Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

Better than the second. We expect the previous segment to grow double digits. Matt welcome to bloomberg surveillance lets check in on the markets this morning. It is a good day, not just because it is friday, though i guess it is good if you are long stocks. The broader European Index is up more than. 5 . Crude oil gaining more than 1 . S p futures are up as well, indicating a positive open at the u. S. Start. Coming up, we speak to the president of a General Motors, dont miss that interview at 3 30 p. M. London time. Probably thenveils most revolutionary corvette since the c1. Last night in l. A. , they unveiled the see eight chordate c8 corvette. Lets get to the bloomberg first word news. China speaking on the phone. This is the second time since the two sides called a truce. There are no details on what the trade team discussed. President donald trump reiterated he could impose additional tariffs on chinese goods, if he wants. Quote very close. Steve mnuchin describes a deal on the budget and raising the debt ceiling. Spending levels have been agreed to, paving the way before Congress Leaves Town for summer. President trump is distancing himself from a quote send her somalibornargeting comes woman ilhan omar. As she looks down with contempt on hardworking ignorance isying pervasive in many parts of this country. [chanting send her back] obviously, omar has a history of launching vicious antisemitic screens screeds. This at a rally earlier this week in north carolina. The president now says he was not happy when he heard the chant, adding he quote disagreed and felt quote badly about it. Japans inflation fell again in june. The bank ofsure on japan to join its peers in increasing policy stimulus. Consumer prices rose by 0. 6 from a year earlier. Japans key inflation gauge has not top 1 2015. The u. K. Parliament is moving to stop a no deal brexit. At least 30 tory lawmakers rebelled with measures passed to prevent leaders from closing down parliament. That would force a no deal brexit. Philip hammond denied party orders and abstained defied party orders and abstained. 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. You. To matt thanks very much for that. Global stocks are rallying today after dovish comments from both Richard Clarida and John Williams. At a speech for the Central Bank Research association, williams said it was better to take preventative measures van to wait for disaster to unfold than to wait for him for disaster to unfold. Speaking with fox news, Richard Clarida said quote you do not need to wait until things get so bad to have a dramatic series of rate cuts. Investors. Back expectations after a spokeswoman took the unusual step of clarifying his remarks, saying they were quote from an academic speech on 20 years of research. It was not about potential policy actions at the upcoming fomc meeting. Hour is theor the cio of Global Equities at allianz. Welcome, good morning, happy friday. Let me get your take on the fed. We all expect a cut. Do you think it could be 50 basis points . Lucy it could be. What is expected by the market is about 50, but that may mean it might not have too much impact when it actually arrives. This certainly seems to be a bit of communication and discipline required from the fed, but that is something they are working on with their review. It is about the tools they have and the communication with the markets. Do you think that a cut like that is necessary . It seems we will see growth slowdown, we get the next gdp reading from the u. S. At the end of next week. But you have still got Wage Inflation much more than core inflation. Retail sales are expected to be at a record for the important backtoschool shopping season. Does the fed need to do this . Lucy from a consumption picture, probably not. The Interest Rates that affect consumers have been coming down anyway. Sector, the corporate expectations are certainly weaker. Pmi is weaker. And that is, illustrated, pulling down Global Growth plus trade, pulling down local growth. Global growth. Matt do you expect to be 30 year bull run in a treasuries to continue . Lucy i think that where we are at the moment is a higher risk to be putting on. Having had the rise you had over the last year both in bonds and stocks, which has been entirely due to the shift in the fed policy. To be betting from here seems to me higher risk. Matt what do you think about the dollar question mark the dollar . Complaints that the ecb was manipulating its currency with a dovish pivot. Now you have the fed cutting rates. Losee dollar going to ground against the euro, the pound, the yen . Lucy i cannot make forecasts for currencies, and it has panned out for sure, since weve seen that change in policy. So that is probably our best guess. Matt all right. , you will stay with us. Stay with bloomberg surveillance. Plenty coming up, including oil snapping a fourday loss as an american warship downs and iranian drone in the gulf. Plus, the sixth biggest u. S. Banks have now reported. We are bringing down the winners and losers for you. This is bloomberg. Matt economics, finance, politics, this is christoph i this is bloomberg surveillance. Lets take a look at the markets. We are seeing gains across europe this morning. Aboutg at the ftse up. 6 . Looking at the dax up almost a full percent. The cac gaining. 1 . Crude has snapped four days of losses after an american warship drone. And an iranian as stokes worries crude flows from the middle east could be disrupted. We are seeing the moves in the wti and brent, both higher on this risk premium we are seeing. President trump said of the uss boxer had down to the iranian iranian drone while the iranians are saying they did not actually lose a drone. Regardless, we are seeing moves in the prices. It is a huge worry as it is an Energy Security concern to countries like india and china, given that it was in the strait of hormuz where one third of the worlds oil and fuel goes through. But look at it on a weekly basis. Wti and brent are down about 57 . This red bar at the end is showing of uti. Is showing wti. But it was not enough to snap the weekly loss. The market here is continuously focusing on the demand side of the story. Of course, we have the u. S. And china coming back to the table. There are lots of concerns about the slowing growth of the Global Economy. This bearish tone is really gripping the market. Matt annmarie hordern, looking at oil for us after a claimed confrontation between the uss boxer and some sort of Unmanned Aircraft. Lets get your Bloomberg Business flash. A 4. 9ng will take billion charge when it reports earnings next week as the fallout from the 737 max 8 grounding continues. The charge covers potential compensation for airlines that have had to cancel flights. In a quarter, the costs will eclipse more than clip more than 5. 5 billion from revenue. Bmw has promoted the production toef to ceo as it attempts catch up with rivals in the transition to the era of self driving and electric cars. Krugerill succeed harald , stepping down after four years at the helm. Ab inbev is disposing of assets after the failed listing. It has agreed to sell carlton for anto asahi enterprise value of over 11 billion. Looking they are still into offering a minority of its of a business. Matt thanks for that. It is all about the fed. Biggest u. S. Lenders reported earnings, slashing outlooks as low Interest Rates weigh on profits. But the share price reaction was mixed as investors picked through the results. Here with the takeaway is bloomberg to dani burger. Goldman sachs reported a 14 drop in equity trading revenue. That is the steepest amongst wall street banks. But for all of them, it has been a tough quarter. That, the banks cap setting records. They do it every quarter, it seems. This time, they managed to crack 30 billion in quarterly earnings. But that did little to soothe investor concerns. We heard from a lot of executives that warned about tough times ahead, and that is especially true given the geopolitical risks coming up. Speaking of things in the future, they were also warning of a challenging a rate environment. All four of the commercial banks missed income estimates and mostly set the bar lower. And the fed has not even announced those rate cuts yet. Clients are also getting more cautious and they are driving down market activity. So trading revenue as a whole fell 8 . That is the fourth consecutive decline. Goldman was the only one that saw an increase in a trading. In equity trading. But there was one consistent weak spot, the u. S. Consumer. Givens especially telling where we are in this debate of where the economy is in the credit cycle. Is the sum of total troubled loans for each bank and you can see that each and every quarter the amount of loans near default decreases. So low rates might be getting Interest Income, but chief of borrowingis chief is helping drive decisions. And either the consumer is in a better shape or the banks have been betting more. That is a fascinating chart i will say that one and maybe use it in a future battle of the charts. Dani burger with a look at the bank reporting. Up next, we look at europes earnings in europe. Can good a german of numbers rescue the dax index after a difficult july can the good rescue the dax index after a difficult july . This is bloomberg. Matt you are watching bloomberg surveillance. I am matt miller in berlin in four Francine Lacqua on this friday. Lets stay with earnings this morning and bring it back to europe. The Second Quarter results season is underway with a raft of results. Global headwinds and a a domestic downturn Impact Companies in europes largest economy . Here is annmarie hordern. Annmarie you are no stranger to the story. Of course, next week will be huge for Germanys Army earnings. It is one of the worstperforming benchmarks in europe this month. You can see it is also losing out to france. When you look at the performance ratio, you can see the cac is gaining strength. Autos and chemicals are key to german to the german economy. I want to first dive into basf. ,lready, we had a warning shot saying slowing markets from autos and crops and the impact of the trade were to cut profits by 30 . They do not see the situation improving in the second half of 2019. One problem could be that they are so reliant on the german economy, accounting for 11 of revenue. Then we have daimler, who also cut profit outlooks recently. Attention of Ratings Agency s p who revised the credit outlook. As well as the signaling a chance of a one a notch downgrade onenotch downgrade. Adding to the gloom, Goldman Sachs put a sell recommendation to the stock. And one key aspect to watch is a dividends. Dividends levels are very important to the dax. Here is the dax versus the dax performance minus dividends. German shares have basically done nothing since 2000 when you wipe out those dividends. Matt very interesting look in the. Bloombergs indeed. Bloombergs annmarie hordern. I guess we started already, but we get a slew next week. Still with us is Lucy Macdonald from Allianz Global Investors. We started bigtime in terms of the u. S. We had disappointments there, disappointment in asia and europe. Are you concerned about the Global Economy . Days, we are only 30 in and 70 have been to the upside. But there is a big dispersion. Sayingsectors, you are technology being on one side, the other side being not so good. You are seeing that in the consumers. And within industrials as well. Board, quite a big dispersion on delivery on earnings but also in reaction. And what is clear is that there is a negative bias towards, a major negative bias, towards company reports. You are getting a 6 average when companies report, which is worse than average. Time to do deep research and avoid those companies which are going to disappoint. Matt we have seen a slowdown in a buyback announcements. Companies are Still Holding a ton of cash and not deploying it. Do you expect that to change . Lucy not until we get more clarity on trade. The major reason why we seen the slowdown in is uncertainty isund the trade in capex uncertainty around the trade conflict and the big tax reform boost. But when we talk to these companies, there is uncertainty all the way down the line of making major investments. Which areas do you think make the most sense right now . As we see negative yields around the world in terms of fixed income, we see low borrowing costs, are Companies Taking advantage of that or are you concerned they are taking too much advantage . You look at the level of corporate debt, it looks like they may have taken too much advantage of it in the past. But with Interest Rates doing what they are doing, the financial risk associated with that has receded, to some extent. Are differences in that. The tech sector has not particularly leveled up. So it varies. But in the current interest environment, the risks of that have has receded, to some extent. Matt lucy, thanks for joining us. Lucy macdonald from Allianz Global Investors is our guest cohost from the hour for the hour. A warning track to Boris Johnson, and hes move to stop the u. K. From crashing out of europe. How much more likely has a Nodeal Brexit become . This is bloomberg. Matt easing gains. Global stocks rally as two senior fed officials stressed the need to act quickly on rates. 50 years after the moon landing, will the fomc take a small step or a giant leap . Destroyed. The u. S. Says it has downed an iranian drone by the uss boxer near the straits of four moos hormuz. Oil snaps losing streak. Bmw names and new executive. Sales growth will slow in the second half according to the chinese unit. Our aim is to be slightly better. We expect the premium sector to grow in single digits. Matt all right. Now, we are showing you here live pictures of german chancellor Angela Merkel holding her annual summer interview, where she takes questions from the press. We will continue to bring you headlines from anything the chancellor says this morning. You are watching bloomberg surveillance. Im matt miller in berlin. Probably 1000 yards away from where Angela Merkel is speaking. Lets check in on what is moving the markets. Annmarie thanks, matt. I want to kick it off with ab inbev. They are offloading australian operations to tokyo. Enterprise value of more than 11 billion. That is moving the stock this morning. Pioneer food group surging. Almost up 29 . Pepsico is buying the company. 1. 8 billion is the value. Pepsico making a push into emerging markets. Is down more than 6 . It is the biggest loser on the stoxx 600 this morning. The story as they are dropping revenue targets. They are weathering the storm in the u. S. They are not thinking these big deals in terms of advertising for tv and billboards and they are pushing into digital and that did not make up for the growth in the Second Quarter. Matt thanks very much. Looking at a couple of the big movers in todays session. Lets get to some breaking news on bitcoin right now. We are seeing that the u. S. Commodity Futures Trading Commission is investigating the cryptocurrency exchange, bitmix. The months long cftc probe is focused on whether it broke rules by allowing americans to trade on the platform, which is not registered with the agency. 10,387 to beg at exact. Bitcoin is extremely volatile and we have seen it rise up yesterday, we were down at 9,200. Today, it is a solid 1000 higher than it was before hours ago. Lets get the bloomberg first word news. President donald trump says the u. S. Destroyed an iranian drone that approached the uss boxer. The incident happened near the strait of hormuz and it is the latest sign of escalating tensions in the gulf. He says the drone was a threat to the ship and the crew. He is urging other nations to protect their vessels in the region. Seen here, u. S. Federal reserve officials are stressing the need to act sooner rather than later. Vice chairman Richard Clarida and John Williams say policymakers need to act quickly if the u. S. Economy looks set to stumble. This is reinforcing bets the central bank will cut rates, potentially by as much as 50 basis points. , that is a u. S. Treasury secretary Steven Mnuchin describes a deal on the u. S. Budget and raising the debt ceiling. He says Congressional Democrats agreed on spending levels, paving the way for a deal for the u. S. Congress before the u. S. Congress leaves town before summer. There is no such thing as free assets. That is what the European Union is set to warn british banks again. A draft document presented by brussels says the u. K. Should expect rigorous assessment before Financial Firms would be allowed to do business after brexit. Global news 24 hours per day on air and on twitter, powered by more than 2700 journalists and analysts. This is bloomberg. Matt . Matt thanks very much for that. A no deal brexit just got a little less likely. Mps have moved to stop the u. K. Leaving the eu without an agreement. Brexit is reportedly also casting a shadow over the search for a new bank of england governor, with some potential candidates hesitant to get embroiled in the politics. Still with us is Lucy Macdonald, from Allianz Global Investors. Im sure after 2. 5 years, you are truly tired of talking about, really speculating about what is going to happen in terms of brexit. You have to escort of your job tell your clients whether you think it is going to happen by october 31 were not. Lucy where we are at the moment, all of the options are still open. A deal, no deal, referendum, or the election, they are all still on the table. And this is still the uncertainty weighing on sterling and weighing on markets. , it is aboutts half as much as Global Markets over the last year. It is the uncertainty having a clear impact. Until it is dispersed, that will continue to be the case. And what you are also seeing within the market in the u. K. Is the bifurcation between growth in value as the concerns about domestic assets are priced into shares. That is something we are seeing everywhere. It is even more extreme in the u. K. A you want to have a trade on positive outcome, then valuations are quite supportive of that. From the global perspective, you dont need to make that trade because it is a bit of speculation at the moment. Matt my producer reminds me it has been actually over three years. It is mindnumbing, lucy. I know it would be foolish to try to predict where the currency is going to go, but what do you think the band is . How low can the pound go in cable terms . How high can ago . Lucy on a hard brexit, it can go lower than it is at the moment. , you know, we cant invest on that basis at the moment. You can clearly see that a hard brexit would be priced a little bit more into sterling over the last month or two, so maybe what happened in Parliament Yesterday will take it little bit of the edge off and rebalance the probabilities. That is what we are doing, still trying to balance probabilities. Matt all right, thanks very much for joining us, lucy. Really appreciate your time on this friday. Cio of Global Equities at Allianz Global Investors. Up next, we are going to talk more about the launch. An hour of change and challenge in a decade of hope and fear, in an age of knowledge and ignorance. Why some say the moon . Why choose this as our goal . And they may well ask, why climb the highest mountain . Why 35 years ago fly the atlantic . We choose to go to the moon. Andhoose to go to the moon do the other things. Not because they are easy, but because they are hard. Matt president kennedy there seven years before it happened and now we are 50 years after the launch and the landing putting the man on the moon. The anniversary is tomorrow. This is bloomberg. It is one small step for man. One giant leap for mankind. 60 seconds. That is one small step for man. One giant leap for mankind. 50 years since the world was gripped by those historic images of apollo 11 landing on the moon. That summer, the world was caught by moon fever. Charttoppers like david bowie and Creedence Clearwater revival. The space race was driven by the rivalry between the u. S. And russia. Some things have changed, a lot in the last five decades, but how has the space race evolved . Dani burger took a look. In the halfcentury since man first walked on the moon, the space race has fundamentally changed. It used to be a battle between the u. S. And the soviet union, but now most new missions or by private companies. The number of objects launched into outer space has also skyrocketed. From just two in 1957 to over 450 last year. Might stillmining sound like science fiction, Industries Using satellites in completely different ways. Companies cannot monitor the parking lots of retail outlets to get data months before official releases. Commodity companies are even getting in on the action. Andects that scan mines factories gauge output at a much more granular level. The last 50 years have seen a Seismic Shift in humanitys understanding of space, but while it is still vast, unknown, and mostly unreachable, it is now also a resource that businesses can start to utilize. Burgernd that was dani on how businesses are starting to use space 50 years on. Tomorrow will be 50 years exactly from the apollo 11 moon landing. Neil armstrong stepping out onto the moon as the first man ever. And i want to point out, Neil Armstrong drove a corvette. Versionsaw today the c8 launched by General Motors. A little later, we will talk to the General Motors president about that brandnew corvette. Engine, no longer the engine in the front. That is the news of the day for me. Lets discuss space. Our guest is from one of those companies that provides satellite imagery to businesses. Rs metrics is a data provider available on the bloomberg terminal through the enterprise access point. Thanks very much for joining us. Let me ask you what you think has changed in the last 50 years. But have we made the kind of moves forward that you would have expected . Yes, i think so. Old, i is 51 years probably thought we would be in flying cars by now, but that has not happened, right . From the satellite perspective, there has been real change. From our perspective, we can now monitor the supply within the commodities markets on a virtually realtime daily basis. That is changing the way we are understanding data. Monitoring is not just satellite. It also has to do with ariel, it has to do with drones. We talk about measuring, we can now measure to the square meter outside a mine. We can look at the inputs and the outputs and predict what the production levels are going to be after that. The other element of measure, the cars, the people you have mine that ares slowing down, coming back on, etc. That is something we can now monitor on a daily basis. The real art is the prediction. It is taking that new set of alternative data and creating into something that makes sense from a market perspective. What is the application for price . What is going to be the impact on months . When we are talking about stocks in particular until now, really the only reliable source of daily information on base metals is the lme stock figure we only have to look at nickel for the last three days to understand its importance. What is different now is we can start looking on a daily basis of the physical production of that. That has substantial implications from a price perspective. Also, when you look at this, you can use this data in other ways. When you combine it with other data sets, so for example, the California Wildfires last year, which devastated hundreds of square kilometers, if you combined that with the property register in the land tax, that allowed us within a 24hour period to understand the implications for the u. S. Insurers, which, as always happens with these events, their equity value is strongly hit for the 24 hour period our clients knew in advance of anybody what the actual impact was on their businesses. How do you deal with the privacy issues which surely must be a concern . You can be up there all around the world with dozens of satellites how do you deal with the issue that you can see what we are all doing . Mitchel yes, from our perspective, we are only looking at physical assets. We are not interested in individuals. Privacy is not so much of an issue from our standpoint. We are about the physical movement of trucks, how tall is your pile of iron or . From the privacy perspective, that is not an issue for us. What is crucial to us, though ive been a metal sky 25 years we can now see china. That is fundamental from a supply and demand perspective. Matt all right, great to have you on. Really appreciate it on this 50th anniversary it is incredibly exciting to see what we can do with these satellites, that data is just one of the many things, as you have been telling us. Senior advisor at rs metrics. The space fun does not stop here. Dont miss our interview with the nasa cfo after 10 00 p. M. U. K. Time. Up next, a new era at bmw. The carmaker names a new ceo. We hear from the head of its China Business about the appointment. This is bloomberg. Matt this is bloomberg surveillance. Im matt miller in for Francine Lacqua today. Breaking news. Is underitmex investigation by u. S. Regulators. The probe is focused on whether the platform broke rules by allowing americans to trade on it. Americans were not allowed to trade on it, but they may have been doing so using some sort of virtual help . That would be the assumption, that they are using a vpn perhaps to access the platform. One of the cofounders of bit had established work forness to not business customers because he didnt want to be regulated by the United States. If it did happen, there could be real legal consequences. Matt the u. S. Has really started to put its foot down in terms of cryptocurrency. Is treasury secretary starting to get pretty angry about not just bitcoin, but also facebooks libre. I think the introduction of facebooks currency galvanized a lot of opposition to crypto. There has been a lot of debate around building rules about crypto. Facebook has really crystallized a lot of strong feelings around this. When a case like this comes around like bitmex it is going to further fan efforts to bring more scrutiny on the space. Matt think so much for joining us lastminute. Edward robinson covers bitcoin and cryptocurrencies for us. Bmw has promoted oliver zipse to chief executive officer, resetting leadership to catch up with rivals in the transition to an era of self driving cars, electric cars, sharing, etc. Bmwske exclusively with china president and ceo. Is to be slightly better than the premium segment. We expect the premium segment to grow single digits. Therefore, this is also an orientation. Have modelsse we launching this year in china, so that is very high growth in the first half, but in the second half we will be closer to the singledigit growth. Do you think the overall market will start to bottom out . Jochen i think you see that already. Talking about the total passenger market, i think the decline is slowing down, so to speak. I think we are close quite close to the bottom of the total markets and then in the second half of the year, probably also driven by additional model introduction, we believe the car market will show slow growth in the second half. There has been change at the top with oliver zipse taking over as ceo. What signal does that send in terms of the direction of travel for bmw and the companys priorities Going Forward . Jochen as im responsible for china, let me comment on china. , we implemented our china strategy last year, we successfully negotiated the contract with tencent, the equity increase. We got a lot of strong support from the former ceo, and now looking at mr. Zipse, a longterm china friend we have one of the biggest production bases which was overseen by mr. Zipse, so from a china perspective, we expect continued support for the china strategy from our new chairman. Matt bmws china president and ceo Jochen Goller speaking to us exclusively. Joining us exclusively from guest the incoming ceo, oliver zipse, is a really going to help bring bmw forward . They started their electric vehicle launch almost 10 years ago and they have not developed any standalone electric vehicles since then. Yes, it is true. The electric vehicle offerings from bmw have been pretty slow. Oliver zipse is probably going to bring things forward just by being ceo. Is he going to bring revolution to bmw . The answer to that is no. He is a steady as you go ceo. He championed hybrid. Nothing of what he has done so far speaks to him really shaking things up. Matt what do shareholders want from bmw . Under Harald Kruger the value dropped but in the industry, they have real problems because of the diesel issues. Yes, there are two things shareholders want. One is for bmw to take electric cars seriously, really push forward and kind of catch up to a lot of other offerings from tesla and others now. Of course, they still want Profit Margins to return to what they were before. That 8 10 range. That is a tricky balance, trying to invest in electric and keep margins i. That is difficult. Matt our bloomberg bmw reporter talking to us from munich. Ombudsman africas said ethics codes were violated. Watch the rand. Tom this morning, williams and clarinet change the dialogue. Stocks continue to grind higher. 31 and one small step for chairman powell. No to a no deal. Conservative party. Johnson is long. Im totally lost. All will become clear tuesday. From apollo 11 to 17, they went, they landed, they returned. Good morning, everyone. This is bloomberg surveillance. Im tom keene in london. Nejra cehic. Completely lost. Overnight, was the Prime Minister supposed to fire the chancellor . Is that even possible . Nejra the update is that parliament backed measures that would prevent suspending the legislature in order to pursue a no deal brexit. The question becomes is the prospect of a no deal less likely. Doot of the trading is to with Dollar Strength. I dont have an answer for you as to whether no deal is less likely. Tom all will be clear on tuesday. Right now with the friday wisdom, our first word news. Denying a u. S. Warship shot down one of its drones. President donald trump says the Unmanned Aircraft was destroyed when it approached the uss boxer, and Amphibious Assault ship. Action,d it a defensive another sign of rising tensions in the region. Cargo ships have been attacked. Two senior officials at the u. S. Federal reserve see the need to act early to sustain growth. Fed vice chairman Richard Clarida and John Williams boosted u. S. Stocks with dovish comments. That reinforced that the fed could cut Interest Rates later this month by as much as 0. 5 . Is no pressure on the bank of japan to boost monetary stimulus. The key inflation gauge falling again in june to a twoyear low. Excluding fresh food, Consumer Prices rising 0. 6 in the past 10 months. The boj has an inflation target of 2 . It is another sign of the financial toll growing on boeing from the. The company is expected to announce an accounting charge with secondquarter results. That covers potential concessions for airlines that have had to cancel flights. It is entering its fifth month in the grounding. Global news on air and on twitter powered by more than 2700 journalists and analysts in 27 countries. This is bloomberg. Tom thank you so much. It is a redux of what we have seen. Chancellor merkel redoing the german line of a balanced budget policy. The budget was 4 of gdp deficit, it is now 1. 70 of deficit. A far more austere budget, a balanced budget, but certainly what we see in the United States. No real surprise, but nevertheless reaffirming the dramatic belief. Germanicic beliefs beliefs. Futures of 10. Dow futures up 1. 01 off the williamsclaritin derby yesterday. In the afternoon, oil gets weaker. Lets move on to the second board. The vix showing the equity left. There is the dow on the friday close. We will see where we end. In from 2. 09 . Swiss,ching euro despairs watching in terms of watching european dynamics. Nejra yes, definitely, tom. The stoxx 600 on the front that after losses yesterday. We are seeing risk on with equities. The two year yield i want to draw everyones attention to. We saw curves steepening following the comments from williams and clarinet. The curve flattened today. A bit of a backup as with the 10year. Against alltronger g10. It is the story of Dollar Strength, a different reaction to what we saw yesterday when we saw dollar weakness. Interesting, emerging market. The bond yields grind higher particularly off the comments we just heard from merkel . It does not sound like germany is ready to take up the fiscal flak. Sayingfricas ombudsman that the president violated the ethics code. That is just a headline that we have to bring you. To get back to the markets and all the reaction we have had to the fed. Tom this is a really important chart. This may be my chart of the year. Im not there yet, but in july. Forecasting, but talking about a what if. He sets out a number of what ifs to get to a 0 10 year yield. Even with the recent higher yield and a little bit of a role over the last six weeks since the draghi speech, the longterm trend of disinflation is still in place and if you extrapolate out, you get to a 0 10year in the vicinity of 2021. That gives you the longer as mentionede path by jpmorgan. Nejra yes, the longer picture fascinating particularly in light of the discussion we had. Let me look at the shorter bets in terms of what the markets are pricing for fed cuts in july. We went all the way to the Market Pricing. We heard from clarinet and williams, the takeaway being act early to prevent any kind of a slowdown later, but then the walking back from the new york fed means we have walked back on the bets from july. We are somewhere in the middle. Tom it is important on a friday to get in the weekend reading and move forward into an eventful july culminating in the july 31 fed meeting, then we got to take care of august. A knows what that will bring . We bring in someone across assets. A Global Fixed Income strategist at socgen. Correlations between foreignexchange and Everything Else in the known world. Does the fed have a theory . Clarida says he wants to get out in front of the news. Is there any evidence of any central bank ever doing that . Say andss the fed would Alan Greenspan would say that the 1995 cut where they cut three times and avoided a recession when all the indicators suggested it might happen after the 1994 tightening cycle, that that was their glory moment of getting sufficiently far ahead. That unleashed the mother of equity rallies over the next few years, so i dont think it is as successful, but that is the example that gets thrown out there. I think it is tough. All of the other ones, they didnt. Tom well said, but now we are at the lower bound. Thearch at jpmorgan shows recruitment of a liquidity trap. Can you affect Central Bank Policy given rates near the zero bound . I think it gets hard. Look at the ecb. Mario draghi had massive success from the moment he took over and cut rates reversing the hikes. When he came in with whatever it takes in 2012, it was a great theess, then the mix, cocktail of quantitative easing and negative rates from 2014 through 2015 was hugely successful. Insteads throwing corks of bullets at the problem. The ecb is just about completely out of ammunition and you can see it crying out for fiscal policy to take over. That is a future that could come to the fed as well. Nejra the reaction that we saw in terms of the market starting to price 41 basis points of cuts in july than walking it back highlights to me that the markets are going to ask for more based on whatever the fed says. Going to continue weakening of we do fed given to the bond markets . Something. The problem for the dollar is what do you mean when you say the dollar . What are you going to buy . Are you going to buy the euro . T has lower rates are you going to buy the chinese yuan . Five minutes ago, we were worried that the chinese authorities were going to let that we can against the dollar weaken against the dollar. Maybe the default is if you can avoid a recession, and emerging markets are cheap, and if the fed cant, that is the loser illusory. It all comes down to the first question of toms. Can the fed get ahead of this . Four is the economic cycle, aging as it is, just coming to an end whatever because the earnings cycle has turned lower . Im a bit in the second camp, but maybe not yet. But we are going that way. Nejra it is interesting that you point out the dollar against what . We are seeing weakness in g10. If you take the view that you just set of being in the latter camp, how would you be trading the rates market . Buying divs. Rates are coming down. It is incredibly unusual. I mentioned 1995. Even in 1995, you still only needed to sell notes after the second rate cut or just before. Cycle have faded the rate ever since i started work and it has never worked on the way down. You keep on buying until the last cut and then you go the other way. That is what history would say you should do, so im terribly wary of doing that. Thisa nice briefing morning. We will continue the conversation through the hour. Chancellor merkel in germany on the business at hand in budget. Brexit as well. If the United Kingdom needs more time on brexit, we will agree. For more importantly, she addresses the recent concern. Ver her health in power 14 years. Im able to carry out the responsibilities of office. This is bloomberg. Lets get the Bloomberg Business flash. Ab inbev agreed to sell its australian operations to japanese company. The deal has an enterprise value of 11. 3 billion. Ab inbev will use the proceeds to pay down debt. The company says it may still revive an ipo of its asian subsidiary. That offering was told last week. Has learned u. S. Regulators are investigating Crypto Exchange bitmex. The platform has become wildly popular in asia. It lets people make big bets with little money. Investigation is focused on broke rulescompany by allowing americans to trade on the platform. Over to the u. K. Or the bbc and itv are teaming up to take on netflix very is plan to launch their new streaming venture in the Fourth Quarter. The service is called brick box. It will cost britbox. It will cost 7. 50 a month. Tom that is a great, im glad viviana did that, but i did not see love island there. Mi going to be able to get love streaming the bbc thing . Nejra schott hall or her, i have never seen an episode. Tom that is ok. Watches every episode three times. Jonathan ferro loves love island. [laughter] nejra a no deal brexit just got a little less likely. It is much harder for the next from minister to push through a no deal brexit. Im guests still with us. Great to have you both here. Unless you really want to, im not going to ask you to predict exactly whether a no deal brexit is more likely or not, but you have done work about the monetary and fiscal options in the event of a no deal brexit. What are they . The shock of the no deal brexit. If we look at the betting markets and the movements in sterling and future interest placexpectations, they possibility as about a third. Happening, on it monetary and fiscal policy might have things it wants to do to offset the size of the shock. The size of the shock to the economy is somewhere between 2 and 3 of gdp. Think about that in terms of the shock of the financial crisis, it is about a third of that. It is similar to the shock in the early 1990s. You are too young to remember that, but i remember it very well and that was something that Monetary Policy responded to at that time. There was an increase in deficits over the same period on the fiscal side. Room forthere is Monetary Policy to respond by cutting bank rates, by making it clear that bank rates duration low level will be maintained for longer and reigniting asset purchases. Fiscal policy also has considerable room to maneuver and we would expect to deficits to increase for a sustained period to offset the output consequences of a no deal brexit. Nejra are we underpricing the risk of no deal . I ask because if you look at itle on a three month level, is spiking, but below where it was in march. Yes, but i think fewer people are doing anything with it. Of levels, for a long time, and ive written lots of times where do i think sterling would trade against the euro on a no deal or on a deal . 95, i felt that was about right 95 which is incredibly week in real terms for sterling on a trade weighted basis, that is where think we would trade to that on no deal. The Foreign Exchange market i think thinks it is 50 50 and it has not got a clue and does not know what to do, which is about right for me. The betting market under prices if you want to bet on no deal, you make more money betting then trading Foreign Exchange. Tom professor, wonderful to have you with us today. I think of Michael Woodford at Columbia University and the idea and maybe you can just be a smooth impulse reaction function , where in academics, everything is smooth, everything comes out and dampens out into the future is that in no deal equation or is the no deal equation going to be very discontinuous, choppy, and move toward instability . There are various ways of thinking about no deal. The ways of classifying it in a policy space is to think about a disorderly or orderly no deal brexit. Either of those are very hard to envisage. No one has left the European Union before. No one envisaged that we would leave without a deal. We are trying to understand the careful modeling of the impact on trade of what might happen. You start thinking about that are in the long run consequences. What happens as we move from one equilibrium or one steady to another in the very long run . Reasonably clear in the economics literature means that output in the event of a no deal brexit in which overtime the structure of the u. K. Economy diverges from that of the European Union, which is still our Major Trading partner, is going to have a permanent impact on the level of gdp. It would be 5 lower than what it would be if we stayed in the European Union. I think of that long run, then you need to decide what is going to happen in the very short run. You are right to say it is going to be choppy. One thing that is going to make it less choppy, and it is clear from the stress tests that the bank of england has done and other institutes, is that the Financial System going into this potential crisis has more capital liquidity at its disposal than it had in the past , which will limit some of those extreme responses that we have seen in the past. If we add to that, prompt and flexible responses from fiscal policy makers, some of this choppiness can be reduced, but you cannot control the weather completely coming we know that. Tom beautifully explained, sir, and i love the mathematics involved or assumed to be there. Overlay the behavioral realities the good behavioral economics of the United Kingdom doesnt the human condition adjust to whatever is dealt and we will adjust to a no deal if that is what is dealt . I think that is basically what i said. We will adjust, but we will adjust given the structure of the economy that we got to a lower level of income. No one is saying that it is the end of life as we know it. We are saying that this is a path that we are potentially adopting that is going to mean, over the foreseeable future, as being less welloff than would otherwise be the case. It is the less preferable outcome, not the end. Nejra thank you so much for joining us. Kit stays with us. Coming up, japans key inflation gauge drops again adding to pressure on the bank of japan. This is bloomberg. Cehic inm nejra london. Tom keene in new york. Lets switch focus to asia. Japans inflation hit a twoyear low. It is adding to pressure on the boj to join its global peers in extreme increasing monetary stimulus. Kit is still with us. What does that mean for dollaryen . I dont think it means too much. At the moment, it is the bellwether of whether risk sentiment is good or bad on any given day. Small confession, i looked at the data and the Energy Component was unchanged. There is not much inflation in japan, but there has not been really for a very long time. It all can of passed me by first thing this morning. The yen is a little bit weaker because asian equities are a little bit higher, moving along with John Williams comments yesterday afternoon. We are going up and down a bit this week. Nejra is euroyen and more interesting trade . I think that trade has more merit than dollaryen. I would much rather by the euro i think euroyen is a trade that if i dont want to go out buying dollars, i think we have ipy summer coming up might by the yen against the euro covering that base. Tom maybe we will come back. Again at support right now and we will see. Kit with us. Coming up later, an important conversation with the president of General Motors. On the great challenges forward. 10 00 a. M. 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. German chancellor Angela Merkel holding her annual summit where she takes questions from the press. An interesting nine on iran, it would be sensible for a run to honor the nuclear test iran to honor the nuclear accord. The u. S. Said it down and iranian drone. Merkel also saying that germanys balanced budget policy is the right one. Lets go to first word news. Viviana the Trump Administration and nancy pelosi are moving closer to a deal to raise the debt ceiling. The white house sent capozzi pelosi a proposed list of budget cuts that would be part of the deal. It is up to her to accept or reject the items. For the second time since the u. S. And china agreed to a trade truce, senior officials have spoken by phone. No details on what was discussed and no word when negotiators will meet facetoface. The u. S. Wants china to buy more farm goods and china wants the u. S. To ease restrictions on huawei. President trump plans to nominate Eugene Scalia to be the secretary, the son of antonin scalia. Scalia has represented a number of companies that have battled unions and tougher labor laws. In germany, Angela Merkel holding her annual press conference, says she is feeling good and plans to serve out her term. There has been speculation about her health. On three occasions, she was seen trembling during public events. 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. Nejra thank you so much. Oil snapped four days of losses after the u. S. Said it downed and iranian drone near the straight of hormuz, causing concerns. What is interesting as we hear this from the u. S. And at the same time tehran denies losing this ship, or this drone. What is the story . Mark it is a pattern we are seeing again and again where the u. S. Will say white and iranians will say block. It with thewe saw tanker when that was hit and iranians said it was not them and the americans have cheers. Pictures. You see it now. The formind of showing of a symmetric hybrid warfare they would pursue if this gets worse with the u. S. They are simply using the kind of tactics that would work for them as the much weaker militarily parent. They are holding the threat over the straight of hormuz straig and in small ways they are pushing. They took this little tanker and said it was in distress and then they said it was smuggling oil, and still even though we have pictures of the name of the tanker, they are still maintaining it was in distress and there is some confusion whether there was two tankers. You have to look at it is a deliberate policy of confusion. Nejra Angela Merkel saying that iran should send a sign of goodwill to the International Community. What could it possibly send beyond the things it has said, to satisfy the International Community when it has been clear on its Nuclear Goals . Mark it will be tough. If they see something emerging that is of interest, and the kind of thing that might be of interest, when russia said it might want to join the special Purpose Vehicle europe has set up to sell oil, Something Like that might be interesting. If that was on the table, you can imagine them doing something on uranium enrichment and slowing that process. Reducing to the cap that is in the jcpoa agreement which they have exceeded, but they could easily bring it down. You wrote a brilliant tom you wrote a brilliant essay talking about stick and carrot. Where is the caret for the for the carrot United States or are we carrot free . Mark the u. S. Has a maximum pressure policy and there has not been anything but pressure. Tom what is your history on a major power going in without the proverbial carrot . Mark you tend not to get a negotiated solution that way. It is difficult. There is not a whole lot of history in which a country which is a relatively strong, proud ,ountry with a long history where it will simply say we capitulate. It is rare. I think there arent many close analysts of iran that have an expectation that will happen. 1. 8 percent,up 63. 02, but i used this phrase yesterday, the gravitational pull from the demand side keep outweighing the spikes on geopolitical risk with oil . Kit it seems to, the positioning does. I was listening to your Radio Program driving home yesterday where people were surprised we were not getting prices to stick higher. That is the pattern. Ofyou block the strait hormuz, we will spike our prices a lot higher, that is a genuine threat. Al prices cannot stay up for very long time before the world adjusts further. I am surprised oil prices have not held somewhat higher than they are at the moment. This has been happening for a while and it is becoming familiar. Tom dr. Paul, you are no john kerry. Be is dr. Paul going to greeted within the iran discussions the administration would like . Mark i am not quite sure what you are referring to. Tom rand paul is being vetted by the administration as someone that will drive their message to iran. John kerry did that for president obama. If you are not up to speed on it, it is a start lee different starkly different diplomat than we have seen before. Very rand paul is interesting in terms of foreign policy. It is hard to know how the iranians will react. If you recall when president abe of japan went to to run, he was going as a tehran, he was going as a mediator to the u. S. And the way the iranians responded was to attack a Japanese Oil Tanker while he was in tehran. Again, they denied it, but that appears to be what happened. It is very difficult to really gauge how they will play this. They are being cautious, being careful, taking relatively incremental steps as they try to get their position forward and provoke in order to get their position forward, but they are being relatively cautious. They understand this is a dangerous game they are playing with the u. S. And the u. S. Is playing with iran. It is quite possible they will be open to lowerlevel talks. It is unlikely you will see a high level meeting of the kind you saw with obama and rouhani, but for rand paul, ed is possible. It is possible. Tom marks champion of bloomberg writing on a set of issues Mark Champion of bloomberg, writing on a set of issues. Kit jukes is with us. We are going to do a revisit today with Alison Williams and chenal a bass lake, not to figure out so much what we learn from the banks but the view forward as they set up their Strategic Planning for 2020. This is bloomberg. Bloomberg surveillance. Is there any question it will be Prime Minister johnson . Up to everything is discussion but everybody i speaks i speak to expects Boris Johnson to be in that seat next week. Tom kit jukes with us as we look to the financial markets. Explain why guys like you do not eurodollar, yen, or dollar. You take the dollar out, look at euroyen, the idea of breaking through to ever stronger yen on the table. Why do we look at euroyen . Kit the dollaryen story is affected by how strong the dollar is, and that to some degree distorts it. Euroyen is a better trade at this point of a turning point in the eurodollar rate that is messy, slow, and can grind lower. If we were facing a really poor Global Economic situation where the ecb is out of ammunition and the european economy is in trouble and where money is trying to flow home, and the yen is the winner against the europe most clearly. Is the inertial force under the government to keep the yen flat or weaker to continue to sustain japanese exports . Kit significant. The weaker yen is an abe phenomenon. Japan has the strongest investment positional position. They have more money invested overseas than anyone else. If they get scared and hedge that exposure, the yen strengthens so gravity says one day it is coming a down coming down again. Nejra can i ask you about the bund yields . The ecb was ray thinking rethinking. Dependstrade the bund on whether you think the ecb will do something and whether it will work. Kit i am not sure they will try to do something. The ecb is fiddling around with they can find at the bottom of the ammunition bucket, but there is not much, a couple of apples. Whatever they can do, they will do. Fiveyear fiveyear inflation swap, how would you be trading the curve in europe . Kit if someone else buys the fiveyear fiveyear inflation swap for me, i will go the other way because i dont think it can work without massive structural reform. There is more slack in the european economy than it looks. There is more disInflationary Pressure than it appears and i dont think it is going away. Nejra we spoke to bob michele of jp morgan yesterday. Listen to what he had to say. Zero, i the way down to think that is where we are headed over the next couple of years. We had the recovery, it is coming to an end, and the Central Banks are falling into line and cutting rates. We saw it overnight with the bank of korea, we have seen it with the bank of indonesia, you may see it with the fed and from the ecb sooner than you expect. You need some shock and awe at this point. That is the journey we are on until Something Different happens. Nejra how do you make money trading the Treasury Curve . Kit by buying debts, as simple as that. Anytime you get a Stronger Economic print, the base yields go up a bit and you are supposed to get yourself up in duration and watch the lack of Inflationary Pressure to feed through. We are here at the very back end of a long economic cycle. I dont believe that economic cycles die of old age, but if you give them a big negative shock when they are old, that is not a good idea. We are in the hangover after the fiscal sugar rush we had under president draghi. If we get Slower Growth we will get lower yields. Not of the forecast, but of the study to going to ever lower ases in the United States they suggest a jp morgan, we are up to our eyeballs in money and it has got to go somewhere. Do you agree . Kit the baby boomer generation is long equities at this point in time and retiring and buying fixed income assets. There is money that needs to buy bonds. The Central Banks have bought all the bonds and we are working out what we can buy that is left. We will get them when we can get them. We are driving corporate spreads. Buyingare going back and emergingmarket debt as the Global Economy slows. That only changes what Interest Rates are going higher or inflation is going up, and you make people reallocate the other way. Tom forget about the drama of 10 at zero yield, the 10 year yield at 0 . It is great for the media. If we get one third of the way there, everyone has to reset and rehedge every bet in the world. Are we ready for that instability . Kit no, but that tells you and a sense why each time we get one of these rallies they spike lower on that hedging and then we bounce back and correct and make a series of lower highs and lower lows in yields over time. Got 10 toto me is we the bonderson Strategist Community got caught on the back all the way through that and we will get caught again. Nejra thank you so much for joining us. Great to have you. Later today, nasa chief Financial Officer jeff to wit us. S dewitt joins 50 years after putting a man on the moon, we will take a look at the historic events. We meet in an hour of change and challenge, and a decade of hope and fear, in an age of both knowledge and ignorance. Why, some say the moon . Why choose this is our goal . Why climb theask, highest mountain . Why 35 years ago, fly the atlantic . We choose to go to the moon. We choose to go to the moon and do the other things, not because they are easy but because they are hard. I am nejra cehic in london with tom keene in new york. Ab invev agreed to sell its for 11. 3n holdings billion u. S. Dollars. Carlton and unitas varese account for almost half of the market. They are still considering an ipo of the asian subsidiary. Joining us is emma obrien. What possibility is still on the table of the asian ipo . What would lead to that . Emma that is an interesting situation. A week ago, this ipo was off the table. There wasnt enough demand, the market situation was unfavorable to this happening. This big surprise here, we had been hearing things about asahi and ab invev. Inbev. They have been looking to grow their global footprint in beer. It is coming just after the ipo, is quite curious. Nejra does this not tell investors, or is this ab invev saying theyinbev are not serious about cutting their debt pile . Emma it is interesting they moved so quickly after the dashed ipo plans to do this. It makes you wonder if this was the plan b if the ipo asia assets did not come up, whether they were expecting that and were concerned. We are hearing things around that side of things. A signd want to show that they are serious about this side of things, about reducing debt, but they dont really have such a huge pressure to do such a big deal so quickly so the timing is quite interesting. Nejra what does this all mean for asahi . Emma they had a quites curious situation over the past few years. Stakesve been investing in china and buying in more developed markets. They bought an asset in the u. K. Which was quite surprising, under half a billion dollars last year. Australia, which is a mature market, it remains to be seen what they want to do with it. Tom emma obrien, thank you. We will do a lot of this through radio and television today. We are thrilled later on radio to bring the curator of the metropolitan museum of art on the history of how we perceive the moon. We got we do this going into tomorrows 50th anniversary of the landing on the moon. I was in the adirondacks in the middle of nowhere, talk about a vision of the moon, just extraordinary what it was like 50 years ago. Nejra the pictures and sound we have, if we can see and hear some of them, extraordinary. Tom lets get back to the markets. We have a busy hour coming up. Looking at the shocks we saw of yesterday, and what we saw yesterday was simply two fed speakers again speaking. Mr. Williams and a discussion of the fed walking back williams message later in the afternoon, and the vice chairman weighing in on a central bank that would like to get out front of the economy and economic data. We have the perfect guests for us in the next hour. James sweeney of Credit Suisse, he has been wonderful pushing against the panic of deflation and looking at disinflation, James Sweeney on the events of this july. This is bloomberg. Tom this morning, williams and dialogue,ange the yields adjust, stocks grind higher. James sweeney with us in this hour. There will be one small chat for chairman powell. The chancellor says no to way no deal conservative already. Ohnson is love, i am lost all will come clear tuesday. 17, theylo 11 to landed and they returned. Morning, everyone, this is bloomberg surveillance. , tuesdayup on brexit if we have Prime Minister notson, i understand it is for certain, is the cabinet in place now out even if they are the same party . Nejra the question you have to ask is with parliament and the u. K. Blocking that idea of suspending parliament, is the risk of a no deal brexit at all reduced . Cable is lower against the dollar but you dont want to read too much into that goes Dollar Strength is bouncing back after the week this yesterday following the dovish comments which the new york fed walked back. A lot of dynamics saying it is the cable trade. Heatwave inwith the new york, i need a road trip. Lets welcome our first word news. Viviana iran is denying a u. S. Warship shot down one of its drones. Donald trump says the Unmanned Aircraft was destroyed when it approached the uss boxer, calling it a defensive action. It is another sign of rising tensions. Cargo ships have been attacked. The british seized a tanker carrying iranian oil. Senior officials at the Federal Reserve see the need to act early to sustain growth. Vice chairman Richard Clarida data and chief John Williams boosted u. S. Stocks with dovish comments, reinforcing the fact that the fed could cut this month as much as have a percentage point. New pressure on the bank of japan to boost monetary stimulus , the key inflation gauge falling to a twoyear low. Excluding fresh fruit, prices rising to tens of 1 in the last months 2 10 of 1 and the last months. Boeing is paying for the grounded 737 max 8, preparing to account an accounting charge as a concession for airlines who have had to line up replacement planes. The grounding is reaching its fifth month. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Hurtado. Ana this is bloomberg. Tom equities, bonds, currencies, commodities, they continued lift in equities, futures up, dow futures up 69. We will see where and we get to the opening. Stronger a churn, dollar. Vix, 13. 05. The 10 year yield was 2. 09 yesterday. Euroswissie with a really interesting grind, stronger swiss franc. Might be something to watch. Nejra european equities on marketsd risk on by which seems to be fueled by the fed. The two year yield dropped with the 10 year, curve steepening on the two and 10, and we are back up today on the 10. Index, therg Dollar Dollar higher against g10 currencies, particularly the yen. Emerging markets currencies on the front foot. Central banks globally will be more tolerant of higher inflation. Tom a chart i made yesterday. We will discuss this with our wonderful guest later on in the hour, the volcker disinflation breaking the back of inflation in america. You take a regression, yield recovery which James Sweeney was brilliant on, recent rollover. The what ive of j. P. Morgan extrapolates out to sometime in 2021, a 2 10 year yield. Nejra when you only have so much stimulus at your disposal, it pays to act quickly to lower the rates at the first time sign of economic stress. July and the new york fed said that was a academic discussion. It shows you the discussion between 25 and 50 is alive and well in the market, even if the biggest dove thanks 25 is enough. To bringre thrilled you further friday adjustment. For the key july 31 meeting as well. Mr. Sweeney is with Credit Suisse and his acclaim as he has pushed aggressively against deflation. We discussed central banking with him and what it means for all of us. Are we deporting inflation importing inflation from a beleaguered world . James in some goods. Some prices will go down but we will also have a tariff war pushing prices up. Overall when we look at inflation, we see it going up in the next six months. Tom Service Sector inflation, which everybody feels, i get a lot of mail on this, and goods inflation, disinflation down war, the idea is the trade and goods deflation will pull down the sector that Service Sector inflation. I dont buy that. James there is always correlation, when one moves the other goes down. When you look at overall inflation, it is not going anywhere. Your average inflation on the pce, favorite index, core has been 1. 7 since 1995. Tom that is a 3 inflation not the top and 0 inflation on the bottom. James prices fall, productivity prices the market screams we are going to have deflation. Tom this is too Much Movement for a friday. I need something static. Nejra how quickly and deeply does the fed need to cut . James they dont need to cut at all. It is likely they will cut 25 basis points, but what is happening as we have a Global Manufacturing and trade and pmi slow down. We tend to have these for every three or four years for some reason. Uncertainty and difficulties in the auto sector are the reasons for this manufacturing slump. They are cutting in response to the manufacturing slump but in anticipation of a broader slowdown in the u. S. , and i dont see strong reasons to expect the labor market to materially break down over the next six months or inflation to fall. Inflation expect to go up. This is insurance. The fed is buying insurance. It makes sense to cut aggressively at the first sign of weakness but only if theres going to be a second and third sign, but there isnt. The inflation and outlook are pretty solid. Nejra one about Business Investment . You are hinting the u. S. Consumer is in a strong position , but doesnt the Business Investment need to worry . James we are forecasting close to zero in investing and equipment in the u. S. For the rest of the year. It is a sluggish manufacturing environment. That does not mean the Unemployment Rate goes up. Parts of investment will be soft, but Software Investment which has been strong for most of the last 15 years, is likely to continue to continue growing nicely. Housing will likely pick up this year into next year because longterm Interest Rates are down. Househis week, the white wandered out with a 1 trillion deficit. Do we care . James from a longterm fiscal trajectory perspective, i think we should care. I am not one to go around worrying about debt ratios, but they trigger policy reactions at some point when you get market volatility. We have not had that problem for a long time so few people are thinking about the fiscal trajectory in the u. S. The federal government is paying 2 for Interest Payments for gdp and within five years it is probably going to double. That is where it matters. This is a slower burning problem, not the acute issue. The acute issue is Global Manufacturing growth is in a rut and people jump to the conclusion this means deeper trouble in the u. S. Nejra why do fed officials keep coming out and sending signals that the market will interpret as dovish, that they must know the market will interpret as dovish, which makes their job more difficult if they actually dont need to cut . James whether they need to and whether they will is a different thing. I think they are afraid of the Market Pricing out the cut. The market expectation is for three to four cuts over the next 12 months, and if abruptly the market is disabused of that, you could see a sharp move higher in rates. By cutting, the market is saying, maybe you are right. We are going to wait and see with this data and cut now, but whether you get three or four is a different question. You will need significant weakness in the data ahead and not just sluggishness and investment and manufacturing. Tom are you ready for some nerd excitement . Yeah. Oh tom here is the circle on the twin deficit. We will move the circle to the ever wider between deficit. We are getting back to reagan like deficits. I am not concerned about a twin deficit given in the 1980s . James deficits continue to structurally grow. Our budget deficit continues to structurally grow as well with aging driving that, and it is not a problem the market is focusing on in the nearterm. Look at the thirtyyear borrowing rate. Tom 2. 59. This will be a problem going out for, 5, 6 years. Fiscal retrenchment will likely be forced in the u. S. By politicians but right now tom nobody cares. The chart of the year from last year, we should go home now. James sweeney Credit Suisse is with us and we will continue an important discussion on the 10 year yield down to 0 . Yeah right. Earnings, andanks darkening the door we believe there has been a sighting of Alison Williams and sonali basak. This is bloomberg. Viviana this is bloomberg surveillance. A big transaction in the beer selling, maybe inbev its operations to japans asahi for 11. 3 billion. It will use the money to pay off debt. Bloomberg learned u. S. Regulators are investigating Crypto Exchange bitmap. In asia, it has become wildly popular, making people make big bets with little money down. The investigation is focused on whether it broke rules by allowing americans to trade. Are teaming up to take on netflix, planning to launch their new streaming venture in the fourth q. Box for 7. 50rit a month. It is less than netflix charges. Tom we are considering the and considering the politics of the moment. Andonsidering the moon considering the politics of the moment. Lets look forward with Julie Roginsky. She has worked for corporations, trying to manage messages, including for the former governor of new jersey. A saturdayted by event in council bluffs. We will have the usual victims of the Democratic Party and governor bullock of montana. How far the democrats from the operational mainstream of guys like Steve Bullock . Julie i dont know they are far from that. There is an embarrassment of riches. They run the gamut from joe biden. Tom is biden alone in moderation or do you see other candidates tilting or at the margin trying to adjust . Julie i dont think i was encouraged. Booker, they are all part of that centrist coalition and i think some of them do not want to be known as centrist. Klobuchar, these are not radicals that will sell set wall street on fire. Tom they are clearly not viewed as radicals by the president. Do you see any evidence the president can expand from his core with the messaging he has been doing . Julie he needs to Pay Attention to the woman in bucks county, pennsylvania, who he needs to win who are not responding to this message. They are looking to raise children not to emulate the kind of rhetoric you have heard. If he wants to be successful, he needs to look to that cohort to expand his appeal. Nejra great to speak to you. Is it more damaging for the Democratic Party to be branded in any way as socialist as it is for the Republican Party to be thought of as racist . Julie you are fighting for this cohort of sometimes mostly white, suburban women, and those people are not necessarily responsive to any kind of racist rhetoric. Socialism is a tag and people like Bernie Sanders tag themselves as a socialist. I dont know if President Trump could pin that tag on joe biden or kamala harris. That are you concerned ultimately President Trump is making a bet that comments like this will be worth it in terms of political benefits to his base . Could that happen at the end of this . Julie there is no question about that, but the president had some good economic numbers over the past few weeks. We are not talking about the economy. We are talking about this rhetoric that is not helpful to his reelection efforts. He needs to appeal more and more to a broader coalition. They need to know how it will affect their pocketbooks, their childrens opportunity to go to college, health care. He is not talking about any of that. That is our god elected the last time around. That is how he got elected last time. What is the calculus to get to the convention and come out winning . Julie the calculus is four years ago, donald trump emerged on the scene tom brandnew. An antidotewn, as to barack obama who had been around for eight years. We know what he has is capable of. He has had some good metrics in the economy and has never been above 50 despite a robust economy. That tells me there is momentum for democrats to seize the momentum. Tom tell me about new jersey, a fascinating state. The shades of the Democratic Party are extraordinary. What is the level of sweat in new jersey over the national Democratic Party . Julie there is not much level of sweat. Cory booker is from new jersey. Tom what is his paul, 3 . Paul, 3 . Is he running for Vice President . James he is running for president. There is no sweat in new jersey because everyone is behind cory bucky cory booker. Tom Julie Roginsky with us. I wanted to get away from the uproar of the last three or four days. Coming up, david westin checking in with hickenlooper of colorado. This is bloomberg. Surveillance, nejra cehic and london, tom keene na york. I want to talk about jp morgan bombshell modeling how we get to a 0 10 year yield, a japanlike, euro like desh europe like debt structure. Structure ise debt there supply and demand theme that it will be price up and yield down because of the insatiable demand of a wall of money into paper . Do you agree with that . No, i think the macro you need a recession and inflation dislodged from the average that it has been hugging a long time. Tom from the anchor. James if you get inflation down toward zero and unemployment is that is anet outlier scenario and not likely at all. Even if we have a recession, it is unlikely we get that kind of force of falling inflation to get us to 0 on the 10 year. Nejra James Sweeney from Credit Suisse stays with us. We talk 50 years since human beings stepped on the man for the first time. A spacerussia become race between the u. S. And china . This is bloomberg. Were the slowskys. We like drip coffee, layovers and waiting on hold. What we dont like is relying on fancy technology for help. Snail mail we were invited to a y2k party. Uh, didnt that happen, like, 20 years ago . Oh, look, karolyn, weve got a mathematician on our hands check it out now you can schedule a callback or reschedule an appointment, even on nights and weekends. Todays xfinity service. Simple. Easy. Awesome. Id rather not. I am nejra cehic in london with tom keene in new york. A bit of a gloomy day in london. Buts not heavy with mist that is looking grim. What about the outlook for no deal brexit . Is that any less grim . Tom it looks like they are calling that no deal is the color they are using. In new york, the heat wave across the nation, stay as careful as you can. From the gloom and gray of new rgeosity of ae go friday morning in washington as well. Viviana we begin in washington. The Trump Administration and nancy pelosi are moving closer to a deal to raise the debt ceiling. The white house sent proposed pelosi a proposed list spending cuts. It is up to pelosi to accept or reject items on the list. For the second time since the u. S. And china agreed to a trade truce, senior officials have spoken by phone. No word on when negotiators will meet ways to face. There are still big differences. The u. S. Wants china to buy more farm goods in china wants the u. S. To ease restrictions on huawei. Donald trump plans to nominate as the next labor latetary, the son of the Supreme Court justice. He has represented a number of companies who have battled unions and tougher labor laws. In germany, Angela Merkel says she is feeling good and plans to serve out her term. There has been speculation about her health. On three occasions, she was seen trembling during public events. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Tom it is good on a friday to look forward. We can do that after talking with our handlers, Alison Williams and sonali basek. What are the cost cuts going to be like into september and the Strategic Planning of 2020 . Alison the positive is the banks will not cut tech spending. You always talk about cutting into bone, and what you heard this week is jp morgan and goldman saying they will continue to invest. Inn wells fargo costs coming at the highend, still going to invest. What we saw at citigroup this week and hopefully from ubs next week, when december was really tough, they said, are there tactical things we can do to help . We will see that benefit. Tom the joy of the week as we were Deutsche Bank free. Sonali i almost forgot. It was nice. Tom what did we learn about the optionality of Deutsche Bank employees . Sonali in terms of hiring . Citigroup and bank of america are hiring a few people. A lot of people take on clients so i think the banks are looking at what is out there and what they can take in terms of ipo clients, Leveraged Finance clients, and equities as the whole world shuffles. Tom what is the action plan for Deutsche Bank . They need to come out with some visible action. Sonali they came out with a massive costcutting plan. A major loss in earnings tied to the restructuring, so he will pitch on what they are winning on in their revenue bright spots. Nejra the share price reaction has been mixed. What is your take on how investors have seen this quarter with the u. S. Banks . Sonali it is similar to last quarter where businesses have been driving growth. For fixedot real help income until markets start to turn around, and equities as well, what is going on . Everyone is on the sidelines. Wealth is a big focus. Goldman is doubling down but it is a more nascent effort. Driver. N was a growth nejra what is your take on the comparison between goldman and Morgan Stanley on the trading side of things . Alison one important thing to year ago goldman had a relatively weak quarter. They are the only one with a gain this week but it reflects that comparison. That said, they beat the estimate. Morgan stanley missed. They have several quarters of beating and they are still likely the leader in that business, but it is a positive for goldman showing their franchise is still there and supporting those results. Tom they are talking about execution and tactics and the ratios are all high. What did you learn about book dynamics . Do they care about book and aspire to a jp morgan buck level, or is that so 2008 . Alison everybody is focused on building the value of their shareholders, so the interesting thing with goldman related to book value is this investing and lending business. Investors tend not to give them credit for that because it is less occurring, more volatile, but it builds book value and it comes through in that respect. Nejra well ubs joined the u. S. Banks and guiding down the Interest Income . Alison you may see that from them within their wealth business. We saw it across the banks. The other interesting thing across the banks as everybody has a different fed outlook baked into their expectations. For Morgan Stanley yesterday, they said revenue will be flat yearoveryear in three q but if expectations holds, for q will be harder. Revenue estimates will come down , but not necessarily to meet what the market is pricing in, so the next thing to look out on that front is the fed. Are we going to get a move in july . Nejra if we do get that move in july and beyond, how much tougher is it going to get for the big fix . Sonali some of the banks have guided between 100 million in cuts for the next quarter. We will see how much worse it gets. All of the banks are impacted differently. Morgan stanley did not have an estimate how much that hit would be. Also about goldman investing in lending, it is clear that investing in Debt Securities in the private market has been a different strategy that has been paying off quite well. ,ith so many of the Big Banks Bank of america, j. P. Morgan so exposed to rates, the ones that are diversifying seem to have an interesting and essman he says investment thesis. Tom how is the world of brokers now . They are not stockbrokers, they are asset gatherers. Veryi the margins are good and something james gorman likes to call the ballast to the ship. Everybody wants that ballast, so you see goldman doubling down, bank of america leaning on it, and all these upstarts. Tom everybody wants to get on board wealth management. All my radar is up. Alison that will be the focus next week, deutsche make making cut Deutsche Bank making cuts but focusing on wealth. Had record growth last quarter so we will look for that to continue. The same thing at Credit Suisse. We talked about the net interest guidance coming down and we saw that at Morgan Stanley, but with asset prices and the broad gains we have seen over the quarter, that will support revenue so the Net Interest Margin coming down, but the asset prices are supporting the market revenue and margins. Given late cycle, there could be some risks. Briefly on blackrock, Fourth Quarter fixed income net inflow increasing from the first quarter, what is your take away from what we have heard . Alison we have not looked at the numbers yet, but we are looking forward to strong fixed income. What will be interesting is larry fink talked about this big move into equity markets in q1 and we did not see the equity flows coming through. From some of the industry numbers, that continued into the Second Quarter. We are going to be looking at blackrock in terms of their institutional business. Tom Alison Williams and sonali basak. As we look at 50 years on from apollo 11, we look forward with jeffhief officer of nasa, dewit. After sputnik, there was jfk. We meet in an hour of change and challenge, in a decade of hope and fear, in an age of both knowledge and big neurons. Why, some say, the moon . Why choose this as our goal . They may well ask, why climb the highest mountain . Why 35 years ago, fly the atlantic . We choose to go to the moon. We choose to go to the moon in this decade and other things, not because they are easy but because they are hard. Zero, and way down to i think that is where we are headed over the next couple of years. We have had the recovery. It is coming to an end and now the Central Banks, one after another are falling into line and cutting rates. We saw what the bank of korea, the bank of indonesia. You will see it with the fed and you may see it with the ecb sooner than people expect. We think at this point in the cycle we need some shock and awe. Not that we will get there right away, but that is the journey we are on. Tom bob michele yesterday. Please get that report through jp morgan. A number of people asked if i could send it out. We always protect the copyright of our guests, including James Sweeney of Credit Suisse. The 10 year yield from eisenhower to voelker and then down. I have done it logarithmic where slope matters. Have we broken the volcker slope . James i think we have. Tom how, what is the evidence we have broken the 20 or 30 year disinflation . James if you break it into the inflation component and real yield component, inflation stopped falling in the mid to late 90s and has largely gone sideways. Real yields have stopped falling over the last 10 years and it looks a lot like it has been going sideways. Tom a sideways chart, i will bring that out to about eight years out as well. Within that, as you mentioned earlier, increased productivity. What part of productivity will surprise the gloom crew . James i think productivity over the next 10 years will be better than it was in the past 10 years. Labornd capital dynamics, dynamics, or technology . James i think both. Tom you sound like an economist. James we have had low productivity and it will be better. The way they measure productivity means that gdp more than average work growth and average work growth will not does not have much to fall. What we have a cycle where the Unemployment Rate goes to five or six . In that case, we will see lower yields and disInflationary Pressure. I think people jump to the conclusion we will have one of those cycles every time manufacturing slows and they are doing it again. Different do the labor Market Dynamics in china affect how policymakers might react . Going back to bob micheles comments, he mentioned a trade war and said Central Banks globally will have to scramble to react. James it is a good question because we do not have great data on the labor market in china. It is plausible the Manufacturing Sector and exporters are shedding jobs, and we have done some work looking at manufacturing jobs in china, suggesting they have not been growing over the last six or seven years. I am sure that puts pressure on policymakers to stimulate the economy. There is a lot of jobs in agriculture and other sectors in china as well. I am not sure that is terribly tied up to what happens next in the u. S. Economy and yields. , wea in the Global Economy have talked about the u. S. Consumer and how robust they seem to be, reflected in Something Like the bank earnings. As the Global Consumer going to be able to offset the manufacturing slowdown . James typically the Global Consumer is stable like the u. S. Consumer, who is particularly stable. When we mention Global Consumption for physical goods which come out of manufacturing, we see stability. The strength and the labor market in the u. S. , we are seeing across developed markets now. The idea that the slump is in trade and manufacturing is true globally, not in the household sector globally. There are some small exceptions. The weakness of demand is matching the weakness of supply from factory output, and coming from investment and Business Investment in things like equipment for exporting firms and things like that. There is a slump because of trade uncertainty, but does that spill into broad labor markets . Probably not, because there is not enough jobs in that stuff anymore, particularly in developed Market Companies countries because productivity is high in manufacturing. Nejra James Sweeney, thank you so much. Viviana it is a partial victory for bayer in one of the court cases alleging its weedkiller causes cancer, a california judge slashing the 2 billion verdict. More than 13,000 plaintiffs have sued bayer and analysts estimate that may cost as much as 20 billion to settle. Bmw is resetting its leadership to cap pull ahead. Will succeedcutive Harald Kruger who stepped down after four years. Bmw consistently trailed mercedesbenz in sales during that time. They let tesla grab the spotlight for innovation. We asked the ceo. This is a china friend. We have one of the biggest reduction bezos for the group that was bases for the group that was over soon from the china perspective. We will continue the strategy with the new chairman and system. Viviana in the first quarter, bmws Auto Division posted its first loss in nearly a decade. 60 seconds. Its one small step for man, one giant leap for mankind. Tom i was in the middle of the adirondacks. ,t was absolutely extraordinary really cannot say enough about what was involved here. We will now consider the moon and we do that with matthew bl oxom who has cutting studied space. I want to go into the risks involved. Upset by the just to walk through and historical fiction the risks involved. Are we ready for the risk they took that we need to take in the future . Matthew i think we are certainly much better prepared for those risks than they were 50 years ago. You cannot overstate the human bravery of people putting themselves on top of a rocket primitive technology to land on the moon. With the amount of technology we have got, the amount of testing, that understanding, definitely a much better position but a hugely risky endeavor. Tom remember the raging battles of how deep was the dust on the moon . And bloomberg radio, his family was involved in surveyor and the number one question is, can this thing get off the ground . Tell us about the raging debate right now of whether governments will do this again, or is it actually going to be private enterprise, the province of billionaires . Matthew i think it is a mixture of the two. I think it is really government driving this ambition to get back to the moon and use it as a staging post to go on to mars. It is really commercial enterprise, private enterprise providing the assets and technology and research to deliver. Nejra how are Different Industries and corporates using these satellites in different ways . Matthew the satellite industry has changed. It used to cost 300 million to put out and now they cost 1 million, 2 million. They are small and incredibly sophisticated, and you can do this complex monitoring for the environment, crop growth, for fundsonitoring, and hedge using it to monitor retail performance, really sophisticated. It is a combination of the tech knology and the cost coming down. Technology and the cost coming down. Tom i studied in college on the idea of going to mars. The martian as well, do we have the Propulsion Systems today to go farther than we did 50 years ago . Matthew absolutely. I think we have Propulsion Systems that can do it more reliably and costeffectively. There is still Technology Issues to deliver on those manned missions to mars. They are probably still decades away, but that is the ambition for the u. S. And probably china as well, but we are a long way there. Being on the moon and having a permanent establishment is important to them. Tom this is extraordinary. It is 50 years ago and from witho 11 out to apollo 17 gina serna and ann harrison schmidt, with the risks that absolutely extraordinary the uncertainty they faced over such a short timeline. Nejra what is also extraordinary as we have gone propulsionsland to systems. 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. Keep your powder dry. Cut for theo economy to enter a downturn. Bullardis up to james to clarify. And who is the dovish of them all . Market prices and more fed rate cuts. Emerging markets begin easing it is the race to the bottom. More earnings volatility, less clarity. Volatility is the lowest in five quarters. David welcome to bloomberg daybreak this friday. I am david westin here with alix steel. Alix earnings and news. Earnings side, adjusted earnings coming in at . 35 a share, but revenue a beat. You have a new ceo