Another 75 billion on repo operations as investors expect a cut in Interest Rates at todays fomc meeting. Damaged goods. Fedex delivers the latest warning that the trade war is hurting americas corporate titans. Larry kudlow says progress is being made on u. S. China straight you. As saudi arabia attempts to move beyond the worst Oil Disruption in its history, saudi aramco says it will be fully back in business soon. September, ourf gate will be at capacity. Matt good morning. Take a look first off at a onemonth chart of treasuries i have got here in my terminal. I took friday, monday, and tuesday off, so i missed this peak. 1. 9 . Ped up to thats one of the things we will be talking about today. We are all over the repo issues, also a big peak, a much bigger spike over a shorter time period. Take a look at the futures. We are looking at a negative yearre in terms of u. S. 10 in terms of equity futures. This follows gains yesterday certainly in u. S. Stocks as we get closer and closer to records ahead of what is expected to be a fed cut. Anna we are sort of in a Holding Pattern. A very mixed picture coming through in the asian equity session as we wait for that fed meeting. The big focus, as always come expecting another backtoback rate cut from the federal always, expecting another backtoback rate cut from the Federal Reserve. We saw the fed to jumping into the market with some action, the first in a decade it would seem. Rarely do we see these bits of money market plumbing becoming quite so fascinating. The timing of it just before the fed meeting and sing the fed have to act on this as a next or nuance to the meeting. Anl be adds next or extra nuance to the meeting. We will get more on that no doubt. Trade also part of the story in the Asian Session. We have had the numbers out of fedex adding a corporate dimension to what is a macro story. We focus in on Larry Kudlows comments in our headlines. Talking about a certain optimism in the wind when it comes to china. Lets see if theres any optimism for mark cranfield, who joins us live. Let me ask you about what is going on in the repo markets. It is a bit of the money market that rarely gets our attention. It has our attention over the last 40 hours or so. We expect the fed 48 hours or so. We expect the fed to act again. Is this going to have any impact . As long as the fed gets on top of it and start dealing with the day to day issues, it should not have too many repercussions across the markets. It is a major problem for them. The wall street traders have been forced to hold more and more infantry, Treasury Bonds in particular at the same time that the cash supply in the market has been dwindling. The fed has been reluctant to help them smooth the market because officially, the fed is trying to lower its balance sheet, its trying to let bonds runoff. They dont want to increase their Bond Holdings any further. What they did yesterday was to actually buy treasuries for a day and keep cash back to the markets. They need to come up with a system where they can automatically help out the markets smooth these fluctuations. I am sure they are working on such a thing now. It is tricky territory for them because they are trying to lower Interest Rates. When they dont do anything, it makes it look as if shortterm Interest Rates are going higher. Ehe overnight rate was abov the feds fundraiser. It is an the feds fund rate. Its an issue. Its surprising its taken so long because that did not happen overnight. As the government is borrowing money, they are issuing more bonds, the traders have been holding onto it. Its taken them ages to get around to fixing it. The disruptions will go on for a few days yet. Matt in terms of longerterm fix, mark, do you expect changes to the volcker rule, changes to doddfrank because that regulation is being blamed, at least in part, for the lack of liquidity . It is partly in the background because people are forced to. Hold more liquid securities. Treasuries are known to be illiquid. Because they are holding a higher number of those, thats reducing the amount of cash available. It definitely plays a part but its not the only factor. A big factor is the size of the u. S. Government borrowing. Because of their requirement to issue new bonds to finance the deficit, thats forcing more bonds into the market. Me ask you about the fed proper and what kind of response we are going to see in markets to the fed rate cut, which is expected come of course, not yet delivered expected, of course, not yet delivered. Our question of the day, how much can the markets rally on a fed rate cut . Seems vanilla. Futures on the s p look pretty punchy. The s p 500 is within 1 of its record high. What we have seen over the past couple of years is that quite often the market builds up to a new record high. When it reaches it, it does not go much further before it turns down again. Once again, people are expecting the cut. The market is starting to price that in. It may well push onto another record high. It hasats what has been doing over recent years, it will probably only go a small distance over a record height and then turn lower high and then turn lower. If jay powell does not sound as dovish, it would give equity traders an excuse to lock in the fed supposedly is in great cutting mode. It may look a bit strange for some people who have not been following this closely. Matt thanks very much for joining us this morning. I know the mliv blog is a very busy place. Mark cranfield, you can get his work and that of his colleagues by typing mliv go on your bloomberg terminal. How far will stocks rally after the fed cuts the funds rate . You can reach out to mark and the team with your answer. tv go on your bloomberg terminal. Fedex site fedex cuts its forecast. We will talk about the trade war. Remember, Bloomberg Radio is live on your mobile device or on dab digital if you are in london. Tune in. This is bloomberg. Anna welcome back to Bloomberg Markets european open. Lets check the futures. Flat to negative for the start of the european trading day. Waiting for the fed. A focus on auto and Logistics Companies as we wait for the start of the trading day. This getting bloomberg first word news update. Look tols elections have broken the political deadlock in the country. Rivalin netanyahu or his neither Benjamin Netanyahu or his rival seem to have a clear path. There will not be and there cannot be a government that leans on arab antizionist parties, parties that negate the very existence of israel as a jewish and democratic state, parties that absolving praise bloodthirsty terrorist that absorb and praise bloodthirsty terrorists. Mark carney may be asked to extend his term if brexit is delayed, according to the financial times. The prospect of a snap election makes the naming of a successor less and less likely. Mark carney originally was going to serve five years but has extended his term twice. Spain is headed for a fourth election in as many years after King Philippe a concluded there felipe a cat king concluded there was global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Matt thanks very much. Latestas delivered the sign the trade war is hurting americas corporate titans. The Courier Company slumped in overnight trading after cutting its profit forecast for 2020. It said it would pair its cargo jets to contend with expectations. Why is the trade war a particularly difficult issue for fedex and ceo fred smith . Well, fred smith is well known as a very proactive and vocal free trader. Hes been a longtime republican donor. He has sound the alarm quarter after quarter sounded the alarm quarter after quarter saying that the tariffs are going to have an effect that would lead to some economic slowdown. It would particularly hurt manufacturers. Hes been sounding this alarm for a while and now in this profit outlook, hes saying that it is hurting his company and they are going to have to diminish their expectations. Matt i just want to point out, you mentioned he was a longtime republican donor and a free trader. For those viewers who are too young to remember, the Republican Party used to be the party of free trade, right . Thats right. Exactly. So hes stuck to that and has been, you know, both on a policy level as well as obviously because this is going to hurt his business, making the case that this is the wrong way to go about conducting policy, that that tariffs are going to affect that the tariffs are going to affect businesses and consumers. Now he thing thats happening. Also, the uncertainty hes saying thats happening. Also, the uncertainty the trade war has caused. Poor suggesting democrat voters in the u. S. Are overwhelmingly supportive of free trade, but i digress. Matt now they are. Anna now they are, exactly. How has the trade war specifically weighed on manufacturers that fedex relies upon for its business . Thats right. They have releasing what fred smith really seen what fred and he said it in a call with reporters, that this hurt trade manufacturers. Initially, the trade war did not seem to bite as much. Now we are seeing it in all kinds of manufacturing. When that happens, they dont have the need to move that cargo. Outlook ying their that that will continue to happen as long as these tariffs are in place. Anna we will continue to monitor this story. A look at the reader cross into european corporate read across into european corporates in a moment. Ahead of chairman powells press conference, we spoke to the bank of International Settlement general managers. The r. O. E. Conundrum that Monetary Policy faces right now conundrum that Monetary Policy faces right now is that Monetary Policy has been accommodated. Accommodative. We are still not fully there in terms of economic recovery. Thats what i want to get at. Can Monetary Policy perhaps engender a recovery . Have they run out of options . The toolkit seems to be very bear for many of these Central Banks. I think a little more can be done. As a matter of fact, many central economics, banks face growth still not where it should be. The effectiveness of Monetary Policy is not absolutely guaranteed. Therefore, it needs to be complemented with other policy instruments. Those other policy instruments that you perhaps refer to would be the fiscal side of things . Absolutely. Tell us a little bit about how it varies country by country, country by naturally, but what type of fiscal measures would you be looking at using . Actuallye looking at putting money into peoples bank accounts. Tell me. Before talking about fiscal policy, the elephant in the room in this region is trade policy. I was going to come to the coming yes going to come to that, yes. Good traded a policy, banks would not be pushed so much towards accommodative Monetary Policy. Moving to fiscal policy, i think more than anything, growth inducing policies would be adequate. Increasing Infrastructure Spending would be positive. Policyand monetary through Something Like helicopter money, i dont think that is needed at this stage. As a matter of fact, i dont think we should go into that territory. What changed in the world from Central Banks fighting inflation to now trying to fight deflation . Basically, a huge shock the Global Financial crisis was huge and basically global. It is the first major global. Risis we have needed to fight i think that has affected the capacity to grow. We have not fully recovered from it. Matt that was our exclusive conversation with the bank for international sentiments general manager. Are minutes away from the open of cash trading. We will take a look at your stocks to watch, including deutsche post. Logistics companies are in focus after fedex cuts its forecast. This is bloomberg. 7. 5 minutes to going to the start of equity trading this wednesday morning in europe. Lets get your stocks to watch around the newsroom. Annmarie hordern focused around the Logistics Sector and deutsche post. Paul jarvis government kingfish covering kingfish. Deutsche post on the other logistics names, its all about fedex i guess. Its all about fedex. Slashing their profit outlook. Keep an eye on deutsche post, royal mail. Ceo fred smith pointing his fingers right at the trade wars. Matt paul, lets get to you on kingfish. What have you got . Paul good morning, matt. Their first half results, these numbers at first glance look at disappointing. 6 profit. That is slightly better than analysts are expecting. If you drill into the numbers, the u. K. Business performing slightly better than expected. Declining sales less than 1 . The French Business still struggling quite badly. That has been the story for kingfisher. That French Business has been difficult for a long time. They have a new ceo coming in next week. Anna mixed over at kingfisher. In the car sector, more gloomy data. Gloomy data coming in. August sales were down a lot. Last years august sales were up a lot. The comparison was tough. We are still down over 3 for the year. Watch those car stocks. It looks like this year is not going to end well for car sales. Matt all right, thanks very much for joining us. You can get all of the latest stock stories from our Equities Team by going to first go on your bloomberg and avia the mobile app via the mobile up. Dont miss our interview, by the way. We have the saudi finance minister coming up shortly. And especially in light of the attacks on one of the biggest Oil Producing fields in the world and the huge spike in oil prices. That will be one you dont want to miss. Anna a few other stocks to keep on. Ye we will keep an eye on that one. This business in the u. K. , the cma will review on attempt to purchase that business. We will look for any move in that share price. Advent trying to purchase this asset in the u. K. Pendragon, this is about leasing of cars. They are guiding lower. Coming up is the market open of course. Futures are pointing flat to negative. The Asian Session in limbo. European markets could be in limbo also as we wait for the fed. The focus will be on the rate cut, the guidance about how many rate cuts they still plan to do or how open to the idea they are at least and on the activity in the repo market. That money market rate spiking. 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. Anna in minutes ago until the start of the cash equity trading go until theute to start of the cash equity trading day. A little bit of upside coming there on msci asiapacific. Broadly speaking, we artificially broadly flat. We are waiting for the fed really. Waiting for that repo activity and for the rate cuts. Oil prices edging a little bit higher come up by 0. 4 or so higher, up by 0. 4 or so. What we have got on the futures right now. Flat to negative really for European Equity markets. Waiting for that fed, waiting for the latest activity by the fed in the repo markets. We saw that spike in money markets, which left unchecked could have impacts on the real economy. Also in equity markets a bit of a Holding Pattern waiting for the Federal Reserve a little bit later on today. European equity markets getting up to speed. I think we have some of the closed markets of yesterday in here of course. We are looking for the ones that are open right now to come to the fore. Waiting for a fairly flat session in the European Equity session. Lets look at whats going on in the sectors as we wait for a little bit of clarity on the trade story. This is the picture on sectors. We are mixed on financials, mixed on health care, higher on utilities, telecoms mixed. A lot of mixed Sector Performance coming through here. Not much of a message coming through here. You get a sense that these markets are taking a breather, waiting and watching the fed. Matt yes, which is of course the usual pattern. Even ahead of a meeting with no change is expected, you do see volumes and volatility drop. People often, traders often turn off their algorithms, shut off Computer Trading because it is difficult for algorithms to parse the feds statements and get the nuance, if there is any. Markets are hoping for very little nuance today. Take a look at the stoxx 600 here. I have a breakdown of the individual movers. 300 36 stocks down 336 stocks down. We have banks on the upside. Banko santander adding the most to the stoxx most point to the stoxx 600. Points, aslso adding well as bnp paribas. On the downside, you see the Big Oil Companies as well as some of the luxury companies. We do see otherwise the Big Oil Companies down. It is mostly oil pulling down. Up. Banks pushing dividend so gone ex its not down 5 for any specific reason other than the fact that you can purchase the stock without the right to lesters dividend. Last years dividend. Anna lets talk about the markets in general today. We are down about a fraction on the stoxx 600,. Investors await the outcome of the fed policy meeting, where it is expected to cut Interest Rates once again. Joining us now is alan higgins, cio of coutts and company. Great to have you. I want to get your thoughts on the repo market. I was looking at a great chart that shows the extent of the ramp up that we saw in these money market rates over the last couple of days or so. What the fed did yesterday did not seem to be quite enough to calm the markets. We expect them back in the markets once again today. Does this give you cause to worry about the feds control at the short end or worry about pushing up borrowing costs for or is it corporates, too early . Its too early a spike in repo rates means the dealers hold too many treasuries because buy and hold investors dont need to repo them out. What we are talking about here is a huge supply of treasuries coming through. Dealers holding too much either in curve trades or either outright, leading to a scramble to get financing. Indication of speculative behavior on behalf of the banks in terms of curve trades or even outright position. Matt also, banks adjusted not having any cash at all, right banks just not having any cash at all, right . You would take it if you had the cash lying around, what you wouldnt you . Alan thats a fair point. The amount of money you make in one day, if you do the math, its less. Banks are much longer treasuries then they are longer cash than they are long cash. Matt there is not enough liquidity in the system. I wonder if this is something we should be worried about. It is a structural problem that could cause problems not just for markets on a shortterm basis, but for the economy over the longer term. Alan its just limited to the repo market. If you look at the spread between treasuries and euro dollars or swap spreads, swap spreads has gone negative. Other classic risk indicators involving banks are showing the exact opposite. Last time i looked at the short so essentially, the yield on bank debt relative to treasuries has gone negative. There is no signs of alarm. You are right. What it means, for example, for investors like us that are long cash. Its pretty difficult to turn that cash into 10 overnight. You need master repo agreement that have been done well in advance. If it was sustained, im sure investors like us would love to capture that 10 . The fed has jumped in. Anna we will look for more of that today. No doubt the fed will be asked about this later on. In terms of the longerterm picture, or at least the slightly longerterm picture, today we expect a cut, your expectations for what they will tell us about the path ahead. There seem to be some voices saying the fed might be reluctant to promise too much in terms of dovish policy from here. Alan its a balancing act, isnt it . Im not sure we will see jay powell talk about midcycle adjustment anymore. He will be sitting there hours going with his team, what precisely am i going to say . Its a balancing act because they are data dependent but also market dependent. Market dependent means credit spreads, where we saw a scare last year. Right now, its all about the yield curve. They know all about the yield curve of course and they are advised and they know the dangers of the yield curve. Anna what dangers . Alan i think the steepening is much better news, because the steepening is, in the scenario where the 10 year sells off, indicates that may be some of these leading indicators of manufacturing are bottoming. Ultimately, i think you are right, it goes one of two ways. Either the economy is in much worse shape and rates are going much lower and the curve steepen or we get what we have seen more recently where the market looks ahead and jay powell is right ironically, its a midcycle adjustment. Matt what do you think about the 10 year Going Forward . We heard from others, dont bet on lower rates, now we fit the bottom. Do you think weve hit the bottom. Do you think we will see them go higher . Alan we have had quite a decent selloff. The way we would look at is that we can see a scenario when 10 year treasuries become positive carry again. What do i mean by that . Cycle 1. End at this 251. 5, offering a premium over the front end. Are they an outstanding value . No. Compared to 1. 5, which is a flat carry, the same yield as negative rates, they are reasonable. Yeah, i would broadly agree there is better value elsewhere in the world. Anna alan higgins, cio at coutts and company, stays with us. Deutsche post, logistics company, falling off the fedex cuts. We will talk about what this micro indicator means for the macro global trade story. More on that next. This is bloomberg. To bloomberg back markets. This is the european open. 11 minutes into the trading session. Dropping 0. 25 . Lets get a deeper look at the stoxx with annmarie hordern. I want to kick it off with swatch this morning, down about 2. 5 alongside reach month. Richemont is exdividend. This comes as they say they are losing momentum from affluent chinese customers, which they really depend on in the luxury space. Deutsche post down a nearly 1. 5 percent alongside other Logistics Companies like royal mail. We spoke about this before the open. This comes after fedex plummeted in after hours trading. They slashed their profit outlook on the ceo is pointing to a slowing Global Economy and the trade war. Edf to the upside, up more than 2 . They are talking about these deviations in six nuclear reactors. News, e tbad seems like bad news, but not as ere expecting. Matt lets get into a u. S. Stock that can have some real implications. Fedex slumped in overnight trading after cutting its profit forecast for 2020. The ceo specifically cited the trade war and the slowing economy. Alan higgins is still with us. We have seen a number of stocks in the u. S. From deere, to caterpillar, big manufacturers, now to fedex talking about cutting back on its airplane fleet, hit hard from the trade war. Is this going to start really affecting the Company Really affecting the real economy . Alan so far, limited. Yesterday, we sought consumption retail sales in the u. S. Robust. It is limited to the Manufacturing Sector but the Manufacturing Sector is in deep slow down. You may even call it recession, as evidenced by fedex results. , just ait is limited manufacturing slow down very serious for Companies Directly involved. It has not filtered through. I guess that is the key question for the fed, for us as investors on making that judgment. Our judgment is that it is more likely midcycle. We dont rule out it affecting the. Broader economy we do need a trade deal at the end of the day. Anna this story, this trade tensions has stopped this sector. Pmi and contraction but actually just tentatively turning around, moving a little higher. What do you read into the . Anothera pause before legged down leg down . Alan the Quantitative Team at coutss have looked at that data quite closely. It looks like it has bottomed. Yes, that is reason to be optimistic. The kind of news we hear from ex ar we have seen this movement , especially with the likes of caterpillar, hit very hard, which proved to be a midcycle slot. Historically, rate changes in affect onave a direct the mortgage market, the refinancing, and much bigger Corporate Bond markets. Corporates can reinvest at lower levels. It would be fairly unusual if these rate cuts were not stimulative in the u. S. Matt and a lot of that must be priced in already with the s p 500 up 20 year to date. 4 . Nasdaq up 23 20 is the run 23 24 . Is the run in the u. S. Getting a little long in the tooth . Less, 18, 17 percent for the dax and cac. Do you start to take u. S. Money now, profits off the table there and start to invest in a European Market . Alan tempting. Yes, it was a really good year for stocks after a tough year last year. In a nontechnical term, stock markets are lumpy. You get very few annual returns between zero and 10. I think i came on her december 31 and said it is more logical to look for a 10 return than a 7 return, because thats the nature of markets. The u. S. Is telling the world to buy europe. You are buying european banks, selling technology clearly. The ecb moves, in terms of the different rate structures, what the ecb did apart from cutting rates, they introduced negative rates. That could be a game changer finally for banks. And mainly would be within financial debt instead of financial equity. Its tempting. We have cash, sadly not and repo market not in the repo market. More likely, new cash is going to european equities. Anna are you making any assumptions around trade, around resolution of the trade tensions and one that might happen . I spoke to two guests this week with slightly different views. One thing it is the tension and trump so he will not want to do a deal before the election. Alan if he does not get a trade deal and the economy goes down, hes going to lose. The economy always wins out in terms of elections in the u. S. I think he will be focused on that. Ipo higher probability on a trade deal coming through. A trade deal i put higher probability on a trade deal coming through. Anna we could end up with a different tray tension across the atlantic of course. Alan higgins stays with us. Saudi aramcos ceo tells bloomberg that output at its abqaiq plant will be fully restored by the end of the month. We will bring you that interview next. This bloomberg. Welcome back to Bloomberg Markets european open. Right now we are 21 minutes into the session. We are starting to see equity indexes turn higher. Onstill have the dax and cac 2. . But the ftse is after suffering the worst Oil Disruption in history, all eyes have been on how fast saudi arabia can restore ists production. A longawaited update gave the world market clarity. Output has been partially restored. Progress has been slower than expected. Crude prices remain elevated despite coming off their highs. The ceo of aramco told bloomberg that the company has mobilized teams aroundtheclock to restore operations and expect the plant to be at capacity by the end of the month. Management is a for saudi aramco. When this happened, you know, immediately after doing the assessment overnight, we put our workforce. We have subject matter experts, engineers, professionals, operators, craftsmen. Each train had a full team working to restore it. The manager of operations was given full authority to execute with all resources required for him 24 7. When will it be back at full capacity . Abqaiq will be at full capacity by the end of september. You were able to meet your shipments to International Customers . We are able to meet our shipments to International Customers. When the supply was interrupted, we used our storage facility. Anna that was the ceo of saudi aramco speaking to our middle east Energy Markets reporter after the Companys Press conference in connection with those attacks over the weekend. S, ishiggins, cio at coutt still with us. I suppose one of the lessons of this, the market, investors are learning a lot from what has happened here. Theres a danger we add a risk premium because we realize how vulnerable some of the Oil Infrastructure is if we had not realized that before. Weve seen this sort of spike before an geopolitical events. Its not something tradable from our perspective. We dont have any direct oil exposure. Its more correlated. Youve heard me talk about russian equities. Thats clearly a correlated play on oil. Given what we talked about earlier with the pmis showing tentative signs of bottoming, its a reason to be moderately positive oil. From mars perspective, its a from our perspective, its a pretty weak investment. Prefer correlated strategies, value strategies like russia, where you paid a big dividend yield in an attractive currency. Matt well, we have seen the oil price get weaker and weaker, even as a supply gets cut out of iran for example or venezuela on concern that Global Growth is simply slowing down and that demand. Gn in do you still think thats the case . Alan i think thats the case today. Global growth has definitively slowed down. There are tentative signs of an improvement in Global Growth. If you want to look at dramatically, the baltic dry index, the price for shipping containers is that a 90 year h at a 90 year high nine year high. There are other indicators that are Quantitative Team looked at indicating that if we look forward, there are reasons to be more cheerful on the Manufacturing Sector, which would correlate with a slightly positive tone for oil. Welly, the way to play it, are unlikely to play that by just going along the Oil Commodity going long the Oil Commodity. Anna when you see trade tensions, some trade has to travel further than it would otherwise because of the disruption. You see some uptick there. If we do see the fed cut rates, we have seen china at a little bit of monetary stimulus in some forms into their markets. Would you expect more of that . Is that something the chinese should be doing at this point . Alan to a certain extent. China needs to deleverage their corporate sector because they have had a huge corporate debt bench. That cap binge. They cannot let their economy go into recession or the Unemployment Rate rise in china. Its a balancing act. Thats why they need a trade deal, trump needs a trade deal, therefore there will be trade you. Be a trade deal. Anna alan higgins will be continuing the conversation with us on Bloomberg Radio. Matt and i will be going there after tv. More cuts are coming. The fomcs meeting ends today with a 25 basis point cut broadly anticipated. Will that be overshadowed by the repo market activity . More to come. This is bloomberg. Matt using expectations, the fed promises to spend another 75 billion on repo operations as investors expect to cut at todays meeting . Fedex delivers the latest warning the trade war is hurting americas corporate titan. Larry kudlow says progress is being made on a trade deal. Youre being logistics fault nonetheless. And getting aramco back online as saudi arabia attempts to move past the worst oil destruction in its history. They told bloomberg they will be back in business soon. We will be at full capacity, of course. By the end of september, we will be at capacity. Matt good morning, and welcome to Bloomberg Markets. Miller in berlin alongside anna edwards in london. Anna lets see how things are shaping up. We have got a move to the upside. A fraction of. 1 of 358 stocks going higher i guess we call that will split. Wellsplit. We wait for the fed to make their Rate Decision news around repo and money markets. Fight to the upside, 2. 7 . St micro goes higher. Some of the latest iphone sales proving positive. And we see volatile Oil Businesses around say as they often have. Lets look to the downside. One extended and andividend of the note montclair is down by 3. 6 on a gloomy outlook. Others in the european Logistics Sector down. Matt lets get first word news in london. Oaktree capital with china amidst a doubt the stress debt. Up loans been scooping in the worlds secondlargest economy. Sector hit an alltime high. They say investing in fact at the moment is a strong struggle. It is a struggle today. The economy is too good, the Capital Markets are too generous. It is hard for the company to get into trouble. , theey get into trouble Capital Markets are happy to bail them out. The World Economy is not yet on the cusp of a global recession according to the head of the bank international. Warning to bloomberg, they policymakers need to tread a fine line. The effectiveness of Monetary Policy is not absolutely guaranteed and therefore needs to be commented. Malaysia, the Ruling Party Leader says he should take power before or around may 2020. Last year, he made a deal to become the countrys next prime minister. Bloomberg, they dismissed reports that other politicians should be considered for the top job. Is full of cynicism, but as we are concerned, things settled. 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 thanks very much. More cuts are coming. Twoday meeting ends today with a 25 basis point cut broadly anticipated. They have anticipated easing the markets have expected it and it comes amidst positive signs in manufacturing with factory output meeting expectations. We have got negative announcements out of manufacturers like caterpillar. Risks being overshadowed by the Federal Reserve for the first time in more than a decade. They plan to spend as much as 75 billion doing repo ratements to keep the fund from topping its targeted range. Joining us is our fx and rate strategist in berlin. I would not say it risks being overshadowed, i would say the decision has been shattered overshadowed. Is the casehat because everyone is expecting 25. The get a new of dot plot Jerome Powell expressed on the thief will be asking think that is particularly troublesome is that the feds response seems to be very ad hoc. It is not looking ahead is reactionary. This wont be just an isolated demand for dollars funding. This seems the general demand for dollars funding, and as a result, what is the fed doing . They are going to have to do other things to make sure the money markets function properly because yesterday, they didnt. Get to our next conversation. Richard jones from our fx trenches. Of, standing by ypousef, standing by with a guest. We got clarity from saudi aramco on how quickly they can recover, but waiting for a political response, like pompeo is in deliberations with the uae. Lets get a feel of whats happening in the local economy. We are joined by the minister of finance. Iq for carving out some time. Lets start with a preliminary assessment. More than 50 of oil output was taken offline. How much of a loss is that in terms of revenue . Clear thate it very we are back online. Zeronterruption is because, as mentioned a couple of days before we are back online. So absolutely no impact on spending or on revenue . Absolutely. What about additional allocations for defense . Generally, speaking of budgets as announced, there is significant implication for all of the economic sector. , including defense. So there is no change and we will continue spending as we need. Into 2002, go looking at increasing economic uncertainty, the numbers show it is slowing down and you have geopolitical risk in this part of the world, you have the fed easing, how confident are you that we can reach targets for growth . We have embarked on a significant reform financially that is yielding results and we have seen those results in the economic response the last two or three years. Growth,aside the oil depends a lot on decisions made by opec and the ministry of energy, nonoil gdp is growing. The article by the imf says it will grow at 2. 9 for young an elements of the program such as the housing and delivering is delivering more they hopelly expected to ride over 200,000 housing projects. We are on target to so far. About 130,000 delivered to people. We have 90,000 already receiving their keys and we are seeing results. We sing the same in tourism, communication, and transport. Oil gdp and we are seeing momentum. Speaking about reforms, there is a lot of attention on the saudi aramco. Some form of signaling that indicated it could happen as soon as november. Does that mean it gets pushed back a little bit . As we have said, we are committed to the ipo where governments will choose the right time. They will leave the market and decide. Most likely happening in the next 12 months. What about a plan for an International Listing or is it going to happen here in the kingdom . The listing will happen in the primary market will be the tadawul. We are considering secondary options, but that will be the primary. Local stockn on the market. Some quite a bit of resilience after the attacks on the saudi energy infrastructure. Some tell us there could be support from government funds, can you speak to that at all . Are there any mechanisms to Health Service buffers . Look atnk you should the Bigger Picture in the markets are a lot of reforms have happened across our economy we now have joined three International Embassies that have brought significant inflows to the market. It also brought Institutional Investors who are able to assess without any emotion. You have seen in the market and the performance of the market and the reaction to the recent demands is that they are confident that the economy, Institutional Investors are making rational judgments, which is actually confirmed by the announcement last night when for saudia confidence arabia to get back on track very quickly and recover. Sounds like a clear note to my question, but i will clear no to my question, but i will let the answer speak for itself. The imf who are recommending you be a little more reserved and pull back on your fiscal outlays. Would you agree with that recommendation . I agree we need to be broadened on fiscal policy. Thatree that achieving despite cutting on their spending and being very efficient, we are doing significant efforts and reforms. The latest is the government recruitment law which provides significant efficiency levers for the government. Sure weorking to make go even deeper into the economy. So that has an impact and an angle. So if any less spending by the government, it will be because we are even more efficient. We risk the health of the kingdom but also focus on growth. , what would your message be to Foreign Investors around the world after the turbulence we saw the last 72 hours or so . Theas reverberated around world what happened in the oil markets and arguably increased jail risk that has defected in what would you say at this point . Distinguish. If you talk about debt and investors, they should look at the strength of the saudi balance sheet. Significant foreign investment, 10 the debt of the international market. So that alone should provide significant comfort. Saudi arabia has weathered significantly worse situations. And there is actually a very strong opportunity that is taking place in the economy. And now, we have seen the opposite. 2018, we have seen Significant Growth in the First Quarter we seen 24 growth despite the fact that the internationally, it has declined by 6 . So despite all of that taking place, coming in and investing includes education with other sectors. Will you be a issuing any additional bonds . There is no plan on debt issuance. Thank you for your information and for speaking to us at this time. That is it for the moment. We will continue our conversation with top officials throughout the day. Matt excellent interview with the saudi finance minister that at what he points out is an incredibly important time. Berlin areet here in fx strategist, what consequence as the spike in oil prices had in the rates trade . Obviously, oil is an asset that is priced in dollars that everybody around the world needs to buy. Has it had an effect on the dollar index . One of the biggest implications from the oil prices is what it means for demand. Lets talk about the u. S. Specifically. If you get a really long spike in oil prices, that acts as a consumption tax for american consumers. It squeezes household spending. So it would have an inflationary impact but the fed looks through focuses on the fact that this is actually a tax increase that will hurt households. As a result, it will probably have a negative effect. Anna its interesting. The way the u. S. Plays its part has changed so much over the last 10 years is such a big player in terms of the production sometimes you wonder. The conventional wisdom is you will get Monetary Policy hawks say this will definitely inflationary. But i think the demand impact is real. It is something that will be felt by consumers, and as a result, the fed will take a cautious approach if we do get a proper disruption. It looks like things are calming down, so what the fed has been focusing on will remain at their focus. But if those this was to become longerterm, it would change the optics. A barrel ofice of 72nt crude goes from 60 to dollars, coinciding perfectly with repo rates quadrupling and Companies Need to buy oil maybe shorterterm hopefully they are hedged, but it could be a coincidence. Discussion,repo what do you make of that development and the perfect storm of corporate taxes being do at the same time a time of bonds went out . Might actual disruption have had an impact on driving those yields higher. Saudi arabia is generally awash with quickly and tend to be a net provider of that liquidity if thattoday basis liquidity was needed to be used elsewhere in saudi arabia is not it usuallyvide like does, that might have been exhibiting factor that has certainly been the talk amongst traders i have speaking to. Matt that is so fascinating i just got goosebumps. This is why its great to have our mliv team with us. Richard jones, a rate strategist with us in berlin. Up next, apple 13 billion euro tax battle plays out this week. Could a win for the iphone maker backfire . We bring you that story next. This is bloomberg. Anna welcome back to the european open. European equity markets are flat this morning. U. S. Futures pointing down by around. 1 . Lets talk about one u. S. Corporate making headlines. Apples tax battle with the eu is playing out in court this week. They insist that they play by the rules in an attempt to fend off a 13 billion euro a bill from brussels. Joining us is a profession of International Economics here in london. Yesterday, apple said they believe they are the worlds biggest taxpayer. They are pay perhaps where you would like them to, but they pay in the u. S. Why is that no defense . There is no defense because there is a bargain between every company in the countries in which they operate. Essence of this case. Apple has broken that bargain and has actually moved companies completely beyond physical geography with the results of the tax was not being paid. So, is historic, but even the establishment of that bargain is between the state and the company and is essential, that is the core of this issue. And that competition is creating a level Playing Field. Hey got an unfair advantage if competition is to be fair, open, and provide benefits to society, it has to be on a level Playing Field and it was not. Want to the competitors do in what do thes competitors do in reaction to this . To be clear nobody can attempt the same strategies is ireland has already created the opportunity ended the opportunity. The world is moving against tax havens in general. I would add i do have an irish passport. I am damming apart a country where i am a resident. But it provided apple with an opportunity that was unfair. We need to go back to basic competition theory and realize that unless everybody competes fairly for the products and services and not for their ability to abuse rules and regulations. Much has been written about this. Ofe say the whole future liberal democracy is on the line of capitalism does not get this right. He was not talking about this case, but i will apply to that. Unless they play by the rules, the rules will be changed and capitalism will suffer. Matt isnt this the way capitalism works . Corporations court governments for tax benefits in order to move their businesses . Of thee thats how all auto plants got to the south in the u. S. , thats how chinese battery makers can set up factories here in germany. That is how capitalism did work and most would agree capitalism is in crisis. For years, it has worked on the basis of maximizing shareholder or board returns, but the point is, thats not the way it should work. Is that,ow know actually, business has taken into consideration more than pure bottomline return. There are issues around the ethics of creating those return in one abuse along the way of the way is tax. Anna you make the point that some of this is historic. It is the commission in danger of overreach his tax is a very perate thing in europe because tax a very desperate thing in europe. I dont have a problem with ireland having a low rate of tax as long as it only applies the profits earned in ireland. There has been think of the base Erosion Profit shift ing. That is artificial relocation of profits into low tax jurisdictions. That undermines the suchtiveness and there is a thing. Matt thank you for joining us. Richard murphy from city university. Francine the fed it makes its first move into money markets in a decade but falls short and another 75 billion of cash is expected today. Jay powell is expected to reduce rates, but what a split policy panel be reluctant . And saudi arabia intends to move past the worst oil destruction in history. The chief executive tells us they will be back in business soon. Welcome to bloomberg surveillance