Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

And then march, things normalized. Francine welcome to bloomberg surveillance, good morning if you are watching from the u. S. And europe, good afternoon if you are watching from asia. Westminster, ahead of the knowts, the u. K. Will soon who the next Prime Minister is around midday. Pound. Ity in european stocks off but investors are breaking for a busy earning season. U. S. Corporate earnings potential developments, trade negotiations and oil stabilizing after recent gains. Hour, we will speak to the new leader of the liberal democrats at 9 30 a. M. London time. Here is viviana hurtado. European governments putting together a Naval Mission to provide safe passage through the persian gulf after iran seized a tanker last week. Jeremy hunt warns escalations will mean more Royal Navy Ships in the area. Let us be absolutely clear, on the international law, iran has no right to obstruct the her, itassage or board was therefore an active state piracy. Foreign hasns defended the move, saying the british ship was violating international law. President trump announcing a bipartisan deal to suspend the u. S. Debt ceiling, the agreement capping weeks of friendly frenzied talks. It has mostly left all sides unsatisfied. Mark carney, the best candidate to lead the imf, according to the former governor of the bank of england. The canadian succeeded king as chief of the central bank in 2013. The most qualified candidate is certainly mark carney but he is not seen as someone integral to the eu. You would like to see him get the job . He is clearly a qualified candidate. Im not sure many other of the european names mentioned so far are qualified to hold such an important Economic Leadership role. Viviana President Trump says president xi acted responsibly over protest in hong kong adding that beijing could stop the protests if they wanted but hoping they would do the right thing. The last week saw battles between protesters and police in hong kong. 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. Thanks. u. K. Politics. Midday today, britain will know the name of the next Prime Minister. Forrest johnson, the face of the Brexit Campaign Boris Johnson, the face of the Brexit Campaign, is the heavy favorite. Brexit,get to work on the single issue dominating u. K. Politics for three years. Paul, first of all, what is the chance Boris Johnson does not become the next Prime Minister . He seems to be the heavy favorite. That is the feedback im getting. We will see. Francine what happens after that . There are questions about certain members of your party questioning whether there is a majority for the conservatives in parliament. New elections . Paul i dont think so. The candidates have been specific about this. We have to sort brexit out on the 31st of october, the key date. I do not see any appetite for elections. People expect them to get this done. Francine do you think Boris Johnson would broker a deal with nigel faraj . Paul he doesnt want to do a deal. [indiscernible] domestic agenda and getting brexit done. Francine force johnson was saying Boris Johnson was saying [indiscernible] saying all the cabinet members need to be ready for a no deal. What are the key points they will be watching for. . What has been happening for the last few years has been [indiscernible] the market will be waiting until the end of october. We will know whether we have a longterm extension or this agreement. It will only be then that these who would like to invest in the u. K. But feel they are difficult ways to assess the uation, thing oututmes, u. K. Assets to offer the opportunity for further evaluation because they have been well underpriced. Lets wait and see. Francine can the next Prime Minister suspend parliament forcing through a no deal . Paul it is possible but i dont think anyone wants it. This is come up time and time again. Said he will keep everything available to them but he does not see the need for it. It is about getting a deal. No deal as part of that. We all want to get a deal. Francine the concern is you are not facing new players. Somethinggotiating theresa may already tried to do. Have you get around it . Paul it is complicated. Parliamentary arithmetics has not changed. It may make it worse. It has not changed. We need a sense of a new energy. The idea that a no deal, although not desirable is really back on the table is a hard stop date now, october 31, should help change minds now. Francine for parliament or the eu . Paul both. We need more trust and goodwill for the process and allow people space to pivot to make minor tweaks that will get us across the line. Francine u. K. Assets. Does this volatility play out in pound or in stocks . Pau pound. That has been the safety valve. Stocks offer longterm opportunities in the entry points are attractive. It is like catching a falling like. Sterling has began to price in the possibility of a no go brexit. I still believe there is wishful thinking. Willingying he would be to pull the Nuclear Option but i dont think people are believing him when he says that. If boris was to pull the plug with no significant progress in the deal, with the eu, pound would fall 10 more even further. Stocks have been isolated. Conservatives are so divided over brexit. How can the party survive . Paul the parliament in the country is divided. There is so much that unites us. I spend a lot of time with colleagues, speaking to them, making sure, we have [indiscernible] it is not binary. It is not brexit or no brexit. Agenda, of domestic education, personal freedoms, taxation, things we all agree on within a range. Francine would you support a second referendum to break a deadlock . Paul no. Francine general election . Paul there is pentup demand for investment in the u. K. I dont think either of those will give any sense of certainty. All thatno proof at they wont just extend uncertainty. Nine months until i referendum is not good for business. Francine the 31st of october is 100 days away. Do we need to extend . Paul no. Having that as a hard date focuses minds and we have to stop a selfinterest and get on and focus. Aboutne we have talked focusing minds for a long time. Pau, staying with us. Plenty more to come. Big earnings week. A lot of u. S. Companies as well. Revival after one of the worst starts of the year in history, we speak to the ubs chief executive, coming up next, plus the new leader of the u. K. s liberal democrats at 9 30 a. M. U. K. Time. This is bloomberg. Francine this is bloomberg surveillance, live from westminster, where in a couple of hours we will learn who the new Prime Minister of the u. K. Is. Boris johnson, the heavy favorite. Lets get to the Bloomberg Business flash. Viviana robin hood markets closed a new round of funding, valuing the company at 7. 6 billion, up from 2018. In 2013any was founded and allows people to trade stocks on its mobile app. The u. K. Intervening in the 3. 4 billion sale on National Security grounds. The decision follows a recommendation by the competition and markets authority to review the deal. The fund looked to by the Satellite Company to keep Strategic Decisions in the u. K. Ever wanted to buy into your favorite musicians . A story for you. 560 million bond back by agreements, allowing places like retailers to play music. That counts bob dylan, adele, and neil diamond among its artists. That is your Bloomberg Business flash. Norsk hydro has turned the outlook for a second time this year. They are lowering expectations for china and the rest of the world as the Company Misses estimates for Second Quarter underlying profits. Im delighted to be joined by the chief executive of norsk hydro. Thank you for joining us. When you look at concerns, how much is trade playing into it and you expect tensions to get worse . Hilde obviously, it is volatile. It is influenced by trade tensions and insecurity following from them. We have seen that that is growth in ourmand market segments. Francine how are you planning to boost shareholder return . You have had a number of setbacks, the company had, before you joined. What can you do to give Something Back . Hilde we have set a clear agenda trying to adjust and address probability. To come back in brazil has been important. That is good news for this quarter. We have been able to get listed in brazil so we can return to full production in assets in brazil. Reviewtaking a strategic of another business area which has been underperforming for quite some time. We are mobilizing the organization in terms of continuing improvements in terms of operational efficiency, commercial and cost level, driving a strict capital discipline Going Forward and working on the framework to adjust to challenge the industry. We will work on what we can influence to improve the situation. Francine how much do you worry about the negative price environment . How difficult is it to boost returns by the way you lay out given the prices are under pressure . Hilde we cannot do a lot with prices. We have to work on what we can influence. Ian the situation where prices in a situation where prices are low and differentiate ourselves in the market with good products, more and more focusing on the low carbon content. Francine i know you have been cautious about demand for aluminum across the world. When do you expect it to pick up . Hilde that is very much about the Global Economy. Trade tensions are putting pressure on the Global Economy. China is extremely important for the industry. Demand estimates for china is a question, an issue that we will follow very closely. Francine thank you so much for joining us. Revival afterss one of the worst starts in history. We speak to the ubs chief executive. This is bloomberg. Francine in a couple hours, we get the name of the new Prime Minister of the u. K. And tomorrow, theresa will visit the queen at Buckingham Palace to tender her resignation. The queen will then meet with the new Prime Minister. The heavy favorite is Boris Johnson. After that, this is where the new Prime Minister will return to, number 10, an official car with full protection, likely to give a speech outside 10 downing street tomorrow night. W anks saleh banks sa revival after one of the worst starts in recent history. If you look at First Quarter, months and first two then in march, things normalized. Francine lets get straight at it. Manus, the stock has had a bump. Is this all about the outlook . Manus it is. If we talk to the ceos, it is about Net Interest Margin compression, it was vicious, a dramatic uturn on the rates. That compression in the united flows on newnal net money and the client survey, you will get more detail on later on today. It is about the push for cash. In a negative yielding world, are you reaching for yield or cash . The sentiment seems to be out of equities dividends and it is not being redeployed. If you look at the firing cylinders of ubs, is the Wealth Management side of the business, you need a fundamental reignition of risk on with clients to deliver outlook. Best quarterly profits in 10 years. Ib did better as well. Francine thanks. Speaking toich, leadership of ubs. Were also talking about negative rates. It is tough being a European Bank despite Wealth Management growing in asia. Pau it is. It is tough in general. The last 10 years, regulators have forced you to deliver and become saver and become less profitable for shareholders. If you are a European Bank on top of it, you saw how u. S. Operations did for ubs, you have the double whammy of dealing with confidence, structurally in a deflationary low demand environment and negative yield rates, which is more a symptom of dysfunction. Francine where do investors find value in European Banks . Pau bonds. There is a plethora of civil ordinary debt, which still are a good andelds, attractive opportunity. The equity side, i believe it is still going to be sluggish. We are still living in an environment where they are forced to delever and become less profitable. Francine crossborder consolidation, do you want in on banks . Pau yes. Crossborder lending and consolidation, anything that resembles more unity fiscal efforts. Francine still not equities. Thank you for joining us. Next, we speak to the new leader of the Political Party pledged to stop brexit. Swinson ofew with jo the liberal democrats is next. This is bloomberg. Hey im bill slowsky jr. , i live on my own now ive got xfinity, because i like to live life in the fast lane. Unlike my parents. You rambling about xfinity again . Youre so cute when you get excited. Anyways. Ive got their app right here, i can troubleshoot. I can schedule a time for them to call me back, its great you have our number programmed in . Ya i dont even know your phone anymore. Excuse me . what . I dont know your phone number. Aw well. He doesnt know our phone number you have our fax number, obviously. Todays xfinity service. Simple. Easy. Awesome. Ill pass. Francine hating over the keys to number 10, we will learn the next Prime Minister midday with Boris Johnson the heavy favorite. President trump announces a bipartisan agreement to boost spending, the risk of a damaging default is off for the next 24 months and ubs posts its highest net income in almost a decade after what the chief executive Sergio Ermotti called one of the work starts to the years in recent history. You look at the First Quarter , we had weak first two months at and to march things normalized with normalization coming into the first half. Francine this is bloomberg surveillance. I am Francine Lacqua in london. Lets see what is moving in the markets. 2. 5 ntander up more than with net income dropping 18 . It still beat the highest analyst estimates and pushing up the stuff. Stock. Surging more than 6 with Second Quarter results a beat and thirdquarter revenue forecast is coming in much higher than anticipated. One analyst calls a blowout. French autoparts maker up 8 . The sector on a whole is up 3 . The fact that they kept their fullyear guidance intact and an industry under a lot of pressure in europe. Francine thank you. Lets focus on earnings season. Us. Morillaginer is with apart from the trade war, what are you watching . Margins, they are said to be sensitive of Economic Growth which is bound to go down, not like we will have a recession soon, it will not happen but in an environment where u. S. Growth 18 months ago was growing more 2 , thatnd now around means there is room for margins that we could see in the next ,12 months a profit recession a rosy environment were Equity Investors are eternal optimists and Bond Investors are pessimists come Equity Investors will have to stop drinking the koolaid and face the reality that it is difficult to maintain power,margins, pricing and therefore earnings in environment where everybody elses decelerating. Francine look at earning seasons around the world, europe meant to be better than the u. S. Because they do not have trade concerns. Pau expectations in europe were much lower. Thehe u. S. There relies opportunity for european equities, yes they would generate less profit than u. S. And in europe growth is anemic were in the u. S. It is decelerating but still healthy. It is about what is priced into those values. As far as europe, investors have been so sentimental, pessimistic, so room for potential beating of expectations. Francine how does Monetary Policy impact earnings . Ort create bubbles are is something ugly coming or should investors enjoy the ride for now . Pau in the short term, good for investors, pushing back the possibility of a recession which will be the Nuclear Event for earnings. In the midterm, it guarantees that when you have a recession, Central Banks will run out of ammunition soon and unable to create the rate, you have a very long l and hope there is enough for trajectory. It will depress Economic Activity in the longterm, qe is it just a and rates have not gone up much and already going down again. Ultimately, Monetary Policy is creating a dependency on measures which are not extraordinary anymore. Francine look at the fed and the ecb, who will give investors more surprises . Pau good question. Perhaps the ecb only because the fed, whether because ruled by the commander in chief, expected to go on the way down and has been very aggressive in saying, we are being aggressive. Countries, more happens. Lets see what tom francine thank you for joining us. Lets get to the first word news in new york with evian or taught of. Agreed tont trump make timely decisions on whether American Tech Companies can resume sales to huawei as the president met with american tech could bring the u. S. And china closer to facetoface trade talks in beijing may respond to the easing of restrictions by purchasing u. S. Farm goods. Spain goes into a first row to form a leftwing government but a party is still not able to rely on the support it needs to form a coalition. He requires an absolute majority of the 350 seat chamber to succeed and if he fails he gets a second shot on thursday but if he feels against spain may be on track to hold new elections. Santander cephas profit hit by job cutting expenses. Pushing to reduce annual costs by 1. 2 billion euros, and the Second Quarter net income falling 18 , hit by onetime charges. Underline profit rose 5 . Seemwer businesses extremely well and while the charges relating to ongoing restructuring in europe have impacted attributable profit as we anticipated, we are already seeing the value Going Forward, both improved Revenue Growth and efficiency. The u. S. Sanctioned Chinese State oil trader for violating ton sanctions, and attempt tighten restrictions on the Islamic Republic and cut off one of its biggest buyers. The company has a history of ticket iranian crude and selling it on to refiners in china. Bitcoin may stop the gas brexit michaelrexit saunders says a smooth departure from the eu is very uncertain and sponsors leading the charge two boe to hikes hikes. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Thank you so much. Coming up, more from westminster come in a couple of years we will find out the next Prime Minister of the United Kingdom and speak to jo swinson, the new leader of the liberal democrats. We will talk about brexit. This is bloomberg. This is bloomberg surveillance. In a couple of hours we will have the name of the new u. K. Prime minister. Joined by the new leader of the theral democrats after party lost 49 of 57 members of parliament, the liberal democrats have a spring in their step. Conservatives and labor divided on how and when to leave the eu, the liberal democrats second in the european elections. Lets get to the new leader, jo swinson. Congratulations on the win last night. We are having a new u. K. Prime minister announced today, anything good could come out of a Boris Johnson . Ms. Swinson he is not fit to be Prime Minister. He only cares about Boris Johnson. We saw that with the british woman who was in an iranian jail, separated form from her young daughter and he showed up and had not read a brief and got a catastrophically wrong. His words were used against her in the trial in iran. He is not serious enough and does not care enough to be Prime Minister. Francine should liberal democrats form a government with fresh elections . Ms. Swinson that is our ambition because our country deserves better. Millions of people across the u. K. Are looking Boris Johnson with dismay and look at Jeremy Corbyn taken labour to the far left and neither option is example. We need a positive alternative. That is what the liberal democrats offer, we can transform the economy so we can work for people and stop brexit to have the resources to deal with these other issues which have had so little attention. Francine would you rule out working in a coalition . , withinson absolutely german corbyn, and johnson, just not possible to imagine because they are brexiteers, up close to our liberal principles of working with other countries. We work across party all the time. We have been playing a leading role and i will continue to work with members of parliament of all parties where we share weues and agree on because are trying to achieve but Boris Johnson and Jeremy Corbyn are not in that category. Francine are you talking with defectors . Welcomed warmly i am hopeful we can see more members of parliament join our party just as those in the country have been joining us in the last few weeks and many more yesterday since i became leader. The liberal democrats are a growing force and people who think this is not good enough or shouting at the television in frustration, i said, join us, we are a party that can stop brexit and offer a battle better alternative. Francine how many defectors do you think you will get . Putswinson i will not numbers on it and i recognize it is a difficult decision for people who have been in a Political Party for a long time and they need space to reflect and come to their own conclusion. I am hopeful it will happen because we see the disintegration of the conservative and labour party, they are so far away from the mainstream that so many people, mps included, feel they are unsettling. Francine what are the chances of a second referendum . Ms. Swinson good chance we get a win for the peoples vote. 280 members of parliament forced it last time, not get a majority but not that many more needed to get it over the line and now with Boris Johnson likely Prime Minister and ramping up the threat of it no deal exit is that more members of parliament, conservatives it is loyal to the government perhaps the ghost they have been ministers, are worried about the way forward. Francine would you rather people vote a second referendum or general elections . Ms. Swinson much rather have a people vote, we need a general election to stop Boris Johnson in downing street and a better withnment but immediately the october deadline a peoples vote is a way to resolve the issue and be clear it would be resolved where there is no current is a general election would resolve the issue, it did not in 2017. Francine do you worry you are a single party issue . Ms. Swinson we are not, facing climate, technological revolution and reshape our economy so it works better for ,eople, poverty in our country all of these issues are getting so little oxygen right now because brexit is taking all of the political space and all government energy. Another region reason it is catastrophic. Francine will you still fight if brexit is done by october . Ms. Swinson the chances are very slim, i do not see how it can happen as parliament is clear that the new deal is not something that can be complicated and not a renegotiating. It seems to be there needs to be an extension beyond that time. The question is what is it for . The peoples vote is the most obvious thing, we know the European Union to grant that. Francine Boris Johnson does not want that. Ms. Swinson he wants everybody to agree with him and not realistic or grownup way of doing politics. He may have to face harsh realities. Francine what are the chances the eu give something to Boris Johnson big enough to go to parliament . Ms. Swinson i do not think they are high. Delivered,ing to be i have been given advice by theresa may, a triangle in terms of being able to set you believe the customs union, not a hard order in Northern Ireland, and not treating Northern Ireland different from the rest of the United Kingdom. Francine when you became party leader yesterday, what are you doing today, on the phone trying to get support . Media outletsg this morning and speaking with mps in the house of commons shortly. Meetings for fundraising because we need to be hugely ambitious for what we need to achieve, scaling up the operations we have. Excited by the challenge. Francine congratulations jo swinson, new head of the liberal them across and we will have much more liberal democrats and we will have much more. This is bloomberg. Francine economics, finance, politics, this is bloomberg surveillance and i am Francine Lacqua in westminster. It a couple of hours we will know the next Prime Minister of the u. K. , Boris Johnson is the heavy favorite and has pledged the u. K. Will leave the eu by october 31 with our without a deal but does the risk of a no deal brexit, where does it leave businesses . Joined by the director general of the confederation of british industry. Thank you for giving us a look into what the businesses you are dealing with are worried about. Are we facing a no deal and does it Mean Companies will have a stockpile in preparation of october 31 . Companies are worried about october and many stockpiles for march, some have run down there stocks and some will prepare again. Others have said it was always this and we will not do it again. Retailers now need winter woollies and it is challenging. Looking at 80 of businesses who have made no preparations. We are deeply concerned about no deal. Francine what are the chances of a no deal . You spoke to Boris Johnson, hassey given assurances to businesses . On the positive side, he and jeremy hunt have said their first choice is a deal and we back that completely. We hope whoever wins gets into europe quickly and we hear that is likely to be the plan. The idea of leaving on october 31 is usually worrying for businesses because of the effect on investment and jobs, the cliff edge, that is the big worry. , we areositive side hearing pro enterprise messages from both candidates. Francine what do you need from the next chancellor . Signalt of all, a clear the u. K. Is open for business, a moderation around the immigration policy. Businesses are investing strongly in skills but they want to have investment around the world. We have had a close line with immigration policy. We would like to see the apprenticeship addressed again. There are immediate tasks. All about a it is vision to build on the great strength of the u. K. We hope a new chancellor underscores the business of industrial strategy and a plan about u. K. Economy and punching our way to the world. Francine will not be able to dig no deal off the table and how much does that worry business and investment . The trouble is it dominates equity and we want a new chancellor to take very strong and we Senate Business manifesto to both candidates yesterday, the brexit situation will dominate companies concerns. Investment will stay on hold until we know that will not be the outcome. Unfortunately, that is still the number one risk for many firms. Francine what are the firms telling you . Do they know Foreign Investment wants to come in the country or do they see investment with weakness in the pound . , a couple things are going on we still see Foreign Investment because many u. K. Efforts are cheap and i worry about business investors, different thing and we think that is about 26 down from where it should be from this stage in the cycle. We are seeing, i hear it too much, businesses locating elsewhere, transport manufacturer choosing to build a factory in croatia instead of here, investment being diverted. That is the real worry, that we are not eating the investment we need and it will stay logjams until we have a deal francine . Do they worry about a technical recession . Economy is well flat now, we are not predicting a recession but logic tells you that if we do go to a no deal, even if we have businesses continued uncertainty in the runup to that, it is too easy to get into a technical recession and the trouble is it has a psychological impact on investment. Everything that could be done to keep our modest but moderate in the eventp,. 5 of getting a deal per quarter, that would be francine would the cbi welcome an election or second referendum . We are about trying to get the maximum certainty and the right kind of brexit deal. Francine that goes back to the certainty, how much do we need certainty now or if we delay it by a year for knock a more business friendly . A big dilemma for business and theres not a clear consensus view. General elections always create new levels of uncertainty. All kinds of scenarios. If you talk to any business in the country now they would say the priority is to get a deal. There is a landings own. We hear it landing zone. In terms of the impact on no deal in Europe Francine handing over the keys to number 10, britain will learn the identity of the Prime Minister midday with Boris Johnson the heavy favorite. President trump announces a bipartisan agreement to boost spending, the risk of a damaging default is off for the next 24 months and ubs bounces back, they posed the highest net income in almost a decade after what the chief executive Sergio Ermotti calls one of the worst start to the year in recent history. Good afternoon if youre watching us from asia, this is bloomberg surveillance. Tom keene is in new york and im Francine Lacqua in london. Hourstline with two tomorrow about what happens but today at midday we find out the next u. K. Prime minister. Tomorrow, theresa may resigns, she has to go to the queen for that and the new Prime Minister comes back to downing street and gets to work. Fromwe just got an email Prime Minister johnsons team, if i am elected, more airconditioning. To be clear, we do not know who the next Prime Minister is now, do we . If youe we do not but look at the composition of the conservative party, 160,000, they have a clear demographic and are prebrexit. Jeremy hunt and Boris Johnson, Boris Johnson is the heavy favorite. Because of what he stands for and what he said on brexit. Plenty more on brexit throughout the day but lets get to the first word news with viviana hurtado. President trump and congress of birding the risk of a damaging averaging the risk of a default, boosting spending for two years, leaving all sides unsatisfied and negotiators could focus on provisions they could count as a win. European governments will assemble safe passage for ships through the persian gulf, the u. K. Says it will mean more Royal Navy Warships in the region. Britain accused iran of piracy was int iran says it retaliation for britain seizure of a tanker carrying iranian oil. President trump offering to help resolve india and pakistans feud. He said the indian leader asked him to mediate but a spokesman for the indian Prime Minister said there was no such request. 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 just one day the screen. Ecb,ows you the before before the fed, curve goes nowhere and euro is weaker. 112 something. Euro in the last 12 hours or so. Oil is flat. Francine . Francine i am looking at oil stabilizing after recent gains with tensions in the persian gulf. Overall, investors are bracing for a busy week of u. S. Earnings with potential developments in trade negotiations. Economy tog in the the Prime Minister. This is a chart of the United Kingdom, trade weighted pound sterling back to the time of john major, the challenges of the early 1990s. , a advanced of sterling stronger decade to say the least. The great meltdown of the Great Recession and what is absolutely extraordinary and unusual is postbrexit, how pound sterling sits with a weakness of the recession and the weakness of john major 19921993. We forget how week pound sterling has been off of brexit. Pound sterling has been off of brexit. You have inr covering brexit from the beginning. Some of the questions about where Boris Johnson will take us if he is the next Prime Minister, but what is the directions he will have many priorities, one will be to get a better deal from the eu. If he becomes Prime Minister, a lot of focus on where his first trip will be. Usually the roster is between the u. S. And berlin and paris and maybe double in. Dubline. They will need to hit the ground running. The clock is ticking until october 31. Francine Boris Johnson has backtracked to suspend parliament which would be a tricky situation for the queen. There are constitutional experts, some says the queen just has to follow the Prime Minister, others say she only has to follow the Prime Minister if she is convinced the Prime Minister has the confidence of parliament. He has a majority of only about coalitionis only in with the dup. Whoever the next Prime Minister will be is vulnerable from day one and i spoke to conservatives and other parties who were not expecting any kind of fireworks in terms of challengings two leaderships out of challenges to their leadership right out of the gate. Senior you treat your cabinet colleagues with respect and invite them in, do we have any feeling, the idea that Boris Johnson will have a cabinet that works . That is an interesting question. A lot of people are watching how much he wins by today to tell us something about the cabinet he may create. We are not sure how he is thinking about it but that is a theory. If he wins outright, does it give them Carte Blanche to create the cabinet of his making in line with his views. I spoke with nicky morgan who has not always seen the same way on brexit as Boris Johnson, she is a one nation story representing the centrists side of the party and she thinks he is room for most. Hatsmaybe it is by straw or maybe the down jacket , is thishad at davos the mother of all opportunities for United Kingdom equities . With the turmoil we have seen, do you love the United Kingdom multinationals . Think we arenot ,hat enthusiastic about u. K. Underweight equities for the first time in a long time. Sterling is cheap and in no deal brexit means it will table at about 120. South of the weighted average we think sterling should be now. Francine what does Boris Johnson as trimester me for markets . As trimester mean for markets . Loose fiscal policy at a relatively weak government, we could have another election and after we could have another hung parliament. We will have a fiscal policy that is pretty loose with loose Monetary Policy. Francine this is something i picked out of telegraph, the Boris Johnson writing every week in the telegraph for many years and yesterday he wrote, if they could use a computer code to make a frictionless reentry into earths atmosphere in 1969, we can solve a frictionless trade at the Northern Ireland border. We need to recover our cando spirit to come out of the eu on october 31. People are saying with a new attitude they can get something out of the eu but we have not heard that from the eu side. They have been careful to stick to its previous message, there is room to amend the future relationship. Colleague wrote a few days ago on bloomberg a piece that talks about, sometimes we think about Boris Johnson saying you have to keep no deal on the table, she made the point the more the eu believes that is possible the more currency it may just have which seems to be the thinking behind the Boris Johnson camp. Difficult to see how far he is prepared to go on that front. Tom do we know who will be chancellor under a johnson government . We do not. But we do have a long list of contenders. The home secretary is the son of pakistani immigrants. The narrative is often told about him, a nice story. The United Kingdom taking a progressive move. The secretary of the treasury, she has had a strong role in the treasury and a big backer of force johnson. Boris johnson. About, theretalk is a long list of people who could take that job. Nicky morgan would be an outsider given her previous views on brexit. That will be a big focus on markets, who that person is and who they appoint as bank of england governor. Francine thank you, anna edwards. Coming up on bloomberg surveillance, we speak with a former u. K. Transport secretary at 6 00 a. M. In new york, 11 00 a. M. In london. This is bloomberg. This is bloomberg surveillance. Ubs saw a revival of fortunes in the Second Quarter, posting the highest net income in almost a decade. Record profit in the americas help and also a stronger performance at the investment bank. Ceo Sergio Ermotti is watching the Federal Reserve and what they do with Interest Rates. Hopefully in the u. S. They will watch what happened in other parts of the world when rates went to zero or below zero and something difficult to get out for. In volatility measures have been low and in the summer you have thin trading, you could see a surprise if you have a 50 basis points cut. You think what is the fed seeing . No one is being crushed by Interest Rates at the level they are. Very good. Day in westminster. To move forward the composition of central banking, and mathematician of rochester and former president of the minneapolis fed in the 8 00 our hour. This is bloomberg. Francine this is bloomberg surveillance. From london as we await the new u. K. Prime minister and in new york. We were talking about Central Banks and the concern about Central Banks and what they could do. Do you worry the next downturn will be sooner than expected . It is a concern but they have more tools, we can see the return of qe, european Central Banks could do more with less less orthodox qe. Francine where do you see value . Im merging markets because of what the fed is doing . A lot of investors were down on europe. Within the equity market, overweight in the u. S. And overweight pretty much Everything Else and we backed off emerging markets with concern the stimulus in china was not paying off as much as we thought. We backed off japan. Earnings have been weak this year. Francine your take is if china is stimulating inwards, that money does not go to exporting countries . China is the epicenter of many of emergingmarket stories, technology or commodities, china is not you have sentiment challenges for emerging markets. Investment link in into centralbank action, should investors be allocating or reallocating or being stable based on what these central bankers will do . Do we look at them from a distance or are they part of our Investment Decision right now . You cannot a nor Central Banks but the central issue for Equity Investors is where will earnings come from . Discount rate matters and if you get a shock and centralbank policy, that will affect all markets. Investors need to focus on where earnings are coming from and the earnings story has weakened, not terrible and better in the u. S. That people thought but that is the focus on investors for equities. Tom where is the sector that state street fines the best opportunity, either defensive or cautious, or to be opportunistic . Sectors, people interested the u. S. Financials underestimated the u. S. Financials. People at overestimating the damage to the yield curve has cost and the u. S. Economy is growing nicely. Some of the growth sectors like tech in europe and Tech Health Care worldwide, strong income producing. There is an interesting diversified portfolio you can put together if you take risks. Francine what would it take you to go back on emerging markets, a stronger china . Resolution to the trade dispute and better sentiment in china which means you would not need so much stimulus. It stems from a lack of trade certainty. When that is over you will see a big change. Francine can it be over for good with a trade deal and months, it tells you the u. S. Or china will not take a new fight in three months . It is over for chapter one, other things unfolding, technology or security issues. We hear noise in the background. The big picture with trade, it will solve uncertainty for investors. Tom the heart of Boris Johnsons hope and dreams is to rekindle a global United Kingdom, is that doable . Can he bring back a trading giant of the United Kingdom . I think the u. K. Has always relied it is open like the netherlands and other economies, always global in the sense europe has been dominant with significant trading partnerships. They will not replace europe but u. K. Cans, the continue the historic role as a Global Financial center and as the center for smart people to immigrate. Francine what is your biggest concern if you look at the next recession, can it be a fullblown recession comic prices, started with shadow banking in china or just a slowdown that transitory recession . You have low amplitude economics these days and maybe you see a low but painful squeeze like we saw in japan and a little bit in the eurozone. Not a boom bust followed by a recovery. That could be painful. It stresses government finances significantly. You for joining us. Will wilbur ross at 5 00 p. M. In london at 12 00 p. M. In new york. We will talk about trade concerns and the u. S. This is bloomberg. , goodurveillance morning. From an airconditioned new york to a less conditioned westminster green. Hotter in london. She is a trooper today. Whone hour we will learn the Prime Minister is. The proper phrase is tory leader. Butsume Boris Johnson, dont assume that. We have a report that larry the cat is airconditioned today in style. There is the set up from london. Right now with the news briefing, new york city, our first word news. The white house and congress reaching a compromise on the debt limit that no one is completely happy with. They have agreed to suspend the debt ceiling and boost spending levels for two years. That prevents a potentially disastrous default. If the democrats defeat President Trump the deal could saddling new administration with a fight over the debt ceiling in 2021. President donald trump agreed to make timely decisions on if american pet companies could resume sales to chinas huawei. That could move it china and the u. S. Closer to face to face trade negotiations. The u. S. Justice Department Gave former special prosecutor Robert Mueller guidelines on what he can Tell Congress tomorrow. Six of the been told publicly released public supports. Some details of his work on the Russian Investigation may be covered by executive privilege. British airways is in court to d striketop a threatene by pilots. Voting in favor of industrial action as part of a pay dispute. The walkout would be the first strike in decades and would come during the crucial Summer Travel period. Global news, 24 hours a day onair and on tic toc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. This is bloomberg. Francine. Francine thanks, so much. Down is the Second Quarter after what it ceo called one of the worst starts of the year in recent history. Manus cranny set down with the chief executive. You can see in the Second Quarter asset prices went up. It is not really correlated to investor sentiment. Which, is my point of view, of course a very dangerous development. The only good things is cash. Alances declined what they say is they are willing to step into the market if there is a major correction, such a highvels of level are not necessarily correlated with investor sentiments. Yieldstalking about u. S. Potentially going to 0 . Whatou countenance that on would be the consequence for markets if we move towards that in the u. S. . Im not so sure the issues are what is the consequence for markets. What are the consequences for the broader economy for savings, particularly in the Social Security system . I think in the u. S. They will watch carefully what happens in other parts of the world when rates went to zero or below zero. It is something that is difficult to get out from and the collateral damages are high. I hope the u. S. Wont follow that. Ermotti of ubs. I loved how you asked about the j. P. Morgan modeling of a 0 10 year yield. Part of that will be the adaptation of their core business, Wealth Management or Asset Management. Ermotti concerned theres too much competition . Structural ease. The language he used was a dramatic uturn on rates. He focused on the fiveyear about net interest compression in the United States of america. The bottom line is you have a firing cylinder. It has to fire cannonballs. , getignite the cannonballs the client physically training, you need to reboot confidence. The are moving from positions of active engagement with markets and not actively read engaging. That is the risk. And what i see into August September is the new battle of feebasedgement, Asset Management versus Asset Management. It is ugly out there. From your reporting and conversations in dubai, how ugly is Asset Management right now . Manus Asset Management, if you think about where we are going is one wayhere direction. Oneway way direction and rates, fee and Asset Management, down. This is getting tougher and tougher. We are going to 0 commission. Commoditization of Asset Management apra pro the future assets trading circa 1999. Whatine if you look at ubs reported today, they did so much better than expected in the u. S. Does it mean that the European Banks can compete with u. S. Banks, or have they taken all . Manus if we look at the structure of ubs, the Equity Division was down 9 . Correct. Be factually 9 down on equity trading beating morgan stanley, bank of america, j. P. Morgan. The structure that was left is ready to take action on the equity side. I ask, if youre seeing people bank, are joyc deutsche you winning . He said we win a little bit but not a monster amount. Structural changes in the market, outflows from the Wealth Management side of the United States of america, but the equity numbers beat its u. S. Peers. The engine is structurally sound, they just need to flow. Francine thank you. Andmbergs manus cranny bloomberg. Lets get back to state street global advisors. Where do you find value . Bonds or value in equities . I think there is value in equities. European banks undervalue equities. It tells you theres trouble on the way. If you think below the surface, with the larger ones, the more stable ones that are well managed, the below the surface story is more alarming than the valuation ratio. I was talking to manus cranny about Asset Management. What do you see at state street . You have been one of the victims of passive. What do you see is a trend of Asset Management in 2020 . I would talk about our business, but Asset Management is going through enormous changes. People are saying what is next after indexation . Is there another way getting a lowero returns in cost way . It creates challenges for the industry, but means we can focus on other things like longerterm investing and other ways of delivering value to clients that are maybe not in the commodity zone, but also packaging solution so that investors they dont solve their problem by buying an index fund but may add up to providing the objectives that theyre looking for. Air conditioning . I not have that. I am going to ventilate. Tom you are ventilating . Ok. I recommend an italian drink from genoa. Is having one in the green room right now. Waiting for back, the results in the next hour. Coming up Gabriel Santos on the markets. Us for good conversation. This is bloomberg. Francine this is bloomberg surveillance. Andand francine from london new york. I am at westminster green waiting to see who the next Prime Minister is. The leader of the conservative party who would therefore become minister. Rime the former foreign secretary Boris Johnson is the heavy favorite. He was the face of the Brexit Campaign. He is the favorite to beat jeremy hunt. The new leader is set to take over tomorrow afternoon. They will get to work on brexit, the single issue that has dominated british politics for three years. Joining us now is a former u. K. Transport secretary that served in the government for five years. The labour party. Is there any good out of Boris Johnson as Prime Minister . Could he change the path of brexit . The good thing is the brexit issue has been escalating since the referendum in june. This is our third Prime Minister, and we are reaching a point where it simply has to be resolved. Theresa may tried three times to get a deal through. She failed. If it is not sorted out by the end of october my theory is that brexit will disintegrate. I think that is what will happen, but this is the last chance. Francine you have said this before, but now we are hearing Boris Johnson talk about spending parliament. It is more likely we dont get brexit than a no deal brexit . Andrew everything i said happen. Remember i said there would be no Majority Parliament for no deal. The same happened in october. There is no majority for deal on like the only offer. A huge majority against no deal. You mentioned trying to do without parliament. Yesterday parliament voted, final version of a piece of legislation by a majority of more than 100 which banned any to for bid parliament from meeting in september. Parliament will meet in september and october. They will vote against no deal. Francine will brexit fizzle out . Half of the country will feel cheated. Andrew i think there will be a referendum. Francine why a referendum and not a general election . Andrew it could be an election. Boris johnson sees himself in the tradition of churchill, sees the moment and all that. Not be astonished if he comes back from the palace and announces an election. Is a chancellor. He believes in his fate and has a profound belief in this. He doesnt care about issues. He just wants to be the emperor and in charge. It is possible that he will hold an election, yes. Feet borisbour johnson in a general election with mr. Corbyn, or do they have to move on to someone besides Jeremy Corbyn . Think the issue is whether the labour party will be Boris Johnson, it is whether Boris Johnson has come out of an election with a majority. Famously said the first order of politics is the ability to count. No one i have met sees how an early election can produce a conservative majority. Isonservative majority clearly prepared to do. Boris is bidding on either a no deal or hard brexit. Is first thing will happen an election in wales where the conservatives will probably lose by a big margin to liberal democrats. Way of coming out of as soon as you do the math that is hard to see how boris can win an election. If he loses, brexit goes down. I know the times writing that up in the last 24 hours. What is the nature of the liberal democrats contribution in the next 12 months to this debate . Where do the liberal democrats fit in for Prime Minister johnson . Andrew the liberal democrats headachelly serious for Boris Johnson. The liberal democrats are competitive with the conservatives in provincial and of walesland, parts and scotland, where the labour party has never been competitive. The liberal democrats were so strong in those areas is why they did not get a majority in 2010. It doesnt matter how popular Jeremy Corbyn is, if the liberal democrats are on the up, and they are at the moment, as the clear party of romaine and anticonservative party on austerity they will do well. Francine the new leader of the about anspoke to her hour ago. She was clear she was having private meetings with possible defectors. Maybe oneere will be or two, but they do not need defectors. Has 22party systems. A conservative labour party twoem in metropolitan twoparty systems. What is happening because of the , there coming back big time not least on the opposition to brexit. They have held 100 50 different constituencies in the last 15 years. It is plausible in an early election they could come out with 40 mps. Almost all of those would be gained at the expense of the conservatives. That is why do not think there will be an early election. Boris has to decide what he will do with nigel faraj and the brexit party, an absolute nightmare for him as well. Francine former u. K. Transport secretary. Tom . Tom worldwide we await the tory leader announcement. We will do that in the next hour, scheduled in the next hour. G 1. 24. Terling on this is bloomberg. This is bloomberg surveillance. Bloomberg business flash. Taking a 2. 5 stake in the parent of mercedesbenz. The longtime partner in china has the right to buy additional gloating rights of the same size. Since 2005 they have set up a number of cooperative projects in china. Robin hood markets closing a new atnd valuing of the company 7. 6 billion. From a funding round last year, that is an increase of 36 . Robin hood becoming popular with millennials by allowing people to trade stocks for free on the mobile app. Investors can now bet on some of their favorite musicians. The performing Rights Organization is selling a 515 Million Dollar bond backed by Licensing Agreements by such artists as adele and bob dylan. It allows retailers to pay popular music. They have 35,000 performers. Bloomberghe business flash. Tom . Tom thank you so much. I want to go to the pacific rim, and we must begin with the change in protests in hong kong that we saw over the weekend with all of the distractions in new york and washington. Story. T burying the these were extraordinary and violent protests in hong kong. U. S. Pacific rim investment in china into 2020. Or it done with stability, are there real instabilities on the pacific rim . Concern is not only the protests in hong kong as much as the weakening of sentiment and the concern that the stimulus in china is not enough to turnaround growth and spark growth and the rest of the region. We have been cautious for that reason. I dont think the hong kong protests are reason why we should be rethinking that. Protests, thekong investment in china. We have a new nasdaq in china money flowing out of the other indices into it yesterday. Is china more investable this morning . Richard it is certainly more investable. We think that is a good thing for longterm investment. Shortterm, tactical. It is great people got a more diverse set, including Chinese Government bonds. There could be weakness in the short term. That is our concern about pricing. Overweight u. S. And underweight emerging markets. China is our position at the moment. Francine if the supply chain changes, things the u. S. Used to buy in china moves to vietnam, are they permanent changes and do they change your outlook on other countries . Richard i think china is going up the value and a lot of things were migrating to price places. They did not necessarily have the capacity to take over what china has been doing. How can china continue to drive up the value chain when you have this technology standoff between the u. S. And china . Francine do agree that china wants to turnaround the Super Oil Tanker 180 degrees and start consuming morning for five years . Richard i think they have to. They are becoming a more consumptionoriented country. An investment model is clearly shifting. Unlike countries like germany, interestingly. The contrast with germany is theiricant if they change economic model. It is a slow change and an enormous economy. Francine thank you for joining us. Hour, up in the next talking about brexit. So awayust an hour or from knowing who the next u. K. Prime minister is. A lot of speculation. The heavy front runner, as we are calling him, Boris Johnson. We will find out what his priorities will be over the coming weeks. Will try to negotiate a deal or keep a no deal on the table . All of that coming up on bloomberg. Thisthis morning and in hour, leave or remain. Prime minister johnson will be very different than Prime Minister may. The path to october 31, the path to an historic election. Quiet in the markets, the ecb thursday, the fed the july 31, and paris is burning on thursday bringing a temperature of 109 degrees. That would be 42 celsius in francine speak. This is bloomberg surveillance. With francine melting on the westminster green, as always brave. We are doing this thing as well. Air conditioning as well. Historic moment. We need to frame this. It is not certain it is Prime Minister johnson. There is a chance it could be a bombshell in Prime Minister hunt . Francine there could always be a chance we get Something Different than what we think we will get. 100 60,000 members of the conservative party want a brexit we call him the heavy favorite, Boris Johnson. You are right, there is very little polling that can be done with the conservatives. We will see in an hour who the nuclear leader of the conservative party is and thereforew new leader of the conservative party is and therefore that new u. K. Prime minister. About two blocks from where francine is. In new york city, our first word news. In washington where President Donald Trump and congress have averted the risk of a damaging payment debacle. They agreed to boost spending levels for two years. The compromise leaving all sides unsatisfied. Negotiators could focus on provisions they could count as a win. European governments will assemble a Naval Mission to provide safe passage for ships to the persian gulf. The u. K. Says that will mean more Navy Warships in the region. Accusing iran of state piracy oil tankerseized and last week. Helpdent trump offering to resolve india and pakistans longstanding dispute over kashmir. Pakistan Prime Minister that indias Prime Minister asked him to mediate. A spokesperson for the indian Prime Minister says there was no such request. One of the largest demonstrations ever in puerto rico. Hundreds of thousands of protesters out in the streets. They closed miles of a major highway demanding the resignation of the governor. A week ago demonstrations began after the publication of scandalous Text Messages between the governor and his inner circle. Globaglobal news, 24 hours a day onair and on tic toc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. This is bloomberg. Tom thanks, so much. Rowdata screen two days in showing the ecb and fed quiet in the markets. The euro is weaker, that is news. Insurance. Francine the data, i can do that off of my mobile. European stocks are up. There appears to be a busy week when it comes to corporate earnings and developments in trade negotiations. The dollar is climbing. Im looking at the pound extending its decline. The new Prime Minister should be announced in an hour from now. Britain will know the name of the leader of the conservative party in about an hour. The former foreign secretary, Boris Johnson come the face of the Brexit Campaign is a heavy favorite to be jeremy hunt. The new leader is set to take over tomorrow afternoon and will get to work on brexit, the single issue that has dominated british politics for more than three years. To update us on the challenges our our is our bloomberg senior editor. We have a good grasping, we think, on the policies each candidate stands for. Boris johnson has been, in the past, i dont know volatile. Worse johnson does what Boris Johnson wants. It is difficult. He is famously light on details. Thats a big criticism leveled against mr. Johnson. While he has been on the campaign trail, he has said yes we are leaving, do or die. How he will get that done, he has not been able to answer that question. Because behind us in parliament he doesnt have the numbers to do what he wants to get done. Parliament has shown that in the last couple of weeks. Whatever his plans, can he get any of them . Brexit aside, talks about what hell do with the budget, social care . He will really struggle because the majority in parliament is razor thin. , they will ber back in september, that majority may disappear. Whatever his plans are in some respect maybe they are irrelevant because he will have to reset the clock. That means an election. Francine mobile viewers will have the announcement. Tomorrow theresa resigns. Then thegoes to queen, Prime Minister comes back to street. A 10 probability that Boris Johnson tomorrow in his speech at downing street will call for a fresh election. That would be a very dramatic moment. He does have a lot of belief this is his destiny to be in this job, and he thinks he is very popular in the country. He campaigned about his success in london. Does he have the bravado to call that over the summer . I suspect the likelihood is not. We may see that happen as soon as he gets back in september. Tom i want to go back 20 years to where Boris Johnson became wellknown in the United Kingdom. The Television Show have i got news for you. The idea is he was a bumbling upperclass persona. Is that what he still is . David that show was a political satire show in the u. K. Mr. Johnson is still known for his wit. His newspaper column is filled with jokes. His hair to give him the famous disheveled look. It is a contrast with messes may and her ms. May formal approach. We will see on the steps of downing street if you will assume a more statesmanlike not dissimilar to the questions in the United States about mr. Trump. Is he president ial or just a tv star . And of the rest of them, is your guess that he will delegate authority, or will he micromanage a la President Trump . David the interesting thing is no one knows. He has kept his cards close to his chest. Will he surround himself with big hitters who can try to bring this policy the structure, or will he make big surprises . Maybe try to micromanage . His style at london city hall when he was mayor was to delegate. He has described a lot of his success to doing that. You would assume he is going to try to do the same. As always with mr. Johnson, there may be surprises. Tom our Senior Executive editor in the United Kingdom with years of experience managing the show, known as the United Kingdom government. She has been more than patient in this important hour for the United Kingdom. Gabriella santos joins us. It is a big day for the United Kingdom and a big day for all. We go into an ecb end fed meeting, are you changing your allocation or or do you slide through the summer to a reset in the fall . Importantseeing tension between High Expectations for Central Banks. At the same time, the reason they are cutting, the Economic Policy uncertainty, is pushing us the other way. We dont think we should bank on Central Banks to save the day entirely. We still think that this is a slow growth lower return kind of world. We have changed our views and become more cautious focusing on income. Revenue i see on a premium price for good above average. Value superior Revenue Growth in the next year . Gabriela we have seen the technology, ind particular, leading the cycle. If we are indeed talking about a lower growth, but also more muted Risk Appetite kind of world, we think it is more appropriate to start balancing that growth, capital depreciation dependent type of company, with more of the underdogs, the value style. That is a play on income, instead of expecting more Capital Appreciation. Tom i have 10 more questions of dividend on dividend growth, but we have to select a Prime Minister. Much more to come. Atncine lacqua and our team westminster. We will question my guest of the day. He channels Prime Minister the new the nuances of Prime Minister. Stay with us. This is bloomberg. East in is a movable f the United Kingdom. Prime minister mays 10 downing street will be a different picture in the coming days. Walk down the historic street of the United Kingdom. Us, if weantos with can pause before the true festivities in the next 30 minutes and talk actually about investment. One school of thought is earnings are not all that spiffy, but corporations will adapt and adjust to what they see. Do they have enough wiggle room to adapt and adjust to given any slow down . Gabriela to an extent. If we look at the u. S. Earnings season so far, because of the more muted Economic Growth we are seeing muted Revenue Growth of about 1 . In terms of the space to adjust cost we are seeing that becoming companies. D for u. S. Margins are subtracting about one percentage point, which is saving the day in getting us to an expectation of positive Earnings Growth is by back adding to percentage p two Percentage Points to get us to the Second Quarter 2 . Francine what else are you watching out for in the earnings season apart from the outlooks . Do you worry a lot of companies will say they are cautious about reinvesting, and what does that mean for certain gabriela industries . Gabriela we are seeing a divergence in the economy and earnings season between the companies more geared towards the consumer story. Stillrd that from banks feeling good and consumers are solid. That is a huge contrast with those companies more geared towards the investment cycle. We are hearing a lot more negative guidance from industrial companies, for example. There is a clear disparity not only in the Global Economy but in the earnings season between the consumer and investment side of things. Is if the trade tensions are taken away or we have a deal with china, does it make it more likely that you go back to equities aggressively . Gabriela the Economic Policy uncertainty, the global one that is really transcending barriers, is the trade uncertainty. I have to be honest, our expectation is not for that uncertainty to be completely removed. We do not think we will go back to the sunshine of 2017 where we had a risk on positioning. We think that will be a lingering cloud for at least the next 18 months. We go back to lower growth, lower return, focus on income kind of tom really important question. All of our viewers and listeners look at their 401 k and selection of opportunities. International behind u. S. Domestic ahead. When does international catch up . Expect that tod change significantly in 2017 before we had the trade clouds. We were seeing the rest of the world catch up in terms of economic and earnings momentum. The u. S. Was much further along in that process. Unfortunately, we have thrown that trade wrinkle so we are back to a scenario where the u. S. In the shortterm will probably outperform, it is more defensive. When we speak to our clients and look out five to 10 years we do think that term. Tom we will eventually stay well. Abriela santos as worldwide we are waiting for the selection of a conservative leader in the United Kingdom. Of course, this comes within the history off of the thames at westminster. Stay with us. 10 00 this morning, chief executive officer trying to remanage and restructure cocacola. We know the fragility of the issues we are dealing with. We know the arithmetic and parliament is difficult indeed. If we want our party to play a role in politics, we have the big issue brexit, th which we have not resolved, Everyone Needs to work together, that includes the Prime Minister. In the immediate challenges vote is a wayple to actually resolve that issue and be clear that has been resolved. Theres not any guarantee that a general election would resolve the issue. After all, it didnt exactly and in 2017. The speaker turned down allen dunkin is bid yesterday. You have to give the Prime Minister time to set of the cabinet and where he wants to go with policies, with brexit. The referendum in june 2017, this is our third Prime Minister and we are reaching a point where this simply has to be resolved. Theresa may tried three times to get different versions of the deal through. She failed. Now there is a new leader. If it isnt sorted out by the end of october, my theory is that brexit will disintegrate. Party interviews to help us understand what could come next. We are seeing pictures inside iie Queen Elizabeth center. Me, shortlyway from we should know who the next leader of the conservative party is and the next u. K. Prime minister. Tom that would be a football field away in u. S. Speak. The images on the wall of mr. Hunt and mr. Johnson. It is considered to be Boris Johnson who would take this trophy. It would be a huge upset by reports. The absolute stability of washington politics compared to london, our chief washington correspondent is kevin cirilli. A budget deal, who won, guns or butter . Davos who would have thought we would get a deal . There skepticism on both sides. That means it was a true deal to be made. We arent going to have a debt ceiling fight until after the 2020 election. We are already talking post 2020 election. That would increase defense spending by 15 billion to 17 billion. Republicans in the Freedom Caucus are only getting half of the savings they called for. Them across would have liked to see more funding on entitlement programs. But either way it is a twoyear deal in the midst of one of the most fiery rhetorical political weeks in President Trumps first term, and that is saying a lot. Speaker pelosi and President Trump were able to get a twoyear deal. Tom what is the price tag . Numberst the economic we are talking about, the plugin does not work. Do we get to 1. 2, 1. 3 . Kevin when i talk to the staffers at the Freedom Caucus, the ultraconservative wing of the republican party, this is like a sucker punch because they have a lot of concerns about the debt ceiling as a whole. When i talk to the progressives and liberals, some are even circulating getting rid of the debt ceiling altogether. There is still an ideological policy stark divide. But for now, the Trump Administration is putting that fight on pause until after the 2020 president ial election. Campaigningw much as President Trump doing this week . Where will he be . Kevin it is hard to look at anything without looking at him through the lens of campaigning. Mueller testifies on capitol hill and we will have walltowall coverage. Dominate a lot of the conversation. The president saying yesterday he wont be watching it, but something tells me he might be tweeting about it. Cirilli is in washington. New images from the Queen Elizabeth building as the conservative party will announce their candidate and future Prime Minister of the United Kingdom. Today, davider westin in conversation with the secretary of congress. This is bloomberg. Thatam not very convinced the medicine that has been prescribed in the past of quantitative easing is the solution of problems in europe. The uturn on Interest Rates expectation is not only dramatic in perspective of what happened in the last six to nine months, but look at the last quarter. We have to assume rates will dtay lower for a longer perio than expected. That is why we are focused on mitigating actions. Hopefully in the u. S. They will watch carefully what happened in other parts of the world when rates went to zero and below zero. It is something that is difficult to get out from an the collateral damages are very high. Door10,000 bodies out the in the future. Of the union bank of switzerland. We go to the broader picture, the Research Piece the other day, modeling out the global low Interest Rate environment. Negative rates right now in europe. The chronic nature the negative rates. Should we be investing . Not assuming an outcome, but should we be investing assuming perpetual though Interest Rates . Gabriela it is astounding how much the picture has changed in six to nine months. We were talking about higher rates, positioning portfolio to store higher rates, and now we are talking about the opposite. Affect thef it will underlying issues, cyclical and functionally keeping growth lower around the world. We wonder if it will ultimately termse harm than good in of the kind of risktaking behavior it encourages. We get halfway there and we sustained low rates, do flip the reciprocal and put a gogo equity premium on the market . Gabriela i think Central Banks are at least providing a floor to Economic Growth. Theyre keeping recession probability low. Tom is a 25 multiple the norm . Gabriela we dont think so. We think Central Banks put a floor to multiples but there is a powerful ceiling around the idea of economic uncertainty. Ultimately, if you dont know exactly how growth will shake out over the next three to six months, you dont know how that will translate to earnings, that should warrant a higher risk premium or lower multiple. Francine where are Central Banks trading bubbles . Gabriela one area we focus a lot about on is the rise in Corporate Credit that has happened in the u. S. During this cycle. By no means in and of itself is that big enough to be a bubbleheaded zone. On its own. Bubble if central bank encourages more corporate borrowing, eventually when there is a slowdown that will exacerbate the slowdown. Tom you are 40 to enable market. Im kidding. It is only 38, it goes on forever. In a bull market. Im kidding. It is only 38. It goes on forever. Is it dangerous . We have been here forever. Gabriela this is a low recession probability kind of world. In less than eight months ago when it felt that there was a real chance that the fed could brakes. The that is welcome. We want some exposure to risk and portfolios. By no means should we close our eyes and go all in with very overweight highyield bonds. Tom you mentioned share buybacks before. Does that gravy train continue . I was stunned by your 2 number. You are giving me a january 1 2 return on buybacks . Gabriela we mention the idea of having a better balance between the growth style or tack and the value style, we focus on two sectors in particular, energy and financials that are very good income stories based on dividends and buybacks. Focusing on the income over Capital Appreciation story as we are seeing the limits of the central bank story coming to the forefront. Tom right now in new york city with her first word news. We begin in washington where the white house and u. S. Congress reached a compromise on the debt limit. No one is completely happy. They agreed to suspend the debt ceiling and boost spending levels for two years. That prevents a potentially disastrous default. If the democrats defeat President Trump next year, the deal could settle in new administration with a fight over the debt ceiling in 2021. President donald trump agreeing to make timely decisions on if American Tech Companies could resume sales to chinas huawei. That could move the u. S. And china closer to facetoface talks on trade. China may respond to the easing of restrictions on wall way by purchasing u. S. Farm products. Giving Robert Mueller guidelines on what he can Tell Congress tomorrow. He has been told to skip to the already released public reports and is not supposed to discuss ongoing cases. Details on mullers work on the Russian Investigation may be covered by executive privilege. British airways is reporting to try to stop a threatened strike by pilots. Voting in favor of industrial action as part of a pay dispute. A walkout would be the first strike in decades. It would come during the crucial Summer Travel time. Global news, 24 hours a day onair and on tic toc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. This is bloomberg. Tom thank you so much. Be Prime Minister johnson, widely anticipated. Lets consider Boris Johnson from Prime Minister mays checkers agreement. The problem is not that we failed to make the case for a freetrade agreement in the kind spelled out in lancaster house, we have not even tried. Forth withunk for i the backstop. Missedhree years into deadlines we must leave the eu on october the 31st. I am the right man to unleash now on that project. It is vital as a country we get ready. Without an agreement if we must. Any further delay will end up eroding politics. We have a Good Opportunity i think to come up with a better deal. Bywe need to get brexit done october 31. Tom breaking news off of Prime Minister johnson, or to be as widely presumed. This is a stunning story in United Kingdom business. Ian stewart is a different person. The royal bank of scotland, that would be his or howard davies. They are approaching ian stewart to take on the ceo role according to the financial times. Very differenta commercial banker. Stay with us from new york and westminster. This is bloomberg. Francine this is bloomberg surveillance. From london and new york. We are at westminster looking at pictures of the Queen Elizabeth center, a football field away from where we are, where soon we should be told who the next Prime Minister is, the next leader of the conservative party. Thank you both for joining us as we await the name, the favorite at the moment, the hard favorite most likely to win is Prime Minister Boris Johnson. What will that mean for the economy depending on the chancellor he chooses and how hard he is willing to go to get the u. K. Out of the eu by october 31. It is like a phony war, shadowboxing that will go on. The first substantive news we will get from Boris Johnson over jeremy hunt will be the cabinet. That will tell us something. Soon after that we will see boris trying to renegotiate the deal with the eu. Francine how difficult is it to know what kind of cabinet he will put . He has a lot of supporters. It is difficult to know what he has promised each faction. Have previously been thought of on one nation part of the territory pragmatically moving towards to were Boris Johnson sits. It will be interesting to see what percentage of the votes Boris Johnson gets. Our colleagues reporting on this have been convinced depending on the percentage he gets that may embolden him to go for a hard exit cabinet, or if he does not get such a strong percentage something with more on the others of the tory party. Earlier, she was suggesting someone very remain could have a prominent role. She wonder which prize she has her eyes on. Queenooking at the Elizabeth Center gathered with tories. What percentage in the room is actually in support of Prime Minister johnson . Do we have any idea . 20 , 60 . These are the london elite, i get that. What percentage support in Prime Minister johnson . The people in the room are going to be conservative mps and friends of the candidate. They will be the home crowd for each of them, i suppose. Boris johnson and jeremy hunt made it to the last two when they were voted on by mps. If you take the mps in the room we know the split, and they came out in favor of Boris Johnson after the field was narrowed down from the 13 it started with to the two. Then it went to the members of the conservative party, 160,000 or so around the u. K. , and it has been up to them to vote. They have been listening to the gentleman talk and are making their decision. They made it by 5 00 p. M. U. K. Time yesterday, and now we are waiting for the results which could come minutes from now. Tom we will do this in honor of economics, writing him a telegraph, a paper familiar with Prime Minister johnson if that is what we get. Straight waited sterling. It is an extraordinary chart of the career of Boris Johnson. On the left, the john major years with a very weak pound sterling. John major is not a fan of Boris Johnson. The ascendancy of sterling, much of it out until the mayor showed both Boris Johnson. The Great Recession. Up we go. This is extraordinary off of brexit, the weak sterling we got. Roger, how does Prime Minister johnson right the ship given the politics . What is his action to right pound sterling . Pound sterlingk is going to be at the center. I, myself, think the Downside Risk on sterling is not that big, even if he goes to brussels and is rebuffed and leaves the eu without a deal. The pound is so weak to round out the low levels after the referendum result. The main issues for boris are who he will appoint to the cabinet, what is his negotiating stance with the eu, and what is he going to say when they come back and do not give him anything . That is going to be tricky. Francine what are the chances of a no deal brexit . I think the chances of a no deal brexit are very high. Francine 5050 or higher . I think probably higher than 5050. There is a question of Parliament Voting in favor of a no deal brexit, but is he going to have the gumption to try to stop that. Legally can he do it . That is in doubt. There has to be a significant chance we will end up with a general election through this process. Tom thank you so much for joining from j. P. Morgan Asset Management. We will continue with anna edwards at westminster. Looking here the gathered clan of the tory party in the United Kingdom. In attendance is stanley johnson, the father of we believe the next Prime Minister of the United Kingdom. Stay with us for our coverage from westminster. This is bloomberg. Francine lies pictures of the Queen Elizabeth center, very close live pictures of the Queen Elizabeth center, very close to where we are standing. Imminently we should find out who the next tory leader is and the next Prime Minister. When you look at the market reaction, the pound has been weakening quite a lot as Boris Johnson is expected to be the winner. What happened to jeremy hunt . Bei dont think there will that much change. You say the pound has been weakening a lot. It is down by 20 or so since before the referendum. Or two overa cent the last couple of days, that is not very much. Francine you campaigned for brexit. Finally with Prime Minister Boris Johnson, if he becomes Prime Minister, do you feel vindicated or that he will do a great job . That would not spell vindication. Vindication will only come when we have left and have done so successfully. I am looking forward to the chance seeing how no deal works out. Im confident it will work out well. Tom writing in the telegraph about the first days in the cabinet of Prime Minister johnson. What is his best practice in selecting a cabinet . Actually, i think what you were asking is what you will be doing in the first few days in the cabinet. I think a critical issue, if he can pull this off, the clever thing is to support some remain supporting people, to give them the undertaking they will support a no deal if that is all that is on offer. A prominent remainer has just that. Set if you can get others to do that that is how he could manage to unite the cabinet across both sides of the party. Francine we heard from Angela Merkel she would not be opposed to an extension if it was tied to a reason. We will see where that goes. He said he would like to see what happens in a no deal situation. There are many in the conservative party, members voting in the conservative party, who would like to see no deal. We saw the polling not long ago that suggest there is a majority deal. Lets remember, that is who jeremy hunt and Boris Johnson to. Been speaking everything they said about no deal maybe we need to put that in that perspective. Angela merkel has suggested there could be room for maneuver on the time if there is a reason. What reason could that be . Could there be a general election . That would seem an interesting gamble if brexit is not delivered for a conservative party. Francine do you think he would win it . He cannot just call an election like that. It is a big change from what happened before. He has to have the endorsement of the majority of mps, and that will not be easy. Electione can win an will depend on what he can do with the leader of the brexit party in nigel faraj. If you can deal with nigel faraj, a deal not to stand against each other and constituencies, i think there is a fair chance he could win the election. Without a deal, i dont think he could. Images, i believe you can tell by the hair, to the left stanley johnson, the father johnson. We know where the hair came from. His sister rachel and joe johnson as well at qe as we await this announcement of hunt or johnson. Roger, let me ask you what i asked anna edwards earlier, what is the ideal chancellor for a johnson government . Tom was asking who you think would be the chancellor of checkers. A critical role. You have to have a brexiteer supporting it. He is widely thought to have been in favor of brexit, but then he recoiled. Backstory, a that she has a wonderful backstory, an immigrant family. Then who he would appoint in support at the treasury. There some suggest that he may support an arch brexiteer. It has to be a brexiteer. Tom for our u. S. Audience not up to speed on protocol, what happens tomorrow to the tory leader, johnson . What is he actually due tomorrow . Do tomorrow . If he becomes the leader. We are watching to get any confirmation because he is du e. Tomorrow, Prime Minister theresa may makes her last address in the house of commons. She makes the final address and goes to see the queen. She is taken as Prime Minister with a full entourage. In leaving, she does not have that anymore and then the new Prime Minister will go to see the queen, and the queen will ask that new Prime Minister to form a new government. Whatll make a speech to seems to be increasingly media. Tional they will do a speech, then go into number 10 downing street for the first time where essentially the hard work begins. Francine i think there is a little bit of movement on stage. I dont know if they are testing video or if we will get an announcement shortly. We were expecting an announcement 45 minutes ago minutes ago. Who do you think will be the next Prime Minister . I think the Prime Minister would be illadvised to appoint one of his own. I think he has to go with someone who really is absolutely game. Top of his or her that should be the criteria rather than some sort of person that is a boris supporter. It will be a tricky situation over the next couple of years. What to do with Interest Rates, the pound sterling . Francine thank you, so much. By thestill standing u. K. Tory leadership announcement event eminently. We will keep an eye on that to see if Boris Johnson is indeed the next u. K. Prime minister. Stay tuned. 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. And deliver for the whole of the United Kingdom. We are a party that does our best when we are united. That is a party that will be led by one of our two fantastic candidates we have seen out over the last two weeks. Ladies and gentlemen, please welcome durham a hunt and Boris Johnson welcome jeremy hunt and Boris Johnson. [applause] ladies and gentlemen, to announce the results of the leadership election, please welcome our attorney officers. [applause]