Transcripts For BLOOMBERG Bloomberg Go 20160616

Investors are asking if sterling falls and if inflation shoots up, does the bank of england have a hike rate . E brexit could cause spillovers into the u. N. Economy. Core inflation. But it does see a pickup in inflation. Its delaying investment and spending decisions and the brexit could materially affect inflation and the g. D. P. And jobs. They are not stopping, warning about the risks of brexit. Only a few months ago he said he wasnt going to wade into a Brexit Debate. How things have changed since february. No terrific moves off the back of that warning. My question to you would be, the labor market yesterday, solid. The warnings, do you think into the data . Thats a good question but the p. M. I. Data suggests it is Second Quarter is at. 2 . As you know the end of last year we grew. 4 . The big question for economists and the bank of england is how much of a slowdown of the economy is brexit related . We have had a suggestion that some of the slowdown might be nonbrexit related but employment is at a record level and the Unemployment Rate is at its lowest level in years. The bank of england has a lot to think about. But expect a lot if we do get a brexit. Weve got the tools as we said. Little movement. Since the 10year yield has fallen to a record low. Its the longest sincal october of 2014 and quickly, john, before i go, i know youre in a rush but this is my favorite function. The july meeting puts the probability of the bank of england rate cut at 25 , john. Everything goes on next weeks brexit vote. Mark, great to have you with us. Policy unchanged but repeating the brexit warning. Thats the story out of the central bank beyond the bank worldwide. And also inflation picking up. That makes the b. O. E. s job hard when it comes to measuring brecks it. This mornings top stories, in tokyo jumping as the b. O. A. Holds their fire. John in switzerland but lets go right to japan on the Interest Rate decisions and the reaction. Chemical acollins is in tokyo. Is it if its not enough for the b. O. A. Intervention, what will be . Yes. What happened today wasnt that much of a surprise as far as policy is concerned, because about 28 of the economists only 28 expected movement today, but this jump was surprising. During the press Conference Today it was said that the fundamentals need to be reflected. The ministry of finance thing you know, we are going to have to see what happens with this. Not in terms of technical intervention but e. T. F. Buying. Can the b. O. J. Do anything with that without the help of the fed . They could. Right now, our survey before the b. O. J. Meeting today had 25 of economists expecting a decision next month. I think they could be waiting for what happens after brexit, because that might actually trite rise. Here in the united states, no surprise the fed also standing pat on Interest Rates. Brexit, the upcoming u. K. Decision on whether or not to leave the European Union is something we discussed, and i think its fair to say that it was one of the factories that factoried into todays decision. We are joined now by bloombergs treasury reporter. E fed didnt do much but the fx market reacted. Because it was more dubbish than market had anticipated. Of course, she 34e7ksed brexit and thats one of the reasons for the decision yesterday to stand pat but i think people underestimated how much of an impact a brexit camp would have influenced voters so you had things tanking yesterday after yellen spoke. Janet yellen said for the most part the decisions the expectations of inflation havent changed. Should they have been taken into account . Inflation expectations have drifted a little bit higher but they are still way below the feds to target. And theres a lot more uncertainty in the world right now. We have brexit thats number one and number two, the may employment or the, job growth at its slowest pace in six years. That tells us the fed stands still to say are we losing momentum in the u. S. Economy . And is the Global Economy going to continue to pull down the u. S. Economy . And so you take all those other forecast factors into consideration. The Swiss National bank also stands pat and the Interest Rate is falling below zero. We are joined by guy johnson. You had an important interview with the chairman of the bank recently. What did you learn . So tomas is certainly waiting and watching the brexit story closely. Huge turbulence flowing into the swiss franc should we see the brexit tank. The first line of defense coming out of the swiss bank is intervention. now, the Global Economy has a big impact here in switzerland but switzerland doesnt have much debt. Weve just seen it undergoing in the negative. Youve just got to remember that, that market isnt very big. He said that would be something that they would ombingsly look to stabilize the market. Remember, the rates are already here at minus 75, and tomas jorgen says they could go lower. It is still possible to lower rates. Of course its not possible to go just anywhere but where we are at the moment is just possible to lower rates and for it to go negative. Lets take a little bit about what happens next for the swiss. They find themselves in an incredibly difficult position. What you will see is that the market is positioning for a very, very big move to the downside on that pair were we to see a brexit coming. Really extreme positions so the smb is holding. But next friday you could see some very, very aggressive action being taken and they draw on the experience they had last january when they went to that 120 level. So you could see some fairly big moves coming out of the central bank. Now were going to go to john. Yes. A very rare interview. Fascinating stuff and it really speaks to whats happening in the markets. The Swiss National bank and the b. O. J. In focus and if ftse 100 down by. 6 and germany back own by. 75 . And the japanese yen increasing sib substantially, a 1. 03 handal at one point in todays session but youve got russian equity market being hit hard but the russian equities are lower and the aussie dollar, take your pick, they are lower the Canadian Dollar down about. 90 . And the longest losing streak since january for the sweden krona. Seems we talk about another headline in the bond market. Im looking at the 30year yield. The j. T. B. Yield down by 6 basis points and 14 basis points. But look at that swiss 30year yield, for me thats a t headline of the day. Subzero in switzerland for the First Time Ever ever ever. Now chandra with Bloomberg Business news. When he was asked about the u. K. s upcoming vote on whether or not to stay in the European Union bank. St. Ught up to the petersburg European Union. What would you like to say to voters ahead of the referendum vote . Dont do it. And president obama travels to orlando today to pay his respects to the victims of the night club massacre. President obama has been pushing for gun control, gay rights and acceptance of muslim ericans and angrily rebewkes Donald Trumps suggestion of a cdown on things and Hillary Clinton according to the latest politics poll Elizabeth Warren should be the running mate for clinton. For republicans almost 1 3 of likely voters say former House Speaker Newt Gingrich should be umps running 345eu9 and icky rubio came in second. The fed keeps things unchanged but doesnt rule tout hype. Up next the Morgan Stanley Portfolio Manager joins us to talk about the fed hike. We will debate it next. Im jonathon pharaoh. For bloomberg go. 50e8ds having its best start since any year since 1985. And record low after record low. Joining us is jim caron. Senior fixed Portfolio Manager. Number one, 30year yield in switzerland at subzero . When you started your career did you ever think you would see a market like this . Jay never. We cant escape the low on bonds either. I think treasuries are returning somewhere around 576 . Even if you look at emerging markets, emerging local markets and investment corporate for 5. 6 . As yields go negative it becomes more difficult to achieve those returns. In the last minute or so the euro dollar went down. 6 and i just wonder approaching this that we have next week, everyone downsizing it do i want to think about playing the short squeeze and see where the money is going and thinking about how i can play that thing . Jim yes. One is going into the event. And clearly we dont know a lot. We can look at the bookies and see what the odds are but we need to think longer term and play out of the event so if we look at the markets and try to construct portfolios and look at assets that have been disproportion natalie you can look at commercialbacked and commercial mortgagebacked securities and singlefamily homes. This is a market where house price appreciation has been going up 5 6 a year and underpinnings are good. Investment grade today. Ll cos, autos, year to date returns on sectors 57. I was 34e7ksing emerging markets. Ven on a monthtoday basis, local emerging markets are up 2 . So there are ways to think about will we be able to buy some quality assets at a discount post the u. K. Event . I dont think the u. K. Event is the end of markets. It could be an opportunity to buy. Its making sure you pick up the babies that are being thrown out with the bath water. But alex pulled this up. We have been tracking the etfs. I pulled it up on the terminal. How much is coming up . It doesnt make sense to wait it out until the 23rd and then go get some cash and buy some bargains. Jim yes. If you look at portfolios today. They have you can see to the right in the last month spike in the e. T. F. s which are is sur bat for cash. Jim its about a 16 trillion industry. People have on average about 10 cash on their Balance Sheets leaving 1. 6 trillion in dry proud tore buy a lot of these bonds. So there is a cushion to this, theres a cushion to these things and the market needs so see these things come at the right price, and as we build up this cash it probably does get find out work post the government bonds. Ive been fascinated by the Corporate Bond rally. Toyota sold a ton of yen bonds for. 001 . Those kinds of wouldnt you like a mortgage for. 001 . W4r5b9 the rally in the Corporate Bond market . Jim yes. Were also having a run rate on supply. We had a trillion supply and at a run rate to have over a trillion now. Great has a run appetite. Investors are looking for assets to buy so whether its a newlyissued Corporate Bond or an event that happens post brexit if there is some selling, i dont think i dont think its just government bonds. I think its a place holder because its a sur bat for cash. So people will buy the government bonds but sell them to buy things later that will give them a better return. Jim caron is sticking with us. Well talk about the markets up next on bloomberg go. Equities are dropping in europe and its a the euro is significantly weaker in the last 15 minutes. This is bloomberg go. Im alex steel. Have john p. Surma lowering their trite 16. 7 and are the bond bearers ever going to be right if we have eternal rates from the fed at zero snp jay way i look at the fed right now, its like a riddle wrapped up in a conundrum. You have an economy thats growing at about 27 and an inflation target where we think we could actually get to 2 so if you have shortterm rates and growth potentially rising then the math would tell you around the economics that the 10year should be higher but they are not so why are the yields not rising even though we are creating a lot of money and theres a lot of negative rates and quantitative easing . Whats really happening is an exess amount of term meaning people are willing to give up longerterm yields for the sake of having a positive yield and it pay not do so well in a world that slows down so the bond bearers are doing their fundamental work correct but i think they are doing their Technical Work wrong which has a lot to do with the risk. To giver you a picture of where the Federal Reserve has things with their policymaker represented by each individual dot and what you see on the far right side is the rate percent that alex speaks about. My question, jim is, why does consensus year after year get the view on treasury yields dead wrong. Why . What do they keep getting dead wrong . Jim the risk premium. Hen we look at the fundamental underpinnings when they make the forecast it should show higher yields. But i think whats really driving this right now, and this is whats perplexing and i dont think the feds models are picking this up is that today a lot of international factories factors are influencing the yields so it used to be just all about domestics, the employment report and c. P. I. They are actual mandatory dates. Jim yes, and whether its brexit or china, these things are having a much bigger influence. That manifests itself in the risk premium and thats driving itself and creating a significant richening in longterm bonds. Senior caron Portfolio Manager. John wants the nbling out of your title. 5. 5 billion disney in change hie opening the doors for the first time to its new theme park. Jon bloomberg. This is jon this is bloomberg. It is fascinating out there. Looking at futures and that it states, equity down. Stop in europe, down by one full percentage point. Stocks in europe, down by one full percentage point. You got commodity currency down. Down. Ian it is a stronger yen. Market, looking at the long end of the curve. Yieldsn, thirtyday down. If you want to see a negative on thirtyday territory if you want to see a negative yield and 48. Ude lets get you up to date on the top stories. Investigators have found the main wreckage site where the egypt air plane crash into the mediterranean. It they gave images of the airbus. Investigators are trying to find black boxes, which may be the only way to find out what caused the crash. Former french president says france must take a hard line against terror suspects. In an interview, he says france should expound all foreign nationals would ties to terrorist networks. He says french citizens indulging in activities in such activity should be placed under house arrest. House Speaker Paul Ryan what unveil another part of the partys agenda. Inis designed to reign overreach. Global news 24 hours a day, powered by 2400 journalists, in more than 150 news bureaus across the world. Jon thank you. Tom keene joining us for a morning must watch. Do all the Central Banks get together and speak . Take a listen to what he had to say about Central Banks coordination. It is a very good exchange. At the end of the day, they will normalize the situation in the mandate. [indiscernible] that was a Swiss National Bank President and switzerland. We talk about a centralbank policy and coordinated response, but you wonder how that works. Lets just say the ucb wanted to , that means a stronger swiss franc. Unknown unknowns out there. What i would suggest, it is all about brexit, will maybe it is also a recalibration of the of gdp and low growth. Ethan and his Team Absolutely nailed it. What i am hearing is new terminal rates. And longterm neutral rate of the Federal Reserve is reconciling lower. Treasuries are moving. The dollar has been moving. Dollar resilience. How significant is that . That i would suggest is looking at standard deviation, the volatility around the track. We are flat out not there yet. We are beyond two standard deviations. We are not near three standard deviations. My history is this four standard deviations is what everyone makes note and we are simply not there whether it is dollar yen or the euro getting way. Jon are you saying its two standard deviation is not enough for the doj . Tom not enough. I would say it is not enough. It is a whole question, you can interventions is discussion the same now, or similar to the other bouts we about over the years . I was a it is different. Jon lets talk about what is happening fundamentally. What we face potentially is a new normal of bury low growth. That is representative in the forecast for rates. Reconciled for the market if you want again. I just wonder what is left in the tank for the Central Banks away from the fed . You have the doj. They have a Balance Sheet that has below and. What is left, tom . Tom what is left is how you express the outcome. People talk about reaction functions. What it comes down to usually is a debate over liquidity and sovereign see. What i would watch as a liquidity measurements within the european system. Chart showinglous u. S. And european stats. I would focus on the european banks and how they deal with all of this mac pro babble macro babble we talk about. Jon Tom Keene A Bloomberg surveillance. You can follow tom keene on bloomberg radio. He paid for this plug today in swiss franc spirit 7 00 to 10 00 weekdays with tom keene. David it is opening day for walt disneys 5 billion thing kart in shanghai theme par in shanghai. What are they had planned for today . Had an opening ceremony. Thousands of people came in. It was rain, but it did not subdue peoples spirits. We have seen crowds flocking to the rides and taking in the activities. We want to show off the castle behind me. It is the fastest it is the biggest castle. It is a big play for the chinese consumer. They dont think they will turn a profit this year. They dont think they will get the per capita income revenue they get in their other parts. But this is a longterm play to expand the brand in china and that is what the disney team are trying to do here. David this is a really important play for the walt disney company. They had been opening parks on a trial basis. Do they have any sense of the consumer response of this particular theme park . Very interesting, david. They say 600,000 visitors took part in the six weeks of trials that they had here. Outside the gates of the parts they had one Million People on the outskirts of the park. The demand is so big that they said yesterday the are already planning to expand it. It is close to 1000 acres in size. It is the demand that is key. They dont think the spending will be as high as chinese consumers as is in the u. S. , but 330 millionhere are people who could potentially come to the park within a three hour commute and that is what they want to take advantage of. The prices of the tickets are lower than other parks. They have all the merchandise and food. They hope that will play a part of it. Producers local this is a longterm play. It the biggest opportunity the biggest opportunity of the parts of the 1970s. David they has competition they have competition. They have dreamworks coming in. With a about other competitors . Are they concerned about other competitors . He said he is not concerned. But you are right. There is strong competition. The other players are hoping to get in as well. The market they are going for is large. The Tourism Market is worth 600 billion u. S. Dollars and is expected to double by 2020. Walt disney has struggled in places like hong kong. Paris has had to be restructured. Says he had the ingredients to make this one work. The quality of the experience, they think they have raised the bar and that will be a winning formula, along with that large number of visitors. And the growing spending power of chinese consumers. Chinese consumers remain bullish. David that is Tom Mackenzie in shanghai. Jon it is a centralbank extravaganza from the u. S. To the u. K. , to japan to switzerland. Taking center stage. Of next, ethan harris up next, ethan harris explains what it means for the Global Economy. Alix this is bloomberg. Im alix steel. Make sure to stay with us next hour. David this is bloomberg. We are watching european banks once again. They continue to decline along yields. T yields bond they are following to record lows. We have the chairman of Deutsche Bank sing at a dinner [the xit would be a disaster Deutsche Bank at a dinner saying would be aexit disaster. We are looking at volkswagen. The company would be giving an update today. Some bigs mapping out changes for the companys strategy focusing on electric cars, automated driving. The company says it will introduce electric vehicles in 2025. This news coming at the same the that they contracted most since december. Shares down 1. 25 . Teamsters are asking the department of justice to recheck the cell of a stake it has to do with the decision to close a brewery in north carolina. We will see it does bears any fruit. Shares down 1. 5 . To show you something moving at this operative. We are looking at a weaker pound and weaker futures. This is pound versus dollar. Futures, itne, s p is not a perfect correlation, but there is a correlation between the two. This used to be futures and oil, now it is pound and futures. Jon it is highly correlated with risk right now. Alix never thought i would see that kind of chart. The yen is at a twoyear high against the dollar. Capdoj has to step in to the rally to boost inflation, but how . Joining us for moore is ethan harris, Global Economics research head. You had a note about a week ago that struck my eye. The 16th the doj needs to do the six things that the doj needs to do. Ethan they need to be decisive. The last time he did it, they did it in a vary tough market environment. Overwhelm their policy and make people think, maybe the doj has no ammunition left. The next move they do has to at least look decisive. They need to increase their buying a bts. Probably go further in negative further in the expansion of the size of their Balance Sheet. We need to do something that kind of feels decisive to the markets. Otherwise, they fall victim to this lack of confidence from the markets. Alix i was reading earlier that the reason the doj does not want to waste it. Feels like everyone is waiting for the 23rd. What i wanted to ask is this i remember when they went to negative and a strengthened the yen which would be counterintuitive. Was it a communication problem, or the problems are worse than we thought, lets fully to the safety of the yen . Above. It was all of the the big problem they had at the time was the markets were moving stronger than the Central Banks. It is like trying to swim up a waterfall for them. Briefly, they were able to move the yen and the right direction. They also did not communicate well. Came as a huge surprise. Why is the doj saying we are not going to go negative just a few weeks earlier, and then they go negative . It is telling the market you are taking a desperate measure. Would youthing is is surprise a community with a move like that . You dont get good pr. Not from talking heads like us. [laughter] ethan we dont like to be completely wrong. Everyone is going to be stressing. [laughter] alix that is brilliant, actually. Has the ability of the truth. Jon the juvenile question is at the japanese finance minister spoke to Parliament Last month and said a today move of five yen in either direction would be lopsided. That it is the kind of move they step in at. How much of a problem is that . Ethan they are getting very close. The number they throw out is 100. It is a nice round number and would look psychologically like a big deal. It has gotten close. It is important for the japanese government to look past some of the criticism of intervention and say to people, listen, we are not trying to weaken the currency. It makes no sense for japan to have a strong currency. It is not a clear magic number. 100 does it. Could be earlier than that. If we get a big risk of trade around against in europe, that maybe the trigger. Alix we are looking at 2. 5 decline in four days. Not quite the today. Not quite the two day. David but if they have to move, have a prepared the talking heads, but the markets properly this time, so it will have the desired effect . Becausehe last time was they picked the policy they said they would not do. If they pursue a more continuation of current policies and it does not come as an odd 180 turn, it is much more effective. Another thing, it is about explaining what they are doing well. When they went to negative rates, it took a bit of effort to figure out what the policy was. I dont think they should focus mainly on negative rates. It is to do it is too risky after the failure last time. They need to focus on the other aspects, the quality of the etss. E sheet, buying questionn, here is a mainstream economic thinking suggests yields come down towards growth. His growth converging down towards yields . I dont think there is a pull going on. I think markets are figuring out that growth is not that great on a more permanent basis. I think what we have seen in the last two years is a sense that the super easy 0 policy is here for a very longtime and Inflation Expectations, the believed that Central Banks can create inflation has faded. That is why we have this very globally. The fed is the only Major Central Bank that has a serious chance of getting away from zero in the next two years. We have to root for the fed right now. Alix great point. Is sticking with us. We are going to take a look at centralbank action and see what they are facing, Balance Sheets, Inflation Expectations, that next. David this is bloomberg. Im david weston. Ethan harris is research head. Time for julie hyman. Julie picking up where you left inflationg about expectations. Where are traders putting Inflation Expectations . Japanese Inflation Expectations well below where they are for europe and united states, which we have seen converge here. We know the fed has hot has had a hard time picking up inflation. This shows not only where the level of inflation is now, but where traders expect inflation to continue. David for all of the struggles of mario jargon mario draghi and janet yellen, they have a tougher plan to play. Expectations are not good in japan. Ethan what they have gotten in japan as a currency move that has you know, helped create a the rate ofin inflation. Now the currency going in the opposite direction and without wage growth, they will not have sustained higher inflation. The doj so far has not succeeded here. Julie the other trend we are looking at is the Balance Sheet. Normalized, as you look at it. The fed is not seeing growth in the Balance Sheet. It is on the upswing. The bank of japan is just up and rising. Not only do they have the largest challenge among the three, but they have thrown the most added. David it is important that they have more ammunition. Ethan he does, but there is no question that the fed is in much better shape. The fed has been able to stop the most aggressive aspect of inflation isnd yet picking up in the united states. The fed has the best hope of the three Central Banks of getting world weis bizarre live in. The doj, as you can see, they are still in that alice in wonderland, with massive monetary policy. Jon ethan harris a bank of america, Merrill Lynch. President. Former fed . C sv david brexit breaks. The possible departure ways on janet yellen. How long will the new normal affect it . Jonathan the yen is near a twoyear high and yields japan to a record low. New abnormal. Sending yields to unprecedented levels. World Government Debt having the best start to any year since 1995. Switzerlands 30 year yield is under 30 . David welcome to the second hour of bloomberg. We have a lot of activity already and the day is just getting started. Jonathan risk on, risk off. It is risk off today. Government bond yields are at an alltime low. And australiaorea are having the best start to the year since 1995 and the big surprise is the 30 year yield in switzerland is under zero. Unbelievable. I never thought i would see that day. Joining us shortly to discuss all of this will be narayana kocherlakota. He will reveal the savagery he will reveal the strategy to stop plunging growth. Withhan lets check in the Bloomberg Team for indepth coverage of our top stories. , Carl Riccadonna on what may be the next fed move. We begin in london. Anna edwards live from london. The bank of england does nothing but continues to Say Something and it is about breaks it. Nothingver has doing bit more politically charged except in the case of japan. No change in Interest Rates at the bank of england. To spellhe opportunity out the risks as they see them at the uks central bank around the potential brexit. Uncertainty around the brexit is already taking its toll on the economy. Could mean aexit slower path for growth and a higher path for inflation. That would put them in a bind. Mark carney puts himself at the eye of the political storm as he has to defend himself in this conversation. At the start of the week he was criticized by lead mps who suggested he had become too involved in the subject. He defended himself with a blistering letter to nmp this week saying he was not giving personal views. It was the view of the central bank. And it would be country to be central bank if they had not stated the concerns that they have and the risks that they see onund this issue of a brexit june 23. Jonathan i never get an invite to the dinner that will have a speech tonights that will be about syntax and it wont be about rakes it. I wonder if he has said something to you. The warning from the bank of england, we have heard them before but the data is ok. The labor market is excellent. Retail numbers out of the u. K. Percent in this morning. Anna they were. I wont tell you the suggestions that people on twitter are saying that retail sales might have been better than expected. Jokes, u. K. Stocks have been standing up ok. Certainly compared to sterling in the run of poll after poll that seems to be giving the lead to the leave campaign. Today we see a different side of the concern which is around the banking stocks. Credits we Credit Suisse is weaker. There is a threepoint lead for the leave today. Global Central Banks are talking about it. Talking about concerns and turbulence and preparedness or what a brexit could bring. Just in case no one was talking about anything other than this, there is also the football. Euro 2016 it continues here on this continent and they are linked potentially, stay with me, i had one guest this week who says what happens on the football field that dictates at the end of the day how voters go into the booths and decide. Meant to you were not tell anyone that because in 55 minutes i have to get it on the laptop and pretend im looking nevermind. [laughter] nevermind. Id the bank of japan lets go live to hong kong and bring in enda curran. Is he basically saying, wait until after the 23rd to get this sorted out . Well, i dont think anybody can read his mind. He is a man who likes surprises. I think the message today is that they want to sit in the sidelines until he gets there nextver the brexit vote is week. It probably wasnt a surprise. What was a surprise with what happened with japans currency today. A big jump in the Exchange Rate against the u. S. Dollar negative four japans exporters. Negative forprofits. Negative for the japanese economy. There is a real feeling that there is an upward shift, especially headed towards brexit or the risk associated with safe haven flows, and it could become politically hot in japan. And it is possible to see a response from japanese policymakers. David the yen strength against the dollar and the euro is one of the big stories today. It begs the question, how much powder is dry over there . If he decides he has to intervene, how far does he go . His Balance Sheet has exploded. Side,on the intervention the curve view for turning down the currency would be with the mof. Politicians, to they say they will not be shy about going and if they have two. He already disagrees with the u. S. If they want to tackle the currency, they have options. The Balance Sheet is swollen and it looks like it is maxed out. That there are other sources. Corporate bonds like the ecb. It does have options. And of course, it could talk down the yen. Never forget that the government , a is working on a fiscal stimulus package that is coming in the autumn. Be real want to watch would the language on the yen in the upcoming week. David thank you. That was enda curran. Alix now to the fed. Its decision to stand pat in june but that does not mean that a rate hike is out the question for janet yellen. I cannot specify a timetable. I am not comfortable to say it is in the next meeting or two that it could be. It could be. It is not impossible. It is not impossible that in july we would see data that would lead us to believe that we are in a perfectly fine course and that data was an aberration. Atx janet yellen yesterday the news conference. Lets bring in Carl Riccadonna. You have treasury yields at a 2012 low. What is the feds terminal rate . The fed neutral rate will be about 3 in this cycle. Although chair yellen has ignored that they have a tremendous uncertainty over the future path of rates so i would not be surprised to see that move around in the near term and in a longer run as we figure out where productivity will stabilize. And where the real neutral level of unemployment is. I think there is a lot of uncertainty right now that 3 is as good a guess as any. It was higher in the last economic cycle. Jobs and what is the number that we need to see in order to make july a live meeting . Carl well, before yesterday i would have said something in the 220 5000, which would be consistent in the last couple of quarters but the fed seems to have taken a real turn here. They went from a broadbased angling for a midyear move to now, not only cutting their rate forecast there grows forecast for the current year and next year but also, signaling that they will be delivering significantly less policy tightening over this time. Chair yellen cautioned not to overreact to a few week data points but the fed has clearly had a real moment of reflection in yesterdays meeting. So i think that the jobs hurtle meeting has to be considerably higher. I will say 300,000 at this point. Alix thank you very much. Carl riccadonna. Lets send it over to Jonathan Ferro for a look at the markets. Jonathan the idea that the fed banks are not giving a rate hike any time soon but equities remain soft. In the unitedhere states and equities lower in europe again. The ftse 100 is down. 75 . Germany dax is getting hit. The big pain is in japan. This one right here, the japanese yen. 1. 57 percent move against the dollar right now. Is stronger on the session. We traded earlier with a 1. 03 handle. A big meeting is next month, look out for that. That is the fx market. Aussie yields, german yields, south korea yields alltime lows. Fresh records in that market. But the curve gets my attention. 38 yields in japan down by six basis points. Switzerland, subzero. Did you ever think you would see a bond market that looked like that . And this one here, the longest moving streak since january 2016. 48. 28. T lets get headlines outside the world of business. Democrats in the u. S. Senate got what they wanted after almost 15 hours of speeches on gun violence. Massacre, the orlando they say there needs to be a vote on new gun limits. Backgroundclude checks and banning terrorists from buying guns. Meanwhile, president obama travels to orlando today to pay his respect to the victims of the nightclub desiccant. The tragedy may end up reshaping the president ial race. Obama has been pushing for gun control and acceptance of muslim americans. He angrily reputed donald trump for proposing a crackdown on muslims in the wake of the shooting. Vladimir putin has a message for the European Union. The conflict in ukraine should go behind us and get back to business. He is speaking at the economic forum. He called the normalizing relationships between russian and eu but wont offer a concession in ukraine. Global news, 24 hours a day. Powered by our 2400 journalists in more than 150 news bureaus around the world. David thank you. Coming up, Janet Yellen Stantec and announces fewer rate hikes in the future. Stocks are sold off in the final hour of trading as investors question the feds credibility. Of next, dean maki joins us to discuss her next move. Alix this is bloomberg. It is the new. Cut. One raters now see hike through thousand 2017. 3 caught markets by surprise. Joining us now is dean maki. Dean, it was an incredible day. Larry summers you have been right on site nation the whole time, i give up. Abruptt certainly was an change in view. Their Economic Forecast really didnt change much at all. Alix inflation actually went up. Dean it came down by 60 basis points on the fed funds rate, so they have a radically different different reaction function from months ago. David how much of this is a gradual reaction to the market . They are closer than they were yesterday. Some what is unpredictable about this fed is how much the views change from month to month. And you look at what Effective Bank communication means, it means that we know how the fed will react. But that is not the case now. The fed is changing their views abruptly without any change in the underlying data and that is something that is new. Jonathan we expected them to do absolutely nothing. Frompected technical vegas chair yellen. But what we have seen in the last couple of months is an expectation that maybe they will do something. Has anything really changed . Certainly, their tone may shift again. We saw that in the last three months. The fed wanted to get the rate hike expectations up. They talked caucus late and then abruptly shifted. So certainly, we could go through a mini cycle again. But we need the data to turn firmer on the labor market. Alix what we might see in the next couple of months is that growth getting better. Take a look at this chart. It is the atlanta gdp now forecast. The white line is the nonfarm payrolls. Growth is Still Holding up. This kind of gdp forecast is not what we would expect to see the fed give a lower terminal rate. Productivity is not pulling up the way they would like. And i wonder, how much janet yellen is increasingly focusing on the productivity numbers. That i can see productivity growth is a forefront of how they are shifting their longerterm views. The fed has been optimistic early in the recovery that productivity rose would bounce back strongly which has not happened. And it isnt clear that it is going to. And that is one of the main things behind this change in longterm views. Jonathan if you get wages up, that activity will come with it. Shouldnt the focus just be on wages . That is a sorted and message for the government as well as well. Everything else will resolve itself . Dean that is not clear to me or the fed that it drives productivity growth. I think we can see that if wage growth picks up over time, inflation will pick up. That can happen in a low or high productivity environment. With this is my point Larry Summers. He has been saying that for years. It is not going to change anytime soon and it feels like janet yellen is like oh, all right. David and what Larry Summers might say is, we are not seeing the investment equipment that typically leads to productivity. Wages may be coming up, and they are coming up. But we are not seeing Corporate Investment or longterm investment. Dean thats true. We are not seeing strong investment spending growth war productivity growth. The one flaw in the secular stagnation argument is that it should imply that we are not slack. Into the Unemployment Rate has been falling rapidly through this whole time and that isnt in line with that kind of you. Jonathan so throwing in the towel again. For hikes at the start of the year. Now two. And now the fed is leaning towards one. There was a narrative in december called one and done. Do we face that . Dean i think that is unlikely. And the reason is that the fed is still too pessimistic about the other plymouth rate. The fed is looking for something that has never happened before, the Unemployment Rate to stabilize with no slowdown in the economy. It has literally never occurred in the past. I think the Unemployment Rate will keep falling at a rapid rate and that will drive the fed to tighten more. Alix dean maki is sticking with us. The s p futures are down by. 5 . The 10 year yields are 1. 56 . Jonathan this is bloomberg. It is a signal in the market that used to make you Pay Attention, it meant something ugly was around the corner. It is called a flat yield curve. 80 eight basis points is the difference between the u. S. Twoyear yield and a 10 year yield. The spread is flat. Spread narrowing. Still with us is dean maki. Dean maki. The debates that i have had over the Treasury Curve over the last few months. 88 basis points used to tell me something and it used to be ugly , ugly, ugly. Do people still base that on the prediction of a recession in the u. S. . Dean there is information in the yield curve. We will not have blowout growth to the upside. Typically it actually goes negative. So the 10 year yield is below the two year yield and that is not happening now. And were not seeing the other telltale signs of recession. Signs like jobless claims spiking. Those things happen as we head into a recession but they are not happening now. Say that you cant get inverted when you already have a twoyear below. 8 . David and i went with gdp growth. Is definition of a recession negative gdp growth multiple quarters. The trend has not been favorable. Do you think that will turn around . Dean i do think so. Is thatimportant news Consumer Spending is bouncing back strongly in the Second Quarter. Between 3. 5 4 . That will pull gdp growth up and it does not happen during recessions. Jonathan your view on the economy, the last five or six years, is there a disconnect in the bond market . Because what youre saying, that can continue but the trend in the bond market can continue as well. Dean i do think that the global japanese 10 year yields are negative that is waiting on the u. S. Yield curve that i dont think that means the u. S. Cannot grow or that the fed will not hike at any point in the future. So i do think there is information there but it isnt the deciding factor on how the u. S. Grows. Alix but isnt that the deciding issue . If the fed cannot control the curve due to other centralbank action . Dean i think the fed will ultimately, they will be forced into hiking. It will have a positive effect on the 10 year yield over time. Alix but everyone will be like, great, you hike. Im going to the u. S. Dean you remember the conundrum way back when when the u. S. Was hiking but the 10 year yield was not rising. That could be an issue in the future. So the reaction of the u. S. Will be more on the short end. The 10 year yield may not rise as much. Jonathan heres a question for you. Everyone comes on here, and some people say what you are saying, that the fed could get behind the curve. They have to make up the move aggressively. Why . With the bank of england and , whation north of 2 would force the Federal Reserve to move aggressively when they havent communicated anything like that over the last six years . Dean well, we have to redefine aggressive for this environment. I think the fed will go even more than they are expecting and the reason is, i think next year the Unemployment Rate will have a free handle on it. It will fall below 4 . Alix while. Fed will been the forced to hike more. A three handle, what is your inflation forecast . Will be gradually rising. It doesnt mean we have to have hyperinflation but i think the trend on core inflation is going to continue to be upward. So the fed will reach the 2 target. It will get above that. That is not what will be directing the fed. Dean maki, fascinating stuff. Thank you very much. Coming up, forget raising rates. Does the fed need to start considering a fed cut . I love how quickly the debate can change. Jonathan this is bloomberg. Lets get a check on the markets. Futures are soft, l future is down about. 5 . About 1. 4 losses down Percentage Points on the ftse. Switch up the board quickly, i will whip through the other Asset Classes. 1. 57 is the yield on a u. S. 10 year. Down by about one basis point at the moment. The data comes in. Initial jobless claims spike more than expected. 277,000. 264,000ious reading was. Month on month, 0. 2 . The previous reading was 0. 4 . Food,g that, excluding year on year, 1 just a touch below the survey at 1. 1 . In onnd energy come estimate. A previous reading of 2. 1 . No terrific disappointments or surprises with the exception of the initial jobless claims creeping higher to 277,000. They are coming off some very. Ow yields at the frontend lets switch up the board and get to other Asset Classes. Futures are soft in the united states. The dollar index has climbed a bit higher about. 4 . Lets get an immediate reaction. Lets turn to narayana is joining usho now. Welcome. I assume you heard those numbers. Little bit more on jobless claims. Does that tell you anything about where the economy is headed . Narayana you know, you dont make policy based on one month data or three month data. Certainly not on one week data. I think there is so much noise in those numbers that i wouldnt take much signal from that. David lets go more broad. You wrote a very interesting Bloomberg View article. The central bank should be considering more radical actions than they did. Despite all the disappointing data, there is no sign that the fed officials are considering an Interest Rate decrease. Is that theyo you should cut rates right now . Or is it a matter of communication . Been at the i had meeting, i would have argued for cutting rates this time. Basic thrust of information that has been received by the committee since december has been a couple of things one is that Inflation Expectations have continued to fall. Right now, the marketbased measures, the five year very low. Close to the bottoms that we reached in february. And survey measures have shown that they are very disappointing as well. Showing declines. This is the main job of the federal bank. Keep Inflation Expectations anchored. Rate increaserest in december, Global Markets and more manifested than i expected. So i think that the way you want to perceive it at this point is to try to defend your inflation target from below and also take out insurance against the global risks by lowering rates. Alix there seems to be another option besides from cutting rates and that was what Charlie Evans was talking about a few weeks ago. He said come out and say, we will not raise rates until we reach the 2 inflation target. If a very specific cause and effect for when you are going to hike. What do you think of the solution along those lines . Narayana i actually think that wedding what i just said to what Charlie Evans said makes a lot of sense. President evans is right on it. You need to spell out your goals, be clear with what you are trying to achieve. But you want to take actions that are more aggressive than the ones he laid out. The interest treat rate increase in december as a given . I see no reason to do that. In fact, when you do that, you make it harder to raise rates ever. Asyou start to treat those where you will set Interest Rates then you have to hesitate what hesitate when you have an Interest Rate hike again. So i would wed what charlie said with my proposal and it would be profitable. Jonathan when is this bias towards normalization, where does it come from . Where did the bias emerge from . Iana you know, i think have been going back for some for some research from 20092010. It is a human instinct to try to get back to the way things used to be when they were easier. And i think the bias towards normalization is simply a human instinct to say economic theyrens look like back to normal. Cant we make policy the way we used to when it was easy to make policy . Unfortunately, the answer is no. It is just a humanistic desire that is driving the community feelings. Jonathan you have real hawks to deal with. Convincedyou have them that cutting rates would do anything for the economy at this point . Narayana oh, that is an interesting question. I think that they brought different concerns to the table. President fisher was concerned about the potential of financial instability by having low rates. And was concerned about inflation risk. And you do your best to bring your method to the table, to say that these are good concerns that you should have. These are appropriate concerns for a central bank to have. And we go off and look at the data but we dont see that on the table. And that is the best you can do on that dimension. David i wonder whether cutting rates would be enough, given the persistent lack of growth. Would it be enough . Should they be concerned going further than that and hitting another round of quantitative easing . With the helicopter money we keep hearing about . Narayana let me talk about quantitative easing, look, i think the first step is to evanstake charlie proposal seriously. To say that we are willing to do whatever it takes to get back to 2 . Until core inflation gets back to 2 in a sustainable way. The first step for that is not to treat the december rate increase as a given. To lower rates. I think you could go lower rates further, that is something to think about. I think asset purchases could be on the table. Have writtenney, i about and others have her do about it. Dependent is really on the specifics of your legal institutions about what they are allowed to do in that framework. I am pretty skeptical that there is actually a lot of room for the fed to do much along those lines but im not a lawyer so i could be convinced otherwise. That the committee was using in terms of quantitative easing and we have learned a lot about Interest Rates can go lower. Alix indeed. If you come inside the terminal, this is taking fomc back to september. Se are the negative dots what do you see as the terminal that funds rate . Narayana i was just at a washington on this topic of negative rates. And i listened to People Associated with the european andral banks and in denmark i think the message that i took away from their experience was that it is pretty hard to go much lower than 75 basis points. Whether that would i should say 75 basis points. Go into itt has to than i have given to it. But i think that is the kind of range that they felt comfortable talking about. David thanks to narayana. Ocherlakota the former minneapolis fed president. Umberan a fantastic station. Lets keep the conversation going and go to our morning meeting where we hear what key banks are looking at. Now fromker joins us san francisco. He has his eye on aunt etf inflows. Where is the money going . You are seeing investors get more comfortable taking risks in the market. Are 10nt numbers there trillion globally. So if you are an investor looking at the income in portfolio, whered you go . Take on creditto risks. So there is a lot of money going into investing great bonds. A lot of money going into u. S. Core funds. , core fixeddbutter income funds. Which people shifted away from years ago but as we have talked about, a lot of those fears are off the table now. And people are less concerned about rising rates. The most prudent response as an investor right now . Matt you want a combination. Duration and credit risk pair nicely together. You dont want to have all of one or all of the other but a nice combination of the two provides you with a great better through volatile markets. So i would advocate a lowcost core fixed income and. With higher Asset Classes like highyield or emerging market debt. That creates a nice combination that gives you an income in the market without leaving you to exposed. Alix some analysts are calling for the credit cycle to unwind in the fall. There is a rally that we have seen in credit which has undermined or obscured the weak fundamentals. Do you see that credit cycle ready to turn . That there is no question we are getting late in the credit cycle. We have had a very nice run. We had a bit of a scare last year into this year on the back of what happened with oil and the energy sector. But we are not seeing any nearterm unwind in that sector. Again, it is that is the kind of thing again, that is the kind of thing investors want to think about. Dont hold a whole bunch of highyield risk. Toe better quality investors even out your return profile, longterm. Year to date, we have seen over 33 million going to fixed forme etfs in the search yields. How sticky are those hands . How quickly does that money come out . Of things. Modation high yield is a great example you have seen a couple million come out of that sector this year but the turnover has been close to about 40 million. A lot of money in and a lot of money out. Look at other sectors like core bonds. 6 billion coming in. That is sticky money. I dont think that will move around as much. It depends upon your asset class but that is the whole point of the etf. It serves the longterm core investor and the more casual investor. Have you witht to us on the program. Matt tucker, thanks for being here. Is theoming up, today grand opening of the happiest place on earth. Mickey mouse and friends reveal the most expensive International Resort ever. We discussed the future next. Alix this is bloomberg. I am here in the Hewlett Packer enterprise green room. Bethe next hour, we will joined by david kelly. Find out what the opportunities are right now. It is opening day for disneys brandnew 5 billion themepark in china. The Shanghai Disney resort. Joining us now is brian wieser. He has a buy rating on disney. When are they going to get their money back . Brian over time, obviously. It is an investment on a long time horizon project. Part of the overall Global Expansion that the company has been going through. Ultimately, it it will take several years to pay back and to do well. David when they get up and running, what sort of a bottomline effect could a park like this have for them . Brian very little. It does have some upside but the disney stock namely espn not that much. David that was exactly my question. There have been reports and bob iger was addressing that at least the growth rate for espn is declining. It is flattening out. Enough, theme parks be taken collectively, to make up for the loss of growth . Certainly. Elps, i would argue that disney is the Fastest Company among its peers. And you look at the International Parks aspect of the business there is still growth in the quarter median networks. Should still do just fine. It just isnt growing as fast as a lot of people thought it was going to grow 18 months24 months ago. David exactly what bob iger said. How much of this strategy is not within the four corners of the park itself but a broader grand play of other products going into china and asia . Brian exactly. The Consumer Products segment and the studio are integrated with the park business. And the parks can be a great business. It takes a lot of capital to get started but every dollar of revenue turns into a lot of incremental cash flow. That is equally true on the consumerproducts business and the film business is what gets the flywheel going. David what did you may learn from euro disney and even hong kong . What if they learned and changed when it came to shanghai . Not been toe shanghai to see it, firsthand, but it is pretty clear that with park, they improve the relationships they have with local partners. There are always practices that they are able to apply. Even back 30 years ago back to euro disney, that was their first effort in establishing a presence outside the united states. David there have been reports of competition in the themepark business from china. From people like dreamworks. How much of that will be a threat to the growth of the shanghai park . Brian you want to be mindful of it but you also want to be mindful that 57 of disney shanghai is owned by the chinese government. Interest entity which is why disney consolidates it. And in the long, long, long run with the government as a partner, that is a powerful ally. David there has just been eight tragic incident down in orlando where the alligator came up on the beach and seized a twoyearold child, who died. Now that is a terrible tragedy. Could Something Like that have an effect overall on the themepark business . Brian i think that would take a real travel expert to identify. When you have such a tragedy there is always some risk. But i think that it probably doesnt have a huge impact, overall. David coming up to what does have a big impact. Espn and the other basic cable companies, what are the prospects for growing that business . As you say, it is growing but not as fast as it was. What about international . Are there other things they can do to get it moving as quickly as it was before . Becauset will be hard of the absolute scale associated with espn. It is so big and it captures so much of a typical consumers wallet. So yes, i do think there is opportunity for growth from different consumerproducts associated with video assets. It is going to be very difficult to move the needle on what is already a very large and successful business. Jonathan david has been seeking speaking to you for six minutes and i hear nothing about why you are at the price target brian if you are producing 10 million in cash every year and you work backwards on a risk adjustment basis, disney will still be one of the fastest growers among its peers. And arguably, it is the lowest risk relative to them. David brian wieser, thank you so much. In action, giving a jewel at the end. We will show you next in battle of the charts. David this is bloomberg. Time for battle of the charts. It is julie hyman against alix steel. Julie i have a bummer of the charts. I know it is a festive and fun thing but i am looking at gun stocks amidst all the shootings we have had. This is a fiveyear chart. There are a lot that dont appear on this chart, including the shooting that affected Gabrielle Giffords in 2011. The white lines are the various shootings that have happened. I have included some of the most lethal that we have seen. Those are the white lines. The blue line down here are weapons shares. Both of these stocks have skyrocketed over the last couple of years. Of 600 . Up to 20 . The purple line are the background checks in the united states. This is something that is tracked. We tend to see an increase in people requesting background outks, a proxy for figuring how many people are purchasing guns. Every timeappened but we do tend to see up to six in this after we have these mass shootings. In part on the concern that there will be increased gun sales. On and we tend to see, as well, typically a bit of an uptick in stocks. That is what we have seen in recent days following the tragedy in orlando. David and then you have the filibuster. Alix i am looking at the currency market. This is the fiveyear chart on the dollar yen. It is surging today at a 2014 high versus the dollar. This is what i want you to Pay Attention to. This is a standard deviation move from the last fiveyear average Closing Price of the dollar yen. In just a few months, that shows the extent of the rally that we have seen in the yen. And right now, we are at a 1. 04 yen. How much more does the yen have to rally to force the boj and government to get involved to suppress that rally . A note came out today saying that a surge past 100 could do it. Channeling tom keene here for you. Will go with alix steel because i think it is really important. Not just the level. 103, that is exceptionally strong. Broadness of the move. And this is a move that politically will be palatable if they move. It has to be abrupt. Alix excellent point. David i think this is an important issue but i agree with you. Jonathan it was on merit. Allocating your portfolio surrounded by uncertainty. David kelly coming up on bloomberg. Jonathan this is bloomberg. Im Jonathan Ferro. Brexit uncertainty. The Big Conversation for the next week. Equities are down with the dax over in germany off by one percentage point. In the fx market, Commodity Currencies weaker and the japanese yen much stronger. Nothing fromes adding stimulus. In the bond market 30 year yields. Japan negative. We are going there. The 30 year in switzerland absolutely remarkable. In the crude market, brent and wti sixday losing streak. Were counting down to the open. David where just under 30 minutes away from the opening bell. Im david westin with Jonathan Ferro and alix steel. Alix the central bank in action. Here are the three big stories that matter to the markets right now. The bank of england sends a warning once again of a possible damage from brexit. The yen rallies. And global bond yields are falling to record lows. With us to discuss it all is susan long mcandrews. Jonathan the bank of england is repeating its warning, quitting the European Union could damage the economy. Kept its ratenk at a record low of 0. 5 . The bank of england does nothing, the bank of japan does nothing. The Federal Reserve does nothing. Banks sayhese terrific amount of uncertainty. Risk forclearly investors right now. Markets dont like the uncertainty and the fact that the yen rallied because japan did not go even more negative is really just phenomenal. It is clearly uncertain times. It makes me glad we are in a longterm class at pantheon. That is a great safe haven for investors right now. Find assets that are going to do well over the longterm. David does that also give you a challenge because of liquidity . At a time of great risk longterm sounds good but you cant get your money out. You have to consider liquidity. If you need the money in six months absolutely. Most of our investors have a multiasset class strategy where there is a good home for ill iquids. We have seen that in the financial crisis as well. Alix i was talking to some Hedge Fund Guys yesterday about brexit. I asked them, do you really care about brexit . And they dont. Jonathan there is no obvious Systemic Risk that comes from this. What is the risk . But its the fifth biggest economy in the world and it could mean a global slowdown, what is the real risk . I think it plays into the broader uncertainty of Slower Growth in developed markets. Markets and investors dont like that. To what extent our investors also concerned about an edge of the wedge . And more broadly interfere with global trade . There is so much uncertainty right now that anyone event there is fear that other events could follow. David the yen is surging to its against thevels dollar since august 2014 after the boj holds off on stimulus. How much difference does this make to you . It makes a difference to fx traders. I suspect you are not doing a lot of fx trading. What difference does it make whether the yen is strong or weak . Investor psychology is important even if you are investing for the long term. There is a lot of scariness in the world and it does matter but if you are investing in the longterm and looking for good assets with good growth opportunities, what the yen does today doesnt really matter. Jonathan what is happening in japan is shaping the whole yield curve. Is aneasury market extension of the jgb market right now with investors looking to lock in some kind of income. It clearly matters in a big way. Income interesting word. That is something a lot of our investors are looking for right now. More aboute to talk other places to find income. ,ll of the hard asset plays aircraft policing, midstream assets that are now looking for capital after the correction we have seen in commodity prices. A lot of interesting places to find income other than bonds. It distorts the yield curve and what is happening in the corpore bond market. Outhave analysts coming saying the whole highyield market was helped by oil prices rally. Actual corporate weakness that nobody is paying attention to because all you want is an 8 yield versus 1. 5 . Thats right. Theres a lot of focus on that yield and people are underestimating whats going on in corporate earnings right now. Alix is that a shakeup waiting to happen . Absolutely. It has been so long that we have since we have had a default cycle im not sure anyone would remember what to do. Alix i think we just went to number three. David seamlessly. Alix the global bond yields and how low they can really go. Do you guys ever think you would see global bond yields the slow this low . Absolutely not but it has been a great time for leveraged buyouts. Alix that market really closed at the beginning of the year. Issue. The veritas do you think its open now . Will we still see loans offloaded . Its quite open. Es onof the world focus the very large part of the market. It has been a great market for private equity. You witnessed the shift the way people view the fixed income asset class away from getting income and more getting the capsule game . About returns so far this year it has been tremendous. Do you see that shift in psychology the way people view the asset class . There is still a move to find Something Better than your fixed income. The phrase alternative income is popping up more frequently. Longterm investors looking for places they can find yield outside of traditional fixed income. Jonathan those are the stories that matter to markets right now. 23 minutes away from the open. Futures are soft. Julie you guys alluded to hard assets and they are doing quite well this morning. Gold and silver are getting updated along with a bid along with treasuries. All rising this morning. Twoyeares are at highs. We also have a deal in the medical industry in Vision Health care and am surge are merging. 15enterprise value billion. Or valuation is about 2989 amsurglion dollars and has Emergency Health care facilities. And rite aid is on the radar this morning. Analystss it is what had been anticipating and the company is blaming it on pharmacy reimbursement rate pressures. They try to offset those pressures. Samestore pharmacy sales up. 1 . The shares down 1. 4 this morning. David time for bloomberg first word news from around the world. The white house says it is likely to be an emotional trip on president obama flies to orlando today. Comfortident will survivors of the nightclub massacre. He will also meet with families of those killed and thank emergence the workers. President obama has been pushing for gun control and greater acceptance of muslim americans. Hillary clinton has picked up an endorsement from oprah winfrey. The tv mogul told entertainment tonight its about time the u. S. Elected a female president. Winfrey called the election a seminal moment for women. The head of the European Commission got right to the point when he was asked about the uks upcoming vote on whether to stay in the European Union. Take a listen. We are just one week from the u. K. Referendum. Really nice to see you. What would you like to say to british voters ahead of the referendum . Dont do it. The british boat is just one week away. The british vote is just one week away. Coming up we are going to look at how correction in oil and gas is affecting dealmaking. Ian robertson joins us on what the upcoming brexit about could mean for their business vote could mean for their business in the u. K. On a sixdayde is losing streak. The longest run of declines since the start of the year. Susan long mcandrews of pantheon is with us. You are seeing private Equity Opportunities in oil and gas. We have had this terrific move off the february lows. The big news for us is 2015 everybody was in standstill mode. There is not a lot of activity in terms of new capital in the sector. Some of the mlps and upstream areas we are finally seeing the way to dollar cost into the asset class after a tough few years. Jonathan the opportunity still gone or still open . Still open. In terms of three to five years, not quarters. It is absolutely still a great time to invest. To people i talk about mne they say it is hard to get invested right now. Eventually the company will merge and you alone part of this company that is really great but in the meantime you have to wait and that can be years. Its goings how long to take for the Good Companies to arrive. High quality assets and highquality management teams. Being able to work with investors who can sort to the landscape is really important. Are you ok with a lot of debt . Bea lot of times we will writing a Capital Solution to that debt problem. What customers and contracts they have is really the fundamental work we do. Alix can you give us an idea of where you are seeing that opportunity . Mlps are typically a favorite with Retail Investors but they got hit so much harder in january. We did have a shortterm opportunity like that. We did two interesting transactions in january. David what about natural gas . Is it coming back . Not anytime soon. That is a longerterm corrective play. Alix why . There is a lot of work through the system. Our broader asset strategy that is what we are planning. There is a multiyear play. In an oilstment company, what is your horizon for that . What is your strategy . Typically a three to fiveyear investment. We are not looking for a quick flip. Interesting about that deal is it is finally in the hands of the strategic. As we have seen with linkedin and others the strategics are finally looking at these. David take us into i. T. Thats an area you are interested in. What attracts you in that space right now . Competitives. Advantage. Its growth. One of our Biggest Challenges is looking at where the pockets of growth and opportunity is. Backed by Andreessen Horowitz is really david arent there players that dominate that space . We are seeing now nasas rarely another competitor that all of the young Startup Companies that can get to a very capital efficient as this model because of the cloud. Alix how much money do you have overall . When i talk to my energy guys there like, pe has so much money waiting on the sidelines. At some point they have to put that to work. I think the market always overestimate pe overhang of capital. If you cannot get multibilliondollar deals done you will have a capital overhang. Thats a pretty efficient way to get capital deployed over three to four years. David you are also interested in health care. Its obviously a large part of our economy. Why is that already overbought isnt that already overbought . We are seeing how to get costs out of the system how to get electronic records. There is so much would to chop in health care it continues to be an interesting place for private capital. We invested in rbc firms as well as growth and the firm. David is anybody particularly succeeding . Has been a Long Time Coming so they were talking but we willrs ago begin to see more companies emerging in that area. Alix a lot of perspective. Thank you very much, susan long mcandrews partner at pantheon. Still ahead on bloomberg as the fed maintains low rates, where should investors be allocating their photo portfolios . Thats coming up. Alix futures in the red this morning. The s p off by. 5 . The dow coming off its first fiveday losing streak since february. Dow futures now up by. 5 . Jonathan significant Euro Weakness particularly in the last hour or so. I have had a lot of people talking about sterling crosses and now they are talking about weakness in euro crosses as well. Lets go to julie hyman for a look at some of the stocks moving on analyst calls this morning. Julie did you almost call me jgb by accident . You are so in japan. Lets take a look at apple this morning. Down. 75 . The analysts are looking at the outlook not only for the iphone but are pessimistic on shipments for december of 68 million units. Watch andng at the the numbers there which are not going to be particularly strong. Also looking at fiat chrysler. That stock is being downgraded to sell from neutral. And analyst says the company has generated very little cash through its ongoing transformation so the shares are falling. Amd going in the opposite direction, upgrading the stock to buy. This has to do with one of the companys new cpus which may make it viable as a second source in the pc and notebook market and it may reenter the Server Market as well. Finally yahoo as we get close to the end of the bidding process for this company. The shares are not moving much. City analyst is upgrading the stock to buy from neutral. For atikely to be sold least 5 billion. A reason to own the stock. Not seeing much of her reaction this morning. We have been talking about the problems bankers have. Laid off. Ing i was struck this morning by this piece in Bloomberg News about one part of wall street bankers that are doing great. Then i started reading it and it actually has to do with workouts. It turns out theres a bloomberg bankruptcy index and a sixyear high right now. Inkers who are involved in workouts and bankruptcy are really having a boom time. We are joined by jody who wrote this piece. This is not necessarily great news. This turnaround business seems to be picking up. When bankers are doing well it is not so good for the economy. It depends on where you sit. If you are structuring bankers, you are thrilled. Your time has come. It is a strong indicator that our economy is not going in the right direction. Also triggered by the commodity prices. We have seen crude bouncing up a bit. At 50 a barrel most of the Company Still cant make it. Hungry forirms are you need to reach deep into your rolodex to find people you know who are capable and you need to move fast. Have you looked at the history . This is an indicator. What has it told us . It has been coming in waves. In the 1990s when they were structuring business starting to kickoff, you see three major firms. What is the other one . These are the dominant forces back then. They were dealing with most of stuff that the legacy expanded. Ss you had the tech bubble burst. David in my experience just talking to friends in law firms, 2007 to 2008 picking up. Withhan great to have you us. Very interesting story. We are about four minutes away from the market open. Futures are soft. In europe losses again. Oving south by 1. 2 centralbank impotence. The bank of japan doing nothing. Substantial japanese yen appreciation. Yields grinding lower. Down by another two races points basis points. Get ready for the rio Olympic Games by switching to xfinity x1. Show me gymnastics. X1 lets you search by sport, watch nbcs highlights and catch every live event on your tv with nbc sports live extra. Im getting ready. Are you . X1 will change the way you experience nbcuniversals coverage of the rio Olympic Games. Call or go online today to switch to x1. Jonathan this is bloomberg. Im Jonathan Ferro and we are moment with the opening theyll. Equities soft globally. Futures lower. The s p 500 closing yesterday on a fivegame losing streak. Six . We make it equities in europe lower. Yen, just look at the move. A significantly stronger japanese yen. Yields grinding lower into the equity market open. This is remarkable. And 1. 55. Remarkably low yields. Streak itday losing comes six he comes six. Becomes six. Julie now we have the losing streak that at least lengthwise is similar to what we saw at that point in time. Stocks continuing the losing streak. We see the pressure from these lowering feel. We see the pressure from the losing streak. We continue to see weakness in the oil majors here. Chevron lower this morning. We have been watching the banks in europe as well. Many of these banks have 80 yards. Both hitting record lows in european trading today as the yield go lower and lower around the globe. Harder and harder for these guys to make money. And then getting into some specific news for individual companies. Withmerck coming out positive results for a drug to two treat a type of lung cancer. They will file for Regulatory Approval on this drug as soon as possible. Also we are watching macys which has reached a tentative deal of its union. There was going to be a strike at the Flagship Store here in new york that he but it looks like they avoid a strike. Macys has been a tough spot. That would not have been positive news in what is already a tough sales environment. Alix three Central Banks over the last 24 hours, how do investors navigate the low and negative rate environment . David kelly of jpmorgan joins us now. Switzerland 30 year yield. Whats the number one place you go to look for yield . You need to get income, not yield. Essentially Central Banks have not fixed the world. But they have fixed financial markets. You cannot make a decent income as of highquality bonds. You have to have a multiasset portfolio. Stocks use a lot more than european bonds. Jagger says you cant always get what you want but you can get what you need. People want yield. They need income. Dont go to the bond market. We have seen the s p dividend yield at least a third of it now has a higher yield than the underlying credit coupon of those companies. Go to those stocks and pay the high dividends that comes with the risk. There isnt actually in earnings recession because a recession is a broad based decline in economic activity. Its not broad based. This is the dollar and they are both going to bounce. If we are sitting here watching the Fourth Quarter earnings in january we will talk big gains. The majority of American Companies have not seen margins fall. There are earning money. Jonathan its financials too. David i want to be careful about earning money. The top line growth has not been robust. It is not that much. The effect of the total amount less thanout there is 1 on the yearly change in earnings one way or the other. Thats not the big deal. It really is about the dollar and about oil. Jonathan and financials. Which are being undermined by these idiotic policies by Central Banks. There are misdiagnosing whats economy. In the global we have a healthy tortoise, not a sickly hare. When you realize it is a tortoise you stop taking these emergency actions. Its like trying to get a 60yearold to run a four minute mile. Will you stop it . They are doing the opposite. If you want yield but you need income where is the place to get that right now . European equities are very good bet. Theres a lot of pessimism and uncertainty with the brexit vote coming up. The truth is the euro zone economy is steadily growing. Thats really the marker for how the economy is doing. European earnings got a lot of room to move up. Meantime youll get an average yield of over 3 in european stocks and thats pretty good while you wait for the stock price to go out. Go up. Jonathan they are going down. If youre a shortterm investor. Fund managersdge watching this show, im with you. If you are a longterm investor you should not be in stocks if you are not in it for the next five years. General areks in better than fixed income. I like european stocks. David do think theres more headroom for Earnings Growth in european stocks . I think there is. This is not really a shortterm call. There are a lot of issues. The Unemployment Rate in the u. S. Is 4. 7 . U. S. Growth is going to slow to 1. 5 when you have acquired the last unemployed worker in america. Rate in thement eurozone is 10. 2 . We are in the eighth inning and they are in the second inning. The european stoxx 600 prices earning we are looking at 20 times. For the s p youre looking at 19 times. A lot of Bond Investors have been forced to become stock investors as they are reaching that yield so who cares . But also stocks are not ridiculously expensive. Lagged. You have to be forwardlooking because whats happening is even in the european stock market theres a big drag from the energy and materials sector. If you go forward its not that unreasonable relative to the bond market. Whack right now is not stock valuations. What is out of whack our bond valuations. Is whole concept of saving that i will forego eating 10 apples today because you will give me 11 apples tomorrow. What we are saying to Bond Investors is please dont eat 10 apples today and in 10 years we will give you nine. Eventually Central Banks will have to get back to normal. I hope it doesnt come with a lot of pain. When they do get back to normal that will be seen as a very bad bet. Jonathan heres a question for you. If bond market bubble what constitutes a bond market bubble . Its a Pretty Simple calculation. Real yield relative to the longterm average in standard deviations. Alix ok. That sounds easy. We are multiple standard deviations away from a real yield. Jonathan so this is a bond market bubble for you. Bubble implies bust. The thing about a bear market in bonds as it is not the same as a bear market in stocks. Its kind of like a koala bear and a grizzly bear. Its just not that fierce and animal. The real problem is not what its doing to financial markets, its what its doing to the economy. Used to say that the most important thing is price. Price will allocate resources around the Global Economy. Prices the most important of the Global Economy being fixed by Central Banks at too low a level. Janet yellen would say this is a chicken and egg issue. We are reflecting a weak economy and we choice. Choice. No if janet yellen was sitting here i would ask her about the neutral Interest Rate. The assumption they all work under is that the neutral Interest Rate has gone down because it is linear. So long as you reduce Interest Rates you increased demand. But in fact we believe it is nonlinear. Below a certain point if you reduce Interest Rate you actually sat demand. You give people no reason to do anything today. If they were to raise rates they would actually stimulate demand. Once you realize it is nonlinear it actually changes youre thinking. After all these years of completely unsuccessful monetary stimulus, its time for a change of thinking. Jonathan david kelly, thank you for being with us. Hare the tortoise and the koala bear. L o call all of jonathan we are 10 minutes into the open right now. Over. 5 . Oh down by david this is bloomberg go. Im david westin here in the hp greenroom. Coming up, constance hunter. Jonathan we are about 13 minutes into the session. Stocks softer in the night games. Movers down on the nasdaq with abigail doolittle. Bit of a selloff for the nasdaq. American airlines is off 3 after bank of america and Merrill Lynch downgraded its shares to underperform. The company has the highest leverage, greatest earnings volatility. Lower, thetrading chip company is buying qlogic. Qlogic is trading higher. The streets very bearish on this. Multiple downgrades. Some saying this acquisition creates more uncertainty than answers. Thanks so much. Since 2000 the bmw group has invested nearly 2. 5 billion in the u. K. Manufacturing industry. Now the company is unveiling its vision for the car of the future in london. Head of sales Ian Robertson joins us now. Lets start with a special occasion that brings you to london. Tell us about the celebration and the car behind you. We are 100 years young and we have shown today a vision for rollsroyce group. Some common threads. They will be in a time when we will the zero missions as the norm. They will have Autonomous Driving Technology and there are going to be connected and utilizing the Digital World to its full extent. That means probably in many urban environment the sharing of vehicles will also be a very big part of the mobility of the future. We also have great designs tailored bespoke to the individual needs of the customers of all three premium brands. David it is quite a striking car. Withre a senior official the, a major German Company and yet you are from shropshire. Youre in a particularly powerful position to talk to us about brexit and what this will mean for bmw and bmws employees. You have a lot of employees in england. What would brexit mean for them . We have 8000 direct employees here. Its the home of all three brands. And the engine factory. Around 50,000 jobs are dependent on bmw. A week from today there is a referendum. The british people will decide whether they would like to remain or leave the eu. In the hours that followed their of course will be an announcement. What that doesnt mean is that a week from now everything is going to change. I was asked many times today do you have a plan b . The answer is no because honestly we dont know what those implications are and there will be a period where that will be well considered. They might be more incidental. There might be no implications at all. Maybe thingshand are going to change more dramatically. We will have to wait and see before we take any view on what the results would mean for our strategy in this country. But i also stress we are committed. It is the fourthlargest market. I dont see anything that will change it in one of the strongest premium markets in the world. That also tells you that its top of mind when we consider this country. Will you be lobbying the German Government pretty hard to get their act together and get a trade deal done with the u. K. As quick as possible . Trade deals im sure it would be on the table if there is a brexit. What is not known as how long and what the terms of those deals would be. Moment we enjoy the Free Movement of cars and components and labor. All of our plans across europe. The biggest market in the world. 500 Million People. Importantly, britains voice at the table is also very important to us and whether britain is in or out the rules and regulations of selling products in europe are going to apply. We believe britains voice in shaping that and determining it and working in a reformed european environment is also a very important element that britain can play a significant role in. You communicated to the thousands of employees that you have in england they have to make a decision next thursday. What many of our employees are asking us is what is this . Clearly there is a lot of conflicting data at the moment. One side is saying something and the other side is doing the opposite its difficult to say what are the implications. We dont know what all of those implications are either. Out is the point advantages of the system as it runs today and continues to develop in the future. We have shown our employees the sort of thing are just been talking about with you. Ultimately it comes down to the individual who will make their choice. And it is a very stark choice. Remain or leave. When that decision is made we will see whether there are implications for us. David thank you, bmw board member and head of sales Ian Robertson joining us from london. Jonathan you might want to know that wales has taken the lead against england. David lets check in with julie hyman. The u. S. We have seen them take a turn for the worse into the open. It is aan see broadbased selloff. No green on the screen. Energy in particular down. Industrials and financials all of computing heavily to the selling. One stock that is higher is kroger the grocery store. The Company Coming out with earnings that Beat Estimates every time except twice over the past five years. Its fiscal is saying 2017 earnings will be at the low to the midpoint of its previous forecast. This is a company that pretty consistently comes out and beats estimates. The chinese Online Travel Company Shares are trading higher after that come companys earnings Beat Estimates. The companys secondquarter net 75 nue growth will be 70 to yearoveryear. And it will devote more resources to outbound travel. Alix coming up, it is Bloomberg Markets with mark barton. What do you have on your show . Mark we have a central bank best. Fest. She advised Richard Fisher when she was upset president of dallas. Looking forward to talking about the bank of england. Then it is very much the Ryan Chilcote show. He will be speaking to the Russian Deputy Prime Minister followed by an interview with the Venezuelan Oil minister. Lets not forget the country faces an economic crisis brought about by the slump in oil prices. Busy couple of hours and yes, england are losing. Its hurting. You so much mark barton. A quick check on markets. The s p is down. 7 . The dow is also off by. 7 . The nasdaq off by 36 points. This is bloomberg. Jonathan this is bloomberg. Im Jonathan Ferro. Lets get a check of the markets. U. S. Equities substantially lower. Big losses in europe. The dax lower by 1. 44 . Central banks doing nothing. The Brexit Debate continues for another week. That uncertainty in the bank of japan seemingly resilient in the face of a very strong japanese yen. Just look at this move on treasuries. The best start to any year since the mid90s for global government bonds. Were down four basis points. Sixday losing streak for crude. And a weaker euro in this session as well. Central banks a big focus it seems. David i really wonder lets wait and see what happens next thursday. Even kuroda is waiting to see what happens. People are waiting to make big commitments. Jonathan he has another meeting in july which comes with another inflation forecast. That was the more significant meeting. There was a downward revision there. Alix you definitely see the pound dictating direction in the u. S. This chart has really boggled my mind. The blue line is the pound dollar. The white line is u. S. Futures. I never thought i would see that kind of correlation in this market. David it has replaced oil. It was always oil correlated. Jonathan alix steel, myself Jonathan Ferro and david westin thank you for joining us. That does it for bloomberg. Bloomberg markets is next. Vonnie from new york, i am vonnie quinn. Mark i am mark barton. Ons is Bloomberg Markets bloomberg television. Vonnie were going to take you from new york to london, to st. Petersburg. Signaling increasing concerns about the Global Economy. Bond yields from germany to australia also sinking to record lows. Mark one of the Major Concerns is the Market Impact of a brexit with seven days to go before the Great Britain votes to leave the eu. Vonnie then an exclusive interview with Russias Deputy Prime Minister, addressing everything from oil prices to potential asset sales. Mark 90 minutes