Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

European equities. , bit of a down day to end though it does not seen anybody is taking a huge position ahead of that jobs data. We have stock and bond markets close in the u. S. Yesterday as treasuries get going again. ,e saw a bit of a basis Point Holding at 1. 95 on the 10 year yield. Bund yields are just above that level. The euro is weaker am a down. 2 , 1. 1265 f disappointing german factory data. Coming up, we speak to larry kudlow. Lets get bloomberg first word news. Thousands packing the National Mall to watch president Donald Trumps fourth of july speech. He praised the u. S. Military and American People, but also put himself front and center of the Independence Day celebration. The event included tanks, flyover jets, and culminated in an extended fireworks display. President trump we celebrate our history, our people, and the heroes that proudly defend our flag, the brave men and women of the United States military. Together, we are part of one of the greatest stories ever told, the story of america. Debra china is sticking to its demand that the u. S. Lift all tariffs as a condition for any trade deal. Last month, President Trump and xi jinping agreed to restart talks. No plans for negotiations have been announced. Deutsche banks cuts may go deeper than just equity and rate. The board is set to decide on a sweeping overhaul this weekend, eyeing around 20,000 job cuts. It may entirely shut its u. S. Equities unit and will reportedly start informing staff on monday. A 6. 4 magnitude earthquake rattled Southern California the strongest quake in 20 years. Buildings in los angeles shook after the 6. 4 magnitude earthquake hit around 170 miles from l. A. Many were hurt and two house fires were reported in the town near the epicenter. Los Angeles International airport says operations were running as normal. Last nights boston pops fireworks spectacular is one of the largest and oldest public fourth of july events. 10,000 fireworks launched from three barges. Global news 24 hours a day, onair and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im viviana hurtado, this is bloomberg. Nejra thank you, what a high to end on. A fed it rates cut is all but certain this month but that could change rapidly as the u. S. Job report today. If it strays too far, it could send analysts scurrying to adjust the outlook. We just how crucial it is, here is dani burger. Dani the jobs report will be one of the most important data points considered by the fed as they mall Interest Rate cuts, especially on the heels of maize numbers. Mays numbers. Re is certainly a lot of there are certainly a lot of moving parts, but broadly there are three scenarios. We could get a blockbuster report where we just exceed forecasts. We heard this morning that 400,000 would be a number, but bank of america says the fed would hold if they can pushback market expectations. That would include declining treasuries. Or we get a payroll near the consensus of 160k. This is where the market is currently pricing in a 25 basis point cut. That is where it becomes reality of this scenario. Really, the hurdle is too high to forgo easing. Ugly, where hiring falls in below 100,000. Employment rates rise and wages trail. Then the fed cuts could look more like 50 basis points. Inmeans cracks are visible the labor market and a slowdown is actually happening. Bond markets told that it is already being priced at the euphoric level, this could be the start of a correction. Anna nejra great round of. Is mark cudmore and a Portfolio Manager at pimco. What is more likely . Big blockbuster number and the fed holds or that we get a week number and the fed cuts . At the moment, the market is pricing in a 50 basis point cut rather than no move it all. At all. I think it is very unlikely we will remove the fed from cutting this month. Anyhey are going to unwind kind of cut in july, they have to get very active quickly to unwind that pricing. , they can justify 25 basis points even if we get a strong number today. On the flipside, i dont think they will go 50. I think the fed wont want to go 25 basis points. I think they will wants to be seen to panic and it is likely they does want be in that camp. We saw that with the bullard recently, saying even he thinks 50 is not justified. So no matter what we guess today, the fed will come back to 25 basis points. The skew is that if the whisper number is lower than the forecast. So i think the positive surprise will have more of a reaction and we will see a yields jump. Nejra got it, asymmetric risks. Is your outlook for the potential pace of cuts from the fed . Jakob i certainly agree with my calling here colleague here. There is a whiff of panic if you go 50. At the hike the fed last december was a step too far , you could even say a mistake, so moving very gradually. Remembering that data is noisy. Weve had a lot of noise around the trade war. That is certainly going to show through even a potentially today. My sense is that they will move slowly and gingerly. Taking into account that the markets have made a decision to some extent already. On the side of 25, move gradually. 75,debate for us is 50 or 50 is more likely. I think we will see what the etante of this dupont d of the truce and on animal spirits. Nejra i know we are all fixated , but beyond this year, could we see the fed cut down to zero . Yacov seems premature for now. They are softening, but we are far from any panic. But it is important determined or that where the fed has a lot more room to stimulate rather than the ecb, that is why there have been such significant movements in the treasuries. You have room to cut rates further in a crisis, so it is risk free. Downside protection would carry, which is why this has been so popular with investors. Nejra how much of a rebound could we see in treasury yields in the scenario you painted . And what would that mean for equities . ,ark if we see above 200 k there would be a shortterm, powerful bounce. The treasury trade still has more room in a mediumterm basis. But there is not much yield elsewhere at the moment. Shortterm, it is skewed for a powerful bounce. That would be a real big scare for equity markets. The thing that has been driving equity markets higher given the islapse in data elsewhere the lower yields and discount rate. So today, the risk reward is for a stronger reaction on highyield and downsides in equities. Nejra if we get that reaction, would that be scary for em investors . Yacov i dont think so. As long as the fed is neutral or dovish, we are in a solid place. The performance of the em looks to a hiking cycle. We saw it last year. We are very far from financially reversing it stands on and becoming hawkish. And anmooth sailing upside for currencies should we see the dollar weakened. Nejra great to have you both with me. Yacov from pimco stays with us for the hour. Later in the hour, we speak to larry kudlow. That is later, this is bloomberg. Nejra this is bloomberg surveillance. Lets kick off with trade. Quarterlyom samsungs profits more than halved. They beat expectations for operating income but only after a one off again. Lets get the latest with our asia tech reporter. Great to have you with us. Where there any surprises with this result . Were there any surprises with this result . Aside from the one off again from apples compensation payment, operating profits were much lower than analyst estimates. It is mainly because of the Global Industry downturn and the trade war hammered demand for its memory chips and high and smartphones. What did samsung have to say about trade . Particularly in relation to the outlook for the Semi Conductor industry. Samsung did not explain details for the preliminary earnings result. But what we know is that the u. S. And china trade war keeps pressuring the market and the downturn has been dragging on for months. Prices continue to fall and will not see a recovery anytime soon. Can ent exporter curves will weigh on earnings going forward. Nejra thank you so much, bloombergs asia tech reporter sohee kim. And still with us is yacov from pimco. The u. S. Stressing that has to remove all of the tariffs as a condition for reaching a trade deal. Are we far away from reaching a real deal . Yacov i certainly agree with that. We have this truce which is very temporary. In fact, there is quite a gap. In the past, china has promised to buy more stuff as President Trump likes to say, very eloquently. Buy more goods, whether it is agricultural goods or commodities. It seems they have not felt that promise. Now, the gap is even wider because of the u. S. Is insisting on a change to practices around intellectual property. Some will be very difficult to meet, for phil, and police fulfill, and police. So i think we will see a resumption of trade hostilities. I think with the story talked about in korea is a good example. There are countries in asia getting quite hurt by the friction and korea comes to mind, taiwan comes to mind. Seeingmeantime, we are u. S. Companies shifting their factories out of china to some smaller players, cambodia, thailand, vietnam, which can benefit in this environment. Nejra looking ahead, em assets have done well recently. June was the best month for em equities, bonds have done well. Do you expect that to not continue . How much of a hit could em assets take . Yacov again, there is this resumption of hostilities. To the extent it puts john work pressure, what is the downward function extent it puts downward pressure, what is the function . The stimulus could take shape in different ways. But to the extent china tries to soften the blow, that could the fairly be fairly the central. Decentral. And thinking about winners and losers in the situation. Maybe it puts pressure on malaysian assets, a big oil producer. And on the flipside, if they stimulate demand for iron ore from indonesia, we are trying to do these pair trades. Focusing on someone who could benefit from chinese stimulus. Nejra some interesting relative value traits to be made. Yacov stays with us. Up next, we hear what Standard Chartered ceo bill winters has to say about the trade war. Listen to that exclusive conversation next. This is bloomberg. [fireworks] nejra what a celebration, that was the fireworks display at our boston pops celebration last night. Lets see how u. S. Assets are trading. On 1. 95. 1. 94, steady we hit records of the dow, nasdaq, and s p 500 and the dollar is slightly stronger. On itsstanding firm demands that the u. S. Lift all tariffs if the countries are to reach a trade deal. One bank watching that closely is Standard Chartered, who gets most of their income from china. To bill lacqua spoke winters and started by asking him if trade concerns are here to stay. Ofi think the period unbridled globalization, which we could argue is what characterized the last decade, was very good for global growth. It was good for a global bank like Standard Chartered. It was good for a subset of the population. It equally left another subset of the population behind. Go back tocal will unbridled globalization seems to have passed. This is a natural extension of a small population in my country is more important to me than other countries. What does it actually mean for banks . Where do you see growth and supply chains . Have a permanently changed . It is a reconfiguration. It is always fascinating to pick up the soundbites about china becoming a force for good and globalization having taken that mantle from the u. S. , and that appears to be the case. Will china be a globalize or on a global scale or on a super regional scale . The way we look at it, the chinese echo system extends from ghana and nigeria through taiwan and japan and the pacific islands, south to us earlier. To australia. So the ecosystem is very big, a big proportion of the World Economy and growth. That is our ecosystem, that is where we are operating. The goal for Standard Chartered is to be a constructive a bridge within that sphere. So as a supply chains reconfigure from manufacturing to vietnam or korea come india, thailand, we want to make sure we are facilitating that flow. There will still be trades between the china sphere and the rest of the world. I hope, would be well advised to maintain a middle position. Rather than to side with one or the other. We are obviously a european bank. What we really wants to focus on is how we can promote trade within the sphere but also across the sphere. Nejra that was bill winters, ceo of Standard Chartered speaking to Francine Lacqua for an upcoming episode of leaders would lacqua. Still with us is yacov from pimco. Are you investing heavily in china itself . Yavoc we are starting to. Is the important trend beginning of the inclusion of chinese bonds in the various fixed income communities. We have seen them in the Bloomberg Barclays family indices and there are discussions of whether they are included in the jpmorgan suite of indices. The reason it matters, that is a significant technical boost. Is a lot of there questions of whether this is good or bad for investors. Our view is, ultimately, if you are worried about chinese growth , being exposed is not a bad thing. And this is a country that does have room to cut trades should there be a significant deterioration. Ultimately, this could be positive and a good hedge against chinese slowdown. Ultimately, the direction of travel is for more inclusion, more technical support, and more investor exposure to chinese chinesekets, something policymakers have been keen to see happen. It is curious to see the chinese stance, compared to the indian stance, where india has been opening up much more slowly of and china slowly then china. Than china. India is very reluctant but you could see it happen in 13 years. Nejra thank you for that. Yacov from pimco stays with us. Coming up, it is jobs day. , dontk to larry kudlow miss that conversation at 2 30 p. M. London time. Up next, we discuss indias budget and investing in india. This is bloomberg. Nejra Deutsche Bank slashing 20,000 drops worldwide and u. S. Cuts will stretch far behind equity and race divisions. U. S. Investors and Global Investors set for the jobs numbers, will be data provide fireworks for the fed to cut . Trade trouble sees income pledge as samsung. This is bloomberg surveillance. I am a richard pitch in london. Nejra cehic in london. No weaken our shuttle soaring Norwegian Air shuttle suffering, aig apparently interested but they say it is not true but the market does not believe it and Norwegian Air back into my. 14 . On down nearly a Measurement Technology company out of sweden. , profit warning this morning citing trade tensions and what it means for development in china and cutting 700 jobs to meet financial targets. , one of theces biggest losing sectors on the stoxx 600 because of the miners and iron or price. 120aw a go through 110 and and many say the rally is over done. Challenge, the largest dealmaking Industry Group urging the government to have a probe into the iron ore rally. Nejra thank you. Deutsche bank, their ceo putting the final touches on sweeping turnaround plan, the Supervisory Board meets to make a final decision this weekend and considered his huge job cuts especially in the u. S. Were equities and Interest Rate Derivatives Trading has been marked as major targets but the cuts could go further. Joining us is our german banking reporter. Lets start with asking how likely the cuts will be in the 20,000 region . It is likely to be at least the range from 15,00020,000 and likely at least above 10,000 15,000 even, not sure if it will between thousand but even the 15,000 e is big 10,000 but even the lower range is big. Nejra what does it mean for their future in the u. S. . That is a crucial question, Deutsche Bank will need to answer when it formally announces the Restructuring Plan. They still have a large u. S. Presence and almost 10,000 people, closer to 9000 but really big but it is down 10 on 2017, it is already reduced but it is still pretty big. If it goes lower, yes, at some point but the question is how much can you serve the needs of clients . A question they will need to answer. Nejra interesting to see how much of that answer you will get on monday. Our german banking reporter, thank you. Lets get to the first word news in new york. Thousands of spectators packing the National Mall to watch President Trump fourth of july speech where he praised the u. S. Military and the American People but also put himself front and center of the Independence Day celebration. The event included tanks, flyover jets, and culminated in an extended fireworks display. British special forces seized a supertanker off of gibraltar carrying iranian oil to syria in violation of european and u. S. Sections. Tehran says the action was not legal and summoned the British Ambassador to explain. Seizureint over the which happened in waters spain considers its own. Greece goes to the polls this sunday, the Prime Minister is struggling to defend four years of austerity and economic upheaval. Voters like the favourite message that austerity failed and they need a new probusiness culture. Boston pops fireworks spectacular last night, one of the largest and oldest public fourth of july if its broadcast on bloomberg tv and radio with 10,000 fireworks from three barges. 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. Indian bonds extended their rally as the government announced it will issue that overseas but no more details debt overseas but no more details announced. Stay with us is Yacov Arnopolin from pimco. This is an intent but if this were to be carried through and they have dollar bonds, how much would that be a game changer for india . Yacov so far they do not have dollars, the equity benchmark are heavily india oriented. India has capital control. This would be a new development and investors would welcome another country to invest in. Arehe same time, people watching the budget with the anticipation of 3. 4 deficit and concern about slipping. That has been offset by the polarization of the central bank of india which has been cutting significantly 75 basis points this year. You could almost say the monetary is taking over from fiscal and doing the heavy lifting to stimulate the economy. We are postelection and maybe less of a political incentive in uicy economy at privatization come infrastructure, privatization, infrastructure, measures farmers are expecting from the government and we will see what happens. Investors are concerned about the fact that independent of the r. B. I. Is in question. On the back of that, the narrative. Nejra is that going to maybe put a pause to the rally in bonds so far . Best indian bond rally in six months. Yacov it is about the fiscal deficit at this point and potential issuance needs or lack thereof. The way the bonds will trade the next few months is up to the r. B. I. , what the Monetary Policy is and how much they need to issue in markets and whether there is more scarcity on people anticipating in the local bond market. Nejra indian equities are referred to as expensive but justifiably so . Yacov we look at india and in many cases on equities people have limited amounts of a liquid markets. The benchmark is heavily weighted towards china and taiwan and india. Picking where they can put their money in the liquid market and the macro story has been quite potent for years. We shall see. It depends on the second term of the Prime Minister, either reforms and expectations will be lived up to by the admin attrition . Nejra i spoke to a guess from goldman last week and he said india could be one of the beneficiaries in terms of the trade war between u. S. And china, relative trade, mexico, given that it has quieted, the tension around trade, does mexico interest you . Yacov we had the paris reprieve about the trade war, another 50 months until the Electronic Campaign and they are a target, immigration due to trade, we can see a flareup between the white house and the u. S. Administration, mexico, we are not out of the woods. We are concerned with the state and the local oil company and the need for support from sovereign. Risk of further sanctions is further noise from the white house and the fact that the state will most likely support the state own company. We are quite underweight, cautious on mexico, preferring other places to put our money. 100 other countries we can invest in which have attractive return potential. Nejra top reference . Yacov in the search for yield environment we are focused on highyielders, subsaharan africa, ukraine, they have some room to run even after the past few weeks of potent rally. Nejra great to have you with us. Yacov arnopolin Portfolio Manager for emerging markets at pimco. Coming up, italy promise of fiscal discipline with a budget trues that are we bracing for a future reckoning . The tory Party Leadership race and the future of the British Union becomes a battleground for a no deal brexit. This is bloomberg. Nejra this is bloomberg surveillance. I am nejra cehic in london. The price of iron or falling as much as 6 , the largest Industry Group in china urged the government to investigate the market after prices hit a fiveyear high with a dam disaster in brazil and bad weather in australia has curtailed iron ore shipments. Osrams supervisory and Management Board accepted a 3. 4 billion euro takeover bid from bain capital and carlyle. This ends the german Lighting Companys relatively brief and contentious period as a standalone enterprise. Bain and carlyle are offering 35 euros per share. We will receive very good support. A . 26 premium advise the company on the 2020 consensus night, significantly if you look at the multiples, we would be in the top digit range and from that perspective shoesnnies in running delivering ramen noodles. That is ubers plan for expansion in japan. It might sound ridiculous, but stick with me. The chief executive says the elderly are actually signing up to be uber eats couriers. Most workers use a bike or scooter and seniors wanting exercise delivering on foot. Thats your Bloomberg Business flash. Nejra thank you. Italy has avoided punishment from the eu over its growing deficits but the truce will face its biggest test in a few months when the government has to deliver its 2020 budget and with the deputy Prime Minister promising tax cuts worth 15 billion euros there were already fears of renewed tensions. Joining us to talk about the outlook for the Italian Economy from the Lewis University in rome. Thank you for joining us. We got through one hurdle and have seen the reaction in the market. Is it plain sailing for the Italian Economy . There are at least good conditions to do well. The promises to cut some of the major expensive and provide new figures to the eu, there is a lot of hope, avoiding the punishment and finds and penalty and the organization implications it would have caused has created a more positive conditions and attitude towards europe. Nejra positive attitudes toward italy, the spread, we have dropped below 200, 164. Does that release the pressure on the government . It does take the pressure off. It may enable the government to focus on the key issues. In terms of industrial policy because so far it has been mainly sector side because of the big upheaval from europe and whether or not they would punish italy. This is a great breather for the Italian Economy. Nejra what should the government budget focus on in 2020 . Of course i am biased being a University Professor but i do think the focus should be on the new policy for the job market. We have been a bit stuck recently but the government did say they wanted to go back to the id of industry 4. 0, to work in focus on digitalization. Highhe other issue is with education policy in general. Training policies. Issuesxperience large with brain drain in italy. Nejra you said you were concerned about that. Will european universities including those in italy become more attractive after brexit . There are some figures which are going in that direction. We do experience some increase applications from those students that would have applied for u. K. Based universities. There are some hints but it is not a trend yet. Surely those universities heavily invested in education policies and have created top universities in specific areas will benefit. One of them will be the netherlands. They are experienced a large number of applications from the rest of europe. Some top universities in france, germany, and italy. The key issue is to invest in top universities. Gems. Untrys have managed lose did italy win or from the results of the eu jobs negotiations . Can i change the perspective . Won inone in general general. People, thatident competent people, they will be facing challenges but have the pedigrees to do well. And i thinkgarde they are positive appointments. They can do well. But there is an issue with the challenge they will be facing. Nejra andrea prencipe, thank you for joining us, from Luiss University in rome. The new Eu Parliament held its first session and we will talk exit with the deputy leader of the u. K. Liberal democrats and the European Parliament. That is next. This is bloomberg. Nejra this is bloomberg surveillance. I am nejra cehic in london. British divisions were laid bare at the new Eu Parliament with its first session and body Brexit Party Members turned their backs at the anthem, liberal democrats attended in tshirts with the slogan stop brexit. Newhe u. K. Prepares for a Prime Minister, what is next for the eu exit. Luis. G me to discuss is tell me about the reception in the European Parliament. What reception did you get with your view of brexit being stopped . A really good reception. The stop brexit tshirts and colleagues said where can i get one . That was positive and there are a lot of others meps happy to see a proeuropean voice from britain that a strong in parliament. You rate yourh do chances of achieving your goal of stopping brexit . The chances have gotten higher over time because we are three years on from the referendum and the government has not implemented brexit because it is a big and complex thing to do. We have seen from the votes in the u. K. Parliament, increasingly more mps coming to the ideas of a second referendum , a vote on the final deal with the option to remain on the ballot paper often for the pragmatic reason but you need to break the deadlock in parliament somehow and it has not been a way through yet. If we can give it more time, we should be able to get there because more members of parliament are getting behind the idea it is the only way forward. Nejra even if Boris Johnson is by minister . He has a great reputation of flipflopping and possible he may come behind the idea himself once he realizes the promises he has made are not going to be easy to implement. The idea that we are going to be out of the European Union by the end of october is not realistic because there are not the votes in parliament to allow a no deal brexit to go through your that is what he is currently promising. Nejra you had big news in terms of eu leadership with christine arde pleading the ecb leaving the ecb, what is your thoughts about eu leadership . Not a great look for the eu. , andeal that has been made there are votes yet to happen in European Parliament. The candidate put forward for the commission presidency, we need to vote on that in parliament and our support is not guaranteed. In willtical group i am be asking her her priorities and making sure they are in line with ours before pledging support. Pick was different and the only top job we have sted on and supported is the d candidate for president of the parliament. Nejra what is your Biggest Issue if she gets it . She is very conservative and we have concerns about that, she comes from the christian the germanng, of is a, and also she federalist. She talks about the creation of a European Army. That will not go down very well in britain. The leader of the liberal democrats in the European Parliament, my colleague, that managed to get the words European Army taken out of the text parliament will put forward to the commission to set his parties. Set its priorities we need to see if she is willing to support our priorities. Nejra is there a risk the liberal democrats will become a single issue party . I do not think so we talk about brexit so much because it dominates politics in parliament and we are reflecting with reflecting the reality that our party has a long history and lots of other odysseys we will stand for in a policies we will stand for in a general election and we look forward to talking about those. Nejra great to have you with us , deputy leader of the liberal democrats in the European Parliament. Bloomberg surveillance continues. America itorning, in is jobs day. , rate cutat the fed hopes. Marinesaltar, british storm a tanker with oil bound for syria. The ambassador to the United Kingdom this hour. A long weekend for the employees worldwide in Deutsche Bank. Good morning. This is bloomberg surveillance. In full francine. Gibraltar, it sounds like something out of the 18thcentury. This involves british marines, doesnt it . Nejra my focus has been the markets. It is stunning the moves in bond yields we have seen this week. Tom we are proud of our hydrocarbon coverage worldwide. This is the grace one, going west to east in the mediterranean. They went around the cape of good hope and came up this way the alleged oil from iran. We will have a discussion on , some ofugh the hour the bloomberg hydrocarbon expertise as well. News, here is vivian. The National Mall in washington dc celebration event took on the air of a Campaign Rally and included Armored Vehicles, flyovers by military jets and air force one and an extended fireworks display. The president stayed away from overtly political themes. The history of our people and the heroes who proudly defend our flag, the brave men and women of the United States military. Together we are part of one of the greatest stories ever told, the story of america. Past, washington celebration has not included a president ial speech. The president spoke for 45 minutes. Britishdaring raid by peschel forces. It has special forces. It has led to a diplomatic crisis. Royal marines seized the ship, carrying iranian oil in violation of sanctions. Declare the action illegal. Spain says the seizure took place and waters it considers its own. Todays jobs report can show whether the economy is strengthening or weakening. The rate is expected to hold steady at 3. 6 , the lowest level in 50 years. Economists expect employers added 150,000 jobs in june. If the number comes up short, that could give the fed ammunition for an Interest Rate cut. The board of Deutsche Bank will decide on a Restructuring Plan that includes sweeping job cuts this week. In the u. S. , those cuts will go far beyond interest in equities Derivatives Trading, major targets. On monday, Deutsche Bank may start informing Staff Members of dismissals. It is one of the oldest fourth of july traditions. Last night, the boston pops fireworks spectacular. 10,000 fireworks were launched from three barges following a concert that featured queen latifah. The event was shown nationwide exclusively on bloomberg television. Global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. This bloomberg. Tom thanks. Thanks to carol massar and alix steel for team coverage. The data check, incredibly important day. Who knows which way it will go with the jobs report. Futures negative after a number of robust days. Wednesday was stunning, curve flattening again. 210 spread. Lets go to the next screen with oil light, the vix at that level. We are getting there. The yields as you covered yesterday, absolutely remarkable to see that on the german tenyear. Nejra absolutely. We touched it and went below that ecb deposit rate. We are weaker for european equities. The 10 year treasury yield was dropping, now slightly higher, but no huge moves ahead of the job stated. We wait to see if we get any big moves later. The jgb resuming at slide. The dollar has been flat, but sing strength. Seeing strength. Tom this is not what i called the vanilla spread. This is a broader, longer spread. The difference in yield between the 10 year and the three month and all you need to know is the rare event of conversion centered around economic slowdown and contraction. We are not there yet. Is thehere that mark is sign of a slow down. We are not there on the inverted three month 10 years. That is way too much for my brain on a friday. Nejra what has been occupying my brain is that we have flattened recently, but we have seen simultaneous steepening with that inversion. My chart speaks to the hunt for yield, with rates dropping lower, particularly on the treasury. Where do you go . Do you look at credit . Is atells the story negative yielding debt comprises 25 of the Investment Grade total. Tom superb chart. It is friday, but a different friday. Many of you watching us from home and not in the office in america. Kudlow offk to larry the loan of the white house. Far more importantly will be the Market Reaction this morning. Is our bloomberg macro strategist, but far more than that, mark cudmore on the correlations we will see the morning this morning. What will you watch it 30 . 0 . I think 8 3 the important thing is whether we get a high number or not. Significant,r a sustainable, meaningful repricing for fed rates is going to be very high, meaning only a very strong number is likely going to change the fed expectations. Any number that will be close to consensus is going to leave fed pricing pretty much unchanged. Tom right. On the other hand, if we get sub100, i think we will see a move lower in the yields. , a lift inudmore equities. Maybe there is low volume, et cetera, et cetera. How correlated are these markets into this jobs report . Very correlated, mainly driven by the negative yield trend, meaning the driver for any other asset. There are some exceptions. Commodities are sometimes not playing along with the story because theyre not seeing real demand behind it, but we are seeing the surgeon to every other asset from a bond in equities, then that is driving the move into credit end of the equity markets and emerging markets, greece, italy, wherever you want. Certainly we are seeing that high correlation. That is not set to break yet. That is a good symptom of a late cycle market, but it normally ends in tears. Nejra to that correlation point, how limited is the upside from a further drop in bond yields for equities . Well, look, i fully agree with mark. We are in a very late stage in the cycle. Typically when you are whereching that period the Business Cycle has become extreme and you are closer to a u. S. Recession, historically equities have not performed that strongly, so in our portfolios we are a bit defensive as far as equities are concerned. We are under weight equities largely. Although we may see shortterm rallies, we dont think these will be longlived. Talking aboute asymmetric risks in the bond market on this jobs report, mark. A it more likely we get negative number pushing the fed to 50 bps or a better number causing it to pause . Do 25hink the fed would basis points no matter what. I think 50 is a high hurdle. I think the market will force them to do for 25 basis points. At the moment, we are pricing a greater likelihood of 50 then nothing, and that is where the market is leaning. Because theyre leaning towards that number, the shortterm squeezes for yield to jump a little bit, but i stress the short term. The reaction today in the next few trading sessions will see a bounce up and yields from a stronger number. Tom what is your dollar call . The ambiguities of dollar, i get responsibleve me a dollar call six months or 12 months out. Good luck. [laughter] right, ok, so on a tradeweighted basis, we see the dollar lower by 2 to 3 if youre talking six months to nine months out. So basically dollar weakness because we are getting closer to a fed easing cycle. Historically the dollar has appreciated, especially as we go into the rampup of the first rate hike, but at the same time we have to remember when you compare the dollar against the g10 that it will still have the yield advantage. Dovish,is sounding very closer to another cut in the great, so in the g10 space against the weakness in the dollar, it is going to not be that dramatic. It will be fairly limited. We think it will be different if it is against emergingmarket currencies. As long as we avoid an outright global contraction, it will remain in place for the next six months, so we will see flows in emerging markets and eem local debt and fx performing quite strongly. Tom quite fascinating. I use the word ambiguously mathematics, but it is more than mathematics. Important an conversation after those numbers and that report. Lawrence kudlow of the white house. This is bloomberg. We celebrate our history, our people, and the heroes who proudly defend our flag, the brave men and women of the United States military. Together we are part of one of the greatest stories ever told, the story of america. Tom absolutely extraordinary. I cant convey the level of up or over this event. I will tell you one common theme t was out there in this ug hugely polarizing moment. Everybody was dazzled by the fly over the jets, the airplanes, the Stealth Bombers. That was the one thing that put everybody on the same page on a rainy for the july in washington. Nejra there were stunning celebrations to watch, but this is an unusual set of celebrations. Paradeving the military is not completely usual, right . Tom i cant convey the polarization here. Some of it was deemed by those successful, some less successful. A stunning image of the Stealth Bomber in the sky. It got huge play in america. Kind ofly wonder what precedent it set. Right now in new york city with her Bloomberg Business flash. Quarterly profit falling by more than half at samsung, a Global Industry downturn in tensions hurting demand for chips and high in smartphones. Samsungs memory chips have been one of the hardest hit components. This since u. S. Tariffs took effect in may. Willman Lighting Company be purchased for 3. 8 billion dollars, 20 1 premium to the close on tuesday. In recent months, it delivered a strong set of profit warnings, sending the stock plunging. Arehe u. K. , regulators looking into amazons bid to buy a stake in a delivery service. The competition and Market Authority says it believes the two companies have ceased to be separate businesses or will emerge soon. That means amazon wont be able to close the deal, for now. In may, amazon said it would put 775 Million Dollars into the company. Now to your Bloomberg Business flash. Nejra thank you so much. Deutsche bank ceos Restructuring Plan could cut 20,000 jobs worldwide in the latest news. We have been following all of this and breaking scoops from frankfurt. We have more on Deutsche Bank. Just in terms of what we could hear, particularly on the u. S. Retrenchment side of things. Thats right. As you pointed out, the likely restructuring is going to be really big, up to 20,000 people, the biggest in the banks recent history in terms of job reductions. The lions share in the brunt of all that will be borne by the u. S. In all likelihood. The details are not out yet, but the previous idea that it would only affect Equities Trading in Interest Rates trading is a mistake. It will be bigger than that and we will see probably on sunday what exactly will happen. Nejra right. Are we likely to get much detail on this by monday . The expectation. Nothing has been officially confirmed by the bank, but we know the board is scheduled to convene on sunday to discuss and adopt this plan. If they do, under german Securities Law the bank will be required to make a notification to the markets, so expect some sort of announcement. Tom right on the back of this will be a massive cash call, bank of america looks for 5 billion euros in the restructuring cost of 5 billion euros as well. How convenient. You watch this every single day. How urgent is it that they do a cash call . That is a question that people will definitely ask. We have an analyst from society said it wont be enough because the impact of restructuring costs will affect the ratio. We have reported the bank is considering lowering that ratio. Regulators seem to be favorable of the plan, so it is likely they will give an ok, but over time, especially if the economy is slowing down that will be a big question over the plan. Tom i dont want to get you in trouble here, but what is the guest of the size of that cash call guess by the size of that cash call by the street . Are we looking at 5, 7, 10, or 12 . I really dont know. It depends on the restructuring costs. It depends on how they are going to reduce wras overtime. That is a big part of the plan restructuring. If they do that, that could release capital as well, so it is hard to say and it depends on the implementation of the plan. Nejra great reporting. Thank you so much. Coming up, greece heads to the polls for a snap elections sunday. Next, we speak with the former finance minister. This is bloomberg. Nejra i am nejra cehic with tom keene. Finance minister for greece is with us. Great to have you with us. We are looking ahead to the selection on sunday. How is it likely we will get a win from new democracy . It is likely we will. Let me point out for the benefit of full disclosure that i am not an impartial spectator. I am leading a Political Party whose number one priority is to Enter Parliament to reduce in the majority. , and the markets though im talking about bonds and equities, greeces equity market is the best performing oneoff in the world this year, that 10 year greek bond yield hitting a record low on that expectation of a new democracy win. Are you not worried if we dont get the win that markets could take flight fright . Speculating onre greek assets should be worried, because even if new democracy gets an absolute majority in parliament, this rally will not last long. The reason is that the fundamentals are absolutely awful. There has been no change in economic recovery. What we are observing increases the debt cut downs. The asset prices were so abysmally low that it was not hard to achieve a 100 increase. If you have an asset that has collapsed 95 , it is not difficult to have the dead cat bounce. If you look at the state of the banks, there is no doubt about it. They have nonperforming loans of 50 of their asset book. You realize the degree of insolvency of the banks. Up Stock Exchange did bounce , but it is still 80 below what it used to be, so patient investors are staying away. T is only speculators tom much to talk about. Theant to dive into generational change in the political change among europe as greases bounces off germany as well. Ecb ande lagarde at the the director of the European Commission. There is change in europe. Stay with us. Jobs day in america. 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. Bloomberg surveillance, on a friday, and eventful friday, jobs day in america. Here is viviana hurtado. Revampeddonald trump the traditional fourth of July Celebration on the mall in washington, d. C. , including tanks, a military flyover, and a vip area. It also included a 45 minute president ial speech. He did avoid overtly political themes. Demands sticking to its the u. S. Remove all tariffs on chinese goods. Said tradeial blog talks will go backward again unless tariffs are lifted. The white house says both sides are talking by phone but no facetoface negotiations announced. Scores of aftershocks following the strongest earthquake to hit Southern California in 20 years. Andad a 6. 4 magnitude struck the town of ridgecrest. Multiple injuries were reported. So were two house fires. A crack in one of the roads. The quake shaking buildings in downtown l. A. India plans to narrow its budget deficit and salads first global bond cell its first global bond to spur economic growth. 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. Yanis varoufakis is with us , the former finance minister of greece. Change ofs to be a the relationship of core europe with the periphery. Ursula bonderis lyon enough to shift the attention of germany and greece . Yanis not really. The most important comment i does put forward remark regarding the new president of the European Commission is over the last 10 years of the crisis, the position of the commission significance of the commission has decreased. Bodies that are not even established in the European Union law. The one appointment that does warrant a great deal of discussion and commenting as the appointment of the new head, president of the European Central bank. It remains the only real institution in the euro zone and is a pillar that will make or break the euro zone and the European Union. Lagarde has experience with her work at the International Monitoring monetary fund. She is being called an uber dove. Do you agree . Yanis she is a fine lady. I got on well with her and have respect for her. Our discussions were always forthcoming and useful, but i have to say that even though she is remarkably experienced in creating alliances and maintaining the Franco German her legions to the german point of view clashed fiercely with the interests of the International Monetary fund. The perpetration of the greek insolvency through more loans has been at the detriment of the imfs reputation. She doesst concern as not have the Monetary Policy background mario draghi had. Zone draghi saved the euro through interventions that were out of the box and went well be long what his advisers advised him. No doubt, Christine Lagarde will have a host of significant advisors to cover for the fact that her grasp of Monetary Policy is not what it should be. What we need is somebody at the helm who has the capacity to overrule their advisors in the same way mario draghi has done over the last few years. Nejra there would be some that argue Christine Lagarde would come up with more creative solutions. Yieldsve lower in bond in greece, germany, and italy are taking a pause today and some are saying that is speculation we could have a dovish head in Christine Lagarde. Where would you prefer to put your money in europe with this hunt for yield . Let me start from the point of you mentioned speculation. There has to be speculation, but given where core bond yields are , that speculation is bound to have great limitations. We are currently trading unbelievably low, 40 basis points in german boones. Bunds. Even though people may start pricing in further dovishness whether it is from draghi or the , it is hard to see further moves from here. The euro zone has gone through a soft patch and it is likely to last because a lot of it is due to the trade tensions and being an open economy exposed to china. It is expecting the eurozone economy, but from a fixed income perspective, if you had a mandate to manage money with european fixed income, i think you would like to be in the periphery as opposed to the core. , iyou have a global mandate would prefer emergingmarket fixed income. Should nejra should Christine Lagarde make the terms around quantitative easing if she resumes them, more flexible, and include greek bonds . Yanis the question of greek bonds is a political question, a scandal that the only country that is been hit by sustained deflation was the one excluded from quantitative easing. Has to face upde to a major obstacle. At the moment when quantitative easing becomes necessary again due to the exceptionally low levels of investment in relation to the supply of liquidity in the euro zone, she has run out of things to buy. The German Government is not producing anymore bunds. It is running a surplus. Bonds, the bonds of the surplus countries have dried up. At a time when she is going to be needing to be boosting the supply of money through qe, she will have to face up to the political constraints of not being able to buy peripheral bonds without buying nonsurplus country bonds. The reason is because we are still in the great deflation period of the euro zone crisis. We have investors who are pessimistic to place bets on companies that are investing in new technologies, in new production. We are struggling to purchase the diminishing supply of surplus country bonds. The other of course is negative rates. Tom Yanis Varoufakis with us as we see negative rates expand. Much more to talk about to get ready for that critical eight 30 number. Three ways to go, big number, tepid number, something in between. I am nejra cehic in london with tom keene in new york. British special forces seized a tanker off of gibraltar carrying oil to syria in violation of sanctions. Tehran declared the action illegal. European nations are working to prevent the Islamic Republic from walking away from the 2015 nuclear deal. Experience5 years of an importanted role as ambassador to the u. K. Thank you for joining. What kind of discussions are you having with the u. K. About dutch about iran . About iran . Decidede iranians have to openly and publicly violate the nuclear agreement, and it is clear there have to be consequences. The iranians cannot violate the agreement and expect the International Community to continue as usual. Nejra how much support are you getting from the International Community on that view . Mark there is a growing understanding that the iranians have used it to promote their nefarious agenda. Since the deal was signed, the Iranian Missile program has continued aggressively. Their nefarious behavior in the region, their subversion in countries like iraq, yemen, syria, gaza, lebanon, has continued to be a bigger problem. Their support of terrorism has increased. For all these reasons, we think it is right the International Community adopt a more robust position with a run. If the iranians want to be treated like a normal country, they should start acting like it. Nejra if the International Community steps up the sanctions or punishments on a run, are you not concerned a run, are you iran are, you not concerned about repercussions . Mark i am worried about repercussions if they think they can do all these things and think they can get away with it, they can have their cake and eat it too. I would be concerned if they thought they could have normal relations with the International Community and still adopt negative policies. Tom we are thrilled to have you with us today. I was thunderstruck this weekend in the Jewish Chronicle and the guardian as well, the collapse of the labour party and the United Kingdom over antisemitism. Color for our global audience the character and quality of antisemitism that you see from certain members of the labour party. Mark it is very sad and disturbing. My father was a survivor of the holocaust and there was this feeling after those terrible years that humanity had finally learned lesson, that we could finally throw what is one of the world ontreds in the the dusty of history where it belongs, that it would be a relic of the past. We have seen unfortunately that this oldest of hatreds has returned with force. We have seen that in europe, attacks on synagogues in the United States, and in the United Kingdom. Tom within the United Kingdom and the heritage back to the 19 century of welcoming jews into the business and political community, there have to be regime changes. If we have Prime Minister johnson or Prime Minister hunt, what dialogue do they need to have to change the antisemitic tone being discussed . Mark i know both gentlemen well because they have both served as foreign secretary. I met with them regularly and i was with them when they met israeli leaders. Both of them are friends of israel and the jewish people, and whoever the conservative Party Decides will be the next Prime Minister, i am sure we will see the relationship grow from strength to strength. Securityical and relationship is very robust, very strong. Our economic ties between the u. K. And israel reach record levels. 8. 6 billion reached british pounds and i expect to see similar growth this year. Tom i know there are some important questions on the mention thei must dinner you hold for part of the Muslim Community within the United Kingdom at your residence. How do you parse the tensions of the Muslim Community of the United Kingdom . What would you say to the british people about how they need to approach a new muslim United Kingdom . Mark jews and muslims have to work together, talk together. We have to partner, and there are those extremists who say the jews are the enemies. That is rubbish. We have to find partnerships in britain and everywhere. I am happy to tell you today in the middle east and bahrain, talking to more arab and muslim countries than ever before. We have strong relations with some of our neighbors countries that previously saw israel as an enemy, and are adding seeing them as an ally. Does Jared Kushners plan have any more chance of success than previous plans . Mark we will wait and see. We have to be realistic. We have seen some positive movement between israel and the arabs. We are talking to countries we did not used to call talk to. Can we improve our relations with the palestinians . I hope so. Nejra should israel annex the west bank . Mark we should worry about our security but have peace with our neighbors. Israel needs to be recognized by our neighbors and living in peace. Nejra what kind of solution can be had given internal palestinian divisions . Mark ed is the problem, because the palestinian leadership is divided and weak. Why didnt they go to bahrain . An International Summit was organized for the palestinian people, talking about raising billions of dollars to support the economy and encourage investment. Leadership decides to boycott. Thankfully, nearly all the arab countries were there and there is amazing support for those. This is an example of the palestinians, they never miss an opportunity to miss an opportunity. Nejra israeli elections will run as planned in september. What kind of leader does as rail need . Mark in some countries they know the results before the election and in israel we dont. Wehad elections in april and have elections again because the Prime Minister could not succeed forming a coalition. I do not know who will win. I am the representative of the only middle eastern country that has competitive, real elections where people are sovereign, and the israeli people will choose who will form the next government. Tom thank you so much. Transparency, bloomberg has also invited irans ambassador to the United Kingdom to join us for an interview and we are awaiting a response. This is bloomberg. Our great party is languishing and the polls. Johnson speaking and jeremy hunt also appearing at the event in darlington. Johnson wants a better brexit deal and will be totally ready for no deal on october 31. Lets get back to vasileios gkionakis. You are talking about a balanced risk exposure now. Are you bracing for more volatility across asset . Vasileios that is an interesting question. I think, given where we are in the cycle, we are likely going to see a tendency for higher volatility. However, if we get a synchronized response by major Central Banks toward easing, that could dampen the increase in volatility. If you look back over the last 10 to 15 years when we had a synchronized response from the major Central Banks, that tended to suppress volatility. We are going to go through bouts of increased volatility, but i am not expecting a significant surge as long as major Central Banks ease Monetary Policy. Nejra do you prefer carry strategies over cash . Vasileios absolutely. The logic behind the carry strategy as we live in a world of low core yields, whether you look at the euro zone or japan or the u. S. In an environment of relatively slow growth, but not outright global contraction. The reach for yield will remain largely in place. I think em assets will benefit for the next six months or so. Tom one final question, a little mathy on jobs day. They gamma in negative Interest Rates is absolutely extraordinary. Are we bouncing up, particularly with the german twoyear, to a critical point, to a nexus of tension where instabilities occur given such deep negative Interest Rates . Vasileios that is absolutely a concern that i share. U. S. Is not an issue in the but definitely in the euro zone and other places. Even if you look at what the market is pricing in, if the market is pricing in 10 or 15 basis point cuts for the snb, these very negative Interest Rates are going to have some unintended side effects, and definitely felt in the banking sector. That is why i said before, there is a limit to how dovish central , barring actually be perhaps the fed, because we are in an environment where we are close to the bottom and we cannot move far from here. Tom the race to the bottom will be kind of the discussion today. Vasileios gkionakis, thank you so much. I know the world is distracted right now. A major decision is should i get one or two scoops of mango sorbet . July 23 is rapidly coming. This meeting of mr. Johnson is really important, isnt it . Nejra it is. We are hearing more about his views on brexit. I cannot believe you were talking about sorbet. Did you overdose . Ice cream basis, it is a five day holiday. There will be visits today and into the weekend as well. Before that sorbet is at palate cleanser. Tom it is not a palate cleanser. This is bloomberg. Tom this morning, it is all that matters in america, it is jobs day. Dash rateyant number cut hopes . The lincolnt at memorial, selected admirals and generals, nowhere to be found. Proceed from sea to polarizing see, it is mr. Biden in iowa as well as other candidates, kissing babies. This is bloomberg surveillance, tom keene, nara chain a chin london. Prime minister nejra cehic in london. It is 20 days away from a new Prime Minister. Johnson reiterating he wants a better brexit deal and he will be totally ready for no deal. The jobs data in the u. S. Is important for all Global Investors. I ask myself how asymmetric the risks are going into it. In they are a manufacturing a global economy. , i have noat bmw idea what the freeze phrase i will not seek another term means, but that shows the tension in automobiles and america and europe. Viviana donald trump putting himself at the center of the july 4 celebration on the National Mall. The usually nonpolitical event taking on the air of a Campaign Rally, including Armored Vehicles and flyovers by military jets. The president stayed away from overtly political themes. We celebrate our history, our people, and the heroes who probably defend our flag, the brave men and women of the United States military. Together, we are part of one of the greatest stories ever told, the story of america. Viviana in the past, the july 4 celebration has not included a president ial speech. He spoke 45 minutes. A daring raid on a supertanker by British Special forces has led to weighty crisis to a crisis. Syria inrrying oil to violation of sanctions. They summoned the ambassador to say what happened. Spain said the seizure happened in waters it considers its own. The jobs report could show whether the u. S. Economy is stabilizing or weakening. Unemployment is expected to hold steady at the lowest level in 50 years. 160,000ts expecting jobs in june and if that number comes up short, it could give the fed ammunition for an Interest Rate cut. Last night, the sky lighting up at the boston pops fireworks spectacular, 10,000 fireworks were launched from three barges, following a concert with queen latifah. 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 to carol massar and alix steel for youmans duty. Matthew miller also showing up, welldressed as always. A quick data check. Futures at negative five, curve flattening has been the change in the last few days. The buoyant equity markets with a huge left. A dow 27,000. In america, further negative Interest Rates on july 4 with the german tenyear,. 40 was extraordinary. D yieldas the 10 year bun nces off 40, the btp going into the jobs data, weakness in european equities, and the dollar a little bit firmer. Tom lets look at the three month10 year spread. It indicates more economic slowdown to come, the rarity of 2000 and 2007s, president election 2007, president s election, and down we go. We are not there yet. Nejra with global rates moving lower, you ask yourself where does the hunt for yield take you, european peripherals, greece, equities, or credit . Negative yielding debt comprises nearly 25 percent of the investmentgrade totals. That is one place hunt for yield is showing up. On the open will speak with Lawrence Kudlow at the white house. We focus on the American Labor economy. Out of ucla isi with Deutsche Bank and he writes brilliant reports on the american economy. What is the thing you will look for at 8 30, a wage dynamic, nonfarm payroll dynamic . Matthew what we need to be looking at is overall Income Growth and that tells us we need to look at the jobs, average work week, and wage growth in totality to give us a sense of whether the consumer can continue to consume as well as they have been, and whether the economy is decelerating more sharply. Tom i spoke to vicechairman clarida about this and Loretta Mester, is goods and manufacturing challenge rolling into disinflation within the Service Sector economy . Lets go through that exercise in the jobs economy. Are we seeing reduced Service Sector employment along with goods trauma . Matthew you saw that in the adp report this week which has brought down expectations this week. There is no doubt you are seeing a Global Manufacturing slowdown. When the Global Manufacturing pmi has gone to these levels every time since 1998, the fed has eased, including 2012. This is an important question about whether or not manufacturing spills over into the services sector. We are not there yet, but today will give us an important read. Nejra you say in your fed watcher that the reasons to cut our concern but the upcoming data is crucial for timing. Could there be any number or anything in the jobs data that could make the markets start to question whether the fed will cut 25 basis points in july . Matthew if you get a 200,000 plus number with an average robust workweek and earnings to the upside, that will give the fed pause in terms of cutting at the july meeting. We certainly heard that from Loretta Mester. Chair powell tried to walk back a little bit these expectations for cuts. I think this number will be really important to determine whether you go 25, 50, or zero. We expect them to cut 25 in july. Tom keep that graphic up. This parses in its finest an opinion. Is that accurate below 100 . Can we look for the drama of two rate cuts . Barclays was way out front. That has got to be below 78,000. Matthew when you look at the between 80000 at and 120,000 as keeping unemployment stable. 100,000, around 133,000, that is consistent with the labor market improving. Tom this is really important. Nejra eight is, and also just to pick up what you hinted at on the inflation picture, and we are focusing on the headline number and what that could mean. Is there a reason when you look at wages, for the fed to begin and easing cycle that could take us to zero on the fed funds . And we for the fed saw this in the chicago conference in june there is a reconsideration of how tight the labor market is and what benefits and costs of running the economy are. They see greater benefits of running the economy hot. Said vicearida said at points toward easier policy for the fed. Matthew Luzzetti me Matthew Luzzetti for the hour. Ferro up in the open, jon with Lawrence Kudlow. Nejra just to recap some of the headlines on bmw, ceo Harald Kruger will not seek another term. The ceo wanting to pursue new professional endeavors. That is what we are hearing. Untilto hold his position a successor decision is made. Keeping an eye on Boris Johnson and jeremy hunt in darlington. We are always watching brexit. Tom this is bloomberg. We celebrate our history, our people, and the heroes who probably defend our flag, the brave men and women of the United States military. Together, we are part of one of the greatest stories ever told, the story of america. On and onq yesterday cue as the president was speaking, the wall street journal released a sidebyside. She looked across from sea to shining sea, and it was a wonderful effort folding in mr. Field ofwork in dreams. The father of the characters catch, asks if they play and they do in the night. The question comes from the father is this heaven . The great answer it is iowa. This is exceptionally important within a polarized america about what the fourth of july symbolizes and the politics forward to the election of 2020. The cauldron of opinion yesterday was really remarkable to see. Nejra was it a fourth of july to lift the nations spirits . Tom that is a really important question. I would suggest there was a part of america that aggressively supports President Trump, who had their spirits lifted, no question about that. Nejra lets continue to talk about geopolitics of a different kind, the seizure of a supertanker of British Forces off gibraltar has led to a diplomatic crisis. Iran declared the action illegal and summoned a British Ambassador to explain. Joining us now is stuart wallace. We have seen the geopolitical risk premium at play. Percent. F 3 10 of a as the market digesting this to understand the implications . When it comes to the oil market, it is probably not that significant. In the scheme of the global oil market, it does not change much. It is important for three main reasons. It is a strong signal that this has cut off another supply route to syria. The iranians have been hesitant to put anything through the suez canal because they need to offload some of the crude. Now saudi arabia owns the pipeline so if you are an iranian oil holder you do not want to put your oil in a saudi pipeline. Zone,raltar is a no go that cuts off the entire mediterranean. In terms of tensions within that war zone, that potentially exacerbates the problem. The second important thing is because the u. K. Is involved and they are one of the powers trying to salvage the nuclear deal with iran. It does not look great when you seize your counterpartys tanker. You have the issue of territorial waters around breeds tension between the u. K. And spain. Nejra let me ask about the fact that boyle is set for a weekly decline. Oil is set for a weekly decline. Will they have to cut deeper . Stuart more rather than deeper. Saudi arabia made it clear in the press conferences that what they want to do is move the goal post in terms of what measure will we look at to determine if the world needs more or less oil. It is a more aggressive target. The russians did not publicly go along with that, so we need to think about longer cuts rather than deeper cuts. Tom lets look at a map that shows oil worldwide. What is so important about the grace here as it is going west to east through the straits of gibraltar into the mediterranean sea. If this was obviously a big and aroundthe cape of end , this is out of aubrey and matter and. It is out of Patrick Obriens novels. The marines, what do they do next with that boat . Stuart that is an extremely good question and i cannot answer it. We do not know who owns the ship because it is bound up. Iranians havee not disavowed this is their cargo, but we do not have firm evidence. Therenalyze the oil and is the chemical fingerprint of different grades of crude. You cannot identify 100 it is iranian, but it has the same source of makeup. The gibraltar government will have to apply to the court within three days to start the process, a judicial process of what happens to the ship . What on earth does gibraltar do with 2 Million Barrels of iranian oil . Tom i can just see you on the eighth book of patrick obrien, lord wallace on the ship looking off at the french in the distance. Coming up, ralph mcginnis, executive chairman, 11 30 this morning. This is bloomberg. Morning, everyone, bloomberg surveillance. Matthew luzzetti with us of Deutsche Bank, and we will continue with the jobs market view. The seat change in europe bears july scrutiny after the naming of lagarde to run the ecb. With us right now, maria demertzis. We thank her for being with us. At the the first to do European Commission . That to do for her to establish herself . Maria i think we need to wait for the European Parliament to confirm that she will become the European Commissioner. These will be two interesting weeks and we should wait for that. The first thing to do is establish a credible agenda, provided she gets confirmed. She needs to have a credible agenda of what will happen in the next five years to bring people around here her and put the agenda and place. That will require some thinking. We have views what that should look like. That will be the first thing to do. Tom what agenda combines core europe with the periphery . Maria that is part of what we would like to call the cohesion. The distinction between the euro area and noneuro area is a time one, as the treaty tells us that at some point all countries will become members of the euro area. The issues that are important here is we are observing divergences, economic diversion says between countries as part of the financial crisis and the doubledip europe saw, but part of it is part of choices. That will be an interesting thing on the agenda of the new commissioner will have to address. Nejra should Christine Lagarde as a new head of the ecb restart quantitative easing and take away the selfimposed limits . Maria i think there is now a lot of indication that this will happen. The current leadership, mr. Draghi and his team have indicated they will be going down this way. More policy easing is required in the euro area. We are neck there on the inflation not there on the inflation side. We dont have a lot of information about mrs. Lagardes Monetary Policy, that as leader of the imf, ever she said indicates whatever she said indicates what she believes and there are good numbers. Nejra with Monetary Policy, we start to lead more toward fiscal lean more toward fiscal. Does it increase the pressure on germany to loosen the fiscal pursestrings . Maria that is correct, the fiscal pressure has been there for some time and everyone has asked for the fiscal players to do more when it comes to Macro Economic management. The burden has fallen on the shoulders so the fiscal authorities need to do something. Not everybody has the same space to do something. Whoever has the space like germany needs to take action. Nejra does it make sense that on the yields are as low as they are in europe . Maria that is difficult to say. This is just may be noise. We should watch what happens on a daily basis and what the trends. Interest rates are low and will stay there for some time. That implies bond yields will follow and we need to see some action in fiscal policy. Tom coming up, Matthew Luzzetti will continue with us. We will link at into the politics of the moment and the president s speech yesterday, mr. Mcintosh of the club for growth. 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Nejra cehic in london, tom keene in new york. An extraordinary jobs day. It will affect global markets. Matthew luzzetti with us, what Deutsche Bank. I want to talk about the emotion. I get more mail on this than any other topic, not a fully employed america. This, where have all of the good jobs gone . Matthew what you have seen recently is lower income, low wage growth picking up. You have seen a strong labor market over the past two years. Tom is it a labor market of parttime and unbenefited people . Matthew if you look at people who are parttime for economic reasons, that is at the lowest level since 2000 so you have seen broader progress in this labor market at the high and low income. Within the fed, you are seeing an evolution in their thinking. Tom this is important. Matthew the labor market is not as tight as the fed has thought. Part of it is the things you mentioned. Part of it as if you look at how intense people are searching for jobs, not as intense as we once thought. Wage growth is rolling over and has not reached the level precrisis, so this is an thinking, in the feds , that there is more slack in the labor market and the cost of running the economy hot or not what they thought. Nejra a weaker number for june what hint at a trend would hint at a trend attributed to trade concerns. Matthew for the fed, you need to see that. You need to see a trend, not just one number. The last jobs report was a weaker headline number a weak average work leak workweek, and it changed how we were viewing the trend. If you get another weak number today and as Loretta Mester noted, we are still running at 150,000 on a threemonth average. That is a good job pace at this point in the Business Cycle. Nejra if we get a weak number for june and that solidifies the expectations of a rate cut, what is the likelihood of a rebound later in the year that could take us above 200 k . Matthew getting above 200 k on a sustained basis is unlikely. You have a tight labor market, 3. 6 unemployment. The broader measure is at the lowest level since 2000, so you see the handoff from jobs growth to Income Growth or wage growth. I do not think we get back to 200,000. I think we need to get the uncertainty resolved on the trade front. Tom Matthew Luzzetti on the labor economy and we will have plenty more including Jonathan Ferros conversation with Lawrence Kudlow. Revampingonald trump the traditional fourth of July Celebration on the National Mall in washington, d. C. , including tanks, a military flyover, and vip area, and a 45 minute president ial speech. The president avoided overtly political themes and praise the American Military and people. China is sticking to its demand that the u. S. Remove all tariffs on goods. They say trade talks will go backward unless tariffs are lifted. The white house has said they are talking by telephone, but no facetoface negotiations announced. The United Nations is calling on calluela to end what they grave violations of economic, social, and citizens rights. They carried out thousands of extrajudicial killings, the u. N. Accusing the regime of persecuting those it perceives as threats. Theaftershocks following strongest earthquake in Southern California in 20 years. It was 6. 4 magnitude and struck the town of ridgecrest. Reportedinjuries were as well as two house fires. 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 fourth of july weekend, we looked at Peggy Noonans essay. The giant of brown university, gordon want, expert on Benjamin Franklin writing in the New York Daily News the july 4 Independence Day is not just a time for barbecues and fireworks. We are a very unusual country. Adams counteddent 19 religious sects in the country. The declaration of independence ringing affirmation that all men are created equal has become the sacred document holding us together. With us, a good conversation with the gentleman from yale and chicago law, david mcintosh. Wonderful to have you with us. Nation . Rized is this i love what peggy noonan said, field of dreams, it is iowa or indiana. How polarized are we . Rep. Mcintosh we are terribly polarized. I was downtown at the celebration last night and in a group of liberal democrats and conservative republicans, and everyone was enjoying the fact that we were celebrating our country. Outside of washington and the political bubble, there is a lot more that unites us. Tom there is a political bubble. Admirals and generals did not show up to what was clearly a political event. The president has a core group. Within the club for growth, how does he expand his core audience as he goes to the next election . David the key is economic performance, and as long as you are seeing growth in the economy, job security and creation continuing, i think you will see him go beyond that core group of hardcore conservatives, to more independent, really People Living in the suburbs that did not support republicans in the last election. They will look and say, we have got a choice between continued prosperity and radical positions being developed by the democrats. You saw that in their debate. Tom how is the supply side area going . Doubt will say the same to Jonathan Ferro today, that i do not see where the growthiness is coming after debt expansion. Is it out there . David i think it is there if we can nail down trade agreements and remove tariffs. That will be a big boost, following on last years tax cuts and deregulation that helped in the last two years. Discussions, trade good to speak to you, how hopeful are you that President Trump will be able to achieve a removal of tariffs from here . David at his optimistic coming out of the g20. I am always worried because he has two sets of advisors. On one side, he has folks who are skeptical about tariffs and the other side, his trade people who like high tariffs. I think they feed him information that says, you do not have a good enough deal yet. The president always says in the end we want to get to zero tariff and better trade agreements, but the way he falls among those different choices and advisors will be uncertain to the very end. Tom thank you so much, president for the club for growth. Matthew luzzetti listening with Deutsche Bank. Is it an age of oversupply . In 2008, was written 2009. Is it an age of oversupply where there is too much stuff changing economic dynamics . Matthew the secular stagnation excesss where you have savings and not enough investment. In the u. S. , we got out of that, in part because we had fiscal stimulus from the tax cuts and the fiscal spending increases. They now have some ammunition to cut rates. The rest of the world has not been able to get there. Tom Matthew Luzzetti is with Deutsche Bank. Jon ferro in conversation with Lawrence Kudlow after the jobs report. We are fair and balanced. We show Prime Minister johnson. Who do we show now, Prime Minister who . , appearing athunt an event in darlington. Boris johnson saying we need a new brexit deal, still hovering the threat of no deal. This is bloomberg. On the news about the United Kingdom , foreignremy hunt secretary speaking at a hustings event, Boris Johnson as well speaking at this event in darlington. Comments around brexit, prospects of a no deal. The location they are speaking in, darlington, this is an area with a Strong Industrial history. Market town, attractive looking, but one that could be described as fairly deprived in the north of england. The politics of our economics in america, how about single best chart with Matthew Luzzetti of Deutsche Bank . Carl riccadonna shows up. He ate more ice cream than i did yesterday. We unemployment rate, down go, and we see those drops. They are normal out of a recession. The extent has been the great dosed call, to be able to 200,000 month after month. Is it over . Carl i would not say so. As matt highlighted, the fed continues to reassess where full employment is. At the end of all of this, we will realize it is about 4 on the unemployment rate. We are below that now so we have crossed through where the labor market is getting tighter, but it is possible to see 200,000 plus job gains for a little while longer, maybe not now as we face heightened Economic Uncertainty and trade tensions, but if we look at the past economic cycles at the point we crossed through full employment, the economy gets a bit of a second wind and you get a revitalization of job growth. Tom i want to open this up to both of you. Why are we so miserable . The huge consensus opinion out there is a large body of americans are not enjoying the 4 unemployment. Matthew what the fed has been talking about is the gains of this expansion have not been equally shared. You see a lot of the gains have been certainly with asset prices and the stock market. If you look across at this point in the cycle, you are seeing wage growth for lower wage people. The broader measures of the labor market are quite low. If you look back over time, we have seen real wage growth lag over previous cycles. This is the accumulation of that lag. Nejra i want to pick up on the u. S. Preview you have written at bloomberg intelligence. One month a quirk, two a trend. Carl it is a little bit of a stretch to have two data points and extrapolate a line. Nevertheless, that is the luxury the fed will have. Gain, 75,0005,000 in downward revisions meant at really was a zero on the job creation number as we think about net job creation in may. Two months is a little bit stretching the trend, but with the july fomc meeting coming up, policymakers have to decide how much medicine is required and how soon. I think they will try to drag their feet and have the first cut in september as opposed to july. They do not want to buy into the feeding frenzy among treasury bowls, but if we see a weak jobs ,umber or secondquarter gdp they will have to take action sooner. I still think a 50 bit cut is off the table. The fed does not want to move that quickly in a relatively healthy economy, to a race towards zero. Nejra perhaps the start of the medicine in september, how big a dose does that medicine need to be from the fed with what you call a healthy economy . Carl if we look at past three calibrations of Monetary Policy or insurance cuts, we saw about 75 bits of cuts and those prior instances going back to the mid1990s. 1998, we saw midcycle corrections to Interest Rates. 50 to 75 is the right prescription now. This will be dictated by a number of things. We have to see the health of the labor market because that is instrumental to consumer spending. Tom how do you define that . Carl one is looking at net income creation or aggregate income creation. Consumer spending has to be healthy enough to propel the 2 pacealong at 1. 7 to of gdp. That is not solid, that is trend like. Just to see a healthy pace of job creation is symbolic of Overall Economic momentum, so if we see 150,000 or better, the economy is doing ok. Tom can you imagine this conversation six months ago . This is surreal compared to where we were. We have news in the United Kingdom moving sterling. Sterling, which has been a quiet story, further weakness in sterling off the proverbial cliff from 1. 2 580 down to 1. 2541, aching a new low. Making a new low. Jump in on mr. Hunts newsmaking. Nejra what he has said is he basically urged colleagues not to take no deal off the table. We are hearing Boris Johnson still talk about the possibility of no deal, so that could explain the sterling weakness. We are seeing broad Dollar Strength as well. They have been speaking at a hustings event in darlington. This is bloomberg. This is bloomberg surveillance. China is sticking to its demand the u. S. Lift all tariffs as a condition for any trade deal, but some u. S. Officials have insisted they will stay even after a deal as a means to enforce it. We spoke with bill winters about the dispute. There will still be a lot of trades between the china fear and the rest of the world. Europe, i hope, and would be well advised to maintain a middle position in that puzzle rather than side with one side or the other. We are a european bank. What we want to focus on is how we can promote trade within china and across that fear, which is what we do today. Viviana make sure to catch the full conversation on next episode of leaders with. Quid. Lacqua in the u. S. , job cuts will probably go far beyond equities and Interest Rate rivet of trade derivative trading. On monday, Deutsche Bank may start informing Staff Members of dismissals. That is the Bloomberg Business flash. America,s jobs day in jobs day always on global wall street, and jobs day for Deutsche Bank. Now and through the weekend with our Deutsche Bank team on this, everyone in global wall street is watching. What has changed in the last 24 hours . Not much, but we can expect more than Global Equities job cuts. , the journalish publishes, you publish again, and around and around we go. This is coming from the spin of the bank. What is the spin into an ugly monday . There may be 5 billion euros of costs. They do not want to raise capital and that is the number one thing for shareholders. Tom i understand they will not do a capital raise, but can you tell me they will not go to a cash call . They are avoiding that, and into the restructuring, they are trying to tell shareholders it is a good thing. This is the big moment to show they can pull off a restructuring of the business, which looks different from last year, a smaller, more regionally focused bank. Nejra every time we have had the news flow that you and your team have broken, i have been asking whether this is just one more desperate move from Deutsche Bank. You wrote a great piece, looking at 60 wall st, talking about empty desks and early beers and they have been told for years they should make cuts. U. S. Business the retrenchment go . Sonali it could go very deep. The stock actually rose. The issue with the u. S. Staff as they want cuts to some of the business earlier to save more of the business, but now they are saying they have to get out of it almost entirely. It is a big aboutface from a few years ago and at is leading to a downturn in the u. S. Nejra what i have been hearing as they will not want to exit the u. S. Business entirely. How will they message that so that the markets take it well on monday if we get the details . Sonali that is big. They are cutting equities and rates, but are they cutting the entire Investment Bank . They have a huge Leveraged Finance operation and they may want to see some commitment, and also retail. Tom is the chairman out the door on monday . Sonali we will have to see some leadership changes. Tom well the chairman be out the door . Sonali we do not know who will be leaving yet. Tom our finance team in london, new york, and frankfurt, germany with a most busy weekend ahead. Coming up, it is jobs day after jobs day. Jon ferro in conversation with mr. Kudlow, the Economic Council director. Stay with us. 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. Guy david getting the job done. Markets wait for u. S. Jobs numbers and what they tell the fed about the u. S. Economy. European bond yields continue to plummet, with bunds flirting with the ecb deposit rate and greek bonds approaching u. S. Treasury levels. Deutsche bank is working on yet another Restructuring Plan, its fifth in seven years, and this one ask to be a radical restructuring with u. S. Operations on the line. Welcome to bloomberg daybreak on july 5, joined by anna edwards. Alix steel is on assignment in boston. We may have some reverberations even in europe. Absolutely. Ive been speaking to a host of guests about the relevance of the, what it tells us about fed does. This is a backwards looking set of data. A lot of people talk about this