Manus welcome to bloomberg daybreak europe. Energyue of renewable and writ energy, one of the most valuable companies on the german exchange. That income, 857 million euros. Outlook forhe 2017 the company. They dont see the uks retail during Generating Positive earnings. It is the valuable most valuable utility in germany. Will it become independent . These are the top lines concerning the 2017 outlook for this year. They dont see the u. K. Side of the business to let generating a process on the adjusted basis. Net income, 857 million euros. That is the press report as we close off a heavy week of reporting and the European Equity markets. Lets talk about global markets. This is a game of chicken. Potentiallyng at the situation developing into this generations cuban missile crisis. The president of the United States morning the north koreans that if they follow through with a missile threat, they will face Something Like they never thought possible. What is it going to markets . Have a look at gold. This is the volatility. Down she went. It is spiking higher. Revised, you should hold to 10 of your assets. What we have on the Global Politics stage is too confrontational, nationalistic, at more interested leaders playing chicken with each other. Bloomberg has done a survey in terms of where the money is going. Yen is going into swiss. It is bullish on gold. That is the longest run on the upside since march. We will talk more about bitcoin. Risk radar is the manifestation of peoples concern that a war of words could be something much more dramatic. This is your risk radar. Lets have a look at that. We are seeing a drop in terms of the markets. We have the msci equity index down by. 1 . That that is the longest losing streak since july. Japan is closed. In terms of volatility, this is the hung hang seng volatility. Gain since weekly january of this year in hong kong. Hong kong has been the market where it is all in or allout. Lets have a look at dollaryen. This is where the money is flowing. It is flowing into yen and swiss. Yen rallied 1. 6 this week. Chinese have moved on the yuan on their fixing. It falls of the most since january on aweaker on a weaker than expected rally. Thank you. Robert mueller is bearing down on the russiant interference and meisters president ial election. Subpoenas has sent subpoenas to banks for accounting information. Plan to shrink the Federal Reserves balance sheet, u. S. Mortgage bonds face a bigger test. They are lagging behind treasury for the First Time Since 2011. The spread almost doubling since 2016 lows. Irish banks are set to face mounting pressure from regulators to write off bad loans. Arepean authorities beginning to lose patience with some lenders. That could been more Urgent Solutions are soft a month are sought. A campaign is demanded to be the winner of a president ial election. Campaign data showing the premise are one more than 8 million ballots and the vote. In the vote. It escalates a potentially violent political prices crisis. Its biggest twoday fall this year, same thing with the kospi. Good Economic News out of singapore. Second quarter gdp is growing more than expected. Still not helping the stock market, which is down a percent. Is buckinge, noble the trend. They lost is because more than 75 this year. Noble up 11. 4 at the moment. They are coming out and saying that net debt in the first half surged by 1 billion. Defense stocks have been rallying. China mobile not doing much today. Up reason we are putting it there is it is headed for its biggest weekly advance since march. We have more analysts upgrading the stock. Great news out of their Dividend Payments as well. The same in china. Have a look at this chart. The chinese currency is a unique save haven. It is it has beens it has been strengthening. It has been upgraded. Thank you very much. Is stepping up his campaign of pressure on north korea. He delivered the warning after lunch with Vice President mike pence. He said america would bring down iran fury on north korea bring down fire and fury on north korea. If north korea does anything in terms of thinking about attacks of anybody we love or represent or our allies or us, they can be very nervous. They should be nervous. Things will happen to them like they never thought possible. Our guest joins us from hong kong. Where is all this rhetoric heading . We have seen this escalation of rhetoric over the past two days. President trumps comments, then comments and a plan for north to fire missiles at guam. In south korea and japan coming back and saying a warning against that. Have had more comments on the president and we are hearing from people in the region, including the australian time australian Prime Minister. They are saying there try to tempt down some of this rhetoric , so there is some attempt to that. It is a war of words. Managera hedge fund saying this is turning into a game of chicken. Manus indeed. A line from turnbull, the United States has no stronger ally than australia. In terms of defense, we are joined at the hip. The unstion is, we have resolution and now this war of words. Inis not trump on his own terms of pushing back against north korea. Jodi that is correct. He is getting support, and the Prime Ministers comments from australia indicate that. At the same time, we are hearing from china in terms of the editorial in the newspaper saying it is recommending that china not get involved if the u. S. Does anything. Continueis point, they to stay out of this. That will be interesting. We have not heard a statement from china in the last 48 hours. Schneider joining us with the latest on Donald Trumps comments. Joining us is james bevan. Good to see you this morning. It is mounting, the rhetoric. Have you taken any action . James i am monitoring. If you were to say to me, where do i think this is heading, i think this looks more like the cuban missile crisis. Then, this that back was a war of words were the world was on the brink of war, but eventually stability civility prevailed. Is, is north korea actually going to fire a missile . The second, is america going to shoot the missile down . What then does north korea do . I think that eventually civility travails prevails. Manus that unpleasant conflagration, would you concur with ray dalio that this is a game of chicken and you should perhaps add 5 to 10 of your portfolio . Me turn my chart into a longer chart in that volatility is rising. It is not monstrously higher. I moved the chart further. Would you agree that you should have 5 to 10 into gold . James i would not. There is a stronger case for remaining wellpositioned in the equity markets. 500. K at the s p if there was a markdown in prices, there is a buying opportunity. You think these drawdowns we are seeing one. 5 moves 1. 5 moves. Us . E does that take james there are three scenarios. Scenario, central continuethat markets to appreciate on corporate earnings. If you were to say what what i attached to that earnings number, probably 2 growth, 2 inflation. That would give me a 12 month target. Stocks,ck to the right i think i will do well. However, there are a few other scenarios. Where peopleenario see if you want to be a part of the game and put money to work, prices move up strongly, that is a real scenario. There is a 20 probability of a meltdown, meaning people become disenchanted with equities and sell. I think if there was a meltdown it will feel more like 1987. And awas a correction great longterm buying opportunity. Manus we will pursue the conversation further. Is the cio at ccla Investment Management. Coming up, the fed scales back. We will focus on the fed balance sheet. That is next. 1 18 in the afternoon in hong kong. 1 , the seng down bottom of your screen. 2. 1 , the bottom of your screen. Lets talk about the balance sheet. The fed balance sheet. It has been more than a year that they started buying mortgage securities. That was an emergency. Janet yellen promised to shrink the assets, including 1. 7 trillion in mortgagebacked securities. What do investors expect from the market . There is a story out this morning on your terminal. From a guest from singapore. Play . Re the risks at when we talked about the fed tapering, many focused on the tapering of the treasury holdings. Dont forget that during the emergency bond purchases, the fed also gorged on these mortgagebacked securities. This was its method to supply in support for the u. S. Housing market. Now it owns a quarter of this market. They are going to start tapering this year. Start cutting holdings of these securities, so that creates two big risks. The first is the risk to the market for these mortgagebacked bonds. These are bonds of that are widely held by mutual funds, insurance companies, banks. This market may come instead of outperforming treasuries as it has, may go to lagging behind. The second is that u. S. Mortgage rates may rise. The fed added this emergency stimulus to the u. S. Housing market. Now it is taking that away. The u. S. 30year fixed mortgage is approaching 4 now. The record low was closer to 3 . They tapering is going to be slow and gentle and gradual. Dont forget, it is coming. It will have an effect. Manus thank you very much for joining us. That is one side of the market. Data at 1 30pi u. K. Time. It is going to be a part of the focus for the fed. Here are some of the voices over the past few days. We want to get to a year over your number of yearoveryear number of it takes time. They have been surprised by inflation coming to the downside during the spring. Not by tiny amounts. Really by a larger amount compared to the progress we made. Inflation has been coming up short, a little locum relative to our 2 target. You think 1. 5 is not a big deal. It matters that investors believe the fed can achieve its goals. Up from a lowd level seen in 2015 when it was held down by falling oil. The last couple years round the weak side and inflation continues to run below 2 . Manus if youre confident at in a 2 target this is what wes was talking about. There is what they managed to do. They squash the spread. Squashed the spread. Do you think the market can over treasuries when the fed goes to normalization . Is hard toink it say, given we have never been here before. There is the at attention of what will happen in the u. S. Treasury market itself. To date, the u. S. Government has been spending cash rather than issuing bonds. What level of bond issuance to we need to get back on track in terms of relationship, crating paper and spending more money creating paper and spending more money . Be d suspect it would to the market. The 30year yield move up strongly. Anticipate inflation will remain around 2 and the Federal Reserve will not tighten policy beyond 2 . That relatively low inflation outlook, given bonds are poor value globally, they are not going to have the correction that many are suggesting. Manus today we get cpi. Is byfc. You say no crash. Lets go to thirdquarter 2018. The market is not anywhere near a distressed level. 3 would be quite a move, when did . Wouldnt it . James it would. It implies the forwardlooking equities are lower than stated, and that upsets valuation. The second issue is the higher yields means that corporate is going to have many say the u. S. Corporate sector has a decent balance sheet. I would say that is not right. Some companies are investing mouth of debt. I think highyield is the next waiting to happen. The third issue is what it is going to do to Consumer Credit and spending. We have consumers who have been relatively optimistic, because despite the naysayers, we have. Ad wage growth, i think there has been real wage growth. A lot of growth in Global Consumer spending has been a credit. Banks will have less vibrant growth. To me, Global Growth is more likely to be around not before forecasters are expecting. Manus we will make time for the misery index when we come back. James United States has the worlds greatest companies. Manus james bevan cio at ccla Investment Management stays with us. Angela merkel is preparing to kick off a sixweek campaign for reelection. Is the german chancellor heading towards her fourth term in office . This is bloomberg. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. You are looking at a live shot of the emperors planet. Burress palace. Emperors palace. In the past five days, i can to you that yen has managed to appreciate by 1. 55 . We havent seen that since the end of july. Thats checking out the market. It is a game of chicken, they tell me. Guy that is one way of looking at it. It is not over yet. The ftse looks like it is going to open down by half of 1 . That is a big move relative to recent history. It looks like lumber is going to be opening up softer. Lets go to the gmm. That tells the story as good as anything else. The Hong Kong Market is down over 2 . He saw the s p move yesterday. The fact that it is highlighted like this gives you a sense, and global gmm will do this for you. The magnitude of the move relative to recent history was a sizable one. The kospi down. Lets talk about what is happening in the commodities space. They have been well bid of late. Certainly the metals. Copper is down by 2 . Mcnamee down. Manganese down. Iron ore in singapore is trading down by 5 . Let me bring you this chart. Is the start of the year. That is where we were at the start of the year. Bounced offhave that little line over the last couple days. It is going back to 50. It will be interesting. Manus guy johnson with the latest on the markets and iron ore. James bevan is the cio at ccla Investment Management entity is with us. Lets talk about the misery index. This is what we are talking about. It is all the way back to 1955. What is it and why do i care . James when i think about violation, i think why should variables be connected . It is clear the sum of unemployment and inflation describes the construct of the underlying economy. These are movements in relative terms for variables that describe growth or inflation. Since 1979, the some of the misery index, the some of the Unemployment Rate plus the inflation rate plus the priceearnings multiple, has been if we get lower unemployment, inflation, we can justify a higher stock market. Then we have higher you just heard the fed president. They are warning about the inability to hit that 2 level. The on a planet level keeps coming down. Ises the fair valuation rising, not falling. Manus if you get fiscal adjustments by the yearend, that could add to the story. James stays with us. James bevan from ccla Investment Management. Angela merkel has had a threeweek holiday. She hits the campaign trail today to secure her fourth term as german chancellor. The voters head to the polls on september 24. Jailill visit a former today in east germany where Political Prisoners are held. Her first scheduled public event after the summer break. Matt miller joins us from berlin. Good morning to you. You are going to have a busy six weeks. She is expected to win by 15 points. Is this a confirmation of her fourth term . Is trying to come enter party is trying to avoid that idea, although they have a Comfortable Lead, she had a Comfortable Lead in her first ended upbattle and only winning by a couple points. Keep in mind, for a long time, Hillary Clinton was head of donald trump. Anything can happen. When Martin Schulz came back battle, he was not connect with Angela Merkel. He wozniacki and neck with Angela Merkel. He has lost momentum, and even though she was on vacation, she strong, especially as concerns over things like north korea make it look like the smart choice to have the incumbent ever incumbent in office. Manus even if she does when the election, the coalition is the is an important part of german politics. We know how they might stack up . Matt you are right to focus in on that at the most important issue. Joint with merkels cdu in this current regime enter first regime, in the middle she joined with the fdp. She has a tendency to occupy all of the middle ground. She takes credit for all of her victories personally or get that credit to her party and for all her failures and mistakes, she spreads that going across the coalition. The spd may be wary of joining up with her again in another grand coalition. Just as well, the liberals are fairly wary, because after working with her in her second term, they came back with no seats in parliament. The question is, who is going to join with her . Who would rather just sit in the opposition . In germany, you have got to make a coalition. It is unlikely anybody wins an absolute majority. Manus there is matt miller with the latest on Angela Merkel kicking off an election campaign. Specialss our 30 minute every monday at 8 30 a. M. You could time you time, germany decides. A. M. You take time, germany decides. History potentially in the making. Hillary clinton started with a 15 point lead. Theresa may was strong and stable at the start. Looking at Angela Merkel, she does seem to be in a different position than the others. James she does. The difference is we have the rise of populism in the United States and that united kingdom. In germany, because of the weakness of the euro, expert performance and the high levels of consumer confidence, it correlates with a merkel victory. Manus the flow of money has been driven a growth and politics. Give me a flavor of where we are. We have this washout of funds last year. We are observing more money coming back into europe. One of the unintended is that the central bank considers tapering. The hero becomes progressively more strong. Lvmh is a standout stock in the european portfolio. There is a focus on building shareholder value. Whatever happens to the automobiles industry, i think michelin willing. Will win. You say that although the domestic play for Credit Agricole takes place, there are other places. You seem to favor france. Is that a Emmanuel Macron affect . Is that a Wider Perspective . James if i were to look at europe, i would say i am still nervous at the periphery. I find it difficult to governmentshy it is are so low when there are so many tangents. I am still nervous. Manus i read the irish bank story this morning. Iris bank is getting more pressure from the european. There. S still a loan out james i was talking to people in south korea. The back of the rising tensions, are you not worried . They said you just accept it is business as usual. It is the same with european banks. We get used to these extraordinary imbalances. They become normal as opposed to exceptional. You are right. The banking imbalance remains significant. Manus the flow of money could get stronger. This is the positioning in the eurodollar. It excludes nonreportable future positions. You can see the woman to. It is obvious. You can see the momentum. It is obvious. Do you think that mario draghi will try to prick this flow . And septemberment 7. He will be extremely keen to keep the euro relatively low, because he needs expert driven growth. When you say it is a pain in the posterior for the corporate sector, it is more for the economy than the companies. They are exporting, importing, where the currency is not necessarily a oneway ticket. If you were to say, who may benefit from this trajectory for the currency, i would say there are entities that discover their. Mport costs go down some of the retail spaces in germany will benefit. Manus you maintain that when we look at growth, the differential stack up for you if i have an ecb that isnt as aggressive in tapering, from a growth point of view, the european story is straight ahead or has the potential. James the strength of the euro is impressive overall. Manus james, hold that thought. We will be talking about brexit later on, because we have a special guest, a director of the british chambers of commerce. That is at 9 30 u. K. Time. Snapchat reports another round of disappointing numbers. They shares tumble. This is bloomberg. It is new york on a thursday night, friday morning. My get this morning, my guest this morning says the situation with the u. S. And north korea is similar to the u. S. The cuban missile crisis. The vix is up. What do you make of these markets . Guest said very calmly to me, this is a rational correction. We are not facing an implosion in these markets. It is a rational correction at the moment. Is down by 3. 37 . The chinese equity market is down 1. 4 this morning. Lets look at currencies. Australian the dollar is down. When it comes to that yen, this is where the money is flowing. You may say that is not the biggest move in the world, but over the past five days, this is where the money has been flowing. Money has been flowing out of the dollar into the yen. On dollar, europe managed to move by over 1. 5 in the past five trading sessions. Lets get to shery ahn. Shery google u. K. Has approved won approval to build a campus in londons kings cross. It was approved yesterday. The building will be longer than the shard. Construction is due to start next year. Chinas online watchdog has launched an investigation into reports of multiple violations by various companies. Thatwill look into reports some of the countrys long Largest Online services are carrying User Generated Content olent rumorsvi disruptive to social order. Longterm board member is stepping down after a tumultuous year. He will really question his position he will relinquish his position next month. That is your Bloomberg Business flash. Manus thank you very much. Shares tumbled as much as 18 in late trading as it reported disappointing secondquarter numbers. It is short of analysts estimates of a the fear that competition from facebook is potential. Snapchat announcing earnings, the Second Quarter since the ipo of 2017. They are not too far from what the estimates were, but not too good. Lost 449 million. Wrap your head around that. That is hard to do, but he managed to pull it off. But they managed to pull that off. User growth has slowed down for snapchat. Was that at the ipo when facebook him out with a copy of a snapchat service, instagram stories, that the that slowed down might have been caused by facebook and instagram. The growth rate continues to be slow, continues to be a worry. It looks like a problem for this business. They are losing so much money, revenues are not going that fast , and user growth is not accelerating. Stock trading is down big time after those results were posted. We will see it means we will see what it means for the longterm. Cory johnson, bloomberg, new york. Manus james bevan is it still with us. There,stening to cory isnt it stating the obvious that face because the dominant position that facebook has the dominant position . The multiples are so high you must you have the growth coming through. Who is really going to deliver cash flow and profit . I worry about facebook. Manus why . James it is so typical of the tech sector to say, we are going to do something. Just going to see what happens. No other business in the world would get by with that strategy. Nervous. Noters this week were accidentally poor. They are being squeezed, because the contact content players. I can be facetious about snap. We all can be. If you dont say, i believe in this story, you missed the train. James i disagree. Facebook went up and came down again. You have a flurry of excitement when people get on to the ipo. Ok, what are, prices fair to participate in the longterm story . What do i have to sign up to . There are a lot of people who say that amazon is a busted flush. I look at it i look at amazons cash flow and i see a company in 10 or 20 years time that will be bigger than it is today. That is a sensible, longterm investment. Manus do you like what you saw from jeff bezos, the diversification into brickandmortar . James i think it is a smart strategy in terms of dealing with the final part of the distribution strategy. I think it is a coherent model, well articulated perspective on the how the company will make money. It is good news for shareholders. Manus let me circle back to the content stored. Content story. You have to be a particular age to remember aol, time warner. A Company Wants to get its hands on charter. There may be a bidding match. Is a warning sign like no other to me. James a lot of debt. Manus enterprise value of charter would be 185 185 billion. There is debt. On,said to me Early Companies will get smacked if they are loaded with the debt. Glencore did. The cash flow has to be there to pay the debt. I worry about what is going to happen to cash flows of these companies. Israel. Ent war i look at the capacity the content war is real. Think the players like netflix and amazon and out for that are going winners. Manus disneys move this week was interesting, circumventing the distribution that has worked for them. That is an expensive road. James it is. Shareholders are not sure about it. I agree with shareholders. This is a partner in terms of the business strategy. The implied risk premium is higher than the share price. Manus you look at the potential for profit margin in this sector. What is deliverable in the next 12 months . If we take the misery index , what is i apply it deliverable in terms of profitability in those earnings . James we need to look at three variables. , anded to look at revenues i would say they continue to rise. I would say markets continue to to expand. Continue to expand. That would be enough to drive this market higher. Manus james, thank you very much for sharing your thoughts with us. Att is james bevan, the cio ccla Investment Management. If you are a bloomberg customer, you have got it all the hard copy, the soft copy. You have everything we chat about. You can also ask our guests difficult questions. Up next, trump and doubles down on his rhetoric on north korea. Trump doubles down on his rhetoric on north korea. We are live to age of for the market reaction. The war of words rises. Is this our generationskipping missile crisis . Got you outnumbered. The dinosaurs extinction. Dont listen to them. Not appropriate. Now im mashing these potatoes with my stick of butter. Why dont you sit over here. Find your awesome with the Xfinity Stream app. Included with xfinity tv. More to stream to every screen. Rhetoric riles markets. The u. S. President promises retaliation on north korea, like they have never thought possible. Havens are bid. Swiss and gold rally. Cpi in focus. William dudley sees higher inflation ahead, but its going to take time. We look at todays cymer price data. Next stop, the german election. Angela merkel returned to the campaign trail as she bids for a fourth term. Snap, crackle, crash. The social Media Company plunges 18 in afterhours trading as earnings disappoint. It is bloomberg daybreak europe. It is our flagship morning show. We have had a little bit of cpi from germany, rising by 0. 4 . Year on year, up 1. 7 . In the markets today you see a rational correction, a rational realization of a temperance in risk. That is what my last guest, james bevan, said. London is down by 0. 5 . This momentum is building up in terms of the consideration of risk. Rob carnell at ing said this is developing into this generations cuban missile crisis. Trumps morning the north korean regime not to follow through with the missile test on guam. Retaliation like they never thought possible. You are watching equities in europe expending their losses for this week after the u. S. Saw hefty losses. Lets look at the risk radar. Then we will show you the u. S. Equity futures as well. This is the risk radar. The msci on the longest losing streak this year. The kospi is down 1. 7 . There is volatility in the hang seng, you are looking at a surge 6. 25 , the biggest jump since january 2016. All the investors are screaming in the hang seng market. You are either all in or out. The dollaryen, money flows into yen, at an eight week high. The yuan, this is where it gets interesting. When you have geopolitics at play, the chinese slice and dice on their fixing. We have a real move here in terms of the yuan. The top tyuan forecaster says long position. Lets look at u. S. Futures. We have the s p, the deepest slide since may 2017. Nasdaq futures are down 0. 25 . Snapchat did nothing to embolden the nasdaq story. Volatility in the u. S. Is up 45 , the highest Closing Price since mr. Trumps administration came to power. Bonds and equities are lower. The bond markets, how are they looking . Lets have a look at the futures. We see a little move up here, up on tehe bund market. Money flowing into the bond markets in europe. Andre risk off in equities, you want to have some protection. Maybe bonds are the way to go. Shery ahn has your first word news. Shery thank you. Robert mueller is bearing down on Paul Manafort in his probe into russian interference. According to people familiar with the matter, muellrs team has sent subpoenas from a washington grand jury to global banks for account information involving Paul Manafort, as well as those of a longtime business partner. For all the talk about Janet Yellens plan to shrink the feds balance sheet, will her u. S. Treasury mortgage bonds face a bigger test . Our data shows a securities are lagging behind prices for the First Time Since 2011. Investors are demanding 29 basis points of extra yield to buy the bonds instead of treasuries with a spread almost tripling from 2016s low. Mountingks will face pressure from regulators to write up bad loans. European authorities will not oversee the biggest divers lenders and they are beginning to lose patience. That could mean more Urgent Solutions are sought, unless convincing plans are laid out. Kenyas main Opposition Alliance has demanded the candidate be tuesdayshe winner at president ial election. The National SuperAlliance Says it has obtained data showing the former Prime Minister won more than 8 million ballots in the vote, compared with 7. 7 5 million for president kenyatta. The claims could further escalate the violence in east africas largest economy. Singapores economy posted faster growth in the Second Quarter than previously estimated by the government. Raw domestic profit rost 2. 2 in the Second Quarter from the previous three months. That was revised up from the earlier estimate of 0. 4 and the estimates of 0. 5 . Google has cancelled an all hands meeting to address gender issues and the firing of an engineer that wrote a memo about hiring practices, citing concerns about staff safety. The ceo said he called the meeting off after questions were raising concerns that employees identified in the leak would be harassed. You can find more stories on the bloomberg at top. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. We are seeing pressure for the asian markets, extending those losses. Now headed for our first weekly loss in five. The nikkei is on holiday, but investors are still crowding th e yen. The hang seng index, though, the biggest weekly loss in quite some time, the whole of this year. The csi 300, also at the weakest level in a few months. The kospi at the lowest level since may. We have good Economic Data out of singapore, but thats not helping the markets there. Its now losing about 1. 2 . Take a look at some of the stocks that are gaining ground. Defense stocks, dating all week as we saw those geopolitical tensions rise. Big tech gained 1. 4 as the kospi closed. Noble, gaining 11. 5 . They plunged more than 70 this entire year. Now we are getting news flow byut their net debt, surging 1 billion. There are concerns about restructuring some of their obligations. Tencent is the biggest loser on the hang seng index. Down 3. 6 , the biggest drop in a month. We have seen a rally for tencent, more than 70 this year. We are getting uncertainty over the results coming up next week, not to mention we are hearbign hearing of some probes into the business as policymakers in china investigate cybersecurity laws. Index has been gaining ground, more than 20 . That is because of tencent. We see volatility jumping to the highest since november, as you mentioned, manus. Manus shery ahn, thank you for the market round up. Donald trump has delivered a fresh warning to north korea. The u. S. President said his earlier threads that america would bring down fire and fury on north korea might not have been tough enough. His comments come after pyongyang declared they would fire u. S missiles that guam. If north korea attacks anybody that we love or we represent or our allies or us, they can be very nervous. And i will tell you why. They should be nervous. And so happen to them like they never thought possible. Manus things will happen to them like they never thought possible. Jodi schneider joins us. Good morning and good afternoon. Where is this rhetoric heading . Welcome it certainly appears to be heightened rhetoric. Over the last few days we have seen Donald Trumps fire and fury comments, which then provoked north korea into saying that it would strike, it would sent a missile over selfless japan into guam by midaugust. If the u. S. Did not back down. Of course the u. S. Did not. We have heard from south korea and japan yesterday that they would take defensive action if this guam threat came into being. We just recently read in an editorial in china in the communist Party Affiliated publication, that they will not the editorial suggests that china should not intervene if north korea tgoes ahead with this threat. So, it is a heightening of tensions. Donald trumps voices seems to be the loudest, in terms of further provocations. We did hear one thing from australia. Malcolm turnbull said australia would support the u. S. He did have some calmign words. For the most part, it has been a heightening of tensions. Manus thank you, jodi schneider, joining us with the latest on the u. S. North korea war of words. Michael franklin, chief investment strategist at beautfort securities joins us now. I have ing calling this our cuban missile crisis. The equivalent of that for our generation. James bevan was in that seat an hour ago and said it has the hallmarks, it will eventually come off the board. Would you agree . I would certainly hope so. We have two cartoon character playground bullies. Thats the way it looks. It is the question of which one of them is prepared to step down first. At that point, you have to look behind them and see what kind of support systems they ha you wouldve. Systems they have. You would hope the u. S. Restrains. I can see north korea sending off more muscles. At some point when the u. S. Feels the dialogue is such that it will not go forward on the diplomatic basis at all. They might feel empowered to actually take some nonnuclear action against north korea. The problem is, these missiles are mobile. They would have an issue with knocking them out. But i think it will eventually be resolved, but i understand why markets are nervous. Manus lets focus on the market side of it, whether it is our cuban missile crisis equivalent. I leave that to greater minds. Volatility closed at the highest level during trumps presidency. This is of course, the s p one day percentage move. Heres the quid quo pro on the vix. This, is forward with this a buying opportunity or an opportunity to sell equity . At this point of the are comic it would still be at this point of the year, things would still be quite quiet. This year, because of Donald Trumps unusual approach and i guess you could blame north korea as well, things have come to the boil pretty quickly, at unusual time of the year. The s p index has been looking a little toppy for a while. It is quite possible this activity is masking what would have happened anyway, maybe in september or october. Were now seeing two reasons to expect markets to move lower. Manus at the same time, geopolitics is rising. You have stock allocations being cut to the lowest levels since 2000. Really, this is in the background, isnt it . I think in practical terms. If there is a nuclear strike, you then have to wonder about the fallout. I dont mean that as a pun. You wonder about the implications for the region close by, japan, south korea, elsewhere in southeast asia. Life goes on, if it can. Defense stocks will be in demand and the safe havens will be in demand. Manus i have got gold volatility. We started the show at 6 00 a. M. With this. This is the issue. 1300 could be on the plate for gold and the volatility is rising. James bevan almost paraded me, saying, you cannot be showing something for the last two months. He pressured me to take it up to five years. It has not been doing much. Manus would you agree with ray dalio, who says you have 5 or 10 of your portfolio in gold. If you have a good reason not to, can you write it off and send it to him. O on his bloomberg, of course. We have been recently longterm, in terms of gold. There areow, opportunities in that. It has been consolidating sideways. You have got to time it. Manus bevan paraded my entire chart of the day. It was almost a gaelic tut. Stay with me, michael franklin. We want to set you up for this friday. The inflation data from the u. S. That is the cpi at 1 30 u. K. Time. Iand 30 minutes later, we could the Second Quarter gdp from russia. And then we hear from Robert Kaplan and neel kashkari. Up next on daybreak, 10 years ago this week, bnp paribas told investors they would not be able to hold their investment funds. Ensued, but issuit the world a safer place . This is bloomberg. Manus it is 8 19 in berlin. What a beautiful shot of brandenburg gate. Angela merkel took a threeweek holiday, setting herself up for a 50 then you tour, as he gets to count down to election 2017 germany. We are counting down as well. Every monday we have a program focusing on the german election. Futures are lower. Ahn has your business flash. Snap has fallen short of estimates, feeding fears that aggressive competition from facebook is blunting the social Media Companys potential just months after the initial public offering. The Parent Company says daily active users reached 173 million in the Second Quarter. Revenue disappointed and the shares tumbled in late trading. Google u. K. Has won approval to build a campus alongside the companys existing offices in cakings cross. The building will be the European Unions highest building and construction will start next year. Chinas online watchdog has launched an investigation into reports of multiple violations by tencent. The sever Space Administration of china will look into reports that some of the countrys Largest Online services are carrying User Generated Content with rumors disruptive to social order. Tencent, weibo and baidu made no immediate comments. Stepping down from his management role after a tumultuous year. He served as the senior Vice President of operations and is on the executive Leadership Team tasked with running the business in the absence of the ceo. He will relinquish those positions next month, but will remain on the board to help the ridesharing companys replace travis. Manus thank you. Lets bring you our morning pause for thought. Its a Bloomberg View piece. If you can come up with a better name for it, let me know. This week, bnp paribas, 10 weeks ago, they told investors they would not be able to redeem their holdings in three investment funds. Mohammed says the risk of financial instability, while lower, has morphed in mitigated morphed and migrated, excuse me, but not disappeared. Lets bring in our guest, michael franklin. So, mohammeds central theme is that the 10 year is on. Central banks have done what they can to keep the markets stable. Governments cannot stay the same. He is warning that there are new forms of risk in the market overall are different, but they have migrated. Would you agree with this . Yes, i read the piece came out in a think it is right. The risk is otu still the risk is still out there. Some people will see an opportunity. Yes, the risk is still there. People have argued that the Central Banks have been propping up the system to avoid going into a depression. If we had gone into a depression, you would have a lot of businesses go out of business in the world would be a different place and there would be a lot of personal pain. Manus i can remember 10 years ago, every weekend i would go home and every weekend, a media agency would ask me, who is going bust . It was truly a vortex of sheer, uknown hell. Counterparty risk. I cannot describe to our viewers the level of counterparty risk. People concern themselves that the person sitting beside them have cholera, leprosy. Weve moved very aggressively away from that point of view, but i bring you this chart. The federaln by reserve. The squashed the life out of their risks, bringing the spread of the treasuries down. This could be one of those transfers, or morphing of risks, as the fed goes to reduce the balance sheet. In the desert, it does not tend to have rain. If it does get rain, the shoots start to come through. The Interest Rates rising will reveal those groups they cannot cope with the higher Interest Rates. \ saying is, because of the transient circumstances, some of these risks are being pushed out of view, but once Interest Rates pick up, they could come back to the forefront. Manus did you sell in may . You obviously have not gone away. But did you sell in may and go away . If you did, in europe, it would have been the wise thing to do. What you have is an outperformance by the msci that tailed off. This is where, perhaps, you know, the smarter issue was. The stoxx 600, down 1. 6 . The msci asia come up 8. 3 . It did not work for all markets, but for europe, it did. Are we pausing in europe . Probably. I think with germany, as i mentioned, the economy is slowing. It may only be temporary. Some aspects are slowing, but overall, it is pretty robus. Ready robust. Where stocks are going is difficult to guage. We see a lot of changing trends across the continent and brexit is exercising a lot of minds. You would expect there to be some stresses there. Manus your central tenant is the stress of brexit will be felt by mainline europe as well over the next year, 18 months . I think in two to three years , certainly. We will see it. Manus michael franklin, thank you for being with us from beautfort securities. So, guy johnson and matt miller up next with daybreak europe the market open. Equities are set for a tougher opening around europe. This is how your g20 looks. You have the asian equity markets taking a tumble. Money is going into yen and into swiss. This is bloomberg. Guy good morning, you are watching Bloomberg Markets european open. Cash with the opening in 30 minutes. Bunds, already open. Im guy johnson in london. Matt miller, over in berlin. What are we watching . Apparently we are going for gold. T hthe risk off selloff continues on president trumps latest fi ery language. Is he right . Inflation exptaon