Protests as police used Water Cannons for the first time. Manus welcome to daybreak europe. Ae question, are we just on staging post, all out 25 tariffs . Morgan stanley warned of a meaningful risk in the trade war of escalation and a risk of a global recession. If we move to 25 percent on all imports and it sticks. That is the new level of conversation. Escalation risk. Nejra extraordinary times. One trader talking about the fact that President Trump can wreak havoc in ways no one ever thought of. Weird would be one definition of it. Dollaryen, we have already traded through that. Dollaryen is the very personification of where you would want to lean in to. Yen againstlook at the lira. Demolition derby. The chinese vice premier, willing to solve the trade problem by dialogue and calm attitudes. You wantnt think that to buy treasuries at the lowest level since 2016, where might you put your money . Gold, the highest level in six years. Etfs sucking in the money. Have a look at your s p 500 futures. Down for fources weeks in a row. Sincetio, the highest december. 200 day moving average, 2800 and checking. Nejra that is certainly one level that we are watching. Another that we are watching is that 2016 record low. We havent yet retested that. Goldman sachs said we might. Stronger than expected fixing but weaker offshore and onshore. 1 onso down more than its longest losing run in five weeks. Lets talk trade. Chinas top trade negotiator says his nation firmly opposes washingtons escalation of the trade war. That is after President Trump goods tariffs on chinese friday. Trump also said told American Companies to move out of china. Deepens, the impact President Trump is saying he is having Second Thoughts on escalating the trade war. The white house clarified his comments quickly, saying he only regretted not having raised tariffs even higher. No Second Thoughts. His only Second Thought was that maybe he should raise tariffs more. He is very committed to this. China committed. Two years ago, they rebalanced the relationship. The president is determined that we have free and fair reciprocal trade. Thes here in dubai is chief Portfolio Manager and cofounder of capital. Escalation by the tariffs, slight stepping back by china. Morgan stanley warned of meaningful risks of escalation and that we could be facing recession it are you thinking global recession or stent to dramatic . Are waynk right now, we beyond the point of global recession. I think the most meaningful take away, judging by the jackson hole comments, i think we have come to a place where Central Banks can do much cannot do much more without the fiscal stimulus. They are running into a problem where negotiation seems to be having an effect. I think going into this next quarter, seeing the groundwork being laid out, we have seen trumplready, president blaming the fed, challenging who is the bigger enemy. I think seeing trump willing to go all the way into december. At that point in time, it might be too late. They areur 3 expected to act in the next 23 weeks. I think we are already there more or less. We are beginning to see embers that we are slowing down. Nejra i guess no surprise that that the curve has inverted again. That the 10rised year treasury yield hasnt yet retested this record low . Ithink in terms of think it is more of a panic now, we are right activeng the fed to be in jackson hole. Acting on trumps actions. There is now a stalemate. If President Trump forces the fed to act again in september, we could see the 10 year dip again and 30 year again. Contingent on trade relations with china. They are buying insurance. Manus i started the show with dollaryen. We will get to dollaryuan. Flash crashto see levels at the start of the year. Goldman sachs says you want to lean in to fx, but in a cautious way. His dollaryen the most cautious trade you can choose . Is tricky because you will see interest from both sides. The problem with this trade is headline risk. You really have to buy into the idea that this is going to get worse. 101,obe into the low 102s. It is never easy for japanese to adjust the price. Especially during a slowdown. You expect some banter at of the bank of japan. Seen vol ine have the currency drop down significantly. Toove down from 104, back 105. If we see a significant move, i think we will continue to see some promise coming out of japan. Nejra speaking of levels, manus was returning manus was referring to the s p 500. We havent yet broken below the 200 day moving average. On the chart, some other levels. Is there any level on the s p whereat you are watching you want to load up more on the safe havens or is it more of the speed of the move you are looking at . I think in context of the ip, you cant just wait s pk a mixture of vics and works. We dont have the same situation now. We have a slowdown globally, not a credit issue. Whatever the fed does or ecb, it wont help that much in terms of growth. S p struggling to make new highs, it isnt same as we saw in previous years. We are no longer in a growth phase. Monetary policy by the fed or ecb or boj is going to do much. It is not a credit issue. It is a growth issue. Manus the debate comes back to whether Infrastructure Spending is a panacea but you will have to wait for a lot of roads, bridges, and tunnels. This is about liquidity. Youre going to see some dollar liquidity crunches. This is chinese offshore dollar liquidity. Liquidity offshore is deteriorating. Yields,e the implied widening to the highest level since the trade war started. What can you tell me about liquidity and what does this do to the yuan trade . A big deal. Ng was political theater by the chinese. 750see a thing called easily. To hedgeally have Balance Sheet commitments. Movehink the pace of the seeing a 30 figure move in chinese yuan isnt that big a deal. Unless we see some significant activity coming from chineseu. S. Negotiations. We side move to almost 7. 88 last year. It is pretty obvious that the pboc is slowing down the pace. As negotiations deteriorate and the market leaves more and more, the forward stumptown as much, it is an easier bet to be long. I think the chinese are playing a strong came, movingly strong game, moving the yuan above seven. It puts them right at 6. 8, so they are in a negotiating position where, if we have to change, we wont be far off from where we started in the first place. The more counteractions by the chinese, the more we will see the yuan weaken. Great to have you with us. A deep and long ranging discussion. We are asking the question, which dips look attractive as the trade war heats up. Join the debate, reach out to us and the mliv team. Lets get the first word news. It inlle drillers has hong kong. Australiasng from Central Bank Governor at the close of the jackson hole retreat in wyoming. He says political shocks are turning into economic shocks and says the public can count on central bankers to bail amount if politicians keep turning up the heat. Also at jackson hole, bank of England Governor Mark carney is calling for a currency that would be a radical overhaul of the Financial System and could eventually replace the dollar as the worlds reserve currency. Tensions flared in hong kong again this weekend. Police are defending an officer asdecision to fire his gun the best option. They said him firing his gun into the sky was necessary as protesters were charging at him. There could be a solution insight to italys political crisis. Reports that the Democratic Party is willing to bet a Fivestar Party lawmaker to become the next Prime Minister. The parties have until tomorrow to work out an agreement that would spare the country a new election. Global news 24 hours a day on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. Bloomberg. Nejra lets get to some headlines coming out of credit suisse. Credit suisse is to invest a high three digit million sum in its swiss unit. Credit suisse created direct banking for poor banking clients. It said it sees further efficiency gains Going Forward. Manus coming up, brief and unannounced. The Iranian Foreign minister pays a visit to the g7 leaders. Trump was surprisingly quiet about the visit. We are live to france. This is bloomberg. Manus it is an absolutely stunningly beautiful shot. It is a beautiful day. Gone 7 18 in the north of france. Is daybreak europe nejra also looking at that magnificent move on the screen. Lets check in on the markets in asia. Saly has more. Juliette red on the screens here. It is a very big move, down 3. 1 . We are seeing hong kong stocks since october. St wrapping up of the escalation between the u. S. And china. Nikkei off by 2. 4 in late trade we saw the end cross 105 over yen cross 105 overnight. Seeing risk off in these markets. There has been money going into gold stocks in australia as well as china. Lets look at some of the other assets. The volatility on the on thing gndex up 20s on the hangsen index up 20 . Still seeing weakness in the onshore and offshore rate. The onshore is holding at an 11 the dollar andt the offshore is at its lowest level since the currency was created in august 2010. Offshore weaker by about half of 1 . Even though we did see a markgerthanexpected fix, from our blog says that is because the pboc will be and try not to get involved. Sentiment coming through. Great round up on the markets. I wonder when mr. Kuroda will begin to discuss. To the g7 now. Visitedoreign minister france for bilateral talks near the g7 summit. Mohammad zarif sat down with french president Emmanuel Macron. Macron did face accusations that he blindsided some of his allies. President trump has been surprisingly quiet. Get to maria who is on the ground. What point of the sixhour visit from iran, what was the essence of this . Was it realtheory by macron or a reaching out to iran . This is something that caught many by surprise. It was a sixhour visit that made the headlines. Many look at this as another standby macron another stunt by macron. We still dont know the timing of the visit at first, we were told the french didnt really tell anyone. This was just a last minute decision, something that french diplomacy will tell you was not really the case. Emmanuel macron had a 30 minute discussion with the foreign minister. He left the venue where the World Leaders are staying at just to meet him. He also was clear to say this is not a g7 event. What is interesting is that the americans would tell you they didnt really know about the meeting and would not confirm the french timeline. One thing they made clear, no one, not even Emmanuel Macron, speaks on behalf of the United States. Sides are telling a very different story. Nejra how does President Trumps idea of readmitted russia go down with g7 leaders . Maria one thing he said is that there is no point in having a discussion about geopolitics if you dont have a player like pressure at the table because the reality is that they still have a lot of influence in many regions. He said this was something they could look at. He didnt specifically say he would invite them to the g7 in the United States, but that he would look at it. The european made it very clear that they did not think russia should be allowed back. They were kicked out in 2014 after crimea. President donald tusk of the European Council says that, if anything, russias record is now worse than it was in 2014. Nejra that was a reporter, maria tadeo. The was your take away from g7 . Anything that could inform your strategy at all . One thing, mr. Boris johnson is a little bit more keen to play hardball with the europeans. With the divorce bill, he has thrown the gauntlet on the table that if the eu leaves without a deal, they are not obliged to pay the divorce bill. That is being used as a leverage point. So far, it seems that is part of the equation now. We were thinking that perhaps there would be potentially some extension. Nejra extension becoming less likely. Manus run us through your base case we are expecting mr. B r corbyn to come back into parliament next weekend calling noconfidence vote. That, i johnson can win think mr. Johnson may actually call for an election. At that point in time, we are running out of time. For me, it seems to me that once you put that divorce bill on the table, i think the germans in the french are more likely to take a hardline position. I dont think they want to be seen as the strongarmed. Nejra are you taking any positions on sterling or eurosterling . Trading dollar sterling right now is a bit tricky because we are looking for an announcement out of the u. S. Regarding intervention. On friday, when trump tweeted that there would be an announcement, there were market jitters and a small dollar selloff. Long eurosterling the long eurosterling trade doesnt really work at this point in time. Worknk sterling in shorts sterling yen shores work much better. Manus windows parity come on eurosterling. Negotiationsee fall by the end of this month, i think we will see a strong push in eurosterling if the ecb doesnt take any action in the meeting. Manus a lot of words. Thank you very much. Morning, host this saed, thank you for joining us. Coming up, losing patience. Beijing warns hong kong in says the Central Government has the right to intervene on the protests. Theres no doubt that Bond Investors have a more pessimistic view of the u. S. Economy and perhaps some of the economists and i do. We have to take a signal from that. Our job is to get the yield thoseto be on inverted so recession models dont work anymore. I am not interested in testing somebodys theory about, this time it is different. I understand why you see fear and uncertainty right now. That isnt the metric that i feel we have to focus on we have a clear mandate and i think a longterm view that we have to stay focused on. Nejra that was just some of the fed officials that bloomberg spoke to at jackson hole. Mester is uber datadependent. Bullard said he is not here to test these models but he does want to get a hold of that yield curve. Pressure on the short end of the curve. The tail wagging the dog. Awful bond traders that she seems to disagree with. Nejra goldman also said that we could retest that record low on the 10 year treasury yield. I am wondering why we have not gotten there already. We are on the third day of inversion. The Market Reaction from powell was shortlived. About speed and velocity. The speed with which we have broken through some of these levels, back to the guggenheim statement over the weekend. That seems to be part of the contention at the moment. Nejra the big question, what haven do you want to be in right now . Central bankers really cant save the Global Economy if we keep seeing escalate. Speaking of escalation, in hong kong, a 12 weekend of clashes between protesters and police. Police drew their guns and an officer fired a warning shot. Beijing is given perhaps his strongest signal yet it may intervene. A state newspaper published a column over the weekend saying it is not only the chinese governments authority, it is their responsibility to intervene if there are riots in hong kong. Stephen engle is watching this. Run us through what happened. Stephen it was a brief rest respit peaceful brief e of peaceful protests. Last weekend, there were no arrests. This weekend, a very different story. Starting on saturday and one district, that escalating on sunday as the rain really came moods. D soured peoples theres a lot of frustration on both sides whether it is the police or the hardline protesters. There is no plan for resolution. There are calls for dialogue, but dialogue between whom . There has been no ground given by the government to these protesters demands. That is where we are, a stalemate that escalated with a confrontation with live firearms last night. One officer actually fired his sidearm into the air. This, as many of the protesters charged the police with steel , molotov cocktails. 15 Police Officers were injured. Arrested overwere the weekend, including a 12yearold. It is like groundhog day for me on a monday, recapping a similar thing that seems to get worse and worse each weekend because there is no plan of action to resolve this. This is a political problem that is trying to get solved through law enforcement. Manus what do you make of carrie lam inviting 30 people to a meeting, the former bishop of hong kong. Is this a real effort by carrie lam to engage or what do people make of this reaction from herself . Stephen my understanding is, in these recent dialogues, she has been getting an ear full, voices who say, you need to give the protesters something. This is speculation from the sources i have talked to but again, there has been nothing put forward that she is willing demands oro the given to the demands. I spoke to the former number two person in the colony under chris patton, she was also the chief secretary in the First Administration under chinese control. , shenows the powerbrokers knows how this all works, and to says carrie lam needs withdraw the bill, have an independent commission, and have amnesty for those charged with rioting. Otherwise, this is going to continue to escalate and we will be back to groundhog day. But then we could possibly have even further violence and then where are we . Manus yep. Like you said, week 12 of these, i suppose, ongoing battles between protesters and police. That is Stephen Engle on the ground in hong kong. Markets are moving. We are in a risk off momentum. Singapore, Juliette Saly monitoring asian risk. Indian stocks higher in terms of the overall market but the auto sector a little more under pressure. Good morning. You are right. It is heartening to see from an indian perspective. This is on the back of some measures announced by the finance minister on friday. For a lot of spaces including autos. However, while the markets are in the green, they still come off. This is the worst losing streak for the indian auto sector since 2011. It speaks volumes of the kind of pressure that indian autos are under. Nejra juliet, you are looking at the wider risk off in asia as the trade war ratchets up. Juliette we are seeing a lot of red. Japanese stocks under quite a bit of pressure. Nikkei of by 2. 25 . The yield on the 10 year treasury note hit a three year low today. Also worth noting what has been happening in the iron ore market in singapore. We saw oil of course continuous declines on the back of china putting that tariff impact on u. S. Soil. Then we have seen money going into gold. Classic day of risk off with equities significantly lower in asia. The Index Holding at january lows. In hong kong, it is being hit doubly hard not only with the u. S. China trade dispute but the protests heading into their 12th week. The hang seng index looking like it will have a two standard deviation drop today. Holding at its lowest level since the beginning of the year. Dropping the most since october. A spike you see in the hang seng volatility index, it has jumped februaryhe most since 2018. Over furtherbate Interest Rate cuts rages on at the federal reserve. Traders have jacked up expectations for productions this year. Bloomberg caught up with a ton of top fed officials on friday in jackson hole. Creeping ontois the table here. Obviously, the markets as it as a base case. Important thats we watch the data. Adjustmentn to an either in september or over the next few meetings. I would prefer not to have to make any adjustment. We have to act as appropriate when we see the economy having a shock. Im not ready to provide more accommodation the economy without seeing outlook that suggests the economy is getting weaker. Nejra joining us is a senior fx and precious metal strategist. We have seen the market react to powells words. He dropped the phrase midcycle adjustment. What are you expecting out of a september meeting and the rest of this year in terms of cuts . Thanks for having me. We expect a rate cut of 25 basis points every meeting this year. That means three in total. We dont have 50 basis points in our base scenario for september. The action on the markets in general was a bit more muted. Thell went down after reaction of china. It is also what you see can you ofay, this morning, the risk moving markets. 105, 8 crucial level. I think there is a bit more strength ahead, versus euronet other currencies. Swiss franc, the local safe haven currency, is doing well. But it is more the yen which is a reflection of more uncertainty in markets these days. Said that last guest the problem with the dollaryen trade is intervention risk. In a slightly different way, is the bank of japan really prepared to allow us to go through the flash crash levels without verbal intervention. From an economic point of view, it would be incredibly difficult for them. Georgette true. Not so good for japan. If you look at the japanese officials, they have been signaling around hundred if they dont like too strong yen. Usually, if the move has been very large or the base has been very high, then they start to comment. The fed is cutting quite aggressively and the central bank of japan has not signaled they would go in that path as well. Interest rate spread point of view, there is a move. There are two strong factors pushing dollaryen lower at this moment. That doesnt mean we go right away to 100, but the direction is that way. Nejra you said you are expected three more 25 basis point cuts this year from the fed. We have heard from Jerome Powell in different interest context and President Trump ratchets it up. Do you think it will be enough to offset the risks from the trade war . Georgette we have in our base scenario that we have a continuation of these trade war tensions. At the same time, the economy in the u. S. Has been slowing but still doing relatively well. Cuts to the economy. Sense, economists are not expecting more aggressive cuts this year. On the political front, you will continue to have this uncertainty. It is probably here to stay, so that is something we have in our base scenario. Growth forecasts. The u. S. Is very much dependent on the consumer and the consumer is holding up relatively well. The trade war has an impact on the consumer front a little bit. Overall, they remain relatively asilient and we dont expect recession. Manus i guess it goes back to that argument of whether fear itself spills back to the consumer. Maybe the dollar trades differently at the moment. Crashing through new levels this morning. My guest yesterday said we could see 1 and even 0 at some juncture on the u. S. Treasury market. This suppression of u. S. Treasury yields continues with the same kind of force, does that eventually impact the dollar . Does the dollar just roll over or is it a haven . Georgette the thing is with the dollar, if there are different forces playing out. If you look at a normal cycle haverate cuts the way we now, the dollar would have been much weaker. At the same time, you have safe haven or uncertainty in markets. The safe haven story is helping the dollar. Even though compared to gold or to the yen, the dollar is going down. Environment in an where sentiment is ok. Then the dollar would be lower than we see. The upside on the dollar is very much dampened by the comments by mr. Trump on the one hand, the comments he made on the fed, on the other hand, the comments he made that he may do something on the dollar. It is not the currency to be in at the moment, i would say. Stays ok, Georgette Boele with us. Lets get you caught up with the first word news. China firmly opposes washingtons escalation of the trade war. This follows President Trumps remarks that he has had Second Thoughts on escalating the trade war with china. He meant he regretted not raising tariffs even more. Summit saw as g7 surprise visitor, irans foreign minister. This is part of president macron s attempt to diffuse tensions between iran and the u. S. G7 official says the warning came as irans plane was about to land. Currency,ual reserve bank of England Governor Mark carney called for. It would be a radical overhaul of the global Financial System that could eventually replace the dollar as the global reserve currency. Global news 24 hours a day on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Coming up, as the trade impasse deepens, the u. S. And china both slap on tell tory duties. Trump says he regrets not raising tariffs further. This is bloomberg. Manus this is bloombergs daybreak euro. Nejra lets get the Bloomberg Business flash. Thanks. The Worlds Largest asset manager could be adding to its footprint in the middle east. Blackrock is looking at joining israels infrastructure boom. The state is making a push over the coming decade to revitalize everything from roads imports to a metro in tel aviv. Doubling a final dividend to a record 24 aussie cents per share. Iron ore prices helped them Beat Estimates with more than 3 billion of profit in the year to june. It is a strong start of fiscal 2020 for the worlds number four iron ore exporter. The results of earnings highlight the results of a fuel glut. 4 billion. For chinas oil giants are increasing expenditures to heed beijings call to add more production. Manus thank you very much. The to our top story, u. S. China trade war. Worsening. 10 year government bonds in the low insunk to threeyear terms of yields. The u. S. And china raised tariffs further on friday. Over the weekend, President Trump kept his hardline, saying a regretted not raising tariffs further. Georgette boele is our guest host. Early august, we broke the wall ofseven on escalation tariffs. A calm and measured approach this morning. To the gtv library. Volatility relatively to when we broke, 7. Relatively not as aggressive. Thingst guest says if escalated you could certainly break to 7. 50 before the end of the year. Is that outlandish . Georgette i think that they dont want to have a very sharp depreciation of the yuan, so they want to manage it but they give a signal that they allow it to weaken. What is quite important to watch between onshore and offshore yuan. That would be a signal also to the chinese authorities that markets are betting on the fact that it would weaken much further. The weakening of the yuan itself is also creating uncertainty in chinese investors. A bit of a combination of what is china doing and at the same time, what is gold doing. The gradual depreciation of the yuan seems to be the strategy they are doing. Triggero dont want to 2015, they dont want to trigger that again. It looks like they are going for a strategy of gradual depreciation without upsetting the market too much. Nejra you talk about resistance to 15. 35. From 15. 20 do we have a clear path to 1600 and beyond, even with positioning at extreme levels . Georgette on the technical side, the strength of gold is up. The overall picture looks very positive. At the same time, this is very, very extreme. The only thing is, the further you go up, could be 1600. If things really escalate and if there is some kind of expectation that may be the u. S. Wants to weaken the dollar. Dont expect any action. Then you could see that move upwards. The only thing is, when you go so quickly up, that would also mean that you get a quite big pullback. Ist is on these levels, it getting quite dangerous because the risk of pullback is getting bigger. Goldterm, i am positive on but near term, i am quite cautious and i expect at some point in time, some pullback. If you look at the move we have seen so far, it is quite modest. Nejra thank you so much. Yearend target on gold. Great to have you with us on the show. Up next, we will discuss more about the escalation in the trade war and all the moves in the market. This is bloomberg. Morning from bloombergs European Headquarters in the city of london. Manus im manus cranny live from dubai. These are todays top stories. Stocks slump. 10 year treasury yield falls to a three year low. Donald trump raises tariffs on chinese goods. China says it opposes the escalation. G7 host Emmanuel Macron surprises his guest by inviting irans foreign minister. In biarriz. Return of violence in hong kong as police fire a weapon and use Water Cannons for the first time. Nejra welcome to daybreak europe. What a monday. We woke up to trade war escalation. Weirder than the 2008 crisis. President trump can wreak havoc in creative ways nobody thought of. Exactly. Manus the tweet storm late friday impacted the psyche and the sentiment of any kind of agreement. It looks like the u. S. Side wants to escalate. There was a glimmer the chinese side wanted a rational manner to solve the problem. They reflect that in the right setting for the yuan. Nejra we got a lift on friday after Jerome Powell at jackson hole. That dissipated. We had a drop of 2 for the third time in august on the s p. We definitely are in the back foot. On the back it is a bank holiday monday. The rest of europe, euro stoxx 50 futures down. Clear read on the screen for dax and cac 40 futures as well after we saw four weeks of decline for the s p 500. People are looking at Technical Support levels here, but we have seen this before where we got this far and bounced back. The question is whether you want to buy the dips. Row wefour weeks in a saw those equity futures getting this riskoff proclivity in the markets. Youre seeing u. S. Treasury yields breakthrough. You are seeing Goldman Sachs fall to record lows on u. S. Treasuries. Three more rate cuts to come from the fed. Jay powell referring to significant risks from jackson hole outweighing midcycle adjustment. That is the offer in terms of the rate case. Talking about the risk of a global recession, you are seeing a real shift in the psyche of calls. Jgb said the bottom of your screen. We are waiting to see what happens. Jgbs at or near a record. High. Near a record what is it going to do for yield curve targeting from the bank of japan . Lets get to jewels standing by by ines standing singapore. What is your take . Juliette absolutely. That classic risk off session. We are closely watching what has been happening in hong kong. The hang seng down almost 3 , on track for its biggest drop since october. Also hit not only by the u. S. China trade dispute, but the fact that protests in the city are in the 12 week. You have the nikkei closing weaker by 2 . South koreas market down 1. 5 . Officials did say they are ready to take preemptive measures if needed to support the market. Australia weaker by 1. 4 . Indiathere is respite is on the back of government measures announced over the weekend. Lets have a look at where we have been seeing investors try to find some reprieve. We are seeing gold prices rise 1550 an ounce. On the close in sydney. Gold players in china also looking good. Of course, this focus back on rare earth players. China rare earth up 6 . Nejra thank you so much. Now lets talk trade. Chinas top trade negotiator sought to lower tensions with the u. S. , saying dispute should be resolved through dialogue. His nation opposes washingtons escalation after President Trump raised tariffs inchinese goods even further response to beijings retaliation earlier that day. Trump also told American Companies to move out of china. Manus that was in order. That is the shift in rhetoric. This impasse between the nations, one could say it is deepening. President trump saying he was having Second Thoughts on escalating the trade war, but it was a short sharp shock from the white house. They clarify his comments. They said the only regret is not raising tariffs even higher. No Second Thoughts. His only Second Thought was maybe he should raise tariffs more. He is very committed. We have been working on this for over two years. China committed two years ago. The deficit is getting bigger and the president is determined that we will have fair and reciprocal trade. Manus the fx strategist at commerzbank, after listening to in, this is policy hawks personified to me. What do you make of it . Became clear over the weekend is the trade conflict will remain the top story in the coming months. The risk becomes increasingly that we are seeing economic disruption not only in the u. S. , but globally and all Central Banks basically point out this is the biggest risk, so of course the uncertainty increases. The riskiest Central Banks react which makes those central bank the winners who have still some leeway to ease monetary policies. The other ones like the bank of japan are in defensive mode. What does that mean for what fx you should be buying . Right now, uncertainty is huge. We dont know which economies are most affected, which Central Banks will react most. This brings investors back to traditional investment modes. The biggest winners are of course the japanese yen and the swiss franc, which both Central Banks are not going to like. One thing that caught my eye was a couple of notes from traders on fx. One is from Goldman Sachs, talking about i put it into emerging market fx. Do you expect more aggressive unpacking of trades in the m space . Talk to me about that. Esther yes, we have seen over the past couple months a very positive market move for em currencies. We have seen stable em currencies despite some unconventional moves by Central Banks, some moves to further easing. Central bankss, stick to their easing despite increased uncertainty and risk off mode . I think we are going to see more instability in em fx. This will trigger counter trades quite easily. Nejra how much instability do you expect in the yuan . Fixing,seen a stronger but a weaker yuan. A special the yuan is case because it is managed by the pboc. I do not think the pboc will want to see much further instability. The yuangoing to let to appreciate further, but they are also not interested in too big moves. This is going to increase financial instability. For example, there are increased a capital slide as we have seen it in 2015. It brought huge instability for Financial Markets in china and the pboc had to fight quite hard. Are keen to stabilize the yuan early on even though they are going to allow some moderate depreciation Going Forward as well. One of the more radical types mr. Trump to find was defined was having companies removed from china. There might be something out there in the distance, something which seems to be gathering more steam. If the u. S. Intervenes towards you, whatcould i ask would that mean as the counterbalance from the boj from new zealand and australia . What would it do to the rate cycle if there was that risk of intervention from the u. S. . That is a very interesting question. If the u. S. Were to really intervene in the fx market, this of course would be like the breaking of a taboo. The ecb and the boj might be more interested in also intervening in the u. S. Economy. The are basically they have no Monetary Policy measures left. Intervening directly would bring another tool to them to lower or weaken the currency. And thus ease Monetary Policy conditions. Inflation being much lower in japan than in europe, it is much easier for them to use this tool then for the fed, which always would have to fear that such measures could easily trigger a spur in inflation. It is not that easy like the u. S. Intervention on the u. S. Dollar. This will be of course like the first step and the trigger of a currency war and the overall consequences are much more difficult to evaluate. Lots more to discuss. Lets go to blue bird first word news now. Bloomberg first word news now. Carneyackson hole, mark calling for a new Virtual Reserve currency. It would mean radical overhauls to global Financial Systems and could replace the dollar as the worlds reserve currency a trade deal between the u. S. And japan in principle. President trump and japans Prime Minister shinzo abe announced the pact at the g7 summit. U. S. Tariffs on Farm Products and delay the threat of additional levies on auto exports to the u. S. Tensions flared in hong kong this weekend. Police are defending an officers decision to fire his gun as, quote, the best option. They say the officer firing a warning shot into the sky was necessary as protesters were charging them. 65 people were arrested over the weekend. Global news, 24 hours a day on air and tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. You. thank coming up on the show, president suggestion of readmitting russia to the g7 goes down like a lead balloon. This trade war is triggering other actions around the world, other countries reevaluating their own trade relationships. This could easily get out of control. What i saw businesses do is become more cautious. A Business Leaders express fair amount of uncertainty and concern about knowing where export markets are going and what their opportunities are going to be. We have to keep monitoring whether firms are going to continue to react the way they have, with caution, whether it will spill over in their hiring plans, and whether that will spill over to the consumer sector. A number of fed president s commenting on the trade war. This is bloombergs daybreak europe. Ours a quick snapshot of markets. We had our first litmus test yesterday in abu dhabi and dubai. Ets have a look aramex up 1. 7 . Repricing, perhaps to the downside. Morgan stanley warning about meaningful risks of escalation of the trade war. Money flowing into the havens. Chinese sent a signal on the , as theon the yuan tweetometer is on trade for trump. Nejra the 10 year yield plummeting. Goldman seeing we could touch a record low. , off a highbeen bid a little bit after we did see the chinese vice premier saying china opposes the escalation of the trade war, but still a strong week for those safe havens. Irans foreign minister visited france for bilateral talks. He had a brief sit down with Emmanuel Macron. Officials said they gave the u. S. Delegation a heads up about the surprise arrival. Did face accusations he blindsided his allies. With more on this, our reporter joins us today. Great to have you with us. Sixhourhe point of a visit from irans foreign minister . Trip. Was a very short it certainly stole the show here. Many were surprised. We were not frankly expecting it. The french will tell you they did tell everyone here the iran foreign minister was going to make a quick appearance. It is interesting. America has not confirmed the timeline of that event, but it is hard to believe they were not told given the fact the meeting took place just minutes away from the official venue where donald trump was staying. The truth is for weeks Emmanuel Macron had been trying to deescalate tensions in the region. Over the weekend, he suggested iran should be left to export a limited amount of oil if that means they would return to the terms set out by the nuclear deal. In terms of the United States, we have not have strong reaction. The president has tweeted about them. He did say that this idea of limited exports of oil is a nonstarter for them. President trump also suggested at this time he is not able to stop or prevent other leaders from talking to each other. Oneid make it very clear no will speak on behalf of the United States. Manus what about the rest of european allies . How can they push back against the escalation of the trade war . Lets be frank. Europeans, the last thing they can deal with from economic point of view is escalation with trump, isnt it . Absolutely. This was another big conversation. Thereve to keep in mind, are three investigations that target europe from the United States of america. You have the boeing airbus probe, another investigation, of course, the digital tax could lead to american retaliation. Every european country including the United Kingdom says this is the time to take a breather and deescalate the trade war. There could be serious economic repercussions for everyone. The precedent yesterday seemed to uturn. He did say he was having Second Thoughts on escalating the trade war with china, but he was immediately corrected by the white house. Regret is notone imposing more tariffs on china and they insisted for the time being, the United States will stick to the strategy. They feel that trade relationship continues to be unfair and tariffs are still on the table. Biarritzria tadeo from in france. From one big gathering to the other, we turn to jackson hole, where we heard from the fed as warning signs about u. S. Recession flashed and trade tensions flared. Traders have jacked up their expectations for reductions. Er from commerzbank is still with us. That speech from Jerome Powell seems like an age ago now since we have heard everything from President Trump over trade. We did take away that midcycle adjustment language and we saw some repricing in the markets. Have you changed expectations at all for fed rate cuts this year . They were already expecting significant further rate cuts this year, but what became clear is that continued escalation of the trade conflict could also change the outlook. Themtion is not stopping from further rate cuts. Those could become necessary to support the economy and that they are willing to do whatever it takes to support the economy as long as it does not clash with the inflation target, which is not the case so far. The risk is right now for further easing on the fed, which could also weigh on the u. S. Dollar, which might be in the interest of the fed as well as the president. Manus this is the discussion we have had with a number of others. Hsbc said no matter how many times you see these cuts from the fed, if there are three more to come, it is still hotel california. You just cannot check out of the dollar because of yields. If the fed eases, and we do not see a Significant Impact on the u. S. Dollar, the political pressure on the fed to do more will of course remain. Very difficult for them to do on the onet side, but also stick to their official target and to show that they are not exposing to political pressure. They are really between a rock and a hard place right now. Nejra one of your key calls is that you see upside to eurodollar toward the end of the year and also next year. Could you walk us through your thinking given that we have just discussed that the downside impact on the dollar for fed rate cuts might not be that great . In eurodollar, it will depend on with the ecb is doing. We fear there is not that much they could do. Four fed rate cuts expected this year or the beginning of next year. 75, 100 basis points. The market is expecting around 40 basis point cuts by the ecb right now. Maybe further quantitative easing. Maybe looking at the 10 year yield level, there is not that much expected they can do to lower yields in europe. The Downside Potential in yields and also the u. S. Dollar looks more on the u. S. Yields in the u. S. Dollar, more attractive for if you look at what Central Bank Still can do to easement terry policy. Eases Monetary PolicyMonetary Policy. Manus theres a lot of notes out this morning, people upping their view in terms of gold as a haven. You look at the end, you look at gold. Are you guys talking about it as an alternative . How is it playing into the conversation . Particularly we are looking at the japanese yen. Japanieve the bank of cannot do that much to ease Monetary Policy. However, gold is a traditional safe haven. In these uncertain times, it will remain. Manus thank you very much. With that demand comes the risk. Thank you so much for being our guest host this morning. Ne red headline jgbs. The European Market open is next. 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 buy a new samsung note. Click, call or visit a store today. Anna welcome to Bloomberg Markets the european open. Im anna edwards alongside matt miller. Matt today the markets say, this is not over. Asian stocks fall along with u. S. Equity futures. The cash trade is less than 30 minutes away. Anna