Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

Treasuries are up in the pound is strengthening. Eurodollar, you can see 1. 10 52. As the focus shifts to Central Banks, a lot is coming up with news this week. We also have to look at renminbi. At seven. 08 7. 08. Some breaking news, a new chief executive at the royal bank of scotland. Alison rose will start at the position from november 1. And makes her the first woman to become one of the big for the over to hong kong, thats where Amnesty International is alleging the police beat be prodemocracy protesters. They also accuse the police of committing acts that amount to torture they would not comment, but say they respect the rights of people in custody. This weekend, demonstrations are expected to continue. And allout war in the case of iran in the country, thats according to the foreign minister speaking to cnn. She denies irans involvement and says he hopes to avoid a conflict and adds iran is serious about defending itself. Benjamin netanyahus days as Prime Minister may be numbered with a former ally sankey plans to recommend benny gantz. For donald trump, it may mean he is about to lose one of his closest foreign allies. And same with President Trump leadersrsy over his about use stonewalling details of a complaint. This is prompted by a report of an anonymous whistleblower raising concerns. The president dismissed the suggestion he did anything inappropriate. Thechinas tensions with u. S. Might not be showing any signs of easing, but beijing is winning some allies. But for the second time in less than a week, they have switched relations from taiwan to the mainland. Amidstevering ties targeting spending on transporting for structure in the pacific. 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 the pound is on something of a tear today, at least a touch. That is amidst reports that the European Commissioner president will do anything to prevent a no deal of brexit. Sky news that of all the objectives are met, that is the backstop. Supreme court is set to make history with a report on Boris Johnsons spansion of parliament. Lets get more with our reporter who covers u. K. Politics and brexit more specifically. We are joined by a global chief Investment Officer and we cant wait to talk about brexit. We had a surprising comments from Jeanclaude Juncker saying he is not married to the backstop. The irishjust as good foreign minister is saying, hold on, we dont know what we are looking at. The Irish Foreign minister was on bbc radio and pouring cold water on these comments. Definitely, a lot of warm words. Boris johnson really does want a deal. There are saying there has been a step taken back. Simon was also saying he might talk about replacing the backstop, but that is just the word for a concept that still needs to be there. They could change it, but that concept needs to be there. Francine the we know if Boris Johnson would put forward concepts that would be the same as backstops . That he has actually given something to the eu . He is looking at alternative arrangements to the backstop, some kind of technology or trader schemes. Revivalso seeing the and maximum facilitating. These are not necessarily new ideas, but they are just pushing them harder. As the deadline gets tighter, theyre hoping they might accept them. The Supreme Court, we are expecting a ruling next week. Do we know what Boris Johnson does . His lawyers were suggesting he could suspend parliament again if the ruling is against them. Yesterday, the lawyers spend a lot of time debating what we would actually do. Is this unlawful and do we have the power to force them to recall parliament . It is a constitutional question in terms of what they can actually do. Francine a little bit of positive news, we did hear from dover that they are 100 ready for a no deal brexit. I dont know what the market makes of any of this, but the pound has strengthened quite significantly. Implication is that we dont have to call it the backstop, but the mechanism is still the same. Speak to investors, they seem tired of all of these discussions. Francine no [laughter] at this point in time, it is rather a 5050. I would not say that no one is interested, both the European Union does not want the European Union. Notice the u. K. Want it, but they want this negotiating position. We are close to the deadline, so there needs to be some negotiation. It will be very important what happens at the summit. Francine what is first priced into the market . To bekets seem complacent, from my point of view. On the currency side, hard brexit is not priced in. On equities, it depends on little bit. They see massive implications for the ftse. Impact woulds, the not even be for a hard brexit and quite a mess. It would be one or two days. Francine would it be a shock . Inthe market does not prices when we havent summit, could it be a global meltdown or a european meltdown . I would not call it a meltdown, but a reaction to the market. Markets were down 8 , so that was quite something. So there would be negative news. There is a bit of fatigue that means there would be a surprise. Francine the big crucial date is the first of next week for the Supreme Court. That there is the eu summit that traders are on a tender hook. Is there anything in between . The labour conference, the tory conference, which will be interesting. Actually, we are seeing other court cases being filed as well. So the Supreme Court case might not be the last one. It is others try to force them to delay brexit. Francine if there are general elections before december, how do the markets see that . Is it gets more uncertainty as we are talking about possible coalitions . You cannot even guess if they are proor against europe. There are no elections before that, so what happens is brexit or not. And, theyre coming with uncertainty. Some months, a lot of uncertainty coming from the fed country. Really, that could happen in the markets. Those who come with massive changes. They could fear the massive changes and cause a Central Market reaction. Francine thank you. Both stay with us for the hour. And you should stay with bloomberg surveillance. A cut from the fed and a hike in norway. Ask what is next for global monetary policy. Plus, indias a stock is poised for the biggest jump in a decade after the government unexpectedly slashed the Corporate Tax rate. We are live in mumbai a little later. This is number bloomberg. If the economy does it turned down, then a more extensive sequence of rate cuts can be appropriate. Indias point of view, any cut in Interest Rates would mean that are flows into emerging markets. We want to normalize as soon as possible. It is to say we are more inclined to additional easing of them at the last meeting. Growth around domestic growth practice and fiscal risks. They realize that if it prevails and goes on, there are some negative effects over rates being negative. Were are not looking at using negative rates. Those will be at the top of the list. The boj has more room to ease than the ecb has. There will be more room to ease under the presidency of Christine Lagarde, but there is no reason to change our inflation rate. Some of theose were top centralbank policy makers we have heard from. It is a big week for Central Banks and the start of the Rugby World Cup will offer a chance for reflection and recuperation. Will be used as an allegory for the mechanics of central banking and the wider Financial Market. The forwards in a rugby team, the Federal Reserves push on the rate cuts. Centralere is the holding their ground. Fans need a big lift and that came as something of a surprise. The scrum has seen the likes of the trade wars and geopolitical tensions causing resistance from market participants. Every squad needs a fly half to unlock the doors. The likes of generate gundlach, and if all else fails, you can always rely on your fullback to hold it together. ,hat is mario draghi this month seizing his chance to salvage the economy. Thank you to alex, our rugby fan in the newsroom. He has made that nice analogy. So where next for Global Policy . Still with us is christian from Deutsche Bank Wealth Management. I feels like it is a little bit of a scrum. We could call it concerted action to race to the bottom. Dovish . Ral banks to with a created more problems . Will they create more problems . New zealand won the last time. Fair point. Is a they want to keep the currencies lower or get them lower because it would create inflation. But everyone is doing that, of course it does not work on a relative basis. We are seeing is a lot of Central Banks are saying we had more tools, dont think we dont, and they do. But they also mentioned mr. Draghi. We wanted politicians to come in on fiscal policy. Send the Central Banks are racing to zero or even a negative, then we need to see fiscal policy in the future. That is not easy for everyone. Francine it has to start from germany. But it seems and looks a difficult. It is interesting today. Germany is discussing Climate Policy and there is some announcement. If you look at the german population, its obviously so important for them. But what seems more important now is a lot of change. If we look at the green party, it is massively gaining. The coalition is also losing massively. They could use Climate Policy to do a push as well. I would ask you have the cuts the fed needs, but first i want to ask about the repo market. This came as a surprise and it has not happened since 08. Christian for the First Time Since 2008. I think it is interesting what is happening. , but there is a Corporate Tax state in the u. S. Weather is some shortage of shortterm liquidity. Were thinking was the market in monday . We should not forget, there is something they can deal with but it also shows that are quickly went to come up with issues. Thank you very much. Christian from Deutsche Bank stays with us. Up next, indian stocks report the biggest jump in a decade after unexpected we slashing Corporate Tax rates. We are live in mumbai. This is bloomberg. Today, when we see that price stability is contained and inflation is below 4 , is expected in the next tenmonth horizon. That is one target which has been given to us. The main target is price stability, but keep in mind the objective requirements of growth. That was the r. B. I. Governor, signaling there is room for more rate cuts. They can exclusively at the Bloomberg Economic forum in mumbai yesterday. This morning, they took fiscal measures to revive Economic Growth from a sixyear low. Theyre cutting taxes on local businesses and one of the lowest rates in asia. It is providing a 20 million boost. The tax rate is being lowered by nearly five percentage points. They welcomed the government announcement. Christian from mumbai where he interviewed the governor. Great to have you. What has the finance minister announced and why is the market taking it so favorably . Good morning. Frankly, that is the reason why markets are up. Is a 20 billion stimulus. It will over to the economic slowdown and get to the global table. Rumor growth is at a sixyear low. They have been taking incremental steps but this is the big step they had taken. Effectively, companies and up paying 24 tax rate from 30 . And more importantly, new businesses set up manufacturing facilities and can opt for a much lower tax rate. That makes india one of the lowest tax economies. This is just other steps they have taken a try and revive the economy. How much is this going to kickstart gdp by . It is too early to say how much it would kickstart the economy by, but the government is looking to get back to 6. 5 gdp for the fullyear. Looking at, they are a 1. 15 percentage point increase in the possibility of fullyear growth would be 6. 5 . To reach that level, they would have to average growth rate of 6. 5 to 7 . Theyre hoping this would get back to 7 going forward. Thank you so much for the update, our new delhi bureau chief. Lets get back to christian from Deutsche Bank. We are talking about some of the different angles to the story. India, as you reminded me come is dependent on the price of oil. Christian that fiscal policy we just mentioned, india, there is some discussion about when oil prices rise. Depending on the outlook for oil, there is some dependency. We dont think is going to move, that is a geopolitical issue. India then looks quite interesting. They do fiscal and monetary policy, and from that perspective, if you look at the growth rates, if oil is not too high, it is interesting. Francine it is also very dependent on the dollar. If the dollar strengthens too much that is something the markets will take notice on. In general, but we dont go for the strength of the u. S. Dollar. What we see is there trying to out dovish themselves. The fed is going in the direction to not have a super strong dollar theyre not so dependent on experts exports heard what if it does not strengthen too much, is as positive for the markets. Christian a couple of weeks ago, were talking about the treasury possibly intervening. Where would we have to be for that to happen . It could happen, also maybe in a tweet, whatever. What it be weighing on markets for a long time . Would it be weighing on markets for a long time . Francine christian from Deutsche Bank Wealth Management stays with us. Up next, rbs has appointed allison rose as eeo. What does that mean . We also have another look at the treasury markets and focus on the trade concerns. This is bloomberg. Francine sterling surges. the pound touches its highest since midjuly. ,he rbs has any chief executive the first female boss of a major british bank. And more funding threats for the fed. The u. S. Central bank conducts operations for a fourth day and calls for a permanent fix. Good morning, everyone good afternoon if you are watching from asia. This is bloomberg surveillance, i am Francine Lacqua. Now far look at the markets, here is annmarie hordern. Annmarie rbs shares this morning are jumping nearly 2 as they named the new ceo, allison rhodes, will take the helm on november 1, first female to become the head of a u. K. Top lender. Rollsroyce shares are down 3. 5 since they face problems in with their aircraft engine. And British American tobacco is also to the downside today, down 1. 5 . The British Tax Office saying they all about one billion euros , according to a local dutch newspaper. The timeframe is between 20032016. Francine these thank you very much, annmarie hordern. The royal bank of scotland has affronted allison rose. She is an rbs veteran who will take over from the outgoing chief executive, ross mcewen, in november. Joining us is our reporter who covers rbs. What we know about her issues been there a long time. She seems like a safe pair of hands because she knows the Business Inside out. Yes, and it is one of the biggest lenders, and she has been leading the division, the commercial banking division, which represents a third of the revenues. So she knows how to do her job very well, she has been in rbs more than 30 years. So as you said, she is a safe pair of hits. The situation she is facing is brexit, andcause of also 10 years after theyve a lot. The bank is hoping for the government to act as soon as possible. Hardine i guess it is not it is not a ms. That she is starting on november 3, the day after we could eat the october 31 deadline. We have a chart we have looking at the breakeven price, what the government would have to do to some of back. Let us bring in the bloomberg chart which Hillary Clarke updated. If you look at that and you look at the risk of nationalization, if there is a possible labor government, work with the government be looking at . Stefania obviously, potentially one of the worst economic situations for rbs. Labor would be interested in breaking down the banks, breaking down rbs into different pieces. Ently, there have been actually, the most important thing is they keep lending to the economy, so they may find a theromise, basically avoid destruction of the full bank. The chart also shows that if the government will sell now, it to the past. There are hopes the government will make a profit is having rbs like they did with lloyds, those are very low. Francine Stefania Spezzati covers u. K. Banks for us, thank you very much. Now lets get to the first word news in new york city would hurtado. Viviana for the fourth straight day, the Federal Reserve is set to add liquidity to the funding markets. The new york fed says it will inject as much as 75 billion through an overnight repo operation. Some investors are calling for a more permanent fix, such as aregular fix rp facility regular fix rp facility. The u. K. Pound surged yesterday to a twomonth high on positive signals from brussels. The brexit deal could be reached by the deadline. Hearings wrapped off wrapped up on the prorogation of parliament permit next week, the u. K. Supreme court is set to release a decision. And controversy over President Trumps communications with a foreign leader, the Washington Post reporting and anonymous whistleblower raising concerns over the president s dealings ukraine. Now, democratic lawmakers are accusing intelligence officials on stonewalling on the claims. President trump denies he did anything inappropriate. And in hong kong, controversy over conduct in recent the most rations, Amnesty International alleging the police beat prodemocracy protesters and committed acts about. A month to torture Hong Kong Police would not comment on individual cases, but says it respects the rights of people in custody. Demonstrations are expected to continue this weekend. Global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. I am viviana hurtado. This is bloomberg. Francine. Francine thank you very much. Pboc. Focus on the it set its oneyear reference rate from bank loans at 4. 2 in september, as opposed to 4. 5 percent in august, not enough for analysts, who are calling for stronger action. Joining us is christian, the question is what happens with trade concerns. We saw positive news from larry kudlow, but actually, we have had this in the past and then they went back on it. Whether if something turns ugly in the trade war, whether china and the pboc have a good handle on their economy. Enoughink china has power, why use everything right now . They can look at the economy, how it is developing, look at trade in tariffs, and if theres something happening by the way, i dont expect a quick solution. Think of the november 2010 elections in the u. S. , so they need some firepower left. Five basis points is a signal but it is not much. Cuts. An do further rrr so they will look at the economy as well. So there is no urgency right now for the pboc to act. Francine these so you are not worried because it is such a controlled economy . Authorities in general have been doing a good job so far. If there ise something stemming from a recession or putting us in recession, it would come from china . Christie and i dont think that is a trigger point coming from china. There is a lot they can do, but they need to be able to react to shocks. They have some firepower, so we should not be toward. That it will be crucial to see how china reacts if there are no further solutions to train. By thede discussion, way, is still the most important to clients of the market. Francine doesnt get better from here, doesnt get worse . Christie and probably there is no complete the snow solution to this. Maybe a stepbystep solution. There could be a more opening of the market that happens next year, intellectual property i think is a tougher one, and it could last much longer than we think. Francine so it is the base case but it does not hurt u. S. Consumers. Consumers are the backbone of our economies and they are nice. Ly holding up quite could it be a mistake in going to far in the trade war and actually kills about consumer . Christian if the consumer is impacted, it is negative. If you look at the composition of economies in the u. S. And in europe, the consumer is what we call the last Man Standing Committee because he is doing quite well. Wages are increasing and inflation is low. Real wages are going up, and that is positive. The manufacturing side is still doing well. If there are implications on trade also on the consumer, it is much more negative. But i think complications from trade are really on the manufacturing side. Francine what is your take on the u. S. Economy . We have these insurance cuts, but we also have strong data. Christian they do. Rate. E unemployment is not going up the consumer is doing quite well. So we dont forecast a recession in the next 12 months. So again, fiscal policy in that context. But two or three years down the road, weaker growth could lead to a recession eventually. Francine christie and enough like stays with us. Germany tries to get its climate targets back on track. We have the latest on the negotiations amongst Markle Church a coalition. And, on the defensive. Mark zuckerberg meets President Trump in an effort to win over lawmakers. That is all coming up. This is bloomberg. Francine this is bloomberg surveillance, i am Francine Lacqua in london. The biggest names in government and business will govern next week in the Bloomberg Business forum in a new york. We will hear from leaders including jamie dimon and indian Prime Minister narendra modi, governor mark carney from the bank of england, christine more. E, and much now that the get straight to the Bloomberg Business flash in new hurtado. With Viviana Viviana stocks or running in india as the nation cuts taxes on local businesses to one of the lowest rates in asia, more than a 20 billion boost as it tries to revive Economic Growth. The effective tax rate is being lowered by almost five percentage points. The nations Central Bank Governor calls it a bold move. Best bloomberg has seen an internal memo that says Global Hedge Fund balance has reached 500 billion. It also states the future goal as next stop, 1 trillion your car and while i hope while it hopes to undo a law that prohibits agencies from using its equipment. The Telecom Giant asked a federal judge in texas to rule the law unconstitutional. It says the law is designed to drive the company of the country. The u. S. Is asking the judge to throw out the lawsuit. That is the Bloomberg Business flash. Much. Ne thank you so germany is expected to announce sweeping plans to cut Carbon Pollution today. A draft proposal says chancellor green merkel wants alternative resources to generate 60 of the countrys energy. Her does not agree on how to achieve this change. We have the details. Berlin is stepping up efforts to tackle germanys pollution problem. The governments climate covenant will drop plans to meet the countrys 23 admission goals. They are to reduce Greenhouse Gases to less than half of their 1990 levels. By the not everybody in the coalition agrees on how to reduce germanys Carbon Footprint. The two domain options up for discussion are, one come to expand the carbon credits program, known as the emission trading scheme, or two, a new tax on carbon fuels such as oil, gas and diesel. Chancellor merkel is christian democrats are word that a carbon tax could spark a populist, backlash similar to the investment in france. Instead, they prefer the market based, trading scheme argument that it would put the burden on large energy Consuming Companies and only affect consumers indirectly. But critics say it will put German Companies at a competitive disadvantage. Our coalition partners, the social democrats argued that putting the burden on companies will still raise prices for consumers, who could hi be hit the hardest. Instead they propose a simple tax to help the countrys workingclass. The results of the debate will be released this morning. Germany will decide how to set reduceustry on track to Carbon Emissions will not slowing down the countries sluggish economy. Francine that was matt on some of the Green Options for germany. Let us get back to Christian Nolting from Deutsche Bank with management. We talked about this at the top of the hour. Over all, how much appetite is there for some of the products . We have been talking about this for six years, but suddenly it is a reality. Christine is a massive theme in germany. Of course, what they have to do is not hit the consumer, the last man standing. If you ask about esg, that is what i see. Climate change is now market change now. There is an impact on performance, a positive one. In the last 10 years, people did this saying that maybe it is lowering performance a bit, but it is for the good. We dont see that anymore over the last two years. Maybe it is just because of flows going into that space. It is something we need to watch. If i may add, you see on relevantmarkets, esg companies are performing better. So it changes the risk profile for portfolios. Francine why is that . I have heard everything from there are more female investors and that changes the composition and i have heard that some people say it makes more business sense and finally people are realizing. How do you quantify the change . Christian it is important, but i think also it is esg governance. In a down market, those companies are not affected so much. Quantifying this, if you look over the last years, there has been out performance of 2025 basis points a year. But if the flows continue like this, there is probably more to come. It is something we have to watch. One person said to me, it is adding purpose to performance. I like that statement. Francine what about oil, does you become more motivated to find other sources of energy because of what is happening in the list . Christian it could be francine because of what is happening in the middle east . Christian i think all the discussion about wind energy and all of that is probably pushing it more. But to say that it is slowing down in germany because people are complaining, maybe that is also what is happening. On oil, there is massive change. But still, if you look, demand for oil is still increasing. It has come down in recent weeks but still, on the first deviation,. Growth is coming down a bit, but there is still more demand. It might change, but not very quickly. Francine we have. Francine if you were continue writing in, log on to the bloomberg terminal and go to tv to send it the questions gust. Ve for our great this person is asking, is there any consideration to returning to Nuclear Power22 in germany or in general . Christian i dont think so at all. I have not heard about this. It is not up to discussion because it think you need to take into account the lifespan of a Nuclear Power plant, and it is also extremely expensive. I haventt two years, heard that germany is going back to Nuclear Power. Other countries might say that shortterm it is helpful, but not in germany. Francine it is interesting to share some of the conversations you have with your clients. I dont know if they ask you, 10 questions you get the most how much is it on esg, and on sustainability . Europe, ini was in the nordics and in italy. In the u. K. , the questions were on brexit. In the other countries, no one asks about brexit. The second question was on bsg what does it mean, and how does it affect me, a massive change in the last two years. Francine interesting, thank you so much for joining us today, Christian Nolting from Deutsche Bank with management. , Mark Zuckerberg met President Trump in a tour of washington to win lawmakers. And, wanting to revise terms of half 1 billion of debt for wework. And we also talk about facebook. Those are next. This is bloomberg. Mberg. Francine economics, finance, politics. This is bloomberg surveillance, i am Francine Lacqua in london. Facebook ceo Mark Zuckerberg met with President Trump yesterday. The companys record on privacy and safeguarding user data has put it under unprecedented scrutiny in washington, but Mark Zuckerberg may have won some support with the president later, tweeted that the two had a nice meeting you can even joining us to discuss this is my guest. He knows everything to do with tech, and will help us understand all the stuff happening in silicon valley. First of all, we had the meeting with President Trump and facebook chief executive. It went well. What does that actually mean . Guest my goodness. Ultimately, what happens in these closed rooms between trumpa zuckerberg, we dont have the details, but the meeting could have gone excited nearly well, and then trump goes up the next day and says something different. The pace of the regulatory investigations in the u. S. Is accelerating, and so far, they havent actually been brilliant at getting ahead of the message. Lobbying organization, historically, in europe as well, the understanding is that facebook is telling regulators why they are wrong, not to understand where they are coming from. You have Mark Zuckerberg, is your main problem regulation, being broken up, or the trade war . Alex sadly for Mark Zuckerberg, it is regulation. The trade war does not affect them. If you fear the breakup, that is a long time down the road. It is more to do with how it affects your approach to business. Can you expand to new areas . Can you fix your business if you see parts of it slowing down . It is hard to do acquisitions if they look at other acquisitions you have done and said that they are anticompetitive. Francine what is the latest with wework . We talk about it day in and day out. Now the creditors and the ceo want to change terms . Alex he had taken a substantial loans based on the value of his stake in the company, but now the valuation has dropped close to 12 billion, given that the last round was 60 billion. Understandably, according to our colleagues, creditors are looking at saying, you state all these shares as collateral and they are not as much as they were, so we need to renegotiate. We dont know the full details of what they are saying, but it is another cause of panic for adam newman as you move toward this ipo. Francine is it likely to postpone the ipo for the away . Alex i doubt that this particular element will. It is another headache for him. Frankly, i think one of the that theyh the ipo is have a lot of work to do with convincing investors of its validity and there are trying to push in a lot of details before adam disappears at the end of the month, now it looks like it is not the time to do that. Maybe it will be after he comes back from holiday. October, i think, will be a crunch point to detect investor appetite. Francine thank you so much, our Bloomberg Opinion tech columnist, alex webb. I suggest you subscribe and read his stuff. Coming up, we have plenty more with tom keene. We talk about trade, central was. , the week that there was also a great analogy between the Rugby World Cup, which starts today, and what the Central Banks have been doing. We also talk about pound. The markets are kind of trading sideways. The focus was on central bank this week, next week, it goes back to trade. This is bloomberg. Is 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. Francine sterling surges. Jeanclaude juncker says the deal could be reached. The pound touches its highest july. And, allison rose is promoted to become the first female boss of rbs. And, the u. S. Central bank conducts repo operations for a fourth straight day. Good morning everyone, good afternoon if you are watching from asia. This is bloomberg surveillance. Tom from london and francine in the new york. It was a big day, we had nordisk bank pushing against what everyone else was doing. I would suggest that markets have dealt with Central Banks, trying to understand the ramifications, but next week, the eyes are back on trade. Tom and we have the repo market , the fourth cash call today at the fed, a lot of people did not expect it. This report market is an extraordinary story, now folding into the swaps market, and even into the cross rate market. We have Randall Kroszner scheduled to be with us, making the real effort to get our london studios this morning. It will be wonderful to speak to the governor about these events. Francine yes, and what is happening in the repo market, we have not seen since 2008. At get to the bloomberg first word news in new york city with viviana hurtado. Viviana hi, francine and tom. Today, a list of options for iran to President Trump will be offered. According to the associated press, military leaders will want the president that taking action against iran could escalate into war. President trump has been delivered in how to respond to the saudi oil facility. The whistleblower case involving President Trump is now snowballing. Democrats in Congress Accusing intelligence officials of stonewalling on the details of the whistleblowers complaint. The president , by the way, denies he said anything inappropriate to a foreign leader. The Washington Post reports. The complaint raises questions about his dealings with ukraine. Last month from a year earlier, Consumer Prices in japan, excluding fresh foods rose just 1. 15 . The biggest factor, a drop in energy prices. It is adding to speculation that the bank of japan could add to month. Ulus next and next week in the u. K. , the Supreme Court is expected to roll in the landmark case over Boris Johnsons suspension of parliament. The decision could have wider implications for brexit. The court could force the Prime Minister to recall parliament. That would allow lawmakers to return with momentum to stop his brexit plans. Global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. I am viviana hurtado. This is bloomberg. Francine and tom. Tom thank you. Let us do equities versus currencies and commodities. Another repo chart here in a moment. The euro with a little bit of elevation. The curve flattening, that has been the tone since the fed meeting, 2. 31 is the difference in yield a trend the two year points. Ent 0231 on the next screen, brazilian 13. Ity markets, under 14, i will let francine explain euro strength and sterling strength. When you look at a 40 billion recommitment to your Share Buyback, microsoft, that gets the markets attention, francine. Francine it certainly does. What also gets Market Attention is strengthening pound. You alluded to that. , sterling rising for a second day, after the ecb President European Commission president juncker expressed optimism that a deal could be reached by october 31. We hadnt had that for a little bit of time. So the pound is stronger. The yuan is also something you need to look at, the renminbi climbing after the pboc it willd today that drain funds by a bill sale in hong kong. That is quite significant at the economy. Or the chinese tom and here is a repo chart. The repo business is difficult. Governor krasner is scheduled to be with us as well as alan ruskin of Deutsche Bank. I went to show you here let me get that correct, we are not wired up here it is not working today. Big spike up. We have broken down again, but it is trying to fix the problem. It is not enough, according to the pros. Where is a permanent facility . That is the raging debate in the shortterm paper markets today. Francine. Francine so, tom, i usually try yours. Chart similar to , i looked at treasuries and repo but today, i just want to look at. Rbs i like rbs because you have the first female chief executive at a big bank. Allison rose has been promoted. She is a safe. Care of hands according to insiders she has been at the bank for many years, running their insider units. What is significant is that the taxpayer, the government still owns 62 of rbs, which is not like lloyds. It will be difficult for them to break even. This chart is looking at the breakeven price for what it would take for rbs to be back in private hands. That links nicely to what is happening in the u. K. , the pound strengthening amid reports that the European Commission president Jeanclaude Juncker, says he is doing everything to prevent in Nodeal Brexit. He said that if all the objectives are met, we dont need a backstop. Joining us now is our Bloomberg Jess shengleman. We alsod is rising, but heard from the irish saying, hold on, we dont have a deal yet. We are working on a deal, but still far from a deal. Thats right, take a step back, Boris Johnsons best chance of getting out of this brexit mess he is in now involving the Supreme Court, is really to get a deal with the e. U. That can go through parliament and allow him to leave on october 31. That is what he is now saying he do. S to and the e. U. Believes he is serious about it. So we are hearing a lot of warm words, Jeanclaude Juncker saying that yesterday. However, the foreign minister of , he said, it is a lot of warm words, but the details are still not there, and we are in the same place. Tom what is the irish response, and what is their power at the end of the weekend and into the end of september . Just the irish are very powerful in the whole negotiations. The e. U. s backing ireland because they are the ones who will be most affected by a Nodeal Brexit. One of the questions as you go into this is the u. K. Government is planning to have a budget at some point, the Irish Government also, so how do you have a budget when you dont even know if you have a deal or a Nodeal Brexit on october 31 . We do have to listen carefully to what our land is saying here. Francine jess shankleman, she covers brexit on a daily basis, thank you so much. Morley,us is janet global economist at Schroder Ben Ritchie from Aberdeen Asset management. When you look at the pound strength, are the markets be pricing the possibility of a Nodeal Brexit . There are some who want the deal so badly that they are rising it in . Than i dont think so. It has been a remarkable turnaround. He published some internal statistics area in the week on what we thought our expectations were for the different scenarios , and we thought there was a 70 chance for an extension to the october 31 deadline. Now there is a 15 chance of a Nodeal Brexit, and a 15 chance for some kind of agreement 31. Een now on october so the chances of a deal have moved up some from their. Francine what kind of deal . ,f you listen to the interview and i listened three times to make sure i understood what Jeanclaude Juncker was saying, it was like him a i am not married to the backstop as long as you have something in place that replicates the backstop. What would that look like . Ben not sure anybody knows. What we have established the last three years is that nobody knows what it looks like because if they did, we would have come to some agreement a long time ago. The fact that the e. U. Is willing to talk about changes the agreement is a big step from where they were previously. The idea that there could be some restructuring of the deal asns the door to discussion, opposed to both sides shutting out each other, which is where we were a few weeks ago. Tom within your notes, you have a very optimistic tone on the yuan investment trying to find the opportunities in e. U. Stocks e. U. Investment. Is there an opportunity in u. K. Stocks . Are we at a point where Everyone Needs to analyze the survivors were prosperous among u. K. Multinationals . Ben i think, tom, as an investor in europe in the last decade, you have to have been an optimistic person to keep you at the table. It has been a challenging environment three economic cycles, a multitude of political crises but if you focused on the right companies, you have been able to make money. Of course there will be opportunities, not just on multinationals, but perhaps on some of the domestic companies. If we end up with a softer bexit, there will opportunities among those domestic names. That said, there are a lot of multinationals to invest in now. Tom janet, what is the state of the United Kingdom economy . Janet we are still very cautious on the u. K. Economy. The july gdp figure came out better than expected, but i think the underlying momentum is still very weak. We have seen the Consumer Confidence index in the business Confidence Index both week, which points to a slowdown in Business Investment and Consumer Spending. However, we dont expect the u. K. To fall into an outside recession because ahead of the brexit deadline, we expect inventory buildup from companies and consumers, and the that could be helpful to avoid the u. K. From going into outright recession. Over all, mandalay economy is still pretty weak. Francine thank you both, janet and ben ritchie stay with us. The biggest leaders in government and business will government streak in new york. We will hear from top of bank executives, World Leaders and policymakers including jamie dimon, mark carney, Christine Lagarde and many more, live on the on bloomberg. This is bloomberg. Tom this is bloomberg surveillance. Good morning, everyone. Centralbank decisions. Alan ruskin will be joining us, and we are thrilled to bring you Randall Kroszner, expect him to get through london traffic to be here in about 30 minutes or so. Right now, a briefing of markets with ben ritchie of aberdeen, and janet mui from cazenove capital as well, as you look at the central bank decisions. Janet, let us start with investing 101. If the world is so miserable, a Central Banks are dealing with oecd Forecasting Global slowdown, global recession, why are stocks off . Janet there are a few reasons why. Central Bank Liquidity is still very important. The past decade, we seen how for example qe and low Interest Rates have fueled the market. Central banks globally, and you , they areliquidity releasing a lot of liquidity into the markets and that is very helpful. You also have to look at the valuation of equities versus runs. In bonds, we are seeing a lot of negatives. In europe, one third of government bonds are negative. The relative valuation of equities is simply much more attractive than bonds from investors perspective, especially for longterm investors. I think that is a reason why equities have been holding up so well. Tom this is more of a ben ritchie question, but i want to go to jenna first on this, the animal spirit on the economy with Revenue Growth or are they . Isassociated in the odd times janet there is a lot of animal spirit in the world at the moment. I think the underlying demand of the Global Economy is not very strong at the moment. It is really depressed by the trade tensions nowadays. Global trade is actually a proxy for how much animal spirit, the cyclical activity and that has slumped a lot, in the past year or so. I think companies are quite cautious at this stage of the economic cycle, and that is why we dont see a lot of animal spirit for now. I think the animal spirit now perhaps is in the Financial Markets and risk assets, because of Central Banks increasing liquidity and expectations that Central Banks will become even more dovish. Francine ben, when you look at repo this was one of our biggest stories , and we had a lot of stories to do with oil and the Central Banks, what is the read across what is happening with the regional and the fed . Ben think it reflects that they would change the financial decade, andthe next we dont know how that will come into play when certain parts come under an element of stressp there has been suggestion that if we get ourselves into a difficult environment, that will be a shortage of liquidity, not necessarily just in repo markets, but also in fixed markets, credit markets, equity market, and there might be consequences in terms of volatility and prices. When i speak to people who know much more than me on this, they say that it is not much something to be concerned about, but volatility in markets is certainly something to look at and understand, for sure. Francine thank you both, janet and we from shorter and called, and ben ritchie. Coming up next, rbs has tapped alison rose as the future ceo. More on her appointment next. This is bloomberg. Viviana you are watching bloomberg surveillance. I am viviana hurtado. Lets get your Bloomberg Business flash. Facebook called the meeting between President Trump and ceo Mark Zuckerberg. A nice meeting. He was in washington to speak to policymakers who have criticized facebook over privacy and other issues. The next few years, google will spend 3. 3 billion to expand its server firms in europe. Since 2007, the company will have spent more than 16 billion on European Data centers. The company and us yesterday it is making the biggest clean Energy Purchase ever by a company, 1. 6 gigawatts from solar and wind farms on three continents. That is your Bloomberg Business flash. Tom, francine. Francine thank you. The royal bank of scotland has appointed alison rose as ceo, the first woman to head the u. K. Lender. She is and rbs veteran, and she will take over from of going chief executive russ mcewen in december. Joining us now is bloomberg ben ritchiemnist, from Aberdeen Asset management, and janet mui from cazenove financial. Great to have you with us. So she has been groomed for the job quite a while, much is taking over november 1, the day after the brexit deadline. Absolutely. As you rightly pointed out, this was expected, but this is still striking that one of the top u. K. Lenders will not only have a female ceo but also a female cfo, an exception in the banking world. This looms large, and the bank is grappling with competition in the Mortgage Market and uncertainties in the smaller and mediumsized corporate sector, which it is heavily exposed to. Francine how will she measure success . The rbs share price is different, they are still 62 owned. Ent was she able to get rid of that, or you need to find a plan b if labor suddenly comes into power and tries to nationalize them . Not sure theres a lot you can do about that. What she can do is continue to deliver to shareholders and maintain a Large Capital of her. International, over the continent and around the world . Rbs is international in very large. They were entrenched mini to the home market. They are also really exposed to the u. K. Market. We will have to see what happens and brexit and the future of the british economy and its trade agreements. Tom ben ritchie, american banks were flat on their backs. They have an awfully good 2019. Is there an opportunity for than ifeuropean banks . You look at how banks have performed in september, they have been incredibly strong, a significant reversal of fortunes for a sector that has been under pressure for years. Perhaps it has given them some space. I think it is really been a turn in sentiment. We have seen high bond yields over the course of the month. Again, these banks quite often are trading in very low multiples, so it doesnt take quite a lot to change confidence. I dont think it really does survey reflects a change in fundamentals. Rates are low, and the remains a lot of regulatory pressure. Francine over all, you had a bank. Column on deutsche again, so much speculation about what happens to Deutsche Bank and also consolidation amongst european banks. Would you ever see a u. K. Bank buying something in europe, or would that be strange, given brexit . That will determine of lot of what happens here onwards, but back to your counsel edition print, there remains a lot to be done on the regulatory front to make consolidation crossborder consolidation to happen. I wouldnt expect anything in the near term. Tom alisa martin, she writes for Bloomberg Opinion, a 20. Erful column in the last four hours on european banking we will continue with ben ritchie and janet mui. Coming up, this is a treat. We are absolutely thrilled to bring you the former governor, the Federal Reserve system, arguably americas great finance economist, Randall Kroszner, he will join us from the university of chicago. A headline out of hong kong into the weekend, not on protests hong kong arresting over 200 individuals. This is bloomberg. Surveillance, morning. We are awaiting governor krozner of the blue school of chicago. Viviana President Trump learns what military options he has when it comes to iran. The pentagon will brief the president after an assault on a saudi oil facility. They will give the president a list of airstrike targets and couldorn military action escalate to war. There is pressure on the Federal Reserve. Plans to do fed another overnight repo auction. Market participants say the fed needs to come up with a longterm solution. In this state of texas, the houston area is reeling from the effects of Tropical Storm ml do, more than three feet of rain drenching the area, disrupting the oil industry. Houstons biggest airport is closed. Canada, Justin Trudeaus ability to overcome scandals and mistakes is getting its biggest test. Videos and pictures showing him in blackface have emerged. It sabotages his effort to make tolerance and diversity a theme of the election. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Tom any number of themes on a friday to read into a weekend, forward into october. One left by the wayside this week has been trade. It has been pretty quiet. We need an update. Ben ritchie and janet mui with us. Reality, whichd was that one statistic in lawrences report of a sub lawrence boones report of a gdp, with 6 china trade. Janet the chinese authorities pressure from growth. The latest data from china is not great, so the Chinese Government will likely introduce more easing measures. Last week, they cut the reserve ratio. That releases 100 billion of liquidity. They are not going to compromise with the u. S. , especially ahead of the 70th anniversary of the party commemoration. Iter that commemoration, think china will resume its hard stance so domestic easing would be the key to focus on. Tom we are not there. We have to get to october and november to get the earnings story, but what is the action of corporations given trade . Orit numbness into autumn something new about the commitment into the future of multinational corporations . Ben a continuation of a decline in confidence, reluctance to invest, and general caution, which has increased rather than decreased. I suspect as we get the numbers in november, they will not look much better than the halfyear. Expectations for earnings coming down. We are just in the positive territory and with sentiment moving in the wrong direction, it is unlikely we will see an improvement. Improvement, but can we see a significant downturn to recession . Ben that is a possibility. We are seeing a slowmoving car crash where Industrial Production is continuing to slow , and signs in services that activity levels have started to weaken but remain at healthy levels. What is going on in Industrial Production has been well rehearsed. It seems certain if we continue to see this recession, it will leak into other parts of the economy. Francine we have a healthy consumer. What could put that in jeopardy . Janet Consumer Spending is dependent on wages and employment overall, so if you start to see slowing employment growth or job cuts, that would be detrimental. Confidence plays a huge role as well. If consumers continue to see economic uncertainty, that will put major pressure. Fromis how the linkage manufacturing goes into the consumer. The employment is an industry so if that industry starts to cut employees, that will have an impact on the consumer side. The euro zone is the region i am most worried about in terms of the week manufacturing filtering through to the consumer. Francine what does that do for the appetite for equities . Ben you have to be selective. On finding theh companies that we think can prosper regardless of Macro Economic trends and can dive into the structural rather than cyclical. Outlook is looking worse than it has done. Tom when casenove looks at this, you have got to have the feeling of trade war, fine, we have been through this. The gloom crew will rewrite as they do on friday. I want to sit in cash. Cashash and asset is and asset given the trade war and china . Janet for us, cash is a good markets fall,e given the economic backdrop. Holding a certain amount of cash is crucial at this stage, however for us the preference for hedging for insurance against this economic backdrop is gold. Gold will do pretty well in this low rail yield environment. It is a Long Duration play. We estimate the duration is above 30 years so gold would be an attractive hedge against this economic environment. We think we need to have a certain amount of cash reserve to take advantage of market weakness. Francine ben ritchie and janet mui. Coming up next week, the biggest names in business and government will gather for the annual Bloomberg Government forum in new york. We will hear from jamie dimon and michael sullivan, Tidjane Thiam right here. This is bloomberg. This is bloomberg surveillance. For the first time, a woman wellhead one of the biggest banks in the u. K. She is currently deputy ceo. She will replace ross mcewan who has been ceo for six years. He announced he would be leaving rbs. Preparing for talks with kaiser to ease its debt burden. That would give the ceo marbury room. Bondholders have been pushing the country a for a swapper. India cutting data on domestic businesses for one of the lowest rate in asia to provide a 20 billion boost to an economy whose growth has fallen to a sixyear low. The investment rate will be a little more than 25 . Tom greatly appreciated. It has been an extraordinary week, the linkage of the equity market and the repo debate. Right now, lets listen to a set of central bankers. Down, ae economy turns more extensive sequence of rate cuts could be appropriate. From indias point of view, any cut in Interest Rates would mean greater flows into emerging markets. Towe have more space normalize as soon as possible, from the 1. 75. It is right to say we are more inclined to additional easing in the last meeting. Investors are in consent about domestic growth and fiscal risks. All Central Banks realize if it prevails and goes on and on, there are negative effects over rates being negative. I do not think we will be looking at using negative rates. Room to eases more than the ecb has. Withere will be a strategy the ecb under the presidency of Christine Lagarde, but we see no reason to change our aim. Francine those were some of the Top Central Bank policymakers from this week. It has been a big week in Central Banks. The start of the Rugby World Cup will offer a chance for reflection and recuperation. Used the game of rugby be as an allegory for the mechanics of central banking and the wider Financial Market . Much like the forwards on a rugby team, the Federal Reserve, inc. Of brazil, and ecb pushed on with rate cuts. Tom did guy johnson make this . Francine even i understand. The locks are holding their ground. Out, a bigno a line left, something of a surprise from the norges bank yesterday. Wars,the likes of trade causing resistance for market participants. Every squad needs a fly have to unlock the door, the likes of jeffrey gundlach. If all else fails, you need a fullback to hold it together, ecb president mario draghi, in his last attempt to restart qe. Way. Lliant thank you for making tom less ignorant on rugby. Tom all i know is on the right hand of the screen, you need Mohamed Elerian as well, not a central banker. He is rumored to be the next quarterback for the new york jets. It is not rugby, but the field is green as well. This is a real treat. He has fought himself through traffic in london to be with us. We are thrilled he has made the effort. At the blue school of chicago, there are two financial economists. Krasner krozne r, without question americas leading finance economist, and we really need to talk to him. Summary what the heck happened . And creative approaches another contrast of 2008 and very welcome. The more the quantitative easing and its partial reversal reshapes global finance, the greater the risk that the cogs in the machine unexpectedly misfire. Let me start with an open question what did we learn this week from the shift to from qe to where we are going . Randall we learned about unintended consequences of regulation. We have seen flash crashes in markets. Theres an example where were technical factors on treasury refinancing and tax payments that came in to interact with lack of liquidity in markets that have been an unintended consequences of all the regulations to make the banks more stable, and we have a spike in rates. It is not just quantitative easing and tightening, it is a whole planet. Of things panoply of things. We have not had a chance to step back and say, what are the interaction of those . Is a great chart from ira jersey. You can steal this. The fed Balance Sheet. Fault. Krozners randall hey. Tom way out front of europe and japan, and this is quantitative tightening. That aint going to happen. One idea is to flatline the Balance Sheet and we have heard to grow it out in a measured way. Day byrow it out with a day repurchase process by the new york fed, or a Permanent Program of small amounts of billions each and every day . Randall it is certainly going had beenand that happening with the Balance Sheet long before the crisis. As people demanded to hold mark currency, that is how the fed more currency, that is how the fed Balance Sheet grew. I think the Balance Sheet will grow and they may do it in two ways. Standing have a facility to provide liquidity to the system if you get these spikes or pressures. Second, a gradual increase over time to make it less likely you have to use a standing facility. Many Central Banks have used standing facilities. That is not outside the realm of central banking, just different from the way the fed has operated. Francine is there anything that makes you uneasy about what happened in the markets this week . A lot of people say the repo was technical, but what if it wasnt . Randall that is why it is important to step back and assess, it has been almost a decade since the crisis and since the regulations were implemented. What worthy what worthy unintended consequences and what institutions need to be looked at . Libor did not spike. It is not a real market rate. Randall krosnick from the university of chicago stays with us. The biggest names in business and government will gather for the Bloomberg Global Business Forum. Christine lagarde and celia mavs from, just some of the celia , justrom maelstrom some of the names you can expect to see. Bloomberg surveillance. Francine lacqua and Randall Krozner in london, this is the conversation of the day. We hope alan ruskin of Deutsche Bank can join us in minutes. I want to go back to 2010 and Michael Spence at nyu wrote a brilliant short essay on what we cannot see in the market. It is type one type two effective regulation. What is the thing of the regulation, the good intent of 2008, 2009, 2010 that has not worked out . Analogy,i like that because i often talk about the titanic and the icebergs. It is what is below the water that you cannot see that sinks you. Pieceseraction of the that we have not worked through, i cannot say it is this one or that one, but the volcker rule has not an effective in reducing risk been effective in reducing risk but has reduced liquidity in markets. The fed is starting to work on that. We need to look through the affects of the different pieces. Tom the fed communication strategy, i was in the fed , and thehe other day whole mystery of this is the dots seem so quaint. Are the dots a past . If the dots are the past, what is the future . Randall the dots are definitely the past. The fed chair has been wanting to make them the past for a long time. Effectively said, please do not Pay Attention to the dots because that is not where the consensus was. Eventually they will move beyond those. Powell fees constrained feels constrained by those. Dotctively, you want a big for the chair. Att i tell people who look these markets, Pay Attention to what the chair is saying. You hear debates from others going around, but the chair, the vice chair, they are the core decisionmakers. Pay attention to them. Francine how many insurance cuts does the u. S. Economy need . Randall i would not characterize it as insurance cuts. I think of it being motivated more of concerns not being achieved by the inflation target and expectations being low. The markets are saying to the fed, we dont believe you. You have been saying since 2012 you want a 2 target and have not done it. That is where the fed has to focus and should be focused, to maintain their credibility. Francine the consumer is strong. We have a manufacturing slowdown. How difficult is it to spur inflation . Randall that is one of the challenges. Earlier, that man has tried. He has a Balance Sheet that is larger than japanese gdp and will have to do more. It is a combination of doing that substance and figuring out how to connect with people in the real world and make yourself credible. , we willall krozner continue into the new our. For global wall street, a discussion on repose. Repos. Tom this morning, all is calm on the repo front, or is it . To qt, what will the Company Learn . In moments, alan ruskin and Randall Krozner. Juncker blinks, or did he . Sterling rallies. The stock market nears record highs. Francine and tom keene, thank you for being with us. Francine, the Supreme Court have they sung this morning . Francine they have not yet they well next week. The three days are finished and it is unclear think if the ruling were against the president Prime Minister, what he would do about it. The irish are saying, we do not have a deal yet. Juncker was asking for a deal that replicated the bextra bextra backdrop. Tom here is viviana hurtado. Viviana the pentagon will offer military options on iran to President Trump, including airstrike targets. Thetary leaders will warn president taking action could escalate into war. The president is considering how to respond to the attack on a saudi oil facility. The whistleblower case involving President Trumps snowball allowing snowballing, of ats accusing them the complaint raises questions about his dealings with the ukraine. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Francine one of our top stories this week was the attack last saturday, a drowned hitting the oil facility drone hitting the oil facilities. We will go to our anchor on the ground who has been on a tour of the affected infrastructure in saudi. How much have they told you they can get back to full production, and second of all, defend this infrastructure . Hot dayit is a very from riyadh to the oilfield. It is about an hour away from the saudi headquarters in the east of saudi arabia. We have been taken to some of the damage facilities and the stabilization powers powers. Towers. The damages overwhelming and equally overwhelming is the amount of work going into restoring the towers. They are operating at 30 capacity and looking to bring it back to its original capacity of 1. 2 Million Barrels a day. They are going to fix this thing asap. No other way of describing it. Francine could the recovery take longer than expected . Are the first couple of weeks crucial to getting back online . Yousef absolutely, and that is what they made clear. Governmento and the will work with the supplies they not, so the numbers will show until october, november, december, so as much as the physical infrastructure can be fixed relatively quickly, the real test will be its reputation as a Global Energy supplier. It is one massive secured perimeter. We were not allowed to use our phones for most of the trip. Sidee going to the other where some of the other damage is. Tom yousef gamal eldin, thank you so much. Let me do a data check. Elevation, euro churning. Brent crude just below 65 a barrel, the vix showing the resilient equity market. Microsoft with a 40 billion Share Buyback may be showing the spirit of use of cash. It has been a joy to have with us Randall Krozner. We are thrilled he continues with us. Sitting with me in new york is alan raskin with Deutsche Bank ruskin with Deutsche Bank. And qt and we got a new set of options based upon the repo market reality. One was the certitude of qt, one was the flatline, and we may expand the Balance Sheet. Alan what you saw from chairman powell is a reasonable characterization. Repose how effective the are, we have special circumstances now from settlements and treasury bounces. It looks like the excess reserves are not doing their job, and it looks like we need more reserves. The organic force is probably to the topside. Tom speak to the abaci academics. Guys ashe charms of you you understand there is a market. Explain to the academic market purists why to Pay Attention to the repo market, why this matters. Alan the Federal Reserve has control of the front end of the curve. That is the anchor to the yield curve so at a minimum, they want to hit their effective funds rate target. It sets the tone for the rest of the curve. You do not want extreme levels of volatility. That sets into questions about effectiveness of monetary policy, other the Federal Reserve can quash shortterm volatility as well at the front end of the curve. They want control. Francine they want control, and we were talking about this. What can the fed do to fix this more permanently . Randall at least two things, one is as alan said, allow the Balance Sheet to grow. They could set a facility that allows for more reserves to come into the system naturally as rates go up rather than the fed having to decide, we will put in 20 billion at 11 00 a. M. The fed does an estimate of how much it needed each day. It is difficult to get these estimates right. You could have a standing facility if rates go above the target by certain amount, you provide as much is you need to provide stability. Francine if there was a liquidity problem in the markets , where would we see it first . Randall this is where you would see it, the money markets. Shortterm rates spiked because people need the cash and need it now, not tomorrow. Francine if you look at the impact on the rest of the markets, does it have an impact on some of the other Central Banks around the world, on how they should look at liquidity . Alan not to a great degree. What you have seen is temporarily, there was some linkage between currencies and the tightness in the liquidity markets. You did see as things tightened up, the dollar went the race powell where it did well and things eased up where the dollar did well and things eased up. The funding through the cross currency markets basis, there is a linkage. Other Central Banks have other issues. You dont see a natural spillover in terms of illiquidity in other markets. Randy krozner, Alan Greenspan wrote a wonderful book. Turbulence is that epsilon at the other side of the equation. What is the new epsilon . What have we learned about the new volatility . These challenges in the liquidity of the market, it is the financial plumbing, the base for everything. When it is working normally, we dont even think about it. If it gets backed up, you want to run. Trouble, all sorts of and it is foundational. It can cause volatility in other markets, difficulty for making payments. Do we have the right institutions to make sure we have smooth function in the market . The balanceallowing sheet to grow organically and to allow reserves into the system, where the new york fed and washington fed try to estimate each day, those may be ways to smooth it out. Fundamental fragilitys maybe unintended consequences of regulation and we need to think about what those are. Francine thank you very much. Names in business and government will gather next week for the annual Bloomberg Global Business Forum. We will hear from World Leaders and policymakers including jamie , Mark Narendra modi carney, Christine Lagarde, all of those names plus many more. This is bloomberg. This is bloomberg surveillance. The pound rally has slowed after a rise sparked by optimism from the ec European Commission president. The pound has pulled back as ireland warns a brexit deal is not so close. It is heading for its longest run of weekly gains since january. Bloombergsow is european reporter. Juncker talking to a u. K. Domestic audience that does not see the e. U. As bad guys, and expects to make headway to the backstop . We should listen to what Jean Claude Juncker says. He is the most powerful, until he retires. At the same time, when you look at what he is saying, he is not saying a lot. We want a deal. We think a deal is possible, and if the u. K. Is open to coming up with better ideas, we will look at them. The pound response to a lot of things. It does not mean we are closer to a breakthrough than 24 hours ago. Paperse the u. K. Gets to the e. U. For their proposal. It seems both sides are softening their stance so that must count for something. That the e. U. Is not impressed with the papers the u. K. Has given, calling them nonpapers, nothing like a written concrete proposal the e. U. Wants to see that it can base concessions on. When you think the u. K. Is supposed to be leaving and Boris Johnson says he will leave do war die, that does not do or die, that does not give a lot of time. Nittygritty, the two sides are far apart and there is so much to do. If you talk to officials on both sides, they are more pessimistic than you might think. Tom thank you so much. Alan ruskin of Deutsche Bank with us. Is it a johnson rally . Sterling, 1. 19, 1. 25. Who would have thought . Alan there are so many permutations how this could play out. Who knows . You could get movement for the end of october. That seems unlikely. Our base case is that we have an election but that might be sterling positive as well. To be fair to my colleagues in this is aey have seen 50 50 bet. I have been traveling in asia. A gun to my head, you have a one year straddle range, where will it come out . That willhe 1. 35 area get rid of the uncertainty, but we could have weakness before strength. Tom all of that is about the economy. How do your economists away from george sarah bellows trends intoelos translate this u. K. Growth . Is it a dampening of Economic Growth . Alan it is enormous uncertainty. In the World Economy, uncertainty regarding trade and you are amplifying this with uncertainty related to brexit. The u. K. Economy is not as weak as somewhat assume. You are talking about an underlying economy that is pretty resilient and going below the euro average were it not for this kind of instability. Francine if there is a no deal brexit, and you say your folks in london say it is 50 50, how bad is it for the rest of europe and the world . Is it a shock or priced in . Alan if we are talking about a hard brexit, it is a significant shock. We are being complacent to think way will not dive over the edge at all. We will not dive over the edge at all. We could see the pound getting hit quite hard. I think the 1. 20 level will not hold. There will be spillover on the euro. The euro will go down by one or two big figures. Tom we will come back with some important fed headlines with alan ruskin. In the last 20 four hours, jeff bezos has said he will confront Climate Change with a huge Program Involving investment at amazon. Around the world, there is more of a physical protest. In berlin, it is on Climate Change, as well as australia and kenya. This is bloomberg. Good morning. Bloomberg surveillance, good morning. I want to show a chart right now, and the backdrop his comments by a dissenter. James bullard has come out on the website with a set of headlines. Here is the fed funds target rate with the third rise in 2016. Here we go from ultra accommodative and we rollover. These are headlines off the fed website, a bigger rate cut would have provided insurance against risk. Sident woolard says, bullard says a 50 basis point cut would have helped faster return to 2 inflation. The nextoking at chairman of the Federal Reserve system . Alan who knows. Wasquestion i have is where he when we needed him . 1. 5 ,dots are not below so a 50 basis point cut and that is sufficient, that does not seem likely. Tom how alone is he . Alan the more bullish sentiments are something which probably permeates the fed more than you see in the dots. You have a dove, but someone who is not prepared to stick his neck out in terms of longerterm thinking. I would have thought more extreme doves would have had next year, below 1 . It is reasonable to think fed funds may hit zero. There are extreme views, and bullard is not showing he is one of them. Francine what does dollar do from here . Is that they only measure of success President Trump will look at . Alan the dollar is in a bumping type scenario. It is unusual. Usually you have a vshaped but this is bumping along. You need a threshold for the fed to hit in terms of rates before people reconsider and think of the u. S. Dollar as no longer a gghyield or in the g10 12. It deals like we need a funds signallow the feds dots that the u. S. Is no longer a highyielder, that carrie is not a big factor carry is not a big factor in the g10. Francine do you worry the u. S. Consumer will be hit . What would it take for that to happen . Alan the consumer is a bulwark in the economy. You have 70 of the economy performing in a robust faction fashion. Investments and net exports looking softer. It is interesting. Tom this has been wonderful, alan ruskin. This is an important conversation on an interesting gentleman at Goldman Sachs. Trading, but much more. The most interesting friday. We are looking for a repurchase agreement action by the new york fed later this morning. This is bloomberg. Beyond the routine checkups. Beyond the notsoroutine cases. Comcast business is helping doctors provide care in whole new ways. All working with a new generation of technologies powered by our gigspeed network. Because 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. Surveillance, an interesting friday into the weekend. Francine, you are coming over next week. Francine i can even afford to buy dinner, given what the pound has been doing. Tom we will go to the rules in new york. Wait, there is not rules in new york. Francine steakhouse. Tom keynes steakhouse is glorious with the white pipes on the ceiling, but it is not rules. We go to our Bloomberg Government, people familiar with the matter reporter Jack Fitzpatrick in washington. On theshington post idea of the president putting out too much information on intelligent. What does it mean for the Intelligence Community to see this amount of tension with the president . Jack it is concerning overall. There are a lot of unknowns about this story, but the general issue from the Washington Post and New York Times was that the president made a promise or comment involving ukraine that led someone in the Intelligence Community to report it to the inspector general. Isoncern on capitol hill that they are not getting this information. The doj has instructed the director of National Intelligence not to share that information, so it is not only the issue of whatever happened, but it reflects the secrecy around that and limited information getting to anyone outside the administration. Tom if the cia, and the Ugliest Building in the world, the fbi, what does it mean for the trump leadership of those institutions and the bureaucracy of the Intelligence Community . Jack the everyday Intelligence Community evidently must be concerned, because this came up, and there is some reporting this was an issue regarding multiple conversations and not just one. Clearly, that is where you get conservatives raising the deep state there are too many people involved in National Security to assume everyone is completely on board with any administration. We will see if there is division or hesitation next week. There will be a House Intelligence Committee with the acting director of National Intelligence, and we will see how forcefully he backs up the limited information they have put out so far. Fitzpatrick, thank you. Viviana donald trump learns what was terry options he has when it comes to Iran Military options he has when it comes to iran. The administration blames tehran. According to the associated press, they will warn military action could escalate into war. Pressure building on the u. S. Federal reserve to permanently fix problems in the funding market. The new york fed plans to do another 75 billion overnight repo operation, the fourth in a row. Market participant saying the fed needs to come up with a longterm solution. The houston, texas area is reeling from the effects of the Tropical Storm, more than three feet of rain inundating the area. Houstons biggest airport is closed and will reopen this afternoon. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Tom very good. Amazon and bezos on the efforts a private company will do on environmental efforts. Government has agreed to a plan on Greenhouse Gases. The backdrop is protests. They are not like hong kong butests or brazil protests, nevertheless, protests in berlin in celebration of this Climate Change. Matt miller will have more in a bit. Wereine we knew there allnight negotiations. Saidke to an analyst who this could be a turning point for the stimulus package because if they look at electric cars and energyefficient buildings, it could kickstart the economy, which so far is difficult to do through tax cut. Gois a backhanded way to toward more fiscal spending. Said the oneyear reference rate for loans at 4. 2 for september versus 4. 25 in august. The contribution to the global easing cycle is not enough for some analysts who are calling for stronger action. I am not sure how to look at pboc, they are tinkering at the margins but have the firepower to deal with anything, or whether they are worried about the trade war and are holding back. Alan i think they are worried about the trade war. It has created uncertainties and until that is resolved, they cannot do anything big. Exchange rates are constrained so you cannot cut Interest Rates aggressively. The pboc does not want to releverage the economy. They see that as his desk as a longterm structural problem. We are faced with significant constraints they are faced with significant constraints and they are placing their foot on the accelerator a little bit to see what happens. Eventually something will take hold. They are trying to soft land the economy and secure growth around 6 . Francine data is showing an economy that is slowing. We have market disciplines that were dis participants that were disappointed they do not do more in rate cuts. Have i think everything we seen so far is a message, dont expect too much while the trade uncertainties purveyed markets. Purvey markets. They are happening happy with the Exchange Rates, pretty much constrained. Not in the markets and not concerned at all, in thes back we anticipated currency could weaken substantially. There, effectively trying to marshal forces to limit Exchange Rate weakness and instability through that border, and maybe be faced that quarter, and maybe be faced with better circumstances going forward. Yesterday. Sri kumar does all this geometry still work in china . I dont buy it. Currency international fit into the model with the totalitarian regime . Alan capital controls matter. Capital controls mean a great deal. You are seeing capital controls have been successful in blocking potential outflows. Tom it is a drug. Alan it is a war more than a drug. They have been so far quite successful keeping capital in china. That has alleviated the Exchange Rate constraints and it means they are not facing a currency crisis, but we still see large outflows showing up in the corporate sector there. I think the Exchange Rate element is not to be underestimated. Oil,we will move on to brent crude near 65. One of our themes with gfg alliance, jay hambro will join us. Futures with a nice elevation, buttressed up near record highs on a friday. This is bloomberg. Surveillance, good morning, everyone bloomberg surveillance, good morning, everyone. Single best chart on oil. Years ago,hart i did inflationadjusted oil, and an approximation of our rising world wealth as well. In the backdrop of the last 10 yousef gamal eldin in the oil fields right now, oil is not a big deal as 1986. Has the cartel moved on . Alan it does not feel like we are close to where we were 1986 when prices were declining sharply. Back in 1973 tom the double spike. Alan clearly it was much more oil dependent. The u. S. Is not particularly dependent. That ask as a restraining factor acts is a restraining factor for Financial Markets. The dependence element is not where we were. You look at the scale on these economies, 1986, the size of the u. S. Economy, probably three times the size at this point in time. That is an important factor. That being said, every recession we have had since 1973 has usually included some exhaustion a shock. Exogenousnness shock. We have to watch for this. Francine we were talking about china, seeing how the pboc can make this shift to a more stable economy, and we are joined by jay hambro. You work in commodities and are focused on steel, but everything is dependent on a slow down in the World Economy and whether china does not collapse. What is the mood like . Jay our portfolio of steel and aluminum traverses the world. We have a wide business in the u. S. Which is doing well. We have a Construction Materials business in australia which is doing well. It is mainly a domestically insulated business. The business in europe is more challenged. Whether it is our business in steel supplying automotives or construction elements we bought a few months back. Those businesses are challenged. Francine because of what, turnaround in the economy . A lot of carmakers are under pressure, or is it Something Else . Jay the future is bright, but hopefully we are coming out of a period where the Raw Materials have reached peak levels and the steel price is trailing. You see a dramatic come down recently in prices, and over the last few months where steel prices have held somewhat stable, the p l line for our european businesses is improving. Tom we are thrilled you are here. View, optimism on United Kingdom steel manufacturer. You have a fabulous report out of a small School Called cambridge about specialty steel. Is that the past that the United Kingdom has changed to a specialty steel reduction . Jay specialty steel is our production our business where we are one of the largest recyclers. Providing a sustainable solution for steel production, whether stable in terms of its Carbon Footprint or economic sustainability. What cambridge supported our strategy with is the fact that western economies, all developed economies have the Raw Materials they need to make profitable and green steel. Not the iron ore and cooking coal i just talked about. They are steel and renewable energy. If you replace the energy coal what the cambridge report says is thatan economy like u. K. Exports about 10 million tons of steel scrap a year should be processing that material itself in facilities like our green steel facility. Francine given what you were saying about the Macro Markets and european operations, our financiers comfortable with europe and asia are financiers comfortable with your position . Jay the advantage of our green steel philosophy as you take out the lumps and bumps from a compounded commodity does exposed business. Scrap steel prices along with the steel price so you are not so exposed to the ups and downs of iron ore and cooking coal. It is getting a lot of support from institutions. Francine how you put the differentogether in alan ruskin and jay hambro. Coming up next week, the biggest names in business and government will gather for the global Business Forum in new york. We will hear from top business executives, as well as top policymakers including mark carney and Christine Lagarde. That is all live on bloomberg. All of that and much more, this is bloomberg. This is bloomberg surveillance, tom and francine from london and new york. The Angela Merkel coalition agreed on a landmark package to cut co2. Diller, who istt based out of berlin. This was difficult to achieve, and allnight negotiation, but finally they have a package. Negotiationss of is what it took in the end. They have been negotiating this for months now, but what they have decided is that germany is going to set prices for Carbon Dioxide emissions trading ,etween Energy Companies Building Construction companies, airlines, et cetera, and they will trade those around and it will change prices for fuels in transport and heating. It will boost fuel prices three . 10 by next year and 2026. We are expecting details to come out at a press conference. Merkel and olah schulz will speak in about an hour. Will speak in about an hour. Week ony every friday, kids take the day off of school to protest Climate Change but today, it is around the world. Tom we are thrilled to bring gfgjay hambro with alliance. What is the constraint . It is a lot of good feeling and good ideas to move from primary steel into the use of scrap metal with a Better Energy factor involved, but there has to be a major constraint. What is the biggest headache . Jay the cost of energy. You were talking about the common credits in germany and that is helpful. The price of energy in the u. K. Is almost two times what it is in germany, so this common credits cream common credits game will go some way Credit Scheme will go some way to create correcting that. Green power that supports our Industrial Base gives us a derisked position in terms of Industrial Base. Francine do you plan to bring any units public . At the always look opportunity to Access Capital markets. Closed our Debt Capital Markets with a bond deal with australia, and we keep an eye on open opportunities. Francine there is no ipo coming in the next 18 months . Jay the bond in australia is effectively a replacement for what we were contemplating doing an ipo there. The business is a strong support for the domestic economy but was being tainted by negative sentiment in steel. Tom i have to ask the question how does brexit affect Technology Innovation . You are in the nittygritty of it. Distractleave, remain from getting technical logical technological innovation done . Jay we invested in the u. K. And across europe before, during, and hopefully after brexit. The uncertainty we face at the moment is a nightmare and i hope it will be resolved in the near future. Interesting things in technology that focus on adding value to our steel and aluminum business, whether we are producing Aluminum Wheels for cars or working to get a new product that is more lightweight that works with a move toward Battery Powered cars that are much heavier. The use of aluminum is much exciting. We have invested throughout the space and will continue to do so with or without brexit. Francine jay hambro, gfg alliance. We will get him back to talk about how the business has grown in the last five years. The biggest names in business and government will gather next week for the bloomberg lowball conference. Global conference. Tom it will be an interesting lineup. Interesting to see what jamie dimon says about this upward repo. 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. Alix make way for stimulus. India cuts Corporate Taxes. Who will be the next two take the stimulus plunge . The aftershocks of central bank policy. A danish bank finally passes on negative rates to most consumers. The boj stevens the curve, the fed has to intervene in the repo market again. Diversity on wall street. Our exclusive interview with marty chavez, Goldman Sachs global cohead of securities, on what it is like to be a latino gay man at goldman and what more wall street has to do to be truly inclusive. Welcome to bloomberg daybreak on this friday, september 20. We made it. Happy friday. Over the next few hours, it is options be about futures expiring, causing a lot of volatility into the open, as well as into the close. S p futures sitting right on that 3000 level. Eurodollar p