Transcripts For BLOOMBERG Bloomberg Go 20160907

Pushback. Jay has been critical of governor carnie and his campaigning ahead of the bricks referendum. Brexit referendum. David he thought he had his thumb on the scale a little bit. And the possess schism coming ut of the f. C. S. Fx market. David love it when bears capitulate. And we will talk about the feds next move with Mohamed Elerian. He will join us in just a moment. But first, john, youre taking a look at those markets. Jonathan i am, thank you very much. Lets get straight to it. In the equity market, the ftse 100, a touch firmer at 1 . Futures coming back a little bit. In the last 24 hours, the real story has been in the fx market. Its been a story of dollar softness and sterling strength. Five Straight Days of sterling strength. We come back with a touch with a cable rate. Coming in about. 4 of 1 . The move yesterday in the bond market, fascinating. Across the treasury curve, yields come in at the front end specifically. 734 . Down from 80 to weve had u. S. Manufacturing in contraction. U. S. Service necessary weakest growth since 2010 and a disappointing payroll report as well. And yields start to come in. But were going to build up more momentum to the world of central bank. Now with the bank of england in focus today. And an e. C. B. Decision tomorrow as well. David bank of japan is always waiting. Lets check in with our Bloomberg Team for indepth coverage of our top stories. Simon kennedy previews mark carneys speech. Mike mckee on a fed official painting an upbeat picture of the u. S. Economy. And Stephen Morris in london on a bloomberg exclusive. The u. S. Is said to be investigating a criminal charge against hsbc. Jonathan simon from london on governor carnies appearance before the Committee Later today. What are we expecting from this, simon . If we say hindsight is a beautiful thing. Were now expecting him to expect whether hes done too much too soon. What is his response . Were going to see some fireworks during the campaign. If not taking sides, then painting a pretty dark picture. They did vote to leave. And now a few months on, it will e his first time in front of the parliament. The case they will make, perhaps, is that he opted to aggressively and prematurely went on unleashing stimulus last month. The case he will make in return is that its still early days and the stimulus itself has helped deliver some of the upbeat Economic Sentiment weve een. House prices as well. Jonathan governor carnie, not the only person making an appearance today. You can see the Prime Minister is making on parliament. And the accusation against was that she took a bit of a beating from china. How is that story playing out in the United Kingdom and how is it shaping out the debate around the brexit and when will they pull the trigger on article 15 . They are coming under pressure both to stop flushing out details of what she means when she says brexit means brexit. Shes under domestic pressure as well from opposition lawmakers too. We saw a bit of a clash yesterday between her office and that of david davis, the brexit negotiator in just how aggressive the brexit will be of a single market. So clarity is what is sought and weve heard various bank groups this morning, a lot of bankers are visiting with the chancellor to make the case that there needs to be claire touchdown what the u. K. Is seek on these negotiations and sued. We have the shock of the referendum. We have the summer off. And now its back to school and answers have been sought from juries made about strategy. Jonathan back to school for governor carnie as well. Simon kennedy from london. Later on this program, full coverage of governor carnies testimony before the u. K. Treasury select committee. That comes at 9 15 eastern, 2 15 u. K. Time. David in the meantime back here in the United States, were hearing from a raft of fed president s this week. The first one late yesterday and joining us is mike mckee. Hes Bloomberg Economics editor and we think of him as the fed whis rer. What did we hear last night . They are talking that book. Last night, San Franciscos john williams, hes not a voter this year but a respected voice on the policy committee. Said he still has an open mind going into the meeting. Heres the key quote from him. The American Economy is finally back in good shape and headed in the right direction inflation is moving up so much it makes sense for the fed to gradually move Interest Rates. The Market Reaction this morning . Nah. Twoyear note yield is lower. Futures markets are pricing in at a 25 chance that the fed will do something on september 21. And heres why. The big three of data so far this month, jobs. The manufacturing i. S. M. Number and the nonmanufacturing services indicator all rolling over this month. It is a hard to adjust sort of weird month, august is, but we really dont know if it means the economy is tanking or were going into a slowdown. But it does suggest that the markets are not going to be listening very much to fed speak this week. David its a little hard to square those numbers with what we heard yesterday. But should we particularly Pay Attention to something he said which is as i understand besides the data, he wants to listen to the other fed president s to hear what they have to and say hes particularly close to janet yellen, if the he . He. And she said the same thing he said last night back in jackson hole that were moving closer to that. Weve got six more fed speakers. If he comes out and favor, maybe he will convince people. But right now, the numbers dont look very good. David thats mike mckee. Thanks so much for being here. Thats one down, four to go, john. Jonathan i wonder whether we get any descent from these guys. Theyve all voiced their opinions. Have an official dissent if you believe they should hike and that hasnt happened very much for the fed charean net yellen. To o lets get steven, give us a backdrop to the story and walk us through it. And let me know what hsbcs response has been towards all of this as well. Hi, jonathan. So back in 2012, hsbc entered into a deferred prosecution agreement with the u. S. Government after it was found to have among other things, help the Mexican Drug Cartel launder money to do its business out there. It paid a 1. 9 billion fine but it wasnt formerly prosecuted and wasnt given a criminal record about it. Then this year, one of their currency traders, a guy called mark johnson was arrested and take sfwoon the u. S. For allegedly trying to bilge a client out of a transaction transaction. And they say are looking to see if hsbc has cleaned up its act as it promised to from 2012 and if it had deemed to breach the terms it could be prosecuted for both the crimes committed back then as well as the Foreign Exchanges transactions which have come to light this year. This is a very serious issue for one of the worlds biggest banks. Jonathan i just wonder what investors are thinking because the stock is down to about. 1 . No drama if you were looking at the equity market. What the investors saying about the latest legal wrangle over hsbc . It was a bit of a surprise that the shares didnt take more of a hit today because of the potential seriousness of it but perhaps the market is going to wait and see how much farther the stocks will go. But this is just another bad thing to be out there in the narrative about hsbc. It wants to move past this misconduct problem and become a boring bank again. Jonathan the world wants boring banks. Stephen morris, thank you for reporting in london. Futures are a little bit soft. Equities positive. A lot of movers to get to. S go to julie high man hyman. Julie the expectations are very, very low according to analysts for the new apple iphone. Some say there is potential for some upside surprise if there are anything we dont know about. It is widely view that this will just be small incrementle changes that will be made. They will announce at 10 00 a. M. San francisco time. And the new iphone is expected to go on sale september 16. More movement this morning is happening in chipotle chairs and thats because this is bill ackmans latest target. He is taking a 9. 9 stake in the company and his firm says its going to discuss ways to revamp the companys cost structure and strategy. This could reignite effort to shake up the nine person boarded the company after the food safety issues that have playinged the shares and the sales. This year up to 58. 5 . The airlines here over in europe. Four of them downgraded over Deutsche Bank on a weak assistor outlook. Its stubbornly high. Demand risks are waited to the downside. So easy jet which is not moving. And ryan air downgraded to buy live hansa and air france. And you see those two are the worst performance among those four. Jonathan thank you very much. Coming up on the program, a recipe for fed in action. The weakest pace in six years. Federate baits. They flied. Ohamed elerian joins us next. With futures stable, this is bloomberg. Jonathan this is bloomberg from new york city. Recent data releases are painting a less than an upbeat picture on u. S. Economy. We saw u. S. Service industry expanded their weakest pace in six years. And manufacturing, apparently is contracting. Do all of these add for a recipe in action . Mohamed elerian joins us now. Mike tomlin, you know the are berg mike tomlin, you in the low 20s for the september meeting . Mohamed i think this is a really tricky situation. I would put it higher than the 20s. Jonathan why are we sliding . Has the fed lost the handle on the markets . I think this question is really important. The data is soft but its not ugly. The fed is saying we might do something because the market is watch the data because it was told to. Mohamed two factors. One, the market has been conditioned to believe the fed is data dependent. So when it sees weak data, we readjust. Secondly, these moves cant be readjustfied. And liquidity. You see these sharp moves in response to incremental data that shouldnt have such an impact. David is the fed losing some of is out clout in terms of influencing the market . And not only the fed, the bank of england, the e. C. B. Are they really being listened to the way it used on . Used to be . Mohamed its less effective. But within that, theres a huge variation. One is the bank of japan and or the is the fed. Its effective but not as effective as it was before. And you put the bank of england and the e. C. B. In between. Jonathan how so and does that change . Mohamed so how so . It takes Interest Rates negative and it sees the currency appreciate as opposed to depreciate. Why . Because its starting to trigger the actions of individuals and companies. And that tends to happen at extremes. So negative Interest Rate, they encourage savings. You get the counterinterview reaction but youve gone too far on policies. Jonathan so this doesnt have to just apply for the bank of japan. A low Interest Rate, the problem now, are no longer the conclusion does there need to be a rethink on the effectiveness of low rates in this environment . Mohamed yes. Ultra low rates and negative rates are becoming part of the problem. And in some countries, they are a problem already, like japan and europe. As to whats needed, lets focus on Central Banks and much more focused on the broader set of policies. Jonathan can you imagine that, david . Lets focus on central bank. Youre killing us. David thats exactly right. Go back to what jonathan put over the chart. Put together with the fed. Are the two connected . What the central bank is putting their asset prices up. Getting the economy going has not been shown. Are they really designed to stimulate economies . Mohamed no facing structural headwinds and theyre not designed to compensate. They can buy time. They can borrow, and i stress the word borrow, returns and growth from the future, hoping that you can pay back with a bit more. But be careful. Because at some point, you can overborrow. So i would stress Central Banks are not made for this and was dependent on them for too long. David twhees be done if youre a central banker . Mohamed well see carnie today in london. You go to the politicians and you say i can do it all on my own. That is an excessive burden. Ive been carrying it for too long and we need help. We need help from fiscal policy, Structural Reforms and we need better Global Policy coordination. Jonathan when governor carnie says that, guess what he does. He moves first. So the question i would ask is has the bank been right all along . Sit back. If its their problem, make it their problem . Mohamed if the central bankers knew back then what they know today, they would have been less active. But this is i think the example of a doctor. You dont walk away from the patient. Even if your medication isnt perfect, you still are going to help the patient. Thats what Central Banks do. Jonathan youre sticking with us. David coming up, bond traders seeing warning signs and are moving to cash the 10year note is yielding less for the First Time Since the 2013 temper tantrum. Has treasuries gone too aggressive . Thats next. This is bloomberg. Jonathan from new york city, this is bloomberg. Fund managers take on greater cash positions and bond funds are awashed with cash. It did a signal of limits coming to the fixed income rally. Mohamed elerian is still with us. So bond funds are awashed with cash. We know what theyve been doing. Theyve been reaching for yields. U. S. High yield versus treasury and weve seen spread to be tight, tight. Not only are spreads tight, but the absolute yield, thats the real story is low, low, low. At what point do we move away from looking at the spread and saying based on risk assumed, i do not like the absolute yield. Mohamed so were getting closer. Remember, investors operate in relative space so they think wow, look at the pickup relative to treasuries. Jonathan yeah. Mohamed and at a certain point, theyre saying am i being compensated overall for the risk and they look at overall space. That pivot happens at lower and lower rates and were seeing it. Were also seeing an amazing amount of issuance and its not that credit quality is improving that much but people are being pushed out of low yields and government bonds into higher risk assets hoping for yields and like in 2006 and 2007, this will go too far. Jonathan weve looked at Nonfinancial Companies in europe. Thats been the bug story. We can show the explosion of issuance in europe so far this year. The most on record since the was introduced, when do we start looking into that chart and talking about supply and demand and saying supply is actually going to was introduce demand that will exist based on where were trading at the moment . Mohamed you have central bankers that can always buy. You look at this and you ask how much Systematic Risk is building up into the system . Jonathan how much is there . Mohamed quite a bit. Central bankers keep one eye on this and one eye on the economic variables and this eye is telling them maybe we should be less accommodating when it comes to policy. But the other one is the economy and thats why its a tricky situation. Jonathan they go hand in hand. We can bring up the chart from the Standard Poors global rate. It takes it with a negative outlook. And we take it back to 2009. When does the fed look at that and say this is a reason that we need to move away from ultra low rates and overcome dave accommodate tiff policy . Mohamed it is a trade justified between trying to stimulate the Economy Today versus increasing the problems of financial instability down the road. Jonathan so the fund manager ok. This is my absolute yield. Heres the risk ive got to assume. What on earth do i do . Mohamed right now, were coming from a period where not obviously have returns been wonderful but financial volatility has been repressed. Everything has gone up. This is the time to take some cash. Risk risk exposure and wait. Were going to have a return of velocity volatility and you will the opportunity to ping gad names at more attractive prices. To cash. Lets go mohamed it is to have less market exposure, recognize that youve got to be more tactical and that we are living in a very unusual period where everything has gone rights. That doesnt normal ply happen. Jonathan Mohamed Elerian, fantastic to have you with us. Coming up in the next segment, sales reach a record for the month of august and the stocks sit at a 13month high. We will debate that next. From new york city from viewers worldwide as we count you down to government carnies Treasury Select Committee. This is bloomberg. Its 7 30 a. M. On wall street. Heres what you need to know this hour. U. S. Prosecutors are considering a criminal charge against the unit of Hsbc Holdings related to conduct on its Foreign Exchange desk according to two people familiar with the matter. It let the bank avoid prosecution. Bank of england director mark carney testified for the First Time Since britain voted to quit the Union European union. And apple is expected to show up new iphones and an updated smartwatch during its Product Launch today. And thats what you need to know this hour. John . Jonathan thank you very much. Lets get you up to speed on the market. Futures stable in the United States throughout the session in the market in europe, we did kiss the january high yesterday and now we go forward once again. The d. A. X. Up about a third of 1 . The story in the fx market, the last 24 hours has been a stronger pound and a weaker dollar. Flipped out with a cable rate pulling back to a 133. 80 handle. The real debate though is whether the cable start tosca pitch late a little bit the forecast for the pound to trop towards 1. 10 in the near term. So we look forward to governor carnies testimony in just a couple of hours time. In the bond market, the front for the front onald they have treasury curb, twoyear yields down to 73. We remain stable there. But we play the game we love to play and we embrace it because we love it. Its the countdown to the lady herself. We look forward to seeing her win on september 21. Another fed decision that we get to spend every day. David shes not the only one talking that day. We will already hear from mr. Kuroda. The g20 in china may be over but Mohamed Elerian said the media may have missed the importance of what they all have a had to say over there. And thats our morning mustread. He says the g20 makes clear that they are not satisfied with the recent pace of growth. They neatly identified the principles that would underpin better Global Economic performance and they acknowledge the need to make globalization work better. Mohamed elerian is still with us to take us through this piece. Take us through what they got right and what they pail to get right. Mohamed so what they got right is the diagnosis of the global economy. And what they got right and what needs to happen to improve prospects and make growth more inclusive. This was a big step. This is one of the most detailed communications ive seen out of the g20. The bad news going from design implementation is very hard. The domestic political environment is so complicated that it is unlike le were going to get implementation. David the devil is always in the details but referring to the talk about the prescription, i was just in china as you know in talking to a senior Government Official before the g20 who said we need to get the globalization 2. 0. What does that look like . Mohamed globalization 2. 0 looks much more carefully at the benefits of growth. Are they inclusive enough . And the answer is no, they havent been. Why is that the case . How can you make it more inclusive . It also looks at governance issues which are credit toll sustain growth. And then it recognizes that you have to deal with what hasnt been done in the last few years and you have to take on the backlash that were seeing against globalization. David what could we do to make it more inclusive . Here in the United States, this is a big issue in the president ial election right now. What could be done to make the benefits of trade, for example, and investment across borders more exclusive inclusive . Mohamed both Hillary Clinton and donald trump have picked up the issue of inequality, have picked up on the Collateral Damage of free trade even though the benefits far exceed the Collateral Damage. So its an issue for both parties. What needs be done is more comprehensive in terms of political actions. We have frozen the policy measure, which is fiscal. We have completely frozen that. In addition, we havent done enough to promote growth. Everybody recognizes a massive infrastructure deficit and yet no one is taking steps even though Interest Rates are ultra low. And im encouraged that theres much border recognition. We just have to continue to press that in order to get action. David it sounds unilateral, not multilateral. You wouldnt have a trade agreement on the fiscal level. Does it require the individual actions of the player . Mohamed so first, you need multilateral lets take fiscal. If one country moves and the others dont, then that country may end up with the worst of the outcomes. And theres a reason why other countries that are not politically inhibited or politically constraints arent moving because they understand this equilibrium, this game theory that if they move and others dont, they may be worse off. How . In the currency market. So there is a need to move together. And lets remember, april 2009, the g20 london meeting was critical in avoiding a global depression. And i think that we are at a state where we need better global coordination. My worries, you need a crisis to focus it. David its a really interesting piece and an important piece. And the first thing, jonathan, is get the diagnosis right. Its difficult to address. Jonathan yep, and trying to work out in the market world. E. M. Stocks rallying for a fourth day following a u. S. Weak Economic Data. For more, i want to bring in a strat jiths at j. P. Morgan to join the roundtable with Mohamed Elerian. The conversation weve been having is this reach for yield but the story has been i want some uncorrelated diversification. m going to e. M. Absolutely not. I see theres a chronic shortage of the growth tourist that we used to join in the emerging market. So my clients are growth tourists. They come from the United States. They come from japan, europe and thaw may emerging markets for higher growth. You have higher earnings growth. Adrian whats turning are outpacing developmental markets. The market bottomed six months ago. And youre seeing net revisions that turned positive. Thats very fundamental story. But there arent the growth tourist there. People are watching these markets going up on very low volumes. Just to throw out a statistic here, in the three years to the taper tantrum that was some 385 billion of money going into openended e. M. Funds, if you look at it today, its minus 85 billion. So you have a fundamental story in e. M. , which is not correlated to u. S. I. S. M. , the problems with european manufacturing. Its the fact that we have real Interest Rates falling in e. M. Weve got past the problem of declining energy prices, which was a very major headwind for e. M. Currencies. The chinese economy is gone through a big structural reset. If you look at things like heavy truck production in china where its down 60 from its peak. If you look at the price of key commodities in the overcapacity industry whether it be cement, steel, plate glass, theyre all rising because of this overcapacity story is past its peak. Theres a really powerful fundamental story and the tourists havent arrived yet. Jonathan youve painted it beautifully. Mohamed, do you subscribe to that . And the doomsday scenario that was painted for the likes of the emerging market is not going to play out . Mohamed i agree the selloff is overdone. And it was turbocharged by a massive outflow. What im not sure and i put it back to you us the extent to which e. M. Can decouple. You are saying it doesnt matter if it happens in i. S. M. Does it not matter or it matters less . I think it matters less. When we look at the dynamics of global trade, they have been incredibly weak. Youve got global trade growing less than the anemic Global Growth phase. Part of that is we had p. P. It. Deflation last year and volumes have looked relatively weak. And i think what is happening is that as economies become much more about services and less about consumption of goods, then they do become more domestic in nature in terms of what the drivers are. So i would agree the word decoupling is a very dangerous one to use but perhaps the influence is a little bit more modest than it would have been in previous decades. David give us a sense of the funds flow. We were talking yesterday on bloomberg report on debt. And a passive inflow, over 21 billion in the last nine weeks into e. M. Debt. Is it similar to equities . Mohamed no, etiquette yeartodate was up about 9 billion. And in the previous three years, weve that outflows. There are more acceptance to buy e. M. Yields. Jonathan how do you express this in a market, your story about them being isolated, is that how you can have been an overweight china and an underwait underweight australia . Mohamed its more about services. 31 is tech companies. So these are your alley babas, etc. And its the evolution of the chinese economy that allows you to have very positive net revisions in china and very negative results out of australia. Jonathan so the story we began this conversation was this spillover effect and whether you can decouple from i. S. M. The story that agents is describing is everything seems to be ok in china. This was something that the fed was petrified of about six months ago. So should the feds be no longer petrified of whats happening in the goebel economy . Mohamed theyre less worried of a brexit in europe. I dont think they fully buy into this notion that asia has moved from its tragedy that sells to other people to one where we consume more at home. They would argue they are moving there but theyre not far enough down the road for us to worry less and to assume that that part of the world is now is stable. They still worry that there may be hiccups and that transition that adrian is talking about is ongoing as opposed to complete. Jonathan adrian to wrap it all up to you, you are saying if we wet get a more hawk everybody fed, that doesnt matter because the fundamentals have improved in a big way . Adrian i think mohamed put it very well. Weve gone from extreme concerns to less concern and Capital Markets will move on that. So we havent dealt with all our structural problems in materials of dealing with the fed, it would be better for e. M. If the fed took rates up. Remember when the fed took rates from 2004 from one up to five and a quarter in 2006, you had var powerful move in e. M. Its a risk gone event. And with the dollar overdiscounting, the fed knew as we ran into liftoff in december 2015 is a good thing. So i dont think the dollar will appreciate the next time the fed moves. And the big currency story of the year is how do you get the yen to depreciate . Its rallied 20 when kuroda makes a statement. It seems to rally further. And thats a big lesson. The most fortunate bank in the world is the pboc because its sneaky. Not much changed in their reserves. And they may turn out to look the smartest at the end of this. Jonathan they also talk less as well. Adrian i think they are very different than the federal open mouth community. Jonathan thank you, adrian and mohamed, im told to ask you about the jets and what the predictions are the forecast after them. Mohamed we were having such a good conversation. [laughter] ill leave it there. Jonathan we wrap it up. Mohamed elerian, thank you very much. David and coming up on , barcelona is opening an office in new york hoping superstars like lionel messi will uncrease their revenue to over 1 billion a year. Barcelonas Team President tells us how he plans to capitalize on americas untapped market. Thats next. And this is bloomberg. David this is bloomberg in the greenroom. Bank of England Governor Mark carney appears before the Treasury Select Committee and well take you there live. Jonathan opened for business in the United States. Thats a sign that barcelona is hanging with their unveiling of a new york city office. The Empire State Building would there to celebrate the move. The star is banking on the star power of players to attract u. S. Sponsors and earn over 1 billion in annual revenue. With us now is f. C. Barcelona president , josep maria bartomeu. Great to have you on the program. So were 1 billion in revenue by 2021. How are you going to get there . Josep thank you. Well, were working and trying to show to the world that we are a football team, a team that likes to be admired, likes to play well, to win. And thats probably will attract not probably, but will attract sponsors, interests in the people and being closer and closer to the fans as much as possible. Jonathan someone came over to the u. S. About six months ago and take out cable television. The premier league, everywhere. La liga, not so much. Why is not not happening in the United States . Josep well la liga didnt have the tv right of the spanish teams. Right now in the last year, theyre selling the rights together. Its a waye doing of selling futbol and selling sports and they are sell negative u. S. And we hope that in the next coming years, they will be everywhere in the u. S. And everybody could see a spanish match, mainly of course barcelona. But it will come slowly. Premier league has more advantage in this field but la liga comes behind. Most of the futbol stars play in la liga. So fans and people in the u. S. Are following those players. Jonathan the question is you hear in the United States, its going to be an important market for you. Is the demographic different to say the demographics in europe and spain and in the United Kingdom and in asia if what is the demographic in the u. S. That youre trying to target . Josep well everybody. Of course, mainly the children, the young people. Futbol is every day more and more interest for the young people in the u. S. Of course there are a lot big people from Latino America living in the u. S. Which they have the futbol but right now in america, a lot of people is playing futbol all the time when they are young. And we are trying to tell them torque explain to them about futbol. Thats why f. C. Barcelona schools in the u. S. And now we have already one first in miami. We are opening next monday in charlotte. We are opening a school in new york. Just to bring futbol to show to young people how futbol is and its a nice sport that they can live with. Jonathan you secured the u. S. Championship, nike, gatorade, youre doing well there. And the strategy is to buy the right players and get the sponsorship off the back of it. The question i would ask of you and for our viewers that might not be familiar with the transaction that happened in the summer. You have the likes of paul from manchester united. A figure of around 100 million. Youre the president of a futbol association, a futbol company in barcelona. 100 million for a player . How do you extract value . Josep they did it because they know theyre going to be beneficial for united. Paul is an incredible player and i know a lot of clubs were behind him. Finally he went to united. But really, its a figure that doesnt alarm us. It is something that is becoming more and more. Just for example, f. C. Barcelona, we bought two years ago, from liverpool for 81 million euros. It was a big amount at that time but after you see a play from suarez, you think the investment was worthwhile. Quantify how do you that . How do you quantify the value is worthwhile . Josep the most important is sports. What we expect from quantify that . Him. After this, comes everything which is image. The image in barcelona, you know we have leo messi, the best player in the world. We have namer and we have suarez. Together, the three players, they make a terrific nathan the real madrid fans may disagree. What the goals for this season for you in terms of the bottom line and in terms of the sport itself . Josep well for us, the most important is sports. And every year and every season, this year, we did a good team, a am which is very great for everybody and we are going to try to win everything. Minimum, we have to win the finals. We have to try to win. And on the bottom line, well, f. C. Barcelona is a club that is sustainable. Jonathan yeah. Josep it has very high revenues. We are increasing very much. And we win money. Thats important because we reinvest in futbol and in real estate. We reinvest in everything. Imagine that a club like barcelona us a club owned by 150,000 members which we have one economic results. We want supportive results. That way everything we win go to futbol again. Jonathan josep maria bartomeu, thank you very much for joining this program. David its not every day you get to talk to Lionel Messis boss. Thats special day. Were counseling down to apples big event on San Francisco. Analyst expectations are low but does that bode well for shares that have performed well around lunch event . Well talk with the top analysts next. This is bloomberg. David this is bloomberg. Im david westin. Later today in San Francisco, apple c. E. O. Tim cook will take to the stage and show the world their new products. With sales of the allimportant iphone down an increased competition from around the world, apple needs new momentum but many analysts are skeptical theyre going to get it this time around. Joining us is dan, an analyst. A close follower of all things apple. Whats the best thing that can happen for apple today . This is really an interim release. Its not a major forum factor change like weve seen in the past. The best thing that can happen is youll get a dual camera technology. Youll get some of the enhanced memory and flaps the headphone jack which is rumored for them to remove that could be controversial but this will spur the consumer upgrade that has not happened with success. Thats really what the focus is with the focus. They set a high bar with iphone 6. 6s has been a disappointment. Can this move them in the right direction . David i read the speculation on the headphone jack. Why do they take that away . The objective would be for a thinner frame. It is a doubleedged sword. The jury is still out in terms of how consumers react do. They like the design . But no headphone jack could have repercussions. It could be a boondoggle for only of the earbud makers but will this all combine be enough to get consumers to upgrade . Smartphone industries seeing headwinds and when you compare this to samsung. Samsungs quicken that upgrade cycle. Apples elongated it. They could be keeping things close to the vest next year. David the majority of their headphones come from the headgear. What about the watch . Watches, its been a its lacked the wow factor. This was really crossed technology, this is going to open it up to the whole new product category. I think the big focus here is will consumers start to go in that wearable category . How big could the watch be . And a lot of the technology is looking at what apple does today because they will will be repercussions many the industry. David we will be all watching with bated breath. Jonathan thank you, david. Coming up on the program, bank of england mark carney will appear before the u. K. Parliament committee. We will bring you there. Full coverage right here on bloomberg. Its the countdown to carnie and global markets. Futures stable. Equities positive the europe. Well be all over the market countdown. Right here. This is bloomberg. ,l the Services Industries expand at the biggest case since 2010 but the fed president says the u. S. Economy is the best it has been. Mark carney testifies before you kmbc. Apple is expected to reveal a a product today and we will bloomberg to the events. Welcome to the second hour of bloomberg. We are alive in new york city. Are you excited about the iphone . Know but i bought one last month. For a lot of the analysts out there, they are not excited about what will be revealed. David you have never said apple is boring. Jon maybe thats why Warren Buffett is interested in the company because its boring and stable. Its no longer the excitement Growth Company it has been. David he always plays for the longterm. Well talk about the buckets in the u. S. Election coming down the home stretch. Steve ratner will join us in a few moments but first we take a look at the markets. In the markets on this wednesday, futures are margin the lessee are marginally negative. We are Going Forward with the dax up 1 3 of 1 . Fixed income has been disappointing. Payroll growth is not in line with many expectations. Manufacturing in the u. S. Was in contraction and if you look at the services, the weakest growth since 2010 and people are starting to pair there investments. Its a stronger dollar today. To cable rate goes back 1. 33. Its an online from yesterday but in the bond market, the two year yield is relatively stable. 80 basis points down to 73 and the market is looking at the federal reserve. Think the fed will do anything in september. David the market is not believing the fed will do anything. Lets go around the world and check in with our team for indepth coverage of our top stories. Simon kennedy is in london reviewing the marconi speech. We will also be in new york with up heficials painting and picture of the was economy and we have london with apple unveiling its latest iphone in about one hour and 13 minutes, Governor Carney will go in front of the mps in the u. K. Can we call it a soap opera . Is it Governor Carney versus the emptys all over again . There is a panel of lawmakers, some of whom not just disagreed with the vote for brexit but they disagreed with did not takecarney sides but he did point out the economic downside of leaving. They plan to hit him on whether he acted prematurely in unleashing stimulus last month. There assigns that the economy is absorbing the shock better than expanded. Some of the banks hold back there forecast yesterday a recession. Jon it seems like the bank of england is under siege. Are we starting to see signs of a fragmented u. K. Government . This is a fragmented government from the start. Not all members of parliament were for brexit and now we have a Prime Minister that did not think so herself but she has to deliver on brexit. The last fractions in few days, when is the urgency from opposition lawmakers from foreign governments for theresa may to flesh out details of what she means by exit and hope to achieve. She finds within her government, there are different views on what it means. Her job be tough in the next few months to coalesce around a plan. Jon thank you. Governor carney will be speaking in a little bit over one hour. Full coverage is coming up. That will be at 9 15 a. M. Eastern time. David we are not familiar with a fragmented government. Now we will turn to the fed. We had disappointing ism Services Numbers coming out yesterday and we heard from fed president williams later in the day. Well find out what he had to say about the numbers. We cut to the senior u. S. Economist for bloomberg intelligence. How much was the fed president deterred by the ism numbers. I think hes that was to raise rates. Thats what he suggested. And he isarlier obviously in favor of moving rates. This does not necessarily mean that all of the committee is ready to pull the trigger just yet. Butfed is feeling eager its not urgent to hike rates. The recent nonmanufacturing ism indicator suggests they might have to postpone at least until december. It was the worst monthly change since the reception, not just the level but the change in the index. The forwardlooking indicators like new orders are not suggesting that the rebound in the second half of the year will be strong enough. Mr. Williams is the first of five fed president who will hear from this paper are the markets paying attention . I think the markets are not of theattention to much recent fed speak particularly from the more hawkish members of the fomc. We have to Pay Attention to what the core of the committee will tell us. We will hear from president rosengren later this week and he more of thet thinking within the consensus of the fed. Carefully listening but i think the september rate hike is off the chart. Expecting any action in september. Its simply too early given where the economy is. David there you have it, thank you so much. We will now turn to apple with the big announcement coming up in a few hours in San Francisco for their new iphone and their watch. Adam joins us from london. What do you expect coming out of this announcement . Big news out of the event will be the new iphone. Produces product that over half of the apple revenue and more of its profit. This will be the next line that comes out. Its expected to look like the models currently out that with an improved camera, stronger processor, and a new Software System available for that phone as well as the older bottles. There has been a slump in iphone sales, down for a few quarters. Will anything be announced today to turn that around . Are they saying wait until next year . Nothing is expected from this event to change that. Is revenue is continue expected to continue to fly the rest of the year. Cure will be the 10 Year Anniversary of the iphone, its expected to have a bigger overhaul. They will get rid of the home button on the screen and moving to a different kind of interface. This device will still sell extremely well by apple standards. It has become one of the Biggest Companies in the world as a result. The expectations are very high. David thank you so much. Lets go over to julie hyman to look at which stocks we should be watching. Julie the first one is not actually moving. We are talking about hsbc. Undernk apparently is scrutiny by u. S. Prosecutors are considering criminal charges against one unit. This has to do with the deferred prosecution agreement the bank made with u. S. Authorities. It would be unusual for those authorities to rip up that agreement. It essentially says that if you sign this agreement, you will abide by the regulations we have and the Justice Department is considering whether the bank has done that and has already charged to people on the Foreign Exchange desk with improper trading and they are asking whether the hsbc internal review of trading should have resulted in disciplinary action. All of that said, the shares are little changed. Handicappingrs are the odds that something will emerge from this. Were also watching chipotle after bill ackman took a 9. 9 stake in the company. Will discuss ways to revamp the company after flagging sales because of its crises. One analyst is maintaining a sell rating and thinks its difficult to turn the company around but shares are higher. Micro devices will be selling new shares to raise 1 billion to retire some of its debt load which stands at 2. 26 billion. Share dilution, they are down by type and 4 . David lets get caught up on some stocks and lets look at whats making headlines outside the business world. Obama issident expressing frustration in the delay at passing that and deal. Ic he addicted it may take some time but eventually the trade agreement will be ratified. Its always going to be hard. Nothing is easy in the u. S. Congress right now. Wase there is a time when i but i have not seen it. It sure has not been easy since i have been president. Eventually, we will get it done. Emma the president said the u. S. Can be a great force for good but has a tendency at times not to be. Earlier this year, the u. S. Sent that 1. 7 billion in cash and the Obama Administration has sent an additional 400 million in cash to help free and american prisoners. It was in settlement of an arbitration claim. Says the sanctions blocked iran from the International Finance system. Angela merkel is defending her opened door policy for refugees. Government has done everything it can to reduce the influx of refugees. The defensive after her Christian Democratic Party lost in state elections. News, 24 hours a day, powered by mud and 2600 journalists and analysts in more than 120 countries. Coming up, weakening profits and big buybacks are limiting companys ability to buy back that. Steve ratner joins us next with what it means for ceos trying to appease their shareholders. This is bloomberg. Julie from new york city, this is bloomberg. American companies have started to slim down much amid weakening profits and buying back dividends. With us now is steve ratner. Are familiar with the story of the top 5 with huge cash piles. When you just look at the median, its a different picture. Theres less cash than a market should expect fewer buybacks, perhaps less increases in dividends as panies operate with a norm with a more normal cash level. Jonathan we have had several conversations about when companies would invest in themselves. Does that story continue . About companys reticence to invest in the United States or the developed world continues. You were in a slow growth environment. Is no obvious increase in consumer demand on the horizon and i think you will see the face of investment pretty muted. David what does this say about where we are in the cycle . You get later in the cycle, its harder to cut caused so where you get increased profits . You probably are not going to for just those reasons. Cost cuts have been at an alltime high and the slow growth on the demand side, you cannot drive efficiencies or drive higher margins by higher costs. You are looking at a fairly muted corporate profitability. Jonathan lets look at the pmi. The gdp numbers captured what has happened on business spending. Are you concerned in any way . You have been mr. Optimist over the last several months when many are pessimistic. What do you think of the latest figures . Having done this for a long time, numbers go down month to month and thats a dangerous to start attaching yourself to some pmi number and thinking the world is about to end. When you put the whole picture together with the job numbers last week, the picture seems to be still one of an economy thats growing at a relatively low rate may be around 2 . Where i am more pessimistic is there are people out there who think of growth will accelerate back to the percent. Given the levels of productivity growth at the moment, given the pressure on exports that continues, i dont see that happening. David what is the danger of recession . You get nervous when the numbers turned south. Are we in good shape because of a leverage situation . The economists said the imf failed to predict the last 200 gdp growth. The are notoriously bad at seeing the next downturn. Said here today, its hard to see what causes a recession. We still have incomes growing and jobs growing and everything is moving up and to the right at a slow level. You dont see asset bubbles of the kind we saw in 2006 or 2000. Its just not obvious what causes a recession at this moment. Some have said markets dont predict much. If you look at markets, markets often they often miss systemic risk. What we are seeing is very tight spreads and absolute yield is very low. If you look at the highyield space, is there a Financial Stability concern . We spent two hours on this yesterday afternoon and its been surprising to us that highyield spreads have come at as much as they have since the februarymarch timeframe. At that time, we thought we were distressed cycle. Absent energy, it has not happened but will it . Has lending limits on private equity deals of six times leverage. It seems to result in private are somewhatthat better capitalized. Thats one source of the stress on the other is the economy rolling over in bringing down industrial companies. Our spread is too tight come out with me mr. Oh but you can bank the Central Banks around the world for that. In athat mean we are recession or a huge bubble . I think we are in a mediumsized bubble. Jonathan stick with us. David we will talk about trade bridges important and its a hot button issue in the election. What are the candidate saying and will it help economic growth. Thats next and this is bloomberg. David this is bloomberg. 62 days left until the , there isal election no denying the emotional or importance of trade. Still whether vested talk about the election is steve ratner. Is terribly important and has become very emotional in the election. What are the candidatess position . They are essentially the same. They say we should not do tpp. David the transpacific partnership. It has been negotiated over the last few years between 12 countries. Ny it was to tie us closer politically to the countries that surround china. Donald trump position as he will negotiate good trade deals and if he cant, he will put massive tariffs on imports from the countries that dont respect him. The Hillary Clinton position is she is in favor of fair trade deals that we dont know what that means. I think the reason we are in this place on trade is that people who got these trade agreements past starting with nafta failed to recognize the fact that there were going to be winners and losers. They said trade is good for a so lets do more. That younot realize and i are winners, our cars and close are cheaper and everything we buy is cheaper but the people who used to make those in the United States dont make these things in the United States anymore the number of cars in the United States is not risen like it has in mexico so you have people who did that stuff who are unhappy and of seeing their wages go down substantially. What we should have done is taken some of those benefits we got it and share them with the people affected. David you do support Hillary Clinton. Andtpp. Is either candidate stepping up to that issue which is the inclusiveness of the benefits of trade . There are benefits but they have not been inclusive. There is not yet a candidate but in fairness to both candidates, were in the silly season where you are dealing with a highly emotional issue. Everyt think you will get to test turn from each candidate arian i would hope that Hillary Clinton were elected, she says she is in favor of fair trade deals and she is in favor of people who have been left behind and would put that together in a package. Situationre is not a where they have not tried to do anything. Is evidence that the people who go through a trade program dont and up better at the other end of it. Most people miss that the people affected by trade, its not just the guy who lost a job making close in north carolina. When the guy loses his job, he goes into the local labor force and tries to get other jobs and pushes down wages for other people. There was an ancillary business that supplies that textile firm and maybe they will lose business or go out of business. You have to think about helping those affected in a broader way than trying to identify 12,000 workers who lost their job and textiles. David we are waiting for 70 to come up with that plan. Thanks to steve ratner. Ist advisers in the the Investment Advisor for Michael Bloomberg assets. Coming up, sterling snapped a fiveday winning streak and the pound is a little softer ahead of testimony from governor mark carney. We will bring you control coverage of that testimony right here on bloomberg at 915 eastern , 2 15 p. M. In the u. K. From new york city, we cant you down to the testimony and the cash open in new york , this is bloomberg. Jonathan from new york city, this isjonathan bloomberg. Slightly negative and we are one hour away from the cash open. The dax has bounced back somewhat. The 26th aching the january, 2016 high. Has been a story of sterling strength until today. The cable rate is coming back toward 1. 33. There is a stronger dollar story in todays session. Services dataaw coming up with the weakest growth since 20 10. The twoyear yield is pushing lower from 80 basis points at down to 73. The focus for us is very much on Central Banks as we look ahead to the ecb decision but today its about mark carney as we bring you the full testimony in front of the british finance committee. Lets start with st. Jude medical after the company is firing back at carson block and muddy waters, filing a lawsuit against addy waters Cyber Security firm. That theseis saying defendants intentionally disseminated false and misleading information about st. Judes. On august 25, carson block of came out with a short on saint jude. He said the security of its was faulty ors vulnerable to hacking. He has not documented any thoughts far. He says the devices account for 45 of its revenue should be recalled and he partnered with the Cyber Security firm. Is now the reply from saint jude and the shares are only down about 6 since that call it carson block had been known for accurate shorts on some Chinese Companies in recent years. His calls have recently been more mixed. We will watch the stock today and were watching her which is up for the fifth straight day ahead of a Board Meeting thursday at which some have speculated the Company Might discuss putting itself up for sale. That has not been confirmed. Its heading to its fifth straight up day which is its longest winning streak in more than a year. Earningses is out with a preview saying the thirdquarter adjusted earnings per share will be at most . 82 and analysts were looking at . 91. The shares byg nearly 10 this morning. Lets get an update on whats making headlines outside the business world. More revelations about the Obama Administration sending cash to iran. After sending up a load of hundred Million Dollars to the iranians in january, the u. S. Followed up with another totaling. 1 billion the money was put a settlement of an arbitration claim and sanctions of isolated iran so the u. S. Send cash. The u. S. Sent the first payment was used as leverage to free american prisoners. The u. S. Senates beckham vacation and failed to pass a bill to fight the zika virus. Democrats blocked a republican measure that would provide one point 1 billion to fight see can cut funds from obamacare and planned parenthood from accessing public money to treat public pregnant women. Has been downgraded to a Tropical Storm in mexico. The hurricane shattered windows and knocked out power and downed trees in baja california. At least two people were killed. Global news, 24 hours a day, powered by more than the 600 journalists and analysts in more than 120 countries. Thank you. Lets get to the morning meeting where we hear from what key banks are looking at. We will look at sterling and. Sking you see an alltime high. Days, you sawfive sterling strength in the question is whether those a shortterm bearish bets will come up. Deutsche bank and unicredit have exited the shortterm bets. Ahead of that testimony from Governor Carney in 40 minutes or so, will we see sterling capitulate . What is a different in short covered and going out right long . What we are seeing is a short covering. If you look at any source of data, you can see the bearish bets on sterling are near alltime highs. Big difference between covering your shorts were going along in the currency. In the shortterm, part of the pressure, the momentum has been lost to the downside and it has expectationswith of the weaker data which has yet to show up. Those are some reasons why you see the short covering. A you look at it from mediumterm perspective, it will come through and i think people want to try to retain the downside that if they can. The story is about the data. The bank of england cut rates and boosted qe and put a corporate debt buying program on the table and then said the word the potential that we could move later this year as well. Do you think that is still on the table in november, another rate cut . Absolutely, it has just been too early to see what the real Economic Impact of brexit will be. One thing they talked about as they expect further Downside Risks. There was ample moved to adjust policy when the risks appeared. I think what you will get from the mpcs they are very much in wait and see mode and they want to see how the data comes in and how the economy reacts and they will be in reactionary mode to that. Its too early to see the economic weakness. This is something that should pick up in october and november and i think that will help secure the downside views later on. Lets not support of is the softer dollar. People would have disregarded the dollar side of the trade a couple of months ago. How much does the softer dollar play into that . Its a big position. Positions, onehe of the largest of dollar longs out there in the data is sterling. If you get a softer dollar, inevitably that will be the position most under pressure. What we are seeing within the u. S. Data is the beginning of weakness. We look at asngs we are concerned about it but we want to be cautious not to be too reactionary to one or two data points Going Forward. From the mediumterm perspective, we have picked up some weak u. S. Data and picked up some better than expected u. K. Data. We expect that to reverse in a month or so. I will put you on the Treasury Select Committee what would you ask Governor Carney today . Ultimately, when do you think the weakness will hit the u. K. Economy . Jonathan thank you very much. Live coveragech a of mark carney testifying before the Treasury Select Committee in the United Kingdom right here at 915 a. M. And 2 15 p. M. In london. David chip delay is back in the news this time because bill Ackmans Pershing Square brought under 10 of the company saying it wants to talk with management about ways to performance. This is amidst an attempted turnaround of the company in the wake of his food safety problems in recent months. We turn to michael halen. About what they want to do with this stock . We dont know too much. It sounds like he has not spoken to management yet but its in his plans. We think there is low hanging fruit here especially when it comes to margins. Chip utley has done a terrible job in terms of cutting labor and food in its restaurants after the e. Coli outbreak. To cutas in the tough those things when everyone is nervous whether the make you sick or not . If 25 fewer people are coming into the stores and you have employees sitting there doing nothing, i think thats a clear sign you should cut labor. Management was slow to make that change. The night have been arrogant to some degree that we can get past this. They think the customers will come right back but if you look at history, these things take time. David theres talk about the board being somewhat an entrenched. What do we know about the board . It has been static for a long time. Will try tol ackman get a few more members of the their with restaurant operating experience and maybe people who have helped turnaround brands that have gone through similar circumstances. The chip lead response is not been embracing. They say thanks for investing but where does require a proxy fight for the board . It depends on what bill ackman agitates for and what chipotle will accept. Debt weising think they can easily in feet to 2. 5 times. The restaurant margin piece, there has been refranchising is another issue. They want to raise cash by selling restaurants back to the franchisees. Its a high margin and would generate a turn of money they could use to buy back stock. They would be able to take on more leverage. If necessary. Chipotleion is, will go that way. There is the larger sense of the Restaurant Business not growing as fast as we thought it would in there is more competition for healthy food. Will bill ackman wait out the Restaurant Business . With this one, there seems to be very low hanging fruit. It was only nine months ago that this was the darling of the Restaurant Business. When you look at mcdonalds japan, it took 18 months or 24 months to get so back to where they were before. They had issues there but chipotle was the 800 pound growing space. Mexican food is becoming more popular in the United States and its fragmented. We would like to see them forget about some of these other concepts like pizza and especially burgers. Burgers are very competitive. Competitors sell about 95 of burgers in the United States. To take share the burden of business, you have to take it from someone else and thats more difficult and we think chipotle would be best served to take your their own house and maybe cut back on the development a little and get the restaurant margin piece right. If you continue to serve good food, the customers will come back. David maybe they can turn it around again. Thank you. Up, the appleng to givecook is expected a new announcement. We go to San Francisco for opinion next. This is bloomberg. Jonathan this is bloomberg. Coming up, mark carney goes before the u. K. Parliament Treasury Select Committee. Much of the world is waiting in anticipation of the new apple Product Announcement San Francisco later today. Many people are asking what are the new iphone features and what will the new apple watch look like and will the company recapture the imagination of the consumer worldwide . Johnny is now from San Francisco where he will cover the announcement is walter paizek. Welcome back to the program. What are you looking at as you go to the announcement today . There is not a lot of expectation going into this. There have been many reports about the phone not changing them much physically. There may be an upgrade on the watch but physically not really changing. Historically, when you hit this version of the phone, there is a hope that a physical change in the fun will help spur additional upgrades. Expectations are low as far as what the competition say today. Historically, in the even years when they come out with a big, new advance in their products, it does not appear that will happen this time. Are they running out of ideas . A big newnt say its advance, maybe just a physical change. We have heard this concern the past where its a same physical thing and the touch was not that different or additional security they added on. Some of not affected the growth in those years. One of the issues now we are finally into the second year of this major change that occurred when the Company Finally agreed to make larger phones that consumers wanted. There was a huge push two years the mix of people upgrading to the newer phones may have created this lag in the past year. We will see if that helps some tothe operators find a way use the phone to take customers from their competitors and bring some growth back to apple in the december quarter. David they have not had growth now for a few quarters. Prospecta realistic that the changes today will get them going again or are they saying wait until next year . I dont think the expectations are that the changes in this phone per se is what will specifically drive growth. In theve a large base brand loyalty is high and peoples phones get old. People are still on the iphone five and you want to benefit from the new software with faster speed. Maybe its going from large when the iphone six was originally launched two years ago, they may provide an element of growth. That year was a massive growth year. We have been in no growth for the last couple of quarters. Does expectk anyone apple to return to 30 growth. From a stock standpoint, if they can show any element of growth, even as the stock is rally, is quarter. Ng a no growth o next year, it should calm investor fears and drive the stock forward. Jonathan lets take a look at that. You have maintained that buy but your price target is north of 120. The company is valued at 13 times forward earnings so what kind of multiple is up for the growth you think is in the pipeline . Company as wee think it is based in the multiple we have in the price target. Multiples are based on growth and risk and risk for us is getting more evidence in her belief that they can return growth in the december quarter. This withuss operators and how they see sales and with acs far as the replacement cycle of their own customers next year, we can assess whether that multiple needs to travel further north closer to where the market multiple is now. If you are expecting the company to decline with contracting margins, those multiples can go the other way. If you can get over that concern, the risk function of the target multiple gets produced. Therefore, the stock in price target should go up based on the lower Risk Perception of the investor base. David thank you so much for joining us. Up, do easyming profits exist . We will have battle of the charts next as we count you down to the cache open and full coverage of governor connies testimony in the United Kingdom. This is bloomberg. David this is bloomberg , and its time for battle of the charts. Oliver im looking at cash piles in the s p 500 but im using one cash measure which is excluding shortterm investments. Im looking at cash thats immediately on hand, the most liquid version. Trend whereen a companies have been building up for cash piles and getting higher and higher and reaching a high last year. Happeningk at whats in the Biggest Companies, the most cash rich 5 of the s p 500, its a different story. This is the white line for the top 25 companies, 5 of the s p 500 that has the most cash on hand and its an alltime high and is moving higher. When you look at the rest of the will,ies, the 95 , if you you are seeing this divergence where the bars are getting lower. They are seeing cash flow dwindle from their highs while the top 5 keep going to new highs. Talk about to buybacks and dividends and height out ratios and weaker earnings and those will be taken into account. Thats an important chart. Its good we got to hear about it in more detail. Chart showsas this its relative, its all relative between stocks and bonds. When you look at what to buy around the globe and times of assets, you have to come through it looks more expensive or less expensive and Central Banks of the wildcard. Looking at the u. S. Treasury 10 year yield versus the s p 500 dividend yield. The dividend yield is above the 10 year treasury yield. Chart is another expression of that, its the spread between the two. Every time goes green, that means stocks in theory are more expensive than bonds. Is hearing from fed officials with Economic Data as , nonmanufacturing and jobs coming in below estimates, how long can this dividend yield remain above the 10 year yield . Back to 2001, its a relatively rare occurrence. 2 yellowwould say flashing lights, one on stocks and one on bonds. I like julies chart but i have to go with oliver. Sorry. David i will vote with julie. Oliver wins. Jonathan coming up, we will have full coverage of bank of England Governor Mark carney testifying in front of the u. K. Parliament. We are 34 minutes away from the cash open in new york with futures marginally negative and a little bit of a rally in europe. Yesterday, a softer dollar story. Today on the cable rate, stronger dollar. The yield on the tenure is coming in by another basis point. Crude oil has a little bit of strength at 45. From new york, this is bloomberg. David we are just 30 minutes away from the opening bell in new york. Bloomberg this isbloomberg. In 15 minutes, we will hear from mark carney. Jonathan he is going in front of u. K. Politicians. It is somewhat of a soap opera about Monetary Policy and politics and he is still under fire for the way he laid out his forecast on what would happen in the postexit world. David he was perceived as someone on the side of staying in. He said it was just his job. Cut rates andas posted stimulus but the data has bounds the back since july that i wonder whether his base case for recession is still on the table. David its also a shorttermlongterm issue. Most people still think jonathan the pound where we can. Jonathan in the short term, we have not had the beginning of a brexit negotiation. Tothe longterm, weve got have that europe process on how the u. K. Will exit. The government is still getting its act together on how they approach it. The bank of England Governor Mark carney will get this testimony to the u. K. Parliaments Treasury Select Committee. This will be the first time we have heard from him since he announced stimulus measures in response to brexit. Lets get a check on the markets first. Futures are just coming off their lows and stoughton marginally negative but europe is positive. If its a joins of the rally in the ftse joins the rally. A much softer dollar story yesterday but today its a weaker pound. The manufacturing data in the u. K. Was for the month of july but we want to look forward. The data has firmed up since then. Mark carney will be the focus of conversation in about 15 minutes time. There was another ugly date up with ism contraction. Sincehe weakest growth 2010 that meant yields were lower and bonds were rallying. You see that of the long end of the fishery curve. Of the treasury curve. The rate hike debate continues. Julie before i get to movers, the nasdaq did close at a record yesterday. Futures are not much change this morning but they are hovering close to records when it comes to the nasdaq. Chip play tops the movers list after Pershing Square capital took a stake in the beleaguered veto giant. Point 2ny took a one billion stake. There has been skepticism expressed in the parts of analyst as to whether bill ackman canned tangibly around. In the fast food universe, chip probably is among the most Expensive Companies on a pricetoearnings basis. Another holding of bill ackman is a valeant and those chairs are bouncing this morning, down 70 this year. They are up 2. 5 after the company said yesterday their medication to treat opioid induced constipation in adults was approved by the fda. Now they say it is commercially available. Sprout Farmers Market is coming out and surprising analysts and cutting its forecast for fullyear earnings. It says it will earn as much as . 86. The top end have been . 94 and they blame it on deflation of food and competition. The shares are up by 15 . Krogersds is down and is down so keep an eye on u. S. Grocery store chains today. Lets get a check on the nasdaq movers. We are starting off with Western Digital with shares of the Storage Company going higher in the market after the Company Offered an updated fiscal firstquarter guide that was better than what they previously saw up to they say adjusted earnings are coming in 23 percent that are than what they saw before. The acquisition that its creating a better product mix. Its said there is a better growth margin and this explains private but they better than expected back in july. Perhaps, this is the beginning of a turnaround on a stock that a still down 55 from its peak in 2014. Ventures are up more than 25 in the premarket that they have a rare Kidney Disease midstate study. There was a Short Interest of 19 that some of us could be a short street. We have the stock set to open on the yeargher despite being down 20 through the close yesterday so a big turnaround. Lets go to london. Stocks are rising for the first time in five days. Trading belowre its average. Volatility has not been this low in the days running up to an ecb since the beginning of qe in the beginning of january last year. We are up to the fourth day in five this is ahead of the mark carney testimony. This is how assets have fared in the u. K. Since the referendum. The ftse is up by 8 and the is up and the ftse 250 is up. Sterling is down by 10 . It inifferent if you do dollars with a slight decline for the ftse 100. This is a great chartu. K. Economic surprise indexits rising and its tied to economic forecasts for three years. If you want to show something solid to mark carney, thats the chart. Today we had u. K. Manufacturers cutting production at the fastest pace in a year. Will it be different in august . U. K. Building equipment itsany generates 80 of revenue in the u. S. With Sunbelt Rentals and they are rising today beating expectations. From a weakerg sterling. Bring on mark carney. David we can hardly wait. Now go to San Francisco where apple is holding his Product Launch event in a few hours. Cory johnson joins us to set the stage. What will you be looking at . There seems to be modest expectations. Could we surprise to the upside . Cory the lower the expectations, the higher the upside. We expect new iphones to be announced. There are many questions about the details. Will it have a headphone jack and what will the screen look like the tumor i dont know cares about this. The device sells so well. It business questions around are a sizable good among the concerns with the issues around pricing. What will they do about devaluing currency . China . Ll it cost in there is the timing of the actual release of the phone. Details fromct the the event but there are other categories deion that and we might get an announcement of a new watch but expectations are low. Macs is even talk of new and if they will be announced. There are many questions as to the size of the announcement and the number of product to be announced david today. Mentioned to related issues which are overseas sales particularly in china and the price. There is a lot of competition to the iphone in china and they compete on price. Their higherntain price point if they dont have more innovation than right now . It goes to a branding story. Its the notion of the apple brand, not just the performance of the phone. Their biggest competitor is samsung and they took a big hit this past week with a big product release being completely recall that some of them are catching fire. That is a great advantage for apple in terms of its reputation to have a device that is trusted and safe. The biggest step up in the evolution of the phone was from phonert phone to a smart and we have to lower expectations for that wow factor. Question of where the phone will break. Will they release it on day one in china or restricted to fewer countries . A smaller release might suggest that apple has High Expectations for the phone. A release date later might also indicate Great Expectations for the phone in different geographies eventually. Thank you so much and we look forward to talking more about this after the announcement. Lets turn to market volatility. It has been 20 years since market volatility has been does low over two months. Are there opportunities for investors in this market . Joining us now is the macro risk ceo and founder. Take us through your thinking about this extraordinarily low level of volatility and where the opportunities might. The its a two decade low. We have to go back to 1995 to observe it month stretch where the daytoday fluctuations in the s p 500 are muted. Its a long time and its a 10 Year Anniversary when the vix dipped below 10. That was 2006 when it traded in Single Digits for a short time. That was a time when markets were calm and Central Banks were deemed to have conquered the business cycle. We were told market safe and they turned out to be anything but. The offensive asset class was housing with valuations sky high. Argue that the unsustainable valuation now globally is the sovereign bond market. There are plenty of reasons to justify why the prices of fisheries are very high and yields are low and german bunds are high and yield is negative but we think there is a real risk. We have been telling our clients to position for more uncertain markets and position for more volatility and the way to do that is to buy options. You can do simple strategies like hedging with spider options on the s p etf and by puts and put spreads which are remarkably cheap. They have been dragged down by the quiet summer but we think there is an opportunity to set up and do smart and defensive hedging. David maybe overly cheap. That picture has been circulating of part six of bart simpson for years. Does that change . The market should fear price. That is nothing reasonable bones at 11 basis points in none of the textbooks at none at 11 basis points these are unsafe Securities Just by virtue of the price. As we talked to the chief the sculptures of major hedge funds and folks who are steering the capital of large Pension Funds, one of the risks folks are really unprepared for is inflation. Nothing to suggest that inflation is going to rocket hire around the corner but i would say that there is a lack of defense against an inflation outcome. You manage a risk and if you are trying to limit downside, you limit the potential capital loss . You can always go short. When you do so, you dont pay the premium, the option premium to you also have the risk that markets continue to go straight up. We would argue that the cost of the option, the cost of the insurance is cheap relative to the set of uncertainties we confront globally now. The bear Case Scenario changes month to month. Frome going to hear Governor Carney and a couple of months ago, it was a warning about the effect of the exit and now things are not so dire. White is the bear case keep changing . Global and Macro Economic world of risk right now. You look at the last three big times of uncertainty in the s p 500 china a year ago and plummeting Commodity Prices this year and then brexit. Indicate thathose we need to the attention to these global risks and there are so many of them right now. We look at what is the cost of the insurance. We think the cost is a good deal relative to the amount of uncertainty. David thanks so much for being here today. Coming up, bank of Englands Mark Carney faces off with critics over the most recent qe program and his testimony to the Treasury Select Committee in the u. K. Is coming up next with full coverage on bloomberg. David this is bloomberg. We are waiting for the testimony of mark carney in the u. K. But lets get an update for news outside the business world. Out that earlier this year, the u. S. Sent the 1. 7 billion dollars to iran in cash. The Obama Administration had sent in initial 400 million to get american prisoners freed. The money was in settlement of a decadesold arbitration claim. The treasury says it was sent in cash because sanctions blocked iran from International Finance. A new poll shows republican president ial candidate donald trump has a commanding lead among military voters. Trump leads Hillary Clinton 50 536 among veterans and u. S. Military members. The military voters said they trusted Hillary Clinton were to make a right decision about using nuclear weapons. The turkish president says his country and the u. S. Are considering a joint operation against the Islamic State selfproclaimed capital in syria. He told attorneys newspaper that president obama personally asked him for the joint action and he is in favor of it. The Islamic State has turned rakaah into a stronghold. This is bloomberg. Jonathan thank you. Lets get it quick check of the market. U. S. Futures are slightly negative. Equities in europe are a little firmer. Before we get to the testimony carney, lets look at crude oil where it has been driven higher by opec. Its time for futures in focus. Joins us from the cme. There is a quotation from one of the biggest commodity traders. There is a risk of crying wolf. Talking about a production agreement and you dont reach one, what happens later this month if they dont reach one . Selling and we will see 40 break and maybe down to 35. You can see the reaction after some of the news early monday morning from russia and saudi arabia china to form a deal and as soon as that news disappears, you see master selling and we think that will come in the market late september when no deal is reached. Jonathan what is the downside . Longer term but right now, 41 is our first target. If we get some bearish Inventory Data for this week, we could see to 41. Down on the upside, he were watching 46. If the market closes above there, we will see up toward 50. We are in a consolidation range right now. Thank you very much. Our attention go to the United Kingdom where governor mark carney begins his testimony before the u. K. Treasury select committee. Lets listen in. How the economy has responded directionally on Business Investment and commercial real estate. In the bigger decisions. That relative to the resilience of the consumer sector. That themfortable thatent of this committee the referendum represented a risk to Monetary Policy. Feel comfortable with that and i absolutely feel comfortable in the decision that i supported and the committee to book. In august to supply Monetary Policy. In may and early june, the orientation of the committee on own wasincluding my that with a different outcome in ,erms of the Monetary Policy not about the longterm economic prospects of the country, with a different outcome, the next move in Monetary Policy would likely have been a tightening, raising of Interest Rates. In a limited and gradual manner. We welcome the signs of stabilization in the economy. We wille have have an opportunity to go into detail and provide deeper perspectives on that to see what it means. Thingse looking at some you said before the referendum. Mpc Inflation Report was concerned about a fall in the natural asset prices that would raise funding costs for banks. That would affect corporate borrowing and would depress the Financial Assets of real estate. They would tend to reduce aggregate demand. Has this happened so far . The evidence goes both ways. There has been pressure certainly in the commercial real estate sector, most obviously, most evident in the scale of transactions and commercial real estate. We saw a manifestation of that in property funds. There is a focus on the market as a whole. Where the volume of transactions have been more than cut in half since the start of the year and a run up to the referendum. Thats what were responding to to ensure the overall financial are put against these forces. One of the questions in event of the referendum, we had a discussion which detailed the Inflation Report was about what would happen to the Exchange Rate and what would the balance be if the effect on demand Exchange Rate supplying the economy and how the factors would play out and what that would mean for the Monetary Policy. The culmination of Exchange Rate demand could have led to either no action on Monetary Policy or a tightening of Monetary Policy. An extreme variants of that was a stress test the bank conducted in 2014. One cannot make a direct judgment on how that would have performed if the movement of the Exchange Rate cannot be fromnnected from our view how well or not the contingency measures the bank had put in place proved. Judgment, we share the responsibility. Efforts werdinary put in place toward the banking in advance helped ensure that what was a surprise to has gone markets smoothly in terms of the functioning of the Financial System. That allowed us not to have an overshoot in the Exchange Rate. Position in order to provide stimulus, stimulus which could easily financial conditions, support the Housing Market, support commercial real estate, support Business Investment although on the margin, there have been a few basis points moves that will be the determining factor on Business Investment, but it allowed us to do all of that and support cushions to help this economy you just. I just. I will go back to the first question where i am quite comfortable with the announcement we did in advance, the preparation we did in advance, the effectiveness of the contingency measures all of which is in the position to help this economy adjust and help leaving the European Union a success as quickly as possible. These are interesting replies. If you make the answers crisper, we would be grateful. The questions are quite sleeping. Required the questions are quite sleeping so i offered it sw eeping, so i offered a more full some supply. If the bank knew it was going to be so clever, these moves perhaps were unnecessary. Was possible from a Monetary Policy perspective, there is ad was that prospect of the material slowing in growth and a notable rise in inflation. I have lived through many Business Cycles and events and crisis and hits and that is not dire. Growth going from a clip that is limittent with the speed of the economy to something slower is not dire. That is not a deep recession and thats not what we said. The issue we needed to get across in my judgment and our judgment was that this is not automatic. It required preparation to be made. Preparations best come you cannot guarantee outcomes. Felt we did have to make considerable preparations in positioned recorder of a trillion pounds of collateral. Majorer to put in place liquidity facilities and in place these protocols about Central Banks and in order to give us the flexibility to do what was in the best interest of the economy. You mentioned commercial property prices and transactions. The stock markets and Residential Property prices have seemed to have held up rather well. Initially, and for some time, financial asset prices distinguish between internationally Oriented Companies which is the preponderance of the ftse and thats represented by that. They were effectively price in foreign currency so are now replaced when the pound depreciates. Thats the market going up but its not going up in real terms. If you accept that point. U. K. Focused companies jonathan you are listening to governor mark conti testifying in front of the Treasury Select Committee in the u. K. A will go back to that and second but we want to go through the markets for you. About a quarter of 1 . Switch up the boards very quickly. The fx market, and little bit softer at 13374 and yields lower on the u. S. 10 year 1. 52 . Lets get back to that testimony. In its early days , is helping, is a toter way to put it, stabilize Residential Real Estate is one of the factors. There has been a considerable seeingment and we are policy action. The new emphasis seems to be much more on the Downside Risks of brexit, potential of monetary easing and bank of england. Monetary policy why was the bank not more willing to licate its ability to deal it would be a very considerable. Nswer i referred to a possibility of them. Any economic outcome. We highlighted chris to the change in stance and Monetary Policy. A delicate federal Financial Market, the as was the case in the immediate aftermath. What we needed to do was stabilize nearterm financial and we had to be in acknowledging dynamics in the Foreign Exchange market. The correlations between polls, we appreciate all of that. Denying something as obvious as anything ive ever seen is not a reputation maintain in the Financial Market look. Lets put it that way. They concern was that unfounded concerns in the core of our unfounded concerns about applications, unfounded concern about whether or not we were prepared or had our eyes wide open, our contingency works advance, those coupled with Market Dynamics could have led to an overshoot, which would have restricted room for maneuver. You often find it Central Banks have this notion for the currency, resource for the currency. Sometimes it is good for any market to recognize the risk. I think we can use of the whole going through counterfactuals. This financial , under the oversight of what was a england, surprise to the vast majority of markets, sailed through. The currency welladjusted, it adjusted in a way consistent with a broader adjustment in the economy and we are in a position where the Financial System ended where the currency settled allowshe initial shock, the Financial Policy Committee and the Monetary Policy committee to take action, coherent and comrades of action, consistent and mutually reinforcing across the cities, that is already helping to support the adjustment, would put all of you in a much better position. The difficulty is at the Bank Warnings created a bit of that asset assumption, that asset prices could fall, on a plane would rise. So far, on employment has fallen. Be aredicted there might technical recession, and to what would happen. We were cleared up clear eyed about risk. The next step is to take steps to dress risks. Add we were were in a position, it is absolutely welcome that there has been a in some of these. We will go into it. Good afternoon. In the interest of downs and fairness, i would like to observe that there was a tremendous vacuum of leadership and concern for whatever reason it arose. Statesmanshipf and as much as i disapprove the extent to which markets, depending on what you say, a historic moment. Thank you very much. Growth,at the rate of it was between defending from may 13 2 14. Looking at a growth rate of three to 4 . Inthe growth rate shot up june, six or send year on year and july 6. 9 year on year. Already a big passage with expansion measures. Relationship between monetary aggregates and inflation is tenuous at best. And very unstable. Monetary targeting, in the end, abandon it and he did not abandon it. The quote was that he would abandon monetary aggregates because they proved to be no relationship between the two. The relevant horizon for Monetary Policy. Growth and credit aggregates driven principally by the Housing Market and the Natural World over, people buying more Expensive Properties from cheaper properties. Notably around the auto sector. See that would start to accelerate in june and in expectation, that deceleration would continue. Which has been by and large foreign out. To borrow from the report, kids innetary policy decisions,mpy commercial real estate, some deceleration in the housing plus high degrees of uncertainty plus shifts in confidence. I will say we were very clear in and in our press that we respected the service bounceback. When something unexpected happens, they tend to have oversized moves in these surveys. I know you want to talk about monetary. In the forecast, in this report, we aimed off from the expectations data and the survey data. Our forecast was much stronger for the second half of the year than a simple mapping of what the data suggested. Seeingoking forward to this, you tweeted something the preferred measure from economics, which quantities, it is growing by over 10 . I except what you say that there is not a mechanical relationship. I just want to pick you up on the point about educators. Ouncing back, indeed they have if the bank expected the after the votes, why did it not say that the markets should expect to see a bounceback . We did. Page 39 in the report. Comments in the press conference , i think it was answered separately but those are two examples. Look, we expected them to bounceback. Brush. Overy, broad i will give you. Growth in q2ted. 6. That is the latest assessment. Our estimate of q3 and q4, consistent with. 1 growth, at the time we made that estimate, that judgment as a committee, the survey data was consistent according to market, the people who produced it, negative growth of. 4 for q3, for example. That gives you a sense of the judgment. If you take the some of the data that has come in, it is running a bit stronger than that. That is great. Get all thewhen we data in, but broad brush, is growth running about half as much as it was prior to the referendum, that is probably about right given what we know right now. So we expected some bounceback. There has been a bit more, but i think we are keeping it in perspective, as said. The banks have given higher prominence to the bounceback . At times, it felt like we were reading the apocalyptic literature sure of jeremiah and ezekiel. Three said little or modest growth in the second half of the year. They get there is different. Part of the bounceback, part of i am not going to represent all of it by any stretch of the imagination, but part of it is there is a bounceback because the bank took comprehensive, concrete action. That action has had an impact. It has had an impact on financial conditions. They improved considerably since we acted. They have already been improving in the runup up to that in anticipation of some acting. Has helped to reinforce other actors. Im keen to move on. Do you expect to revise up the bank and to what extent . Lets put a couple of things in perspective. When we put out the forecast, we were above consensus, just to be clear. If you want to take private sector forecasters, they were more pessimistic than the bank of england. Arehe last few days, they they revised up the forecast. Another one, they wrote that Financial Markets were rattled. In the course of the art of all, the bank of englands latest bond buying spree, stoking fears with a massive post referendum rescue package, overshooting the market. Isa comment from williams, by distorting markets, quantitative easing is fast the a problem and not a solution. Merit think there is any in what is being said . I think the general longterm issue around Pension Funds and itnce companies, about is not a particular issue for the u. K. There are longterm considerations around that. To some extent, the pension industry and those who depend on it, depend on the health of the economy and by supporting the economy when it is actually supporting the beneficiary, and when you look at particularly ,he deficit that has appeared which has gone up, if you look at the funding contributions of companies, but the regulator does is gives companies a considerable time to make up the deficits and there is a reason. If you require companies to make up the deficit so quickly, you can damage the companies and make the position worse. Longerterm, a low Interest Rate environment and the impact that shortterm, you look at what has happened to Company Contributions and a time to adjust, no, i do not. Good. Not think that is about half of the questions i would have liked but the chairman wishes to move me on. You noted Monetary Policy has had effects. Policy,monetary quantitative easing, has helped those on the opry at the expense of those who cannot afford their home or do you agree indeed you think this will have longterm effects that might affect peoples faith in the market . Question quite a few there. Onetary policy has effects it does not aim to redistribute. It is a side effect. It aims to hit an aggregate inflation target usually by influencing aggregate spending. It is always the case that different groups in the economy. Him it is generally the case that the biggest spending response to Monetary Policy action comes from people who are borrowers. They are ones that reduce spending sharply and others who increase spending when you reduce Interest Rates. Fact. Just an unavoidable disappointing to say i should be obeying agree that jobs are more important than pensions . I think i would say it depends to some extent. I would not make a comment about which group is more important. It ifan answer ie do not have jobs figure there is a unique interest of pensioners and others particularly with the ratio this country changing and ,ewer people are working governor, is the bank trying to no. Andbank is trying to manage somewhat more challenging tradeoff between volatility and employment out put and inflation. We have talked about that. We have got four elements in this. Bank rate, funding scheme. Whatly speaking, that is it consists of. Package in did the the bank, between theally july and august meeting, there on the options, Monetary Policy options now as a ,ommittee, we regularly periodically, i should say, commission this type of work. Inmost of the work started july. Level of to a substance and detail that could be properly presented to the committee at this point even though we have had conceptions around these issues. Reflect when we had serious discussions of other things. When was the government first made aware of the intention to develop a funding scheme . I would have to go back for a date but it would have been within the first few weeks of july. It developed recall the government communicated both at various level of officials, the highest level, yes. You went to see the new chancellor and he said im thinking about a term funding. As you would expect, we had a series of wide ranging discussions about the economy and options and shortterm contingent the issues and on what we policy options, were thinking about and what the potential consequences were. Does not have a vendetta, does it . It does not. The Term Funding Scheme does. You said i would like an identity, please. Yes, the funding for lending scheme, as you recall, here for the genesis of the funding for which washeme, initiated more by the treasury purehe bank, if i may, Term Funding Scheme, monetary policies game, entirely in the province, therefore the mechanism is supposed to funding for lending, a blended monetary credit aggregate. I got the distinction. Is pretty fine. Would you have gone ahead . That was not a decision we were faced with. I know but i ask you what you would have done then. He mustve had a contingency plan. It is a lot of money. Yes, well, there is indemnity for amount an actual risk and risk is considerably less. The risk requires the default of a major bank and then for the collateral, which is heavily over collateralized for that cannot be realizable. Answering this way, the Term Funding Scheme was the decision of the mpc. Felt it was important to ensure that if we were going to have a bank rate cut, it would fully pass through, that is its purpose. The purpose is to make sure sorry. Briefly. This is important. If we take the decision, we made a Monetary Policy decision a new instrument and we were unable to implemented because we do not have the Balance Sheet with a z prudent,e risk is not we would disclose that we were minded to do something but were not able to do it. In this case, if we had not had an indemnity, that would likely have been so chancellor, when he was looking at your suggestion that he write you an indemnity, was faced with the prospect that he as a new chancellor would immediately find himself with thed by the bank , being the Public Domain turned down by the treasury . , ii think we would have mean, we are deeply into counterfactual. Not really. To say no whenr you are turning up and saying i think we need an emergency back package that involves measures as big as these, including an unprecedented increase in bonds. You have done a couple of those, these are big changes. Not in a position to say no, isnt he . He absolutely is. I will say i do not want to go into the details of the but the chancellor quite rightly, we had a series of discussions about options, and he quite rightly went through the risk. There is a new Governance Framework in place and there was a new government framework for Risk Management within the bank of england, a sharing of the risk metrics with the treasuries so they understand in real time the risks being run with these very real schemes. The decision to provide the indemnity was taken in that context. Thosed further stress for , for a broader audience, for consider the options the bank of england would have if it were the view to provide additional stimulus, we have a range of options we can pursue to provide stimulus. If certain alternatives do not work, we can also consider stimulus were required. The reason i am asking the questions is the bank is operating in a gray area between fiscal and Monetary Policy with these measures. You are seeking an indemnity from the chancellor but on issues on which it seems to me to be extremely difficult, just saying no, notwithstanding what you said, the circumstances in which he was presented this decision. , the Public Expenditure and recourse in this country is predicated on the idea that we have a Central Department and the central , therefore is always in a position to say no but the bank of england has always been something of an exception to and of course that Balance Sheet has now ballooned. You have about half of 1 trillion, these are large sums of money. And i think we have arrived at the point where we need to start thinking very carefully about the longterm structure for such , the decisions and the management and such. These are very indeed. D think it is good for the that youindependence are carrying the responsibility, that it is inevitable when you turn on the either chamfer the chancellor, he will probably have to say yes . You are taking decisions and only recently, are considered the direct responsibility to the house of commons. It is a variety of issues. First is the indemnification in many cases and it is certainly the case for the funding scheme, it is a product of the capital structure of the bank and the revenue structure of the bank, it is relatively unusual for a central bank to not have recourse as a mechanism to replenish capital one capital is drawn down. With thea long history bank of england and i understand parts of it, how we got to where we are. But there are certain ways to not have been over overcapitalize institution but to have an institution that has effectively capital and could run these types of decisions more efficiently. I recognize that is a big issue to raise. The second point is i think we should be a bit careful, not that youre not being, but in terms of orders of magnitude of risk, the Term Funding Scheme is fully collateralized, over collateralized in the recourse of that