Transcripts For BLOOMBERG Bloomberg Surveillance 20160711

Ahead of us. I would focus on Pound Movement and what that means for exporters. Tom i like the sterling idea. We will do that in a data check. There was a video out over the weekend of a boeing 787 flying like a little plane. It was one of their japanese airlines. I wish i could go on a junket with boeing flying around like this. Is lead story for me negative Interest Rates and curve flattening. None of that has let up from friday. Look at thisnow we almost on a daily basis, but when you look at u. S. Treasuries , they are not following the economy anymore. Lets get to the first word news. In japan, Prime Minister shinzo abbe has won a big victory in Prime Ministerial elections. His liberal Democratic Party won 56 of the 121 seats in contention. A Junior Coalition party won 14 more. He said he would take brought, bold measures to expand japans economy. George osborne heads to wall street today to try to shore up Investor Confidence in the wake of the u. K. Vote to leave the european union. He will then go on Similar Missions to china and single for singapore. Angola merkel said it is not inevitable that the u. K. Will leave the european union. Britain will formally apply to leave the bloc once a new Prime Minister is in place. There was another protest against Police Killings in baton rouge, louisiana. 40 people were arrested for blocking a highway. Last week, a black man was shot and killed by a white Police Officer in baton rouge. President obama heads to dallas tomorrow to meet with relatives of five Police Officers killed thursday. Global news 24 hours per day. This is bloomberg. Look at equities, bonds, currencies, commodities. Oil still cannot get a bid. Not a big deal, but nevertheless, it ebbs away from the 50 level. Talk will join us in the next hour. There is the curve flattening combined with the stunning german yield. I believe all swiss paper out to 50 years is that a negative rate. That is extraordinary. Francine we had that chart last week. I think we need to spend more time looking at yields overall. Im going to be so quick with my asset check, it is going to be the shortest asset check in the west. Upsides a little bit of from japan. Tom a lot of this has moved in the last 20 minutes. There was a nicer glow to it earlier and it is back. Ive never shown this and im doing it for francine. To show her i was working over the weekend. Yields the u. S. 10year minus the german 10year yield. We have never been here back to the 1980s. Within this, we have come out here to the u. S. 10year yield minus that negative german10 year yield. You add the german 10year yield. It is algebra monday. This is the transatlantic tension, which is basically undoable. I believe Stephanie Flanders past us in algebra in fourth grade. Francine this is pretty punchy for a 5 00 a. M. New york show. [laughter] francine bring it up. Tom woah. Francine in white is the citi u. S. Index. , you seeive yield era treasuries rally. I even added extra lines to make it pretty. For more on the markets, lets bring in Stephanie Flanders, chief Market Strategist for jpmorgan in europe. This is a crazy world we are living in. Yields are going to go down for quite some time. Stephanie it is a topsyturvy world. One aspect of this is how we have changed our view thinking about Monetary Policy. Tom will remember this. It used to be that the way you would respond to a potential loosening of Monetary Policy is you would have a steepening of the curve because you would be expecting yields to go up. Now, weve got more and more Central Banks in this territory where you are measuring the effect of the quality by flattening of the curve, whether it is switzerland or the ecb was a bank of japan. Japan. He bank of you have seen yield curves go down across the board. Is that really showing us the effectiveness of policy or diminishing room for Central Banks to do anything . Francine which one is it . Stephanie the particular question for the fed how much is this a market now which is out of touch with where the u. S. Economy is . How much is janet yellen going to weigh up the domestic need for a rate rise against the potential risk for the currency . You see that kind of divergence suggests you could see further upside for the dollar from a big change in rate expectations. Francine what does that mean for how we price and look at risk . Stephanie again, it is sort of telling us that the price of money is being more and more distorted by was Central Banks are doing. They are responding to Market Conditions and the fact that there seems to be unending assets,or the safe which one might argue, the further they go up in price, the more yields fall, the less safe they are, but there still seems to be an enormous appetite for those kind of assets. Tom i would suggest that i jpmorgan, your sell side analyst on Deutsche Bank has the most important job. When i look at the artificiality of these negative rates, what will be the reaction functions into the european Banking System . Im not convinced business can get done when you have full faith and credit paper at such a negative yield. Can it . Stephanie it is a challenge we have seen throughout this year for european financials and it is such a big part of the european index. It has made it hard for the European Market to go anywhere. If you have the ecb doing what we would welcome, which is trying to focus more on stimulating activity in the eurozone, encouraging lending, if you want to encourage lending , but you are making things tougher for banks and raising question marks about the quality of the earning, i think you are right you can see in real time in europe how that tension is playing out. It does pose dangers and we have certainly seen it in the valuations of things like Deutsche Bank. Tom when the chancellor travels to new york, and gets a drink at the Saint Regis Hotel stephanie you probably need once after the last couple weeks. Tom yes. What does he say to global wall street in new york about where the United Kingdom is . Stephanie they are trying to get out which is that we are not closed to the world, this is not a Little England move, whatever you might have heard in the campaign, this is about embracing the world that will be his message. And one of, hold on, watch this space. We were talking about that earlier. That is crucial. You want to at least put a question mark in international businesss mind. If they are going to move investment to another country, dont do it quite yet. That is the best he can do. There are huge question marks. After we leave the eu, we wont have trade deals with the eu are any other country in the world and we have not had any trade negotiations for many decades. There are plenty of question marks. He is wanting to at least put something on the other side of the ledger, a reason for people to hold fast for a while. Francine we have never done this before on surveillance. This is my morning mustread and i want stephanie to react to it. This is from the guardian. Once upon a time, a british accent was an asset in the u. S. Is that right, tom . Tom yes. I dont agree with that. I do not agree with that. We will still be suckers for british accents in walt disney movies. Francine there you go. Final word from tom keene. It goes back to a britain that wants to go back. Stephanie there were two contradictory sides to this campaign to leave. We have not seen yet where we end up. This was a side that said was about freeing ourselves from european bureaucracy and moving forward in a more dynamic place and then there was another side saying about turning the clock back, going back to an old version of the u. K. That was more closed, less cosmopolitan. We will see, in realtime, those two sides, they dont data, and that is one of the worries of this result. It was based on a contradictory set of premises. We give to approach these negotiations, we have to be positive and we have to be determined, rather than seeming to be on the back foot. When it comes to films, usually with the evil genius, we might become more stupid and the role would not necessarily be considered to know everything. [laughter] tom i want to say thank you to everybody for getting the black and white striped memo. Ive got the black and white stripes going. Stephanie has the stripes going. Francine, you take the trophy for the Audrey Hepburn simplicity. Francine stephanie, always a pleasure to speak to you. We will have to get her back. Coming up, we have plenty more from the Farnborough Airshow. We speak with the boeing ceo. This is bloomberg. Francine im Francine Lacqua and london. We start a busy week. Lets focus once again on the banks. Consolidation or not. They are quite volatile today. For more on all of these markets , lets bring in edmund chang. Thank you so much for joining us. When im looking at pound, is it all about the yields . They are forever lower and seem to be lower for longer. Is right. Think that if we look at what is happening in the markets at the moment, investors are desiring safety in the risk off mode. It is a bit bizarre. How can you square the circle . What i would say is that clearly dollar assets are also the safe haven. In longterm u. S. Dollar treasuries, this is the spot. You are in the right currency and the right asset class at the same time. At where we are and the great fear in the literature over the weekend is a second derivative. Do you work day today within your derivatives leaving convexity is coming . Convexity is mumbojumbo for acceleration. Game ofay of thrones, to you assume we are going to see some brutal moves . Edmund it is interesting you would say that. In the bond market, you are right. The risk is increased. The lower the yields go and the more sovereign bonds that sit at negative yields, particularly in europe, the greater the risk. We did see this a few months ago. We did see a sharp spike upward in bonds all of a sudden. That is the risk that we face. The bizarre thing is that people are hiding in the sovereign bonds, thinking they are safe, but you are absolutely right, tom. They can be a lot more dangerous than you actually think. And it will not find out until it is too late. Francine coming up, we speak with the boeing ceo. His biggest rival, airbus, is nearing a 12. 6 billion aeration deal. Air asia deal. We will ask them what the pound falling means for him. You are watching surveillance. Francine this is bloomberg surveillance. Tom, we are looking at live pictures from the Farnborough Airshow. This is where the uk Prime Minister, David Cameron, will be speaking in a bit. This is the triple tagteam. You have mark carney with the boe later. You have our Prime Minister talking at farnborough, where there are a lot of exporters. Our next guest will be meeting. Im today, he is the boeing ceo guy johnson is on the ground. Guy. Guy the Prime Minister is running a little bit late. I need to apologize for our next. Uest to our next guest what do you want to hear from the Prime Minister . Do you want reassurance, do you want to get an idea of what happens next . Dennis we are looking forward to talking about our partnership in the u. K. We are anticipating an purchaseent around the of nine Surveillance Aircraft and we are going to continue to talk about ramping up our supply chain and presence in the u. K. Guy has brexit affected that . Dennis not really. We dont see brexit affecting our longterm plans. We have been in the u. K. 75 years. We dont see our plans changing. The pound continues to fall. Is there a competitive currency story we need to talk about . Dennis to a degree. Affectingee currency us a lot. Local currency fluctuations dont tend to drive decisions on supply chain. Where we can drive affordability , that is where we try to go. Guy Interest Rates are incredibly low at the moment. Does that offset the cheap oil prices . They can run older plane to little bit longer, but they can buy new plans at lower levels. It createshink Economic Movement around the world and is advantageous. And encourage additional investment infrastructure, which is a key enabler for the euro Space Aerospace business. Guy you have had to do with the exportimport bank. We have to figure out whether boeing sells airplanes to iran. Dennis we made some Good Progress there the last couple months. It is a significant opportunity, but we are methodically going through the licensing process right now. Im encouraged by the progress we have made, but we still have work to do. Coming ics must be be becoming an increasing part of what you do. You have been running the show for a year. You have spent a lot of time in congress. What is your sense . The politics and how it relates to our business come continues to be very complex. It is a challenge in some cases. We have a Partnership Model that is important. Even though last year was passed by super majorities for reauthorization by the house and senate in the u. S. , today we still dont have a full xm bank full quorum to operate the banks. We need some nearterm action on that. Guy a couple of questions on products. Ge talked about the engine. X is going to be a great plane for the marketplace. We are moving well through the development program, we are in the meat of it right now. If we need a stretch version, we could go there. It is an ongoing conversation with customers. Customers see the Value Proposition of the 777 and the the ability toe create more derivatives if we need that. This will be driven by the customers. Guy the older version of the 777, you are either going to have to outfit heavily or cover the luxury rate. What is it going to be . Dennis the Value Proposition is Still Holding up well in the marketplace. Plane in is a unique the marketplace. We are working hard to build a bridge to the 777x. We need to sell about 50 aircraft per year to build a bridge. That is an important risk area we are taking a look at. We still feel we will be able to build a bridge and go down to seven per month production rate. Guy we wont keep you waiting too much longer. Thank you for spending a little bit of time with us this morning. Francine . The ceo of boeing from the Farnborough Airshow. Back to you. Francine thank you very much. I enjoyed the interview. We will then be live with the defense minister of the u. K. A little bit later on. This is the picture of the european equities. A little bit of a rebound, but we are off the highs. A focus on italian banks. Datall have plenty more checks through the day. Tom Francine Lacqua and london, im tom keene in new york. Lets monitor over to the bloomberg terminal. Here is Deutsche Bank, down down down. The critical news is that Deutsche Bank has rolled over. Hso back to mr. Gundlac comments late in the week. Trend is there this morning. Oh, francine, please. Francine Deutsche Bank is probably the most important chart. It goes back to brexit and the volatility. Keep an eye on that story. Right now, to our first word news. British home secretary theresa may is laying out a different kind of conservatism as he tries she tries to become the u. K. Prime minister. She promised to put workers first and make shareholder votes on executive pay binding. She also says that Monetary Policy has helped homeowners at the expense of those who cant afford to buy. More than a thousand british lawyers say the government must consult parliament before there leave theision to european union. They say last months referendum was not legally blinding binding and Parliament Must vote on the issue. Germany will take on increasing greater military leadership in global conflicts, according to plans for the countrys first overhaul of its Security Policy in a decade. Chancellor merkels government has already taken a more assertive presence overseas. Indian troops have been battling protesters in the disputed kashmir region. 18 people have been killed. Broke outtrations after a popular rebel leader was killed. Kashmir is divided between pakistan and india. An independent kashmir or a merger with pakistan. The Prime Minister of australia is claiming victory in parliamentary elections. After a week a week after votes were cast, it is still unclear if they have enough votes to form a majority government. Global news 24 hours a day powered by more than 2600 journalists in 120 countries. This is bloomberg. Francine euro area finance ministers are meeting today in brussels. On their agenda, will brexit force renegotiations . Im sure they will be talking about that in the underbelly of brussels. Michael, thank you for joining us. Every day, we have a new leg lower for Deutsche Bank. This is a spotlight on italian banks. There is a lot of worry. Concerns . Also Brexit Michael i think there are concerns. Francine Deutsche Bank, how does this get fixed . It has lost so much of its value. What is the end game . Michael one of the ideas being tossed around is the european tarp, putting equity stakes into the banks. That is you have these bailey and rules that have come into effect bail in rules that have come into effect that require bondholders to take losses. There are issues with that, as well. On the italian bank front, a lot of the subordinated debt is held by retail investors. That becomes politically sensitive if you are seen bailing out a bank with grandparents money. Tom with all of your reporting over the weekend, are we anywhere closer to an italian bank out or a solution for european banking . I did not sense it in the literature over the weekend. It seems like there certainly are still some hurdles. One is the question of do the current bail in rules give enough flexibility for italy to do something or do the rules need to be suspended for interleague to act . Is whether you need the stress test results out in order to show that the italian banks need preventative measures . Those results are expected later this month. Question is do you need to wait for that in order to act . Tom francine, coming across the bloomberg to this point germany says its position on italian banks is unchanged. They must be watching. Francine yes, im sure they are watching. We saw the bailing of smaller banks. Rules oflear how these state support can sit with bail in at the moment. If the eu is not flexible, we could see something ugly happening at the italian banks. How do you deal with that . 85 of people coming in, sitting in your chairs, saying the eu has to be flexible but they are not. Will they be more flexible or will they take the risk of the italian banks getting run down . Edmund i think they will blink in the end and it will be a little bit more flexible. That is what Prime Minister renzi is banking on. Perhaps a second plan to be proposed, which rather than buying bad loans, would directly inject capital into the banks. As long as the eu let it pass. We think, ultimately, they will let it pass. Tom where are we on the effective negative yields . We come back to this time and time again. Do you have any special insight of what the reaction functions are of negative yields into the Financial System . Think the biggest problem in terms of negative yields right now on the bond market can be felt in Pension Funds. If you look at Different Countries across europe, there are Different Levels of problem. The Pension Funds that are probably seeing the most acute pain right now because of negative yields are the dutch Pension Funds. If you are thinking about this, what does it mean to have negative yields . The lower the bond yields, the lower the discount rate, which means the greater the future liabilities are in todays money. That presents a problem for Pension Funds because that means they have more liabilities to cover today in present value terms and come at the same time, the bulk of their money is held in an asset that, while it is appreciating in capital terms, is delivering no income at all. Feel this structure we are in now is sustainable . Is it a chronic condition . Or is it going to end abruptly and soon . Michael i think it is somewhat edmund i think it is somewhat of a chronic condition. Regulators will have to blink. In the case of dutch Pension Funds, there will have to be an amendment of the rules into what discount rates as to what discount rates need to be approved. No one thought we would go to negative rates. They will need to be amended again to allow Pension Funds before having to bring up assets to match liabilities. If they had to do it today, that would require massive injections of capital right now or else the Pension Funds would simply bust. Francine michael, thank you for joining us. Paribas, staysnp with us. In the meantime, uk Prime Minister dated cameron is speaking at the Farnborough Airshow to muster support for u. K. Businesses. We will also be speaking to the defense minister a little bit later on. It follows on the footsteps of the chancellor going to wall straight and saying, we are not quitting the world even though we are leaving the eu. The bubbles, we must recognize we are in a new reality now. We must accept it and make it work. That is the way British Business is responding to the referendum result. As one of your longestserving chairman francine you are looking at live pictures where you are looking actually a tom keene, but we are looking at live pictures of David Cameron talking at the farnborough air show, talking about trade and investment. Mark carney is holding firm on the boe. The chancellor George Osborne arriving in wall street today. Whicht a tweet out encapsulates what they are trying to do. I think David Cameron is doing the same at farnborough. They want to send the message that they are not quitting the world and are asking investors to stick around. We will monitor headlines from the speech, but lets head to china. Are aboutnsion funds to become stock investors. Chief asia to our economics correspondent in hong kong. 300 billion. This is quite a war chest. Quite the move. Enda good morning. Chinese pensioners have not been getting great returns on bonds and deposits. The idea is to give it to this fund which has a track record. They want to get the Pension Funds at better terms. Along the way, you develop the capital markets. Of course, by giving a better return to the pensioners, you provide a Better Safety net to an aging population. In terms of thinking, we know that chinas stock market is quite fragile. We will have to see how it goes. Tom good morning. On curious im curious about the european negative rates that we see and the idea of china with a massively positive real rate. It seems like every day they become less competitive because of this great distortion. Is beijing fixated on the negative rate story . Enda the negative rate story has not been as prevalent in china. On the policymaking front in china, there is still considerable room on the conventional Monetary Policy side. They are nowhere near close to negative rates. We have been talking about that. So, they still have plenty of firepower, as opposed to what we are seeing in europe. Tom thank you so much for that briefing on his monday evening in china. Edmund shing is with us from bnp paribas. Ising any business there any sense of normal in the institutional derivative world . Edmund im glad to say we are doing business. Otherwise, i would probably be out of a job fairly quickly because these days, banks dont like to carry a lot of deadweight. Talking about derivatives in general, there is a lot of business going on. What i would say is that Institutional Investors are being very cautious and trading carefully. That said, there is always demand for activities such as hedging. Hedging stock portfolios that still gets done on a regular basis and we are still dealing with those requests. Our people being more speculative . Maybe less so. It is much more about hedging portfolios. Overall, with china, if you are janet yellen chinas pension fund, they want to play a bigger role in Financial Services, how should janet yellen see this . Edmund i dont think she should be too worried. I was just looking at the survey by the Recruitment Company and what they pointed out was quite interesting they surveyed on a bunch of london professionals and where do you think the biggest Financial Markets will be in 10 years time . Shanghai and hong kong. Francine where they want to move or where they think the biggest edmund both. Francine despite the pollution. Edmund i agree with you. My son is in china right now and he said, you cannot believe the pollution. To me, i would rather invest in assets in companies. The huge problem is going to be how to do with the pollution. Kind of guy a train and you have been known to do the junket around europe on trains. Do you believe the city of london will exit to paris, frankfurt, london amsterdam, and points east . Edmund i wrote an article about that this weekend. I think the ultimate answer is no. Just to tell you, i just arrived on the train from paris. It made me late for this show because they were 25 minutes late. The point is that the charges and the work in france are major hurdles. The cost of living is 30 cheaper than in london. That is a huge advantage. Would you want to live in frankfurt. The answer is no. People who live in london say they would not move to frankfurt unless they absolutely had no choice. Tom bnp paribas has a cautious view of the u. K. U. S. Economy. What is your sterling target . Atund we are pretty much 1. 30. We dont see a big rebound in the short term. From our foreign currency strategies, they would tell you that the uncertainty of the u. K. Economy is going to last for at least two years. On that basis, given the fact that we see a technical recession either at the end of this year or going into next year in the u. K. , why would you be bullish starling when you expect the bank of england to cut rates in the near term . Tom lots to talk about here. Im fascinated by the actual moving of bodies around europe. I keep hearing that nobody that no, no, everybody will stay in england. Lets do a quick data check. The yield is turning. Of the yen is a weaker japanese yen. Off the abe voting results. This is bloomberg. Right now. S up 8 lets get right to our Bloomberg Business flash. Scandalridden bareback is reaching out to potential buyers. It is open to sail with a private Equity Partner, a parts supplier, or a combination. The mixed martial arts Promotional Company ufc has been sold for about 4 billion. They bought ufc in 2001 for 2 million. That is the Bloomberg Business flash. Francine brexit fears continue to stalk wall street. Cut. Are boosting on a rate for more on all of that, we are joined by simon kennedy, edmund shing is also still with us. Simon, when you look at the key message, we are still open for business, but we dont know who is in charge why du believe them if you are an investor . Simon you take the bet that George Osborne and that the u. K. Are fundamentally strong. They have developed Financial Services and certain things like that. You try and draw the battle lines and it will depend on the next Prime Minister and what her vision of negotiating with the eu is. Does the next chancellor or George Osborne need to cut taxes to make the island more attractive . Simon they did not get that great of a reaction. A lot of people saying, that is nice, but other things are more important. It is important to note that notge osborne will necessarily be the next chancellor. Aiming at corporate taxes is one thing they can do to shore up support. Tom simon, you are covering this 20 47, when you are not looking at portugal crushing france in that small football match yesterday. What has shifted in the last three weeks in the shock of that evening . Streets ofd at the london. What has changed . Simon i think people are coming around to it now and doing the work that is necessary. George osborne talking about how the economic challenges are there, but they need to be overcome and are starting to work. Colleagues would head a brexit committee. There is a move from talking about it and discussing it in an academic fashion, even in the days after when the idea came out that the brexit would not actually have to happen, companies are starting to focus on what it means and how they can take the opportunity, as well as the problems of it. Tom simon, link brexit as a general idea into the urgency to have a new Prime Minister or a new general election. I was confused over the weekend by the different currencies i could not figure out labor. Somebody is a mother, somebody is not a mother. Generally speaking, is there going to be an earlier election . Simon the leader seems to be putting off that idea. I think theresa may has said she does not see a need. The question is to win legitimacy of your own. Gordon brown famously became Prime Minister after tony blair stepped down. He did not call an early election as was and was punished for it later on. The idea that the Prime Minister needs to be rubberstamped by the population, whether that is done an what Labour Party Want election with their current leadership is another matter. Theresa may may become Prime Minister in september. Perhaps the election will have to wait. Francine this goes back to the heart of a u. K. Id do not recognize. Ive lived here 20 years. If i dont recognize it, how do investors recognize it . Edmund investors have great difficulty at the moment. You are looking at the bond market, the gilt market is still attractive. They look at the bond market and say the u. K. Will remain as an economy unless they had a deep recession, which people do not foresee, they should be ok. It is a global index, it is not a u. K. Index. Do investors really care . Tom edmund, thank you so much. Simon kennedy on the brexit. Oming up, a conversation we will look at the state of americas fiscal deficit. A tom this morning yields drive ever lower. Chair yellens central banker to the world. On our debt and relatively modest deficit in this hour. In this hour, douglas holtzeakin and david kotok. Candidates consider in america torn asunder. This is bloomberg surveillance. Onare live in new york monday, july 11. Im tom keene in new york. Francine lacqua in london. Negative Interest Rates is the theme of the weekend and this morning. Francine i think you are right. Europe ministers meet in to talk brexit and negative yields and italian banks. Things are dynamic to say the least. Cehic. Nejra Prime Minister shinzo abe has won a victory in parliamentary elections. The conservative coalition has a super majority. Wonliberal Democratic Party 56 of the seats in contention. He said he would take a broad bold measure to expand japans economy. Hits to walle street today to try to shore up Investor Confidence in the wake of the u. K. Vote to leave the european union. He will go on Similar Missions to china and singapore. Angela merkel says it is now inevitable that the u. K. Will leave the european union. She said britain will formally apply to leave once a new Prime Minister is in place. She dodged a question over whether she will run for a fourth term next year. There was another protest against extrajudicial Police Murders of black people in baton rouge, louisiana. Last week a black man was murdered by white Police Officers in baton rouge. President obama will meet with relatives of five Police Officers shot in dallas. Attempts to stop donald trump from becoming the republican president ial nominee enter their final days. Lawmakers will debate how next weeks convention will operate. Antitrump forces want to allow delegates pledged to drop to vote any way they want which could open the door to another candidate. Tom lets check with our esteemed guests this morning. We are very fiscal centric. The euro has done nothing since time began. Dollar is stronger today. Japanese yen weaker. Markets priced to perfection. Francine overall its a very similar day. European stocks rising. They are increasing a little bit in the last halfhour. We are seeing more prospects for stimulus in japan. Betterthanexpected u. S. Job status extending global outlook. Oil is not on the radar but worth watching a little bit. Gold to this morning. Lets go to the bloomberg. , i had toltzeakin dazzle him as much as i could. U. S. 10 year yield. Here is a nice cyclical churn. Algebra monday. A positive u. S. Yield minus a negative german yield means double negative. Youtch to a positive learn this when you go to pennsylvania or princeton. That transatlantic spread between u. S. And germany. Francine, you are in awe. Francine this is my picture. It shows u. S. 10 year yields. Yields on 10 year and 30 year treasuries ended on friday low closing levels. What does that tell us . In this negative yield era, data cannot stop the treasury rally. Tom we are as good as our guests. Friday was magical. Bill gross is joining us later on. We outdo ourselves on this monday, the day after the jobs report. Douglas holtzeakin and david kotok are here. Lets talk about the dysfunction. Are we in a bubble . Our audience looks at bonds and equities and they say bubble. I dont think its a bubble. Its always hard to identify this early. A key feature is to look past the next few months and look at the structural issues plaguing the global economy. The u. S. Has big structural issues. Ofxit is symptomatic structural problems in the global economy. Tom you have been up front in writing about those issues. You know market vigilantes are in control. Are they driving the central bank bust right now . I think the vigilantes now dont know what to do. I dont think the Central Banks know what to do. Except more. , 12e negative rates trillion in negative Interest Rate debt. Look at the curve you just put up. Widening. E spread is at the same time yield curves worldwide are flattening. When in history did we ever have this . Never, never before. This is remarkable. Tom i think we need to set this up. International spreads are widening. International within a nation curves are flattening. Francine i think what we are trying to get to the bottom of, what does this mean . Is this symptomatic of a safe haven . Or is it something more underlying in the way we are creating growth because of centralbank action . Forcehave a remarkable with negative Interest Rate. What do they mean . They mean the cost of money is zero for a long time or short time. It doesnt make a difference. Doug ran a budget. What could he have done with a budget tom are you saying its his fault . I dont blame him. He ran a budget. What if you had to project a budget in which you could say the Interest Rate will be zero for the next 10 years . Its a remarkable state of affairs. Thats the state of affairs in japan, germany, switzerland. You name it. For years we are at zero. Francine whats the endgame . There is no endgame. One of the striking things about this is you look at the chart again, this says the u. S. Is different. This is not create growth. We have not seen Central Banks create any genuine growth. Weve got an enormous problems on paper in the United States if you look at the federal outlook but this is a very forgiving chart. It says you can get away with it. I find that incredible from the point of view of history and troubling from the point of view of what we are going into. Tom the forgiving chart. Smooth pass orn do you just assume conditions even just shifting from a negative space to when those yields one day get back to a positive space . Towe all worked very hard counsel policymakers, educate the public, and adopt policies that mean we get a smooth glide pass out of the situation. Allocation to 80 stocks. 20 bonds. Thats extreme. Why . Why would you buy a bond that ifs you nothing for 50 years you have an investment perspective you need a return on investment it makes no sense. Francine thats the problem that a lot of investors face. Thank you, david kotok and douglas holtzeakin. We also have theresa may speaking in birmingham. We see her trying to basically structure her campaign on why she should be Prime Minister. She is vowing to share u. K. Prosperity if she wins the tory leadership. She says britain needs brexit. Remember, this is a candidate who did not want brexit. Pitcha may now making her saying we need the government to deliver serious social reforms. We will be back with more on theresa may and brexit. Youre watching surveillance. This is bloomberg. Francine im Francine Lacqua in london. Tom keene is in new york. Theresa may is pledging to share the uks prosperity. She is promising to share operatesw big business as she flushes out her campaign to become Prime Minister with a vision for a fairer economy. She pits herself against someone who campaigned quite aggressively for brexit to happen. Lets get to nejra cehic. Rose 25 of nintendo in tokyo. The companys new pokemon go game has risen to the top of Smartphone App rankings. The game lets people tracked down virtual characters in realworld environments. The American Power generator Southern Company has bought a 50 stake in southern natural gas. 1. 5ern state is valued at billion. Its the latest expansion into gas by utility at a time when demand for electricity is falling. Airbus is close to a deal with worthia that could be close to 13 billion. A deal may be announced as early as tomorrow. Thats the Bloomberg Business flash. In americanow politics, the backdrop was a horrific event we have seen and the sadness over the last number of days across this nation. A recent announcement in the last 10 minutes. Mr. Sanders is expected to join secretary clinton at a New Hampshire rally tomorrow. That has been orchestrated to say the least. This is something that david kotok has seen over the years of cumberland advisors. And douglas holtzeakin of the American Action form. He was a strong supporter of the Economic Policy of senator mccain long ago and far away. Will you go to cleveland . And can you support Donald Trumps stated Economic Policy . I cant support the things we have seen him say. 45 tariffs on china in a trade war makes no sense. antigrowth. Im deeply concerned about those issues and the state of politics. I wont be in cleveland. I will make a brief appearance on wednesday that a event at an event that politico sponsored. Tom is there a candidate where you could advocate economic policies as you did with the senator from arizona . There are lots of folks out there, but there is no candidate. This notion that donald trump will somehow not be the nominee is a fantasy. Hes going to get the nomination and conduct a campaign for the general election. I think the bigger issue for the remainder of 2016 is the fight for the soul of the republican party. Who will it represent and how . What are the standards of conduct . Those are the issues i care about. Francine what does each candidate mean for the economy . I have not seen Many Research notes. When do we find out . It has been a Remarkable Campaign so far. When the republican side has been largely policy free and one would be hardpressed to say what has been the platform on which donald trump will run from an Economic Policy perspective. On the democratic side, the tragic reality is democrats have given up on growth. There is nothing that says we are going to grow more rapidly. We have a situation in which the u. S. Rate of topline growth translates into doubling the standard of living basically over 100 years. It used to be 35. We are growing very slowly and there is nothing that Hillary Clinton is presenting to improve economic growth. It is all redistribution and targeted policies that hit key political constituencies. Thats not a recipe for better performance in the u. S. Francine in the u. K. Its very clear that theresa may is trying to tell the people, i want everyone to share in u. K. Prosperity. This is how to make big business more fair. Will someone in the u. S. Also come out with more fighting talk on inequality . The entire predicate of the Sanders Campaign was about inequality. Hillary clinton has now adopted several of those policies. The problem in the u. S. Is that what they are saying is at odds with any sort of reasoned logic. If you think about what hillary said about health care in the past week, she said, we are to have a public option. We have had that. Its called medicare. The Affordable Care act was supposed to cover everybody. Its a doubling down on policies that have not worked. Are going to talk about the equity markets later in the hour. Does anything in douglas holtzeakins political world matter to investors right now or is it all about janet yellen . Theres no fiscal policy. Fiscal no adaptation of policy and we dont see anybody talking about it. If we have a 1 Interest Rate why not sell a hundred year inflation interest . Tom we had the tweet out this morning. The fact is there are things that could happen and they are not happening because you have a stymied i think this is exactly right. Every central bank has played their cards. We are done. We have to go to something else. Regulatory reforms, immigration reforms, we are not doing any of those. Regulatory reform is a big deal now with london dismembering and whos going to come from london to new york . They are going to look for fragments elsewhere. Tom david kotok and douglas holtzeakin with us. Lets look at the data. Futures are up at this moment. Oil a little bit south. We are watching the yield market particularly in germany. This is bloomberg surveillance. Good morning. Francine this is bloomberg surveillance. Im Francine Lacqua. Tom keene is in new york. Guy johnson is standing by with the u. K. Secretary state of defense. Im joined by the secretary of state for defense. Thank you for speaking with us. Had apache helicopters being bought by the u. K. Is there going to be a Brexit Effect on the u. K. Defense industry and what will it be . First of all brexit has no impact on the role we play in the world and the defense we commit. Troop numbers for nato on the eastern flank, more troops to afghanistan, market iraq more to iraq. If anything we will be doing more with our key allies and we will be investing in the equipment our forces need. Brexit does not impact that. Buying apache and what you are doing with boeing as well. Because we balance the Defense Budget we never have the money to invest in the latest offtheshelf equipment. Like the latest apache helicopter. Aircraft that are proven in service elsewhere to give the armed forces the very best equipment they need. And we are going to see support and Maintenance Work come to the u. K. Its a winwin. Guy does low gdp mean low defense spending . Not necessarily. We are not anticipating lower gdp. Beshouldnt be talking economy down. Obviously there is a window of uncertainty following brexit. We are making additional troop commitments in nato and afghanistan and iraq. Britain is not turning its back on the world. That number is going to go higher regardless of what happens to the economy. We have committed to increase the Defense Budget as well as maintain the nato commitment of 2 . We are not going to see defense spending cut as a result of brexit. On the contrary. You will see additional investment here in britain. Guy the pound has gone down. Do you think that makes britain more competitive . Talk to me about what the economy can do to really stabilize this sector. Is the pound going to do all the heavy lifting . Im not going to predict the pound. The change makes exporting easier. But the markets need to settle down. Its only a couple of weeks since the referendum. It is too early to speculate. We are investing in defense and signing the orders we promised in the strategic defense review just before christmas. And we are sending more troops into nato, afghanistan, and iraq and making sure they have the best equipment they need. Guy thank you for your time, secretary of state for defense. Back to you. Francine thank you so much. A little bit of insight into some of the people in the tory party trying to say, brexit will not have an impact on our global influence. Forget that politics here in the u. K. Are still in disarray and thats having an influence on political policies and how investors will see this country. The reality of brexit still donning on one investment industry. The banks down. A lot of concerns about the italian banks. This is bloomberg. Favorite to be britains Prime Minister says there is no going back. You can see how the home secretary has said that grexit means brexit and we will make this a huge success. She says she will make no attempt to stay inside the eu. More than one thousand british lawyers say they must consult parliament before there is a decision to leave the eu. A majority government. The votes are still being counted to it. Taking on military leadership in global conflict. Angela merkels government has taken a more assertive stance overseas. Kurdish rebels in a rock and taken part in airstrikes in syria. Chinasn has that holds province. Heavy wind destroyed homes. At least six people were killed. Other people were evacuated. Global Business News 24 hours a day, powered by our 2400 journalists in more than 150 bureaus around the world. This is bloomberg. Tom david is with us. And we have douglas holtzeakin here with us as well. We are more solvent now. Lets go to the single best chart. I dont understand why the president cant take a victory lap. Here is the deficit. Coming out. And i have there the percent of italyficit of gdp to roughly in green. And japan is in red. We are doing well with the basis . Fact. , that is one we have the safe haven affect. If you look forward, it doesnt. Ook quite as good you have a trillion dollar deficit. Are mechanically heading into a death spiral. Tom i want to set up the morning mustread. You are going to do it. What is a deficits gold . It always looks terrible. But then what happens . It doesnt get terrible. A 2 gdp deficit, is that really a deficit . If our growth rate is 3 . Doesnt that close . Have zero . To do we have to have surpluses in a world . No, but we need to think you dont have. 3 growth. We have growth that is 2 at best. And the second thing you need is a projected debt to gdp ratio that is inclining. We are on the spiral north. Tom at some point that becomes an issue. Lets go to a critic. Get douglasto holtzeakins pulse elevated. Douglas it works. Think of it as great capitulation. It looks as if we command and a bias towards deflation are injuring problems. What policymakers should be doing, instead, is accepting the markets offer of incredibly cheap financing. I would suggest that everyone can agree with this . I would say, maybe. The question is, what do you do with the money . Do you borrow it and to without for consumption purposes . Or do you do without and use it in a way that is saving investment . For future growth . That becomes the issue. It is a political question as to whether it really works. We have never been good in the United States at efficient public sector. It is not a lock. We could borrow this money, wasted and earn ourselves in the future. Francine is that right . David i agree. Lets borrow at 1 or 2 and do the right thing. We could rebuild the entire infrastructure of the United States here. And finance it cheaply longterm. If we could get political consensus to do it. The surprise may come from donald trump. If he wouldh this, open his ears and listen to a group of people in a room, once his convention is over. I am not advocating trump. Francine he has certainly said he would be spending on walls and maybe that is considered to be of a structure . Overall, will there be a worldwide backlash against austerity . Against what we are seeing in europe and the u. K. We see that this is counterproductive. Can we say that this is the end . Douglas in the United States, we have had a strange form of austerity. The u. S. Budget consists of two pieces. One of them is on autopilot. Programs and Health Programs and Government Programs to support low income people. The second part of the budget is the annual spending on National Security and basic infrastructure and education and research. Core functions of the government. We have squeezed the latter category in a way that is irrational with no constraint on the first category. So people are going to react to that. It is truly more an issue of budgetary mix than the lending of spending. Spending is going up rapidly. Are you overall, concerned that the world falls back into a recession . Or at least that we see no gross . David i think the u. S. Maintains very low growth. Version is going into a recession and it could be serious. E are bearish on the outlook we dont see a pretty picture for years. Does the spread . Is there a contagion effect . We dont know the answer. Chart. Ing up the you mentioned this earlier where optimistic on growth but were more cautious on u. S. Economic growth. This goes back to the plugins of our fiscal confidence. Could you advise speaker ryan . Secretary clinton . About the quality of the plugins from guys like you . Yes, we can do better than we are doing right now. And i think the debate has been mischaracterized. Deficit versus not. Budget, weer of our have a mismatch between our needs for spending at it for structure on education and research, things that are growth oriented and our dedication to entitlement programs. That is the real problem. And getting that makes right is the key. Francine very right. David and douglas. Focus. And douglas holtzeakin. Will wax philosophical about markets. Fully priced. Politics are. Getting more bizarre by the day. The main u. K. Political editor from the bbc is just tweeting dsom may pulle out of the race. This is not confirmed. The bbc is very clear that this is not confirmed that these are sources in the party that she may resign. You were talking about the fact that there are two people who want to be Prime Minister and they are both women. There has been controversy over the fact that andrea had hinted she would be a better Prime Minister because theresa may is not a mother. This could get ugly. Unlike the common stable u. S. Politics. Francine a very good point. Lets get back to the stable politics in the u. S. But first, the Bloomberg Business flash. Boeing says it is working methodically to complete a deal with iran. This is aimed at preventing the company from selling 100 planes to uns to irans airline. Bloomberg spoke to the boeing ceo at the air show in britain. We make Good Progress over the last few months, following the u. S. Process. We are methodically going through the licensing process right now. I am encouraged by the work we have made. Boeing has said the iran sale complies. Takata, ismaker, reaching out to buyers. Theyre working on restructuring the company. It is open to a sale to a private Equity Partner or a combination. At the box office, Universal Pictures the secret life of was top in north america. It took in 103 million. Dory at theinding lead. After thee having fun jobs report on friday. David kotok is with us. They arezeakin barely on speaking terms but they have gotten through the hour so far. We have to bring in somebody the most disturbing global outlook. Basically, you are under the desk because you dont know what to do. What do you do professionally if wants are priced to perfection . They have to be close to you. Japan is one. U. S. Fixed income for the default. I dont like it but from a standpoint, it is slightly under global equities. Is a general statement should viewers bring in their maturity . Is a set of uncertainties that we have . We are goingu. S. , in an opposite direction. Any prospect of the fed resuming the hiking cycle shows that they have to rally. Om so instead of a sevenyear, i will go for a 10 year . Francine i like this. The least worst choice. What does that mean for the u. K. . The u. K. Politics are a continued source of concern. Deal, theyod trade need to start seeing animosity from the eu . Ajay yes, the United Kingdom is not the least worst. It is arguably closer to the worst worst. And there are eventual free trade friction that have come out. There could be a mild recession next year it is just a collapse in investment led by Public Investment that it translates into the private sector. That leads to the Unemployment Rate going up. Up being aing to end good economic environment for the u. K. , regardless of what happens to the ultimate treat deal. Thecine so what does being worst worst mean for the sterling . Ajay we think the sterling has more downside. We think the bank of england will ease further over the next few months, which is a complete about turn for what we talked about prebrexit. Central banks dont want that. A linehave never seen like this Asset Allocation is now about choosing the least unattractive alternative. You mentioned that further where you are talking about being long on wants and equities. In trying tosanity invest responsibly, based on the double negative, the least unattractive . We had a worst worst, a least worst but in the eurozone we talked about a banking crisis but we had a big political event in japan. I think japan is the cheapest market, the most optimistic market. Ajay i have been negative on Japanese Equities for a while what i might not go the full way but i do have more sympathy with what you are saying now. A really interesting, twisted report on what to do with capital right now. Roger on capital economics. Tom terrific news in the United Kingdom. Francine is in london. Lets look at Foreign Exchange yen is weaker. Mentioned the importance of the reaffirmation by the public. The sterling, we will get to that in a moment. Francine coming up shortly, we with alixberg go steel. I know you will be focused on politics . Yes, and a global rally in stocks. Andrea leadsom perhaps pulling out of the race and we will be watching that. He will be talking about ethan harris. The jobs economy, report, walking all of that forward. Plus, we have a Fund Portfolio manager to see what he is doing with his stocks and the record low global yield. Lets get back to the breaking news on Andrea Leadsom. Theresa may will be the only candidate to be britains next andrea doeser if withdraw from the race like the bbc is suggesting. Lets get to simon kennedy. He has had two hours sleep in the last 25 days. This news is unexpected. It is not confirmed. It is quite a twist. And we see this having an impact on the pound. Be pound rising there on the basis that the assumption will Andrea Leadsom was probrexit and theresa may was with the remain side. Even though she did speak to implement the referendum in full. There is suspicion that this provides some wiggle room. Theresa may has said nothing to justify such thinking. On the other side, Andrea Leadsom was very probrexit. Francine what does this tell us . This is something unexpected. Andreah do we know about leadsom . She has been trying to shape that vision today. Speaking about corporations and making more people feel that they are part of the economy. Perhaps not doing enough, it has been the mantra of the last few years. Worrying about austerity first. Theresa may talked about how corporation should have more workers on the board. Running the base of the conservative party. So that is her speech in birmingham. But all eyes are now on london with the statement from Andrea Leadsom. Who in fairness, has had quite a few hiccups along the way. And proving herself to be a candidate to his new to the business. Run to the radio here. But quickly, when you look at this news, are you any closer to a general election in the United Kingdom . Potentially. The argument for a general election is that the new prime the conservatives will argue that the mandate joined the party just a year ago. Rather than seeking a mandate. The labour party might want a general election but maybe they wont of the moment given the crisis that they are facing at the moment. It is important to note that it is a fixed term parliaments. You cant just announce a general election anymore. There are rules against that. The fixed term is five years. Certainly, there will be chatter. Ofncine in the last couple seconds we had to breaking news when you look at the bloomberg terminal. Risen 20 from a february low which means it has entered a bull run. Lets get back to our guests. Game of like it the thrones or shakespearean nature of the u. K. , what does it tell you about what the u. K. Will become . Only go back to a nation that has been widely admired . You willi think that go back to being a nation that is widely admired. You will be diminished in your economic capacity and you will be diminished in your global affairs. A great opportunity for the United Kingdom was to have the footprint of the eu as a way to and wisdoms insights and that leverage is going to be diminished. Francine if the u. K. Actually turns out to have done a gamble that works because the eu implodes, can the u. K. Be stronger with the brexit . David there is a question the great gift was the magna thea, which developed english law, governance for global finance. The brexitre it with vote . If we fragment finance out of london, do we diminish that route of the 1000 years . That is now a question that has been put into play by the referendum. So many questions for the moment. Very little answers as we await the nomination of the next Prime Minister. Simon kennedy, think is a much and thank you to our guests. David kotok and douglas holtzeakin. We will continue on bloomberg radio. It will be tom and i. Andontinue with david kotok we look into the speech with Andrea Leadsom. Globalw we speak with strategies. Checking outbe what the pound is doing. We saw the initial reaction to the bbc report. Jonathan a global rally rewrites history. Inching towards an unheardof high. David attention turns to the with hisister abe stimulus plan. Japanese stocks jumped the most in five months. Alix and the campaign for the next u. K. Prime minister race takes a turn as news that Andrea Leadsom may leave the race leaving theresa may as the only candidate. Jonathan to our viewers worldwide, a warm welcome. Back in new york city. A very kicking off strange market. David you couldnt have picked a more faat