Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

Welcome to bloomberg surveillance. I am in zurich speaking to the leadership of Credit Suisse. Lets check in on the markets. , the share price may give a bit of a lift to the markets. But the main news we are watching out for is what is going on with the fed and whether jay powell can do something that will surprise the markets. For the moment, it seems like a 25 basis point cut is already priced in. Later on, we are expecting data out of europe. Im looking at what is going on with the u. S. 10 year yields ahead of the fomc and looking at the pound. Are wonderingrs if Boris Johnson will reverse course. Coming up on bloomberg surveillance about more for my interview with the Credit Suisse chief executive. Speak to lori l chief executive later on the program. We talk about the state of the democratic candidate race with howard dean. But first, lets get straight to new york city. We begin with the u. S. China trade talks, they ended early in shanghai. There were no public comments. Negotiations were under a cloud of allegations from President Donald Trump. Beijing continues to quote ripoff the u. S. The two sides seem further apart. Credit suisse is brushing off the gloom of European Bank earnings. Wealthy clients added 1. 5 billions. The banks main trading unit saw a rising revenue in equities and fixed income. That offset a decline in its smaller asian trading operation. It has been really mixed in the First Quarter. It was a very strong june, the best one in 42 months. So very contrasting. And what will it take to defeat President Trump . That question taking center stage at last nights democratic debate. Senators Elizabeth Warren and Bernie Sanders feeling the heat, moderate rivals saying their plans are unrealistic and will drive voters to the gop. A Tropical Storm shutting hong kongs Financial Markets early for the first time in almost two years. It adds to chaos in the city after weeks of protests. And also follows a bleak warning on growth from carrie lam. She says there is quote no room for optimism in the Second Quarter and the entire year. Later today, the gdp data is out. 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. Back to you in zurich. Francine thank you so much. We will get back to hurt shortly. Stepped up his attacks on the Federal Reserve. Jay powell is prepared to announce his decision later, where he is expected to Lower Borrowing costs by a quarter point. Moves too early and too severely and puts me at a disadvantage. Fortunately, i made the economy so strong that nothing is going to stop us, that the fed could have made it a lot easier. I would like to see large cuts and the quantitative tightening stop. Francine will there be any surprises from the decision at the press conference later today . Joining us is the head of g10 fx strategy at merrill lynch. Great to have you on said day. Our weeks on fed day. This is already priced into the markets, what does jay powell need to do to surprise the markets . It is difficult to surprise the markets given the strong expectation that these basis point cuts are already priced in. It is very unlikely that will cut by 50 basis points and markets are pricing 100 basis points by the end of next year. Could a surprise us is if the fed it stops shrinking its Balance Sheet. It is supposed to stop in december. This could send a dovish signal. However, i argue that the balance of risk is for a negative surprise, given that u. S. Data has been strong recently. And that the market is pricing a high probability of the beginning of an easing cycle while the fed is delivering insurance cuts to address risks to the outcome rather than negativity in the outlook. The decision is unlikely to be unanimous. If the fed cuts more than 25 basis points, do you think that would be a policy mistake . That would be a surprise. , butis not fully priced in the markets have also priced a september cut. Point is a basis policy mistake. The economy is not be enough. The economy is growing above potential. Inflation is broadly about the and the fed is wasting limited ammunition. That if the fed a by cutting with 50 basis points, the market might believe that this would be one and done. So there is room for a negative surprise, even in this case. This is a question we are asking on the markets live blog. ,liv on the bloomberg terminal this is a question we are asking all of our guests. Will a fed rate cut drive up volatility . In the argueint that what the fed is doing is keeping volatility artificially low. Other Central Banks are forced to follow. However, this is not sustainable. What the fed is doing and what other Central Banks are doing is not going to be effective. Borrowing costs are already historically low. The only challenge Monetary Policy is supposed to affect his fx. And fx is not moving. Easing is keeping policy low, and this is not sustainable. At some point, they get to adjust to fundamentals. Believe they will have a reality check and volatility will increase. Francine what is your eurodollar call by the end of the year . Extremely difficult to make, because there are many forces. We have a at 1. 17 by the end of. He year eurodollar delivery is about 1. 15, but it is very tough to have a strong call on the euro. Both of the fed and the ecb are about to ease. The fed has more room to ease than the ecb and we have a number of risks for the eurozone in the coming months. Budget, theitalian trade negotiations. Is a strong dollar, and the threat of intervention is increasing. Eurodollar remains undervalued. Francine thank you very much. Thanos stays with us. And we will have full coverage of the Rate Decision following the press conference at 7 30 p. M. London time. Stay with us, we have plenty coming up looking at the boe. We look at pound and yields. This is bloomberg. Francine economics, finance, politics, this is bloomberg surveillance. We will be speaking to the Credit Suisse chief executive. But get to your business flash in new york city. Bnp paribas is posting a second straight rebound at its fixed income trading business. It is outshining wall street and its peers. This was in the worst first half for Securities Trading in a decade. , going says that forward, he sees an improved environment for equities. What we saw in this kind of is that there will be a pickup in equity activity. A chief executive opened the door to a settlement over claims the roundup weedkiller causes cancer. He is saying he would consider a quote financially reasonable agreement and litigations. The number of lawsuits have risen to 18,400. In theearnings surge Second Quarter, helped by a roundup in deliveries. The company handed over close to 300 of its a320 planes. Maker reiterated its guidance for the year but cautioned its goals are challenging. That is your Bloomberg Business flash. Francine thank you so much. Boris johnson is Standing Firm on his threat of a no deal brexit. It saw the pound plunged the lowest in years. He called for the irish backstop to be scrapped, saying it is up to the eu to compromise. Lets bring in our european news director who has been following the very beginnings of brexit. First of all, are we really going to see the possibility of a no deal brexit or does johnson change tactics looking at the pound falling . Looking at his rhetoric and the way he is holding firm, the markets are taking the possibility of a no deal brexit or seriously. That is why we have seen these big declines in the pound. Johnson is trying to stare down the markets, saying they will plow on regardless. I think an interesting question is what extent would Market Forces start to change his view . You are seeing some discussion of that in the markets. It is not a great look. Going on the Summer Holidays to see the value of the pound plunging and holidays becoming more expensive. ,or now, he is holding firm saying we need the europeans to take out the irish backstop completely. So we are at a stalemate. Meanwhile, we head on towards the end of october with the clock ticking down. Francine what does it all mean for pound . Was pretty ugly, are we to expect more of this seesawing . Thanos the pound reaction is not surprising. The markets eased pricing higher and a risk of hard brexit without a deal. Even if eventually we have a deal, things will get worse before getting better. We are in a chicken game and both sides dont want the blank. From this point of view, the risks remain to the downside. In a no deal scenario, we can hedge lowest at 1. 1, so there is clearly more risk to the downside. The market is also positioned relatively neutral muscle there is room for more short positions in the pound. Francine what can we actually expect over the coming weeks . Are we going to see anything in august . Recess, butt is in one thing to look out for his tomorrow. We had an interesting by election in wales. It is currently held by a conservative mp. The odds are that the liberal democrats will take that seat. That means that the very thin majority its whittled down even further to just one. ,o regardless of what he says when parliament gets back at the beginning of september, it will be even harder for him to force that through. And of course, anything could happen over august. We did see defections from the conservatives to the liberal democrats which would wipe out his majority altogether. Have to watch very carefully for more movement within the conservative party if we are to understand what will happen when they get back in september. Francine do you like cable or euro pound . Reactedno, cable has much more, so it is better to position for brexit. We actually like volatility cable. It will be subject to all of these headlines. Believeaid that, i do that the euro is underestimating the possible implications on the european economy if there is a nondeal brexit. Shorting a eurodollar is another way to position. Ony analysts are focusing this and worry it will be higher than the u. K. Trading partners of the u. K. And the eurozone is where the debt is weakening the most, for example germany. And in the u. K. , we can see the bank of england is receiving fiscal policy report support. In the eurozone, it is much more limited. Francine thank you for joining us. S thanos from bank of america stays with us. , with markets pricing in a rate cut, investors are looking to equities. But could they be falling into a trap . This is bloomberg. Francine this is bloomberg surveillance. We will have plenty more on your markets. The u. S. 10 year yield slumped for the fourth consecutive day. But lower yields have reanimated for income, sending investors of the risk for. And Corporate Risk curve. And corporate taking advantage. To explain all of this is dani burger. Dani with yields as low as they are and the potential to get even lower, yields from stocks gotten really competitive when they are paying out. World we are living in, and typically, stocks have lower dividend yields. But we are seeing nearly half of members give up more yields than 10 year notes. Be really attractive and tempting for any investor trying to supplement the income portion of the portfolio when they are not getting that yield to 10 year. But they warned that when you look at some of the companies that are the top payers, there are risky names here. You got brickandmortar stores like macys and kohls. And youve got those that supply the buildings for these companies they are highyield and when we look at returns, we also see some of the risk that investors are taking on. The basket of high dividend yield is has fallen 60 . Yes, less risky, but this is giving you more dividend yield. Francine getting worse and worse, those are the words we saw from mario draghi about Economic Outlook for the euro area. Well find out when we have the first readings of the Second Quarter as Bloomberg Economics forecasts a drop to 0. 2 down from 0. 4 . And they do not expected to improve anytime soon. Our guest is still with us. How worrying is the situation in in europe . E thanos the economy is weakening. It is not a recession. Details, partthe of the weakness is in germany which has to do with a growth model that is not sustainable in the country anymore. Germany has room for more fiscal stimulus and room for massive fiscal stimulus which they are not willing to undertake. Also, growth is weak in italy which has to do with political risks and fiscal risks and with a lack of Structural Reforms to support very low potential growth. So although the ecb is likely to respond to the week data, i dont think it will address the actual weaknesses. So from this point of view, the data is weakening and the ecb will respond. We dont have the policies needed to address the weakness, and in addition, there are trade tensions which directly affect the eurozone economies which depend on export growth. Francine given what you have just said, what would you put in place if you are in charge to show you mean business and you are addressing the problem at hand . Thanos draghi has been making the point that the ecb alone cannot solve the problem. It is inevitable they will cut , but draghi and missed make missed lagarde have to make the point for forcefully. Iran is out of policy tools and will address the specific problems they are facing. So we are seeing diminishing returns of easing. So they have yet to make the point that it is not up to them anymore. We need more appropriate fiscal policies in some of the eurozone economies and structural reform in others. It is not enough for them to make the point and ease. They have force policy action in other areas. Francine understood. Thank you very much, we will have plenty more on the eurozone area growths and yields. This is bloomberg. Francine a large cut. Thats what President Trump wants from the fed today, but with a 25 basis point cut priced in, can the chair really surprising markets . Big beats for Credit Suisse. The bank defies a bloom in europes banking. The chief executive, Tidjane Thiam, tells us june was the best month in 3. 5 years. Life after the iphone. Apple gains after cutting its dependence on the device. Can the shareprice push u. S. Stocks to another record . Good morning, everyone. Good afternoon as you are watching from asia. You are watching bloomberg surveillance. I am Francine Lacqua in zurich. Lets check in on what is moving in your markets with annmarie hordern. Good morning, francine. I want to kick it off with the next. It is up more than 8 . U. K. As an in the bellwether for the Retail Sector and they raised their sales guidance. Staying in retail, i want to puma, up more than 6 . They raised their guidance. The ceo is talking about strong sales for their footwear. They are seeing strong growth. We are also seeing Strong Demand. They cited Strong Demand in americas and asia. Aston martin to the downside. What a downside it is for the luxury carmaker, down some 20 . Fromessimism really stems the Second Quarter of 28 to mainland europe. That will stem a a lot of concerns about the effect of exports and what it means for for the British Company given we do not have a deal on brexit. The ceo, interestingly, was saying that they are seeing more weakness and pound. Pound continues to fall. Maybe its time to buy an aston martin. Francine there you go. I did not think about that. Thank you. Secondjust getting that quarter gdp out of hong kong, worse than expected, down 0. 3 quarter on quarter instead of the estimated 0. 9 gain. This probably has to do with a lot of the protests we saw in hong kong. Lets get straight to the bloomberg first word news in new york city. We begin in germany. Thats where the former ceo of audi has been charged with fraud in a diesel emissions scandal. He is accused of knowing about the deliberate Diesel Engine rigging and not doing anything about it. The scandal has cost audi parents about 33 billion so far. A large cut. Thats what President Donald Trump is looking for from the u. S. Federal reserve today. The u. S. Central bank is expected to Lower Borrowing costs by a quarterpoint. That is the first reduction in more than a decade. The president s remarks are one of the most direct demands he has made of the independent central bank. Stay tuned tonight for bloombergs a coverage of the decision. Shortkorea firing two range Ballistic Missiles off of its east coast. This is the second test in a week and comes ahead of the u. S. Secretary visit to the region. Mike pompeo is headed to bangkok. He does not expect north korea to attend. The makeup boom lost steam. Sales in three months rose 6. 8 . Consumers in china listing lifting the company to its highest level of first cap growth in more than a decade. It also says it will buy back loreal says it will buy back and cancel shares in the second half of the year. Global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine . Francine thank you so much. Credit suisse has brushed off the gloom in European Bank earnings with wealthy clients adding 9. 5 billion swiss franc in new money in the Second Quarter. The main trading unit of switzerlands second largest lender outperformed peers. Earlier, i spoke to the banks chief executive, Tidjane Thiam. I began by asking him if Credit Suisse can compete with american rivals. Tidjane i think in our Main Business is, main sales and trading businesses, where we are generally measured, for the Second Quarter in a row we come out around the top of the table. I think that is a good performance compared to u. S. Makes. Francine whats the banks. Francine what the environment like what is the environment like . Tidjane very difficult. Every quarter has been very mixed. Second quarter started out negatively. Because youasted, can get in the same quarter the worst and best month. You have to be nimble. Our strategy has been to reduce fixed costs very heavily and i believe we did that at the right time. Our view from the start was that it was going to be a stagnant industry, so we had to take our costs down very severely. Resale. Down the we have had a new platform just at a time when many others are restructuring and we are benefiting from. Francine what is the sentiment but also competition in the region . Tidjane it has been tough in terms of the environment. We had a really good Second Quarter. Sequentially, profit is up 30 . If you look by business line, we have done very well. A,have 2. 8 billion of m which is very good. We created a number of products. One was a bond leverage product. Very because we saw this trend coming. High tradingtra initiative. Fromaily trading has gone 2 million per day to 2. 2 million per day. Everything is up. Net Interest Income is up. Francine is this a trend . Tidjane i wish im always very cautious about the future, you know . Asia is quite volatile. All of the questions on the trade negotiations are weighing on sentiment. The Wealth Management side is doing well. We are number one in asia and in china for the first time, which we are very pleased about. Strong. Private bank is very strong. It is the market side that is difficult, because equities values are down 16 . Those trends have continued in july. Francine and number of your competitors in france and germany have actually done trading cuts. Does that mean it is an opportunity for Credit Suisse . Does it worry traders . Tidjane we worked very hard to have an efficient low risk platform, which we believe is what we have now. When we were under pressure at the end of last year, we did not announce restructuring. We have done restructuring. Are ins of timing, we the right place at the right time and able to pick up market share. We have definitely been able to pick up market share in equities. Same in fixedincome. When the spreads went down, our securities business started doing better. Good performance. M a. Illion of a ever ine highest m the first half, 59 billion. It is working. Francine you will be able to continue to gain market share . Tidjane we are working hard for that. It is depending on the clients, not just us. We spending are spending a lot of time on our clients. We have increased balances in prime. We have improved pricing. Asare also reshaping our trading platform. We are getting share, we are getting share in high touch. I was in new york two weeks ago. Morales very high. Its completely morale is very high. Its completely different. Francine this is despite Central Banks . Tidjane they dont make life easy for us, particularly negative Interest Rates are a challenge. Francine that was the Credit Suisse chief executive, Tidjane Thiam, who talk to me earlier on. Joining us to discuss those earnings is Filippo Maria alloatti, a senior credit analyst at Hermes Fund Managers. Always great to have your thoughts on some of the banker names. You said you pretty much liked these earnings. What did you like in them . Filippo it is very good for a number of reasons. The first is that Credit Suisse back on track. Think, we feel, we knew that the Wealth Management was very good. They grew in the net new money. I think all things considered, it is a good number. The Investment Bank has always its veryore, so good to see that both of the are growing. G they are backing the trend of american peers. Also, on the debt side. That is an area which i think could be more important with the fed decision later tonight. It is quite interesting, they are very strong and ing creditrating in ig creditrating. If you had to choose one of these, only one of the swiss banks to invest in, which one would it be . Twoppo i think they are very wellrun banks. We have a preference for Credit Suisse at the moment. Credit suisse has come a long way from their restructuring. They are building a bridge between ubs and Credit Suisse. Francine what do you do with julius baer . Filippo julius baer, i think it is an interesting one. It is very different from Credit Suisse and ubs. The Investment Case in julius baer would be in ms of if they are somewhat able to sell close to book value, it would be quite positive for the bank. The new ceo is starting september. They have done a lot of work on cost cutting and rationalizing the footprint of the bank. I think it has been rather successful in doing that. Lets see what the new seo has co has for the bank. Cautiously positive on julius baer. Francine going back to Credit Suisse, how quickly can we know that this is a trend to stay . Credit suisse has been doing pretty well. Today was a good Earnings Report , but can actually go back to something less appetizing for investors fairly quickly . Filippo that is a tough one. One thing we are seeing is this trend in tangible equity. They are getting very close to it actually meeting the target, which i think is very positive. One key question will be the Client Engagement. As we note, april has been a tough month and june has been very strong. That is very true for the other swiss banks, ubs and julius baer as well. I think a lot will depend on q3. We heard this morning that actually the Client Engagement in the first month of q3 has been quite positive, which i think provides them with a margin of safety. We know that q3 is typically the trickiest of the quarters for a large Wealth Management operation. I think a lot will depend, as always, on the Central Banks. 25 basis point cut . Those together with the shape of the curve which i think is not very conducive to business in germany in general. We see whether they will see at least eight reversion on the inverted curve in the dollar market. Francine thank you so much, as always. Filippo maria alloatti there, senior credit analyst at Hermes Fund Managers joining us today. We will talk more about apple shares surging in late trading at the tech giant projects revenue that will top expectation. Can the Company Truly move beyond the iphone . We will discuss that next. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua in zurich. Lets talk about tech. Lets talk about the figures from apple. That was yesterday and there is a sign that apple is entering life beyond iphone. For the First Time Since 2012, the Company Generated less than half of its quarterly revenue from sales of its flagship product. Devices such as the apple watch had strong performances. Are usedhe Services Mostly with the iphone. For more on apple and in general tech earnings, lets get straight to alex webb. Alex, great to have you on the program. What are investors liking about in these numbers . They had forecast, i think, earnings in the Third Quarter, sales in the Third Quarter of 61 billion. Apple set a range of 6163,000,000,000. Clearly, higher than the markets best expectations. Suggest they are pretty bullish for the prospects for the new iphone, which usually launches in the last week of september. You get one week of that iphone contributing to Quarterly Sales before gains paste in the final calendar quarter of the year. We have seen the growth of services means there is a more predictable revenue flow over an extended period, because you can count on Services Revenue coming back quarter on quarter and not be so dependent on those iphone peaks and troughs. Francine has apple truly moved beyond the iphone . What did they say about china . Alex the iphone is clearly the center of everything apple does. Of course, you have the mac and ipad, but sales of those pale in comparison to the iphone. All of the services products, and then the things that have been delivering growth like air are and apple watch products that only work with the iphone. You would not be able to buy them if apple was not selling enough iphones. Those are products that type people into buying more iphones. If you spent 400 on an apple watch, you are less likely to be willing to trade your apple iphone in for an android. China is still a problematic market for apple. We have seen huge dropoffs there but they were particularly bullish about other emerging markets like india and brazil, where growth has not been as to reach the level that china did. There were times when apple had said two or three years ago that india was on the same trajectory as china. The implication is it is starting to catch up a little bit in those to reach the levelt china markets. Francine thank you so much. Alex webb there from Bloomberg Opinion. Next, we will talk about the democratic debates. Candidates clash over policies in last nights debates. Will the real action be joe biden versus Kamala Harris tonight . We will discuss that next. This is bloomberg. Win when weemocrats run on real solutions, not impossible promises, when we run on things that are workable, not fairytale economics. I dont understand why somebody go through all the for theof running t president of the United States just to talk about what we are not doing. If it is true that if we embrace a far left agenda, they are going to say we are a bunch of crazy socialists. If we embrace a conservative agenda, they are going to say we are a bunch of crazy socialists. Lets just stand up for the right policies, go out there and defend it. The policy of this notion you are going to take private insurance away from 180 million americans, who many of them dont want to get rid of it, many do, but many dont. Or the Green New Deal, make sure every american is guaranteed a government job they want. That is a disaster. You might as well fedex the election to donald trump. The reason we will defeat trumps because he is a fraud and phony and we will expose him for what he is. Francine those were some of the highlights of night one of cnns democratic debates, where Bernie Sanders and Elizabeth Warren were challenged on whether their progressive policies could win against President Trump. Lets get more from our washington reporter. How much of a surprise was it to see sanders and warren essentially joined forces joint forces join forces . I think a lot of people going into this debate thought it would be a showdown between sanders and warren, because they are battling for the progressive mental. Instead of seeing that mantle. Instead of seeing that, we saw them joining together in a lot of of ways to sort of present a progressive alternative, a united progressive front against the more moderate criticisms from more moderate candidates that are trying to break out of a very crowded field. I think that was a bit surprising. I think what it means Going Forward potentially is that it might be quite a while before we see either sanders or warren emerge as kind of the progressive standardbearer. It may take until the New Hampshire primary, which will not be until early next year, before we know which one will be surviving through later on in the race. You lookingat are for in tonights debate . How important is the debate tonight for joe biden . Is he still the front runner . I think for joe biden, he saw a slump in the polls after the first debate. We have seen him double down in terms of trying to prepare for tonights debate and make sure he brings out his best performance. I think really all eyes will be on him. That is a tough position for a candidate. Only, it creates very High Expectations and there is only the potential to not live up to those expectations. We saw a similar dynamic with barack obama during the general Election Debate in 2012 when he came out for the first time against mitt romney and by all accounts, did not do a very good job, but then came back in the second debate and i think exceeded expectations. I think joe biden will be the number one target at tonights debate. He has a chance to redeem himself after his first debate performance, which was not seen widely as a dramatic success. He can redeem himself. He has been huddling with aids she past couple of days aide the past couple of days trying to prepare. Any slipups will be magnified by the media and his opponents. Francine we will have a full coverage of the debate that will include joe biden and Kamala Harris. Tom keene joins me out of new york. Lorealhares slide shares slight. We hear from the cup slide. We hear from the companys chief executive. This is bloomberg. Francine a large cut. Thats what President Trump wants from the fed today, but with a 25 basis point cut priced in, can the chair really still surprised the the markets . Big beats for Credit Suisse. The bank defies a bloom in europes banking. The chief executive, Tidjane Thiam, tells us june was the best month in 3. 5 years. Life after the iphone. Apple gains after cutting its dependence on the device. Can the shareprice push u. S. Stocks to another record . Good morning, everyone. Good afternoon as you are watching from asia. This is bloomberg surveillance. On Francine Lacqua in zurich. Tom keene in new york. The top story of the day is what happens to yields, when we get decision. The other story is what happens to pound and whether the sharp drop in pound yesterday means that Boris Johnson reassesses the way he negotiates with the eu. Tom we will touch on sterling at a 121 level. Dayrything is assumed to by the fed. Francine lets get straight to the bloomberg first word news in new york city. The u. S. And china wrapping up a new round of trade talks in shanghai. There was little evidence of progress. The treasury secretary, steven mnuchin, and Robert Lighthizer leaving the u. S. Aside leading the u. S. Side. Yesterday, President Donald Trump accusing beijing of trying to rip off the u. S. Today the Federal Reserve is likely to lower Interest Rates for the First Time Since 2008. Policy are expected to approve a quarter percentage point cut. They may leave the option open for additional moves. It is unclear how much opposition even a quarterpoint cut will face. The crowded field of Democratic Candidates went at it again last night. 10 of them squared off in a debate in detroit. Bernie sanders and Elizabeth Warren defending their progressive brand of politics against attacks from low polling moderates. I know how to fight and i know how to win. I took on giant banks and beat them. I took on wall street and ceos and their lobbyists and lawyers and beat them. I took on a popular incumbent republican senator and beat him. This evening, night 2 of the debate features front runner joe biden and Kamala Harris. For the First Time Since 2012, apple generating less than half of its quarterly revenue from sales of the iphone. During the fiscal Third Quarter, the Company Sales and Services Setting a record. Devices such as the apple watch had strong performances. Most of the services are used mostly with the iphone. Global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Tom every data point counts. Gdp comingthe ged on forecast, which is a really moldy number, 0. 2 . All you need to know is lets call it a run rate of about 1 on eu gdp. Lets do a data check. I want to get through this quickly. The curve not doing much. Lets move to the next screen with oil. I will call it weak. Over 98. Dex way out it is very important to see that on a blended basis. Old edging up to new highs 1443 the ounce. Francine i am glad you looked at gold. I think there is quite a lot of people saying go to gold or cash at the moment. Overall, stocks in europe are pretty much a drifting. I think stocks are drifting as the u. S. China trade talks concluded with no obvious breakthrough. Investors trying to figure out what these corporate earnings mean for their portfolios. Treasuries on the dollar pretty much a steady. I am looking at pound to see whether any pound mood changes what Boris Johnson has been sent. Tom what we are looking at is sterling dollar. s flip it and go the other way with euro. Lets go to the chart. This is eurosterling, number of sterling per euro. Here is brexit, the weakness of sterling, the leveling of sterling. 91. It is a big deal. We did not start strong with our coverage of the Federal Reserve on this prettily important date. Itre is no one better to do with then komal srikumar. He has been nothing short of a miracle. Gdp growth will not be there, no, rates are not going higher, and yes, the fed will have to act. Lets begin with what you got right. Why is there a slowdown in the u. S. . How linked is it to the International Markets . Komal i would say that the slowdown occurred because there is no reason why the economy should permanently speed up the tax cut of december 2017. It was a temporary sugar height. We had it for 8 high. We had it, and now we are back to the situation has clearly worsened. I think for the next 18 months, trade will be the story for growth. Tom tom the hallmark of your work is youre always trying to get out front of the zeitgeist. The zeitgeist is wait for the data. Why this time around is chairman powell not wait to see gdp slowdown, not wait to see the inflation dynamic come in . Why does he have to act now. Komal excellent question. I think because the fed has rarely been data dependent, as they have always claimed to be. It is more a case of data trying to fit what the fed wanted to do. In december, they decided to hike Interest Rates, give a hot this message. They said the hawkish message and they said the economy was very strong. Two weeks later, everything changed. He has to correct for what he did in december. It is going to be not going to be easy doing that. Cut if itwhat is the comes today . Is a mistake . Is it a mistake . Komal it cannot be a very new mistake because they have been building up the speculative fervor for the next last 1012 years. If they were to cut, it would just be one more instance of doing in. What are you going to resolve it . If you cut it, you increase speculative fervor. If it is not enough to satisfy the market, the fed will cut again and again. The fed is at the mercy of the market. Francine do they need to break that loop . How much do they need to cut to surprise the markets . Komal if they want to surprise cutmarkets, they should not rates at all. They should continue with quantitative tightening. If they do that, you will get harsher tweets from President Trump. With the Federal Reserve be able to tolerate it . Under those will the Federal Reserve be able to tolerate it . Under those circumstances, i dont think they will. If they dont cut enough and the market is disappointed, they come back to making up in the future. Tom we are going to introduce this chart and some of our fed coverage this afternoon. This is the single most important chart on the behavior of any central bank in 2019. We simply take this back, as you well know, to the bank of japan in 2000 where they raised rates. Oops, we had to cut again. This is the collective remorse and fear that every central bank has, that if they cut rates, they have to raise rates, reverse them. That is evident today. Komal that is absolutely right. We saw that in the case of japan. You see that with the fed more recently over the last few months. Tom right. Komal thats why i think they have started a cutting cycle. I dont believe that i agree at all with bill dudley in Bloomberg Opinion yesterday that ar once and done. Once that they are once and done. Once they cut once, they will do many times. Tom bill dudley writing for Bloomberg Opinion yesterday. Continue. Much more to talk about today as well. Coming up, the fomc meeting. Scarlet fu living our coverage in the 2 00 p. M. Our leading our coverage in the 2 00 p. M. Hour. This is bloomberg. Francine this is bloomberg surveillance. Tom and francine from new york and zurich today. Lets focus on brexit. Boris johnson Standing Firm on his threat of a no deal brexit. That saw pound plunge to a twoyear low yesterday. The u. K. Prime minister called for the u. S. Irish backstop to be scrapped. In the meantime, we are also hearing from the dup lawmaker. He says he would prefer the u. K. To leave the eu with a deal but also believes the u. K. Premised or what except a no deal brexit Prime Minister what except a a deal would accept nodeal brexit. Optionsthrough the Boris Johnson has. History tells us that when it is Prime Minister against the markets, the Prime Minister tends to lose. The history of black wednesday and will not. According to our calculations, there is a pain threshold. If the pound falls between below 1. 19, the idea is Boris Johnson would have to reverse his position. So far, his rhetoric has made us believe that will not happen. A lot of what he is about is proving he is serious about no deal. The only way to do that actually is to drive the pound down. Francine do we know how much or whether he is actually going to brussels, how often he will go to brussels . There is no sitting parliament in august. Where will the news come . Essentially, a lot of eu leaders have reached out and said we want to meet you. There seems to be no response from the johnson camp. Continues. E he is saying he is not willing to meet with anyone until they reopen the Withdrawal Agreement. That opens the idea that potentially all of these leaders could meet at the g7 at the end of august and that brexit will dominate quite a bit of conversation there. Tom i want to show a chart which frankly folks may be my chart of the year. This is tradeweighted pound sterling. We are back most to the weakness of the lehman low and back to 1992. Does anybody within the political and Financial System really care about pound sterling . Does pound sterling matter . Few mpsn, we spoke to a yesterday. One of them says we know british holidaymakers are having a hard time, but they can just have their holiday in britain. That gives an indication of how much they care. Tom thank you very much. Assee sterling weakness well. It goes to what the currency means for a society. The dollar, we are fixated on it as a global currency. Should political leaders in the United Kingdom care about sterling weakness . Komal they should care about it, tom. Already, you have the one country where wage and Price Inflation is showing its face. It is not in the rest of europe or the United States. It is in the u. K. If they have the pound sterling weaken with respect to both the dollar and euro, then you are going to see imported inflation. That will hurt the cost of living and it will come back to haunt Prime Minister Boris Johnson in terms of his popularity. Tom the cost of living, to be clear here, a sterling weakness is a wealth destruction for the haves, right . Right. That is it is also a wealth destruction or a reduction in purchasing power if you are lower or middle Income Growth and you are buying basic groceries. Those prices are going to be up if they have come from france, for example. The real issue here is, Boris Johnson was selected by 160,000 conservative grassroot members. One half a percent of the entire british electorate. The question is, how in a democracy can such a situation survived when the majority, edpecially the young, want to remain . Tom thats bring in francine in zurich. Francine if you look at the European Elections, and a lot of people voted for brexit and the brexit party. If you are a traitor for euro pound at the moment, trader for euro pound at the moment, is the only threat that he would go for a no deal . , asl i think he will might be an 1. 19 exchange rate. I look at dollar going to parity with the euro. Happen and then he buckles under it, really it is a very difficult situation. To me, whether he goes to a general election or not is not as critical as the fact that things fall apart and whoever is the next leader has to just pick up the pieces. Crux of your question, if it falls apart, the pound sterling weakens further, it probably leads to a new general election. Well inraj doing very the European Election and you have Jeremy Corbyn on the site. The prediction is, we simply dont know what is going to happen on the political side. What goes further u. K. Is that it runs large trade deficits with the eu 27. It has a deficit within the three largest countries, germany, france, and italy. The hope is that they will be nice to the u. K. That is playing a game of chicken. Tom right now we have headlines out of ireland. This is the pushback from the republic of ireland against those in Northern Ireland and those in london as well. Sayingicultural minister the Withdrawal Agreement is fixed. I mean, there is no clear statement than that. Toeally goes to the what you and i have heard on westminster green, which is very simply, there is no budging by the eu, there is no budging by dublin, is there . Francine right. We have seen and also in the last couple of days, huge clash between the Prime Minister, Boris Johnson, and the Prime Minister of ireland. This is a little bit of gaming. Boris johnson saying if we go to a no deal because we did not budge it would be the eus fault because we did not budge on the backstop. Brussels was always very clear that we will not budge on the backstop. That has been part and parcel of what you sign for. This has been a lot of politicking. Francine politics tom politics, but the rest of it is financed. What is there to do the to do . Komal the irish backstop has to stay. The free borders have existed many years. To put a hard border between the u. K. Province and the independent country of ireland would be going back in time. That is the first one. Second, it would be very negative for the republic of ireland, for which a large part of the trade deals with the u. K. I think both of them are going to be significant factors. From an eu 27 point of view, the economics of it is they cannot give up on an integral member of the euro zone which has played along with the game and then support a country which wants to succeed from the European Union secede from the European Union. Francine thank you. Therefromkumar srikumar global strategies. We have more from the u. K. We will have plenty more from brexit. We will also look at bloomberg with an air france chief financial officer. This is bloomberg. This is bloomberg surveillance. Lets get the Bloomberg Business flash. The maker of rayban sunglasses upgraded to purchase a dutch company, grand vision. The deal values the retailer at up to 8. 1 billion. Grand vision has more than 7000 stores in more than 40 countries. The rayban owner owns lenscrafters and provision. Airbus ramping up deliveries of a narrowbody jet. It rivals the boeing servant 37 max 737 max 8. Somests are concerned airlines are complaining the shipments remain bynes schedule. Credit suisse brushing off the gloom in a European Bank earnings. Wealthy clients added 9. 6 billion of new money in the Second Quarter. The trading unit did better than its peers. We spoke with Credit Suisse ceo, Tidjane Thiam. Every quarter has been really mixed. The First Quarter, the Second Quarter started quite negatively in april, then a very strong june. June was the best month in 42 months. Very contrasting. Has pivoted the bank away from a volatile Investment Banking and is focused more on Wealth Management. That is the Bloomberg Business flash. Francine . Francine thank you so much. Tom, we were talking to the leadership of Credit Suisse. I also spoke to credit analysts when it came to the bank. He said clearly on most metrics, Credit Suisse beat. It is too soon to say this is a trend but the share price is taking it in stride and beating a lot of their peers. We will have plenty more from the swiss banks and Credit Suisse. Coming up next, jeanpaul agon, the loreal chief executive. They are having a tough time selling makeup in the u. S. But we will also have a look at the bright spots around the world. This is bloomberg. Bloomberg surveillance. An exceptionally important fed zurich,ncine lacqua in switzerland. Her important conversation with the leadership of Credit Suisse, we will do that in a moment. Scarlet fu leading the fed coverage 00. Coverage at 00. 2 00. Here is the loreal chief executive officer. Paul makeup in the u. S. Is a bit slow. The makeup market for five years was on fire, growing and blooming, so everyone could expect at a certain time it would slow down. It is happening now. Onere by number 1 number manufacturer and makeup in the u. S. Habit seeing a shift in are you seeing a shift in are goinge people more towards your competitors . Jeanpaul not really. There are many shifts happening everywhere in the u. S. Like every country. It depends the channel, the brand. In luxury, there is less consumption in Department Stores more on ecommerce. It is also important to know to what you want to adapt. And things are shortterm it is important to understand the longterm evolution and move the business in that direction. Globally speaking, we are doing well. Thisw long do you expect decline in north american sales to continue . Jeanpaul i dont know. But year will not be easy, we are preparing for a nice bounce back next year, and at the same time, we have some extremely good results. It cannot be perfect everywhere. Jeanpaulthat was agon. Expect ay saying he is little bit of a bounce back and things to pick up next year. Lets get to the bloomberg first word news. Viviana the Federal Reserve is trying to keep a record economic boom from coming to an end. Policymakers are expected to cut Interest Rates by a quarter percentage point, the first since the 2008 financial crisis. Donald trump has been criticizing the fed for raising rates. North korea test firing two short range Ballistic Missiles. The regime conducting the launches as mike pompeo is headed to asia. He will be in bangkok for a meeting of Southeast Asian nations. Taking on Bernie Sanders on Elizabeth Warren at last nights debate, questioning whether progress ors could be progressives could be President Trump. The reason we will beat him badly is because he is a fraud and a phony and we will expose him for what he is. Viviana expect more fireworks on night number two, featuring joe biden and Kamala Harris. The ceo of audi has been charged with fraud. He was charged along with three others and is accused of knowing of the engine rating and not doing rigging and not doing anything about it. About 33has cost billion. 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. Tom thank you so much. Tois fed day but we want look at the extraordinary performance of apple, up sharply this morning off a turning point Earnings Report that we saw yesterday. In switzerland and geneva, our really anller, extraordinary report. How much of a turning point was this for mr. Cook . Good morning and thank you for having me. It was a good report, beating on revenues and earnings. Analysts who revised their estimates upwards for this. Less than 50 of revenues coming from the iphone, which was down yearoveryear, but strong growth from the services portion and from the ipods and the apple watch. That is making 50 of the company and that is clearly the future growth contributor. Tom we saw some price elasticity this time. They cap prices to move unit cut prices to move units. Can they sustain their margins forward . Martin the margins were not so brilliant because of the point you were mentioning, having to cut prices after a sharp price increase that we have seen over the last two iphone cycles. The risk is there will be more cost for the development of product and less pricing power, so the new phone we would expect to be launched right now and possibly even in the next important cycle because it will be a 5g phone in 2020, might not see the price increases we have seen in the last two cycles and that would be a headwind for the margins. Tom can they do a double digit dividend . Do you perceive them to be a single digit dividend grower, or can they be the only true double digit grower . Improvei think they can dividend growth. It is a relatively low payout ratio and they are spending a lot of money on share buybacks. They are running down their 100 billion dollar net cash position with the debit and trends dividend trends we are seeing now, so they could shift from the buy dynamic into the dividend dynamic. Lower growthively rate. Francine you were talking about apples reliance on the iphone. Can they pivot to services . Martin yes, sure. They have good growth of around andwe adjust for some the business is highermargin than what we have seen in some other parts of the hardware, which was growing on the variable side but coming with lower growth margins here. Important to see the growth rate in the margins coming from the services business. We see additional initiatives like the coming in august, which will be part of the services business. Quickly, what are your thoughts on apple and china . China. It is safe and salesd to be 20 of apple and now it is 18 and 17 . It is coming down. From that point of view, that is a bit of a concern that the technical future of the new phones will not be affordable. It has a trip of triple camera but competitors might have an advantage tech logically technologically. Plus, the price points did not seem to be the right ones. On the adjusted numbers this could stabilize. China is the big assembler of the iphone. Components are coming from all over the world. In the light of trade wars, is a risk, where do you assemble and source your components and sell . For the market and the consumers. Secondly, the market where the iphones are being assembled. Francine martin moeller, thank you. To get hisack to sri thoughts on tech. Street, komal sri kumar. Tech has been faring much better than expected. Komal they have been doing well on the back of a still good tailwind coming from monetary conditions as well as the fact that technology is a big positive. Apple benefited from the reduction in the value added tax in china which tim cook mentioned yesterday was a factor in the earnings doing so well. Will the Global Situation continue to be good for tech in the future . If the trade war increases, how that will affect apple in particular and tech in general, and the question is, are we at the peak of the tech boom or is there more ahead . I worry of headwinds in the future. Us. Cine sri stays with plenty more on commodities. We will go through the banks. Roadsteel will be on the for a special onehour addition speakingdities edge, to various executives, the chairman and president of bp america starting at 1 00 p. M. New york time. Surveillance, Francine Lacqua in zurich, tom keene in new york. Sri kumar with us. What is your run rate on gdp . Komal i think we came down from the First Quarter and Second Quarter. 2 hink we will be 1. 5 to ,un rate for the next 12 months the third and fourth quarters as well as the first and second. I think the slowdown is taking place, the trade war is hurting. Tom everything runs down to a terminal value out 5, 7, 10 years. Gdp, lower inflation rate and lower fed rates, the we . Ive up 2 level target martin the market will not give up komal the market will not give up. The market will not reach it but will not give up. Tom why not . Komal the market will cut rates more and more and they will not reach to be they need to be easier. Tom the president is hypercritical of mr. Powell and the fed. We can assume this president would be hypercritical of any fed regardless of the leader. Is the fed following the events or is the fed causing the events as President Trump states . Komal the fed is following the events, following the markets, and unfortunately powell and his colleagues have given the impression they are following trump. They are no longer the leaders in the markets are aware of it, which is why they will look for several cuts and more easing, probably going into quantitative easing one more time, because they have become followers. Francine where do you see dollar by the end of the year . Will we see stronger dollar and how much of a headache about the . Komal i would say the next two months, assuming a 25 basis point cut this afternoon, you will see the dollar appreciate against the one because the u. K. And eurozone have problems of their own which causes their currency to weaken. Supports5 basis points the dollar, so if you see the dollar going below one dollar 10 with the euro, then President Trump will get very upset and the question is, what does he do about the tweets concerning the fed and is chairman powell able to withstand that . You might see the currency weaken if it leads to a currency war or intervention as has been talked about the u. S. Has 75 billion dollars in its Exchange Stabilization fund and that is something that can come to the fore if the situation continues. That causes a temporary weakening of the dollar three to six months from now. Francine if you look at the fed necessities, are we already in a currency war . That is what President Trump seems to mate intimate. Komal we are in the second stage of the currency war. The first stage was one quantitive quantitative easing was started by chairman bernanke in 2009. The famous quote from the brazilian finance minister when he said they were in a currency war, the dollar was being weakened, and now we are in a second stage. The intensity went down for quite some time and it will pick up in six to 12 month. Tom i want to talk about the debate last night. Thepoliticians are doing same thing, trying to get us back to a run rate. We all want to get back to the nominal gdp of 1989. Do we give it up . Komal i dont know that they will give it up but i dont see how they will reach it. Tom what is your nominal gdp, under 4 . Komal if you assume a 2 real and 1. 5 to 2 on inflation, you get 4 nominal gdp, not a healthy situation. Tom you will not advise any president ial candidates, i can see that. Our coverage of a most historic day for the Federal Reserve system of the United States. We will drive through that coverage this morning and coming up later, scarlet fu leading our coverage. Howard dean will be with us and chairman powell as well. This is bloomberg. This is bloomberg surveillance. In the u. K. , Lloyds Banking group still paying for misselling insurance, taking a 667 million provision for customers who were improperly sold payment protection insurance. Withstand scandal has cost more than 28 billion dollars. Bnp paribas outshining its wall gain ineers, posting a fixed income training trading. Typicallyu see that these kind of activities and with low Interest Rates, you would assume there would be better bigger and equity an activity. 2020na bnp paribas cut earnings targets and announced cost cuts. That is the Bloomberg Business flash. Francine thank you so much. Credit suisse has brushed off the gloom in European Banks, adding new money in the Second Quarter. They outperformed peers. Spoke to the chief executive the Second Quarter started negatively in april. You can get in the same quarter, the worst and best month. You also have to be nimble. Part of our strategy has been to reduce our fixed costs heavily and we did that at the right time. Restructuring is going on. , weview was from the start had to take our costs down severely. Because we come out with a new platform just at the time when many others are restructuring and benefiting. Francine what is the sentiment and competition like in the aipac region . Tidjane aipac has been tough. We had a good Second Quarter. Profit is up 30 . Line, look by business prices have done very well. Leveraging, not over so. We created a number of quarters. Hen there was bundled leverage we saw this trend coming and we said, we have to put that to revenue so we took an ultrahigh trading initiative, a plan to trade more, and average trading has gone from 2 million per day to 2. 2 million per day. Net income is up, transaction income is up. Francine is this a trend . Tidjane i wish. I am optimistic about the future. Asia is quite volatile. All of the questions on the trade negotiations are weighing on sentiment. Space, thiss in desire to find scale because there is no Revenue Growth. Scaleody is finding because it is not happening on the global revenue line. Komal right. They are looking at scale because he is looking at a swiss firm, and you have Interest Rates in switzerland across the yield curve 50 basis points. Youecb will cut rates so have to do something differently to make money. Tom make a smaller bank. Komal that will be the issue not only with Credit Suisse but will recur again in the European Banking system. Tom thank you so much. In the next hour, not only will we look at the fed. Ira jersey is scheduled to join withut Meredith Sumpter the secondary story that is never secondary, china, not the collapse but the challenging trade talks. It is fed day. This is bloomberg. Tom this morning, it is not just another fed day. It is a historic debate on what chairman powell should do. Can the United States avoid the negative Interest Rates of japan and europe . Surges, let the cook transformation begin. In detroit, the distance between the moderates and liberals, tonight, biden and harris. This is bloomberg surveillance. Absolutely historic day today. I was fascinated by what the leadership of Credit Suisse said about the smallness of the bank. It is just not growing, is it . , this is the one challenge it faces in the future. It was interesting to hear Tidjane Thiam talk about negative rates, saying it is impossible to do business in that environment. He is not doing too badly. Clients gave him more money to manage, but it is about scale and one of the only things they have. Call,n the jp morgan rates market rating migrating down to 0 . Right now, our first word news. Viviana the u. S. And china wrapping up a new round of trade talks and shanghai with little evidence of progress. Steven mnuchin and Robert Lighthizer leading the u. S. Side. It has been almost three months since the last negotiation. Donald trump accusing beijing of trying to rip off the u. S. The Federal Reserve is likely to lower Interest Rates for the First Time Since 2008. They may leave the option open for additional moves. There still could be. It is unclear how much opposition they could face. Democratic candidates going at it again last night, 10 of them squaring off in a debate. Bernie sanders and Elizabeth Warren defending their progressive stances. I know how to fight and i know how to win. I took on giant banks and i beat them. I took on wall street and ceos and lobbyists and lawyers and beat them. I took on a popular republican incumbent senator and eat him. Beat him. Features joet two biden and, let harris Kamala Harris. Quarter,e fiscal third apple sales and Services Setting a record. Most of the services and wearables are used mostly with the iphone. 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. Check,ts do a data equities, bonds, currencies, commodities. A lift, call it an apple left. Dollar strength, president upset. The vix at a 13 level. The dollar index, dollar strength, curled sterling craters. Francine my data check is similar to yours. I am looking at stocks in europe drifting. The focus will be on what the trade talks mean because we cannot really figure out the fact that there is no obvious breakthrough, what that means for future negotiation. Investors grappling with a flood of corporate earnings. Pound, 1. 2170. Tom right now, i want to look at the bloomberg and this has to do with eurosterling. Very trade based. Off of brexit, a weaker sterling against euro. Johnsonianof weakness. We will touch on this with Meredith Sumpter coming up in a bit. To begin our coverage, we will look at china and trade, but on fed day we need to begin with the fed and we do that with ira jersey this morning. What will you look at . Ira firstly, how many dissents do we get . Tom could we get three . Ira three air hawkish and there is the possibly best possibility that one is possibility that one is dovish. Tom we have never had a meeting like this. Ira we have never had one where it is so uncertain and maybe the fed should not do anything. They are kind of committed in a way where jay powell could have walked back these hikes before congress a few weeks ago and did not. Even though the data has continued to be relatively strong. Tom how much is this your fault . With the gdp molding, how much is the trade war . Meredith the u. S. China trade war impacting this, nec markets catching up with the pessimistic tone Eurasia Group has had. Those talks wrapped early in shanghai and it is not like they did not have a whole lot to talk about what we are watching for is not just the pace and tone of the talks, but what happens with huawei. The general license will expire on august 19. As well as whether beijing moves forward with agricultural purchases from the United States. It feels like there is no momentum in those talks and it underscores our base case that we are unlikely to see a trade deal and are likely to see a continuation of tariffs potentially through 2020. Francine what is your take on what will happen with huawei . You say it is a big question. Will the u. S. Play softer with them . Ira certainly, meredith certainly, washington has been messaging to beijing that they are preparing to relax restrictions on huawei, but our perception is it is unlikely to be enough to satisfy beijing. Beijing is looking for washington to throw a lifeline to the 5g Telecommunications Infrastructure network and that is not the kind of relaxation we are likely to see from washington next month. Francine what is your take overall on the fed being led by the markets . Do they need to give a strong signal that they are independent of the president and the market . Ira i think they will. The market has changed significantly over time and that is based on what the fed has said and what the market receives as its reaction function. The markets are responding to uncertainty on trade tensions, the manufacturing sector. You still look at the survey data, the ism new orders number right at 50, just on the cusp of being contractionary. The problem is it is harder to determine what the end of the cutting cycle will be. Will it be one or two insurance cut . That is the challenge the fed will have today with their communications. Tom viewers and listeners actually got a really yield for a cup of coffee. Do you just assume it is gone . Ira real yield for 10 year treasuries is at about 30 basis points. Tom will it go up . Ira i think it will be zero. If the fed does its job, you should not get negative real yield because that reflects the volatility of the economy and the market, and the risk premium over inflation. You do not need that if inflation is low and stable, so zero and low make sense. What does not make sense is 100 basis point. The 2 00you with me in hour . Ira i am on it like 3 30. You. Ira jersey, thank scarlet fu leading the coverage. As ira jersey said, an interesting soup of dissent. More in china with Meredith Sumpter, this is bloomberg. Tom bloomberg surveillance, it is fed day. Good conversation all day long on Bloomberg Television and radio. Right now, we digress two things political with Kevin Cirilli. Debate, getting into the next one. How does tonights debate change after what we saw last night . Kevin i think it changes it majorly. Elizabeth and Bernie Sanders are the center point in terms of the ideology for the democratic policy, and every other candidate is reactionary to senator sanders and warren. That is the calculus joe biden is waking up to as he tries to send off cory booker and Kamala Harris, but the ideological shift in the debate. I would note the differences on trade policy. Andsuries secretary mnuchin representative lighthizer are heading back from china, but in detroit, this is ground zero of the trade debate. Justal motors headquarters a few blocks from where i am standing. And on trade, the populist streak runs rampant on whether or not they would use tariffs. Sensitive warren did not say whether she would use tariffs for negotiating. , take a listen to what he told me last night about negotiating with china. That reality is, we have to do something with china. They steal our intellectual property. I have watched it happen. On steel and aluminum and other issues. What is the big strategy . This is a tactical move. One is the grand strategy . He doesnt have one. Kevin congressman tim ryan is with senator warren on trade policy but differentiates himself on medicare for all. Tom the debate being put forward by rahm emanuel, he writes next ceeos minutes ago no one was the happy warrior of collective shortcoming. We are so angry at trump we are letting it get the better of us. When does the debate change toward what mayor emanuel is talking about . Kevin what is interesting with respect to the former chicago mayor, who is criticized for his own political demeanor and style , here in detroit, virtually every democratic staffer would went out senator warren had the breakthrough night and she is combating not just President Trump, but essentially thwarting off the likes of congressman john delaney and centrists who say that medicare for all ought not to be the platform for democratic ideology. Talked to john delaney last night, hickenlooper, governor bullock. They say medicare for all would be a political disaster to campaign on. Fox got thehow branding of the cnn debate last night behind you, the fox theater of detroit, one of the jewels left in america. Kevin cirilli ready for night two. Ira jersey with us and Meredith Sumpter also. Spence,o go to jonathan definitive on china in his wonderful book. He says managing the foreigners. We saw the american political process. Doesnt china just wait out this foolishness in detroit and washington . Meredith it seems that President Trump has been catching on to the patients strategy patience strategy. It is critical to understand that the chinese approach fundamentally changed in may following the placement of huawei on the u. S. Entity list. That changed the game for beijing. When you look at Chinese Press leading up to those negotiations in may, there was intensity and sincerity trying to get to a deal, even if beijing was looking to negotiate a deal in line with its version of success rather than washington. Following that, the tone has changed. Chinese context tell me in meetings there is no longer an emphasis on what we should be doing and how long weekend reform. It is more, what do we need to do to shore up our economic from thed protect it United States . Francine is the only question that traders and markets and analysts need to ask is whether President Trump thinks he can is at war0 whether he with china . Or whether he thinks he can win the president ial election saying, we fixed our relationship with china. Meredith he needs to align with one story or the other, either i have got to deal with china, or the risk is that china could turn into a political football football in 2020. If he looks at his broader trade agenda, we do not have a lot of wins. U. S. Japant a freetrade negotiation when later on this year when win later on this year, but the prospect of even usmca passing has been downgraded to 30 . Is winning fora American Families at home, his administration would argue. Tom Meredith Sumpter and ira jersey with us. Politics swirling with Kevin Cirilli in detroit. We are thrilled to bring you someone with a unique perspective on these new Democratic Party themes, howard dean, former democratic president ial candidate. This is bloomberg. Francine were just getting breaking news from china. They are saying the u. S. And china will hold the next round of talks in september. We were told there was a breakdown in talks, or they took a break from the talks today. Meredith sumpter has a good handle on these trade talks and china. The fact that they are doing the next talks in the u. S. , what can you read into that . Meredith what we are looking at is the timing. It has been well over a month since the g20 truce in osaka. It took a month for them to get together and meet in person to pick up the pieces from where things fell apart in may. August will be difficult for xi jinping. He has the summer resort meetings where the communist Party Conclave will come together and debate the u. S. And taiwan and what should they look to do moving forward. That, asart explains well as the huawei temporary ineralizing expiration october, explains why you are not likely to see talks pick up until september. We will get a sense of how bad is it and where will they go from here . Tom do they need our agriculture . Meredith what is more important is what is china doing to diversify away from dependence on the u. S. In technology and agriculture . If you do not rise soybeans from buy soybeans from u. S. Farmers, you will get them from brazil. There is a 20 probability you get a trade deal. If it is had, there is a risk the way the chinese supply chains have moved away from u. S. Permanent asll be they look to lessen their dependence on the u. S. Economy. Francine how much do we worry about chinese banks . Some say they are undercapitalized. Meredith watching what happens with chinas banks, they are under renewed pressure to lend to ensure the chinese economy is adequately stimulis as we work through these economic pressures. I would not be as concerned about chinese banks. Beijings approach has been very clear. Tweak the fiscal and Monetary Policy and get chinese banks to do more to lend to small and mediumsize enterprises, to ensure the chinese economy can stave off a long economic confrontation from washington. I would worry if you see chinas economy come underneath specific jinping, and you see xi come back to a massive stimulus. That will mean he is concerned about where chinas economy is going and the tools at his disposal to keep chinas economy afloat is not enough. Tom we will get back to ira jersey on the most important fed day. General election out with her General Electric out with. A set of headlines looking at flat revenue, earnings lift to ge, but it is unclear. Stay with us. This is bloomberg. Were just getting breaking news out of British Airways. We have found out they are having strikes planned. We dont know the date, British Airways loses court bid to halt the u. K. Pilots strike. We do not have precise data on when the strike could happen. We understand from the pilots union they want to resolve this issue through talks. If you are a traveler, check with reddish airways if you are due to fly with them. Showing aal aviation 10 on aviation orders. A General Electric showing 10 on aviation orders. Organic Revenue Growth is up 4 . Ira jersey on the fed. Can Interest Rates drive lower . Do they gain the fed or does the fed pole Interest Rates down . Ira it is both. The market is trying to anticipate what the fed is going forces thethe market feds hand. Tom what do you glean from the curve world . Give us curve wisdom. Ira lets talk about forward curves. Stop the show and talk about forward curves. Ira the market now is thinking the threemonth10 year curve that the fed uses, the market is expecting that to go up over the next year. They expect that to go from negative to positive, to steepen. Hands, thatr impresses everyone that you know what you are talking about. Francine . We were talking about the trade concerns with meredith short while ago. Away, trade concerns go what a cut i the fed be a mistake . Ira trade is only part of the uncertainty going on. You have uncertainty in manufacturing and weak economies outside of china. In europe, they have low inflation. There is this global aspect to what the fed is thinking about. There is a major uncertainty that would be resolved. That goes not to whether or not they go once or twice. But takes out the cuts that are priced in for later this year and 2020. Tom ira jersey will join us this afternoon as well, Meredith Sumpter with us from Eurasia Group. It was an extraordinary debate last night, lots of criticism off of how the debate was handled. Lets let you in. When when democrats we run on real solutions, not impossible promises, things that are workable. I dont understand why anybody goes to the trouble of running for president just to talk about what we cant do and shouldnt fight for. It is time to stop worrying about what the republicans will say. If we embrace a far left agenda, they will say we are a bunch of crazy socialists. If we embrace a conservative agenda, they will say we are a bunch of crazy socialists, so lets stand up for the right policy and defendant. This notion that you will take private insurance away from Many Americans that do not want to get rid of it, or the Green New Deal will make sure every american is guaranteed a government job, that is a disaster. You might as well fedex the election to donald trump. The reason we will be trump badly is he is a fraud and a phony and we will expose him for what he is. Tom some of that lost in translation. We will get translation from someone who changed how the Democratic Party thinks and acts, howard dean. We are thrilled he could join us amidst these debates. The Democratic Party is not the party of obama and certainly not bill clinton. It harkens back to a Democratic Party of another time. Is it . Howard no. I think both of these debates have been terrific and im not always the biggest fan of the media, but the moderators in general have done a good job with 10 people on the stage. Last nights debate was great. There was a debate about the future of the Democratic Party and it was a clear debate. I think the voters will make some choices. I thought it was great. Tom the gentleman from rhode island writing in the washington post, we would suggest that our many conversations over the years, on the donnybrook in detroit, it was the detroit donnybrook, sanders expressed exasperation saying, i get tired of democrats afraid of big ideas. Republicans are not afraid of big ideas. The democrats would do good to act like a sports team, watch the film of this encounter, and consider how well medicare for all would hold up on the 2020 battlefield. How do they get to a Campaign Trump headtake mr. On . Howard i thought the issues discussed were clear. When you have a discussion of the trump head issues, you are way ahead of all of this racist crap that donald trump puts out in his tweets. This is a Serious Group of people and that was a huge plus. I dont know where this will end up. I dont believe you can take away the publics insurance involuntarily. That is my personal views. I am comfortable leaving this in the hands of democratic voters, many millions of whom will vote in the primaries. Francine let me just go back to something you just said. Do you think President Trump is signaling that selling Racial Division as part of his reelection campaign, and how do the democrats deal with that . Howard that is how he got elected. President trump is a racist and is appealing to the worst in america. I think people are sick of the juvenile tweets and scapegoating people and sick of a president who has told over 10,000 lies in the first half of his administration, and want a real president. We have to provide a real president. We will not win this by attacking trump. We need to talk about what we want to do and that is why i thought the debate was so great last night. There is a big difference between Elizabeth Warren and john delaney and the voters will make a choice about which kind of vision they want. Francine can joe biden come back from his performance in the last debate . The polls seem to say yes. Howard i think he can. We will have to see what happens tonight. I think it will be a spirited debate. One of the things i thought was that last night was less personal than the debate where Kamala Harris sword into the leadership. I want to avoid a personal tone in the debate. They did a good job last night of avoiding that. Tom that is true, and maybe there is a shift to moderation that mayor emmanuel and others are talking about. It is not the Democratic Party that you invented long ago with your 50 state strategy. Will it stay a polarized, liberal party or can they move to moderation as they traditionally did . Howard we won 40 seats in the last election. Five would be considered fairly left and they get all the press. The 35 people who are veterans of the army and came from Orange County and texas and oklahoma and kansas, that is the most vast vote that we won. Tom lets do the dr. Dean subscription prescription, all you put a cork in the mouth of the liberals . Howard absolutely not. Changes and we will get to some of these liberal prescriptions. It is a question of do we respect i am neutral in this but i am sympathetic of a notion that you cannot take everybodys insurance away without their consent, and i think that is what we will do one way or another. Congress will not vote i am for medicare for all but not by taking away everybodys private insurance without their consent. Tom howard dean, thank you for joining us. This is not a surprise. It is breaking news on generous electric. She has been a holdover from Ge Transportation and is the cfo of the old ge, jamie miller will transition out. I dont know what that means. Jamie miller will exit as the General Electric cfo. This is bloomberg. Every quarter has been mixed. First quarter, Second Quarter started quite negatively. A very strong june. June was the best month in 42 months, so very contrasting. The negative Interest Rates are a challenge. We have different answers. If you look at our revenue, we are quite pleased. That has made further pressure on the net Interest Income. Francine that was the chief executive of Credit Suisse, Tidjane Thiam. When you look at the results they posted, analysts say the results confirmed the resilience in the key businesses following the overhaul of the chief executive. They have brushed off the gloom by some of their peers. Tom while working in a negative yield world, that is the way to get to our single best chart. Jp morgan, not a forecast, but a model, and extrapolation of the 10 year yield. Earlydown to zero in 2021. 0 10 yearget to a in america . Ira the biggest way is you wind up with inflation and growth being negative. We basically have a recession. You have to be careful looking at these trends because if you did the same thing from 1960 to 1984 we would be at 100 percent yields now. When you look at the forever history of Interest Rates, they tend to be between 2 and 4 . ,t the beginning of the chart the 1970s and 1980s, that is not a typical yield environment and the forever history of government benchmark bonds. Tom he hedges very nicely. You cant hedge a trillion dollar deficit that has a gift of low Interest Rates now. Policywe fold the fiscal into what we will see at 2 00 p. M. . Day, thehe end of the deficit has been pretty exogenous but the risk is as you have higher deficits, you wind up taking more government money and the tax revenue has to go into funding the deficit. You wind up with higher Interest Payments as a share of the government budget. That is probably unsustainable at some point so when we talk andt modern monetary theory jay powell and others have poohed the idea of modern monetary theory. You cannot have that unless Interest Rates are exceptionally low. I, 50 basis points of cuts would argue is probably a fair amount given the uncertainties we have. Much more than that you were getting into the fed is helping the Government Fund deficit over the mediumterm. Francine what are your main concerns about bubble creation . Is the fed aware of it . Is it something they are watching . Stimulus orbe more unconventional things down the road . Ira this goes into the communication the fed has to talk about. Timesare going to go four over the next 12 month, that is what the market is expecting and that is why equities are where they are and why credit spreads are as tight as they are. The fed would probably be ok 3 correction in equities but do not want to shock the market and have 15 ins go down 10 or be the cause of the volatility. The challenge for the fed today and the next couple of meetings will be that communications piece. That,y dont deal with they will generate more bubbles more volatility later, which the fed looks to avoid. Francine we were talking about the democratic debates yesterday and today. When americans go to vote, what will they be looking at . As a trade or simply the economy . At theh the economy macro and micro level. There is a stark difference in how americans think about and feel about the American Economy at large. They are looking at the press statements coming out from the white house, strong growth rates, low unemployment, and they feel good about that, but when you ask about their own personal finances and their childrens prospect to achieve the american dream, only 35 of americans believe their children will be better off than they are. The challenge is to demonstrate that President Trump is the better fighter to allow those americans to secure that american dream, regardless of where the micro economy might be for american pocket looks. That gets back to you, is the trade agenda working . How is the u. S. Economy really doing . How are the bond yields performing . Is there a crack in confidence . Those are the key questions we will be watching. Francine thank you so much, narrative sumter of eurasia and ira jersey. We will have plenty more, including on a programming note, alix steel will be on the road tomorrow for commodities edge. It will be a special onehour addition. She will talk to various executives including the chairman and president of bp america. That is tomorrow. This is bloomberg surveillance. News,in with breaking reddish airways moving the u. K. Corporate to halt a pirate pilot strike. Ba pilots have not gone on strike in about four decades. British airways says they have they are disappointed they have chosen to strike but will do everything to avoid a strike. Earnings surging in the Second Quarter at airbus, ramping up deliveries of a narrowbody jet that rivals the boeing 737 max 8. A320 planesd over but some are complaining shipments remain behind schedule. That is the Bloomberg Business flash. Tom ge aviation with doubledigit order declines, 10 . Revenues were ok. There cfo will transition to another role, jamie butler jamie miller. Did the apple watch finally mature into a legit product . It looked great to me. The wearables category in general was close to 50 growth. Tom why was that . Software, you bought one. I am in the market for one and went shopping for one and am looking at the price points going, this looks like the iphone five or six years ago. Volumebegin to move good on a 500 to 600 price point, you will generate good growth. Tom what does the cash generation and cash build look like on the Balance Sheet . Billion indid 9. 63 free cash flow. The primary focus for the companys distribution to shareholders, so they have a decent dividend payout and they are buying back shares. What was encouraging to me francine talk me through some of the services. You are seeing a shift to services, but when will they pivot to something that does not use the iphone anymore . Is that when we can say they have done well . John services are a big part of the story. Services, and the new products, together that was about 30 of revenue. Services have a decent growth quarter but it was not the best of the year. I think a few people were a little bit concerned about slowly. When i like about services is in the fall, we have the new launch in content services and i expect more on that front as they expand that business. Credite have the new card with Goldman Sachs coming out. Tom could you see me with a s . Ir of ear pod john yes. The white things . John it is cordless. Tom i was the last one to get an ipod. They are ridiculous. Fed day, jon ferro and i will drive forward the conversation, a rate cut resumed. This is presumed. This is bloomberg. Alix that cut, fed cut, opening act or closing number . The dollars fate could hang in the balance. China and u. S. Talks end in silence. Leaves. Trade delegation after trump rips china. Sales. Nvestors shrug off david welcome to bloomberg daybreak. We have an awful lot of earnings out. Ge earnings beat expectations, and announced a transition with their chief financial officer. Alix they raised their earnings and cash flow outlook. I wonder if things are just so or they cant get worse, they are finally seeing some change. David maybe they are making some progress on it. And