Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

We bring that to you live. Welcome to bloomberg surveillance. The markets. N on the hs is closing shortly and hang seng index sores soars. Carrie lam is going to withdraw her controversial extradition bill. That is the bill that kicked off the last 15 weeks of protests. Some of them with more than an estimated 2 Million People which is an incredibly impressive figure. They got that, hong kong has a total of 7 million citizens. From babies to the elderly. That would be like if you had a protest in america and 100 Million People showed up. Reportthe stock moves on the chief executive carrie lam is going to formally withdraw the controversial extradition bill. We saw moves around europe as well and we even see futures moving higher. Is South China Morning Post reporting the news after months of protests in the city. You can see here, these luxury stocks are getting the biggest boost. Swatch is up, lvmh is up 4 . This is such an important hub for luxury sales, for the chinese, with tons of cash to come and buy all of this stuff. By the way, swatch owns a lot of luxury brands, including harry winston. Others, a time of luxury watches. Its not just those plastic cup colorful watches we all wore in the 80s. Lets get down to hong kong. Joining us from the island is Stephen Engle. He has been covering this from the beginning. Whats the latest . We arerightfully said getting reports from the South China Morning Post, the main chinese english language newspaper. Be meetingosed to with carrie lams cabinet as well as proestablishment lawmakers and probation lawmakers. Her plan toeil officially withdraw this bill. Keep in mind she simply suspended it and was the real catalyst for the camping up of the protests since june 9. It has lasted longer than the umbrella movement. And she has been quite the vilified individual for staying steadfast. So if that is demand number one, take that box. But we are also hearing from the oriental, another local language newspaper, that perhaps they will also suggest setting up some sort of truth commission. Some sort of investigative commission. Command number to a protesters is to have an independent inquiry. Carrie lam has also rejected calls saying there is already a mechanism in place. The protesters say wait a minute , our complaints are about the police and you will have the Police Investigate those . Reports,se local media that is significant. Matt well this be enough . , but willt, for sure this be enough for protesters to stop gathering in the millions . To stop these violent riots and to stop holding up traffic and commerce . I dont know the answer to that appeared we are getting indication from the likes of claudia among from the likes of a prodemocracy legislator who has been quite an outspoken supporter. Said that the concession came a little too little, too late. But they still need to get this confirmed that this report is true. Protesters,at the they need to digest this information and decide where to go next. Of thehearing from one protest leaders on our website. She was arrested, by the way, on august 31 ahead of last weekends rallies along with other figureheads of the movement. A saying saying five demands who have left us. If we give up, hong kong will die. There is still lots of dissatisfaction here in the hong kong economy. That was left over from five years ago, but still, the distrust is tell that is quite strong the distrust is quite strong. Matt Stephen Engle, thank you. We will keep you updated. Speaking of developments, Boris Johnson has moved to a snap after suffering a humiliating defeat for his Brexit Strategy with 21 lawmakers from his own party, well, they were, voting to take control of parliamentary agenda in an effort to block a no deal brexit. He threw them out after that. Jeremy corbyn says that his party would only vote for an election after a no deal has been blocked. I dont want an election, the public does not want an election. I dont believe the honorable gentleman once an election. If the house votes this bill tomorrow, the public will have to choose who goes to brussels to talk this out. And so he wants to table a motion for a general election. Fine. Get the bill through first in in order tot take no deal off the table. Matt i have to wonder what Boris Johnson was mouthing their. There. He certainly smart, maybe because he does not really care. He certainly smart smirked, maybe because he does not care. Corbyn said to pass the bill before elections, but isnt it true that Boris Johnson wins those elections, he can throw out that bill . That,i miss the end of but i think you are saying he could throw out this bill, and yes, that seems to be true. Seenhings that stand, we the defeat of Boris Johnson six weeks into his premiership. And are losing his majority we saw 21 mps rebelled against him and have subsequently been thrown out of the party, so big moves and big implications. Boris johnson is now running a minority government. When it does not mean we are headed the polls in a great. Urry it is approaching, but not so fast. Labor party wants to see this Rebel Alliance bill voted through before they will go to talk about an election. We will see if they will have an election later on but that wont get the approval. They call it a trap and preferred Jeremy Corbyn talking about it. So we lived closer to a general election. Somebody somewhere has to unlock the impasse we see in you can politics. Matt who would win that kind of general election . We did not know who would win dont wantand then i say landslide, but certainly Boris Johnson lost by a lot. Does that not mean he would have a chance in a general election or could he still cobble together a brexiteers majority . Anna well, he would not be able to roll out white rule out right. What kind of alliances could he built . Build . Party has often rolled out deal because what is the point if they are allied with the conservatives . Thet has to deal with Coalition Building proposals on the right. But equally, it depends on those on the remains side and who would be prepared to work with whom. They might split the remain vote and could they cobble something and as we know from looking at polls and what they told us, they dont tell us a great deal. And in a world where we now see politics flip on a different axis fractured into many more parties, it is very difficult to give us numbers that mean much. But they do suggest that the that he is ahead of Jeremy Corbyn, but that was the case in 2015 when theresa may shattered her own majority. Matt thank you for joining us. Anna edwards in westminster, covering all of the developments of brexit with 57 days to go. Lets go to bloomberg first word news. President trump is telling china to do a trade deal for the president ial election or faced. Ven tougher negotiations his comments come as washington and beijing struggle to deal with the timing. Downgradingts are the forecast for growth in china. They have all cut gdp forecasts for 2022 below 6 . And it is the result of increasing risks from the trade war and below the level beijing sees as necessary to meet its goals. France is looking to rescue the iran nuclear deal, planning to offer iran a 15 billion economic package to keep the deal alive. The Trump Administration says. Hat would be a nonstarter conte is set to form italys next government after five some ministers back to the liberal democratic party, bring it to the president today. This island in the bahamas is 70 underwater after being battered by Hurricane Dorian. The deputy Prime Ministers says it is not looking good and we expect catastrophic damage. They haveim a declared emergency in North Carolina has dorian heads to the coast. Declaredile, they have a state of emergency in North Carolina as Hurricane Dorian heads to the coast. 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. Matt we are looking at breaking closes in hong kong. Finishes the kong day with a rally of 5. 4 , the best again on the Msci Hong Kong since 2011. The hang seng index closed at 3. 9 , the most it has arisen since november it has risen since november. So on the back of carrie lam withdrawing the controversial extradition will, at least according to the South China Morning Post, we see big rallies in asset prices around the world. This is bloomberg. Matt economics, finance, politics, this is bloomberg surveillance. Leverageds in on finance. More than 75 issuing companies at a leverage and financing conference. So far, it has been a lackluster deal year. They are down more than 23 billion euros compared to 2018. So what does the rest of the year hold for this sector for that and more, joining us from the conference is the head of european Leveraged Finance at black rock. Thank you for your time. What do you think about the second half of 2019 . Are we going to see a bit of a pickup . James thanks for having. Having me, i dont think we will necessarily see a step change in terms of issuance. I think we will see a pickup in leveraged loans and towards the end of the year. Well start to see a real as the summer comes to a lull. But that is not take away from what has been a Strong Performance in asset classes. But what we are seeing is a mentality shift in the way people look at credit. Returns we see strong but all vessels are lifted by the rising tide. But thats not what we are seeing. We see some sectors that are andrgoing structural shifts people are looking for quality, especially when we see slowing growth around the world and the geopolitical tensions people are looking for. Matt are people looking for quality or value over growth . Or do you expect tech and health care to still be a big gainers in the second half be big g ainers in the second half . James health care is an increasingly large part and we have seen good, selective opportunities. What people are looking for at the moment is strong cash flow. Asare seeing sectors such the cable sector, packaging doing particularly well. Looking at an uncertain environment terms of moderating Global Growth and all the geopolitical tensions. How interlinked are the highyield and leverage markets . Increasingly, they are converging. This has been over a number of years. In the past, they have typically see a leverage loan and bonds issued in the same structure. Particularly, with the following of conference of leveraged loans, they become more bond like. There is often now a choice between a bond or a loan. They will make that relative value decision between them and it is perhaps a difference between 10 years ago. What has the effect of extremely low negative rates been on the industry . Particularly for high yields, and to a lesser extent, rates, it has caused a massive inflow into the asset press. 50 you have more than trading at negative yields and they need to find yield somewhere, high yields are not the place to go. It is liquid, showing resilient characteristics. It is a very attractive place. Indeed quite a positive yield compared to the last elections. Matt thanks so much, james turner, head of european Leveraged Finance at blackrock. Ecb sounds a note of caution on more quantitative easing, joining a big group. We discuss that and look ahead to Christine Lagardes q a for from parliament. Thats next, this is bloomberg. Matt lets focus in on the European Central bank policy. A member of the ecb has signaled a vote of caution on restarting quantitative easing, telling a french magazine the central bank does not have to use all of the policy tools at once. Rollcall of others making hawkish, or at least not as dovish, noises. You can see them here. Lets get to frankfurt and see what our ecb editor and speak with our ecb editor. How significant are his comments . It is important we hear what he had to say. Those names you just mentioned those opposed to the last qe. Nations andortant carry weight on the governing council. Has already said to thinks all tools should be kept on the table. One would assume italy is pretty comfortable with more stimulus. His comments were pretty technical in nature and he clearly remains potentially open to be convinced that qe should be restarted. Thingscern is that the they are after changing our Inflation Expectations at the shortterm market yield and they are best dealt with by Forward Guidance and official rates. Matt what do you expect from lagarde today . She has already given a questionnaire to European Parliament, suggesting she is more in the draghi camp. The ecb has a broad toolkit to use in case of a downturn. Something along those lines. Matt paul, thanks so much. Our ecb editor from frankfurt, paul gordon, ahead of Christine Lagardes q a session. This is bloomberg. Matt killing the bill. Surges, as hong kongs embattled leader reportedly scraps her china extradition plan. Johnson loses control. The u. K. Prime minister is stripped of his majority and defeated in a key boat as Parliament Vote as parliament prevent a no go brexit. Less than two meant no deal brexit. Less than two months away from taking over Christine Lagarde faces questions. We will bring you that question and answer session the. Right now we are getting a very important piece of data. That is the august services pmi to 50. 6 from 51. 4. That is less than the estimate. U. K. Services pmi dropped not to a contraction, but to lower than they previously lower than the number previously was a than the expectation. Was andld show some lower than expectation. Forerday it drop below 120 the First Time Since the beginning of 2017. It then bounced back. It is Still Holding above 21. The u. K. August services pmi 51. 4 in the6 from previous reading. Lets get to the big news out of hong kong that is really moving the markets. We have gains across the board after the ceo or the chief executive of a hong kong, carrie lam, reportedly will withdraw her controversial extradition bill. Lets look at the individual movers. For that, we go to Annmarie Hordern in london. All morning we have been watching the luxuries of space and financials that are vulnerable to hong kong and very exposed. I want to start with swatch, up nearly 4 . They are getting such a booster this morning, as well as kering and lvmh both up more than 3 . Kering is the Parent Company behind gucci. Lvmh getting such a boost. We have hsbc and Standard Chartered both very exposed to the Hong Kong Market and prudential. That is really the stand uptodate, up nearly 6. 5 . The u. K. Ensure he gets nearly half of its revenue from asia gets. K. Ensure insurer nearly half of its revenue from asia. Matt Annmarie Hordern looking at her will house. Lets get to the bloomberg first word news. For that we go to Sebastian Salek in london. Hong kong stocks stored sword on reports that soared thatortsn on reports carrie lam would withdraw the extradition bill. The u. K. Is heading towards a snap election after the government was defeated on a key vote over brexit. Boris johnson lost his majority early in the day. Hours later, the house of commons voted to take the first step in forcing johnson to delay brexit and avoid a no deal vote. President trump is telling china to do a trade deal before next years president ial election or face even tough negotiations tougher negotiations if he wins econd economists are downgrading their forecast for growth in china. Gdp forecast have been cut for 2020 below 6 . It is below a level that beijing sees as necessary to meet its goals. Prime minister Giuseppe Conte set to form italys next government. Conte is now do to bring a list of ministers and a Government Program to the president today. A island a 50,000 people is 70 underwater after being battered by Hurricane Dorian. The deputy Prime Minister says it is not looking good. We expect catastrophic damage. The u. S. Has declared an emergency in North Carolina as dorian heads to the coast. Global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am Sebastian Salek and this is bloomberg. Matt . Matt thanks very much, Sebastian Salek with your first word news. Lets get the latest from westminster. Prime minister Boris Johnson has begun moves to trigger a snap general election after suffering a humiliating defeat for his Brexit Strategy, with 21 lawmakers from his own party voting with the other side. Opposition leader Jeremy Corbyn said his labour party would only vote for an election after no deal has been blocked. Lets go for more live to westminster and speak to bloombergs anchor, anna edwards, on the ground. How much closer are we to a general election now that we have seen this defeat for johnson in last nights vote . Anna edging ever closer, it would seem. Good morning once again. Not anytime very soon. Today, the order of business will be that later on today we will get Prime Ministers questions and his Spending Review from the new chancellor. That has been delayed and looks set to take place. After that, we will see the Rebel Alliance take control. They will bring forward this legislation that they want to pastor block a no deal pass to blockade no deal. Only once block a no deal. , oncehat has been passed that is done, there will be more talk of a general election. The leader of the opposition, Jeremy Corbyn, has said he will go along with Boris Johnsons call for a general election if this block to no deal is pushed through legislatively first. That is the fear of the opposition, that this could otherwise be some sort of trap. Perhaps he would be able to repeal this legislation. It does not mean no deal is entirely gone. Matt all right. There a chance that Boris Johnson wins this election . You would think he will have difficulty winning an election. Right. He is one of the bestknown politicians in the country, one of the few that the general public will pick out of a photo lineup, if you like. He has a lot of recognizability. He has not been tested in a National Poll yet. The last election was under theresa may, as we note. Has alls suggest he higher share than the other parties, but that does not give him and majority. Weree suggesting suggesting Jeremy Corbyn would not do well. He certainly did better than they suggested. It would be very difficult to call, because the polls have been very wrong in the past. If we had into a general election, thats what a lot of folks where a lot of folks will be. All of that will be very much part of the conversation. Matt thanks, anna edwards down there on the green at westminster amidst the developing drama over brexit. Right now, i want to quickly break some news. Chairman isfic, its isigning, saying that he just retiring. Cascade pacifics chairman cash g cap they cathay pacific, its chairman is resigning, saying that he is just retiring. Pacifics chairman resigning. Their chairman stepping down. They are naming Patrick Healy as a chairman to replace him. We will bring you any more lines we get on this developing story is what. Coming up, the incoming president of the European Central bank will be taking questions from members of European Parliament. You see her the getting ready you see her live, getting ready. We will bring you the entire q a session when we come back. This is bloomberg. You are learning, i am learning as well. We come with all the goodwill, the termination, and enthusiasm determination, and enthusiasm. I believe that the relationship between the European Parliament and the ecb is a cornerstone of our monetary union. Central bankers are independent, but they are not directly elected. As a result, that can only be justified if they are held thosetable visavis represented that are elected. I hesitated between giving you a European Economic outlook or a technical discussion about various matters of Monetary Policy and other matters. I resolved that it might be more interesting to highlight some aspects of my professional experience and background which i consider relevant to the tasks of ecb president. I have been the managing director of the International Monetary fund last eight years. I have had the privilege to head an institution that is the core of the Global Financial safety and whose governance Central Banks. In that capacity and also as finance minister for france, i have contributed to enhancing the Crisis Resolution tools and financial regulations on both the european level and the international level. I have also been directly involved in strengthening the european and monetary union. What has driven me in conducting those tasks is the determination that it is worth all the while to actually serve Public Interest and deliver on the justified expectations of the people. I was sadly made aware of the critical impact that some lack of regulation or lack of cisions can have on the people. I was also mindful of the profound impact that decisions of Public Institutions can have on peoples lives. Position previously, i have always tried to focus on what i regarded as fundamental issues. At the imf, contrary to all expectations, it meant focusing also on rising inequalities, focusing also on climate change, focusing also on promoting fairer and more inclusive growth. These are not necessarily regarded as critical by the institution, which mandate was to focus on macro critical matters. Eventually, it became regarded as macro critical and i am glad i insisted on those. But good leadership is not just about setting priorities. It is also about listening to all voices, not just expert voices, but all voices and fostering diversity of thought. At the imf, i have course worked very closely with topnotch economists in order for them to produce evidence and data led decisions. I listen carefully to staff to develop a common and modern vision of the imf work. Making the imf more inclusive, enhancing its diversity, and opening it to Civil Society were central to my strategy. It is those same values that i believe in that i would promote if i was confirmed as ecb president. In my remarks today, what i would like to focus on is on three of those principles that are regarded that i regard as critically relevant for the purpose of the task. That i will handle together his commitment, commitment to the ecb mandate as laid out in the treaty. The second is agility in responding to the new challenges. I will handle these together. The third one, which to me is critically important as well, is inclusiveness. I will explain how i understand inclusiveness in that respect. Commitment and agility. And have known for decades of theory and practice that a clear mandate for Monetary Policy and the Central Banks commitment to pursue it banks commitment to pursue it are vital for stability and lfare. Since its inception, the ecb has demonstrated a steadfast commitment to that goal. And has accomplished the feat of a steering a Diverse Monetary Union abrupt changean in 2008 when it had to fight not inflation but deflation. Again, the commitment was crucial. This time to ensure that price stability was not jeopardized by a long period of what i have termed lowflation. In doing so, the ecb had to adjust to the new challenges it was facing at the time. It had to reappraise prior convictions and to be innovative in its policy, took it within boundaries set by the law and accordance in accordance with the mandate. This agility allowed at central bank to continue delivering in rapidly changing circumstances. Without the ability to innovate at the time, the crisis would certainly in my view and in the view of most experts that look at it seriously would have been a lot worse. The ecb itself did some research into that to assess what would have happened had it agility andd with concluded that the economy would have been 2 smaller. We had not entered into those measures. Hcih is not to say that which is not to say that before 2014 there were not unconventional measures. Since 2013. Ew jobs those measures boosted confidence in the economic recovery and encouraged job creation. If confirmed as president , i would drawn the same sound principles draw on the same sound principles, sticking to the commitment embedded in the mandate, but using the agility to adapt to the world as it changes around us. Are on theges that ecbs current policy have not disappeared. The euro area economy faces some nearterm risks, mainly related to external factors. We can discuss that. Inflation remainsinflation remay too low and certainly below the objective. I therefore agree with the view of the governing council that a highly accommodative policy is warranted for a prolonged time in order to bring inflation back to the famous below but close to 2 . But that are also some important questions on the horizon that Monetary Policy will need to address. Though the impact of unconventional policies continue to be net positive, we need to be mindful of the negative effects and potential side effects of those policies and we have to take the concerns of the people into account. Arte remaining committed to price stability mandate our price stability mandate, this requires Continuous Monitoring and a very effective cost benefit analysis. Second, the Global Environment of low inflation and low Interest Rates poses strategy questions to all Central Banks, not just the ecb. The Central Banks in enhance their understanding of inflation , take stock of new instruments, including the use of Balance Sheets and unconventional monetary policies. They need to reflect on whether there Monetary Policy frameworks are sufficiently robust to new challenges. Tos is a mission i intend embark upon. Central banks are increasingly challengestypes of with climate change, the disruptive impact technology, the destruction of the current multilateral order. Here ics crucial that Monetary Policy is forwardlooking here i see crucial that Monetary Policy is forwardlooking. , the effectiveness of our Monetary Policy hinges on the resilience of the financial system. The ecbs role in financial respondedhas significantly. Supervision has an effective job in restraining Capital Buffers and reducing Balance Sheets on banks. 11 . S have risen from more work to be done. Of most significant banks has now have to and that time. A series of challenges remain. Both Banking Union and Capital Market union need to be completed to foster deeper risksharing in the euro area and expand access to finance. Bank profitability, you have heard it, is low. Landscape of the Financial Sector is being changed by the growing role of nonbanks in intermediation and technological transformation. The share of nonbank financing risen euro area flows has risen. Those are big changes. They need to be considered when having in mind Financial Stability. And tech firms now receive ech atech firms fint quarter of firms now receive about a quarter startup funding. Of startup funding. That means being alert to risks in terms of Financial Stability, privacy, criminal activities, and ensuring appropriate regulation is in place to steer technologies towards the public good. Recognizing the wider social benefits from innovation and allowing them space to develop in an ironment that is safe from safe for Financial Stability purposes. Mandate,ment to the agility to adjust, the third component, which in my view is clearly important, is inclusiveness. Let me tell you what i mean by inclusiveness. The first aspect of inclusiveness in my mind is cooperation. Within the euro system, there is a huge wealth of expertise that we can draw on to prepare for the future and strengthen our capacity to tackle common challenges. One example of that is the network for creating the financial system, which was launched a few years ago by a few Central Bank Governors and which the ecb is now a member. Changes will have to take place. Central banks can also play a key role in sustaining global cooperation, thereby helping to underpin the multilateral order in the field where as competence. This multilateral where it has competence. This multilateral order is under threat at the moment. Central banks have to close ranks and deliver on the multilateral order. Central banks do not act in a vacuum. The effectiveness of a Monetary Policy can be enhanced by appropriate national and european policies and the trust of the public. I see a possibility for deeper cooperation in other areas as well. Completing the Single Market remains one of the most powerful tools we have a to spread new technologies and raise alsoctivity, while protecting labor standards by limiting the social dumping. This holds true for the real economy and especially in the area of services, but also in the Financial Sector, which i already touched upon. The role of parliament here is instrumental as a colegislator. Another area of cooperation is fiscal policies, which need to be available to stabilize our economies through downturns and avoid overburdening Monetary Policy. Minister atnce the time of the financial crisis and i have witnessed the difficulties of coordinating policies, particularly in fiscal matters. Because we are focused on national issues, we tend to go yet the european dimension can be critical if completed. Matt we will continue to keep you updated on Christine Lagardes comments here. You can follow along on live go to hear this on your bloomberg terminal. I need to bring you some breaking news. Hong kongs carrie lam has confirmed the extradition bill will be withdrawn. Tom good morning, everyone. Bloomberg surveillance. Extraordinary 24 hours in london. Anna edwards is at westminster. The news flow this morning is extraordinary. A number of events coming up. I know that you are looking. At the headlines nejra nejra out of hong kong absolutely. Carrie lam is to announce the withdrawal of the extradition bill on tv at 6 00 p. M. We keeping an eye on that. Server that certainly that news has given an additional lift to risk assets in addition to what we heard from brexit, with that risk of no deal seem to reseed ever so slightly. How sustained a bounce can sterling have . Tom we have quieter markets this morning. We will go to westminster. Extraordinary 40 hours. Right now, he made in speech in brussels 48 hours. Right now, a maiden speech in brussels. Christina lagarde during a speech. I know Christine Lagarde doing a speech. I know Christine Lagarde coming into a place mario draghi was really looking toward replace mario draghi was really looking toward she is treading ever so lightly. Nejra she said inflation is too low and accommodative policies are needed. She also said we must be mindful of the negative effects of those policies. Tom it is a dichotomy in managing the message forward. Important decisions on further quantitative easing by the European Central bank. It has been an uproar of about a that isy be bit longer, the former president of the new york fed, William Dudley essay in response to that upper uproar. William dudley, in a measured essay in number of days ago, ended with a discussion of how the fed should handle the politics of the nation and critically the election of 2020. Here is a key quote i put together from mr. Dudley. This is a summary of a more lengthy essay. I wanted the Federal Reserve to be more explicit. My intention was to be provocative. I am not suggesting the fed should take sides in the upcoming election. I dont think the fed is politicized in the sense that it will try to influence election outcomes. End, thertantly at the article is mine and mine alone. Michael mckee has been monitoring the uproar on this. Those few in support of bill dudley. Before we dive into this, what i meant when i said dont enable trump. Bill dudley enabled the debate, renewed the uproar. He suggested the fed might want to push back from the president to keep the president from going farther on the trade war. In other words, maybe not cut rates when the market expects it , because in the president would feel emboldened to go even farther with the trade war. The line that really got people was that may be the fed should play a role in the upcoming president ial election. There was an uproar about that, everything from the fed should not be politicized, to you are a traitor to the country. Tom jesse walk it back does he walk it back here . It is nuanced. He is saying, lets kind of go sideways on this. He said his intention was to be provocative when you talk about the election and the logical consequences of the chain of events is going to be. He said basically he was not suggesting the fed take sides in the election. Tom under claimed international an Acclaimed International Economist Says he said men things many things that have already been said. He wanted to be provocative. Did he succeed . Absolutely. Attention. Nations most of the country does not know him. This put him on the map and created quite the stir in political circles in washington. I think that is why he came back. Ass is was widely seen putting the fed in a difficult position, because it was leading people to believe the fed had been politicized. He writes that today, the fed has been politicized, he says, by donald trump. Trump has shifted the blame from his owed trade policies phone trade policies to the own trade policies to the fed. Nejra what draws my attention as the final sentence of what he , where he says i wrote the article to express my concern that the president had placed the negative economic consequences of his trade war at the feet of the fed and fed officials had not pushed back against this more forcibly. Is there any prospect of them doing that given the rhetoric we have had over the past 24 hours . We heard from Eric Rosengren and james bullard. We are seeing more and more from that, particularly from jay powell. He said trade wars are hurting the economy and we dont know how to deal with them. There is no playbook for that. He put trade wars front and center. The feeling at the fed is that they do not get anywhere by taking on donald trump. He is the president and he is going to keep criticizing them. The best thing they can do is to ignore him and go about doing their job as best they can. Dudleysense, bill original essay was not particularly helpful. Tom the fed has to aggressively restate their independence. Are we going to hear that before september 18 . Are you going to ask that question in the press conference . There is a chance, because we are hearing from jay powell on friday. We get traded data this morning which may be interesting to see what has happened with the u. S. Trade deficit. He may elect to make a little bit more stronger statement or at least put more of the blame on trade wars. We will see how that goes over. Nejra nejra lets bring in our mike for the hour, gallagher, continuing economics managing director of macro and strategy. I just want to get your first take on this repot from bill dudley. Is a Strong Enough defense to what he said before to make clear he is not trying to influence the politics in any way but just wanted to enable and highlightsaid that fed officials had not pushed back forcibly enough . Mike i think he is trying to sort of depoliticize it perhaps the way that it was spun and taken into quarters actually sort of dragged the fed into the political arena. I dont think the fed necessarily want to be in that arena. I think they want to make policy on their terms. I think that still points to them cutting by 25 basis points at the september fomc meeting. Nejra lets just turn to Christine Lagarde. She has been saying a review of monetary framework is warranted. She said the ecb does not need to be guided by markets. She brought up the difficulty facing Central Banks where she said inflation to low, accommodative policy is needed, and that we must be mindful of the negative effects of that policy. There was a great call them out overnight saying that Central Banks are reiterating banks, reiterating, are being held hostage by markets. Markets have certainly run too far ahead of the ecb meeting. Expectation is widespread that they will cut by 20 basis points in terms of the deposit rate and that they probably will do sort of a qe. It is likely to see some disappointment. We think 10 basis points the negative deposit rate. We dont think that the launch they will launch qe. If you look at the ecb, we are getting rightful shots in the arm rather than a big bazooka. I think it is up to lagarde to work out what is going to happen in terms of to eat. That qe. That is a story for later this year into 2020. Tom we are watching the banners from madame lagarde and i will be blunt, they say absolutely nothing. You want to go out, make an appearance, and say absolutely nothing. One is the time when we will hear something of substance from Christine Lagarde when is the time when we will hear something of substance from Christine Lagarde . She is setting out an overall view of where they are. Tom tom you are getting tom you are kidding. This is something a lot of people had actually wished bill dudley would say and jerome powell. That may be what she is setting up here, that we pick it we take a modest line in the beginning, it is not wrong. Tom how different is her world from draghi of one or two years ago . This is a massive scene at jackson hole. Where is she now in the continuum of a negative rate th of that . He dep you have to take the negative effects into account. It hurts savers and the banks. There is a blowback and a problem with negative rates that the ecb has to take into account. It is the tour they have short of qe tool they have short of qe. Nejra when lagarde is saying that the ecb needs to listen to and understand markets, what would be satisfactory . For markets it seems satisfactory for markets . I dont think the ecb is trying to micromanage the markets. Thats why i think there is a general risk of disappointment next week. I think when the ecb are looking at markets, if they are looking at it in a big picture context, is the gilt curve telling us anything is fight yield curve telling us anything . That is likely to be disappointed. Nejra we have had four or five hawkish statements just in the past few days in terms of pushing back on the qe side of things. What should markets read into that . We dont seem to have had any of the expectations tempered. I think you should read that they are trying to dampen down will expectations that qe2 be announced by the ecb at the september meeting. I dont think that will necessarily be the case. It would be a huge surprise given the guidance, the comments we have had, given the minutes from the ecb in the last meeting. Tom though dudleys second effort just out on bloomberg bill dudleys second effort just out on bloomberg. I want to get back to business as usual. Bring it up. Its hard to see, but you can see the word bullard and rosengren. Bullard says aggressive rate cut needed. Rosengren says no cut is needed. It is just like old times. Is it that divided for september 18 . The majority are definitely in favor of a 25 basis point cut at this point. The dissenters are going to be heard. Tom this is fascinating. Theael mckee will raise standing bill. Excuse me, chairman powell, about the dudley essays, will probably be shown the door. Madame lagarde and really her first public appearance in really her first public appearance seeking diplomacy in brussels. Thank you for your opening comments. I remember back in the crisis times, many central bankers complaining, using the formula, Central Banks are not the only game in town. I think in many ways, we are still at a time when Central Bank Governors, while using all of the tools in their toolbox, while reexamining monetary framework, while focusing and finetuning the tools available, and they should do their job in accordance with their mandate. There is clearly cooperation to be had if all of the institutions in europe and in the euro zone in particular want to respond to the threats of populism and nationalism. With that, i have in mind an area where maybe i will not venture if i become president of the easy. It has to do with ecb. It has to do with the fiscal role that many countries can actually play. It has been the case and i have said that as managing director of the imf, that some countries in the euro area can actually use some of their fiscal space in order to improve broadband placetructure and set in the public spending that will actually help fight the recession. I think there are more countries in that situation nowadays. Tom bloomberg surveillance. We say good morning. On extraordinary news flow to begin september. No other way to put it. Let me do a data check. It is a quieter market off of what we saw yesterday and into the labor day u. S. Weekend. Futures take a bounce. 2s 10s widens out away from inversion. Euro bounces off a 109 handle, oil with a left. There is a bit of a risk on feel but i dont want to oversell that. The vix backed up. Ejra explain sterling, eurosterling, and dollar index. Nejra look, there is certainly more of a risk on feel in european markets. A gain of more than 1 in the stoxx 600. Few things feeding into this, brexit, italy. Hitting a low yesterday because the market is perceiving that no deal risks receiving. 10 year treasury yields up three basis points after falling following that ism manufacturing yesterday. Joining us now is anna edwards, who can give us all the contacts from once minster on what we heard overnight westminster on what we heard overnight. Welcome to the show. One analyst has described what is happening now as clear as mud. Are we heading for a general election . Yeah, if you can see through the mud, perhaps one lies somewhere in that murky pool. We seem to be edging towards a general election but it will not happen tomorrow. We have a lot a business to get there in the house of commons and elsewhere on the brexit front. We seem to be pushing slowly towards election. Boris johnson has reluctantly decided to have an election. To do so, he will need the support of the labour party. They will not back him in the very shortterm. They will wait until this deal hason to block no been passed, then they will agree to his request for an election. A lot going on today. We will get at least one vote in the commons today. Plenty more going on with Prime Ministers questions, a Spending Review. Lots to watch. Tom we will continue with anna edwards. We just saw the Prime Minister the 10 downing street. There are so many ways to take this. One of the things that fascinates me is how you fold todays debate into the idea that Parliament Still will be suspended in a few days. Explain the historic Time Compression we have got between september 4 and september 9. So we have seen that the government has decided they want orogue parliament, suspended eventually suspended it suspend it eventually. Parliament is not entirely suspended. There are different sides of that argument. The johnson government said they were proroguing parliament so they could push through their domestic agenda. It has been historic. Other governments have proro gued in controversy. John major did so back in 1997. That did not play well for him in the end. Nejra thank you so much to anna edwards. Mike gallagher of continuum economics stays with us. You have been weighing out the probabilities of what happens next. What is your base case of where we go . Mike i think the base case is that we sort of see Parliament Passing a situation that the Prime Minister is forced to go to the eu and request an extension. He obviously does not want to do that. He will request an election, which is unlikely to be pastorally. The political tactics past early passed early. The prophetical tactic is to force johnson to go to the request an extension. We have to get the bill that stops a no deal brexit. It is likely in election will be in november. If it is in november, then crucially johnson will not have delivered a no deal brexit. That is likely to lead to a Hung Parliament based on current opinion polls and based also on the thinking of the u. K. Electorate if that kind of scenario pans out. Nejra an extension of the deadline is potentially sterling positive because it at least pushes no deal out further in the future. If we get a general election, is that sterling positive or negative . Mike it is sterling negative. It is double jeopardy in the u. K. At this point, brexit and an election. The problem with that Hung Parliament is that it is not as if conservatives and labour party will be short just short, they will be very short. It is more likely that labour will be able to form some kind of temporary coalition with certainly the s p, and other nationalist parties and other lebron liberal democrats to hold a peoples referendum. A Labor Coalition Labour Coalition is bad news for sterling, particularly in nationalization, underpaying for nationalized industries. Tom we will continue this discussion. We have a headline now. This has been widely expected by london in scotland. That the primeed minister wins the scottish ruling over parliament suspension. That has been not the decision expected, but knowing that it was coming at any moment. Right now, we are going to begin a conversation for a brief while and move on for a more extended conversation with Laurence Boone with the oecd, their chief economist. We happen to have her in brussels today. I want to talk about the linkage of negative Interest Rates that we see to the ascent of madame lagarde at the European Central bank. How is the urgency changed for madame lagarde with the new depth of negative Interest Rates . So as you know, the ecb policy is not just about the negative interest rate. Box withlly a tool rates with asset purchases and also with Forward Guidance. I think given the economic situation, that for the ecb will be looking at towards the package. As you know very well, we have set it for a while that the Monetary Policy of the central bank cannot be the only game in support ant comes to economy where growth is weak. That fiscal policy has to play role. Madame lagarde is getting into a new environment where there has to be more balance between fiscal and Monetary Policy. At the same time, and i guess you were alluding to that, the last time there was a review of the Monetary Policy framework at the ecb was 2003. Maybe it is time to have another look at it as well. Tom very quickly and to get to our next segment, im very curious about the oecds study of the effect of brexit upon madame lagarde in europe. How does the United Kingdom debate change the economic debate of europe . Laurence there are a couple of things. One is the way that it will if we look sorry, if you look at it from a pure economic point of view, on aggregate for the European Union, brexit is not that big a deal for the eu. Mistake,ould be a especially in the environment we live in if we were looking at things only in the aggregate. There are some sectors for which the u. K. Is a big export market where the value chain is integrated, which would be an issue in europe. You cane sectors and think obviously about electronic equipment, chemistry, it can be a couple of other like agriculture, as well as some specific countries, then there will be a shock. The European Union has tools for that. From an economic point of view, the eu can address these shocks with the Globalization Fund and social fund. From a political angle, it is essential that the eu uses these funds to address the shocks that will come at the sector level. Tom thank you. We will continue with Laurence Boone of the oecd. Extraordinary newsday with quieter risk on markets. Later, the European Central bank. Stay with us. This is bloomberg. Here, it all starts with a simple. Hello hi how can i help . A data plan for everyone. Everyone . Everyone. Lets send to everyone [ camera clicking ] wifi up there . Ahhh. Sure, why not . Howd he get out . a camera might figure it out. That was easy glad i could help. At xfinity, were here to make life simple. Easy. Awesome. So come ask, shop, discover at your xfinity store today. Im in london. Lets go to the bloomberg first word news. In hong kong chief executive carrie lam is looking to reduce the tensions that have flipped the city. She will formally withdraw legislation that will allow extradition to china. That was the measure that triggered weekly demonstrations. It is not clear if that will and the protest. The Opposition Movement has made four other demands. Hurricane dorian is threatening the east coast of the u. S. The storm is lashing florida with wind and rain. Dorian has been downgraded to a category two. The wind speed has fallen but it is growing in size. It could make landfall in georgia or the carolinas later this week. The pentagon is shifting 3. 6 billion from military Construction Projects to build a wall on the border with mexico. That follows President Trumps declaration the National Emergency exists there. Critics say this is an end run around congress which rejected funding for a border wall in a fight over the budget. Global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in over i am renitas. Young. This is bloomberg. A chief economist of the oec is still with us. Also with us on the london set. We got some data from the u. K. Showing it is possibly on course for a recession or stagnation. The isn manufacturing gauge, is the u. S. Causing market concern. Are you on recession watch globally . Been watching for a global slowdown for about a year now. A number of factors that you know very well. One is the tension and for the u. K. The uncertainty linked to brexit. We have a lot of geopolitical tension. Warning that the economy globally is slowing down. Nehra has the risk of recession increased for you in the past month . We published our last projection in may and when we look at the indicators some of them you are mentioning that have been published since then gdp growth is on track or below where we were expecting at the time. It is difficult from a few specific areas to talk about position. The fact is we are seeing indicators that a slowdown is coming. The situation is more tense because of the uncertainty created by brexit. One thing that is striking is since brexit negotiations investment has been a flat line of zero. That is a reflection of what is happening with the uncertainty around the world. We are concerned. Nehra how concerned are you, mike, that the slowdown or recession in some parts of manufacturing we have seen globally will spillover . Mike genuine concern because that is the normal sequence we see. If the dominant factor is the u. S. China trade war and over the last month we have seen trump raising the stakes yet aain, will we get breakthrough in september between the u. S. And china . I think doubtful. Prospect of athe third set of tariffs being introduced. That is bad in terms of direct effects or trade. Of business terms investment and that is dampening the whole manufacturing sector. At some stage that will feed into less employment growth. It is genuinely widespread. Countries that are being impacted less are the u. S. And china. The u. S. And china may gives you a misleading picture. In the eurozone we do see a lot of activity as far as manufacturing is concerned. Are just joining us at 5 30 new york time, in london we saw all the drama. Moving toson parliament for another day of debate. In hong kong we are waiting for carrie lam to speak, an announcement on that contentious extradition agreement. For thell watching first speech in europe in brussels. As she is grilled by members in brussels. Ame lagarde stressing stepping carefully in replacing mario draghi at the European Central bank. One of the advantages is she is looking out to 2060. I am all in years i am all ears. What do you see when you have the courage to look out 10, 20 or 40 years . Laurence youre talking a big trend if youre talking to 130 or 40 years. Some of them are very important. One is what is happening with energy. That is something we are looking into various into. Had we get conditions that are compatible a Sustainable Growth and how do we take care of the jobs that will be replaced . Open talking about this for a long time have been talking about this for a long time. This is important and linked to the first one which is migration which will have a very large impact on how the world is working. Tom what is so important here of boone is the arch moment 2019, the german elections a few days ago and the challenges politically that madame lagarde will have is a debate of migration. Color for us though ecb view of the impulse of migration through b view of the oec impulse of migration through europe . We can talk about the tension between economics and politics and how much we have to do to reach out and explain how beneficial migration can be. One of the reasons is the aging population in europe but there is also the fact that with migration come people who have struggles trying to get there but have a great entrepreneurial spirit. We know the economic benefits. We work a lot on perception and how people think to make it politically acceptable. One of the challenges you were talking about over the next 20 or 30 years, the big challenge or these topics is how we make what is economically good politically acceptable. Tom a theme we have seen in the with Deutsche Bank is the view of economist linking into commercial banking into the finance of europe and the world as well. Our economists like you a little oblivious to the challenges that finance has given centralbank policy . Laurence i dont think we are at all and Financial Risks are something that we consistently one thing works highlight. This may be coming from rates that are low for a long time but there are two strong arguments. We have a policy that has not been used. The second is if we have to keep rates low for longer it is because fiscal policy has not played its role. To people who argue that i would say in the hand of central bankers, it is fiscal, it is important that we use them. Nehra when we talk about the limits of ecb policy, how deep a limit are we talking about . Policy thatng about will only be able to flow with the slowdown and do nothing more . About thewhen we talk limits politically or economically the ecb still has strength and i think they will be able to demonstrate it. Political and we must keep it in mind. We ran an analysis that said that if we had we would get higher growth. We would haveme much less price inflation. Tom thank you so much, greatly appreciated. She is the chief economist for oecb of paris. Speaking ingarde brussels and carrie lam speaking in a few minutes in hong kong talking about the extradition legislation. Protesters looking at many other demands including the resignation of carrie lam market stable with 8 resignation. Resignation of carrie lam. Market stable. Tom bloomberg surveillance worldwide. Hitch anna edwards in westminster with the debate beginning after an exhausting evening. Many people driving forward a set of outcomes and a real mystery. Here, ag opinion followup q and day with bill and lightening his view on the fed and fed independence. In hong kong and extraordinary comment to be made in about 15 minutes. Carrie lam will announce a bill withdrawal. There is no one better to speak to then our Wonderful Team in hong kong. That would be stephen. Has the response of some of the protesters, looking for more. Will carrie lam allow for a further debate of items protesters want including her resignation or will they say this is it and move on . She has notnow acquiesced to any of the demands from protesters. That would be a sign of weakness or perhaps it was not necessarily her choice. Maybe those were the marching orders after it was perceived that she dug herself this whole, maybe beijing would not allow her to withdraw the bill or resign. Yesterday she spoke on the issue of resignation and says she has never tendered a resignation to beijing. There had been a recording week that clearly heard her speaking in english that if she had the choice she would resign. Matter of minutes we are expected to get an announcement. The main englishlanguage newspaper in hong kong has reported that she will formally withdraw this controversial extradition bill. A month or two ago she withdrew suspended deliberation on this bill but refused to officially withdraw it. That sparked the iron of protesters. It was the catalyst for the summer of discontent we have seen that has escalated into violence. Chief north to our asia correspondent joining us with the latest. Fundys 1 trillion wealth owns 1. 5 of global stocks and is largely at the mercy of global markets. It was led by again in bonds in the second quarter. We spoke to the ceo. We tried to look into this issue of the global value chain. And there difficult is a norm a scale for some of this production. Think about producing an iphone. In a few weeks time it is supposed to be out there to the whole world. It means you will have very concentrated production. That probably means there is a huge upside in keeping the production chains together. Have said recently that you want to increase investment in the u. S. And tax particularly. Is that a sign you think america will win this competition . You talked about putting another hundred billion dollars in. Yngve this firm has had two movements over time. We have a second move which is going from 60 in europe to less emphasis on europe and more on the rest of the world. We are gradually reducing the percent we have in europe. Are you worried about europe . Not just brexit the what is happening in germany and italy . Are you confident the eurozone will Stay Together . Yngve my role is to worried. Too worry. European businesses are more multinational than other businesses. I mentioned brexit at the beginning. Today of all days you have Boris Johnson trying to call an election. You have problems of people trying to fight off no deal. You have been of the idea that britain is a good place to invest. Do you really think britain can come through a no deal scenario and look an attractive place to invest . Yngve we are a longterm investor in Great Britain and no matter what the outcome is we will invest in it about approximately the same size. Is outside country the eu but still within europe. Britain is also close to europe and will be in the long term. We have a substantial investment there and we will continue to be there. I think it is good to know that we are longterm committed to the countries and we are a welcome and stable investor. Do you think there are things britain can learn from norway . Shouldink every country think about the best positioning for where they want to see themselves. Even with no deal most investors would say no deal is a very dangerous situation for britain. You are relatively relaxed about that . With the kind of horizon we we have tong with look 30, 40 or 50 years ahead and this should not affect the bigger picture. The big thing out there is the fed. They are leading the Central Banks towards lower rates. We even have negative yields and a whole variety of Different Things. You are trying to achieve a certain amount, 3 a year. You have bonds that are all negative, have you do that . 3 real return is what we have as a rule for the spending and backbone there. Wasreal return on bonds negative. All the worries we have in regards to markets, it is on top of our agenda and it should be for any investor. Low Interest Rates will have significant effect on your return over time. Do you think it is sustainable . This relentless push towards ever lower Interest Rates around the world . I think the markets have been quite surprised by what happened so far this year. This has been a momentous change from Interest Rates going up in the u. S. To turning around again. What is the single thing you have done differently because of that . We have not change the positioning. We are neutral with regards to duration. We have a neutral view of the markets bringing rates up or down. The you think Central Banks have enough firepower to cope with a traditional slowdown . The traditional way to cope is reducing Interest Rates. We are part of the central bank in norway. If you look all the way around the world you see banks have reduced Interest Rates already and that there is a general worry out there. Out there that there is enough firepower not enough firepower to help the markets. Yngve it is possible and only time will tell. There is concern for Central Banks and the markets but the fact that we have low Interest Rates in itself is what we are most concerned about. Explain how you look at the u. S. At the moment. President who is leading a trade war with china. He is telling the fed to keep pushing rates lower and lower. Has your view of the u. S. Changed under donald trump . We are proposing we are looking at the market in that aspect. It has been very profitable. So you are a supporter of brexit and trump . I look at it in a different way. The things that risk affects most of the things we look at. It is not political. And see onnalyze it the horizon the confidence performance and how well they do. Tom a conversation with one of the great tools of investment in the world. Right now in hong kong the chief executive of hong kong is speaking and its in chinese. Our team of correspondents giving a good translation. Carrie lam says the last number of months have quote saddened many in the city. Responded tot has the five demands at various times she says and the hong kong leader formally withdraws this extradition bill. Byis a recorded speech carrie lam, more a statement. She reiterated that the government has never characterize the protest as riots, that may be open to interpretation. It is interesting that she is bringing up that she repeatedly said the legislation had been stopped. Weekend to to this see what we will see with further protests. Nejra exactly, tom. We are getting confirmation of formally withdrawing the extradition bill. That is just one of the five demand set by protesters. Mike gallagher of continuing economics is still on set. The global at economy, everything we have talked about in terms of exit and hongkong brexit kong and negative rates how much of a negative effect on the real economy are negative rates having globally. If you look at negative rates they have two a fax. Mike negative rates actually mean less firepower to undertake consumption. Doingis a benefit in negative Interest Rates but there are diminishing returns. I think we are at that point for europe. It is futile to go further negative. I think they have done enough and they should be looking at qb. Qe. Europeans should be looking at expensive fiscal policy to fight a slowdown or future recession. I think we are at the point where there is negative effects in europe from negative yields as much as there are positive effects. Nejra are we at a point where major banks can only fight a slowdown but not a recession . Mike i think the fed has enough ammunition. Emergingmarket Central Banks have a lot of ammunition. For the ecb, bank of england and other advanced economies they have little room to cut Interest Rates to fend off a recession. It depends on fiscal policy to save the day. Tom to her very good point about the amazing news flow right now im going to suggest it is unusual, this wired up world that we are in. How do we ignore that as investors . Or may better set how do we filter through it . Mike for investors you have to actually look at the preeminent issues that are out there. Which is the trajectory of the Global Economy. What is happening in terms of u. S. China trade. Have prompted a risk on event in terms of hong kong and italy and the u. K. That is not going to last forever. Waters astreacherous in terms of u. S. China trade. To be the critical issue at the end of the day for investors going into autumn. Invite you all worldwide, bloomberg surveillance. Extraordinary news flow. We began the hour with Prime Minister johnson leaving 10 downing street to head to another day in parliament. Then we moved over to Bloomberg Opinion and William Dudley, a piercing essay and a followon to his work a week ago in the a where heq emphasized fed independence being front and center. He made clear that what he writes is his. In hong kong we are seeing an extraordinary film statement, there is the end of the film statement with the chief executive. There will be an independent study which will focus on the causes of hong kongs fundamental issues. To chief executive went on speak about housing and economic problems and im reading this for the first time. A reminder it has been almost three months since protest began. You wonder where we will be as we move forward as well. We want to go back to hong kong and speak with Stephen Engle who has been monitoring the chief executives efforts. I want to put this in a historic framework. How is chief executive lam different from what you and i knew years ago with the chief executive 15 years ago . How has carrie lams job changed . En it is difficult because the gap between the rich and the poor and prodemocracy and proestablishment camp has widened. Carrie lam is the fourth chief executive since the handover in 1977. In first governor resigned 2003 and 2004 after half a Million People took to the road test of this amendment to the National Security law. Jail convicted of financial crimes. The next one was vilified because he was responsible for the umbrella movement. Now you have carrie lam probably even more vilified for this extradition bill. Tom a wonderful History Lesson. Mike gallagher thank you for being with us through the hour. Haveese comments we translated, framed them to friday, saturday and sunday. Can we make a judgment on protests moving forward to this weekend . Mike i think a lot of the protest leaders and protesters are i think a lot of protest leaders and protesters are parsing her words. Be enough towill pacify or alleviate concerns that have built up in society. They have five main demand. The top of that list was formal withdrawal of the bill. Number two would be an independent inquiry into what they say is Excessive Force used by the police. Carrie lam is saying she the start of an independent study and review of government work. Does that mean that will be a coi . That is a common term when i set up a commission of inquiry which would be an independent inquiry. That alla police panel complaints about the police go into the police inquiry. That is the police judging police behavior. Are you going to get an independent verdict . Decided,till yet to be whether what she is proposing is an independent panel. What has chinas role been in these events . The Foreign Ministry spokesperson just a couple of hours ago when news of this potential withdrawal of the bill came up was asked about it at a regular briefing in beijing and he refused to comment on it. Hong kong is on the abyss and there are signs of terrorism and if you play with fire you will die by fire. They have been ratcheting up the rhetoric. They are very concerned about what is happening in hong kong. Especially three or four weeks away from the october 1 70th anniversary celebration in beijing of the founding of the peoples republic of china. They want this to be a big birthday celebration. We have carrie lam adding two new members in the Police Complaint counsel. The futures index is extending losses. We saw quite a prominent bounce after news of the withdrawal of the extradition bill. These futures pointing to some disappointment in the markets with what we are hearing from carrie lam. Paints a picture of what we might see on the protest front given that only one demand out of the five has been met. We have already spoken briefly with the prodemocracy lawmaker. She has been quite outspoken. This protest movement does not have necessarily bigname leaders. That havefigureheads been speaking on behalf of a Broader Movement across society. She says perhaps too little too late. She could have withdrawn this bill a long time ago. And really kept the protest to a minimum and saved many protesters. They want those five demands of the moree some violent protests not classified by police as riots. If you are a rider and you are convicted you get a 10 year minimum jail sentence. They want that to have amnesty. For thet broad amnesty 1100 protesters who have been arrested so far. They want universal suffrage which was the basis of the umbrella movement. That will be a long shot. One of the five demands is a step forward. Tom thank you for the History Lesson and the analysis of this week in hong kong. Only keeping track of the of modis unfazed look emojis on facebook, there are negative of modis. Our first glance from our team in hong kong. We say good morning to all of you worldwide. ,e are blowing up the show describing the International News flow. We see it in hong kong and we will get to london and brexit in a moment. Nejra cehic on Queen Victoria street. We go to washington as we drive forward a fed debate with Kevin Cirilli our chief washington correspondent. What is important is William Dudley following up on the bombshell of a week ago. At theirst look synthesis of this queue and day q a of the former fed president. He said he one of the fed to be more inclusive and he wanted to be provocative. He was not trying to suggest the fed should take sides in the upcoming election. The fed isieve politicized in the sense that it would consider trying to influence election outcomes. Article is mine and mine alone he says. I would say it has been a contained response by a twitter happy President Trump. Further response to fed independence by the president off of this essay . If we will seen it from President Trump but we are seeing it from lawmakers on capitol hill. Republicans on the Senate Banking committee have called for there to be a hearing into fed independence with regards to those comments. The most controversial part of wasfirst bloomberg oped what he said about the fed considering the political implications of 20 with regards to Monetary Policy. A. Second oped is a q a question he asked is whether the fed should consider the political implications of this. Eye on influence in the outcome of 2020 president ial elections that not doing so would be outside the scope of the Feds Authority and inappropriate. Whatly dudley reacting to he says is not what he meant in the first oped with whether or not the fed should be impacting political outcomes. Politiciansponse of going back to fdr and the commonwealth speech is just do something. Isthey come back from recess there an urge from washington to scream at the chairman to do something . Kevin not necessarily at the chairman but i think you will face criticism in addition to President Trump. The fedticization of has been heightened in the Trump Administration but it by no means started here. If you go back to when rick perry was criticizing janet yellen and others calling for there to be independence, you can look at the libertarian streak in american politics this is more heightened. Recession fears are on the minds of all lawmakers the democrats are blaming republicans. Nejra one thing bill dudley says is he one of the fed to be more explicit that the greatest risks to the economy was the uncertainty created by the u. S. Trade war with china. By making this clear it would increase President Trumps stake in the downside risk. Even if the fed does what bill dudley said, would President Trump ever admit he is responsible for the slowdown in the u. S. Economy and the impact the trade war is having on the u. S. And Global Economy . Absolutely not. In the past day or two you are seeing the president pushed back against the notion that the trade war has had any impact with regards to the economy. The Administration Still points to low unemployment and wage Growth Numbers and manufacturing numbers. I think whether larry kudlow or President Trump they have said the administration has been really given no chance but to push back against china. The other week when president President Trump called him the chosen one. Greatly appreciated. Is speaking in brussels on her way to the ecb. She is taking questions from any bers her responses have been predictable what we are monitoring this in brussels. The news flow this morning is extraordinary. It is a good time to speak to china. He is a former British Petroleum heef executive officer and is out flogging a book we will speak of on technology and him innovation. I want to go back to a quote that might be recited in the coming days. This is the george the fifth 1914 worried about royal assent. We want to over a National Disaster or at least have a tranquilizing effect on the distracting conditions of the time . How are the distracting conditions of britain right now . It has been an extraordinary 24 hours. Yes. They have been very distracting. We are at the point where it is so unpredictable because we dont have clear constitutional guidelines to tell us what will happen next. A written constitution i would expect to go through this and predict the steps. We have a constitution which with good when people will meet people of goodwill and they are members from the same ideas. We are in uncharted grounds. We will speak to our friends at westminster here in a moment. Important in that this fulling over to British Businesses in british multinationals. How frozen is British Business . Barry. I think investment is very weak. People will have to wait and see what happens next. Businesses have spent a lot of money preparing for a hard brexit in march. Now they are having to prepare again. None of this is very good. Nejra great to have you on the show lord browne. How worried are businesses that at no deal brexit will lead to a prolonged recession in the u. K. . Buthey are worried about it the question is what are they going to do about it . They have been prepared for the transition and warning people that things will be tougher. I think that is what they do. There is the impact in the shortterm of the exchange rate. Browne has a wonderful book on engineering the future of our situation. Imagine anks, imagine. Inht now madame lagarde brussels beginning to explain her approach to an ecb after brought after draghi. Should be understood in that particular respect. That is my understanding of the debate at the moment. I think it is appropriate. Nejra i am in london with tom keene in new york. Lets get an update from westminster, anna edwards joining us. Even more news flow in the past hour. Boris johnson winning the scottish ruling over the parliament suspension. And investors trying to work out whether the no deal risk has receded and what a general election would mean for sterling. Update us on where we are. Anna there is a lot in the mix. A lot of news flow set to come from here in westminster as we go to the Prime Ministers questions at 10 00 local time. We heard from edinburgh, a call there on whether any law has been broken as far as johnson and parliament. The judge said this was not an act for the court but for parliament to decide. We will look to the court for dramas. Wel see this taking will see a vote on whether to block a no deal brexit. Alliance of mps from across the house is what we will be focusing on. Tom the news flow is absolutely extraordinary. On brexit, on these challenges for the United Kingdom and the knock on effect of a Global Economy john browne joins us. Energy and he is out with a book on technology. Arch issue of brexit. I want to take the theme of a populism of a multiparty democracy. Is that where your britain is heading . Away from labour and tory to some form of multiparty statement statement . We are not very good in the u. K. As coalition ares coalitioners. It depends what happens with our election. Whereld be into an area we have to have plenty of coalitions in order to run the country. That will slow down what we do. Tom i was reading the minute by minute of what will happen over the next two to four days, the times of london had a beautiful walkthrough of it. What will lords do as we focus on commons . The lords will debate the bills before they can be enacted. It is unclear what will happen there. The lords could potentially filibuster the bill and time expires in which case there another reaction against the duties and allegiances of the lord should they be dealing with something that the will of the elected representatives i think there are plenty of issues that are about the surface. Nejra one panelist described the outlook for the moment in u. K. As clear as mud. For British Businesses what would be worse, no deal brexit or a Labor Coalition government . Are entirely Different Things very good with the no deal brexit there will be a shock and that will reduce potential growth rates for a period of time. With a Labor Coalition it all depends on the nature of the coalition and whether or not some of the extreme statements which have been made about taking plenty of rent from businesses and increasing the role of the state. Whether that can actually be done with the Coalition Government remains to be seen. If we the have hoped that get the prospect of no deal coming back again as Boris Johnson has said that the eu must be pushed to meet his demands and the 11th hour . They have shown absolutely no sign of doing that. They have been very consistent. Think some members have been very charming and have said we should really talk. Nothing has changed. It would surprise me if it does change. This is bad position they held for some time. Ks problem and the need to work out what they are going to do. It is all possible. It looks to me like this is not something we should rely on. Nejra stay with us, john browne l1 energy chair. Coming up is the former ecb thatt and trilateral is on the european close in london. This is bloomberg. Extraordinary worldwide news this morning. Formerlys lord browne with British Petroleum out with a new book giving us wisdom on the importance of lords in the coming days. David sowerby. I would suggest 42 big st ocks. What is the relative value of the sowerby world . At a caps trading discount, a historical low that you have to go back to 1999 to find. Value is significantly discounted to broke. Discounted to the rest of the smallcap market. I think that offsets the table tom is it a value trap or can there be a catalyst to start it . There are over 2000 stocks to pick from. Your chance to find a stock that will double is in your favor. Global growth is slowing and that puts a big cloud over smallcap stocks but i will defer to the valuation metric and be aware of the value trap and be aware of names like wyndham hotels, scrappage cars and reselling them. Tom jump in here. Nejra im glad you mentioned value trap. If you look at the ratio of the russell compared to the s p we remember what happened in 2007 and 2008. Is the answer to the stoxx elective versus buying the index of the russell or the s p . I am an active investor. My parents didnt raise me to play for a tie. Beware of Portfolio Managers like myself who say it is a stock tickers market, that is an overused and boring term. With correlations dropping between stocks it has a greater separation between the potential for what will perform in portfolios and what will be an index performer. I think it is a more robust period to be an active investor because empirical evidence suggests there is a greater separation in stocks to pick from between those that will perform and those that will underperform on a valuation basis. That sets the table for the active investor. Passive is boring. Nejra this version is high. Coming up on Bloomberg Television South African central joins us livee from the World Economic forum in cape town. This is bloomberg. Nejra i am they are a change which keene in new york. Lets get the i am nejra cehic in london and tom keene in new york. Carrie lam announcing she will withdraw the controversial extradition bill. Frome getting the reaction our bloomberg chief asia correspondent Stephen Engle. Carrie lam hazmat one of the five demands from protesters in hong kong. What happens now . Hearing on are social media from other protesters that they are giving a thumbs down to the address by carrie lam in the last hour or so. Basically acquiescing to one of the demands. That is the formal withdrawal of this extradition bill. Claudia are you see here not speaking now but sitting to the left of the other prodemocracy camp, saying this is too little too late. Where youaid sleeping the last three months . A direct challenge to carrie lam as far as giving too little too late. On the number two point, that is having an independent inquiry set up. Ofrie lam dismissed that two certain degree saying the existing framework of the independent Police Complaints commission is satisfactory. That is a commission that is set up and adding to it it has independent or International Representatives on it. She says that is the best platform to hear the grievances of the public about possible Excessive Police brutality. Protesters have dismissed that policehow can the themselves judge what is unfair . This has been extraordinary particularly with the chinese translation. To the we speak media . Do the media represent the protesters or the International Audience . How will that moment go . Stephen this is not the mainland so this will be a tough bunch of journalists asking very tough questions of their chief executive. She will be asked directly whether this is her decision or whether this came from beijing. She has been asking this question before on whether she had the autonomy to withdraw this bill and she would not answer that. Yesterday in meeting with the press she said this is her decision whether she would tender her resignation or not. Had not tendered her resignation so she will get extremely pointed questions. From the reaction on social media i would guess that the questions are going to be about whether this is going to pacify the protesters or not. We will see more through the evening. In new york city our first word news. IsHurricane Dorian threatening the u. S. East coast after wreaking havoc on the bahamas. The storm is blasting florida with wind and rain. Dorian has been downgraded to a category two hurricane. The wind speed has fallen but it is growing in size. It could make landfall in georgia or the carolinas later this week. Shifting 3. 6s billion from military Construction Projects to build a wall on the border of mexico. Follows the president s declaration in april that there is a National Emergency there. Critics say the move is an end run around congress which rejected funding for the border wall in a fight over the budget. They have cleared what could be the final obstacle in their bid to put together a new government. 80 of the antiestablishment fivestar movement backed conti in an online vote. He is trying to put together a coalition between the fivestar and centerleft democratic party. Global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries. I am renita young and this is bloomberg. Tom thank you so much. Within the news flow is an entree into brussels. Christine lagarde on her way to the ecb. Taking questions in brussels. She has been very careful with responses. David sowerby is with us from ancora looking at investment. John browne is here in support of his book make, think, imagine. The collective memory of a few years ago is gone we saw that with the president stumbling. The need for a coalesced europe seems to be drifting away. Are we forgetting the past . We are certainly forgetting the past and the remembers that is necessary to get people together or else they will be against each other. That is the foundation of what we see today. We we are seeing a splintering. Tom in your world David Sowerby , you help advise and analyze longterm money. The comfort of going to the United States, is it ephemeral or just too easy right now to take the splintering of lord browne and bring it to america . To say i wantasy to very dominated u. S. The mastic stock portfolio when i think about global stop them nations. In portfolios you probably want about 80 or 85 of your portfolio in u. S. Domestic stocks. The remaining 15 should be in emerging markets. You can go back to december 1985 out of the heels of the g5 and u. S. Stocks have compounded 400 basis points better than the index. You simply have not had the growth, diversification, local markets in developed and more and more i think it is a u. S. Dominated market. Why at all the you have developed markets in your portfolio if you are a u. S. Pension fund . If you follow the argument that what supportive u. S. Equities is expectations around the fed which might disappoint why wouldnt large caps corrected down to where small and midcaps are rather than small and midcaps correcting upwards . It could be the case. I think that in this market in the next year to two years we will see 6 type rate return in the stock market in the u. S. For small caps to exceed that, the ability to find those gems that have attractive valuation sets the table for returns closer to seven or eight where the market is giving you six. That is going to be the case, large caps corrected down to small caps. The potential to small caps that outperform because it is compelling and growth expectations are so low in the smallcap market. I think you are being paid for the evaluation. That model portfolio you describe why would you not include european equities . So many Pension Funds start with the premise of my benchmark is this world index. 60 of it is the u. S. And 40 of it is nonus. Think if i overweight the u. S. By a bit that is my u. S. Bias. I can for the index away and say where is the growth taking place. In the u. S. To some degree. It is certainly taking place in asia. You are about generating returns to meet liability payments it begs the question back to december of 1985 where u. S. Stocks have compounded 400 basis points better than european markets. We have a wonderful book to ont with lord browne innovation and technology. Imagine. Ink, we will speak to a member of parliament about the last 48 hours. Please stick with us worldwide. This is bloomberg. Nejra i am in london with tom keene in new york. Anna is in westminster following allah developments. She joins us with a guest. Anna good to see you. I am joined by Stephen Hammond who has been a conservative for 37 years and mp for 14. 5 years. Yesterday evening was one of the situations where here about against the government and has been thrown out of the conservative party. Very good to see you. Tumultuous events. You must be very angry at being thrown out of the party you have been a member of for more than 40 years. Stephen the emotion is more sorrow and disappointment. I have been a member since i left university. I find myself outside the party. On one of the other channels they described me as the academy of conservatism in the conservative party. Nejra a lot of people in your position have been saying it is not me who has changed it is the party. Do you recognize the conservative parties . I recognize the idea being probusiness but i dont recognize the fanaticism. We had a manifesto in 2017 of a smooth and orderly exit after the referendum. I voted for that three times. Had done theues same thing none of this would have happened. Will you back independence or try to fight to remain in the conservative party . Be ahave been lucky to member of parliament for 14. 5 years and i have a huge support for my conservative i would like to represent the party i w and love some of mr. Johnsons advisors tom nejra you see the fingerprints of Dominic Cummings all over this . Im not that clever but i think you a would be foolish to not see his fingerprints or his fist or his boot. Where does this leave the conservative party . Philip hammond and others have talked about a fight for the conservative party. Who takes that torch forward . Could not remain as brought a church as it was. You remember the corn laws in 1922 or 1977 the conservative core had a historic the beliefs are the basic core beliefs of so many people in our country. Those are still the beliefs. The conservative party under a huge number of people i would like to pay a part in the future and the past. Nejra what do you think the nearterm holds . Do we get a vote on a general election later today . It seems like the government wants to pursue that. They might not on the basis that it will not pass. It looks likely that Something Like that will happen in the near future. The possibility that the bill wont pass and the government will not sign off to do that. There is the possibility that the government would have been talking to people like me and trying to persuade me not to vote for the legislation and find a compromise. There is still a compromise out there if the government wants to take it. Could there be any compromise if Dominic Cummings is in the driver seat . That is the problem. In normal times this is be a compromise. The house of commons through the whole of september consider the progress boris has said he is making. I want him to get a deal. If he gets a deal i will vote for it. Week, people last trust the Prime Minister nejra choosing his words carefully here. Tom thank you so much. The news flow is extraordinary this morning from hong kong to anna edwards in westminster and bill dudley writing a piece for Bloomberg Opinions. And move oness here from one of my books of the summer. Diamond johnson of the Massachusetts Institute of technology wrote a book about the dearth and death of science in the United States of america. Lord browne drives for the conversation with make, think, imagine. And m. I. T. Hason a book that drives the emotions of the moment. I want to go to our trusted science. Withave a wonderful moment a great philosopher on how, with all this modern cacophony we do not trust science anymore. We do not. We see unpredictable things happening. She makes the wonderful point to me when i talk to her that we would expect pedestrians to occupy sidewalks, cars and automobiles to occupy the streets. N that changes, when cars i think it is the exceptions that break the rules and they cause lack of trust. Bad privacy, bad issues with on theiring hacked computers, concern about whether you should use vaccinations for measles or not and people junk science in that area causing measles outbreaks. The list goes on and on. What i tried to do in my book was set the record straight from history to the future. It is actually engineering, the foundation of civilization. We need more or less of it. Every time i go to the British Museum i make a beeline to the clock room. Worldwide in this time a backtoschool get our kids back to the idea of innovation and engineering . In the 19thcentury sense we saw with others. We need to be very consistent and we need a closed system. Thated to repeat engineering is what we rely upon to be civilized. It has unintended consequences but they are rare. When that happens more engineering makes that solve the problems. That a need to remember very human trait of everybody is to want to make something. Whether it is in the kitchen or the garden, tinkering with the automobile or whatever. We are worrying about tom are we too distracted by technology . You dont have your kids on toys but everyone else has their kids glued to the toys. Are we distracting ourselves into a nonengineering state . These toys or devices do not rely on something called the cloud. The cloud is a concept but. Ehind it all our huge machines 60 years of investment in big computers, cheek memory cheap memory getting bigger. It is based on hardware not just software. With us, browne exceptionally thoughtful on what we have to do to get our kids back to on acuity of technology and information. You have some headlines. Nejra a lot to think about in terms of the news flow. In hong kong we are seeing democracy activist joshua wong speaking before a forum in taipei. On tuesday he urged the taiwanese people to hold their own demonstrations as they face growing pressure from china. This is bloomberg. Nejra i am in london with tom keene in new york. Clouds gathering over parliament. Way foror as we the prospect of a general election after Boris Johnson had his election plans thwarted by mps. Tom an extraordinary 12 hours to come in london. Edward evans will look at this through the day as well. We digress from london and hong kong. In brussels. E look at the stock market. We did not get towards correction in may. There was a correction in yellow and we did not get there in august. Nowhere near a bear market. Howdy you overlay the gloom analysis with the need to be in the market . The math is still simple but profound. Markets go up more than two thirds of the time. Stocks may not compound that 10 but six to 7 is the best game in town in public markets. Beware of active investors. The big pieces of the s p 500 are getting that and overpriced. Tot sets the table for six 7 returns over the next 12 to 18 months. Tom in all your experience in Asset Management the way active flows to passive you are not going to see the active unwind. That becomes a selfdefeating event that begins to lend itself i can find stocks that 14 to 15 times earnings and sufficient Free Cash Flow when so much of the market is trading over 20. That is what i think will ultimately be the differentiator for the beleaguered investigator value is thought to be dead on arrival yet it comes back with a vengeance and it will again. What is the best place to offset that investment inequities in terms of protection . Duration, gold or cash . Cash. The playbook used of the if im going to lighten up on my equity allocation i added bonds are you at 1. 5 yield and a 10 year treasury with inflation and tax consequences will not get it done. In the old playbook you would not buy bonds today. The risk reward is less compelling than stocks. It is ok to have more cash than when iith the idea of get these 10 corrections in the market and i average them it is time to redeploy some of that cash because of the expected return in the u. S. Equity market. Tom david, thank you so much. Looking at mid and small caps and this extraordinary news. And i will be watching from london and new york and anna edwards in manchester. This is bloomberg. Pm Johnson Parliament is on the brink of wrecking any deal we might be able to strike. Alix u. K. Prime minister Boris Johnson gambled and lost as Parliament Votes to push back brexit. Market versus Central Banks. Recession signs mount. Eric rosengren sees no immediate need to cut. Incoming ecb chief Christine Lagarde says policy should not be guided by the market. Carrie lam bows two processors bows to protesters. Will it be enough to end the unrest . David welcome to bloomberg daybreak on this wednesday, december 4. We also have a hurricane that wont go away. It is just parked there off the coast of florida right now. Isx i guess the better news that it is a not category 5 hitting florida. It is now i category 2, but