Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

I would look for italian bond yields and treasuries. We are also getting breaking news out of iea. It says the oil outlook is fragile. We had a great story saying saudi arabia is speaking to producers to make sure there is not too much volatility. 57. 42. Rude at and the one weve had a lot of news, we could talk about u. S. Intervention on the dollar. The yield at 1. 7. R shares are rising after the Company Proposed and 8 billion settlement. This is the picture, 7. 5 higher. Coming up, we speak to the chief executive of novo nordisk in 30 minutes. First, lets get straight to bloomberg first word news. We stay with that breaking, also a bloomberg scoop. Bayer proposing to pay 8 billion to settle claims round of causes cancer. This would settle more than 18,000 lawsuits. It may be months away, but it would ease investor concern over the litigation exposure. Fight, thatthout a is the italian Prime Ministers message to his deputy. Leaderiimmigrant league is pulling support for the administration, calling for an early election. He is demanding lawmakers begin a vote to oust the government as soon as next week. The u. S. Is holding off on a decision about licenses for u. S. Companies wanting to restart business. Thats after beijing said it was holding purchases of u. S. Farm goods. Aftercense is required the white house added the Telecom Giant to a blacklist over National Security concerns. Over to japan, where the economy grew more than expected. Is as stronger Consumer Spending and Business Investment offset exports. Gdp grew an annualized 1. 8 . Consumer spending was a key driver, rising the most in two years. The reserve bank in australia says it is ready to reduce its record low Interest Rates if the economy needs it. Philip lowe pushed back against expectations, but the rba chief signaled the economy could be through the worst of it slowdown. Inflation will be below targets for some time to come. While that remains the case, the possibility of lower Interest Rates will remain on the table. Common sense, thats what Boris Johnson is urging as he tries to negotiate a new divorce deal. There are less than three months until the scheduled departure, but johnson has told the bbc there is still plenty of time to secure a better deal. Indias Prime Minister is hailing a new era in the disputed region of kashmir. He is ridding the region of what he calls quote dynastic politics and entrenched corruption. His pakistan counterpart warns of violence and genocide when a curfew is lifted. Global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine . Francine thank you so muchfrancine . Lets kick it off with oil. The International Energy agency has said the outlook is fragile after the weakest patch since 2008. In demands growth i would hundred thousand barrels. Demand growth is at 100,000 barrels. And a joined by our guest person from fidelity. Let me kick it off with you. We just had the iea report. Overall, if you see what has been happening this week, it is a lot of pressure on the markets. A lot of pressure on trade rhetoric. How can you be so sure its not going to get worse . We dont know, of course. The u. S. China dispute takes various twists and turns. Clearly, there is a weakening of confidence. We have acknowledge that in his latest report. Of course, we have downgraded our Oil Demand Growth forecasts because we have seen a weaker data for the early part of the year. Data for ther early part of the year. Everybody hopes the discussions will find a satisfactory resolution. Then we will look at the underlying on the mentals in the oil market. Underlying fundamentals in the oil market. It will be challenging to the major suppliers. Francine are you confident you will not have to make deeper downward revisions . We are not going to put odds on it. Obviously, we wait until real data emerges each month and we look at those numbers. On the basis of that, we adjust the forecasts. Forecaststhe downwards or upwards. Were not going to try and secondguess how the global , but wemight turn out are knowledge the mood music is not nice. Francine do believe that russia and saudi arabia both have the willpower to avoid surpluses . There is already an agreement in place, of course, which has been in operation since the beginning of this year. Signatories have more than delivered on their pledge to cut production. They have over performed, particularly in saudi arabia. They will be looking at balances for the rest of 2019, which do offer them some comfort because we do see stock drawdowns. Of course, as we say in the 2020, as we move into were seeing a fresh impetus an acceleration in the growth of production. There is still a considerable challenge, and as you said, saudi arabia and russia will doubtless talk with fellow producers. If they feel the need to take action, they will do so in their own time. Francine when you look at some , we see sauding arabia might be trying to get other producers on board. Is there a danger they cut to deep too deep . I dont think we are in a situation where they cut too deep. Measure of the success for the agreement is the level of oil prices. At the moment, the price is lower than they would like. I think everybody acknowledges that, although they dont know exactly what price they regard as ideal. For the moment, we are not in a situation where we are likely to cut too deep. We just have to watch the market as it develops. , butust on the supply side whether there is to be any further downward pressure on demand. Francine lets also bring in toby from sil fil. The are they on the sector and not the oil price . Have corresponded highly with the oil price, that has certainly been the case. What we see recently is that correlation has started to break down. You know oil prices have been weak recently, the last 12 months or so, it has been ok. But Oil Companies have materially underperformed. There is something of a disconnect, which suggests there is less downside for the Oil Companies. But i think it is interesting to think about why that might be the case. Is because of the increased demand for bsg type strategies. Esgs type strategies. Francine final question from you. If the trade conflict were to be resolved soon, how long would it take for demand to go back to normal . It obviously depends on the and unraveling some of the traded dislocations we have already seen. But if there were to be what everybody regards as a successful outcome, that would be an enormous boost confidence. Suggest, we would see an improvement. Fact, of course, that oil prices at 57 a barrel, brent as you suggested, they are well below levels we saw last year. Prices, were they to be maintained, they would be roughly 20 or so beloved levels we saw in the second half of 22. Of 2018. So the resolution of the trade dispute could well be a considerable support to the market. Francine thank you so much, as always. Industry at iea. Toby from fidelity stays with us. The number that has moved the markets this week is seven, chinese yuans fixing. The biggest loss was triggered since 2015, triggering a tumultuous week. It has led to the u. S. Labeling china a currency manipulator. It sent investors rushing to haven assets. 15 trillion, the worlds stockpile of negative yielding. And in 1500 per ounce, gold futures hit a sixyear high. The precious metal has been one of the chief beneficiaries of the trade dispute. This is bloomberg. Francine economics, finance, politics, this is bloomberg surveillance. The Trump Administration is said to be causing a decision for the licenses for u. S. Companies to resume work with huawei. In june, the president said that some restrictions would be loosened. However, his promise was contingent on china beefing up orders from American Farmers. President trump is taking fresh aim at the u. S. Currency, moving a step closer to scrapping longstanding white house support. He tweeted he is not thrilled by the currency strength and attacked the fed for making life hard for corporate america. Still with us is toby from fidelity. We had quite a big week. Ourselvesd to ask whether there is a race to the bottom in Monetary Policy and whether we are in a currency war. Are we . Toby its interesting. I think we saw with china that they needed to do something. Historically about what they have looked at is either devaluing the currency or boosting stimulus. They have said recently they will not be pouring money into the Property Market and potentially creating a bubble there. The currency seems to be the focus. Francine on the china side. But we are now possibly talking about the u. S. Intervening on the dollar, which seems like science fiction. Toby absolutely. What is driving the currency are capital flows. Uncertaintyount of we have and the fact that the u. S. Is a safe haven, that will be driving the u. S. Currency. , donaldto a degree trumps tweets will drive the currency in the shortterm. Francine this is what we are asking. We have a markets live blog on the terminal, which is fantastic, and we are asking strategists what impact would dollar intervention have across assets . If we are to see dollar weakness, clearly that has a positive impact on certain areas. Emergingmarket equities could benefit from that. That potentially offsets some negative sentiment around trade wars. A positive impact on the gold price, again, coupled with lower rates. Clearly, the opportunity cost of holding gold is the return you can earn on a bond or cash. Lower rates will benefit the gold price, i think. Haveine thanks, we will plenty more from toby throughout the hour. , deputieson the brink wants awant election snap election. More on that next. This is bloomberg. Francine this is bloomberg surveillance. Lets turn to italy, things are heating up again. The Prime Minister has called for a snap election as he sees that seeks to capitalize on poll eeks to capitalize on poll numbers. The premise are says he will not leave Office Without a fight and will not let his opponent dictate things. First of all, if there is an election, camusso vini can salvini govern alone . The poll numbers are just about their. There. 40 , whichjust under might be just enough to give him a majority. But if you were to a lie allied with the brothers of the brothers with of italy, they would poll at more than enough to give them a far right, sovereign this sov reignist government, a thorn in the side for brussels. Salvini why did matteo decided to pull the plug now . Beside to pull the plug now . If you think about it, on monday, the league of a confidence vote for the current a ernment, giving sell been salvini new powers to curb immigration. It is not clear. Salvini decided it was the right moment to capitalize. There is also a lull making its way through parliament that would have the numbers halve the number of lawmakers, making it more difficult for elections. They would not want to risk their jobs. It is difficult to understand why he waited so long after european elections that showed how strong his position was. Francine alessandro, thank you so much. Still with us is toby from fidelity. We had the spread from the german bund and btp, they are widening a little bit but tighter than average. What needs to happen for that to change . This is an opportunity decision by salvini. What is interesting is, as mentioned, the likely earliest point for an election will be areber time where italians already into budget tory negotiations budget negotiations. It will create a lot of uncertainty and volatility for the italian market, and more broadly, for the european market. Willnk the banks in italy be in the eye of the storm. Francine at the moment, the coalition does not really work. So would the league, with more power on the economy but not be economy,estors not be good for investors . Toby potentially. Limited decision power is not good for the economy. There is lots to be decided in terms of what the league would actually do if they were in the sole power. There are potential challenges ahead. I do worry about the banks in the situation. , that doess widening raise funding costs for the banks and the cost of equity. That is already pretty high, so i think theyre pricing in a lot of risk already. Francine is there anything else in perforate europe that you like or dislike periphery europe that you like or dislike . Toby we are reasonably positive on some of the banking names, given where valuations are. Francine tony from fidelity stays with us. Bloomberg forecasts the u. K. Economy failed to grow in the last quarter of its worst performance since 2012. Plus, we check on todays european stock movers. The markets are a little bit called her today after a turbulent week. We also have breaking news on bayer proposing to pay as much as 8 billion to settle 18,000 u. S. Lawsuits alleging its roundup herbicide causes cancer. This is bloomberg. 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. This is from the 5am wakers, to the 6am sleepers. Everyone uses their phone differently and in different places. Thats why Xfinity Mobile created a Wireless Network that auto connects you to millions of secure wifi hot spots. And the best lte everywhere else. Xfinity mobile is a different kind of Wireless Network designed to save you money. Save up to 400 a year on your wireless bill. Plus get 250 back when you buy an eligible phone. Click, call or visit a store today. Francine the White House Holds off on a decision to let u. S. Panies coalition crumbling. Early elections with the Prime Minister saying he is not going anywhere without a fight. Shares a Million Dollars over a lawsuit over its weedkiller. Good morning, everyoneng news out of the u. K. , and we are seeing the first contraction when it comes to gdp. Year,r on quarter at. 2 year n plus. 2 instead of the 1. 4 we were expecting. Wereis the one thing we trying to figure out, whether this contraction would come. It is the first oneit is the fi, and if it becomes what it means for the future investment cycle for a lot of chief executives with 84 days to go, the scheduled departure from the e. U. , we will see what this data means for investors. Executiveg in our editor for economics. Thank you for coming on. I am looking at the pound at 1. 2094, looking at the contraction for the First Time Since 2012. What does it actually mean for markets . It is not a good contraction. The team of economics point out it is a correction from the previous quarter. There is a lot of stockpiling in the first quarter, and the economist beforehand was saying there would be some form of correction. Ae question is, will this be recession . You need two courses for that. Itcertainly provides overshadows the Brexit Debate, withence the Brexit Debate the European Union, are you necessarily going to see this . Or will there be more leverage, . Utting pushing back it for the bank of england, will be on the more dovish side than they have been of late. Francine is it easy to reverse the trend . I am looking at the breakdown and it seems a lot of the loss of momentum came with trying to ramp up inventories by the last deadline. Is it mechanical . This is uncertainty issue. If you are a company, an investor, are you willing to put money or jobs or investment at stake into the british economy at the moment when there is so much uncertainty. You talk about, certainly you could see a pickup in demand, a pickup in investment, hiring, with these things potential to raise rates this year. Francine auto factories brought forward their summer maintenance shutdowns, and yes this has to be because of because of the march deadline, are we going to see the same thing with the october 31 deadline . Simon we will, and perhaps more so with the government suggesting they would erase the no deal if it came to that. Francine i dont know how you read it, whether people are going to see this as a contraction, it actually it is more mechanical than that, but it could be exacerbated if we go through it a second time with that 31 october deadline . This certainly is a function of the uncertainty we are seeing. Clearly companies did bring forward orders prior to the previous deadline, and that is a mechanical issue which sort of washes out. As you say, we have another deadline at the end of october, and we could see that again. I think we are seeing particularly in the venue factoring sector, a dropoff in confidence, and people are really putting back investment decisions, hiring decisions. The longer that goes on for, the more chance of an impact on consumer confidence. Francine if they are putting it back, does that investment come back if we have a smooth brexit . Investors saying a discount there, but if this goes the way they think it might and i dont know whether your thoughts on the no deal is 50 50 then we will make some money there . Toby it is a coin toss rather 50 50, what is going to happen with brexit. I think there is the potential because we have things have been delayed, and sentiment has been very weak. Companies have been holding off on investment decisions, so i think there is definitely the potential that if we do have a smooth outcome, that we do see investments start to come back. Even if we have a smooth outcome, there is still a lot of uncertainty, and a lot of challenges ahead of us. Potentially that will not bounce back as quickly as people are hoping. Francine the idea that it could isparity is all some also something we hear more often. Simon i will be able to tell you more when i return from my much is and i see how being charged at different airports. But that idea of parity is taking hold. Francine i will not tell you exactly how much i paid, but i think they gave me 95 euros per pound. Does it Impact Investment . When you track investments, how much does this bring investment from abroad . It is also per pound. Does it offset some momentum . Simon it could, but do you want to invest in an economy with a great amount of uncertainty, or does it preview a leapfrog . You. Ine thank thats get to bloomberg first word news with viviana. Aviana china is being called regime the spokesperson goes on to say that is not how a responsible nation would behave. This is of course another single another signal of the ramped up words with china over hong kong. And Mitch Mcconnell says Gun Legislation is at the top of the agenda after several Mass Shootings and he says the senate will look at expanded background checks when it returns from the summer break. Also on the table, socalled red flag laws to keep guns away from dangerous people. In the past, mcconnell has opposed most gun laws. And the Philippines Central Bank sees further easing this year. Benjamin yoked no says quarterpoint cut could come as early as next month. The governor says this year it could be cut by more than 100 basis points. Contemplating is a rate cut of maybe 25 basis points that could come as early as september, or it could be in the fourth quarter. Also see a required hundred basis points, required ratio cut by the end of the year. Primary star is hailing a new era in in the Prime Minister is hailing a new hero in cashmere of dynastic after dynastic politics and corruption. Global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in over i am vivianas, hurtado. This is bloomberg. Francine . Thank you so much per lets check on what is moving in your markets. A lot of big movers this friday. I want to start with bayer come up more than 7 . With bayer, up more than 7 . With more than 18,000 lawsuits for round up, which is said to cause cancer. Is, will thison be accepted . Wpp is a big gainer, up more than 6 . They were out with results, they kept their outlook, they are tapping new businesses, the likes of instagram and ebay. And they say that the travel for the direction is encouraging. Down more than banco bpm is down more than 7 this morning. Elections could be seen on october 23. We saw it in the bond market, and now equities are getting hit. What is going on in the u. S. Premarket . What is going on with uber, down more than 8 premarket trading in new york. This comes after they are really hitting the brakes after the core results. They posted a 5 billion loss. The big question for investors is, can they return profit anytime soon . Francine the big question everybody wants to know. Your main market moves. Stay with surveillance. More coming up, including as they next the maker of diabetes drugs sees we see we speak with the chief executive of novo nordisk. That is next. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. Novo nordisk has raised its Sales Outlook for the year, posted by a nextgeneration diabetes drug. The biggest maker of insulin now says 2019 sales will grow up from itsnd 6 , own look previously of 5 . Joining us is lars jorgensen, the chief executive of novo nordisk. Thank you for joining us. Been of all, you have developing drugs for diabetes and obesity. Talk about diabetes in china. Do you think you are competitive with some of your rivals . How much more can you do in china . We have a goode portfolio of products. In china we are getting these approved. These are products we have been competing with outside china for some time, so the strong momentum we see across all markets we now also see in china, and we believe that is sustainable for years to come. Francine you previously flag lower average prices flagged lower average prices. Do you worry about that Going Forward . Lars it is correct that there is priced pressure in the insulin segment in the u. S. The category has declined in value by 20 , so it is not just impacting us. In the case of novo nordisk, we have a strong business base, we are launching a product for type two diabetes, and that is growing in the u. S. At 30 . We see similar strong growth in europe, and we have so far only lost in 21 markets. Our franchises spearheaded by the new launch. Francine are you any closer to making any acquisitions, after your last one, which ended up going to a rival . How much do you want to diversify or be in certain units . Lars you could say we are in a way diversifying within diabetes. We have more products there. We have a lot of innovation going on there. Business, how much can we hold on by growing assets . We are looking. I cannot give any specific comments in terms of companies, but this is something that has been ongoing for some time. Francine is there anything that you want to hone in, without giving us the name of companies . Is there a sector or a part of the business that you think would be attractive to bring to novo nordisk . Lars yes, we have a strong business already. We can see the number of rare blood diseases that we could play in. Last year we did a deal on a sickle cell disease, so that is one area. In the endocrine area, we also have a lot of good contacts. It is a broad search, but it is important to underline that our biofarma business is growing. We are also lurching launching products in the biofarma business. Francine are you diversifying into New Territories at all . New regions or countries . Lars so we have a global footprint already across our these are newthat products being launched. A longerlling out acting for to mine we already are a global player, having global reach to our markets. Aboutne we speak so much the currency wars. We talk so much about the trade wars. How does it impact novo nordisk . Are you concerned about the manner currency fluctuations . Sellingr business, toicines to sit people, sick people, we are not seeing a big issue from the trade wars so far. Of course, longerterm, lower Economic Growth will have an impact on this. Governments ability to pay for medicines. Shortterm, we do not see an impact from trade war or specific countries. Francine thank you so much for your time for that is lars jorgensen, the cheeky the guys the chief executive of novo nordisk. Asers are proposing as much 8 billion to settle 18,000 u. S. Lawsuits bayer is proposing as much as 8 billion to settle 18,000 u. S. Lawsuits on roundup. Using eric, welcome to the program. Exactly what is being discussed right now . They are discussing a settlement that would potentially resolve all of these 18,400plus cases that keeps mounting for bayer when it bought monsanto for 63 billion last year. They are discussing resolve in all these cases for potentially 8 billion. There is obviously some disagreement, and they will haggle it. Francine the share price is gaining some 7. 2 . Could it much more . C some of the analysts have said settlements could go to 10 billion, 20 billion. Massive amounts. So 8 billion is a lot of money, but it is a lot less than 20 billion. Francine it is not imminent, right . Or is it . How long does it take for these things to be settled . Are the indications we getting is these could take quite a while. What do you do with people who have not come forward yet, who have not gone to a law firm and filed a lawsuit . Might still come down with cancer and claim that it is because of their exposure to roundup . What happens with those people . How much do you allocate for them . How much of that 8 billion or 10 billion goes to them . Lookine how much do you at pharmaceuticals . We were hearing from novo nordisk, that they are pretty immune to the trade war, which is one of the few places we can see that because they are not impacted that much. Novo nordisk in particular is exposed to longform longterm structural growth. It is about demographic trends and the growing middle classes and emerging markets. Ple becoming increasingly diabetes being increasingly prevalent, obesity becoming increasingly prevalent. Novo nordisk is clearly a fantastic business with a very strong and competitive advantage in an operating on we look awfully in an operating all the gobbling. Oligopoly. Erating you will have pressure from both sides of the house i think in the u. S. Francine and a buyer . And bayer . It is interesting. This could be positive for bayer and the share price today. When you think about housw has been wiped off the bayer share price, it has been tens of billions of dollars. That is a function of the potential impact but also the uncertainty that has been created. 8have a settlement that is billion, 10 billion, or 20 billion, that will get people to focus more on the core business. Francine thank you both. Eric pfanner and toby gibb. Coming up, we will stay with european equities and talk earnings season so far. This is bloomberg. Francine economics, finance, politics. This is bloomberg surveillance. We focus on earnings, with trade tensions reaching new levels. To look atill want next wiis numbers for any red flag. Next weeks numbers for any red flag. Are you looking at earnings . The future outlook, do you break down by region . Give us two or three good pointers. It is a toby it is a combination of things. Over the earnings season, it is understanding how the companies are progressing and if it is in line with our expectations and the expectations that they have themselves. This earnings season has actually been probably a little bit better than people were expecting. Growth seen 4 earnings for Earnings Companies for in america, less so in europe. It has been reasonably good particular for u. S. Companies, less so for european companies. Francine i had a great chart which i am kicking myself for not bringing up. You will have to come back. For the first time in a long time, we are seeing yields on equities, the dividends, actually being higher than yields on government bonds. Does that change the view of equities overall . Toby i think it does. It is difficult to argue, notwithstanding the selloff we have seen since last friday, that the equities in absolute terms are very attractively valued. But when you compare it to other Asset Classes, particularly to fixed income, there is a case to be made. Looking relative to government bonds, but particularly to Corporate Bonds. If you take certain european companies, for example, the dividend yield is higher than the Corporate Bonds yield. If you take a company like sap, which you would expect to be a Bigger Company in five years time than it is now, you would expect to be able to benefit a higher dividend yield than a Corporate Bond yield. There, headby gibb of investment directing equities. Tom keene joins me out of new york. We will continue the conversation on the markets with the investment manager at Aberdeen Asset management. This is bloomberg. Francine helping while way. The White House Holds off on a decision for companies to reset business for the chinese tech giant. Something he calls for sell vini calls for early elections. Bayer shares in the drug Company Surge as it is set to pay 8 billion to settle lawsuits over its roundup weed killer. Good morning, everyone. Good afternoon if you are watching from asia. This is bloomberg surveillance. Tom, we are on election watch, so we do not have a date set for italian elections, but there is movement when it comes to italian bond yields. There is brexit watch, and a contraction. We will look at any repercussions. Tom the contractions we were talking about. We will have a good conversation on surveillance today. The german twoyear breaks down to grade of to greater negative yields. It is impacting a lot of Asset Classes. We will go into the deeper. Thats get straight to bloomberg first word news with aviano. To borisit is a blow johnson. In the second quarter, the u. K. Economy effectively shrinking. That has not happened since 2012. Roast a master product felt. 2 . Any companies ran down inventories ahead of the original march deadline for brexit. British manufacturing falling by the most in a decade. Bayer is proposing to settle more than 18,000 u. S. Lawsuits that accused its roundup weed killer of causing cancer. Bloomberg learned the German Company is willing to pay up to 8 billion. Shares of bayer are surging even though an agreement may be months away. Bayer lost more than a third of acquired monsanto. The weedkiller maker. Bloomberg is learning that the white house delayed a decision on licenses for u. S. Companies to restart businesses with Chinas Huawei technologies or that move coming after beijing said it was halting purchases of American Farm products. In may the u. S. Put huawei on the trade blacklist, citing National Security concerns. To japan, that is where growth was stronger than inspected again. Growth byond quarter, 1. 8 , doing little to ease trade tensions. Global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in over i am vivianas, hurtado. This is bloomberg. Tom lets get right to the data check. Some good conversation here to set up friday and into the weekend. Futures a bit off. Dow futures at 98 right now. And really importantly, the curve came in last night. We had a nine basis points on the point to spread. There is a dampening here. Flatter yield curve. Yield does not tell me much. Oil churning. Equity markets it is friday, i guess we go down today. 18. 16 not really all that bad. The 10 year yield was bad to back to a 1. 69. That should be right on the screen, down one basis point. Twoyear,. 80 six. Francine told me i had to do it. Francine we have to look at the renminbi every day, tom. Looking at gold every day, given the riskoff move we have been seeing. I am looking at italian assets init are down after salv told about support from the coalition. A pound a little bit weaker, so 1. 1195. At eurodollar, and the italy 10year yield at 1. 18. You can see crude oil, 52. 81. Tom this is a really cool chart, francine. Thank you for bringing this to my attention. Atian Evans Pritchard Capital Economics with a brilliant chart on food inflation in china. This is two parts. Absolutely critical pork determinant. The white line is pork. Moonshot from spring of this year. It has been joined recently by a huge surge in fresh fruit. Francine, this is a really interesting tension that president xi faces. Forget about international, he has inflation front and center now. Isncine that is why there so much focus on what they are seeing domestically. They will probably not support a lot of neighboring countries as much as they used to. I have an important chart, the bunds. On if you look at italian stocks, there has been pressure from the government that has been in power for a little more than a year. You can see a little more anxiousness on the market. For making a chart that is impactful and simple. Aberdeens is the investment manager james athey. Thank you for joining us. We will talk about italy in a second, but lets start on trade. Tom had a great chart. It shows the anxiousness that the chinese have to deal domestically while at the same time not losing face with the u. S. Does it just get worse from here, trade concerns . To see. T is difficult normally we talk about safe about facesaving ways out. Xisident trump and president are two leaders in the world that do not necessarily need to face away out facesave away out. President trump has shown he is quite happy to completely flip his views one hundred 80 degrees without much because to do so. That being said, it seems to me that the path for these tensions is to remain elevated. I would say that where previously i would have said keeping the population happy is the number one priority of chinese policymakers, what we have seen in the last 12 to 18 months is that president xi has shifted dramatically to a more maoist approach to the chinese maybe that is not quite the limit on policy that we have seen previously. Francine the other interesting point we have seen more and more is possible dollar intervention on treasury. What would that mean for the currency markets . We are talking about it, but would it be effective if it came to pass . When we have seen that sort of intervention previously, those have been toward i think the market is fairly of the view that if the u. S. Were to try and cap the value of the greenback by unilateral intervention, it would probably be a rather short term and probably would not have a material inference. Mr. Trump continues to rail against the greenback via twitter and continues to put pressure on the fed, but it may be the case that if he can try to restart the case of an additional stimulus from the fed, particularly by the balance sheet, that might be a more effective way to spend the valuation of the greenback rather than stoking the fires. Tom i want to go on macro with you right now. I want to reset over the weekend after the quiet week we have had. Are you giving up on international and do you have to go more developed nation, big cap domestic . That is a good question, tom. The world we are living in in the moment is when your currency concerns are huge. Something we try to find has been lost in our macro discussion debate. It is the notion of the riskfree rate in the domestic market. The only return one can earn in terms of your domestic currency is a riskfree weight. Youg else you want to are taking a risk. When we compare u. S. Treasury yields with bond yields in nominal terms, we are comparing like to like. You have to be careful about looking at returns overseas and thinking they are available to you as a domestic investor. In a world where currency volatility will be high, i think it pays for investors to be looking first and foremost in the domestic market before looking overseas. Tom well said. I find this fascinating. Whole game on International Investment is you get a couple years to catch up. With the terminal with the turmoil we have with the trade war, and the Interest Rate cuts in the last 48 hours, do we give up on the big jump in international at some point . Do you toss away that traditional idea . James i dont think you should toss it away. There are big picture structural things going on in the Global Economy and our cyclical things that go on around those sexual things. I think it is fair to say there is a popular narrative abound those strip around those structural things. I think it is fair to say there is a popular narrative about what it means on the Global Market Going Forward. Absolutely that is the right conversation to be having, but as always we need to be careful not to throw the baby out with the bathwater because in developed market space, we know that we have democratic demographic headwinds to structural growth. Investor, i dont think you should look at a country like india and say we do not want to be investing there because globalization has reached a peak. The indian population is huge and likely to be growing rapidly Going Forward. The opportunity for growth just from that fact, let alone the policy choices that have been made there, is absolutely huge, and that is some the you want to be close to. Francine jeremy, are we going to get a plaza accord . Jeremy it is probably unlikely in this environment. It does not seem to be at the top of the markets agenda in the current environment. We are increasingly in a unilateral world, so it seems difficult at this juncture to see that. We do have an upcoming g7 meeting in this month. In france. It will be fascinating to see if there will be any dialing down of global tensions. The markets that will be disappointed with that. Thank you. stay with us. This is what japan is doing after the u. K. Economy unexpectedly contracted in the second quarter. We just got some analysis saying that the gdp is unlikely to herald a recession because there are factors that weigh on growth, for example, the unwinding by companies ahead of the 31st march brexit deadline. This is bloomberg. Tom bloomberg surveillance on a friday. I would like to tell you it is a quiet friday, but it is not. We will look at italy in both hours. John mickelthwait, our editorinchief, joining us in the sick sick like our. ,ight now, james athey aberdeen, and jeremy stretch. I want to talk about safe haven currencies. Bring up the chart, if you would. The chart is simple. , in 2015, thessie gentle rollover we have seen in the last 18 months. Weaker euro. Swiss, what do you read in swissie right now, jeremy, and what signal does it have for james eighth he he echo for james athey . Jeremy back toward the swiss franc will cause a great deal of consternation because they have done their level best over the last three or four years to stem that flow. It seems almost an inevitability if we are going to see global trade tensions continuing. Swiss franc will remain well at tivoli relatively well supported. More so against some of those risk oriented currencies, so sterling is an obvious one where in european times we will continue to see uncertainty. More that one factor may mitigate. I think it is more about the swiss against other currencies. Tom lets go to dollaryen. The safe haven study is what we are doing now. Jeremy, i am looking at dollaryen, and i have this chart from two years ago, which is the kuroda chart. Your is kuroda with a big decision in 2015 and he wants the yen weaker. He did not get it. The yen came straight down with a rollover. How urgent is it with this friday, into saturday morning, with the bank of japan with a stronger yen . Is there an immediacy in august, or do they have time to wait . Jeremy the bank of japan like other Central Banks are concerned about their inflation target. That inflation target has almost remain like a pot of gold at the end of the rainbow because it never seems to come. The boj would love to have a cheaper value of the yen to deal with inflationary pressure, but it will be difficult for them to achieve that. I think it is going to be the case that the market will continue to speculate as to what ammunition the bank of japan has left, relative to other global banks, and the market will clearly will conclude that the boj has little, so it may be the case that the risk off move will continue to see the end strengthening, the dollaryen moving lower. That will be bad news for the bank of japan inflation target. Francine we were talking about a question earlier, if you look at the possibility of dollar intervention, what is the probability of that, and what Asset Classes does it hit the most . James back to the point that jeremy made in terms of dollar intervention, the possibility of it, it is difficult to be subjective about. It is relatively small at the minute, but the reality is and this goes to the point of the questions tom was raising with respect to the yen and the all of these u. S. Dollar has been strong since the u. S. Economy has been way stronger than any other economy globally, largely because it dealt with a lot of the bad debt issues after the crisis quickly and allow themselves and allowed themselves to clear the decks. Conversely, you have this huge you have negative rates already, which clearly are not having the desired effect and have no further room to move. And i could talk about the euro structure issues until the cows come home, but i dont think that will mean you get a lot of safe haven there and it will be under appreciating pressure. Periodt work for a short of time, and therefore you will see these flows coming back after the initial sort of fear around the intervention and the effect it may have for those underlying structural, cyclical drivers to move those currencies. That means strength in the swiss. Tom the cows are coming home tomorrow. Comings are going to be home and francine will be out there with the kids checking out the cows coming home. We will check with james eighth athey, also on japanese yen. What a week it has been. How do you get ready, in this case, in equities for next week . We will have an extensive conversation with ron temple of Lazard Asset Management in the 6 00 hour. This is bloomberg. Viviana this is bloomberg surveillance. Lets look at the Bloomberg Business flash. Shares of w pp rising the most in a decade. The londonbased Advertising Firm reported betterthanexpected sales in the first half. It is a sign that ceo mark reeves restructuring effort is having an impact. Impact is helping to offset a drop in spending by consumers goods companies. In malaysia, criminal charges have been filed against current or former Goldman Sachs employees in a scandal. The government accusing goldman of misleading investors when it arranged 6. 5 billion of bond sales for the state Investment Fund goldman says the charges are misdirected. The outlook for Global Oil Demand is fragile according to the latest report from the International Energy agency. The iea says growing economic squeezed takes u. S. China dispute various twists and turns. Clearly there is a weakening of confidence as far as the outlook for the Global Economy is concerned. We acknowledged that in this latest report, and we have downgraded our Oil Demand Growth forecast because we have seen weaker data for the earlier part of the year. Viviana this week brent crude features futures slumping in a bear market. That is the Bloomberg Business flash. Francine thank you so much, viviana. Lets go back to james athey and jeremy stretch. James, i was going to ask you about the ecb and the euro and whether it was still defending currency, but we are getting u. S. Ing about the requested south korean troops to be deployed to the strata performance, and then hong kong howo the strata for move do you deal with geopolitics in the markets . James that is very difficult. Normally that is difficult because it is after the time were certainly for the last three or four years you have wanted to be positioned procyclical, and geopolitics are not great for that. As for today and how we are positioned this year, it is a tailwind because essentially it is leading to, a greater bid for safe assets. Straightforward journey now toward recession. It is just a question of how long that takes. Tom back to europe francine back to europe. Does it work . James interviewing the german finance minister, however many we heard that there was no problem and there is no policy, i got something very wrong and how we were positions with italy, and that was how the ecb would more would be more reactive than proactive. I think he seems to want to tie his time by taking it further down the rabbit hole. The ability for her to be less dovish is going to be zero, and i do not think she will be able to pressure Fiscal Authority as she would like. Tom thank you so much, the Senior Investment manager at aberdeen investments. A beleagueredng hong kong. It is friday in hong kong. Carrie lam says downward pressure is worse than sars, the economic downturn came like a tsunami. We will have much more. Hong kong, we are following very closely with the chief executive saying the economic downturn is worse than in the financial crisis. , a reminder,ng ago hong kongs airport has bolstered security for protesters. It is kicking off the 10th straight weekend of antichina demonstrations. Joining us now is John Mickelthwait. When you look at the Chinahong Kong relationship, a number of people think china looks at hong kong and maybe wants it to get worse. How would the International Community take that if china were to intervene more aggressively . John a slightly grateful china for not intervening, because it puts people in a terrible position. If china intervenes in a heavyhanded way, some peoples frustration with the protests with thech to sympathy democratic countries. , it is one of those things where it is a problem looking desperately for someone to find a way out. Francine what is a way out . The maybe lam went or protesters could claim something but china would still be in control. Brexit, theyg like are together but further apart. Tom how different is hong kong from 10 years ago, the advent of the financial crisis, how different than the hand over 20 years ago . John it is a somewhat less free world, but massively more attractive to most chinese is a place to make money and to save money and keep money out of the states reach, then mainland china. Standards, it has law, all those different things, freedom of the press. We are allowed to follow things in a way that would be much harder in the mainland. Hong kong is recognizably different than china. Places like singapore are trying to challenge it, whispering quietly that they are a more secure home for money. Tom the idea that hong kong was done, i have heard at least 42 times. Shanghai was going to be the new hong kong, singapore was going to be the new hong kong. It is still hong kong, isnt it . It is the capitalism of asia. Analogyrather strange which i had not previously thought of, to london in brexit. Hong kong is the place where there is the most Financial Action in that world, however, the longer these things continue , the more that china begins to intervene, the more that dynamic changes, and not in a good way for hong kong. Shanghai, the chinese would like to be the Financial Capital but it does not have the maturity or rule of law. Singapore, a lot of people will look harder at singapore and the likes of these dust in the light of these and the light of these past few months. War,ine well the trade and the spot that is escalating almost daily with the u. S. Keep hong kong in check . Jeremy that is a difficult balancing act. They clearly want to try to maintain as much Macro Economic stability as they can and preclude capital if outflows. The political battle with hong kong might amplify that. They are in a rather difficult position and that might be one factor which will limit or constrain their Immediate Reaction function. James i think jeremy is right. Hong kong was slightly in the chinese leadership interest, and also a way for Chinese People who made their money to get some of that money offshore, which albeit they dont want but is bound to happen. Tom the protests continue this morning. Aroundtests are centered images from the airport. Let me pull it over to trade with bloombergs coverage of huawei. I was flabbergasted at the linkage of computer chips with soybeans in iowa. Chicago, if you are not familiar. How do you see with bloomberg resources this odd linkage of the American Farmer with chips that we do not know what is on them, and computers that we do not know what they are . Scester is close to derbyshire. The real battle is about huawei. If you go to the bloomberg terminal and website, you can look at a map and see where allwhite is accepted and not accepted huawei is accepted and not accepted. China is winning. Huawei is accepted throughout a lot of africa, up latin america and a lot of your. All the attempts europe. All the attempts to push back on huawei are not working. It is about 5g and the future. Iowa,atter electorally to which i have been to, but it is not the same as huawei. Huawei is the future. Francine why is President Trump still going after china so aggressively . Is it because he wants a better deal or it makes him look good if he strikes a deal . John it is really simple. He is a man that wants to make sure america is number one. The idea that america is number one is incompatible with china overtaking. You have the fact that you need to be the protectionist and you have these added things. In his view, restraining china is part of his Great Mission in the world, and you can go through all the Little Things he can do, a tactical deal on soybeans, great. Fundamentally he wants to constrain china and that is a deeply held belief by him. There is no sign of democrats lining up to say, please be nicer to china. Said hen mickelthwait would not come on in he got a renminbi forecast from you. I have not seen 81 per dollar. Eight yuan per dollar. Jeremy going through that seven threshold was seen as something symbolic. The fact that we have not seen an immediate desire to push back holding northare of that seven handle. We were not expected to move materially higher. We are expecting to see some degree of depreciation in the u. S. Dollar. We have to think about what the fed will do and the political pressure on the fed, and that will cause some degree of consternation from International Investors visavis the u. S. Dollar outlook. We have seen a temporary push higher but not something we see accelerating and exaggerated toward the threshold. Anybody putting an eight handle on it, it is a very speculative call. Tom jeremy, thank you so much. Right now, with United States news, viviana hurtado. Viviana Mitch Mcconnell says Gun Legislation will be at the top of the agenda when lawmakers return. In the wake of several Mass Shootings, he says the senate will look at expanded background checks and socalled red flag laws to keep guns away from dangerous people. In the past, mcconnell has opposed most gun laws. Democrats lashing out at the Trump Administration over the largest immigration sweep in a decade. Food processing workers were rounded up in mississippi. In many cases, children came home from school to find their parents missing. Joe en says it shows donald trump is morally unfit. The central bank cutting its benchmark rate by a quarter percentage point and more cuts maybe on the way. We spoke with the governor. Right now, what we are contemplating is a rate cut of points as early as september, or on the fourth quarter. To cut further our reserve requirement. From 2016, soing another possible hundred basis points of the requirement ratio before the end of the year. Viviana the philippines inflation rate hitting a twoyear low. 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. You are watching bloomberg surveillance. We still have the hong kong chief executive, carrie lam giving a news conference, after she said protests have pushed the city to the verge of a dangerous situation. The economic downtown in hong kong is worse than the financial crisis. We need to keep an eye on the china response and what the protesters do next, the 10th weekend in a row. To italy, where things are heating up again. The deputy premier has called for a snap election as he seeks to catalyze growing poll numbers. Bloomberg opinion rights most important, the League Leader will have to decide where he stands on fundamental questions he has dodged so far. Now, he could blame his or hisalition partner technocratic finance minister for any difficulties. The easy ride is over. Is unclear to me why matteo i would try salvin to get rid of this coalition now. Is it not comfortable for him to can blametner he everything on . Ferdinando that is the big gamble. He has decided the polls are good enough for him that he can break away from the coalition and run the country on his own. Be himategy appears to being the defective leader of italy. Leader of ed lee. Though italy. The league is 40 in the polls and the fivestar movement is collapsing. He is trying to pull the plug on this government. It will be more complicated because it is summer and because there is a budget to pass in the autumn, and it is not clear a new government would be able to pass one. It is more tricky than if he had tried to call an election in june. Francine there is also the president that is largely a ceremonial role, except this one has gotten more involved trying to keep things stable. I am looking at the spread between the 10 year btp and bund widening. Is that something the president would be looking at . Ferdinando this is something the president always looks at. 1. 7 , are still very low, 1. 8 . The real concern is whether a budget law can be passed. It has to be passed by the end of the year and if there is a new government, it will be close. The market is nervous, understandably. They started to like the finance minister who managed any confrontation with e. U. And a centerright government could be a big gamble. Salvini has been cautious on but thethe euro zone question will pop up again and people are mindful. Francine lets get back to John Mickelthwait, editor in chief who spends a lot of time in italy and knows a lot of the people involved. When you look at italy, the question is what happens to the economy under a government that and abe Matteo Salvini rightwing coalition . John that would force salvini to come out in one direction or another. And the in trouble yields are staggering. It is on the verge of a dangerous situation. Underneath everything in italy, there has been a complete absence of reform by any normal measure. Look at spain, things have happened. Look at france, a little bit. Italian and london, most unfortunate countries. Francine i have a problem with the debt problem. Tom i am going to stay out of that give us an update on the mickelthwait popularity meter. A change of the guard. Buttressedlism doing against the old guard . John populism seems to be pushed back a little bit. The european elections went reasonably well for the establishment, but it has not gone away. Theini is especially on populist side. Macron and merkel are not doing well. It looks like germany is heading for something quite nasty, especially involving the car industry and finance, and nobody has explained how they deal with the European Union favors them or doesnt. Italy looks nervous, a lot of debt, no reform, and the prospect of political chaos. Britain is not exactly doing brilliantly. The economy has shrunk. You look at europe and it is not a happy picture. Tom John Mickelthwait with us, our editor in chief giving us perspective on the united kingdom. I need to do a data check, some serious movement. The 10 year yield gives way ,nder a 1. 7 , the euro churning and that german twoyear at a negative. 286. Starling trying to find a 1. 20 handle. This is sterling trying to find a 1. 20 handle. It is to so many, a gateway to asia. A 20 year old and extremely well rung run Hong Kong International airport, a site of protest. It is friday evening in hong kong come into the saturday. With ad every weekend protest. Lam has been speaking and stated a number of headline. The money headline is one of the final headlines, beijing Still Believes in a hong kong government. We will leave that open to interpretation, a discussion point no doubt on Bloomberg Opinion. We want to address another country in protest, called brexit. I want to share with chart which explains how fortunate you are to based out of new york. You have employees at bloomberg the crushed, by depreciation of sterling. Do something about it. Go. Ling at a 1. 25, down we bloomberg employees cannot eat at Queen Victoria street. Down we go to a 1. 20 handle this morning. We are not quite there. Francine what a set up. Tom what does that mean . We have been trying to share our coffee together. It is a bracing reminder to Boris Johnson about what the markets do. Greatall fine having this lark of no deal brexit and you need to get ready and put money aside, but no deal brexit, there is not an economist on the planet who doesnt think that will be a painful moment. Painfulot be quite as and the shortterm because people will have stockpiled. It may not be that awful after six or seven years, britain begins to define itself against europe, which does not look particularly good. For those five or six years in between, it will be rotten because we will have worse trade ties. Tom you are a trustee of the british museum. There is debris of kings and queens that controlled government. In the zeitgeist of london media is the idea that the queen will intrude into brexit. Do you give any currency into that . John probably not. She has a long record of staying out completely. And had ae a queen successful general rain, it it would bereign, considered bad to lose scotland and north ireland, which could happen if brexit goes badly. Museum dothe british not like losing parts of their kingdom. Francine when you look at the possibility of a snap election, is that almost a given in the next six months . John people are guessing that way. I used to think there would be boris going for a referendum. It now looks as if he might be taking the bet that Jeremy Corbyn is so useless that he stands a chance of getting through with a small amount. The way which these coalitions are shifting, british politics is becoming like italy or israel , where there are a lot of parties competing. Only tiny fractions can make a gigantic difference. Tom John Mickelthwait, thank you so much, our editor think. I cannot say enough about Bloomberg Businessweek. Ronald temple with us in a moment. This is bloomberg. Stay with us. At comcast, we didnt build the nations largest gigspeed network just to make businesses run faster. We built it to help them go beyond. Because beyond risk. Welcome to the neighborhood, guys. There is reward. Beyond work and life. Who else could he be . There is the moment. Beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. Take your business beyond. Tom this morning, equities search for big yields. They drift lower in the last hour. A german twoyear finds a greater negative yield. Your tit for tat is huawei and soybeans. The American Farmer flat on his back. Trump, andre on farmer grossly. It is a summer of discontent for active managers. We consider the hope of beating the benchmark. With us, Ronald Temple. This is bloomberg surveillance, live from our World Headquarters in new york and london. What is the significance of a negative statistic for u. K. Gdp . Francine i imagine a lot of chief executives will wonder whether they need to pull back investments. We are not in a recession, it is a contraction. It is also for a number of technical reasons. On the 31st of march we had this deadline like the one coming up on the 31st of october and people have stockpiled. That runs down numbers. Auto manufacturers closed down sooner. There is a lot of noise but a little technical. Tom the yearoveryear still above zero. Blow to newly a installed british Prime Minister Boris Johnson. The u. K. Economy unexpectedly shrank in the second quarter. Gross thomistic product following too tense of 1 . Many to tents of 1 . British manufacturing falling for the most in a decade. Bayer is there willing to pay up to eight billion dollars to settle its roundup lawsuits. They have lost more than one third of their value within 14 months since it acquired monsanto. More shots fired in the trade dispute between the u. S. And china. The white house delayed a decision for licenses on u. S. Companies to restart business with huawei tech ologies technologies after china halted purchases of u. S. Farm products. Blacklist put on the for National Security concerns. Was stronger than expected, gdp growing at an annual rate of 1. 8 . That did little to ease trade tensions. 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 equities, bonds, currencies, commodities with a little bit of movement in the last hour. Futures 15 off huawei and soybeans. Dow futures 20. Oil has been churning. 51. 52. 10 year yield with a 1. 69 handle. The 10 year german yield in a knower lower negative yield. ,enminbi will not give it up out to 7. 06. Francine i would point to a saly and top touched sovereign bonds italian sovereign bonds. We are talking about early elections and sentiment is more positive than yesterday overall. If you look at the resourcing trade tensions, they are offset by the good earnings in the euro oil, and good news with demand waiting a touch. Tom there are always glimmers within the zeitgeist where you go, bloomberg reporting out of asia, thank you for bringing this to my attention. Capital economics and julia Evans Pritchard, this is food inflation in china. , which isline is pork foundational to the chinese domestic demand dynamic and orange is fresh fruit. These are moon shots up in inflation, something to watch. Francine i am looking at italian bonds and stocks, definitely on the lower side, plunging after a Coalition Partner withdrew support to a government that has been in power for a little more than a year. The spread between italian btps and bunds are tighter than average, widening a little bit. There is nothing huge, but it could become huger. Tom nsa today on the italian domestic politics an essay today on the italian domestic politics. It is friday. How about talking to someone with realworld asia crisis experience . That would be Ronald Temple, cohead of multiasset and u. S. Equity but it is more about the dovetail of your portfolio. Lawrence summers, it is like 2009, getting a little bit of 1998 love now. Can we look back or is it the immediate present . Ronald famous last words, this time is different. Earlier this week i never thought i would be in a market they 10 year yield that hit 1. 60 with unemployment where it is in everything looking reasonably good. It is shocking in the bond market, and hitting alltime highs in the equity market. I am trying to figure out what is the relationship between bonds and equities telling me . Either there is a recession the equity market is ignoring, or the bond and equity markets agree to do whatever it takes to put a floor under stock prices. Be a worry about competitive devaluations . Trying to figure out if it is one of those things or something i have not considered. 101, here like basic is the yield, flip reciprocal, that is the pe. Is it out . Ronald i dont know that it is out entirely. There is no alternative. When i look at asset allocation, sovereigns, and credit, i dont see an appealing investment. There might be a trade. You might get a 10 year yield to 1 . I would much rather own equities and find higher valid he value country companies. Francine how about gold . Ronald i cannot get my intellectual arms around that one. I see a place for real income assets like property or infrastructure. There is a case to be made if rates keep doing what they are doing, people will have to scramble for different types of assets in the illiquid space or real liquid assets. Francine we are talking about the u. S. Intervening onto the currency market. One is the likelihood of that . If there is intervention on dollar, what does it move first . Ronald we are likely to see jawboning on the dollar and not actual intervention. Intervention would be difficult to execute and im not sure we can do enough. It would be a negative precedent. It is risky seeing other economies thinking they have to devalue. Ease draghi almost has to in some way and he is pushing on a string. There is not much dry powered or left at the ecb. Tom i want to go back to negative rates and europe. David cost men of Goldman Sachs says it is a service are buying economy. Sector buying economy. Are you defensive or do you have to have the courage to do Something Different . Ronald i dont think there is anything defensive about overpaying stocks, so we are looking at their fundamentals and valuation. These are expensive and we ought to look at other sectors and focus on companies that can sustain the returns even in a downturn. You do not just have to look at consumers staples to get that. We are trying to be careful about which specific securities to buy. Francine Ronald Temple stays with us. ,his is what we are looking at pound a little bit under pressure after the u. K. Economy unexpectedly shrunk in the second quarter. The first u. K. Contraction since the wake of the crisis raises the prospect of more brexit stakes if we have more stockpiling, but we are not in a recession. Underlying growth has lost mental. This momentum. This is bloomberg surveillance. There is quite a lot going on when it comes to markets and data. Italian assets slumping after Matteo Salvini has pulled his support for the coalition. A trim in the twoyear yield. 0. 8. Things heating up in italy. Has called for a snap election to capitalize on polarizing numbers. Is Ronald Temple. The marketw how much needs to look at italian politics as opposed to what is going on with the ecb because the market does not think they have the right tools to deal with a downturn or something and one of the countries. Ronald italian politics do matter. This is something i have been expecting as the fivestar movement numbers are going down and the league numbers going up. The challenge is trying to figure out if breaking the logjam is positive for italy because perhaps the league can implement an agenda that is more progrowth. The most important thing is to figure out how to break this economy out of stagnation. The Italian Economy is smaller than a decade ago, a miserable situation. They need to see some action. Francine do you believe we will have a clearer idea on the policies for the economy ahead of the elections, or do you go straight on immigration . Ronald it is tough to to. I hope we will get more clarity on the economic side. We need to see some action to get this economy out of stagnation. There are a number of reforms italy needs and they rolled back some of those. On bloomberghysics surveillance, bring up the chart, the 10 year and twoyear in germany rolling over. That is not logarithmic, cannot do logs with a negative yield. Help me with the inertial force. None of it is in the textbooks. Ronald that is what ive been trying to figure out, how does this all and . Markets are pushing Central Banks globally to do anything they can to invigorate growth. We are too focused on Central Banks being the only policy lever and we have to move to fiscal tools. The German Government has to do more than they have done, and if i i worry if we had into the next recession in the next five years, what exactly will the Central Banks the able to do . Tom do you have a sense that the economists are oblivious of obliviousial sector, with respect to the commercial Banking Sector . Ronald i would not say oblivious, but there is the risk of getting to a low rate where it is counterproductive and liquidity leaves the system. 70 plus percent of Corporate Credit in europe comes from banks, whereas any the United States in the United States it is 80 from the Corporate Bond market. I worry the Banking System is basically disabled or impaired by these Interest Rates. Tom Ronald Temple, brilliant on europe. That chart is extraordinary to see. We will talk about Asset Management into the autumn and into 2020. Coming up this morning, and exceptionally important conversation on the fabric of america. Joining us, ben carson, the secretary. This is bloomberg. This is bloomberg surveillance. Rising the most and a decade. Than expected sales in the first half, its a sign the ceos effort is starting to have an impact. Are helping offset their spending by good consumer big consumer goods companies. Charges have been filed against 17 Goldman Sachs employees in the 1mdb scandal. Y raised five billions goldman says the charges are as directed. The outlook misdirected. The iea says a growing economic slowdown squeezed consumption growth during the first five months of this year to the weakest in a decade. The u. S. China dispute takes various twists and turns. Clearly, there is a weakening of confidence as far as the outlook for the Global Economy, and we have acknowledged that. We have downgraded our Oil Demand Growth forecast because we have seen weaker data for the earlier part of the year. Viviana brent crude futures slumped into a bear market. That is the Bloomberg Business flash. Tom we want to get to Ronald Temple and an important conversation. Things are moving, sterling is in a plunge, 1. 2080 is the intraday of august 1 coming off the ascendancy of Prime Minister johnson. A weaker pound sterling as well. I want to bring that to your attention. 1. 2080 is the intraday post may. Right now, Ronald Temple, and one of my themes into the autumn and into 2025, the future of asset and age meant. I want to look at equity management. I want to look at how equity has to recalibrate. Ronald if we look at the equity asset and agyeman and age management, the s p 500 has appreciated the total return is 420 plus percent. Negative. To get too it is difficult for an active manager to outperform that. In a normal environment when equities grow in line with 5 nings which grow in line to 7 , that is a different environment. The backdrop is maybe not the right one for the long term. Fees are going lower. There is passive pressure and Asset Managers have to compete. Tom the portfolio as it compares to spx, is the successful strategy to come near an spx fund or do you have to go boutique . Ronald what i am seeing from clients as they are more interested in having a barbell of saying, i can do passive incredibly cheap and i want satellite alpha. Tom i love that phrase. Continue. Or 25 they want that 20 stock portfolio. They want to see you tell me, where is your highest conviction . That is where we are seeing good success globally. Francine how does ai and big data, will it be more tough for Asset Management . Ronald theres a lot of interest and excitement around ai. T is unproven at this moment ai is a better trading strategy than an investment strategy. It is hard to tell what this point. Where is that it is most exciting is ai could help us on the margin in the timing of our decisions based on true fundamental work. It will be interesting to see whether ai could be a standalone strategy. I am waiting to see more evidence before he get too excited. Francine as long as you have this monetary stimulus and negative yields, does it mean a lot of investors will stay on the sidelines . Of the the purpose negative yields is too crowd investors out of safe aspects assets and force them to take risks. One of the key priorities for 9 for the fed was to get force the financing out the risk curve. When you get to negative rates, when you have had high yield issuers with negative yields, that gets into uncomfortable territory. I am not sure how much latitude there is for the ecb. Francine Ronald Temple stays with us. Wes check on bayer, understand the company is said to propose paying as much as 8 billion to settle more than 18,000 u. S. Lawsuits which allege roundup causes cancer. The share price gaining some 2. 8 . It was tempering gains because it was on some 7 . Er floated paying a billion dollars, they wanted more to pay 8 billion, they wanted more to pay the claims. 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. This is bloomberg surveillance. We are on election watch to see what happens in italy and the u. K. We will have plenty more on your markets and the yields, but first lets get to the bloomberg first word news. U. S. Senate majority leader Mitch Mcconnell says Gun Legislation will be at the top of the agenda when lawmakers return from their break. Shootings,al mass mcconnell says the senate will look at expanded background checks and socalled red flag laws to keep guns away from dangerous people. In the past, has opposed gun laws. Out at theashing Trump Administration. Food process workers were rounded up in mississippi. In many cases, children came home to find their parents missing. More than 300 workers have been released. Showeden says the raid donald trump as morally unfit. A Political Drama in italy. The Prime Minister is signaling he will not leave Office Without a fight. His deputy is trying to bring down the populist coalition and forces snap election. Salvini once lawmakers to vote out the government as soon as next week, and says he and his party are tired of infighting. The philippines cutting Interest Rates, cutting the benchmark rake rate by a quarterpoint. We spoke with the governor. Right now, but we are contemplating is another rate points,aybe 25 basis could come as early as september or could be on the fourth quarter. We also have to cut further our reserve requirements. From 2016, soing another possible 100 basis points of reserve requirement ratio cut before the end of the year. Viviana the philippines inflation rate has had a twoyear low. 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 every once in a while, and asset comes in through the bloomberg terminal and i just stop. His essay was so good we had to drag Greg Valliere often airplane. Washington. Ands in i want to go to your scathing note on american domestic politics. Lets bring up a part on the economics of our trade war. Exasperated as all but dr. Navarro urged him to remain firm refrain from new new tariffs. He is willing to consider plan b. Part of that is the u. S. Could declare a truce, agree to relax curbs on huawei, and not enforcement instructions. Not in force restrictions. I want to begin with the and every that states farmer is a republican. That is not true. Greg it is not. Things have changed dramatically on several fronts. After the democrats first waste, it looks like trump a favorite for reelection. We are getting into midaugust and you see trump totally out of touch on climate change, the hottest summer in recorded history, out of touch on trade with farmers and businesses having real issues, and out of touch on gun control, with 70 , 80 of americans wanting tougher background checks. It looks like he will have to be dragged kicking and screaming into anything modest. Tom you are expert at linking the economics into the politics and the dynamics of the politics. How purple is america, and to use that center state texas, how purple is texas . Significant in this last month, the country looks like it wants to change. When there is a change election, the incumbents are in trouble. The country, even though you could argue joe biden is hardly the best agent for change, even texas could be in play. Even orourke who has been very visible, could become a big factor in the nominating process. Francine how does the trade war change the election zeitgeist . Do people vote only on the economy and if yes, are they looking at stocks or at the data . Greg i dont think we are close to a recession. I dont think it is imminent. The consumer is hanging in pretty good. At the same time, i have been in the midwest and the farmers are in a recession if not a depression. It is more than that, it is businesses that rely on Component Parts that are made in china. They cannot get them or they are more expensive. Small businesses in the midwest are facing tremendous headwinds and uncertainty. Francine does the outcome of the election also change, depending on where dollar is . Greg that would be a factor. Fed policy will be a factor as well. I am on record as saying by the end of the year, maybe late winter, i think trump tries to demote jay powell. I dont think he can fire him, but i am told trump feels he has the authority to make powell a mere governor, no longer the chairman. Interest rates will be controversial. Tom what are you writing about into monday . There, wehat is out have never seen in america. What theme matters into monday . Greg let me just say this i think the economy is still in surprisingly good shape. 2 growth is a low bar to clear. We could be growing at 3 if we do not have the trade war. The u. S. Fundamentals, western europe would kill for a scenario like that. We have got it for at least another three or four quarters. Tom you and i have known Lawrence Kudlow for years and years. He is the free trader in the white house. What do we need to do to get Lawrence Kudlow to have a better dialogue with his president . Greg i think so many people over the last few years have tried unsuccessfully to get trump to understand the consequences of this trade war, but Peter Navarro i think has the president s ear. He called the wall street journal a communist newspaper. I think the trade war will persist as long as navarro is that potent. Tom greatly appreciated. We will drive forward the , thersation with someone Vice President does not get that much attention, the Vice President from indiana, has former press secretary. Look for that with david westin in the noon hour. Viviana this is bloomberg surveillance. Department isce looking into googles Digital Advertising and search operations. It is part of a broad antitrust review of the market power of giant internet companies. Officials have met with thirdparty companies that could have grievances with google, among them publishers and consumer facing websites. Novo nordisk raising its Sales Outlook for the year. Druggeneration chinese boosting diabetes drug boosting the drugmaker. They are concerned about a global slowdown. Longerterm, lower Economic Growth will have an impact on all businesses because it will impact the ability to pay for medicines. Shortterm, we do not see an impact from the trade war. Viviana ubs is considering a Major Overhaul at its investment bank. The plan could mean hundreds of job cut. Ubs wants to boost collaboration between dealmakers and wealth management. The return on equity in the first two quarters was nearly half of that of other ubs divisions. Francine we are getting breaking news out of the u. K. , this is the new chancellor of the extractor chancellor of the exchequer is speaking after data shows the economy unexpectedly contracted. Mr. Javid is talking about brexit and says the uncertainty is partly to blame for the volatility. If you look at the composition of this figure, it is the first u. K. Contraction since 2012 and has a lot to do with stock piling, and also Companies Taking measures to make sure they were ready for a no deal brexit. He is also saying that if a no deal brexit is what comes, they will leave the e. U. Without a deal, but we can handle it. It is amazing to hear this chancellor that is very different from the previous chancellor philip hammond, saying we could have a no deal brexit and the u. K. Will be ok. Tom it is amazing, the shift in 30 days. Single best chart with Ronald Temple with his experience at lazard asset antigen. On the equity management. Unique august. A the yellow and red are correction in bear market. We have come nowhere near a bear market, almost away correction in may and june. The gamma here is pretty ugly, but we are nowhere near a correction. Ronald echoing your former guests comments, the economy is still in good shape. It is good news around the u. S. Economy and if the consumer sees wage growth grinding higher, their confidence is stable, it is a consumption economy. Earnings growth is ok. It is tepid at best, basically running at around 2 to 3 earnings growth, not what i would like to see, but it is hard to see a solid basis for the market to be reeling. Tom the banner is trade war, go to cash, that is the emotion. How do you fight that . Ronald on the negative side, the market is underestimating how negative the trade story is. Moveds. And china have from competitors to strategic adversaries. Butview started with trade has evolved into a National Security issue, and it is a bipartisan issue on china. Europe is very much not bipartisan. Trade is worse than people think. The economy is doing better in the u. S. The fed has indicated they will not make the policy mistake we thought they would make last year. We have the ecb and boj potentially easing. The fundamentals are less good than a year ago, but the financial conditions are likely to be more positive. When you have global Central Banks pumping liquidity into the system and easing liquidity, that is supportive of the financial values. Francine this trade war could last for a decade or could become much uglier. That this is a trade war that might be evolving into another cold war. If you work look at the legislation that passed a year , we passed the foreign basically what those did is toicantly expanded regulate transactions involving Foreign Companies investing u. S. Companies. We have seen regulatory moves to increase oversight of trade and Information Technology type products. They are thinking as huawei and cte as one up zte when they may be francine what it lead to a policy mistake and a worldwide recession . Ronald if you look at the indicators coming out of china separately from the trade war, they have been decelerating. When the Chinese Government tried to crack on shadow banking, and even overnight we got the latest ppi number out of china which is negative. I worry about existing deceleration in china combined with the trade war could cause challenges for the chinese economy. If i look at developed markets, the pmi is below 50 and contracting. We have a global slowdown on the industrial side. Canorries me how long that remain isolated from the consumer sector. Tom do you isolate in portfolios over to the Service Sector . Ronald i would not say it is that broad brushed. We are trying to look at the implications of trade and dependency on global demand. Given the trade view, how toceptible is each disruption if their supply chain faces hurdles . Tom a great conversation. David pearl king it cash flow and the use of cash. Looking at cash flow and the use of cash. Do you see any change in the next 12 months . Ronald i think the uncertainty you are seeing increases the probability of using it for buybacks and dividends. Hyped inut was overly terms of what it would do in terms of investment. I never believed we would get a longterm increase in investment. We snatched potential for snatched defeat from the jaws of victory taking away that incentive for taxes. Tom you just described the boston red sox. Francine good analogy. Ronald temple. Tom, think u. S. Well. Tat, the key theme in the talk for some chief executives. Here is their comments on how escalating tensions between beijing and washington are affecting business. Any global chief executive who says they are not concerned about a trade war is not being honest. Overall, especially in europe and the u. S. , you have this uncertainty and with this, you have volatility. Regarding the u. S. , at this stage, we do not see any negative impact of the trade war. We are not immune to what is happening on the macro and trade war signed, but we feel comfortable given the breadth of and resistance of our portfolio. Industrial bank exports getting slower and things like that, so it is having an impact. We see clearly more uncertainty in the market and the Macro Economic environment. That is why we are a little bit more careful, especially in the semiconductor space, and expect witht second half of 2019 the recovery only in the first half of 2020. The moment you start having a weaker rmb, it will hurt all countries. This will be a loselose scenario. Surveillance. Is surveillance. In this incredibly negative yielding world, the story of investors having to choose was not is wherefe and we see high risk assets becoming more and more popular. Cryptocurrency bitcoin almost on a tear. This is what we are looking at overall. Cryptocurrency and the sovereign debt in turkey where the yields are nearly 10 times that of the u. S. Have moved in lockstep. Bloombergs opinion columnist joins us from paris. You came out with a beautiful piece saying bitcoin and gold discuss. Tionality and i am skeptical of the idea which is of bitcoin, that this is a safe haven. It is not a financial asset or correlated to financial markets, but zoom out the price chart a couple of years, this trades on human nature, field fear, and greed. It does not mean it will be worth tomorrow more than it is today. Francine the jury is out whether bitcoin can stand on its own merit for traditional investors. Who has been buying bitcoin . Is there a way to figure it out . Lionel i think the problem is really that on the bitcoin side, supply, even if it is fixed, can vary a lot depending on whether big investors are sitting on big piles of it. The other investment favorite is gold. Goldte qe and low rates, has fallen by about 20 . I am not saying i know where the safe heavens are, but i am skeptical safe havens are, but im skeptical. Francine if you look at the mass gyrations in bitcoin, it is questionable whether it lays claim to stability. There is very little i expect out of bitcoin that is not volatility, only because we dont really know what the price should be. There is no intrinsic or inherent value i can see, and there is still a huge influence from these whale investors. It is a big question mark for me. , ourine Lionel Laurent Bloomberg Opinion columnist. We will get back to some of your market movements. Tom keene will join bloomberg surveillance radio. Watch for any potential date setting on the italian elections. The pound is moving quite a lot on the back of the secondquarter gdp figure out of the u. K. That number was a contraction, the first since the wake of the crisis, which means that brexit has been raising the stakes. What i am also looking at his yields. Coming up, we have plenty more interviews. We talk u. S. Politics and market yields. This is bloomberg. From the couldnt be prouders to the wait did we just winners. Everyone uses their phone differently. Thats why Xfinity Mobile lets you design your own data. Now you can share it between lines. Mix with unlimited, and switch it up at anytime so you only pay for what you need. Its a different kind of Wireless Network designed to save you money. Save up to 400 a year on your wireless bill. Plus get 250 back when you preorder a new samsung note. Click, call or visit a store today. Alix italys government on the brink. The Prime Minister wont leave without a fight. His deputy tries to topple the government. Wheres my inflation . Core consumer inflation in China Remains muted. U. S. Ppi on deck. Ill see your soybeans and raise ei. While way you huaw the latest tit for tat in the u. S. China trade war. Welcome to bloomberg daybreak on this friday, august 9. Im alix steel. David westin is off today. S p futures off by about 6 10 of 1 , but the headlines are pretty gloomy. German exports falling the most in three years. France ip totally sinks. U. K. Flipping into contraction territory. It could look a lot worse. Eurodollar up by about 2 10 of 1