Transcripts For BLOOMBERG Bloomberg Surveillance 20160727

A big move on yen and we are watching the fed. Tom i am most focused on Deutsche Bank. Dropping. Ank was job it is just not happening. Francine that was pretty much expected and when you talk about not happening, you have to look thehe stress tests for European Companies and unicredit may be about to make some big announcements. It is now official, the democrats made history at their convention in philadelphia. Hillary clinton is the first woman nominated for president in a u. S. Party. Sanders madam chair, i move that the convention suspend the procedural rules. I move that all votes cast by delegates be reflected in the official record, and i move that Hillary Clinton be selected as the nominee of the Democratic Party for president of the United States. Taylor a few hours later, bill clinton told the convention that his wife has never been satisfied with the status quo and always wanted to move the ball forward. A 265 billions stimulus to prop up the economy. It is unclear how much of the package will be new spending. Big victory in upper house elections this month and after that he ordered his government to come up with a stimulus plan. In france, one of the Islamic State supporters who stormed a church was on a watchlist. He was wearing an electronic tag that allowed police to track his movements. He was shot and killed. Another challenger to jeremy corbyn. Oh and smith is looking to pledge smith will what he calls a National Mission for britain and promises to improve workers rights, pay, and conditions. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. At equities,ok bonds, currencies, commodities. Fed day, i think it is a dead meeting. Futures are alive at five, a little bit of a risk on feel. Oil going nowhere. Of where ite a clue is going to be at the close of market, 42. 71. Brent crude under 45. In the yen, i will let francine talk about the yen. Sterling, 1. 3108. Francine we need to start on the yen because there is a lot of anticipation, tension, volatility, and it is currently at 105. 53. It is unclear what the stimulus announcement means, whether it is a message at the boj so i think that is the story today along with banks. 0. 6 . An banks gaining tom out it tokyo it was great on the confusion engendered. Lets look at the fed. I will use this chart this afternoon with scarlet fu and joe weisenthal. Is there enough going on in that chart . That is the lollipop chart. Francine it is a rainbow chart. Tom those circles are the fed meetings. The answer is, we have moved along and rolled over four standard deviations with that gray line extended off the red line center trend. We come back, it is not as dire as it was post brexit but nevertheless it is really something and says a lot about the challenges that janet yellen has. Francine these are the challenges for government corona. Governor kuroda. I did my own lollipop chart. What wethe picture for are seeing in terms of implied volatility on yen. The white line is basically a oneweek historical yen volatility. The orange line is a oneweek implied yen volatility. A sickly what it tells us is that trader attention ahead of meeting, but it tells us is uncertainty is probably what we will see as we try and wade through the news of what is going on in japan. Host, ubsto our guest. Sset strategist geoffrey yu we got lucky by booking you today because of this announcement. What is the Prime Minister of japan trying to do . Orit a warning for the boj are we going to expect more fiscal stimulus . Geoffrey he is signaling to everyone, i have a mandate so he is going to use this mandate. Expect something, and that is a message to the populace at large and the boj as well. The Central Banks can only do so much if the people do not believe in what the government is trying to achieve. At the same time, he is going to need money. Lack of bias, perhaps. Francine the problem at the moment with shinzo abes announcement as there are unspecified parts as to what is new, what is old. Is it so complicated to show that he needs that means business but it could fall flat and we could see the yen surging . Geoffrey i wonder whether Global Politics have played into this. We are hot off the heels of the g 20 and corroded did not want to make too much of a statement kuroda did not want to make too much of a statement. Tom i think all of this is linked together whether it is mr. Kuroda, mr. Draghi, mr. Carney, it is linked together for a lack of degrees of freedom. We are running out of a good choice set of things to do. Do you get the feeling they have just run out of ideas . Geoffrey a central bank will never admit they have run out of ideas, but from japans point of view i think it is very acute egos they are several decades into this experiment and still because they are several decades into this experiment and still struggling. They need to push back against this notion that they have run out of ideas. Tom how do they do that . Is it in speeches as we go through the summer . Again, like the fed is that a different part of the cycle so i think they can afford to be with their rhetoric. On japans side, i think it is much more important so that is why the governor has called away his previous comments about helicopter money. Caseine what is the best scenario for janet yellen . Geoffrey i think the stress, data is doing well, a goldilocks environment. Do not cast any doubt about ,trength in the u. S. Department but the stress in the international conditions, they need to be cautious about where the dollar is going, and after the brexit. Tom do you have a yen call . Geoffrey your risk is certainly to the upside in dollaryen and at 100 i think the boj will defend it. How they will defend it will be interesting. If they do a big package, then dollaryen will go to the upside. It is what happens after that which will be much more important. Tom looking at the fed and Deutsche Bank. Eoffrey yu with us with ubs this afternoon, Michael Mckee in washington, joseph wiesenthal and scarlet fu with our special fed coverage. 2 00 p. M. This afternoon. From london and from a beautiful, coal or new york, this is bloomberg. Francine welcome back to bloomberg surveillance. I am Francine Lacqua in london, tom keene in new york. Second Deutsche Banks quarter profit was almost wiped out. Revenue plunged and Deutsche Bank set aside money to cut jobs. The ceo has been cutting risky assets and eliminating about 9000 jobs. Largest oil producer has reported its first loss because of the plunge in oil prices. They have reduced cost so they can the norwegian government owns 2 . The cheaper apple iphone is catching on more with consumers, one of the bright spots in apples earnings reports. Salesalso forecasted would fall for a third consecutive quarter but the range was better than most analysts predicted. Francine thank you so much. Lets get back to one of our biggest stories of the day, japans Prime Minister announced lands for more than 265 billion in economic stimulus. The announcement comes ahead of the boj Rate Decision on friday. Lets get to our Bloomberg News economy at her desk editor, jodie snyder. Cautiousa little bit because a lot of this fiscal stimulus may be things that he has announced in the past. Jodie that is right. Package,he size of the the equivalent of 265 billion but it is unclear as to how much is new spending, and how it will be financed. One will presume that bond issuance will be needed to finance it, but we do not know the details and we do not really know what it is going to be spent on. They mentioned infrastructure, highspeed rail, but no specifics. Francine when you talk about Central Banks, one day mark carney was called the unreliable boyfriend and now some say governor kuroda is the unreliable boyfriend. Is that a fair description . Jodi i think so. We have seen surprises where they did not ease and surprises where they did ease that the market did not expect it, and negative rates was a surprise as well. Some folks are saying that todays action by the Prime Minister going ahead and announcing the stimulus today when the central bank starts meeting tomorrow and announces their policy on friday, was intended, and this is something that will put pressure on the bank to ease further. Tom thank you, Jodi Schneider in tokyo. Geoffrey yu with us. The one thing i get is a clumsiness of planning of stimulus. It is so different from the tarp struggle the u. S. Had years ago. Why is japan having so much trouble coming to another arrow in the quiver of abenomics . Overall it is an reluctance to engage in topdown structural reform and the decisive. We talk about labor market reform, that has to happen so these are things that are structural, not isolated. Tom they really do not believe it, so where are they in five years . If they have the challenge of china and adjacency of other asian countries, where is japan in five years . Geoffrey i think we see some interesting developments in china. The sands are shifting. You have north korea becoming a bit more belligerent. Given what donald trump has been the Nato Alliance and defending japan and south korea is going to be a catalyst for japan to say, we need to act to defend ourselves, and that could prompt and awakening movement which is what abenomics was designed to be. At least they have a reason to act. Francine what would be the best Case Scenario for the fed . Would a dollar rally actually make their life easier . Dollaryen rally should not impact the fed too much because if you look at the overall impact on import prices, it is not as important as dollarcanada and dollarrenminbi. If japan moves, dollaryen will go high and dollartaiwan will go high. Francine how difficult is this for governor kuroda to read . Geoffrey very difficult. He has to maintain credibility for the boj and people are saying, has the g20 been holding him back . When forced to make a decision between g20 and the domestic situation, he will have to go domestic. Tom we will continue with geoffrey yu. In our next hour, the u. S. Equity markets have been resilient. It is amazing the conflicting reports and analysis of apple. Brian belski joins us in the next hour. This is bloomberg. Francine welcome back to bloomberg surveillance. I picked out a morning mustread to talk about china. This is from Stephanie Flanders who comes regularly on the program. She wrote in the Financial Times that the chinese currency has been falling again recently by 3 against the dollar in the last three months. It would be nice to believe that this was because the world is in a stronger position to cope with a deflationary china, that she fears it is because investors have not been paying attention. The problem with china, if you think about the last 13 months, this huge volatility and markets being scared last summer. Then we had january and now we do not talk about china. Geoffrey investors have not been ignoring china. I know a couple of meetings and calls in the past few weeks. As concentrated as last year and the beginning of this year when that couldve been a big call position in your portfolio. Currency,ct to the the chinese will say last year they made a mistake and proactively moved and poorly communicated it. This time around, the big fix around the brexit was to reflect dollar strength. China is still stuck in terms of overcapacity and in a deflation mindset, and that needs to change. Is it going to be a big source of volatility right now . I do not think so. Francine because they are going to do less policy mistakes . Geoffrey bee the margin for error is nonexistent. Is that good for reform in the longerterm . That is doubtful. Tom look at renminbi. It is sort of the litmus paper of all of this discussion, the mystery of what they are doing in china. It is a historic appreciation of the yuan from 2005 on the left and we break through. Clearly they have managed a depreciation, some would say a true devaluation. Where are they heading where their currency with their touring their currency as a tool or a weapon of policy . Geoffrey it needs to be a tool to get Inflation Expectations back up. China has been in ppi deflation and the currency is essential to assist in that process. They are worried about pushing too far and domestic households will be buying dollars and there is talk of gold buying. It is a delicate balancing act. They are walking a tight rope so we are still looking at 3 to 5 . Tom well explained between the business side and consumer side in a nonfree economy. With that said, should we assume a glide path of depreciation . Bring up the chart again if you would. Where are they going . I cannot get a handle on that. Is going to be a psychologically important level for household. If you ask a High Net Worth chinese household, tell them to look at how dina dollarchina is going but a property in london has just become 50 cheaper, so those with the means to get money out it is not going to look attractive. If they want to contemplate account liberalization, they will have to accept the currency must me must be much weaker. With ubs, we yu will continue the discussion. Again, a fed meeting this afternoon. Our special broadcast at 2 00 p. M. To get you briefed. Obs withs bank us in the next hour on the choices and lack of choices that janet yellen may have. This is bloomberg. A tom good morning, everyone. Saidberg surveillance. Day. Day. D i am waiting for the 2 00 p. M. Show. Lets get to our bloomberg first word news. Taylor it was a historic night in philadelphia. Democrats made Hillary Clinton the first woman ever to be nominated for president i a major party. Bernie sanders took the microphone and asked that she be nominated by acclamation and hours later, though clinton capped the day with his speech. There are clear, affordable responses to our challenges but we will not get to them if america makes the wrong choice in its election. That is why you should elect hillary because she will never quit when the going gets tough. Taylor there were cracks in the democrats unity. Sanders supporters continue to demonstrate outside the convention and inside, several delegates paraded off the floor. A report by the house of commons theittee reports that brexit vote could increase immigration. Is facing renewed criticism over her handling of the refugee crisis. Lawmakers argue that for attacks in germany over the last week shows that her policies are not working. None of the refugees in the attacks had arrived last year. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Francine Deutsche Banks secondquarter profit was almost wiped out. Deutsche bank set aside money to cut jobs. The ceo has been cutting risky assets, freezing dividend payments, and eliminate in about 9000 jobs. Still with us as geoffrey yu. Joining us is otto dichtl. Uglyche bank was always but it was always going to be ugly. Otto i think it has to be put into perspective. Course since of late last year has embarked on a pretty deep restructuring program. I would have said actually ahead , that results released people were really concerned about Deutsche Bank posting some fairly sizable losses potentially in 2016. We are only halfway through the year and there are still maybe a few things to come. I would say, so far, so good. Two quarters a very small but at least existing profits. Francine should we be more worried about Deutsche Bank . We have seen so much volatility that you do not know whether this is the biggest, we just system weakest systemic bank. Otto it is certainly one of the biggest. Is it one of the weakest, i would say it has some challenges clearly. If you look at the share price and i think that to some extent, of course reflects the currently weak profitability and lack of thedends and currently still weak capital ratio. That is one key issue because of course one way of solving a weaker capital ratio is to raise , whichand get dilution is not so good for the shareholder. Better for creditors. Tom lets look at Deutsche Bank versus jpmorgan, a transatlantic chart. What i saw in the report this morning was a massive conditional probability and the condition is a probability the economy will not recover. How much time does john cryan have is the european economy really does not recover . Otto i think Deutsche Bank wants to have, at least this year for the deepest sort of measures in its program i would say, but for sure it is an 18 to 24 Months Program for things to fall in place. Is an mentioned jpmorgan interesting comparison. There is a few issues. One that perhaps for the time being, the u. S. Banks have a slightly bear better geographic set up. The market and the u. S. Seems to have been a bit more active recently and that is helping. The that is precisely point, Deutsche Bank does not have that luxury. I have the south side telling me this is a measured plan. Baloney. Where is the stock right now, 12. 31 euros. If this goes below 10 euros, all bets are off. How much time does he have to affect change . Otto i think what youre saying comes back to that point that certainly there is a material risk or likelihood that Deutsche Bank might have to actually forl go for a very painful the shareholder, capital underpin to sort of its solidity and give people more confidence. I think a fair point that you make, and it is one of the key issues for Deutsche Bank. Francine i like the way tom gets so excited and he calls it baloney. There is quite a lot of emotion. When you look at european banks, can europe grow if the banks do not grow . The interlinkage is huge. Geoffrey and the banks will say if europe is not grow the ecb will not be able to lift rates and that will hurt margins as well. Catalystoing to be the , who is going to be the first mover . Will there be a shift in the ecb . Will they be the first . Necessarily see banks sort of really tightening Credit Conditions massively. It seems rather that banks are sort of looking for the opportunities where they can actually grow profitably. It seems if anything, given the low growth environment and also i think structural changes in the economy, that maybe the demand for credit is not as strong as it may have been once upon a time. So there is low growth and that puts pressure on margin. I would also add, one can maybe put a question mark over the idea that the banks should make 15 return on equity when the 10 d yields are negative yields. Is historically a very unusual expectation of an equity return. Francine we also had returns from santander and the surprising news that they speaking to unicredit. Does that mean we will see less consolidation . Transaction, or the idea to combine the management business between unicredit and santander i think always was driven by a need of both banks to strengthen their capital ratios. I think with changes in years,ent in the last and just recently at unicredit, it seems like there is a little bit of a change in attitude toward where these banks prefer to keep the Asset Management as a low capital consumptive business within their own controls, and are focusing on other things. Unicredit in particular, they are looking now at the Second Largest Bank in poland for sale. Tom i look at this and i go back to fortis. Do you have any confidence mergers can be a constructive tool for these many european banks and their nations . Otto mergers for the time being seem unlikely i would say. Ranks are struggling with their own capital ratios. The ones that are perhaps large and Strong Enough to acquire other banks have other issues with that. For example, the np para ball was talked about and they have was talked paribas about and they have this antemic risk which means acquisition is very expensive. Generally, regulators in particular in europe do not seem to be very big fans of big consolidation anymore. And if anything, i think they are pushing the other way to address this too big to fail issue. Tom where are we in 90 days . I am frustrated because i do not see any kind of an energy of a workout in european banking. Where are we in 90 days . Italyit seems that in there are some initiatives on the way. Issue andhi is a big it seems like there are efforts on the way. Perhaps we will find out more by friday or early next week what the bank is planning to do. Unicredit, there has been some talk lately that maybe they will raise some capital, that they will potentially also selloff nonperforming loans. There is something materially big in italy right now. In spain, there has been activity and in other places, perhaps there is less to do. Tom otto dichtl, thank you so much. That was extremely informative on european banking but there was some transatlantic confusion. When i say baloney, i am assuming you do not know what that is. A bologna sandwich is an american thing. This is fine american cuisine. If you really want to go over the top, there is a thing in america called frenchs mustard, which does not taste like mustard. Andhave a bologna sandwich that is like eating the fine cuisine of italy. Francine close. I love the fact that when you talk about Deutsche Bank i am listening to tom keene becoming nypd. We will have more on the banks. Tomorrow we hear from the credits wes ceo at 1 40 a. M. In new york. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua in london, tom keene in new york. Standard oil has posted its first adjusted loss. Oil prices adjusted financial results. Spoke to bloomberg earlier and talked about the strategy going forward. 40 e have been producing from outside of norway and we will continue with our international strategy, including our efforts in the u. S. The main focus is to improve the quality of our business, and we are on track with that as we are with our overall improvement program. Francine lets bring in james harrison. Yu. L with us is geoffrey the problem with oil at 40 to 50 or 50, the figures do not add up. All stilly are struggling and still borrowing money to pay their dividends. None of them have cut costs pumpingo make profits crude and natural gas at this level. Francine is it going to be the same story for some of the americans or are they in a better place . Bp, we were thinking this was probably the best quarter they were going to get this year. Is no i think there reason to expect anything markedly different. Most of these companies have set a target to pay their dividends without borrowing money, but not until next year. Areher problem is Companies Facing is the engine has carried them through the slump. The refining business is weakening a lot. Norway and risk is their Sovereign Wealth Fund . It has been a four decade, five decade path of aramco like prosperity. How do you link statoil to the prosperity of the nation . James clearly things have changed. They are not putting as much money into it and in some cases they are drawing money out, but fundamentally it is a country with a Sovereign Wealth Fund. Europe paympanies in higher dividends than the United States. Are they reviewing that . Oil, can turmoil in they go for a lack of Dividend Growth and do other things with their capital . James i think they are very edded to it. They are willing to cut spending on new projects and sacrifice future growth to maintain payouts to shareholders. Any ceo will always say that the dividend is francine when you look at the industry as a whole, oil majors are under Environmental Concerns and it reminded me of maybe what Tobacco Companies were 10 to 15 years ago, and then we had some of the best returns. Our Oil Companies very different . Can we expect a resurgence in the share price . James i think the supply and demand dynamics are quite different. Geoffrey i think the supply and demand dynamics are quite different. Investment in green energy has leaned the world away from oil. One thing that seems to have been initiated is sustained growth in emerging economies and shifting away from fossil fuels. It is important to look longterm. Oil dynamics to u. S. Dollar, is there a direct linkage . Off, thenoil coming the Sovereign Wealth Funds that you talked about, especially those with opec and dollar pegs, that is what separates them from norway. And the like are a bit difference. They have to liquidate their u. S. Holdings but global risk aversion, you get a ton of dollar buying. Harrison, thank you very much. 2 00 p. M. This afternoon our fed meeting. Lets do a data check. There, we are open for business. Nymex crude down . 31. 42. 58. Xas intermediate, bloomberg surveillance. Tom bloomberg surveillance, in london, Francine Lacqua. In new york, tom keene. Taylor Second Quarter profit fell and airbus. Airbus also took a billion dollar hit because of gearbox problems with its military transport plane. Their target is matching last years earnings. Klm group is bracing itself for special saying their concern is france as a destination because of a wave of terrorist attacks. Reason is the strong growth of the supply and the fear of the market and the weekend and stability demands that we see in the market. In the Second Quarter we saw some headwinds in the demand. Events, the impact of the terroristic acts and we see definitely a strong impact on the local flows to france. Taylor air frances secondquarter operating profit was up 77 . Shares of twitter fell after they forecast thirdquarter revenue well short of estimates. The number of monthly active users barely grew and the Second Quarter. That is your Bloomberg Business flash. Tom i thought really the street was all on the same page on twitter. You wonder where they are going to go, where the mergers are going to be. Apple is totally different. Everyone is all over the map on apple. They missed estimates i believe by 20 . Lets move over to negative rates, the fed discussion, and the challenges for janet yellen. Geoffrey yu with us from ubs. This is a huge fundamental background which is the number of employed people in america back 40 years. Up we go straight and then we just go flat. At the end of the day, every central banker is a central banker to the labor economy, arent they . And newer jobs does not mean higher pay and higher pay does not mean greater consumption, it means greater savings. Between a rock and a hard place but still, safety first given the global environment. Francine you said something earlier, a central bank or will never say that they have run out of ideas. What does that mean . Will they look at something new or are they messing up policy . Geoffrey they never want to damage their credibility so if they say they have run out of ideas, that damage is there. Secondly, most of the time if they have run out of ideas and their policies do not work in the context. If for them to work better you need structural reform on the government side but they cannot push on that angle too much. It is always a tight rope but again, messaging to markets and households, expectations are very important. They will always be there to protect the economy, and never say never. Tom how far are the vigilantes chart . E dots on the me about what worries the chart right now for expectations is if more people shift toward James Bullards view. They want to challenge the consensus where growth is and where Interest Rates need to be, and i think that will be a worry for markets in general. What is the effect of that . If you have the range start to widen, that will have a significant effect. Tom geoffrey yu with a great briefing to start our fed day. Belskinext hour, brian. Tom can john cryan be a change maker . Deutsche bank must intensify and restructure. Maybe they need job cuts. Delicately, Prime Minister abe he must be a change maker. Mrs. Clinton will be a change maker. Mr. Clinton goes to philadelphia and sells a Hillary Rodham of 45 years ago. Good morning, everyone. This is bloomberg surveillance , live from our World Headquarters in new york. I am tom keene. With me, Francine Lacqua. Philadelphia was really something last night. We will talk about the stark differences between philadelphia and what we saw in cleveland. Francine this is one of our top stories. I like the way you linked our top three stories as game changers. I will look at market move, volatility, and the game changer with centralbank policy. Tom we will touch on that in a bit. Right now to our first word news with taylor. Taylor it is now official. The democrats take history at their convention in philadelphia. Hillary clinton has become the first woman nominated for president by a major party. Her former that her former rival spoke her former rival spoke during the rollcall. Mr. Sanders madam chair, i move that the all votes cast by in thees be reflected official record, and i move that Hillary Clinton be selected as a nominee of the Democratic Party for president of the United States. Taylor a few hours later, bill clinton told the convention that his wife has never been satisfied with the status quo on anything. She always wanted to move the ball forward. Japans Prime Minister plans a 265 billion Stimulus Program to prop up the economy, according to the kyoto news service. It is unclear if it will be new spending. His Coalition Won a big victory in elections earlier this month. He ordered his government to come up with the stimulus plan. Egypt is seeking 12 billion from the irs from the ims. Egypt reached a pulmonary agreement reached a preliminary agreement on imf loans. In france, one of the Islamic State supporters who stormed a church and killed the priest was reportedly on a terror watch list. He was forced to wear an electronic tag that allowed police to track his movement. Police shot and killed the two attackers. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. This is bloomberg. Tom . Tom taylor, thanks so much. Equities, bonds, currencies, commodities. Fed day. Said 4, 5, 6ot find a bid days in a row. Not of their market yet off recent highs, but nevertheless, down we go on oil. Like 12. 66. Elski sterling gets my attention. Francine the japan currency it tiesculation it back to what we are seeing in treasuries. Overall, in european stocks, definitely a day of earnings. ,e have 55 Million Companies some of the carmakers better than expected. You have disappointment with some of the banks. Tom lets bring up on the bloomberg now, on the surveillance wall, we have changed this chart a little bit. What are the circles . I did not explain that. The circles are each said meeting back about the circles are each fed meeting back about a year and a half. There is a recent trend of volatility. At one point we were four standard deviations lower yield, and then you have where janet yellen wants to be, which is the green circle, center tendency. We are really know where he we are really nowhere near that. She has a lot of work to do. I call this living on the edge because this is trader tensions. Tom i am not singing bon jovi. Francine this is a oneweek implied volatility in orange. You can see the spike up before every boj meeting. This one is actually the biggest volatility high that we have had in at least a year. Geoffrey yu was on, and he was saying it is going to be much worse going forward. Sick, karen really is in my ear and she does not know who John Bon Jovi is. Joining us now, leading up our singing for the show, brian belski. Victory lap on your resiliency over equity markets. Did you get lucky in the bull market . Do you feel your plan worked out, or was it just janet yellen to the rescue . Ryan i love it when a plan comes together we said it given the fact that markets typically overshoot to the downside, overshoot to the upside, we saw some volatility coming, and we think that will be provided by the fed. Remember, everybody and their mother, brother, sister, cousin, uncle thing they will never itse rates again and they is going to be difficult to have utilities and telecom lead the way as the stock market hits new highs. That is not a formula that works. Tom the formula for all of our viewers, whatever their sophistication bring up the chart here. ,his is the dow chart way back and the bottom line is the trend there coming out of the depression, the blue box, the trend, even with the malaise in the 1970s, how could you not be beyond that trend come and how do you acquire shares today if we haves head if we have had such a run . Brian with your experience as a bond person, we have had a 34year bull market in bonds. We have a 15year bull market compliances and financial services. We doubt that trend. We continue to think this bull market is the largest bull market of our career. For all intents and purposes, Wealth Management on the retail side has yet to really get on board this. We continue to see inflows into fixed income, and outflows from equity products. There is this push and pull between atfs and active investing and we think active investing is going to be what leads our way. Incrediblys an important insight. There is zero buzz on equity markets. Francine right, but what do you buy back what is your favorite play . I spoke to one strategist earlier this morning and he was telling me, look at value, industries such as banking and carmakers. Banking is tough at the moment. Brian banking and automakers are two Different Things in terms of what value is presenting. Investing and true fundamental investing at the end of the day, you are looking for this priced growth stocks. Value outperforms over longer time periods. We think the hallmark sectors in america are financials, technology, and consumer discretionary, for the most part three sectors that have been left in the dust year to date through that is where we will see the most pick up. I like to call these the hallmark sectors for america. Francine given the idiosyncrasies that you are talking about, what is happening with treasuries compared with equity, would you rule out a sharp correction in equities . Brian there remains a tremendous amount of doubt, a tremendous amount of money chasing momentum, especially with respect to this whole notion i call it a misnomer in terms of fixed income people are not buying bonds for fixed income, they are buying bonds for performance. If we see any kind of reversal in bonn performance, they are risking volatility in the equity markets. Tom we saw this yesterday. Bring up the chart here. This is a mystery chart. I usually do not like to do this. Oh, my word, it is a terrible chart. That is apple computer. I looked yesterday at ups, dupont, mcdonalds, apple. Everybody wind about this everybody whined about this, that, and the other thing, but these companies are moving forward. Brian apple is a microcosm for the United States stock market. What i mean by that is that people cannot wait for the stock to fail. We can be talking about iphone 15, and we still will be doubting apple. You should always buy stocks when people are negative on them, especially with fundamentals. The cool thing about apple is that they have fundamentals behind them. Apple,is is 30 years of and then malaise, and then the iphone comes in. We saw this in the reports today. Every media is like the world is coming to an end, iphone, then shut up and buy the shares. I have never seen this dichotomy in one stock. Iian the problem is that really believe people lack perspective in investing, at number two, nobody really does the fundamental work. Cash flow generator earnings. Cashequity market, flow generates earnings. For the mccourty market we have to build credibility for equity investing again. We believe it will be driven by cash flow and consistent growth. Tom you can buy shares today in the dow. Minimum look at things, 12 to 18 months. Do i believe the stock market will be higher 18 months from now . Absolutely. Tom brian belski is medicated because he is a large Minnesota Twins fan with season tickets to the Minnesota Twins. Francine, they are the worst team in baseball. The worst. We got that out of the way. A move on to the meeting of september. From london and new york, good morning. Bloomberg. Francine tom keene is in new york. I am Francine Lacqua in london. Lets get to some of our main corporate stories with taylor riggs. Taylor the Second Quarter profit was almost wiped out. Trading revenue for the largest investment bank, Deutsche Bank, plunged. Ceo john cryan has been cutting risky assets and eliminating 9000 jobs. Norways largest oil producer, statoil, has reported his first law has reported its first loss because of plunging oil prices. The norwegian government owns 2 ofthe company 3 owns2 3 the company. Tom megan murphy on the drama last night, and the move forward and tomorrow as well. The president got up last night and reintroduced i love how he went back years and years on Hillary Rodham. What was the backstory that you heard in president clintons comments . Clinton had two things he really needed to do. He needed to humanize Hillary Clinton in a way that a lot of people that even though she has been in the public four decades, they just dont know her. He called it a change maker a nonstatus quo candidate. In this cycle not only in america but throughout western europe, we see people identifying with nonestablishment figures. Brand hillaryt to clinton an outside figure. He had two big missions last night. He did pretty well with both of them. Tom you would not expect david brooks to go this way, but he did. This is just out today. David brooks talking about mrs. Clinton. Tom are we going to see a new Hillary Clinton when she speaks . Megan i do not think we are going to see a new Hillary Clinton. It is too difficult for a leopard to change its spots. We should be honest and say she is not the politician in terms of that public and oratorical role that her husband has played. But she is going to strike this message that i am the person who needs to lead this country through these turbulent times. You saw the set up yesterday with bill clinton. She is branding herself as the real one, where they are seeking to brand donald trump as a cartoonlike figure with that celebrity culture that brooks is writing about in that piece. Francine is a more likely that so her strategy should be to be more likable . Megan she has to be going for that level of authenticity. It is extraordinary going through her biography, that people are still learning things about this woman. I thought the most effective part of bill clintons speech goingrliest and he was through her achievements as a young woman during law school, right after law school, even before he entered into the governorship some things that people do not know. He also talked about her being a wife and a mother. People want to know this candidate. They want to believe in her if they are going to vote for her. Francine can she turn it around in three months . Megan i think she can turn it around. We have polls again this week showing him up two to three points. Test is goingxt to be the debates. Tonight we will have barack obama and joe biden, two of the most effective people out there bank speaking for her, trying to draw this contrast between what likery clinton would look versus donald trump. Tom day two is done in philadelphia. Brian belski, does any of this matter . Brian no. Tom i agree. Does any of it folded to equity markets . Brian we have published through the years that politics have nothing to do with the absolute performance of the stock market. Affects for 90 days, and we go back and forth. For february 1 of next year, does it have anything to do with valuation . This is aboutause the economy and fundamentals. One candidate will be more stringent on growth. The other will be more progrowth. You can pick which one you want you can pick which one you think that is to but at the end of the day, this election comes down to people want something different. Even if they do get something different, which would hea president that intimates wants to stick with nato, that would not have an impact on equities in the u. S. . Brian nato is a small part of it. At the end of the day, americans america is still the strongest economy in the world. At the end of the day, America Needs to provide fundamental strength with respect to what is happening in the economy. We have gone through the great crisis, we have come out of the great crisis. Now we need to start believing in our companies again, whoever that leader is, and at the end of the day my wifes grandma taught me this phrase a long time ago keep it simple, stupid. At the end of the day, that is what is great about bernie and trump. They keep it simple. Tom whatever anybodys politics, Bernie Sanders in the last couple of days has been a total class act. He has impressed me with the drama that he brought to the soiree in philadelphia. Look for this this evening Mark Halperin and john heilemann, with all due respect congo from philadelphia. With all due respect congo this is bloomberg. Tom bloomberg surveillance. Lots going on today. Francine lacqua in london, i am tom keene in new york. Kit juckes writing a research note. Lets go to that right now. Francine, you have been doing more on this than i have. Tom kit juckes, as always, with a lot of clarity on what can only be called speculation. Francine speculation and a little bit of confusion. How i would characterize it, the volatility that we saw with en is symptomatic of this announcement this morning that was very untypical from the japanese government, saying more stimulus, but we do not know what was preannounced. We think this will be a direct announcement, the punt minister telling the boj, do your job because we are going to tom do ours. The presumption here tom the perception here is a yen of 110, 120. We wonder what the ramifications are. Even below 100, which is what a lot of people would think would be imaginable unimaginable. Francine what caught a lot of observers offguard, we have seen governor kuroda catch twice in in the last six months, offguard. Tom it comes up to the fed meeting today. Francine brian belski stays with us to we will be talking about yen, and also china. We have not talked about china in a while. This is the picture overall for your asset classes, focusing on oil because bp disappointed. 42. 73. Yen we are watching out for, and then banks Deutsche Bank a disappointment. It was flag. They had to cut more jobs, but it is one of the bigger losers. This is bloomberg. Tom good morning, everyone. Francine lacqua in london, and i am tom keene in new york are in right now to our bloomberg first word news. Heres taylor riggs. Taylor it was a historic night in philadelphia. Democrats made Hillary Clinton the first woman ever to be inated to president nominated for president by a major party. Several hours later, former president bill clinton cap the day with his speech. Clear,nton there are achievable, affordable responses to our challenges. But we will not get to them if america makes the wrong choice in this election. That is why you should elect her. She will never quit when the going gets tough. Cracks in thewere democrats unity. Sanders supporters continue to demonstrate outside the convention. Inside, several thousand sanders delegates paraded off the floor. There is a report by the house of Commons Affairs Committee saying that previous attempts to tighten immigration rules led to a surge of immigrants. Germanys chancellor, angela merkel, is facing renewed criticism of her handling of the refugee crisis. Lawmakers argue that four attacks in germany and the last week show that her refugee policies are not working. Attacks the four involved refugees, although none arrived in the last year. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. This is bloomberg. Francine . Francine lets get on to banks. Deutsche bank says secondquarter profit was almost wiped out. Deutsche bank set aside money to cut jobs. , has beenohn cryan illuminating about 9000 jobs. Guest covers banks. Thank you so much for coming on. You argue in your piece today, which is a great read, that rarely if ever Deutsche Bank has looked this miserable, and it will look even worse. Valuation is really bad and the results are really bad. We were expecting some pain because of restructuring. It is a turnaround, it is painful. The rewards in terms of capital and Balance Sheet strength are not there, so 2016 will be the peak year. It is just not really convincing right now. Lets go to the bloomberg terminal. This is Deutsche Bank. I brought it back five years. You can see it slipping around, and the performance of Deutsche Bank in white. It is so much worse than the rest of the stock index. People say give it time, as you are mentioning. How much time does john cryan have to turn it around before he steps down . A good question. Management thinks it can do this on its own steam, that over the next two to three years, it will be able to generate capital on its own without emergency measures to hit its targets. But this is not happening in a vacuum. The economy does not look great, markets do not look great. Rival banks may act quicker and earlier to raise capital. Big and bank is too important to say we are going to keep going and it will take two years. Tom brian belski is with us. All of this comes down to if you do a cash call three i believe that equals share dilution for existing shareholders. Am i right . Brian i think so. There is a difference between running costs, restructuring, and how we come out as a company in terms of growth and what the business of like. You are going to underperform, how are you going to grow . The Biggest Issue is Balance Sheet. What is the real cash . Where is that coming from . Tom that is a really good question. What is the quality of the goodwill and the bad will on the Balance Sheet for Deutsche Bank look like . Lionel the market has a steep discount in terms of the value of Deutsche Bank, and it is interesting that even unicredit, which is trading at the same painful discount, is looking at a capital increase, five . 5 billion potentially in capital increase. You cannot rule that out 5. 5 billion to 10 chile in capital increase. What is the equity story for unicredit. We saw that they were going to merge some assets or some kind of joint venture. That collapsed. Is it even a tougher job than Deutsche Bank . Lionel i dont think so. Unicredit internationally is still punching its way so that it can exit in countries and sell assets. It has an say that good corporate bank, a good retail bank, too. It can be simpler, even though the Banking Sector is in a lot of pain, in a lot of trouble. Unicredit has the story to tell. Tom thank you so much. Lionel laurent, thank you so much. Brian at the end of the day you can believe the cash there. Tom they are not going to do a cash call . Brian they are increasing dividends, and we are getting back to what angst are pretty good at. , buyingther banks stocks, and creating dividends. I have never seen the contrast between european and u. S. Banking like we see this summer of 2016. Chief investment officer, look for him in the not 00 hour this morning. From london and new york, this is bloomberg. Francine i am Francine Lacqua in london. Tom keene is in new york. We have talked fed, asset markets, but lets talk corporates with the Bloomberg Business flash. Taylor europes Largest Airline says there are special concerns because of a wave of terrorist attacks. Bloombergtv spoke with air frances cfo. There is very strong growth in supply. Demand. Ened we have seen some headwinds for sure in demand. Of course, with the events that we have already in the past, with the building up of the impact of the terrorist attacks, we see a strong impact on the local flows to france. Frances second operating Second Quarter 7 . Rating profit was up 7 tom is fed day. Brian belski is with us. Distortion inst Interest Rates. How does chair yellen adapt to what was before brexit, or how does she adapt to where the rate structure is after brexit . As unusual as it is, we are still in a better position than we are in europe and japan, where you have negative Interest Rates. They have managed to avoid the sand trap of going the negative route. As odd as it looks, they are in better shape, and what she is probably looking out for is what is happening to the exchange rate. They are worried that the dollar new dollar strength. That is something they want to avoid, so they are trying to manage this message very carefully, where they want to say we are going to be tightening, but they do not want to be sending the message to bank strongly. Year we take the 10 bring up the chart. The yellow line is the 10year yield. The white line is adjusted for inflation. Is a as you know, there gap between the two. The vat the gap is vaporized. The yields are down within our great moderation. Is it unthinkable that they would compress and come down even lower . Dino why . It has happened in japan. Japans nominal and real rates have been extreme, so i do not think it is unimaginable. It is imaginable. Francine but it should not be. Nothing is unimaginable at the point. Thateoffrey yu of ubs said it is more likely that they do not know policy response. Dino we are in a new world. We have been in a new world for a while now. So, yes, we have the frontiers being pushed by the Swiss National bank, by the bank of japan, by the ecb. The fed pushed some of those erials as well, imposed with operation twist, you can go down the list. A lot of the things that we thought were unimaginable have become imaginable. It is a new frontier, and the Central Banks are pushing further. In a sense, your question hints at the fact that we are not sure how the economy is responding or how it will respond to policy, and therefore they are trying to they are trying new things. The last time i was on with you, we were talking about helicopter money, the possibility we might see that in japan. Are beinghe frontiers pushed out and will be continuing to be pushed out. Francine do we have a better handle on inflation, on how we can stoke inflation . This one of this is one of the major problems in the big economies. Dino one of the interesting questions is that for years the question was how to put inflation down. Now it is how to push inflation up. With all of the things the Central Banks have tried so far tom is there any history that they can reflate . Should beheory they able to reflate. The old milton theban the old Milton Friedman theory but here we are, it has not happened. Tom do you know what the riskfree rate is . Uph the previous chart i put of nominal and real yields, i have no clue where the actual riskfree rate is. Brian the trend is so important, and everybody believes the trend is going to go lower. The riskfree rate of 2 typically right now we usually take a look at where the 10year treasury is. The trend continues to go down, the key thing is that, thinking about and positioning for the unimaginable is inflation. I think the trade is to expect inflation sooner than later. Where does that come from and how do you prepare for that . That is why we like gold on both sides because that is your inflation hedge. Francine from where you are sitting in the u. S. And from where janet yellen is sitting in d. C. , does brexit feel very far away . Theresa may is meeting with italys Prime Minister. But we have the battle lines drawn. Dino great question. The way that they will feel brexit is through the financial markets, less than through the purely political process. Remember, there were a few days of extreme volatility in the exchange and equity markets. To the degree that that situation stabilizes, that we begin to get a path forward on the political and negotiating stability, market then brexit becomes less of an issue in and of itself. It will play out over several years. The markets will adapt, the markets will discount that process. Francine brian, do you agree with that . That they will discount and markets will adapt . The markets largely discount any kind of shock. Brian we think so. The only thing the market maybe has not discounted is in terms of the duration at how long this is. There is a varying degree of thought on that. Risk of otherhe countries trying to exit. The market has done a good job in terms of discounting all the news and all the things that have occurred, given what has happened with brexit. Nos worldd indeed we fold in dino kos world. How do youve been a fed strategy how do you fold in a fed strategy . Brian it is more about what the fed says versus what the fed does. Any kind of increase in rates is. Ot typical it is a removal of stimulus. Aen you remove stimulus from marketplace that is used to receiving skittles, meaning all of that free money, we think there is going to be a reaction to the downside. Hat is a normal reaction given the fact that we have reared an entire generation of investors, we need to now recalibrate. Tom brian belski with us, and dino kos as well. Lilly, mr. Lechliter will retire. That is big news. There will be an orderly succession at eli lilly. From london and from new york, with the markets churning here on a fed day. Do not forget, 2 00 p. M. This afternoon. This is bloomberg. Tom good morning, everyone. Bloomberg surveillance. Fireworks overnight. The yen all over the place. 105. 50. Endency, this is the word to use speculation, on what mr. Abe will do. That would be front and center without the yen story, now preaching through at 1. 31. Isncine coming up, it bloomberg with alix steel and jon ferro. Alix the day question is, what es move mean . Deutsche bank is in the spotlight, as well as apple. Coming outsmithkline in the next two hours. And we will speak with tobias levkovich, chief equity strategist at citigroup, as well as andrew witty, the ceo of glaxosmithkline. Tom thank you so much. It is fed day. Dino, negative rates are front and center to you and a lot of other people. I want to talk about the chronic nature of negative rates. If you stretch it out on the x axis, that has a lot of knockon effects to the system, doesnt it . Is, to the debate Central Banks succeed in reducing real rates, and therefore having a positive impact . Tom do you see that . Dino i do not see any. Or are you debilitating the Banking System with negative Interest Rates, and therefore creating a deflationary drag as opposed to the inflationary impulse that they want to have . Right now where the intellectual debate is. Tom lets bring up the chart on the german 10year, the german twoyear. There are a lot of chronic areas brian belski, this leads into a noinflation environment. How do equities adjust to dino kos concerns on negative rates . Brian we have seen a big move in these yield components. That is why tom and that brings equities up. Brian do not underestimate how much money is flowing back into north america. Remember, in 2015 we saw a outflows from the u. S. , and clearly net outflows from canada. Some of this is starting to come back. That is propping up equity prices in america. But for the yield component that is why there has been such a binary trade in terms of utility, telecom. Some would say it is a bubble type of valuation, especially with respect to utilities. Tom Dino Francine dino, you are almost warning the equity market. Is it possible to word is it possible to reverse course, especially in japan . Dino they are committed to their policy stance. At some point they will reverse, but they believe that they are making the right set of decisions. They are committed to this policy stance, and there is talk that they might even accelerate that. In europe as well, they seem to be committed to that. I think what we will all be looking for is, is there evidence that it is actually working to increase inflation, or are you actually breaking down the credit intermediation process, and therefore the situation will be worse . Which one of those two things will it be . Francine do we have the answer . Or are we still trying to figure it out . Dino we are trying to figure it out. My view is the latter view. I am worried about the downside of negative Interest Rates. But there are a lot of smart people who make a compelling case for the benefits of negative Interest Rates. I am very skeptical. And certainly with the exchange market, it is skeptical as well. Tom have we really tested negative rates . We have negative rates, and depending on which nation it is, imputed upon a Banking System, may imputed upon an institutional system, but have we seen the effect of negative rates on voters and the people of a nation . Dino we have not, because it has been on the banks, the banks reserves or elements of banks reserves. If we see deposit feeling negative rates, then we are in a new era. At that point, what will the reaction be on the average consumer who is having his savings taxed . Will he run out and spend as much money as he can because that money is disappearing, or is he going to say i need to save even more because of what the government is doing . Tom brian belski, as you live with the many walls of worry out there, when we finally get economic adjustment, do equities adjust the glide path, or is there a fear of a jump condition to a great bull market . Brian i think there is a bit of a fear of a jump to the great bull market because nobody believes it. At the end of the day, the biggest trend we have to think about is, if the economy improves, we will see Interest Rates higher. So how do we unwind bond positions and get them to believe that equity investing will leave . That is going to take a while, but that is a good thing because of the fortitude of equity. Tom gentlemen, thank you so much. Cocacola out with subpar revenue growth. This is bloomberg. Jonathan a tale of two stocks. , as the iphone Gains Traction while Deutsche Bank tumbles. David Central Banks in focus. Japans Prime Minister abbe announces plans for more than 265 million in economic stimulus. , hillarytory is made clinton becomes the first female nominee of any political party. Jonathan i am Jonathan Ferro alongside david westin and alex deal. Alix steel. David i woke up and there is some talking made and it is moving markets. ¥28 trillion is what was floated at the real question for et, what is the next