Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

We are seeing a little bit of psychiatry and a lot of focus is a alive have and what that is on the fed and on a repo rates and the global reaction. This is the stocks europe 600, unchanged. Pretty much flat. U. S. 10 year yield will move does next. At the fed we are 42 days away from exit brexit. It is the second day of the Supreme Court hearings to see whether Boris Johnson programming parliament was illegal. Coming up, we speak to the chief executive a chief of a retail and Global Supply chains. But first, lets get news. Neither Prime Minister Benjamin Netanyahu or his rival look to have a clear path to form a clear government. Exit polls indicate the two blocks are neck and neck. Official results are not expected until next thursday. There will not be and cannot be a government that leans on arab, antizionist parties that negate the very existence of israel. Parties that exult and appraisal bloodthirsty terrorists murdering our soldiers, citizens, and children. Carney mayu. K. , mark be asked to extend his term if brexit is delayed according to the Financial Times. There are reporting the prospect of a snap election makes the naming of a successor less likely. He originally planned to serve five years but has extended his term twice to help prepare for brexit. Spain is headed for its for the election in as many years after King Philippe they concluded there was no candidate with enough support to form a government. Despite having almost twice as many seats as the main opposition, Pedro Sanchez failed to form a leftwing coalition. The rulingysia, party leader says he should take power around may of 2020 before lassers election, he made a deal to become the next Prime Minister. Speaking to bloomberg, he dismissed reports other politicians should be considered for the top job. Politics is full of cynicism, but as the transmission is concerned, things are acceptable. Global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you. It is decision day for the fed. However, the rate cut risks are being overshadowed by the Federal Reserve injecting cash into money markets for the first time in a decade. They plan to spend as much a 75 billion doing a repo operations to keep the fund rate from topping its targeted range. Joining us is our global fx and bond managing editor. Great to have you on a day like today. Why did the fed have to do this . They needed to pump extra cash into the shortterm market to provide equilibrium. Is best funding has gotten tight and pushed up rates in the repo market where people swap bonds and cash. That had gone up to almost 10 overnight, the highest we have seen in more than a decade. It will force them to come in and resettled the market. It bounces a longterm trend but things came to a crunch. We had some extra treasuries hitting the market at the same time corporations withdrew cash to pay their taxes. Francine what are people worried about . Are people worried this is symptomatic of Something Else . It is not that there is a particular vulnerability, or that someone has gotten them into trouble or things you might associate for a repo market blowout, more is the question of just the tightness of money available in the u. S. The fed has been draining cash from the markets, but at the same time, the u. S. Has been ramping up bond issuance. Imbalancereated this and it will mean that the overnight rate can get tight and push up the shortterm borrowing costs which could feed through its a higher costs in the longer term. That is something the fed does not want at the moment because it is supposed to be easing Monetary Policy. Francine this has not happened since the 2008 financial crisis which is why people are worried. Why is this time a different . At the time, they could access collateral. This time, we seem to have a better system in place. Its not that the bank is in trouble or that there is not credibility in the market, its simply that there is just not enough cash available to the banks that needed and the problems might be due to imbalances, reserves, it also might be that there are just extra bonds in the market winning that collateral is on hand but cash is scarce. Francine thank you very much, our global fx and bonds managing editor. We are joined by the head of andate capital at ubs bie chairman at rothschild deputy chairman at rothschild. Angle,theres a football but the market takes over. I dont know how much focus is on the repo rate or the fed, but what does not feel right in the markets or what do clients worry about . There are underlying questions ch make people on average people anxious. Isabel one thing was the inversion of the yield curve, reminiscent of the crisis era. This adds to the feeling of being in a precrisis era. Here, the quantum injected by the new york fed is relatively and it is more short funding them systematic or structural. We dont think we should read more into that but it poses a broader question and sheds even more light. The facilityse of and what do we find Going Forward in this new era of quantitative easing . If you are a chief executive and you read about the repo rate and the inversion yield curve, you have investors saying we should worry, saying this time is different. This, butne through at the end of the day, our people uneasy about these things are people uneasy about these things things . A surprise has been to people who dont spend their time looking at these things, but certainly, this is part of a big war to lower Interest Rates among Different Countries with the final objective to lower currencies and be competitive. So my impression is that even at this move is part of a strategy in the u. S. Which is a counter strategy towards the ecb. Lowering Interest Rates and injecting liquidity in the market. This was described by some investors to us as a plumbing problem. How can chief executives and markets be sure that we are in a stronger system where things work at about freeze up . Impressiont have the generally speaking, that we are running a major systemic risks. Certainly, the economy is doing reasonably well all over the world. Growth rates are reasonable even in europe. So people are relatively relaxed about this risk. Francine and this goes back to market behavior. If this is part of the plumbing, do clients worry about liquidity and market functions . Coming back to what how low was saying, the u. S. Economy is in very strong shape, despite everything be here. Inflation pressures are being contained, so really low. To come back to your initial question, the problem is that companies are in much better shape with debt being so cheap. So youhave refinanced are not in a situation where people are crying for cash. So systemically, it is wellfunded. Are thell asking what effects of prolonged easing and what it means Going Forward. Now, i will jump to the question to ask me. In a world of 40 of global bonds with negative yields, where do you find yields and where do you find opportunities . At the moment, it is a tricky environment where you are in and easing policy environment coupled with rising trade tensions. That makes it very tricky to invest. So theyre trying to move away and put money into other asset classes. Francine thank you both. , paulo fromubs rothschild, both stimulus. Bring youus as we live coverage of the feds latest policy decision followed by jay powells News Conference. All about starting 7 p. M. London time tonight. This is bloomberg. Francine economics, finance, politics, this is bloomberg surveillance. After suffering the worst Oil Disruption in history, all eyes have been on how fast saudi arabia can restore production. An update get clarity on the severity of the damage. While output has been partially restored, progress has been slower than expected. Earlier, we spoke with the saudi finance minister who spoke to our anchor in react in riyadh. Online. E back zeronterruption is because, as mentioned, our online. Were back so no impact on spending or on revenue. Even in the longer term . Absolutely. What about allocations for defense . Generally, looking at our significante is allocation to all sectors but also our military needs, including defense. So there is no change and we will continue spending as we need. As we go into the latter part of 2019, you look at a world with increasing economic you have a, geopolitical risks in this part of the world. You have the fed and other Central Banks easing. How confident are you you can reach her targets for growth . Two things. Remember we have embarked on significant reform economically and financially that is yielding results. We are seeing those results and the economic response to the last two or three years. Growth, itde the oil will depend a lot on the decisions made by opec or the minister of energy. Growing. P is at 2. 9 and to grow we dont see an impact. We are seeing yields happening. Francine that was the saudi finance minister. Paolo from rothschild and isabelle from ubs is still with us. Experience innse the oil markets as the former chief executive of ne. What is your view on how these attacks will reshape the price of oil . News let me say, the good is it has not turned out to be devastating. At the end of the day, 50 of the cuts which have been generated have been restored. Is that, the good news you could make limited to damages. These tasks might repeat themselves and you can see all of this in the oil price. They are moving down only a couple of weeks ago and its only because consumption is not growing. They went up by 20 and now they are back. Back 10 higher than two weeks marketsch means the give a risk factor to the oil ,rices to stay a little higher simply because this task can repeat and people in the market are worried there might be worse attacks in the future. Francine should we be confident about the Recovery Efforts . They are cognizant about the efforts. They have high stocks all over the world. The saudi arabia today is less crucial than it used to be 10 years ago after the shakeup in america. I am not particularly worried in the shortterm. Im worried about new attacks that might repeat. This is saudi arabia versus iran and the trump administration. , we do not have evidence of involvement of iran in these attacks. Saudi arabia has said they will provide evidence, we will see. We are still in a major crisis in that part of the world and we might have new attacks on the oil fields. Francine we have some pretty impressive storytelling about how traders prepared. In your long career in the oil markets, do remember a similar day . 20 spikemy career, a in oil prices in one day, ive never seen. I read that this happened at the time of the war between iraq and iran, so 20 or more years or so, but in recent times, 20 , ive never seen it. Francine did you have an unexpected day . Dear over one incidents incident where it was like, my gosh . Paolo prices in my time have been moving up and down, but never a spike like this. There has never been such a situation. Francine thank you. Both stay with us. Coming up, the future of retail. We speak to franz miller, the chief executive of a European Grocery giant. Dont miss that interview. This is bloomberg. Francine this is bloomberg surveillance. Whos get back to our guest is the head of private Capital Markets for your, the middle europe, thea middle east, and africa. Paolo is also still with us. We were trying to figure out exactly how much appetite there is for the kind of investments ubs has put together. Yields, so youg want to go into the space, but how much risk are they taking given that certain ipos have been postponed . The reason we set this up is to respond to client needs, to your point, if i give you a few pointers as to why we thought that was relevant, it might illustrate it. In terms of capital shifted, altra High Net Worth is shifting from public to private markets markets with 46 into liquid equity. That was one pointer with thought was important. Theyre going public at half the rate they were going. In 2019 it was the first time the value exceeded the company that idea that had the ipo. All of the ecosystems have increased the amount of allocations in response to that demand. So that is kind of why we thought that was important and the increase in sophistication was another thing. Francine thank you. We have to make this a regular thing. Ubs of private capital for and paolo from rothschild stays with us. Up next, we talked the fed. This is numbered. Bloomberg. Devices are like doorways that could allow hackers into your home. And like all doors, theyre safer when locked. Thats why you need xfinity xfi. With the xfi gateway, devices connected to your homes wifi are protected. Which helps keep people outside from accessing your passwords, credit cards and cameras. And people inside from accidentally visiting sites that arent secure. And if someone trys well let you know. Xfi advanced security. If its connected, its protected. Call, click, or visit a store today. Francine short term shock, the fed makes its first move into money markets but falls short as another 75 billion of cash is expected today. Jay powell is expected to reduce rates, but will a split panel be reluctant to forecast further cuts . Arabia attempts to move beyond the worst oil destruction in its history. The chief executive tells us they will be fully back in business soon. D morning about this is morning, this is bloomberg surveillance. Lets get straight to big stock movers. Annmarie lets kick off with edf. Up more than 3. 5 . This comes as they said they found any factoring defaults in six of nuclear reactors, but it is better than what was expected. Thats why the stock is rising this morning. Montclair is to the downside moncler is to the downside. They could have sales trending downward of this year due to the hong kong protests. This said it would have been a good year if it was not for hong kong. Deutsches posts also to the downside coming down nearly 2 . Seeing is across the entire logistics space and comes after fedex sharply cut their profit outlook. Aftermarket trading plummeted, thats where we were at the head of the new york open, down nearly 11 . They are pointing to a slower Global Economy and pointing the finger at the trade war. Francine thank you so much. In the meantime, we are getting breaking news out of the u. K. As the august inflation rate falls. Its something mark carney will have to deal with. They have a gdp a little better than expected. Expected is lower than but the concern is what happens with brexit as we go into the final days. Now, lets get straight to the bloomberg first word news. Saudi arabia restored almost half of the output lost of the Worlds Largest oil refinery after the weekends attacks. Aramco sees a return to capacity by september. We asked the finance minister about the impact of those attacks on the nations finances. We are back online so the interruption, in terms of economy and revenue, is zero. Mentioned, our reserves lasted a couple of days. Notsraels election does look to have broken at the political deadlock in the country. Neither look to have a clear path to form a coalition government. The two blocks are neck and back that official results are not expected until thursday. There will not be and cannot be a government that leans on arab, antizionist parties that the gate of the very existence of israel as a jewish and democratic state. Parties that exhaust bloodthirsty terrorists. U. K. Is where mark carney may be asked to extend his term if brexit is delayed. The Financial Times is reporting the prospect of a snap election dates the naming of a successor less likely. Mark has inspected his term twice to help repair for brexit. Global news global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine . Francine thanks so much. More cuts are coming. The fomc decides today with a 25 basis point cut broadly anticipated. We spoke exclusively with the bank for International Settlement general governor and about the challenges facing central bankers. The real conundrum Monetary Policy faces right now is that Monetary Policy has been tremendously accommodative. But weat low interest still are not fully their terms of economics. Thats what i wanted to get at. , as itMonetary Policy did in the past, engender a recovery . The toolkit seems to be bearing for many barren for many of these banks. A little more can be done. Facing theare situation of inflation still below the objective. Growth is still not where it should be, but the effectiveness of Monetary Policy is not absolutely guaranteed. Therefore, it needs to be complement by policy instruments. Those other policy instruments you refer to would be the fiscal side of things. Absolutely. And in various country by country, naturally, but telling, what kind of measures would you be looking at generally speaking . People have spoken about using potentially unconventional policy. Tell me. In the room,nt especially in these regions, is trade policy. We have a different trade policy and Central Banks would not be pushed so much towards accommodative Monetary Policy, and therefore, it will need to deplete its policy space. Moving to fiscal policy, more overgrowthng, growth inducing policies would be great. In many countries, Infrastructure Spending would be tremendously positive. In some countries, to induce more private investment would be adequate. The fix fiscal and Monetary Policy through helicopter money, i dont think this is needed. I dont think we should go in that territory. What changed in the world from Central Banks fighting inflation to now fighting deflation . Basically, the Global Financial crisis was huge. It was basically a global first crisis we have needed to fight. There has been some correlation, not as much as we would want, but i think that has affected the capacity to grow and we have still not fully recovered from it. Was our exclusive conversation with the bank for International Settlements general manager. Joining us is the investment director at fidelity. Paolo is still with us. Welcome to the program. When we look at things the market has allowed from the repo rate really freaked out the markets. Emerging markets are freaked out by a higher dollar. How does this uncertainty affect the markets you follow . Rebecca the challenge is that what is happening at the moment creates an environment where people are looking to safe havens. If we look out across markets cutsbroadly, they need rrr and that focus on adequate liquidity is the world over. Francine what do emerging markets need from the fed . Elongated dollardenominated debt, is there a read across . Rebecca it tends to create a headwind for emerging markets. There are many countries with dollar denominated debt. The difficulty has been that a lot has been priced in. We are also trying to bounce the fact that people still gravitate towards the dollar and continues to great a headwind for emerging markets. Francine are we expecting too much of Central Banks . Question isplicated Christine Lagardes early job trying to push fiscal spending for countries. Paolo i think you are right. We are expecting a lot from Central Banks because the governments are pretty inactive. They are not using other weapons or ways of correcting the market like fiscal policy, which is completely different. For an example, we havent in but the suspending of some countries which is still very restrained. The hands of the ecb, for example, and the u. S. Is in a similar scenario. ,rancine for emerging markets it feels like it is a race to the bottom in terms of lower Interest Rates. Respect, theome benefit is the higher yield rates. Moves and there is real scope for Central Banks to cut. They bought inflation under control and are cutting rates that will help to provide a stimulus to the economy. Francine how much can they cope with . Rebecca looking at china policy, is very measured. There has been some focus on the fact that the chinese have kept the lending rates very stable. They have cut rrr. This is really about the chinese recognizing this is not a problem to be resolved shortterm and so they are being relatively cautious, measured in the policy they do introduce. I think that points to the idea that we could be in this environment for some time to come. Francine the should we worry about chinese debt or assumed that because it is managed by the economy that there is little scope for something terrible . What we are not looking at here is fullblown stimulus. We have not gone back to this environment whether it is heavy infrastructure stimulus. We are moving towards a more consumptionled economy. Years,e you, for many had to craft this world oil markets, politics and geopolitics, investors, what worries you overall . Is it trade, the middle east . Something else . , ilo generally speaking think the world is in relatively good shape. Im not particularly worried about what is happening. The terms oil prices, they are at a perfect level because oilproducing countries are managing their fiscal budgets correctly. At the same time, the consumers in europe have reasonable prices. From that point of view, i dont see any major risk. The only area which is really worrying today is the middle east. They seem to be an area in which disruptionspect new which would, of course, impact the price of oil but not only that. Francine what does that mean for russia . Rebecca for russia, and oil price that spikes is helpful but this is an economy that strikes at a relatively low price around 49. It can cope with a low oil price on the way up. What we see is that the tax take is higher so the prices are linked and that is very helpful for the fiscal balance. It is essentially one of the strongest macro in emerging markets anyway. Francine thank you for joining us. Investment director at Fidelity International and paolo, deputy chairman at rothschild. Up next, we speak exclusively to ueller, the executive of Dutch Grocery giant ahold delhaize. Thats coming up next. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. Retail is an industry under constant pressure even beyond trade tensions. The purchase of whole foods has pushed retailers to invest in ecommerce. Is one ofaize europes biggest retailers with 7000 Stores Across europe and the u. S. It has American Brands as well as delivery services. Muller,us is frans chief executive of ahold delhaize. You have a robust business and you can see that with some of the results that have come out and yet the world is still uncertain. You have trade wars and the shift to ecommerce. You have currency swings and the price of oil. What do you worry about the most . Frans i worry that customers are making good choices and are loyal to our brand. We are a very robust business and we hopefully enjoy food every day. That makes our business more robust and what we worry most about is all of the customer ,ourneys or instore shopping that we can make those trips more relevant to exciting, or inspirational. Francine to People Want Cheaper food or does it depend on the occasion . Frans price is always a factor for everybody, but we try to inspire people with healthier food which gives us some time back to take care of families. But also, a lot of our customers expect that we source in a Sustainable Way and we talk about climate, deforestation, that is linked to the total supply chain. People are worried about those kind of things. So that is what we are working on. Francine you have announced a big acquisition. What is pushing the u. S. Grocery market to consolidate . Rans two things first of all, the need for investments in technology. Not all companies can afford these type of investments. Therefore, the u. S. Market, which is still very fragmented, will further consolidate. Francine who is your biggest rival . How can you compete with amazon . Frans we have competed for many years with big players in the u. S. We have six brands operating in the u. S. And they are very locally attached to the communities. Our oldest brand has been there since 1883, so a longstanding brand. We believe we have number one or two positions and the trust of consumers and communities, that is a very good recipe for success and we work on this very hard. Francine when you look at electronic life forms, what would be Game Changing . Telling me the french biscuits i like are on sale, but those are the things retailers are already doing. Is there something that will radically shift the way we shop in 10 years . The relatives of easiness, we call it ecosystem. So dry grocery food and nonfood spaces, that is, for us, very interesting. Positions on an Online Platform and the supermarket business is the same in the u. S. And we operate with roughly 5 billion online sales going to 7 billion in two years time. So we grow fast and collect those dots make sure it is more convenient and holistic. Then you can share amongst those businesses. Advantages,. Day ine it is trade war and day out. What does it mean for your supply chain . You need to look at soybeans used to buy from this country that you now buy from someone else . Isthe food vendors and this very different than the nonfood business. We are selling locally and sourcing locally, so we are not affected. In general, fuel prices, trade wars for that matter, that is not fuel consumer confidence. But we are a very local business and content with our business in europe. Francine if there is a risk of a recession or a downturn, two people cut down on the amount of food they buy or the quality . What is the correlation . Frans when you see spending patterns, these are very stable at the same time. Income,ourse, different spending patterns, and habits. We are very happy driven as well. When people are thinking about indulgence and spending, of course, we have a lot of local food patterns with local communities who spend in a different way because they have different backgrounds or cultures. So we work on International Foods and ethnic foods. Francine your chief Investment Officer is leaving in april. How is the search going . Jeff did a great job and will leave in april after eight years of a fabulous career with our company, back to the u. K. And back to the family. On search process is going and im confident we will have a good outcome. We are in a nice position to have. Francine is it better to look for someone internally or are you looking for how wide is the scope . Frans i would look for somebody with International Experience are. Se we a very international business. Someone who understands things like saving costs and handson. In the business and well aligned with his finance community. Have a good transition and jeff to make sure the new colleagues will have a good start. Francine thank you for joining us about a pleasure to speak to joining us, a pleasure to speak to you. Up next, what to chief executives think of automation . This is bloomberg. Governments getting more involved in the infrastructure. That means less discussion about range. The reason behind it is always that the infrastructure has not actually progressed as fast. Electricalup on vehicles will depend on the range and on the density of the charging network. 15 of our lineup will be electrified by 2022. And globally, theater plans have an electrified product line by 2025. Francine those were some of the Auto Executives we spoke to on the future of electric vehicles. All this week, more than 200 meters negotiations are leading up to the u. N. Climate action summit that begins on september 21. Looking at the markets, quite a lot going on and to get into today on repo and what the fed has been doing. Overall, stocks are fluctuating. Looking at treasuries, they are actually advancing. But what markets are trying to figure out, officials are expected to cut Interest Rates and move further to come. That is what markets are trying to figure out exactly what that means. This is bloomberg. Francine short term shock, the fed makes its first move into money markets and fall short on another 75 alien dollars of cash. A fed divided. Jay powell expected to reduce rates. They will be reluctant to forecast further cuts. Back online,o saudi arabia moving beyond the worst wheel disruption. Its executive says it will be back in business soon. Good morning and good afternoon. About therday it was market. Today we look at fed actions and what that means. We were speaking to a market analyst who was saying it was like plumbing. You doare not in repo, not look at it day in and out, but it could be a symbol of Something Else. Tom we have been talking about it to get for days which and it seems to get worser. This summary is simple, we have never had a fed meeting or conference like this one. There is no question that chairman powell must address this trust crisis in the short term market. Francine we will get a lot more on that, but let us get to the first word news. Hello. Iran telling the u. S. It had nothing to do with the attack on the Saudi Oil Facility. Tehran warns that it will respond if the u. S. Takes action against iran. President donald trump is adjusting a retaliatory stripe. The u. S. Is locked and loaded, but he has not specifically blamed iran for attack. The saudi finance minister is downplaying the attack. We are back online, so the interruption, in terms of economy and revenue is zero. It will be a couple of days before we are back online. Aramco saying that it has brought back 41 pacitti at the facility. Inject is preparing to 75 billion into the u. S. Money market. Traders jumping in after a short term rates spiked as high as 10 , the first time the fed intervened and more than a decade. Now, they have started climbing back up. Overrael, and election do produced a deadlock between Prime Minister Benjamin Netanyahu and its opponents. He gambled on a revote to possibly keep him out of jail. His rivaltanyahu or can easily form a coalition. Official results will not be out until tomorrow. Shares of fedex down sharply. It is slashing its profit outlook as trade tensions drag down some of the u. S. s biggest company. Fedex says it will reduce the size of its jet fleet to contend with diminished expectations. Global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. So much. K you Interesting Data check with nontypical items. It is prefed, and the euro has done nothing. Oil has been pulling back. We will show that chart in a bit. 14. 64, i will call that resiliency. The two year yield is what we care about, and the repo rate will be interesting today at the fed meeting. Brent crude 64. 21. Fedex, that is the market closed. It is a little bit south of the market close, yes it is amazon butcted, but it is also is it also the slowdown spirit of American Logistics . Francine it is a name we do not see much in europe. We are looking at treasury yields. This is after treasury yields song for a second session when the fed injected cash for a second time. I am also looking at oil. At 58. 87. Ude signsabilizing a bit on that saudi arabia is restoring production after a violent weekend attack. Look out for any move on the back of the brexit story. Tom some of the explainers, i highly recommend chris whalens article, it is actually superb. I agree with much of what he says. Cash, theypile of have a pile of securities. And in Interest Rate wraparound trust of how long you want to part with your cash or securities overnight. That is the repo rate. 2008, it wasor normal, we go through the financial crisis, out, and the big spike has all of Global Finance riveted. We talk a lot about this in the coming days. Francine and i are committed to do this discussion in italian. Francine in all languages. It has been more than a decade since the fed traders jumped into money markets. That is why we need to keep an eye on it. I also did a chart that illustrates on illustrates what you are saying. Future yieldsnds an effective rate. It shows that its effective rate is being pushed higher by the repo meltdown. That is something we need to keep an eye on. Tom that will be interesting. With the you begin distinguished author . Francine yes. It is the other stephen king. Author,d the other stephen king where he is economic advisor, same name as someone who does write about murder, that he is also a very famous author. Greatchat well, head of strategy is with us. Thank you for joining us. If you look at repo rate, i do not know what we should be looking at, whether we should be worried, because we had not seen this since 2008, or whether it is symptomatic of Something Else or you can explain it technically. My initial thought is that it is more technical than anything else. The Federal Reserve can come along and sort out the plumbing that will be an injection of liquidity rates and eventually we get back like we we should have been in the first place and the markets will focus on what the fed should be doing over the months ahead. I am also aware that back in 2007 27 2007 and 2008, strange things happen that indicated that there was something more protest leave grotesquely wrong with the system. There is worries that this could happen in such a short period of time, and my inclination is to think that this is a technical problem. A plumbinghis is problem, right . How big how much do we worry about the plumbing problem . It is ugly and could freeze the market. Peter i view this as a symptom of something that is more structural and systemic. They have changed how operate and fund themselves. There has been a shortage of reserves since the fed began tightening rates and it has gotten worse as the fed reduces the Balance Sheet. I do not just think that the Balance Sheet reduction was to aggressive from this perspective. We have seen the big selloff in weities last year and what have had over the past 18 months, and the problem in repo. I see them being caused by the Balance Sheet reduction being too aggressive for what the market was able to deal with. The shortterm term fix is reducing the interest on excess reserves. This will abide by an additional five or 10 basis points. The fundamental problem is that the fed went too far in tightening. They have over tightened and rates are restrictive, and they need to reverse this out. The question is when and how do they do this without losing face or credibility . What does that mean let me bring you over to my chart. I am trying to get these charts in real time. This is the plumbing is rattling, and what are rising rates telling of the fed. When you look at this, what is the scope of something going wrong . Of the markets being gripped by fear and that is what starts a recession or something that we would not want to happen . Arehen my senses that you looking for causes or signs of recession. If you were writing a history book in saying all of the things that people could have looked at, the first thing would be the inverted yield curve. It is not a guarantee of recession, but it is reasonably reliable compared with other things. You might look at the fact that the Unemployment Rate is incredibly low when it gets to these kind of levels in the past. It has been in the tightening of labor markets, and may be to squeeze in Profit Margins which points to some kind of problem. Thathird issue is the fact we have equity markets and some measures, and it is very expensive. You can arguably say that the earlier stimulus led to a growing gap which what you have find an economic reality. Credit, we recognize that they are cutting Interest Rates this year. The record is that they often cut rates, sometimes a little too late to stop the recession from happening. Francine how will jade powell address jay powell address this . Peter cutting and making a statement that says we are aware of these problems and will address them in the future. Possibly with liquidity injections becoming more possible. Francine saudi arabia partially restoring output after the voiced Oil Disruption in the worst Oil Disruption in its history. That is coming up next. Francine this is bloomberg surveillance, tom and francine from london and new york. The oil market is one of the biggest oil stories in the past 20 years. We saw the price spike up 17. We were briefed by officials yesterday saying that they partially restored the output at the damaged plant. We also spoke to the saudi minister of finance. Riyadhe to him in earlier. We are back online. The interruption in terms of economy and revenue, is zero because we have used our reserves for a couple of days before we are back online last night and today. Absolutely no impact, neither on spending or revenue, even in the longer term as you look towards the end of the year. Absolutely. What about additional allocations. Is that something you are looking at . Generally, if you look at our budget then and now, there is significant allocation to all andnomics news and to the military, including defense. We will continue spending as we need in our defense and protection. As we go into the latter part of 2019, in a world with increasing economic uncertainty, you have the geopolitical risks in this part of the world and the fed and other Central Banks easing, how confident are you that you can reach your targets for growth . One, you need to remember that we have embarked on a significant inform, economically and financially. We are seeing that result in economic forms to the last two or three years. Oilng leaving aside the growth, because the oil growth depends a lot on decisions that are made by others. Internal gdp is growing and it is a reference to the rest of the world. We believe that it will grow to that number and we do see an impact and we see these results happening. Francine that was the saudi finance minister speaking to y uusef. So, we finally had a lot of clarity, much needed clarity from the saudis, but there were a lot of unanswered questions, how confident should we be in the recovery . Well, the message that we are getting is that they will be able to pull it off, but a full recovery is not going to be in the offing until the end of the year. A stronger part of the broader production picture comes into play by the end of this month. Field,s of the playing that is the bigger wildcard because a u. S. Secretary of state is speaking with saudi authorities trying to find the response when it comes to the iranian aggression. Commentslook at the from the saudi crown prince, because he has weighed in. Forays that this is a test the international community. On the iranian side, they were sayingrossed by the ira that they were looking to ease tensions. The political paling field Playing Field will be absolutely essential. Francine is the government still gritted to an aramco ipo in the next committed to an aramco ipo in the next 12 months . Yousef it did strike quite a few observers as surprising after this set back. It is a setback and then you are confident that you are able to pull off an ipo. Let alone all the issues that the rest of the world has to face in the economy. Alwaysdi government has had clear goals, and we understand that the crown prince has this as one of his top priorities. It is the crown jewel of the reform process. Not put it on the back burner just yet. Day, 10 day a five intraday chart. We go, we roll up to almost 70 a barrel, and moments ago as he came on air we drop below where we have been to a new level off of this crisis. We see oil on the markets speaking as well. Thes is it assumed that saudi military will speak, or do we move away . How do they not defend themselves against cruise missiles and drone attacks . Yousef that is going to change, and that is the message emerging in the last few hours. They will find an answer, not through the defense force, it is going to come through the international community. There is a clear confirmation that it is underway to find a way to bring an end to these attacks. If this continues in the near future, then oil would have to price in a much higher geopolitical risk premium. This cannot go on, that is the message i am getting on the ground. It is just finding a way to calibrate this without setting off a series of dominoes with a broader can flag ration. Tom thank you for your reporting. You see him out of our middle east reporting. Coming up, and important conversation with daniel yergin. You know him from the prize. In the 8 00 hour on this oil crisis. This is bloomberg. Tom and absolutely original fed day. We are thrilled with the lineup of guests through the morning. Stephen king with hsbc, and peter chatwell. We all knew that we would get to this point. We had regulation coming out of 2000 eight, and what it comes down to, will we allow the banks to be banks . We have a deficit expansion, and a fed trying to reduce the Balance Sheet which has led to this huge dislocation and what i call the trust market. It is a short term paper market. You,onomists and guys like have you thought through the effect on thes plumbing on trumps deficit thought through the plumbing on trumps deficit increase and the Balance Sheet decrease. Think we could have some confidence. 2008,n 2000 seven, and the plumbing went wrong as banks for lending to each other. In the trust deficit came through as the banks worrying that each of them might go bust. And they stop lending to each other and it became a selffulfilling prophecy. We are not anywhere near that kind of situation currently. When it comes to fiscal policy there is a lot of talk currently of whether we are getting to the stage where monastery policy Monetary Policy can do so much to support economic growth. From now it will be more heavy lifting coming through the fiscal policy. Tom peter chatwell. Thanks chris whalens essay he mentions the barclays meeting where james dimon says that we have a problem in the short term paper market. Is it a problem that the chairman will address today . They it so delicate that won or day two that he really cannot address it in the first conference . Peter i do not think it is too early to address it, the question is do with they say that we acknowledge what is going on and we will find a solution, or do they come out with a solution. The fundamental problem is that there is enough liquidity not enough liquidity in the system because as the banks of gotten used to the excess liquidity that came in from qe, moving away from that has not worked. The question is do they take a Monetary Policy solution, which would be cutting rates quickly, or do they try to address this with an injection . Tom we will continue this. Thennot say enough about idea of the unknown unknowns. Scarlet fu leading our coverage at 2 00. At comcast, we didnt build the nations largest gigspeed network just to make businesses run faster. We built it to help them go beyond. Because beyond risk. Welcome to the neighborhood, guys. There is reward. Beyond work and life. Who else could he be . There is the moment. Beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. Take your business beyond. Tom bloomberg surveillance. Francine lacqua, she is not on the Supreme Court, but she is dressed very supreme today. June 19, francine. A fascinating press conference, but nothing prepares us for today were chairman powell has of theify 25 and all repo going on. Let me give you some perspective. Is glued to global wall street. He will be kneedeep in the ramifications of repo. He is arguably our mathematician of the fed. He understands the dynamics of qe to qt like no one. Rosenberg is simply on the bus. All of this will lead to a fascinating must watch for me on the fed in this new repo issue, two days in a row, francine, where they will go into the markets to assist to lower Interest Rates. Right now we trust you will listen to our first word news. Begin with geopolitics of the day. Iran saying it is not looking for war. Sending to washington. Iran warning the u. S. It would respond swiftly to any action against it. The saudis are confident they can minimize the economic damage from the impact. Bloomberg speaking with the ceo of aramco. Of september, it will be at capacity. To make sure oil exports wont be reduced this month the saudis are drawing down strategic reserves. Tom and francine are discussing the Federal Reserve likely to cut rates for the second straight meeting, but policy makers may be reluctant to forecast second straight tatts. President trump is not going to be happy with another quarterpoint cut. Last week he called the fed policymakers boneheads and that they should reduce rates to zero or lower. Over to hong kong, carrie lam will not concede to demands from protesters. One of her top advisors saying radical demonstrators will not give up their struggle, even if the government gives incompletely. The hong kong prodemocracy movement has stretched into its fourth month. Cutting a deal with the current Prime Minister before last years election. Anwar speaking with bloombergtv. As far as the transition is concerned, things are quite settled. R denied reports that the Prime Ministers son would be considered for the top spot instead of him. Global news, 24 hours a day onair and on tic toc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you so much. The World Economy is now the. Usp of the global recession he spoke to us exclusively this morning. Different trade policy. Central banks would not be pushed so much towards Monetary Policy, and therefore we will borrow Monetary Policy, will need to deplete its policy space. Stephen, when you look at the World Economy, is it a b, . C at the moment. C it isnt as good as it could be. In the western world you have a remarkably weak productivity, a lot of japantype symptoms. Inflation is lower than 2 . Interest rates are at rock bottom. People talk about fiscal policy because Monetary Policy cannot do much more in the way of heavy lifting. A lack of lifeboats if things go wrong. There is not a recession at the moment, but there are a lot of weaklings within the system. Francine peter, are we talking japanification of the world, or is this a european problem . In europe is where it is the most evident. Fed at the moment is probably going to be pushing the. S. Back into a liquidity trap they did so well in getting away from it but they capitulated starting using the Balance Sheet. I think there is a clear sequence. Europe is pretty much they are, but the u. S. May be following as well. With the u. S. Likely to continue to cut rates, even if they come out with a relatively hawkish 25 basis point cut today and try to pause, they wont be able to, i believe, if they continue to try to pursue the inflation and full employment targets. Aey will have to be eating lot further than they are currently telling us. Tom let me ask you a question. Is all of this at the margin because of a mercantile president . You look at the margin, the partial differential across any Global Economic equation, is it just about an america that decided to go mercantilist . It doesnt help, frankly. We had 40 or 50 years of increased globalization and cooperation, reductions of borders and barriers, all things that have allowed that to happen. One thing people have missed with a trade dispute is it is not just about trade, it is investment. Companies may have happily Companies May have happily invested in china, European Companies investing in china to sell to the u. S. They are less willing to do so because if they are sure they can make that trade in the future. Capital spending has hit some economies harder than others. Germany for example has been hit hard because of its reliance on engineering and capital goods. Tom i want to give attention to the world bank let down idea of 2. 6 global gdp. I will suggest that you and i have never framed that as well. Is it an emergent action by central bankers needed now, or is it something we can work out through next year . As far as central bankers are concerned, the whole tree dispute is a headwind that is destroying the supply side economies and Monetary Policy cant do much about it. It can smooth things, but it doesnt deal with the underlying vagrancy as of those applying linkages. I do have a solution to the trade problem, which means a better relationship between the u. S. And china, but i think there may be a requirement for heavy lifting to be done by fiscal policy. Some would have room to do that, mostly in europe, but europe does not have the coordination abilities to deliver the kind of physical response that the chinese or americans have done in the past. Tom this is wonderful. Go out here on oil income overt where oil will be in 20 or 30 years. The chart is here. All you need to know is we start surveillance, we break down. 97ugh the 64 level, 63 brent crude. This is getting crucial towards the high point september 10. Certainly, that is in a calm or direction this morning. Direction this morning. We will address the growing evidence, the battle over climate change. Most seen in america. This brings us to the idea of climate now. It has to do with automobiles. Lets listen to some Auto Executives. Infrastructure is probably one of the bigger challenges, but it is really growing. We are just finishing our work in the United States. We are also contributing in a fast charging network. I would like to have more collaboration in europe and around the world with governments. Get more speed and the infrastructure. That would mean less discussion about range. We are getting a little rangephobic here and there. The of the structure has not progressed as fast as it should be. Electricck up on vehicles will depend on affordability. That is clearly one of the expectations on the range, and on the density of the charging network. 50 of our lineup will be electrified by 2022. Globally, toyota plans to have an electrified product line, 50 , by 2025. Francine live pictures of the Supreme Court, back in the Supreme Court for the second day of hearing into his decision to suspend parliament. The judges are waiting for a written statement laying out what he plans to do fuses the landmark case which has the potential to derail his Brexit Strategy and his premiership. A book on the elections last time around. , great to get the Brexit Bulletin update from you. What are we looking for . How much does this hearing, and how much does the Supreme Court decide actually change the fate of the Prime Minister . It could be a blow politically for Boris Johnson. If he loses the case and the Supreme Court he would be forced to backtrack and parliament would be recalled. Im not clear if that would make a big difference to the outcome of brexit. The main reason for fighting the suspension of parliament from those people are brought the cases against johnson was the passage of law to stop him from forcing the u. K. Out of the eu without a deal. That law is on the books. The question is how johnson gets around the ban with him taking the u. K. Out by the end of october. Francine government policy is still getting a deal. Do we know what the Prime Minister really wants . Tim johnson has said there is one month left to get a deal. If there is no deal that can be reached by the end of that summit, then that will be the end of the talks and he will adopt a policy of no deal and prepare for the next 12 days or so to get out of the eu without a deal. He says he is willing to go to taken to court, in order to get that policy through. I seen a broader basis, the headlines of mr. Corbin, and to be polite i am confused. It is like the top defense. I am confused by mr. Corbin. I am also confused by what the ab dems do when you have suspension of parliament. What is the opposition do right now . Have the liberal democrats saying we will cancel brexit, which is a very clear policy. The challenge this time in the next few days when the labour party has their annual conference will be for Jeremy Corbyn to set out what his policy will be. It is a tricky debate for him. If he says he will cancel brexit that could lose the labour party a lot of seeds in pro brexit areas. Ask as a foreigner, let me the dumb question. I will try it with the always knowledgeable tim ross. What percentage of labor is proleave, probrexit . Donthere is polling, i have the numbers, but there are large parts of northern england, for example, that are heavily probrexit. If corbin adopts the same policy the liberal democrats brought forward to fight against losing he risks those seats. Without those seats youll find it harder to form a government. Francine do think we will see some kind of general election before december . Tim i feel like it will come sooner rather than later, but no one is clear. All of the major parties say that they want one, the row is about when we will get one. Francine looking through the papers, Jeremy Corbyn would say that he would stay neutral and a second referendum. What does that mean for how the parties that are against brexit are actually positioning themselves . Is it is a calculation that incredibly painful for the labour party. Many of their heartlands are proleave. As i was saying in the northeast of england. Other cities, like london, are very proremain. They really risk alienating some of their core support whichever way they go. Francine team ross will be back ng and peter chat well. This is bloomberg. Viviana you are watching bloomberg surveillance. Bloomberg has learned the struggling japanese automaker wants to sell it subsidiary. It distributes vehicle parts. A deal could be valued at one million dollars. In july they stepped up restructuring efforts after operating profit hit its lowest mark in a decade. Fast fashion retailer forever 21 in talks to give landlord to stake as part of restructuring. Bloomberg has learned of the company is planning to file for bankruptcy this month. A plan calls for Property Group and Simon Property partners to get a part of the business. Forever 21 partnership, they wouldnt retain some ownership. An International Meeting on the 737nd of the boeing max. Some say they will perform their own assessments of the airplane when it has been cleared to return to service. Boeing is redesigning the 737 max 8 fix a flaw after 2 fatal crashes. A big day for Central Banks. The Federal Reserve will announce its Rate Decision today following a News Conference by jay powell. The bank of england is unlikely to change policy but may find a darkening outlook with the approach of the brexit deadline. The bank of japan, Swiss National bank, all have their own decisions. Lets get back to brexit, back with stephen kin. Peter, what is priced in . Sterling or guild . There is a little bit with the vote in parliament. I feel like there is a little bit of a tilt that we are not going to get a no deal. When you hear the politicians, that isnt what they are saying. Peter the interesting thing in u. K. Politics is a potential loophole. It is super complicated. That is why i think it is not being processed so much. What i think it starts is it thees the probability that conservatives could actually agrees some kind of deal with the eu. That would be a major game changer. Some sort of agreement. They could then therefore get passed into parliament. If it wont, this loophole in the act would give the Prime Minister the ability to leave logico deal, which the is very difficult to understand. Francine that is not priced in . Stephen it is not. Put sterling is at the moment like a the dollar, it is Halfway House between two different outcomes. One would be to say that we actually have a deal to come through to go through parliament. It is a softer brexit than some people are currently fearing. We have rallied quite a long way. The other option is we do crash out. With a crash out sterling goes down a long way. If there is a resolution to this, we will not be priced at this level has some point in the future. We will be a lot higher or a lot lower. Where we are now is a purgatory period for the exchange rate. Francine the loophole that is difficult to understand, when do markets reprice question mark do they need to reprice . Peter if they do reprice and sterling rallies, i would use that as an opportunity to sell sterling. It is not evident the market is pricing it. I just want to see the reaction to the headline that there is a deal they would support. The more important dynamic is to look at the case for the bank of england. The case for them putting up rates has evaporated. The case for them to have slight strength in sterling, which would enable the inflation figures to come down. Inflation is below target. The case for easing starts to grow. We could be at an Inflection Point with the bank of england Monetary Policy. That could be delivered and keep sterling at the current level. I think it is actually more interesting on the rate side rather than the effects side of sterling right now. Tom you have a wonderful essay that goes to deflation. This experiment, qe, and all Central Banks are adapting to the hope and prayer of qt. Do we know what we are doing . Are we going to make it up meeting to meeting . Stephen i think there is an element of making it up as we go along as my paper argues. One of the problems with qe is by lifting asset prices significantly, it has led to unexpected consequences following the Global Financial crisis. It has done really well over the last few years. The weakening exchange rate, higher import prices, real wages come you have done pretty badly. The distributional difference, fundamentally different from the japanese experience, that has led, or contributed, to some of the antiglobalization, isolationism rhetoric that has come through in the west. The idea of winners and losers has not been particularly encouraging to resolving some of the underlying tensions. The bottom line is, do we have any understanding of the m1, in for as we unwind qt to qt . Stephen most banks have given up looking at monetary aggregates altogether. What they are focusing on, whether theyre hitting their inflation targets. The answer to that is they are. Elow target for the most part whether they are able to deliver financial stability. Or importantly, recognizing as rates get closer to zero in the case of europe below zero, the traditional ammunition isnt there. You are seeing central banker saying can we please have some help from the fiscal authorities . We on our own cannot do what we did in the past. Tom this has been great. Thank you so much. This is something were going to do today. Not only is it fed day. Not only do we have the global news of oil. 63. 93. Rude right now, that really breaks down the angst of the past three days. We will try to drive forward explainers on this unique fed meeting. Again, against a repo market prices. Mann. Do no better than an update on International Economics and the next hour. 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. Tom this morning, this is not a normal fed day. Chairman powell must address the tension, the fear is seen in the trust market, the shortterm repo market. The trust being tested. Michael mckee will be in washington. In saudi arabia, the price of a barrel of oil in the last minutes breaks down. No word on the saudi response of iran provocation. On trade we will consider the china response to a mercantilist president in this hour. Catherine mann of citigroup. This is bloomberg surveillance. An extraordinary surveillance of and new york. Im not sure how much we will get to, but we need a Supreme Court update in london. Daytwo of a three discussion of the future of the constitutional nation. Aancine the hearing started halfhour ago. Theyre going through papers. We are following it closely. We dont know exactly when a decision will be reached, but it will have an impact. It will have an impact on the political future of the Prime Minister of the u. K. , Boris Johnson. I will say that today lets focus on the repo market, like we have been so far. It has been more than a decade since fed traders jumped into the u. S. Money market to eject cash. Rich in figure out why that happened and what that means. Tom we have a wonderful fed show it to 00 p. M. This is not planned. The repo crisis has come on so quickly. Minard will join us from guggenheim. A linkage to the desks of wall street. And the former minneapolis fed president on the dynamics and mathematics of the unknowns. We are thrilled to bring you Jeffrey Rosenberg of black rock. Really definitive on the set of dynamics at the fed that the fed and markets face, and for that matter global and American Banking as well. Viviana iran telling the u. S. It had nothing to do with the attack on a Saudi Oil Facility and a cable sent to washington. Tehran warned that it would respond if the u. S. Takes any action against iran. President trump suggesting a retaliatory strike against the iranians. The u. S. Is locked and loaded you may remember he said. He has not specifically blamed iran for the attack. The saudi finance minister is downplaying the attacks impact. In terms ofn economy and revenue is zero, acause our reserves for couple of days before we are back online last night and today. Viviana aramco has brought back 41 of capacity at the facility. The fed is preparing to adjust another 75 billion into west money markets. Yesterday new york fed traders jumped in after shortterm rates 10 . E to that is the first time the fed intervened in more than a decade. The overnight repurchase rate falling. They have started climbing up. Over to israel where an election do over appears to have produced an deadlock between Prime Minister netanyahu and his opponent. The countrys longest serving leader gambled on a revote to strengthen his political hand, possibly keeping him out of jail. Neither he nor his rival can rm a coalition. Results will not be out until tomorrow. Trade tensions are dragging down some of the u. S. s biggest companies. Global news, 24 hours a day onair and on tic toc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. This is bloomberg. Tom thanks, so much. The data, equities, bonds, currencies, commodities, a little bit of turmoil. Oil moving right now. Futures and negative four. At the bottom, west texas intermediate shows a 1 drop. Not back to normal, but we are getting there rapidly. Brazilian equity market, out to 15. Two year yield one point 71 . On a normal fed day im focused on that. Today, it is all repo. Brent crude has come in nicely. We had a 63 handle on brent a moment ago. 173 on the close. Bellwether for our european audience. Global wall street uses fedex dynamics. It is a real litmus paper worth the monitor of the pulse of a realcs in america ometer ofper or therm the pulse of logistics in america. Francine it has been real disruptive in the u. K. If we had a company like that it would be difficult to pinpoint and it would go to the animal spirits of that country. Investors trying to figure out what the fed will say later today when it concludes its policy meeting. Officials expected to cut Interest Rates will stub also, to move further overnight lending markets. In that environment you can see dollar strengthening. Im also looking at yen for havens. 108 22, tom. 108. 22, tom. Tom one chart really explains last 48 hours. This is the spike up in one measurement of the socalled repo rate. All you need to know is we are up three standard deviations edging towards four. Down to the 10 year crisis that we have had. We spiked up for a wide set of reasons. With that we bring you one of our leading international economists. We will speak with dr. Mann about trade. Cannot speak on saudi arabia do to compliance issues with her major american bank. I know that you brushed off the brand lectures you gave years ago on the repurchase agreement. How will chairman powell address of very shortet term banking paper this afternoon . What should he say . Catherine i think what we are looking at here is part of the process of Monetary Policy normalization. It also part of the process associated with a very large issuance of u. S. Treasuries. It is a combination of that, plus, of course, you have a lot of need for liquidity. When you need liquidity and you dont have it, you end up with a price spike. This happens when you run the system very tight and have been, perhaps, complacent a little bit. Tom lets go to research on this. Evening, publishing and extensive node with comments on citigroup and j. P. Morgan and how they are hamstrung. Team at bloomberg intelligence. Banks dont have the same Balance Sheet elasticity they had prior to 2007. Before 2009, the repo market was the same size as the treasury market. Now repo is only 23 , meaning, as dr. Mann said, funding could become tight. Banks dont have the same Balance Sheet elasticity they had prior to the financial crisis. Next year the fed may begin to buy treasury securities to increase its Balance Sheet and reserve balances yet again. Are we going back to quantitative easing . Catherine i suppose that is a possibility. It would be unfortunate if the fed actually has to move in that direction, because there is a problem with what we have now is that we need to move towards a more reasonable pricing of risk in the system. Part of that process is going to be turbulence. The fed has to look through the choppy waters that we were saying right now in one market. There is going to be choppy waters in other markets as well. The fed has to look through the choppiness in order to look at the longterm consequences for the real economy of low Interest Rates forever. It cant stay there forever. Francine dr. Mann, good morning from london. How should jay powell the address this today . Catherine i think he is going to have to we dont have a full explanation. There are a lot of pieces of the puzzle. I think thats one of the things he will have to emphasize, that it is a very complex market. When you have a misalignment in one part of the market, it tends to percolate to other parts of the market because you are running very tight. Upn you do that, you end with one price spike here, one price spike there, that ultimately is telling us of something about how tight the system is being run. You, so much. K Catherine Mann stays with us. Arabiaup, saudi partially restoring after the worst oil destruction in its history. This is bloomberg. We are back online. The interruption in terms of the economy and revenue is zero. For a couple of days before we are back online last night and today. Said we areways committed to the ipo, the government would choose the right time. They will read the market and they will decide. Most likely it will happen in the next 12 months. We have options. The large primary option for listing. Was the saudi finance ministers speaking earlier. Told bloombergco they had been working aroundtheclock the clock to restore operations. We do product rollover. When this happened, immediately after doing the assessment workforce. We put our experts,ubject matter engineers, professionals, operators, craftsmen. Each had eight full team working on it from a to z to restore it. They were given full authority to execute 24 7. We will be at full capacity, of course. September, it will be at capacity. You were able to meet shipments to International Customers . We are able to meet our shipments to International Customers. When the supply chain was interrupted we used our reserve. Tom lets look at an oil chart. Brent crude painting a picture. We have shown this many times. Up we go. The crisis. Of near 70 a barrel. We rolled over nicely, moments ago reaching new lows. We will see where we unfold. It is fed day. We have been talking with Catherine Mann of citigroup. Now we drag in the professor of finance from boston university. That is a really cool thing. Or fester, it is wonderful to have you here professor, it is wonderful to have you here. We have to brush off a repo study. You do this in may and the second week when the kids are halfasleep. What is the audience need to do about the why of the repo crisis . Lack ofnk there is a overnight dollars, perhaps because the whole world was expecting the fed to cut rates. It is possible that shortterm players put money to work longer than the overnight market. It could be something more. Erious the unknown. Be we are going from qe to qt. Did we just learned this is not going to be a smooth transition . Is part of it. The Federal Reserve and Central Banks have created a nanny state. Tom i love that. Easy to makery money in this market if your company. More than 10 of companies outstanding are zombies because it is so simple to borrow money very cheap or negative and make no profit. An that has created environment where backing away, qt, is going to create some disruption. What do you mean . Disruptions in the sense that people will go bust . How many . 20 , 30 of the market . Jack if you look at a zombie companies, 10 of the u. S. Market, 13 of the world market will stop most of this is concentrated in europe where we have a negative overnight rates. Negativeapan overnight rates. It is remarkable if you look at not potential gdp. We know that potential gdp in the u. S. Is around 2 and we happen to be growing around 2 . Potential gdp, growth of the workforce plus productivity in japan is 2 . In other words, recession is the new expansion in many parts of the developed world. Has notstment Community Come around to that new type of thinking. , when youcatherine listen to that, what does it mean for the real economy . Catherine im not sure that i would agree with the recession is the new normal for japan. I think what we are seeing in japan is a resurgence in investment. Especially nontangible investment, by companies. Particularly those focused on the Domestic Services industry to deal with the fact that there is no labor anymore. I think it is premature and incorrect to say that the new normal for japan is a recession. It is certainly not true for per capita income when we think about it in those terms. Going back to the issue, i certainly agree that a long period of low Interest Rates have created an environment where a lot of companies can lever up and not pay anything for that leverage, not pay anything for the fact that there is no covenants or governance. The challenge for the Federal Reserve is to move towards a Monetary Policy where risk is reflected in the market. You do see turbulence as that process is unfolding. The repo market is one. Last week we had the 10year yield act up as changes back up as changes in the portfolio and 10 year yield as a hedge changed. Normalization at this point almost means no rate hikes. Not cutting is kinda viewed as Monetary Policy normalization. If you have too much leverage, prices are always going to move more when you have a lot of leverage. Tom thrilled that both of them are with us this morning. Yergin. P, daniel this is bloomberg. Francine this is bloomberg surveillance. Tom and francine from london and new york. We talked about the repo rate, the fed, what i want to get to is what is happening in europe. Negative rates. We talk about it every day and the impact it has had. That you have, in the past, talk quite openly about the pressure that european banks and the Banking System is under. Can they cope with further negative rates . Catherine well, there is the most recent package that was put forward by the ecb. It contains a variety of pieces. Some of which are designed to moderate some of the effects of the negative rates on banks. The fact of the matter is banks make money when their clients make money. The real challenge in europe is to come forward with a set of policies that are going to be that are going to end up with the clients, meaning the companies, and that consumers making more money, spending more money. Thats where you want to go. Draghi was extremely vocal about that. Mary pointed in talking about the need for complementary fiscal policies are very pointed in talking about the need for complementary fiscal policies in europe. It is not a mystery. He has been talking about this, as have other institutions. Will not gone mann will. But jack ablin the phrase is jack elasticity. How inelastic is european banking to any flow crisis that would come . Jack they are extremely vulnerable. Any constituent countries are resisting fiscal stimulus many constituent countries are resisting financial stimulus. Surplus, but they dont want to spend the money. Many of those countries have to come around. The new is countries could move towards modern Monetary Policy. We are at a crossroads. Either we have to normalize again, go through this catharsis, which is going to be painful near term, or we can continue to slip further and further towards modern Monetary Policy. Linear, is fed and there an acceleration of impact as they bring rates down . Is it a smooth glide path, or not . If youne i think that talk to the various f1 see members and Federal Reserve Bank President s, there is not unanimity about how much, or even whether, cuts are appropriate right now. Under that circumstance, it is definitely not going to be a linear move down to whatever the market is expecting. I dont know whether it is 75 or 100 basis points over the next two years or year and a half. The fact is, it is obviously not going to be linear. That is going to be communicated today, i believe. It is not a linear move. Tom Michael Mckee will be at the press conference. We have an interesting show. The fed decides at 2 00 p. M. Stay with us. This is bloomberg. This is bloomberg. Devices are like doorways that could allow hackers into your home. And like all doors, theyre safer when locked. Thats why you need xfinity xfi. With the xfi gateway, devices connected to your homes wifi are protected. Which helps keep people outside from accessing your passwords, credit cards and cameras. And people inside from accidentally visiting sites that arent secure. And if someone trys well let you know. Xfi advanced security. If its connected, its protected. Call, click, or visit a store today. If we dont solve this attitude of the democrats towards china is, if not identical to the current administration, it is pretty close. I think that china recognizes that this is a structural issue. It is not one u. S. President. Getting something to lower the temperature and helping growth globally is in everyones interest. This is like two parents fighting, and the children are hiding, and they are upset. That is the rest of the world. It is slowing trade. Longterm of potential decoupling of these two giant countries actually results in lower growth for everyone. Francine that was the blackstone cofounder with the businessweek anchors for the latest edition of businessweek. He was talking about trade concerns. It was an extensive interview. You will hear plenty more from mr. Schwartzman throughout the day. Tom so much winning. Lets look at the winning. We can win with fedex. One of the great benchmarks of National Spirit in the United States. They are enjoying a 12 pullback right now. None of that is a surprise. Mann on our greater International Economics. Henrietta, let me start with you. Does anyone on capitol hill care that fedex is down 12 . Henrietta they dont. Theres not too much up in arms or concerned about the trade war generally. Tom what did you hear . Is a lot ofhere comfort with the trade war. Democrats are trying to figure out their message on trade. They are opposed to the president s strategy, but not the end goal. There is no clarity if the in result is decoupling. The tariffs are here to stay. Theres no real effort to take the tariffs off. This is going to be our life the average number that was thrown out was six years. Douglasill go back to erwins classic book against the of American History trade. Followed up with your wonderful effort, is the trade deficit sustainable . Henrietta would say that both republicans and democrats dont care about the lifework of erwin and mann. Catherine i just published a worse,k for better or peaked . Al financial p globalization is behind us. Is onempet democrat view that has been the most obvious manifestation. That is not good. It is not good. Because, globalization is a source of growth. It is a source of benefits in growing markets. Its good for consumers and business. The problem has been that domestic policy has not stepped up to deal with the necessary adjustments. Technology requires adjustments. Domestic policy hasnt stepped out for that either. The notion that we have six years, as henrietta said, or maybe its supposed to be seven years good, seven years bad that we have seven years of further declines in globalization. That is a bad picture for everyone. Advanced economies, the United States, emerging markets, and china. Nobody wins. Francine when you talk about a very bad picture, if this lasts for another seven years, is it a given that it puts a recession closer to the timeline that it would have otherwise been . Recession to get to a recession in the next two years would require some shock that we havent had yet. We may have one, who knows, but the current direction of travel, whether it be for globalization, the tariffs, the trade war, this is an erosion of productivity. It is an erosion of potential output. It is an erosion of consumer buying power. It is like termites, very big termites. It is not the shock that will precipitate a recession. It is not good, but it is different than a shock that would precipitate a recession in the next year. Fightne is this a bigger for world supremacy . If it is, could this last 10 years, the trade war . Henrietta it depends who you are talking to. The farmers are saying, if we cant make up our trade laws with china, who has essentially stopped purchasing all of their goods, 40 of their sales, they are starting to look to india. Theyre starting to look to other nations in the general region. The caribbean islands. They are trying every other capacity that they possibly can. The general outlook is that they are not expecting to see brazil received or argentina receipt. Argentinarecede or de. E we have alienated in a lot of cases japan, china, and other nations. We are hoping against hope that canada and mexico can still be trade partners. Tom this is the executive summary of dr. Manns citigroup efforts. This is one slide. All you need to know up top is trillion kazillion dollars. Be discontented should we about trade and globalization . Catherine we should be discontented about domestic policys willingness to do the distribution that is necessary to compensate to losers and to provide them the opportunities to get some of the gains. That has been some of the problem for decades. It is not new. It is coming home to roost. Domestic policy hasnt stepped up. If anything, it has taken away from the losers and given to the winners. Its not going to turn around overnight, but making the pies smaller by limiting technological change or globalization, that does not make it easier to have the redistribution. Tom there is the lecture now. We are so far from the 1950s and 1960s. Do you hear any Democratic Candidates that have even an ability to get us back to tpp, or any sense a bilateral or multilateral forward future . Henrietta we have the opportunity to meet with senator council. s trade she was extraordinary. She would say lets get back in tpp. You will hear pockets about that on the hill. Investors ase for they look at senator warren becoming president as they freak out over medicare for all or the great new deal, or something dramatic, even if you remove the filibuster and you have enough senators come you arent getting 51 votes on any major legislation. In the scenario that misses. Mann is talking about, youre talking about tremendous effort just to have the conversation and there is not enough votes for any event. Youre looking at the 2022 senate and what it may look like. In the best Case Scenario youre going to 52 or 53 democrats, not enough to get these past the goal post. Tom where going to leave it there. We are out of time. Thank you. We will continue. What an incredible conversation on trade policy in washington. There is also the policy of saudi arabia. Coming up, a conversation in riyadh on the future of aramco. Francine this is bloomberg surveillance. Tom and francine from london and new york. We have to recap what is happening in the Saudi Arabian economy after it said yesterday in a News Conference with many journalists and tending that it was partially restoring the output of the damaged oil plant that was struck on saturday. Lets go back to rehab where bloomberg daybreak asia with the Saudi Capital Market Authority chairman. Give us an update. Were waiting for the political news. A clear answer from the saudi government. They said they would respond clearly to what they described as aggression from iran. The secretary of the United States is in deliberations with saudi arabia and the uae was that we can speak to top officials. We are joined by another key voice in this conversation when it comes to the economy and Capital Markets. The chairman of the Capital Market authority. Thank you for coming back onto bloomberg tv. Youre looking at this from a different prism. You are interested in stability. By opening up the saudi market, the volatility is being brought in . What do you do against that . I would actually say that over the last year or so the situation has actually been the opposite. It is because saudi arabia has been opening up in the past couple of years, ending seclusion on global indices. Hasresulting inflows this come with has been a stabilizing force in the Capital Market. We have seen over 76 billion ofmost 20 billion Foreign Investment come into the saudi Capital Market. All being equal, this has been a stabilizing factor in the saudi arabia market from other market volatility. It is a bit of a drag. A clear force working against you when you have geopolitical tensions. It tends to cause an outflow of foreign capital, not just from saudi arabia, but the United Arab Emirates and the rest of the region. You have any tools that you can use to offset that . If we look at it on the ground, we have not seen this morning out in the numbers yet. Year, wening of the have seen steady, almost daily foreign capital inflows into the saudi Capital Market. The continuing implementation decisions of index inclusion across multiple tranches, which is likely to continue until march of next year is a big factor. We have not really seen it day day most of the inflows continue. Are any Government Funds buying up the market . We have seen surprising resilience. We disclose all of the ownership statistics. We have not seen any adverse movements in the market by any Market Participants. The only exception being the inflowsng and flows of Foreign Investors. Isas you approach 2020 what on your list of priorities to change as far as reforms . The big piece is the news that came out yesterday on the revision of the saudi arabia and Capital Market law, which is the main anchor regulation that power and under which we create subsidiary regulations. We are working to activate some of the new powers we were given in the capital law update. The most notable is central clearing, which we have just issued a draft regulations for Public Consultation around the same time the Capital Market law changed. After that, we have two more. Another big priority for us is just as we opened up to international investors, were looking to open the saudi Capital Market to international issuers. We believe the depth, liquidity, and size of the Capital Market is an attractive feature for firms wanting financing, not just local, but regional firms as well. Over the summer you removed how much appetite have you from Foreign Investors on that front . It is quite a commitment. We have started to see strategica even before wem, created the strategic investor program. The demand that we have seen from Strategic Investors, those who do not necessarily meet the Financial Investor requirements, is what created lead us to create a parallel system for the Strategic Investors. We have had before per modulating the regulation several cases where we approve Strategic Investors into the Capital Market. Do spect a delay in the ipo of the Stock Exchange do you expect a delay in the ipo of the Stock Exchange . Ipos generally have had a hard time. As a market regulator, we tend to be the referee. The referees to the market are not usually the best judge of who will win at the end of the game. We just make sure that it is a fair and level Playing Field. Ultimately, whether Market Participants choose to get involved, firms or investors, that should be their decision. Our goal is to have a level Playing Field and open access. Thosenk you very much for insights. The chairman of the Capital Markets authority. Much. Ne thank you, so great work on the ground. It is interesting to see the different angles. There are many questions, important questions, that the saudis were able to answer yesterday at the News Conference. It was the chairman, chief executive, and new oil minister. Were still trying to find out how they could defend some of these infrastructures. Tom lets go to the single best chart with dr. Mann. It is an important chart. We did this when the vice chairman of the fed, stanley fischer, said that we were older accommodative. The yellow circle ultra accommodative. The yellow circle, of we go. Are we rolling over . Are we going to go back to accommodative, or are we going to go back to old trip accommodative . Catherine i think ultra accommodative . Catherine i think the dilemma, there are storm clouds, the trade tensions are weighing on investment. There is a negative consequence Going Forward. Coming from that, we have seen that in changes in investor intentions. They clearly had wins coming from the trade side of things. The consumer economy has been robust, but it will not last forever. Oil, we dont know which way the price could go. That could be a shock. Those are real issues the Federal Reserve has to deal with. On the other hand, the dilemma is if they become increasingly accommodative when they are already accommodative, increasingly accommodative, where does it end up . It ends up in asset prices, in leverage, in low spreads. That type of financial instability does not end well. The dilemma is how do you balance the current policy rate when you have these two different objectives . Federalng to do with reserve inflation and employment, and on the other hand you have to be conscious that very narrow spreads in very high leverage, and a lot of debt exposure, is something that is very difficult to address in the longerterm and does not end well. If there is a financial issue that does not end well, that undermines the two objectives of the Federal Reserve, to sustain price stability and full employment. Chairman powell central banker to the world . Catherine we have a couple of different central bankers. And the challenges in policyve led to an ecb that has ramifications or the United States through the Exchange Value of the dollar. The Exchange Value of the dollar has implications for both financial issues, financial stability, but also for the longerterm issues, the sustainable price level, and full employment. Central bankera to the world, but it is not the only central banker that is relevant for the Global Economy will stop there is more than one big system out there, and the ecb is the other one. Role,y, the boj plays a and we might even consider the extent to which the rmb, the chinese financial markets, could play an important role. Yes, central banker to the world, but not the only player amongst central bankers. Francine thank you so much. This is what we will do through the rest of the hour. Catherine mann on radio. At airbus joins bloomberg tv 12 00 p. M. In new york 5 00 p. M. In london. This is bloomberg. Francine this is bloomberg surveillance. Tom and francine from london and new york. A big day for Central Banks. The fed will announce its trade decision followed by a News Conference from chairman jay powell. Tomorrow, the bank of england, unlikely to change policy even as the brexit deadline approaches. And the central bank of japan also has their own decision. Looking at the world of Central Banks, i one group we are going to see a race to the bottom, or if it will be more of a muted reaction. Mark carneya of continuing at the bank of england. That has been percolating in the last 24 hours . Francine it has. This is the report. If you think about it, tom, lets recap. Three years and counting since the brexit vote. Mark carney has already delayed his exit from the bank of england twice. This would be a third time. It is first of all important that we figure out exactly how politicians have been focusing on the next boe governor. The Current Governor has not had a lot of times to think about it because they are preoccupied with brussels things. That could be one possibility, asking Governor Carney to stay on. Tom it is different across the atlantic. They are begging the governor to stay, and hear the president is asking the chairman to leave, leave, leave. Maybe that will be addressed in the press conference. 2 00 p. M. , scarlet fu has spent hours, i say hours, getting ready for this good exercise of almost two hours. We have wonderful guests. Scott minard, we demanded him. Jeff rosenberg will be with us as well. We are really looking forward to a good, good fed special. Somehow i think that the repo rate will come up. This is bloomberg. Alix 75 billion last of cash. The repo market waits for the feds infusion. And rates expectation. The 25 basis point cut is seen as a done deal. It is the dot plot that investors are watching. Is that all there is . Growthome momentum, and value, momentum, and growth take the lead again. Welcome to bloomberg daybreak on this wednesday, september 18. Im alix steel. You have equity markets a little softer. Soggy trading, down 0. 1 . Buyreal trade, buy bonds, the dollar. Also outperformance happening in europe. The dollar the currency of choice as we head into the fed. Time now for global exchange. We bring you todays