Transcripts For BLOOMBERG Bloomberg Go 20161005

Even though officials did not exclude the bond buying thing extended. That is what you need to know. David continuing on the top story about the ecb. A many tempora cant a mini tenter hampshire a mini temper tantrum. Gradually tapering away from quantitative easing. We are joined by paul gordon, our editor responsible for covering Central Banks, and guy johnson in our European Headquarters in london. Paul guy, im sorry. I want to go to you. Tell us what the reaction was in the markets over there. Guy the Market Reaction was fairly fierce, to the honest. May of 2013. Be of the market was spooked by thats would have a ecb taper when the Current Program winds down. But the rational heads are working their way through this. Of course the ecb is thinking about a plan for when he needs to wind down, but if you took a look at the latest data, the expectations, in the ecb, the ecb downgrading its projections. The eurodollar rate, but it did not pick up inflation. It is not expecting to meet its inflation target soon. It is unlikely to be tapering soon. This is a protest story rather than a its going to happen soon story. The market is working through that. The market initially was very fierce. Today we have carried on, seeing Spanish Government bonds moving on the back of this story. It market is taking seriously. That tells you more about the market than about the ecb. David we want to bring in paul gordon from frankfurt. The bloomberg report said there is a consensus in the ecb that when they start coming down, we will taper gradually. 10 billion euros, fewer bond purchases per month. When it woulday start or extent. Why did the market react violently . Paul it is interesting. As guy knows, the process continues today as this information seeps through. The market is particularly sensitive, nervous as the ecb gets closer to the provisional end date for qe in march of 2017. And at the same time starts to run into scarcity concerns over the amount of assets there are to purchase. We know that the ecb has been courting governments to do more with fiscal stimulus and structural reform. There is concern that the ecb is getting toward the limits of its tools, and any talk of tapering bleeds into that fear sentiment. Jon you have this process story on one side, and on the other side there is the pricing of the market. How much of this yesterday was on the back of an italian ,0year issue, 5 billion euros coupons south at 3 . Story as you are locking in low rates for a long time, and we will be doing this for an extended period. In some ways the market is looking at the story and saying we are coming to the end of the Current Program and we need to think about that and we do not believe that the Current Program is going to change. On the other hand, there is an expectation that governments will be this is not going to change anytime soon. The market is thin. The market is jumpy. The market does not understand what is going on. It knows that there is a central bank theme out there that is running around the world, and that Central Banks are beginning to admit that they do not know really where we go from here. I think you are going to get these periods of volatility. Italian very long dated bond per you have a taper story that we produced which is largely driven by prices. I think it is really the market unable to decide where it is going to go from here. It knows that the situation is stretched. It does not know what the picture will be like going forward. You are going to get periods of volatility. In may of 2013 we had to wait quite some time before the fed did anything. Jon you use the word taper and things backed off. In europe yet. Great to have you there on the program. Guy johnson in london. Prime minister theresa may is addressing the conservative party as they wrap up their annual party conference. A lot to delve into within that speech, and we will do that later. I want to continue the bond market conversation. You can do that on the bloomberg. Joining us now is russell price, who has been monitoring the bond market and scratching his head and wondering what a mini taper tantrum in europe why is that happening . Russell it was a month ago that markets in the ecb announced an extension to the Current Program through 2017. They are considering the tapering of the program, which i think is prudent. You have to have an exit strategy. You want to plan ahead for that. Certainly tapering is the way to do that. Stop that want to abruptly. So the market is backing the ofa that maybe the march 2017, they are seriously considering bringing in that program to a conclusion. Alix why . The ecb does not have the firepower that it once did, all law the boj. Two, they may hit that inflation forecast of. 6 . On . H school do you err l they have been very vocal by telling the government officials, hey, we are doing all we can. It is not really having the full desired effect we would like to see. You have to do more. So the idea that we are going to taper, you do have to pick up and plan and get more programs on the table to provide more stability, structural reform that we have been looking for for the last five or more years at this point. Because as bloomberg pointed out today, that opportunity is being missed. So we are beginning to see some glimmers of inflation. Are you seeing that in europe . Are you seeing any indication that inflation is picking up . In europe cantion best be described as steady. It is not picking up prominently yet. In the United States even, it has only been those cofactors, housing and medical care costs. It has only been two factors, housing and medical care costs. Mentioned earlier, 1. 6 by 2018. That is still quite a ways away. 50year, 250y, basis points. That is nominal. O one is pricing in anything how does anyone know where we are going to be in 50 years in italy . More crucially, when are you going to get that money back . Russell i do think they will be able to get that money back. Even if it is the European Central bank, they still have the power of the printing press. The markets are pricing more of the status quo. Continuation of economic growth, but growth nonetheless. Yet inflation remaining very weak. That is very much likely to be the longerterm projection, especially given demographics across the region. And the idea that government debts are already probably as high as they should go, but there is the potential for them to go higher. Alix russell price is sticking with us. Now an update on what is making headlines outside the business world. Amash andra is here with first word news. It was the Vice President on the spotlight. Tim kaine and mike pence faced off last night at Longwood College in virginia. Tim pence fended off kaines numerous attacks on donald trump. Suggestednt Tim Kaine Donald trump may not have paid taxes in more than a decade. Tim kaine so it is smart not to pay for our military . Our veterans . Our teachers . And i guess all of us who do pay for those things, i guess we are stupid. s those tax returns that came out publicly show that he paced that he faced tough times 20 years ago. He went through a very difficult time that used the tax code just the way it is supposed to be used, and he did it brilliantly. A cnn poll,ing to 48 say mike pence won the debate. 42 say tim kaine won. Hurricane matthew is on a collision course for the east coast of the United States, after slamming into haiti with 145 mileperhour wind. At least 11 people have been killed. It lost a little steam but is still a category three hurricane. It is expected to hit the bahamas tomorrow and possibly florida by tomorrow night. Florida has called out the national guard. Residents have been told to be ready to evacuate. The u. S. And china are newtiating ne sanctions. The u. S. And china are considering limits on north Korean Energy trades of the nations debating separate sanctions. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am emma chandra. This is bloomberg. Alix we have a little bit of weakness in europe, in particular the u. K. After the monster rally yesterday. But some movers are on the upside. Tesco is one of 13 . Ceo dave lewis is vowing to double margins in three years. The company also announcing a 2 billion costcutting plan. In the u. S. , micron Fourth Quarter the estimates, but it stremme prices fell. Chip prices are falling as well. Twitter is in the news. The wall street journal is reporting that it will field that twitter will field offers. That the unpolished jewel could add big revenue. Jon the m a soap opera continues throughout twitter. Coming up, it is the Federal Reserve, the ecb, building a consensus. Jeff currie, Goldman Sachs head of commodities, we will catch up with him. From new york city, this is bloomberg. Hawkish comments from Federal Reserve officials are piling on this week, adding to bets that Interest Rates will increase by the end of the year. The committee took a first step toward policy normalization december last december, increasing the target rate for the federal funds are by 25 basis points, to a quarter to a half a percent. We have been doing this range thing. We used to pick a number but then we were nervous we will not be up to hit the number with our large Balance Sheet, so the ranges a quarter to a half percent. For a variety of reasons, the fomcs refrain from probing increases since then. This may be changing soon. Case wasght the compelling to take another step on the gradual path through it if the data come in as we anticipate, consistent with my forecast over the meeting run, i would expect that the case would remain compelling. But of course we are going to look at all the data that comes in between now and november. Alix jeffrey webb lack jeffrey lacher pushing for higher rates. Action could help us avoid the emergence of a situation that requires drastic action after the facts. Russell price is still with us. Does this put november and december more on the table . Russell as they have said, they are being data dependent and we think the economy is strong and will remain strong. We will provide them with the economic backdrop for that additional quarterpoint. Alix you have three dissenters last time. Saidtill have a lot of speed coming out. Does that make it harder to prep the market for the rate hike . Russell it should make it easier. Alix you have all these different views all over the place. The time had come to raise by the Second Quarter point, and the market was not believing it. We had one or two bad i sms reports. Fednd those are not in the now with the sense of the market realizes i think maybe i serious. I think they will raise the rate in december. David we have an important number coming up this friday, nonfarm jobs numbers. What number needs to be shown to reinforce the december move . Russell i do not think anyone report is critical to december. Any one report is critical to december. Or is the possibility that it could even be a little bit lower, primarily because of this year later labor day. The Labor Department always has a little bit of difficulty seasonally adjusting around the holiday periods. With the late labor day, maybe some hiring decisions, hiring activity was delayed. So one month where we could see things a little bit weak. I think with Economic Activity improving in manufacturing, were likely to see it in services today. Hiring should remain somewhere 1. 50 to 1ge of about 150 to 180 or so. Jon i am going to play devils advocate. I am curious about november. Why dont they just move in november . There have been so Many Political accusations thrown at them. To dispel youy are not driven by politics by making a move in november . Be the onlyay person in america who believes they are not driven by the that they are driven by the politics of it. But if you do hike in november, that shows maybe you think you are behind the curve because you do not have a press conference scheduled for that. So why the need to all of the sudden schedule a press conference . I think december even said officials have indicated it is most likely that they need to answer questions after the next rate hike. So why not do it just one month later . Why the need for an urgent increase . 21 by fed will hikehe nine times supposedly through 2019. The numbers do not reconcile. Can you explain a . Russell i really do not agree. Alix it is too hawkish. Russell i agree that it is too hawkish. Longerterm, i think the prospects for u. S. Economic growth are higher than that, somewhere around the range of 2 to 2. 25 . Even in that environment, it will likely be 2020 or 2021 to get back up to where the fed would like to be. David lower for longer, alix. Russell price, thank you for being here. Friday we will have a great lineup, including bill gross, alan krueger, and rick rieder, global ceok rocks of fixed income. Senator kaine and mike pence could not be more clear about the difference between them. This is bloomberg. Emma coming up, jeff currie, Goldman Sachs global head of commodities, on his outlet for oil on his outlook for oil. David when mike pence squared off against tim kaine last night, the disagreed about almost anything almost everything. But the biggest difference is about whether a clinton or Trump Presidency would better position the United States on the world stage. Welcome, margaret. Talk to me about their different views about where we are as a country on the world stage. Margaret senator tim kaines argument was that Hillary Clinton and the Obama Administration took out osama bin laden, helped to broker lead the charge to broker the iran nuclear deal, and has done other things to make the u. S. And the world a safer place in the face of rising terrorism threats. Mike pences argument was the opposite, that the rise of isis was fueled by what he called weakness or fecklessness in the Obama Administration. These are the two starting points by which they litigated their foreignpolicy arguments. Prettysenator kaine got personal about who he trusted more to be president. Lets play a clip. My wife and i trust Hillary Clinton with the most important thing in our life. We have a son deployed overseas in the marine corps. We trust or as commander. But the thought of donald trump as commanderinchief scares us to death. David this was a theme that , but was ite hit effective . It certainly echoes what many of the republican or independent republican leading republican leaning National Security experts have said when they explain their shift. This really is that comes down to domestic politics, probably in a handful of battleground states, where it is unclear whether tim kaine can persuade those who are able to be persuaded that the u. S. Will be safer with Hillary Clinton. David you mentioned before that mike pence had a bleak view about where we are in terms of a country on the world stage right now. He thinks that obama and clinton are responsible for that. Lets listen to that. Mike pence i can make clear to the American People, after chortling after traveling millions of miles and being the architect of the policy admin of the administration by secretary Hillary Clinton, the United States is less safe today. It is inarguable. Were pick up on what you talking about before. How much of this argument does affect persuadable voters. The question is, who is persuadable in the middle . And also in those critical battleground states . Margaret it is really hard to know. What is so interesting is when you listen to the democrats counter to this and this is tim kaines approach that, look, the world is destabilized and donald trump is a destabilizing force. His policies on syria are changing day to day. Both sides are arguing to these persuadable voters that the destabilizing force. That means when voters go to the polls in november, to the extent they are thinking about Foreign Policy as a top issue, it is with a lot of concern and worry about the future. David Margaret Talev is bloombergs white house correspondent. Who do you speak to . To jeffo the currie of Goldman Sachs. Futures in the United States are marginally on the dow. We retrace some of the moves to the upside on the ftse 100, south by 33 points, lower by. 5 . Yields unchanged on the 10year at 1. 68. From new york, this is bloomberg. Alix this is bloomberg. Its 7 30 a. M. On wall street. It is the rate hike debate, the chicago fed president joined the chorus of fed officials who continue to talk the potential for an Interest Rate increase before the end of the year. Did donald trump get a lesson from his running mate . Mike pence displayed debate discipline as donald trump repairs for his second showdown with Hillary Clinton this weekend. Unsettled markets and officials consensus may wind down qe for the ecb. That is what you need to know at this hour. Jonathan there is a consensus among the analysts that that should not matter to the bond market. Futures in the United States are largely unchanged, down about four points on the s p 500. We retraced a little bit in london yesterday. Decade lowesh three on the cable rate but that has been retraced but the bond market has bizarre moves. Even treasuries made a move yesterday to the downside with yields up. In the commodity market, South Carolina is in focus. Commodities and the whole east coast is in focus because of the storm coming. Alix this map tells the story. This is the path of hurricane up the moving from cuba east coast and should hit landfall on saturday in the carolinas and work its way up to washington and new york. Tankers. W dots are oil you want to focus on are the ones in d. C. And new york which are in the line of fire when it comes to Hurricane Matthew and could be disrupted if the hurricane does significant damage. You also have Storage Units being taken offline. Barrels of oil storage are in the bahamas and that could disrupt caribbean shipping this week and fuel shipments into the u. S. East coast. You have tankers and worries about fuel shipments. This tells the story of oil over the next few days. David lets stay on oil. Tom keene spoke earlier with jeff perry of Goldman Sachs. Jeff curry of Goldman Sachs. He discussed the business of Oil Producers and the changing nature of supply and demand. A lot of the cycle you see since the 1980s is driven by the dollar. We saw a substantial weakening of the dollar in a recent strengthening of the dollar and that correlation adjusts the overall price level. We think about the macro sets the price level. ,upply and demand fundamentals the actual molecules of hydro carbon derived whether you are a premium or discount. To thew do you respond people looking us saying we dont need as much as much and we will see a decline in oil . Some think the range bound group is wrong. You look at the overall environment and both are pointing down, both the macro and the overall fundamentals. If you start to see a stronger dollar, that will put downward pressure on the cost structure and put downward pressure on oil from a macro perspective. On a micro perspective, you still have supply in the market. Like nigeriaces and liberty is so the probability of adding more supply is higher and we have a wall of supply. Projects that were invested in five and 10 years ago, they come online next year and the next is lowcost players like russia which is at highs so we are still seeing a lot of oil in this market. Rancine china is still growing them more than western countries but its slowing. You look at demand for oil or commodities broadly, its boring. Demand growth since 2010 has been bouncing in the 1. 3 per barrel range. Million barrel range. China is not growing at the same rate. When you put it together, there is not a story. Issuenderscores a broader facing not only the commodity market that in terms of looking at the economy. We have an investment problem in these different markets. Francine we might see oil shoot back up in 10 years. That is the core thesis when you think further out. Its probably 2024 the timeline. When you look at the increase in supply coming from the lowcost projects, the sweet spot is 17 and 18 and starts to taper off in 19. The other factor we have not talked about is shale. That responds when you get into the 55 range. Francine how much do we understand how many producers are in shale . Do we have a better grasp on it since last year . What we know is that you can separate them into three buckets. The lowcost, highquality assets and then you have the eagleford and the bakken. Permean guys are becoming competitive on an international basis. Thats where we have seen the response and drilling activity and thats starting to slow the declines in production the u. S. They are likely to steal market share from opec into next year. Know which wayu it will break . Is there another indicator other than price . What we have seen now is when range,get into the 55 producers come in and sell that market which tells you there economics are in that range. Guysighquality permean are below 50 so they have drawn a line in the sand. It tells you its hard for this market to go above 55. in the linkage between inflation and oil, if oil starts going to 55 dollars, will it have an impact on inflation . Directlink that is very is the correlation between oil and breakeven inflation. There is a relatively high correlation in the fiveyear rake even. Does that translate into real inflation . Economists point that that is limited. If you put oil and commodities together, this rally we have seen since the beginning of the year is likely to be an important driver to stabilize price levels. Where youook at china saw and opec action that was successful in ccoal it pushed up a coal prices and help the chinese prices. There is a lot of talk there about marginal producers. What does this mean for the integrateds . Alix they are not as full throttle into shale. Integrateds are coming in and buying up assets of other companies but they will have the cash. They can drill deeper and faster and be more efficient and get the extra juice out of the rock because they have the money. Down the road, it will be iocs that can deliver the marginal supply. David you can get a bargain if you have the cash. Jonathan we will take a look at the impact potentially of the donald trump or Hillary Clinton residency can have on mergers and acquisitions. This is bloomberg. Jonathan this is bloomberg. [indiscernible] emma there is a big acquisition in the insurance industry. Endura holdings will be bought for 6. 3 billion in cash with represents a 43 premium. The japanese insurers have been expanding outside japan to offset costs. The Worlds Largest divider of Exchange Traded funds is cutting prices. Nockrock will feature expenses on 15 stock and bond etfs. It may lead more investors to put money into passive funds. A plant a turnaround plan appears to be gaining traction estimates in operating profits rose 60 . Thats your Bloomberg Business flash. David as the president ial election draws near, the markets are figuring out what this will mean for the business world. One area that might be affected will be mergers and acquisitions. We have a partner of the prominent law firm of jones day and specializes in m a. Welcome back to the program. Lets talk about what we might speculate could change for m a. Lets start with anatrust. There is increasing scrutiny and resistance being a headwind. Its a headwind globally. Yearsnamics are that 10 and 12 years ago, there were dozen antitrust suits around the world and now there are 120. If you are doing a global deal or any deal, youve got filings all over the place. Thats globalization. Thats a topic in the election but thats here to stay. There is no question in the last eight teen24 months there has in us ends of the antitrust regulators in the United States and eu have opt the ante and it is gotten more difficult. Political or whatever, if you ask the regulators, they say what do you its a act when you bring these huge transactions to us area these are competent transactions but most of us there think there has been an increase in the desire to resist consolidation as a political matter. We had a guest yesterday that said the same thing and the goal posts have moved. As you get more of these large deals, clients are bringing these to you. Are they getting harder and harder and our people trying to do things that are more difficult . They are trying to do business deals that make sense. There are many deals that clients look at and never make the light of day. We look at them and say it will either get locked or have too much taken out of it. Until recently, it was more predictable. There is no question that time for review has elongated area also, the availability of remedies, you could go in before and say do this and this even though thats a problem and the government will say ok in short order. That is harder now. Burden is on the parties to prove that its not anticompetitive rather than what the law says which is the burden should be on the government that it is anticompetitive. David are you getting as many potential m a deals over one year ago . But onlook at the media a dollar value basis, its down to but thats compared 2015 which will not be replicated in my lifetime. It still solid and theres lots of activity. The only area that surprised me with her isnt activity is energy. Thats true, the Capital Markets have stayed open so much when it comes to energy that it has negated m a. You can make that point and other sex theres. You can make that point in other sectors. A ise of the drivers of m the search to get better and the search for growth. How do you get growth in a 2 gdp world . It and it and synergize make it more profitable. It is growth and frankly the cost of capital. I dont care what the fed doesnt in december, long rates will not change that much. We had roger altman here and he said that same thing. Anything you buy for cash is a dish is accretive. Stronghappen to be Balance Sheet cashrich buyer, this environment is ideal from your point of view. Not every deal is cash. Alix do you agree . I dont think a rate hike will make a difference. It makes the deals tougher and probably squeezes the premiums. The multiples people are paying and still making accretive deals for themselves are very high in lots of spaces. Its a good environment. Its not as busy as last year but i dont think that will ever happen again. Its as busy as it was in 2014 and we thought that was a great time. Its not down, is just down compared to phenomenal. Eu versus washington when you look at a deal, which is harder to get through . I will answer like a lawyer and it depends on the deal. Eu can be, the difficult and always was but the u. S. Is leading the pack right now. David that is the change. Thanks so much. Alix good to see you. Be at 2. 2 lds should and we got the chart that will prove it. This is bloomberg. Taperwe may have a mini tantrum in the market. Noteche bank is out with a giving charts why that might be the case. You look at these different measures of inflation median is ad popular measure and that is over 2. 5 . The only measure that is below 2 is the white line which is core pce which deals more with health care and Financial Services but has not caught up to its peers. Inflation is rising. Look at the potential growth. The white line here is global pmi and the blue line is the 10 year yield. They move in tandem except for now. Global pmi continues to pick up and 10 year yields are moving lower. Based on this chart, you should see the 10 year yield at 2. 2 . The risk as we talk about the over the lasttrum 24 hours in europe is when the bond term premium actually traverses. The term premium is the Additional Capital you need to own treasuries over the longer term. If you take on the risk, you have to be compensated in that on term premium is negative, below 0 . There is so much money in the bond market that valuations are high and the bond market in the bond market. Reversal, that means a huge iselle off across the bond market. What will be the trigger . Potentialies the growth. If you see Central Banks paring back in the bond purchases, that could be a trigger for unwinding this trade. Jonathan steve major of age as bc said goof hs fish. How does he collide with whats happening here . Call is 1. 35 on the 10 year which is different than Goldman Sachs and jpmorgan. Slice it, you you will have Balance Sheets on Central Banks continue to be large even at the margin. Jonathan a suggestion that maybe we are seeing bull market stabilization. I wonder whether this situation is more about pricing and where we were yesterday. It raises the question of the efficacy of centralbank action. Up changingnot wind how they bought bonds because of the economy but its because they ran out of bonds to buy but they had to change the way they structure that program. Could argue selling similar when it comes to the ecb, the changes they have potentially. Ae markets reacted to this month ago that the Central Banks are out of options to stimulate. There is no more runway hence the fiscal side. Get to theets scorecard. Global Financial Markets look like this with futures positive in the u. S. S p 500 futures are positive and wasfeud see in the ftse almost at record highs yesterday but is down 29 points right now. The dax is down by 44 points on the session so far. Here is the action in the fx market. 26 on the cable rate and you have to go back to 1985 on the pound versus the dollar. The low of that year was in the spring. 1. 03 rate. Yen has a nymex crude is close to a 50 handle. Its up by 1. 8 . Coming up, we will talk diverging politics affecting italian bonds and the spread between italy over spain the widest in two years. The explanation is the politics. This is bloomberg. Jonathan welcome to the second hour of bloomberg. Futures are positive in the u. S. With dow futures up 28. Ftse from an the alltime high that we almost got yesterday. These are the other Asset Classes. The u. S. Treasury yield is 1. 70. President ago fed Charles Evans joins a chorus of fed officials this week to talk up the potential for an increase in Interest Rates before the end of the year. Did donald trump get a lesson from his president ial running mate question mark mike pence display discipline as donald trump prepares for his second showdown with Hillary Clinton this weekend. Taper talk in europe, officials tell us that an informal consensus is building to wind down qe and a nervous bond market is adjusting. That is what you need to know at this hour. Ecb, continuing about the there is the possibility theyve got a consensus on diminishing the purchase of ons and were joined by paul gordon who is responsible for covering european western Central Banks. The market seemed to react to the report but what was in the report that wouldve trigger that reaction . The market is clearly somewhat nervous at the moment. Many feel that asset prices are elevated and any sense of tightening is just a reduction of the pace of easing. This index a little bit of fear into the market. We saw some of that. Whats happening is there have been has been an informal consensus building amongst policymakers that when qe ands it should be tapered, not just stopped. That may seem fairly straightforward but it says nothing about the timing. It causes some concern in the market. The two you look at themes that came out of it, one was that the ecb will perhaps at its growth target and things are Getting Better and the other one story,t this was a boj that Central Banks hit the limit on what they can do through buying bonds. The ecb has already instructed itself to work out how it can extend the program if need be which includes allowing them to buy bonds with a lower yield. Many of that was ruled out under the ecb regulations. The message from the ecb continues that it will continue with qe into march 2017 or beyond of data but there are issues of bond scarcity out there. You cannot doqe, it forever. The bank of japan is further down the road them the ecb. David so the ecb is saying they want to keep their options open. Is the bond market that sensitive at this point . It appears to be. Any central banker will say they will keep our options open. Does everybody believe you on that . These scarcity concerns have been reverberating for some time. Whatmains to be seen solution the ecb will come up with. Provisional017 deadline comes closer. David thank you so much. Over the last couple of weeks, italian yields have blown out to the widest in two years and the story is politics with a referendum on the horizon and what does it mean for their Prime Minister. Algebraing in investment founder. Also erik schatzker. How much of that spread is politics . In a way, spain does not have a government and italy has one will stop it has done more reforms than anyone else in the last few years. Its not just politics alone. The reality is the expert tatian. The market has been disappointed with the brexit referendum. If you look at the polls now, they are 50 50 on the italian referendum which is a change in the constitutional setup all stop. In the end, i think the yes campaign will win. The long and globally is way too tight because Central Bank Monetary policy is effective in the 15 year time horizon but when you contract yields tenures down the line, you are hurting savers because no one will think about investments in the corporate world in 10 or 20 years. Nobody knows what will happen. The 35 yearsg and i think the curve will steepen and that is our view. You are talking about voting for constitutional reform which would shrink the senate and a compass and number of other things that people consider proreform for italian politics. Brexit happen so we have to contemplate the possibility that the Prime Minister will not when the referendum. He has promised to do with David Cameron did. If i lose, i quit. Does he have any choice in that matter . Italian parliament costs 68 percent more than the spanish parliament. System meaning every and theyo pass twice often have a different majority in the upper and lower house. Basically, it does not work. This is recognized across society. You mention an italian politician, thats not the highest standard. The premise or wants to change it. He admitted he made a mistake by personalizing the referendum. He said im about making reforms. If i were to lose the referendum, i will quit and then he said its not about me. Its a vote on reform yes or no. He has already changed his mind. He will go through even if no campaign would win. For 20 years, italy has not and growing. Will change nothing currently, what changes if he steps down . Isnt it like a red herring . The Political Risk has been overpriced. Secondly, the probability that the yes Campaign Wins is higher that one market then what markets believe. You have the middle that is more people have been waiting for 30 years to get rid of some italian politicians are you i cannot believe they will go back. If the no campaign were to win, there is a grand Coalition Government to change the law. You run the risk of not having any winners arian then you would have the spanish situation. Spain has a three party system. They cannot form a government and italy is the same so they need someone to get a majority premium and can form a government. Erik the Italian Financial system is teetering. How do you fix the system . Italy made of egg mistake. We have a socalled european bazooka which is 1 trillion of fiscal spending. That has been used by spain, up a bankreece to set and take care of the legacy problem of the financial crisis. Italy did not apply and kept saying things are fine. That was a big mistake. The stock is egg. There is more collateral. The stocks are big. We are making high return so there are opportunities. I think the key issue is to concentrate the nonperforming loans. Have beenrity banks dealt with in a private sector fund. They had a couple of injections. The key issue debate remains montrepasse. Worst case scenario, you have the collapse of a hybrid. 2. 5ll also have about billion dollars of retail. Ultimately, the institution will the bank will not be shut down. The worst that can happen is that you will have a hybrid transformed. You will not have an ecb intervention. You will not have the fdic coming in and writing down senior loans. Bloomberg jonathan breaking news on the italian debt, 370he 50 year investors are taking place in that. Ts a 5 billion euro lets get them up date on headlines outside the business world. Donald trumps Vice President ial nominee give republicans a break after one of the worst weeks for the donald trump campaign. Mike hence delivered a lowkey and steady performance in his debate with tim kaine. Balked atrepeatedly the most controversial comments by donald trump. If you want to have a society where people are respected and respect laws, you cannot have somebody at the top who demeans everyone he talks about. Clinton wouldy know a lot about an insult driven campaign and its remarkable. At a time of great challenge in the life of this nation where we have weakened americas place in the world and stifled the economy, the campaign of Hillary Clinton and tim kaine has been an avalanche of insults. 48 say mike pence won the debate and 42 say tim kaine one. Hurricane matthew was on a collision course with these coats of United States after it slammed into haiti with 145 mileperhour winds. At least 11 people have been killed. It has lost a little steam but it is still a category 3 hurricane and is expected to hit the bahamas tomorrow and possibly florida by tomorrow night. Florida has called out the national guard. Global news 24 hours a day powered by more than 2600 journalists in more than 120 countries. This is bloomberg. Up, we get theg latest reading on the u. S. Labor market and we will bring you the adp employment numbers and with it to bank and focus, and with Deutsche Bank in focus, this is bloomberg. Jonathan adp employment comes in down. The previous number was a downward revision. Payrollok for the big figure on friday, the change comes in at 154,000 which is a marginal downside all stop alix im looking for a Market Reaction and 10 year yields are a little bit lower. The other big story in this equity market is what will happen with which a bank. This is with Deutsche Bank. Has gone to other european banks. This oneyear chart shows the banks are getting pummeled. Ceo,u had to bet on one who would it be . They both have very high challenges. Coret suisse has a business that people make no money that people make money no matter what. The Deutsche Bank margin is a little smaller. They have Wealth Management and asia in Credit Suisse so Deutsche Bank needs to shrink investment banking. There is a tropical business. They have a very profitable fourex business exchanging currencies. Have outgrown in size. They will probably both make it because the market pressure is positive. They dont have time to hang around. Cut whichto take the are people cuts and compensation cuts. People in finance or way overpaid in the industry. Banking is being hit by the digital read solution resolution. Any to cut people and caught cost. Us, last time you are with you described the ceo as dead men walking. I heard you effectively endorse the strategy. The strategy is private wealth and asia and dismantling the investment tank. The stock is down 45 since last year. There are two ceos in europe that might not make it. These are the two because they have big challenges. The market pressure has increased. Andt with them recently they know they dont have four months. Take yoult, they will for cuts which is what is needed. Both banks. I would not be surprised if you see an absolute freeze across valuable compensation which is what is needed. Make money to shrink the assets. Keephan one thing they ruling out is the capital rise issue. I have to raise capital. What do you gauge from them . Deutsche bank might need to raise capital after they shrink the Balance Sheet. Currently, they dont have a liquidity problem. They have a core capital of 13 . They have fines coming up. Doj might want to add a foreign premium to get more money for new york state. You think of foreign premium will get applied . Absolutely, i have seen it with standard charger and others. Bank, they should litigate. Ultimately, its a u. S. Law. We are asking apple to pay 12 tax in ireland. They have been selling in other countries. We are not asking for 40 . States, the equivalent for other u. S. Banks should be between 4 billion and five alien dollars. Erik you are saying that john crine should raise his middle finger at the Justice Department and say see you in court . Yes. Ceo why has ever single not taken that option . You dont have that option if you are a u. S. Ceo area you can always walk out if you are european. Erik is that what he will do . I think they are ready to litigate which is why i think eventually with the , its ination leaving everybodys best interest to settle. So the prosecutors can put the trophy in the case . Yes, before they leave. Probability that a settlement happens is high. Having said so, Deutsche Bank has a tough argument. They never made any money in the u. S. In the last 20 years. It does not need the u. S. And the u. S. Does not need Deutsche Bank. Crinethats not what john says. You want to keep your dollar base. The largest market in the world is the u. S. David if there is a fine that comes out of litigation, could it affect the company . They still of the money and the unit on the u. S. Can go after them in germany. They dont just get to say we go home. Issue is how much you pay. You pay what is fair. Right now, we dont have the details. Disclosure, there are similar cases that should be in the range of 45 billion and thats why the market is puzzled. If you go to litigation, that would become public. The action of the doj will be in the public eye. Erik since we are talking about regulators, we should talk about wells fargo. It has lost 35 billion market value since the fake account scandal broke. Where does that end . This has to be the most stupid mistake ever made because erik in the history of banking . Its one of the best banks in the world. They rank in the top two or three in the world. Profited less than 2. 6 million. If you had to do something dodgy, dont do it for so little. Of 300e a market cap billion. They lost 80 times what they profited in the market cap went down. The biggest mistake has been made eye the ceo and the board. There was a huge arrogance and showing up on a democratically elected body like the Senate Committee and not saying im sorry. Erik will john stumpf loses job . They will have to split the role between chairman and ceo. They should have offered to split the role originally. They should say that is the clawback. Butthan weve got to go which bank do you want to buy into now . Today, wells fargo because cap. Lost market it is one of the best banks in the world. They are at a 15 discount. This is a bank with higher u. S. Rates. Question of the next six months of it can earn five dollars per share. Be a 60 stock. Jonathan thank you very much. Next up, the south African Reserve Bank Governor joins us. This is bloomberg. Alix here is what you need to know rule. Charles evans joins fed officials who continue to talk of the potential of an increase in Interest Rates before the end of the year. Maybe donald trump got a lesson from his potential president ial running mate. Mike pants displays discipline displayse pence discipline at as Vice President ial debate. Nervous bond market adjust even though officials did not exclude the bond buying could be extended in the ecb. Thats what you need to know. Jonathan we are about 60 minutes away from the cash open. Futures are positive on the dow. In london, big move to the upside. The cable rate had a 1. 26 handle. Yields in the 10 year just kissed 1. 70. You dig deeper and it still a question of who will buy twitter. That is feeling action in the premarket with twitter up almost 4 . Weeks will be made this and twitter will have to Start Fielding them will stop salesforce is among the bidders and that stock is down. We have heard speculation about the disney but is this time for real . Lets take a look at monsanto. You have a lot of lower crop prices hurting farmers. Ours tillnd bayer trying to work out that 6 billion deal. Sales grew 17 . Craft beers taking over. Lets get an update on whats making headlines outside the business world. Pants mike pence may have helped Donald Trumps slide this past week area tim kaine and mike pence faced off last night. After hillaryt clinton. Its clear to the American People that after traveling millions of miles of secretary of state and being the architect of the Foreign Policy of this administration, america is less safe today than it was the day barack obama became president. Its inarguable. It weakened americas place in the world. Clinton withillary the most important thing in our life. We have a son overplayed overseas deployed in the marine corps. Of donald trump as commanderinchief scares us to death. Mike pants won the debate. Mike pence won the debate. According to diplomats, the u. S. And china are considering limits on the north korea energy trade and other nations are debating separate sanctions. This is bloomberg. Its a game we have been playing since december, 2015 when will the fed raise Interest Rates . Are some thats that the u. S. Will increase Interest Rates by the end of the year. The committee took a First Step Towards normalization last december, increasing the target range for the federal funds rate by 25 basis points to one quarterone half a percent. We have started doing this range thing. Then to pick a number but we were nervous we would not hit the number with our large Balance Sheets of the ranges 1 4 to one half of 1 . The fomc has refrain from further increases since then. This may be changing soon. I think the case is compelling to state to take another step in a gradual path. I would expect the case would remain compelling but we will look at all the data that comes in between now and november. Jonathan what does this mean for emerging markets . Thatext guest can answer better. Great to have you with us in new york city. What does that mean for you . Thinking about when they are going to do it and how that would affect the South African economy. The fed is doing this because the u. S. Economy is strong, strong u. S. Economy is good for our economy. It would also mean its good for emerging markets. Part is amportant portfolio challenge. There were massive flows to emerging markets and when the fed begins to tighten policy, we expect there will be a reversal of lows in the emerging markets. Jonathan you expect a weaker end . We expect a movement on other things. For a long time you heard a divergence of monetary policies. In south africa, its the flows. Whiche significant m a could have an impact. Alix the taper tantrum was traumatic. They say its different this time. It does not sound like you agree that things are different. The fed has communicated very tantrum. E 2013 taper we got affected in 2013. Its a question of how much of this is priced in. Of the way in which the fed communicates, the Financial Markets dont want to believe this will happen and as it happens, you will see a significant realignment of prices. David how much has the South African economy benefited him this Economic Policy question mark how much have you benefited from that . Started, we experienced massive inflows. The lows came at the time when we were in cyclical policies are we are on a path of fiscal consolidation. 2013 indicated a fed tapering. We started a little earlier than 2013 and when you look back, you maybe we should do this at a faster pace than we had done it so we benefited. Let me ask you about your Monetary Policy will stop you have been tightening. For you to cut Interest Rates from here, the reserve bank of south africa needs a sustainable reduction in inflation. Can the fed help by not moving . Does that open the opportunity if they dont move for you to cut Interest Rates . We watch what the fed is doing and it is clear that we do move point by point with the fed. Instarted tightening policy 2014. Rate of the rand is a significant risk to the outlook are you at the most recent reading, we said the risk and the inflation outlook is balanced. Experiencing an influence activities which has nothing to do with what the fed jonathan does. Some say the swiss franc is undervalued. Is the South African rand undervalued now . I cant say right now. Inre was a strong feeling january that it was overdone and the change rate had moved to soon and in big jumps. Moment, we could say the undervaluation of the rand but by how much we dont know full top there are so many moving parts. Ofre is a global realignment the Exchange Rate which is difficult to make. Jonathan you still consider it undervalued . Yes. David we see a lot of volatility in the rand which is gone down a long way and come back a long way. Do you see that volatility continuing . Atit is settling down historically it has been volatile. A lot of the moves that we have tanabe. Re blamed on wat changes took place in tokyo when london closed in new york is closed. That adds to the volatility of the currency. That therery clear is so much uncertainty. Alix when you talk about south africa, you cannot ignore commodity and palladium as of 28 and gold and platinum are up. Does that make your job harder or easier . It will improve the tempo of trade and the types of trade that has other than offense. It does not have much to do with inflation. For this year, we had an average of 44 and we think we will make that. Year, it will be 3. 5 so we built it cushion for us. Commodity prices are moving. They did not move a loan, oil also moved and its negative for the inflation outlook are. Jonathan you are here on your own. Here with the finance minister and trying to convince investors that south africa is a good place to invest and there is a lot of uncertainty around the finance minister. It difficult is it is is to convince investors in new york that south africa is a good place to put their money . The politics are not much help but south africa is still a good investment proposition. The 2 key institutions in south and thes the Treasury Department of finance. We are making a very good return. David many thanks to have the reserve bank of south africa with us. The Supreme Court is taking on Insider Trading for the first time in 20 years. We go live through the steps of the court and bring in the latest on what this could mean for wall street and enforcers. This is bloomberg. Coming up, Stephen Whiting will be with us. Largeste worlds provider of Exchange Traded fund is cutting prices. Blackrock will feature lower expense ratios on 15 stock and bond etfs. It is anticipating a new u. S. Rule that may lead investors to put money into passive funds. Coming up, we will talk with the global head of shares. Twitter is expected to receive acquisitions this week area the salesforce ceo has been making the case to investors that his company should be the buyer. He sees twitter as an unpolished jewel with lots of potential. The british economy is still showing signs of resilience in the wake of the brexit to vote. Ihs said it will cost more stimulus from the bank of england and the central bank had cut Interest Rates after the brexit vote. Thats your Bloomberg Business flash. States a primted court is taking on Insider Trading laws for the first time in 20 years. It will provide a new road made roadmap for traders. We go live to in front of the Supreme Court building. And whats atase stake firs. Its about what the rules are for somebody who receives information confidential information about a company and whether that person can be prosecuted or gone after by the ftc. Grocerya man who is a wholesaler. He received information from extended family member. He made trades on it and made a lot of money and was prosecuted. The question is whether the person who originally gave him the information, whether he had the right motivation to allow prosecutors to to go out for the defendant. David do they get some benefit from this . Members sos eight what happens if there is a tie question mark it could be a tie but this term is different because there is potential that we will have a ninth justice. If the Court Hears Arguments today and take a preliminary vote and if they are split, they might just wait and see if there is a ninth justice. Then they can hear arguments again in march or april. Thed the u. S. Attorney for Southern District of new york has famously said this could open floodgates for new Insider Trading will stop is he overstating this . He was talking about a decision that came out of the new yorkbased second circuit. Wouldd that decision create a roadmap for Insider Trading and the Supreme Court is considering one aspect, the question of whether the insider was looking to make money when he or she made the tip. The second issue may be as damaging. It has to do with whether the person who made the trade actually knew where the information came from and knew the insider was benefiting. If the government wins, it would help the defendant but would not undo the impact of the second court ruling. David thank you so much. Jonathan we are excited to technology onberg her website. Go to bloomberg. Com technology. Up, we go back to the charts and look at the european bond market. Make sure to tune in tomorrow when we have christine lagarde. This is bloomberg. Emma coming up, Stephen Whiting. Jonathan this is bloomberg. Its time for a battle of the charts. I will pander to john, looking at the differential in yields between developed and developing european nations. We have seen the risk premium disappear and you see the amount of negative yielding bonds from slovenia and other places increase. Im looking at the check republic and to year yields and they have come down much more dramatically than the orange line which is german twoyear yields. The gap between the two has collapsed. You can see how much higher it was in 2010 and 2012 and it has been going down. It lifted up the early part of this year with concerns about the Global Economy and now it has shrunk again. Its entirely driven by the ecb. The Czech Republic is doing better and the economy is growing but its a much smaller economy with a lower Credit Rating then germany. Its due to the fact the European Central bank is buying more than 80 billion of on. Of bonds. Alix i and taking a look at dollaryen which closed above its 50 Day Moving Average for the first time in a month. Spread,s is an historical the correlation between dollaryen and the s p if you go back about 60 days. To the beginning of 2015 and that correlation is slightly negative early last year but reached a high of. 9 which means is the dollar rallies, the s p rallies so the yen takes on the form of a safe haven trade. As early as the Third Quarter this year, it was about. 6 and just today, it turned negative. That means you can have the dollar selloff and the s p the s p come down and the dollar actually rally feel. That means the yen is not taking on the safe haven aspect that we have seen. Its a shift in what we have seen over the last year and a half in the market. David do you have a vote . Jonathan oh, on. Why bother . I feel like a child again. Lisa won. David thats our lead story, the many taper tantrum with ecb bonds. We should air live what happens in the commercial break. The largest provider of the ds cutting prices and well talk to the global head of black rock shares coming up. Futures are positive, up 43 points. Theondon, we retrace upside. This is how we trade on cable. We had a one dollar 26 handle earlier. From new york, this is bloomberg. Jonathan a very warm welcome to this hour of bloomberg go. I am Jonathan Ferro alongside asid westin and alix steele we count you down to the market open. Futures positive up 35 points. Switch of the board very quickly. Market, deade fx flat in yields, just kissing 170. Alex at this hour, ecb tapered officialsed markets, telling bloomberg formal consensus is building on a way to wind down qe. Officials did not exclude the bond buying. And did donald trump just get elected or his president ial running mate . Mike pence displays discipline. And it is the rate hike debate. President Charles Evans joins this week to continue to talk up the potential for an interest increase before the end of the year. The committee took a First Step Towards policy normalization last december, increasing the target range by 25 basis points to one quarter or one half a percent. We started doing this range thing. We were nervous we wouldnt be able to hit the numbers so the range is a quarter to half of a percent. For a variety of reason, the refrain since then this may be changing soon. David for more on the rate cut hike we are turning to steven wieting. You just heard him say it. It is going to be changing soon. We expect a tightening by december. Markets are not priced for a november move. Prior to any discussion about the elections, the fete was raising expectations around their press conference, one in december. Markets are called about november being the timing for a rate hike, days before the election. Care what the longerterm past is . Very important. If you look at what they did in september, they lowered the forecast half for 2017 and 2018 by 50 basis points. The long run normal Interest Rate is 2. 9 . We are now seven years deep into a recovery. 3752 2. 9, ise at really implausible. You would have to have an economic paradise. The real story about Monetary Policy is how much they did during the crisis years. Procyclical risks . Alex shorter, evans is considered a dose. Dove are they going to be getting because the markets do not believe them . There is always this president versus governors split but the other thing is there should be some Interest Rate option only. Nality. O we got the payroll report on friday. It didnt we can below trends. One report that is getting that inup, i will keep mind. September is another month just like it. On initial readings. Jonathan the most important thing is the hike after that. Understand,ts to they tell us all the time, but what the actual reaction function is 40 Federal Reserve. We have just had very weak august data. That is the seasonal extreme but they didnt cite it in their last meeting. So i think they have a lot to explain. Jackson hole showed us there is a lot of thinking about the long policy rates are. These are questions that are unanswered. They feel very strongly about activist Monetary Policy. Janet yellen said our forecasts assumes there are no shocks and there are plenty of shocks but if you look in history there were plenty that did not have a reaction from Monetary Policy. There is this consensus that and it is not just the fed. It is Central Banks around the world. It was a tight battle for the last 46 years. David how much of it will be motivated by an option analogy optionality as opposed to concerns about inflation. The thing is the fed does not want powder. If they think the outlook is risky, they would never tighten in the first place. That is clearly different from the argument to their behavior. They dont cause damage just so they will have room to repair. Alex i want to go to dots go on the terminal and this is their longerterm. Forecast. Forecast. Term dot explain this longterm gap to me. It seems that it has to come down to the market. Their own expectations are accurate. One is nominal, one is real. It is a nominal Interest Rate and a real gdp growth rate. That is an important part of this. The big question is when you see higher inflation, view that centralbank and set the banks breaks. But in reality there is going to for highertolerance inflation rates over a long. Of time. Period of time. Do we want to learn the risk . It is an important question going forward. , andrns about debt burdens distribution of income, all sorts of things that they are going to be fighting a long time to bring up the inflation rate and make sure that it is a different battle. David when you listen to the president s talk about it, they seem to see some glimmers on the horizon. They talk about the need to move now. Do you see those same glimmers . See some glimmers that headline inflation is going to be higher in the United States. Not 27 ande is there is one thing that moves it in the United States, gasoline. Youhe current context, when are this deep into a recovery you are going to lose some income growth. So you will see sustained inflation. But what you just brought up, the idea that there are folks that think now we should be careful, we dont want to be preemptive when inflation is below target and others want to go back and say we cannot move too late. Wieting, he is going to be back with us later. Ow for an update on news it was the Vice President ial nominees turn in the spotlight. Tim kaine and mike pence faced off in their debate last night along with at Longwood College in virginia. At one point, they sparred over report suggesting donald trump may not have paid federal taxes for more than a decade. When hillary said you havent been paying taxes, he said that was smart. So it is smart not to pay for veterans and teachers . All of us who do pay for these things, i guess we are stupid. Those tax returns that came out publicly showed he faced some tough times 20 years ago. His tax returns showed he went through a very difficult time but he used the tax code brilliantly. Poll, 48 sayo a pence won. Hurricane matthew on a collision course with the east coast. Andstorm slammed into haiti 11 people have been killed. Matthew has lost steam but it is still a category three hurricane expected to hit the bahamas tomorrow and possibly florida by tomorrow night. Residents in matthews past have been ordered to evacuate. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. Alex we do have weakness over in europe in terms of stocks that hear the futures market is holding up. Almost 2 10 of 1 . The s p is now 1. 8 below a record. That employment number is a little lower but it didnt really have an impact on the market stocks right around record highs. Individual names taking a look at earnings trickling out, we have a loss and memory chip prices were actually down by 6 . Population brands constellation brands, better 17 ing, going to go up to and racking up with global payments, it also sees credit improving in europe and asia. Coming up, black rock is cutting prices. More on what is driving the race to the bottom on ecf gees with mark wiedman. David this is bloomberg go. Lack rock has announced it is slashing fees in passive investing. We have an exclusive interview with mark wiedman. Eric . Thee cant understate significance of what blackrock is doing. Mark, good morning to you. You are charging for basis points four basis points. Have you make money on four basis points . We launched our core series, our lowcost offering for longterm investors in 2012. The fund had 32,000 in it 32 million in it now it has 80 billion in it. It has become a linchpin of a trillion dollars that we can use to make money for our shareholders. We are going to grow the revenues. Our clients benefit as they get a lowcost way of investing and we benefit by having scale. We make it up on volume and the experience has been since 2012 we took the price down from nine to seven. Went from 30 million during that. Role is goingary to move trillions in motion over the next five years and as that money comes in, we want to make sure that we capture our fair share. Ishares now accounts for 20 u. N. And base a fees. What is that going to look like in 2017 . For the whole industry it is but ito share and grow is not just about passive versus active. It is about other forms of active that are growing quickly. Whether it is Asset Strategies or alternatives what you are giving up fee revenue, cutting fees on 15 500. Not just the s p are 220 billion out of our 1. 5 trillion base. It is aimed at that low 510 year longterm horizon client. For other clients, liquidity and the exposure are much more important but for this Group Whether they are thinking about individual stocks or futures or funds price matters. You frame this as a response to the fiduciary standard. Why is it necessary . Because of the fiduciary standard . See a lot of money coming into motion over the next few years and we want to win, be number one across the board. We are number one in the United States and we want to maintain that leadership position. As you said, we make it up on volume. There is one problem with cutting prices. Walmart knows all about it, amazon knows all about it, it starts with a race to the bottom. Are seeing, importantly, that in this pricesensitive segment, price does matter significantly. It is really just in these blockbuster large products that i am talking about and the rest of the etf market, liquidity and portfolio management. Y four basis points and why not three . Our plan is to make it the biggest in the world. It is the most efficient tool investors can use in the world. It is certainly a better deal than seven but where does it end . What is the lowest foreseeable cost . Lets say you attract a trillion dollars. A trilliontract dollars, i am looking forward to talking about that scenario then but for basis points is the killer deal. Who can afford to compete . Fair consumption that vanguard can afford to compete, state street can afford to compete, they are both large and offer a lot in the way of investing products. Who else . If i can suggest, who are we really competing against . The growth is going to come from people swapping out of individual securities and using our etfs. And from underperforming more expensive security selection active funds. We are going to gain as much of that share as we can. You dont see a trail of i envision a trail of destruction in the Asset Management industry. It will force advisers to shift to charging their clients for their advice and not their product. We are responding to those shifts. This to may like in 1, 1975 . I think that is the perfect analogy. Was the biggest regulatory change until the fiduciary role. The 1975 shock created the rise of the discount brokerage. Here is the uncomfortable reality. On the one hand, you are charging four basis points for exposure to s p 500 market data, the cheapest in the industry. At the same time, you are charging high fees for your actively managed equity mutable mutual fund products. 30 basis points plus 450 points of backend lows. 425 in the Cap Growth Fund plus the management fee. How does that persist, not just that black rock but elsewhere . The challenge for anyone who delivers value to a customer is, is the price worth what you are getting for it . You will see the rule will not suppress active management but it will force greater clarity. Ifbasis points may be cheap the asset manager is delivering value. If not, why not a nice share . Great having you. Thanks very much. It is a titanic shift in the Asset Management industry. Make aif anybody can titanic shift it is blackrock. Coming up, we will look at how Hurricane Matthew can affect fuel cargoes in the east u. S. East coast. Oil is the future in focus and this is the map that tells you the story. This is Hurricane Matthew and it ts projected trajectory moving up to new york and washington. You can find this trajectory on your terminal. These yellow dots are tankers scattered all over the gulf of mexico as well as in the east coast. The areas you want to Pay Attention to our dcn new york. Those crude tankers are potentially at risk. You have a lot of Storage Units all over the east coast that could be disrupted as well as in the bahamas. You have fuel cargo moving in it could be disrupted as well. 33 Million Barrels of oil storage in the bahamas could be shut in. Lets turn to that trade. Joining me is been within stein chtenstein. Significant amount of that, always the shortterm approach towards trading bringing components like that into play. There are some key areas we are watching in addition to the key components that we just mentioned. The hurricane potential to see some price activity to the reaction activity in to it, we are waiting for the eia petroleum status. There was a lot of fundamental indicators building this fear component or fear factor into crude right now. That is why we are seeing the rally. Live and die by these numbers. We see them come down a lot in part because imports are coming down. . O you think it is a fake out it is not actual production shutting . Production seems to be up for the most part. The actual number on a week to week basis ends to be somewhat random. Of 1. 8ek we saw a drop million. Around 2. 5 build of tolion barrels, im sorry million 500,000 2,500,000. Of created a random reaction. It tends to be unpredictable. I think that is going to be the next eight number, the next week indicator or catalyst for the crude. But crude really has some key levels. The june high is what we are focused on. As long as we are above the 39 level crude has been range bound. Alex thank you so much from traders audio. Com. Jonathan the opening bell up next on bloomberg go and then we are counting you down. Futures largely positive. S p 500 futures positive. The story in london was almost an alltime high. Today, we come down by half of 1 on the ftse 100. The adp reports a surprise. It implies Downside Risk to the payroll support on friday. Switch up the board. On offer in europe, slightly softer. 1. 69 de on treasuries at and crude is just inching towards 50 a barrel. The open up next on bloomberg go. Jonathan this is bloomberg go. Joining you live from new york city on this wednesday. Counting down to the open, counting down to payrolls, dow futures at 51 points. S p 5100. Drop into a 126 handle briefly, up. An the pound 49 and 69 is how we trade on wti , up at teufel percentage points. 10 seconds in the cash open, lets strip this back. Alex a little upside in markets as they open up, the s p up 2 10 of 1 . The nasdaq also joining in on that rally, the dow on 3 10 of 1 . If you turn over, you can look at oil. Oil is seeing the d. O. B. Inventories. You have an event risk when it comes to hurricane disruption in the pipeline. That feeding through two big oil as well. The big winners up by about 2 . The Energy Sector up 15 , who would have thought . Tot leaves us leads us the volatility that we have seen in stocks that is not where we think it would be. This is a ratio between low volatility stocks and the s p and this is an enormous jump around a 20 year high of low volatility stocks seeing bigger price swings in the s p 500. Heart of that is seeing a lot of money come into low volatility etfs. Bank of america says an investor retreat may have exacerbated volatility within those stocks. Youve got utilities, phones, real estate shares all moving in lockstep with higher Interest Rates. Those are places you traditionally go for safety, the lowball names to see bigger price swings. Twodoes that see through broader macro strategies . These are questions that could participate even more volatility moving forward. Jonathan lets bring in Jeff Rosenberg, chief income strategist in black rock. Stephen, you were looking at that chart. Expensive defensives folks looking for some alternative to bonds, which we think that we think the income from equities is attractive to bond valuations but you can see what has happened. There have been periodic bouts of a modest 15 point rise. Then you see a crater in utility stocks. Jonathan stephen put it perfectly, expensive defensives. Going into a time where there should be more volatility according to many people in the market, what do you think is the price . Increase iselation really a price that investors pay for having had such inflation in both bonds and stock prices, fueled by global Monetary Policy. Boj highlighted this as an Inflection Point and this discussion in the United States around the feds moves. It highlights that when Interest Rates are rising because it is about concerns over exiting, the exiting of policy support, you get these bouts of correlation and that raises risks across all Portfolio Holdings because you are getting a violation of the assumption that bonds are offsetting your risks. That is going to add some volatility as we move through in the United States, further concerns of the removal of policy combinations. David one of the things we have coming up is the president ial election. How should we be looking at that in terms of event risk . Markets are very called about their election results. It is fair to say that a policy on the transition to a new government is historically an important macro event. Are very close and you cant say with certainty what you are going to do, you dont want to sell your Family Business or liquidate your corporate portfolio because of what might be. Think it is important that this is one of the opportunities in the marketplace that unlike that chart implied volatility and equity. It is exceptionally low historically. Alex mentioned that equities are near an alltime high. There are many ways around this. It is not appropriate for everyone but you could offset some risk with hedging at a time everye have an election, four or eight years you have a new president and volatility is not priced like that jonathan . Jonathan what is the perfect hedge . There really isnt a perfect hedge. That is what the earlier conversation was about. The largest hedge in investor portfolios has historically been bonds because of the expectation that bonds could move in an opposite direction. Whether you are talking about volatility or options, you have a much more different profile than building a portfolio with bonds and stocks because those have exquisite costs associated with them. Gamma, time decay, state of decay, if something happens, you pay a freemium premium upfront and it drags down your portfolio returns. There are hedges in the market and i agree that volatility is relatively low against what some potential supplies surprise outcome might be but there is no perfect hedge in the market in that today you have to pay for that insurance and that payment is not going to be able to be avoided. The benefits of diversification, i made correlation where bond yields are low and stock rises high, the benefits of diversification has weakened some. It is different when you take a look at derivatives. You have actually seen some of the relative benefit of hedging very directly with those implied costs going up relative to the benefits of diversification. Alex im going to throw a scenario at you. Presidency but we also get a big stimulus, the yield curve backing up. Jeff, to your world, what is the potential fallout . I think the most important scenario the most important implication is that it is about to shift away from the primary reliance in Financial Markets on Monetary Policy, quantitative easing, Central Banks providing stimulus and moving more towards fiscal policy. So the implication and the portfolio positioning is the potential that these initiatives might have Better Success at engineering the inflation that Monetary Policy has been so hardpressed to result in. Implication is higher inflation, better rules for inflation protected securities, steeper global bond curves, those are the fixed income implications. Jonathan i cant think of one who hasnt asked, what does it mean for president clinton and president trump. , everybody says i dont know. Medically higher when you have the limitations of a Republican Congress and someone from the Current Party who has proposals similar to the sitting president so i think everyone can agree they are. Interest rate volatility will be very strong. Think about the context to asset markets. We are only thinking about the short run on this. We have high correlation between bonds and stocks. We have low Interest Rates and low return assumptions. You see those in the expensive defenses. You have to think about the past route to all asset prices. Well does the how American Economy handle stimulus . These are questions again we just jumped to the conclusion but there is a lot. He reaction abroad is variable how Global Markets will respond. David two rep it up, is it fair to say what you just said with Hillary Clinton it will be more of the same in that they know how to handle it. With trump there is increased volatility. Is that fair . David there you have it. That is steven wieting. Thanks for being with us for an entire half hour. Jeff rosenberg is staying with us and we are talking about that report that the ecb may be planning to ramp down. And what actions are they taking today to prepare them for tomorrow . This is bloomberg. David this is bloomberg go. I am david westin. Coming up on bloomberg markets, columbias finance minister. Jonathan from new york city, i am Jonathan Ferro. We are 12 minutes into the session. By about a half at 1 on the dow and on the s p 500 we move north by 8. 9 points or so. We can head over and catch up with a few stocks. We have lots of stocks moving on the open. Lets look at the laggard. We have micron shares of the chipmaker. What is disappointing investors, the guidance for the fiscal first quarter. They are calling it troubling. Many other analysts like micron for an improving dynamic. As for a winner, kaisha communications. Ins is up from its ipo back may. The Company Raised its thirdquarter adjustment range this is enough to exceed potential points around a secondary. Jonathan were going to take it to the bond market. The ecp upset markets in the last 24 hours. An informal consensus has built on the way to wind down qe. Even though those same officials did not exclude that bond buying could be extended. For more, Jeff Rosenberg joins us from black rocks office. What do you make of this talk surrounding the ecb . The first thing to say is just how much it says about our Financial Market dependency on Monetary Policy accommodation. We have a word in our Financial Market lexicon called the taper tantrum. It comes about by reference to 2013 market. I think memories of that are being reunited here, although there is a lot of misunderstanding about what is really going on around the conversation about tapering. Before we get into that, it is a testament to how fragile markets are and any changes in the Monetary Policy support underpinning Financial Markets. Jonathan you wonder how deep this whole is. Is. His hole across the eurozone, they are magnificent credit quality and you wonder how far away we are actually trading in fundamentals. Not just on the sovereign space but in the credit space. Does that mean the Central Banks have to keep on digging . It is part of the policy prescription. If you are going to go into quantitative easing, and you are going to continue that into Corporate Bonds for the explicit purpose of trying to benefit into the real economy the patch of further accommodation, markets are going to anticipate that and it is going to the heart to unwind that without seeing some kind of volatility in market prices. Just look at the price of credit after the announcement of the expansion. There was a significant first of all it was surprising to the markets. Any attempts at unwinding these degrees of policy intervention are going to require a lot of communication if they are going to avoid disruption in Financial Market pricing. Alex in terms of longerterm goldens ve got Goldman Sachs, jpmorgan looking at 2. 5 yield on the 10 year. You have hsbc and steve major saying 1. 5 at the end of 2015. Balance sheets will stay quite large. Where do you sick . A lot of it is conditional. Some of the other views nearly the other views towards higher Interest Rates are talking about a continuation of what we know today. Very much what the fed is saying as well. The fed is saying as long as things proceed on the path we see them on the debt will normalize. The higher Interest Rate forecast that you cited, the downside scenario cannot be completely ignored. We have seen significant surprise to the consensus eventk because some other has occurred that has tripped up our consensus expectation that as long as everything proceeds as is currently the case we are going to raise Interest Rates in december and i think we can all guess what that event might be and we are staring at it or watching it last night. There are a lot of potential events that can disrupt that hikeor march towards a by the fed and there are no issues that undermine the current level. You can see both scenarios play out. Alex lets try to weave the ecb plus the fed into a trade. Morgan stanley traded with 10 year, and ecb is going to taper. What is your best way of expressing that view . Taper view is ecb a problematic one. What we got yesterday was a misinterpretation. The ecb will have to describe and discuss how they are going to exit their policy but the next form of communication is not going to be that one. It is going to be the extension of the qe programs. The modality will evolve. I think the most recent moves are somewhat questionable. To expressing the pivot, our favorite expression is going back to the shape of global yield curves, that despite what the levels might be, we are clearly seeing a change in how qe is being implemented. Seeing that already in the case of the bank of japan. We think you are going to have to see that also in the case of ecb. Yield curves flattening, we see them steepening and that is our best expression. Alex thank you very much, Jeff Rosenberg, blackrock strategist. Coming up, mark cuban weighs in on donald trump, saying he is completely unfit to be president. We will have more on that. This is bloomberg go. Coming up later this week, friday is jobs day in america. We had a lineup of guests, bill gross, janet capital, alan krueger, and former white house chief economist and blackrock global cio. David entrepreneur and Dallas Mavericks owner mark cuban isnt mincing words when it comes to reasons why donald trump shouldnt be our next president. Spoke at the dream force conference in san francisco. Nothing is wrong with him carrying the four. Wasif i was saying i worlds greatest business person, i have made my mistakes. If i had a 915 Million Dollar loss, i would tell you why because there are two ways to look at it. One is i am ashamed of what i if he reallytwo, was entrepreneur that cared about his people and developing jobs, why not say i took a big jobse to create 10,000 of. I failed and you are going to take the benefit of my knowledge. Nobody has ever been successful that has not admitted failure. David that was emily chang talking with mark cuban. Whatever you thought of the debate there were two things that happened. It was not very personal. We saw personal attacks in the first debate. The discipline showed by both candidates, but particularly by governor pence. He was on target and focused and he knew the stuff. I wonder how that might or might not affect mr. Trump on sunday. Jonathan if you look at the start president obama got in the run of those debates and clearly it wasnt a great start and it is how he finished. But will the change on sunday . Who would have thought your running mate would set the example as to how you should deliver. Alex if you look at cnn polls,. 8 of voters say pence won alex that really shows that economy. David whether you agree with him or disagree with him, he looks the part. We remember, with mr. Trump he said he didnt even do rehearsals. Jonathan the issue, does it move the dial . David that is a good question. Alex we have a lot of data coming out. 10 00 a. M. Is the data dump. We get data from september. The unemployment numbers are going to be key for the jobs number on friday. At 5 00 p. M. , jeffrey lacher will be speaking at Marshall University in west virginia. The topic, does the Federal Reserve government need reform . Jonathan maybe in the commercial break i will give you my take. A lot of people are thinking november, please, give me a break. But how it is governed and how it changes communication, for the next year that is a much bigger issue. David the whole idea was not to be political. It has become so political now. Alex donald trump is calling that out, getting involved. 26 minutes into the session, lets get you up to speed on Global Markets. High, 87 points on the dow, and in london we retraced some of yesterdays moves. The state of the other Asset Classes looks like this. On the cable rate, we bounced off of that. Yields climb higher on treasuries. Point in 169 and crude, 151. Alex iwatch crude every day. I am in there looking at those numbers. Jonathan that is it for bloomberg go. Thank you very much. Bloomberg markets is up next. Are you on medicare . Do you have the coverage you need . Open enrollment ends december 7th. So nows the time to get on a path that could be right for you. With plans including aarp medicarecomplete insured through unitedhealthcare. Call today or go online to enroll. These Medicare Advantage plans can combine your hospital and doctor coverage with Prescription Drug coverage, and extra benefits all in one complete plan for a low monthly premium, or in some areas no plan premium at all. Other benefits can include 0 copays for an annual physical and most immunizations, routine vision and hearing coverage, and youll pay the plans lowest prescription price, whether its your copay or the pharmacy price. Or pay zero dollars for a 90day supply of tier 1 and tier 2 drugs, with home delivery. Dont wait, call unitedhealthcare or go online to enroll in aarp medicarecomplete. Its 10 00 in new york and tech talk p. M. In hong kong. Welcome to bloomberg markets. Vonnie we will take you from new york to frankfurt and cover stories in the u. K. , china and washington. First, breaking Economic Data in the u. S. Julie the isn nonmanufacturing composite, the index of the reading on the services industry, coming in at 57. 1, 53 is what was estimated by economists. A drop of 2 10 was what was expected. Durable goods orders, the final reading for august showing a gain of a 10th of 1 . Looks like a pretty good across the board, we are seeing these numbers come in better than estimated, in particular thater