the tariffs , what that would mean for additional business spending because there is something of a liquidity trap going on. If demand is not rising, companies will not spend more. The idea of uncertainty over politics is a convenient excuse. We owe his job joke we , itys joke with the retail must have been the weather, when it was about quarter. Francine when will we see more normal inflation . Kathy that is the question economists have been thinking about for a long time. Nothing this cycle has been as expected. Extraordinary monetary stimulus has not caused inflation. Global trade has kept inflation low so does the end of global trade have an impact . Not yet. There are big things under the covers that need to be understood. TheNew York Times tom New York Times says we have to go to brooklyn tomorrow. We have to come back friday to a jobs report. How important is this jobs report . Francine it has become kathy kathy it has become very important because everyone is looking for incremental numbers and change. Numbers were declining across the globe, but not terribly so. Is momentum building . Are companies becoming more cautious . Tom we want to bring in jens exceptionalh an book on the euro a few years ago. Frontook was so far out on the institutional challenges for europe. Your observations for what we witnessed yesterday, you predicted it. What will be the chaos . Jens lagarde is a pragmatic leader and will be a pragmatic leader of the ecb. She has embraced nonconventional policies before. She has generally been supportive of a qe path. In a way, it is a surprising announcement to many, but in many ways it will be an appointment that entailed a lot of continuity if it is confirmed. I think the other thing i would say is that we are starting to have a very strong consensus within the Government Counsel that further easing is needed, so it is not just lagarde setting the tone. The member from holland saying inflation is clearly too low. Have theird since we idea that the ecb is running out of assets. Strong consensus is building. Tom you have had experience of measuring the liquidity trap. How close are we to a liquidity trap given the last exercise of 12 years . Numbers, we have inflation at 1 in the euro zone , so we are very far from 2 , even though the ecb target is slightly below. And is a major challenge think the conclusion you have to draw if they are going to try to ease again, they are going to try to ease again soon, and any meaningful easing will have long qe. Whether we can cut 10 or 20 basis points from here. It is not important. It is just a matter of timing. Francine is there anything Christine Lagarde can do to push leaders of European Countries to do more fiscal spending . Will she succeed and will they listen to her . Jens she was the finance minister of france, so presumably she will have some kind of off the record say in these matters. It is a tricky issue, as i wrote in my book that tom referred to a few years ago. The lack of fiscal capacity in the euro zone is constraining the ability to manage the business cycle, and they have tried to get progress in terms but veryng capacity little has been achieved, and germany is holding back the process. To think that lagarde can make a big change in that area, it comes down to what german policymakers want to do and we are not seeing a whole lot on that front. Tom michael mckee, what is the track record on qe . Like four months ago . Michael we have had a number of fed conferences as they are doing their look at monetary tom you go to them all. Michael that has been the subject of the argument. The you look at announcement dates, rates went down and they go back up again. Does it have a longterm effect . They are not sure. Tom was this in the textbooks . The answer is no. Kathy the answer is no. Tom it wasnt, was it . Kathy everything we are doing now is unprecedented. The globe is going through things we never thought we would go through. No one ever talked about negative Interest Rates, so these are new things. Tom we have to go to break, but we have to come back here. I want to get kathy fishers opinion of how to synthesize this into investment, extraordinary times. Later, an update on china, navarro of the white house. 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. He dresses like a brit. He utters a few words. He doesnt choose his body language. He doesnt drive fast cars yet. He is the quintessential italian. [laughter] mario. Unbalance is a net positive and we support the decisions that have been made, notably by the ecb in relation to the euro zone. Concentrating on the positive, focusing on key issues for the people of europe is an immediate and automatic response that needs to bring together Monetary Policy, fiscal space where it is available, and reforms that will deliver value for people. In terms of Monetary Policy, it is better for political leaders to let the Central Bank Governors do the job they have to do and preserve their independence. The feds around the world they are called Different Things Central Banks have to cooperate on the bait have to operate on the basis of data. They have a mandate. Tom Christine Lagarde, over the years. What was your thought when you heard the announcement . As Andreas Utermann said, it was a surprise to some markets. We had chatter in the last couple of months that she is more of a politician. I am surprised and want to read more of these opinion pieces. Is aed elerian saying she inspired choice but needs all of the characteristics. Needs, a lot of Market Participants are saying she needs to bring europe together to make sure they spend fiscally. She has diplomatic clout and maybe can drive through and make sure we have a banking unit in the future. She moved onto operational work within the french government, think of lagarde and the celebrity of it all, but i emphasize her trade work for france and her ministry of finance work as well. China may by some u. S. Products as a gesture of goodwill, bloomberg learning volume will likely be smaller than before. Purchases could include soybean, corn, and pork. Iran has a warning for europe, if it does not comply with terms of the nuclear in agreement agreement, tehran will continue enrichment of uranium. Iran is calling on europe for an economic lifeline. Increasing uranium enrichment could give a run enough to produce a nuclear weapon. Rightsts and immigrant groups scoring a victory, the Trump Administration denied adding a citizen Citizenship Question on the census. The u. S. Womens soccer team is headed to its Third Straight World Cup Final. On sunday in france, they play the winner of today, sweden or netherlands. She stopped a penalty kick in the last minutes of the match. 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 on the markets, george sarah bellows publishes moments ago cerevelos publishes moments ago it will not work, because this is not like the demand slowdowns of the 1990s and 2000, but a global uncertainty show. I think that is french for liquidity trap analysis. In washington, they are not focused on lagarde or the markets, yields, negative Interest Rates. They are focused on two abrams tanks, two bradley fighting 88 recoverynd an m vehicle heading for the lincoln memorial. That is not the National Guard outside kevins little town in pennsylvania. Will you please explain the uproar over fireworks on the fourth of july in our Nations Capital . Kevin largely this is a local story and most folks are trying to get out of town. Celebration, july this is something the president has wanted to do for a while. Kellyanne conway was on pebble beach as it is called, and she defended it. I will say the fireworks in washington are the best, next to the boston pops. Francine and i were in paris when macron brought out all the equipment to do a bastille day parade, i get that. What will we see tomorrow . Kevin fireworks. [fireworks. Laughter my eyes will be toward the sky. Francine what happens on friday . Have they moved away from trade . I have an image of tom keene off tomorrow. Save me. Kevin we have tariffs the president is threatening, 1 billion in addition to the 21 billion already imposed in europe. Willirbusboeing battle cause more friction on the e. U. U. S. Trade front. Front, vicese trade president mike pence scheduled an antichina speech. That, it is assigned talks are going off the rails. If they schedule additional a signn beijing, that is of positivity they are trending in the right direction. Francine do you have insight on how the u. S. Is treating huawei . We heard they were going to relax a little bit on some of the restrictions, but we are reading about the u. S. Government staff being told they should treat huawei as blacklisted. Kevin the administration is saying that while there is a loosening of restrictions against huawei, they are still going to look after the u. S. National security interest. The president and the administration have faced pushback from people like marco rubio and lindsey graham. There is no appetite on capitol hill for there to be an easing of restrictions against huawei. Tom i look forward to seeing you on top of a tank tomorrow. Kevin cirilli, enjoying the force in washington. Us, and one is with of the things we do over a long weekend as try to figure out what to do with the stock market. Market orlegit bull is it a fiction . Kathy the stock market has moved up because Interest Rate expectations have come down. People assume there is a better place to be than bonds. Tom do you participate . Kathy the key thing investors are trying to figure out is where do things go over the next year or so . We argue that low rates should be supportive as long as Company Confidence does not get severely eroded by the things we are talking about today. Trade has weaponized everything. This is a new environment and companies have to figure out how much confidence they can have in doing anything. Tom kevin is going to be on a tank in washington. Lawn in the a hamptons talking to someone like you, this is nuts. You get this every day. How do you respond to our viewers and listeners, the cacophony of the moment . Kathy that is the moment, shutting out the noise. Tom this is an opportunity . Athy it is slowing down slowing does not mean recession, but there are a lot of things to watch. What is every company doing to respond to this emergency . Some have better opportunities than others and some are dealing with secular disruption. Company valuations are not that out of line. Many stocks are trading at reasonable multiples given where we are today. Tom kathy fisher with us from bernstein. Schilling andmary steven major. Brilliant on gaming the low rate environment. What we know for certain is on the Charles River in boston, it would be tankless, the boston pops, a tradition that is absolutely extraordinary. Yes, there will be fireworks. Lets watch. Best day of the air 3, 2, this is bloomberg surveillance. Lets get the Bloomberg Business flash. A number of Big American Companies may shift substantial production out of china. Hp, dell, microsoft, and amazon are considering. Mightear, apple hinted it have to raise prices because of tariffs. Shares of symantec are soaring. Costs tois in advanced buy the cybersecurity firm. A market, symantec had value of about 13 billion. A deal would mean a further expansion into the software business. Tesla surging in the premarket, delivering more than 95,000 cars to customers, exceeding the previous best last year. This Current Quarter could be a bigger test for tesla. A u. S. Government tax incentive was cut by half. That is the Bloomberg Business flash. Tom kathy fisher with us of bernstein, it is an honor to have her here as we calculate the fourth of july weekend, on what to do with our money. The recent debris, i have not seen anything like it. Out of december and a really upy december, the recovery, 18 , a correction noted in yellow, a bear market in red, and out to record highs. You have had the courage to participate in this equity market. If i am behind, how do i catch up . Kathy it is an interesting question. We work with clients with a longterm horizon, so no matter how you feel about the market today, what does your money need to do for decades to come . If you are investing for decades, you should never worry. We are buying companies we think will do well over time. On the incomehere statement . Kathy it is revenues, earnings, and quality that matter. I want to go back to your original question. You should not be in freight afraid of investing if you are a longterm investor. Shortterm, things will be volatile. I would still say this is not a bad time for longterm investment. Tom if someone walks around the door, i got a million dollars, and you say are you prepared to have 750,000 . That is the mindset we knew in the old days. A bear market was normal and now we are looking for this near perfection. How did we get to this . Kathy the Central Bank Intervention has become overly accepted. Tom we call it the fisher put. Kathy the central bank is something we worry about is if people are complacent. We make sure people know that is a likely outcome, so longterm matters. Shortterm, you should do something much safer. We keep talking about Companies Moving their supply out of china, doing what they need to to protect their bottom line, time after time. Francine what do you do with treasuries now . We see a big move. What does it tell us . Kathy rates have become much more interesting in recent months. We would prefer credit over treasuries with higher yielding bonds, because you want to take advantage of the fact that if rates do not go down, you will get hurt on the treasury side, but credits are still attractive. I dont think you want to put everything in one basket, but diversify your inter your sources. Francine do european bonds look attractive . Kathy it depends. We encourage global bond investing because of the diversity and expectations and the diversity of central bank actions. It depends where you are, but we recommend global bonds for clients who are taxexempt. Tom kathy fisher with us today, terrific news flow. Coming up later, this is a timely conversation. A global perspective for citigroup, a nice update on international relations. That folds into, i believe we can call it a trade war. This is bloomberg. This is bloomberg surveillance, tom and francine from london and new york. Positionbe in a good to deviate. They spoke to bloomberg moments ago about Monetary Policy. The swedish economy is extremely open, much more than other countries. What happens in the rest of the world matters to us, but that does not mean one you think about it in Monetary Policy terms we must do exactly what they do. Freedom,ome degrees of more so than in the past, because now inflation is on target. Inflationary expectations are close to 2 unemployment. Growth isspeaking, fairly good in the swedish economy, so from that angle we are in a good position when it comes to deviate deviating from what the major Central Banks to. It is not up to me to pass judgment. Do you see any kind of what does it mean that she has passed as a politician . I cannot judge that. Time will tell. You are not expecting any differences in terms of policy compared to now . Monetary policy is a slowmoving thing, but we will see. Ingves talkingn like a true central banker, not saying much about the lagarde domination. The key takeaway is they see no surprises and they are sticking with their plan for the rest of the year. Joining us,are just negative Interest Rates as we have never seen, and lower Interest Rates in the United States as well. Politics and the seismic changes, is maria tadeo. I want to know the tension in brussels right now. What is the moment of tension . Tom, we are expecting to get that vote from the European Parliament, which could be contentious, but the big names we were presented yesterday could prove tricky. Political convention will tell you european leaders will not put a vote if they were not sure it could not clear. It would be humiliating and could lead to a crisis. Everyone in brussels is glued to strasburg to the vote that will take place, and it could get tricky because nobody outside germany knows who this woman is. She did not run in the european election, and the whole point was to bring democracies to the institutions. We got a backdoor deal, same as usual. Day one of thens regime . I am fascinated by how she juncker. Juncjer. Wasa many will say this Angela Merkels choice, but someone who will be very close to emmanuel macron. She was born in brussels and speaks french, something macron highlighted, everyone who runs the commission will speak french. She has been clear about the per political is a about a european of aeper politicalization european economy. The deeper integration questions remain to be seen. What a lot of people will read into this as someone who is german but is close to emmanuel macron, and that could lead to a more federal europe. It remains to see to be seen whether she will be as tough as jean claude juncker. Into it, we will look given some of the colorful languages he called the french. Overall, how is the next commission going to deal with brexit . Is that the biggest political hot potato . Ways, andis in many it appears the condition will change and everything has changed. ,hen you look at the details officials tell you nothing will change. The negotiation is done and broad agreement is the only way out of brexit. The european e. U. 27 agreed already, his deal is on the table and it is up to johnson to take it or not. Tom maria tadeo in brussels. Lower Interest Rates this morning. Coming up, Peter Navarro worldwide. I am honored. Thats what Christian Lagarde said about her nomination to head to the e. C. B. But how hard would bit to fill draghis shoes . President trump is nominating two members including one who is at least flirted with tying Monetary Policy to gold. And a charge your engines. The car maker who beats delivery estimates by the tesla by a mile and the stocks responds in kind. Welcome to bloomberg daybreak. Im david west on in new york london. Et fu in scarlet its yet another World Cup Final with the victory yesterday, this is team standoffs 11th straight win, surpassing norway which has