Transcripts For BLOOMBERG Bloomberg Surveillance 20160816

Indication of where german investors are. We also have that inflation figure in the u. K. That has more to do with the pound slumped than any kind of real inflation. Tom absolutely. Then you focus back on japanese yen trying to get to the 99 level. S, isntantiabenomic it . Francine i would argue that it is that a lot of dollar weakness. Taylor british Prime Minister theresa may sent president fusion paying xi jinping a letter. China has told the u. K. To reach a decision as soon as possible. Repelledt troops have a government offensive near the city of aleppo. Minister saysse talks are closer to defuse fighting. Yemen killedthern 15 people. The Saudi Coalition has been striking civilian areas. The attorney general of pennsylvania has been convicted in a perjury and obstruction case. She was accused of leaking grand jury secrets to embarrass a rival prosecutor. The pennsylvania governor has urged her to resign. At the summer olympics, high drama on the track. A desperate bid to win the 400 meters resulted in a dive across the finish line. The u. S. Is still in first in medal count. Nt global news 24 hours per day, im taylor riggs, this is bloomberg. Tom lets look at equities, bonds, currencies, commodities. There we are with futures and negative three, the yield churning. Oil advances. Next screen if you would. Vix. Dowcine, im not on the 19,000 watch. We are not there yet. Yen wants to move weaker, weaker, weaker. That is a big move in japanese yen. Francine my favorite analyst saying thin august markets. That is kind of my data board. I need to do a correct. I thought the zew beat estimates, but i miss read the headline numbers. It is one of the first data pieces that we have post brexit. It is a quarter of what we were expecting. Tom well, there it is. That is all there is to it. Inflation. This is a great chart. The white line is Service Sector inflation. Then we have the approximation of goods producing inflation with the yellow line. The red dot is the combined core with Service Sector inflation elevated and climbing back to normal. Ofis two separate worlds price change. Rent gets in there, as well as a rock in the pond, if you will. Was that clear, francine . Francine yes, it was clearer. I was looking at your chart thinking, im going to do and inflation chart for the u. K. This is what i did because i was thinking about software. Betweenthe yield spread u. K. Gilt yields. Last week, they failed without bond buying option. Today, itil again would not be so easy to dismiss. It shows the flattening of the yield curve. Tom big move. Francine huge move. We have to look at inflation and weak dollar. Gentleman, thank you for joining us on surveillance. When you look at this new world when it comes to the markets, equities ever higher, they are grinding higher no matter what. Then you have depressed yields. What does it mean for currencies . Will it have a huge effect on dollar . Nick ultimately, it will. We are in a phase of dollar weakness. Due to the much lower terminal rate in the u. S. Other Central Banks have surprised a little and have not eased policy. The bank of japan really disappointed markets. As we look forward, we probably see a reversal of that. Aggressive see more action from the ecb and the bank of japan, which forces their currencies lower by the end of the year. Francine what does it mean for Something Like abenomics . How do they get inflation backup . Nicholas it is a challenge, lets be honest. The key is to get more in the way of wage growth coming forward. Ultimately, it means the bank of japan has to be way more aggressive, even than they have been. It probably means another deposit rate cut. Francine four equities, we have a lot of u. S. Indices at record high and then we have this failure of abenomics. Strengthen yen. Absolutely. I think you hit the nail on the head with structural reforms. Rally is driven by this yield play and yields going down. For a longerterm view of equities to be sustained, we need to see the fundamentals comes through. Tom one of the things im looking at is what is moving in the market. Forget the theory, look at the reality. Dollar yen grinding down. Yen extrapolates out by 20 years. I look at this and i go, when will they intervene . At some point, you get a coordinated or less coordinated intervention which is it . Tim we have had quite a lot of intervention already. Bernanke we saw visiting japan. That can only suggest they are going to do more in the way of intervention. Ofil we see more in the way trying to address the problems they have with demographics, more people coming into japan, we are not going to see any change in the outlook for the longterm picture. Tom i look, nicolas, at the dynamics. Are these markets coordinated right now or are stocks on their own . Nicholas they are very correlated. When you look at the japanese authorities, they are going to have to react if you see dollaryen through that hundred level. It means probably an aggressive approach, probably from the monetary side in terms of more qe, but also remember that now governments have that fiscal tool, as well. Maybe that is what we will see, as well. Aggressive fiscal stimulus from the government looking forward. Francine think so much for now. Plenty more coming up with our guests on bloomberg markets. I think we will be talking politics. We will ask about some of the spanish cajas. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua in london. Tom keene is in new york. Lets get straight to the Bloomberg Business flash. Sentr Raw Materials have profits plummeting. Fell 8 , bhpsgs 2001. Result since the company does see a brighter longterm outlook for copper and oil. There is talk of a merger that would create the Worlds Largest supplier of industrial gases. Negotiations. Ld the status of the talks is not clear. The deal could be valued at more than 30 billion. A new study says that leaving the European Union says it will hurt the earnings of lower wage earners in the u. K. Supporters argue that lowpaid workers would benefit if migration numbers were cut. Francine, you are sticking with brexit. Francine the u. K. Got the first vote. Umbers on the brexit banks withent headquarters in london will start moving jobs much earlier than expected. We are joined by Michael Moore and we are still with nick and tim. Michael, overall, is this expected . The banks are disappointed because the government does not really have a plan and brexit may be triggered not before 2019. ,ichael if you work backwards the banks want to have a plan in place for when the brexit actually occurs, two years after the trigger, when the negotiating period is finished. You have to have people in place that can interact with clients. To work backward from that, given all the Regulatory Approvals required, finding office space, moving the people, that is going to be an 18month to twoyear process. They have to start unless they have a sense that passporting is going to be kept or there was going to be an extension of the negotiating period. So far, they dont believe the government as a firm plan on anything really. Francine are we talking hundreds or thousands of jobs . Michael it could be thousands based on what the banks said before the brexit vote happened. The banks, you want a firm plan in place. From thethe sense government. Tom buried in the story is the horse before the cart. If you leave london, youve got to go someplace. They dont have a clue where they are going to, right . Michael i think it is still a little bit up in the air. Tom a little bit . Come on we are all moving to a alfi. Ama tom where is that . Isnt that a beer . I could not find that on a map. [laughter] michael frankfurt and paris have the most structure. Dublin has also made it play. Luxembourg, amsterdam. It may be spread out. Tom come on. There is no Business Plan you studied at duke were you spread out in an industry. It is just like everybody gets together where they are altogether. What i love in the story are the two facts, the idea that 87 of the work is getting done in london and 78 of Capital Markets are in london. That tells me there has got to be a mass migration to a city. I have yet to have a sell side analyst tell me what that city is. What is it . Michael we are trying to find out. I think frankfurt has some natural advantages. But trying to move a lot of people there from london may be tough. I think this is the challenge the banks have. There is no obvious candidate. Francine there is not. Anecdotally, tom, they may be looking at ireland, they may be looking at somewhere in the u. K. Where it is a lot cheaper than london because house prices, sure they are going down a touch , but it is an expensive city. If you are facing a downturn, it makes sense for them to try to put some plans. I like the way you are having coffee, where are we moving to . That is the only thing you want to know. [laughter] francine i will get you lemon cello for when we moved to amalfi. If the u. K. Continues saying we are not going to budge on immigration, there is no chance that we have access to this single market. Nicholas i think the reality here, to find brexit for me lets face it. Brexit is not yet defined. Until it is defined, you dont have a starting point. I think the other trend you refer to is that irrespective of exit, banks are moving to lower cost jurisdictions. That is a trend that probably continues going forward. Tom is that fair francine is that fair . Tim i think that is fair. I think there is an element of politics going on. There is the goal to get the best deal for the banks. That if youuggests could pick up, fire everyone, and move to another country, it kind of suggests it is quite a commoditized job we are doing. I dont think that is necessarily the case. I would take some of these comments with a bit of a pinch of salt until we see more flesh on the bone from both governments from a brexit point of view and from the banks. Sticking up for the banks. Tom, we had a great conversation earlier. The former chancellor, george osborne. Telling us that it is an exercise in costcutting, but you also need to make sure you retain talent and bankers can be fussy about where they want to live. Coming up, we speak with Ian Shepherdson. That is at 6 30 a. M. In new york. This is bloomberg. Francine im Francine Lacqua in london. Tom keene is in new york. We have ripped up the script and we want to focus on something that John Williams at the fed said. This is the first time ive done the ripping of the script. Im so proud. With our guests. Williams say we need to focus on inflation or put a much higher inflation target or forget that and focus on nominal gdp. We need a radical rethink of what Central Banks are looking at . Nicholas we do. When you think of Inflation Bank central targeting, it is developed by the reserve bank of new zealand. That was a policy developed from that historical experience in the 1980s a very high inflation. Lets mark that to markets today. I go back to the chart that showed goods deflation. In a radically different economy where you have goods deflation, you certainly have disinflation, and the current framework for Central Banks is becoming increasingly redundant. Say that we do target nominal gdp how much difference does it actually make on what the tools are the Central Banks have available . Ultimately, what you are doing then is you are keeping the real Interest Rate lower for much, much longer. It helps to deal with debt and then it probably should add something in the way of stimulus , but there is another big important piece. There is a limit to what Monetary Policy can do. Is increasingly going to be in the court of government to do more on the fiscal side. Tom lets bring up the chart nick is siding citing. Showing that goods deflation. What i notice, tim, what i notice here is that John Williams and jim bullard of st. Louis are basically looking at a new model. I go back to michael for rowley who was way out front on this. Do you just assume that there is a new terminal value that is radically lower . Tim certainly, there is. There are a few bits of that. The first bit is that when you look at the Global Economy to date, it is different. That chart effectively charts the rise of china and china exporting a lot more goods. It does mean potentially lower growth looking forward. Francine we are back in two minutes. A everyone. Morning, Francine Lacqua in london. I am in new york. First lets get to the news on the election. Taylor donald trump calling for a new ideology test for immigrants to guard against terrorism. The republican president ial candidate said serious measures must be taken right away. Mr. Trump that time is overdue to develop a new Screening Test for the threats we face today. I call it extreme vetting. I call it extreme, extreme vetting. Our country has enough problems. We dont need more, and these are problems like we have never had before. Taylor he also repeated he would halt immigration from patients with a history of exporting terrorism. Joe biden is describing donald trump as a clueless cynic who is already posing a threat to u. S. Security. In scranton, pennsylvania, joe biden made his first joint appearance with Hillary Clinton. Donald trump made a threat to troops in the middle east. Record flooding in louisiana. At least six people have been killed. Over 48 hours, up to two feet of rain fell in some places. Many rivers and creeks are above the flood stage. The African National congress is refusing to blame its president for the worst performance ever in an election. That can lead to further erosion of support before a vote in less than three years. Shunned him with scandals. Global news 24 hours a day powered by more than 2600 journalists in more than 120 countries. I am taylor riggs. This is bloomberg. Francine thank you so much, taylor. Miner hass biggest seen profit declined 81 for the worst results since 2001, actually since the big merger. With stuartre wallace and tim. Is not really the end of the worst commodities slumped for quite some time. Are we expecting further price pressure . I think you will get some shortterm pressure, particularly thinking about oil and iron ore. These tend to be quite volatile. Optimistic be if not at least moving to neutral. We have probably seen the end of these freefall prices that we have seen the last couple of years, and it still needs to be pointed out that they are throwing a huge amounts of cash and paying a dividend, which is a rare thing for investors to get their hands on in an environment where a lot of the yields are going negative. All of that is speaking in his favor. Withcosts are down 16 , for a company of that size is quite remarkable. Francine they did not cut it as much as expected, right . Tim yes. Francine what is the attraction for someone like yourself to the industry. Tim if you want equities to dividends right now, you go elsewhere. I think it is a value play that hopefully is rebounding Commodity Prices. Today, it is all about cash costs going down. For the near term, the will continue to rally on low expectations for cash costs, which will drive the bottom line. Once those get priced in, you need the Commodity Prices to go up. Very probably without singling oneanyone commodity, any commodity, you have yet to see any huge cuts to supply without some big jump in demand of course. Tom i think that is brilliant. Lets bring up the chart. Supply and demand here. Down it goes. , as you know, it is broken. Does Andrew Mackenzie keep the eightyear optimism we have seen, actually almost 12 your optimism, or does he revert back to broken properties of another time . Stuart that is an extremely good question. It will start going up again for the next fiscal year. Tom exactly. Stuart here is the decision he has to make. He has this money pit sitting in the u. S. In the form of oil assets. He has iron ore, which is not keen on, but it is making money. You have copper somewhere in the middle and coal. Tom these guys have been the grownups in the room. You live this every day. Is this a new bhp balaton or a new company hoping to get back to really China Expansion . I dont think they are thinking about it in those terms. Think anyone has come up with an answer to what replaces china. They said today they cite gdp to be 6. 5 to 7 over the next year, which is quite bullish. Whether we see that or not, they are not expecting china to collapse. Francine do we need to replace china . It seems a little bit premature. There is still quite a few years to run in china for these mining companies. Stuart yes, look at where we are coming from, a long period of a huge commodity boom, and that has been rationalizing the last couple years. You need to see supply just to the new reality. Any country cannot continue to grow at high rates into infinity. Francine that is a fair point, and that is when we have to remember overall. Are investors expecting too much . Thesweet spots the has been last decade is gone, and lead to adjust to the new normal. Tim potentially. This is a moving target. The picture can change quickly if we see more supply rationalization. The other big variable, which is kind of unknown, is when we go in terms of u. S. Policy, which has an effect on Commodity Prices. Tom are they going to sell the oil business in the u. S. . This company is so big, it is an oil Company Inside a mining company. Are they going to jettison that puppy . Stuart no signs of it yet. Lots of people have been asking, what stage do you stop putting money into something not getting you money in return . If youre going to be in shell, that is a good place to be. They have deep pockets. Explains our global audience the importance of brokerdeal properties to the culture and the mindset of australia. Stuart that is an excellent question. I would say it is truly an international company. Not just in terms of the assets, but in terms of the people that manage those assets, said it is in terms of the investment based, in his global now. Inncine taking a stock pick this environment or one in the same . Now more than ever, commodities are not equal. We are stillwhich very keen on is the gold space. I have long been keen on gold. Otherwise, i think across the mining space there is not a lot that gets us excited right now beyond the shortterm costcutting rally if you like. Until we get more positive about Commodity Prices, we will be staying on the sidelines. Tom with this reminds me of is the beach. L on averag he wants to go in a breach and go underwater given the Nuclear Disaster which is australian commodities in general. Francine there you go. Much. Y pack, thank you so of course, tim stays with us. A conversation with into mckenzie at 9 30 a. M. In new york, 2 30 p. M. In london. This is bloomberg. Om bloomberg surveillance new york and london. We welcome all of you worldwide. Francine, lets look at yen. A huge story down at the bottom. Stronger japanese yen. We are not on the 99 handle watch it, but we are getting there. Oil elevated, and that down just goes up the dow just goes up. Francine i think it is mecca weakness from dollar. Lets keep things in perspective. I know it is yen, but when we look at dollar, it appears it is dollar weakness. Stocks at a record high. We have back with tim crockford. Stocks. These u. S. Or when you volumes look at yields, they are so suppressed that with all of this cheap money, you have to put it somewhere, and it is equities. Tim there is a lot of factors coming into play to push equity valuation. A lot of people are scratching their heads while they sit on the sidelines and see it continue to go up. Going into the u. K. Referendum in june, worldwide in global markets, there was a lot of negativity already. The result was unexpected, but cash levels were high. I would not be surprised if that is part of the reason why we see these continued gains and a volumes. Ties in lower francine a little better than expected. I dont really know what is driving that. Tim cost cutting is fundamental, but i think you are right. One thing we think about when we look at u. S. Equities, two consecutive quarters of productivity decline. If that continues, you are going to have to see that turnaround for equity valuations to turn around on a fundamental view. Francine but how much more can you cut costs . Is a problem with the banks or the industries . You are cutting costs, then it is difficult to grow. Tim exactly. There is a natural limit to that. We have talked about the miners earlier. Haveis one area where you cost cutting, which is great in the shortterm, but when things start to pick up, they are sacrificing future growth. Tom lets look at a failure. European stocks are terrible. Lets go to nestle of switzerland. It is a terrible performing stock. That is terrible. , why our quality multinationals seemingly completely removed from the daily surveillance doom and gloom . They go from the lower left to the upper right. How can i not own these . Tim the explanation is a oneword explanation, yield. Simple as that. You picked out nestle, these guys are paying 3. 5 dividend yields, and they will continue to do so. They have a safe steady cash flow, which the market is betting they can continue into the foreseeable future. Obviously when you compare them to the yield we are seeing in bonds, they look attractive. Tom do you believe that over the next five or 10 years we will see companies in europe do a more anglosaxon Dividend Growth, where instead of low singledigit Dividend Growth, they will try to boost that up a little bit, albeit with a lower potential yield . Tim i would be surprised if we do not see that and share buybacks and more m a as well because it is so easy to borrow cheaply. The one thing that europe is acking right now, that is broad comments, but if you andot invest your money Generating Positive return, companies will be borrowing to pay dividends or borrowing to buy back shares. Tom can they borrow and negative rates . Why cant this late i assume they are running a great shop. They can borrow paper and they will pay him to take money . Tim i am not sure where they are borrowing right now, but at negative, theyre very close. Tom i will look that up. That is brilliant. Just wonderful. Tim crockford with us this morning. Jane fully in our next hour. A lot of movement. Is it strong yen or really about weak dollar . Making you smaller on yen top of the next hour. This is bloomberg. M bloomberg surveillance francine in london. I am in new york. Lets get to bloomberg flash. Taylor there is a report the Justice Department has found evidence of criminal acts in volkswagen. They talk about the emission testing schedule and are excited to result in financial penalties for the automaker. Lawmakers from both sides are trying to reach an agreement by the end of the year. It is the latest blow to president obamas domestic policy laws, the Affordable Care act. That have anstates taking part in the program, it is the latest to the government Healthcare Market because of mounting losses. The u. K. Can stop the proposed 22 billion Nuclear Power plant and get the same amount of energy from offshore wind turbines. The cost would be roughly the same. That is the assessment of Bloomberg New energy finance. Theresa may will review the project before deciding whether to go ahead. That is your Bloomberg Business flash. Tom thanks so much. , but inng changes housing, it is all the same. Ichael mckee this is great. We are looking at economic data. We saw the reasons secondquarter gdp lousy, a decline in residential housing. A lot of people blame that on spring weather. He weather got better as we move into july, Housing Starts, they are forecasted to be down a little, but they have come back stronger than expected for the past three months. Sales,plot new housing which have been strong, there is still plenty of room to grow for Housing Starts. There is a lot of unfilled demand there. You can see the chart of new home sales. We look for clues in the commodity market for how this is going, and lumber prices and copper prices both slump a lot in the Second Quarter. Since the first of july, they have moved up sharply. Tom for the troops at jackson, do they need a better housing market, or is it so small after the crisis that it is a distraction . Michael it is not a distraction. It is still important because if you have a stronger housing market, particularly on the Housing Starts side, you are adding construction jobs. That is important to the fed. A typical house uses 16,000 board feet of lumber. 14,000 more in plywood and things like that. It houses across america, is like the front hall. Michael we had the exception. Tom we are the exception. Michael we get home depot earnings at the top of the hour. What is good for the economy also good for americas largest home retailer. That is a diy store, fran. Beat up over the Second Quarter as housing wear was down. Samestore sales about 4. 8 in line with estimates. A rebound in sales later in the quarter perhaps as the economy improved. They have a history of improving their samestore sales by 100 basis points a year since 2011. Francine thank you for the transitio translation. I am convinced that london houses are made out of cardboard. Michael retail sales overall have been weak. There are questions whether home depot represents sales or not. They sell a lot into the professional market, so they may come in better than expected. Earnings per share are expected to be up significantly in terms of over a year ago. One of the interesting things about home depot that i know you will appreciate, tom, they are very big on bringing up their margins. 2009. Ere below 2 in over 13 last year, which means a lot of free cash flow, and that has moved up. Every year, they are using that for buybacks and keeping the investors happy. Tom really francine, i look at home depot as apple computer. They generate cash flow applelike. Francine yes. You just had a chart up. I would like to get it back. What is janet yellen looking at the moment at at the moment . Do the numbers change anything for her, or she looking at the . Michael probably not, and they are looking at the dollar, but it is happening in such a short amount of time. The fed is probably not going to take a lot of this when it comes to september. We have a lot of data between now and then. What is interesting is that John Williams as a because it suggests the fed is now i point where maybe they are thinking our policy does not work, and we have to rethink that. Ben bernanke suggests you follow the data. He had an essay that did not quite track with what other people are thinking except for the idea that the fed should do a rethink of what is going on. Francine i had a great conversation about that very thing with harrison, the used to be chief of staff of osborne. They looked at this. They look at whether mark carney should look at nominal gdp or inflation target and it was unclear, to him what would work better. Michael it never felt that either would work better, but his if what raised we are doing now is not working, we should try something new. He says the neutral rate has come down so far, he is at about zero with his estimates, that you cannot cut rates if you have another slump low enough to try to get inflation up, so you might as well try something different. The next and we have a slump, you are in trouble otherwise. Tom where is our belief in wage growth right now . Michael it is starting to pick up. That has been an article of faith of the fed that it is going to keep happening. Tom i agree. Michael in Ben Bernankes essay, he talks about the curve. He still thinks it holds. It is just happening so slowly. Tom fascinating. Williams, who is a very different economist to me, this is a big deal. Michael williams was Janet Yellens chief researcher at the San Francisco fed before he left so he carries a lot of weight. Tom frankly, catching up with Michael Rowley among others. Michael mckee will continue to balance on surveillance video. Coming up on bloomberg surveillance, home depot out with Macro Risk Advisors on a market truly priced to perfection. Really looking forward to speaking with dean. London, from new york, for uti worldwide, this is bloomberg. This morning, the yen confounds politicians and economists. It drives to new extreme strength. The silence over intervention. Intervention coordinated or less coordinated . Stocks have an extreme life of their own. The shorts wrong again. It is an america of extreme vetting. Trump they will decide if you will flourish in america. We are live from our world headquarters. Tuesday, august 16. The news from our president ial campaign it just never ends. Francine we really need to figure out the correlation between that and the market. For the moment, there does not need to be there does not seem to be a correlation. Tom we have earnings here, housing blue chips. Michael mckee me on home depot. The numbers come right out. On an earnings per share basis, revenue of 26. 5 billion, is in line for forecast. Is in line with forecasts. Better than expected sales here it was supposed to be a down month. They are reaffirming their forecast, which they had raised in the first quarter, home depot, to 3. 4 over the year. So they do see strength. Tom a solid quarter is what you get out of a solid economy with the wage growth you mentioned earlier. Michael the important thing for home depot is they are managing their spences they have a program to raise productivity ,nd keep up there expenses and they have a program to raise productivity. Beast. Is is a it is a dominant company. Biggest it is the homeimprovement store, the diy store. Tom Dividend Growth has been happening as well. Lets get to first word news with taylor riggs. Chinas president , xi jinping, has been sent a letter to improve relations per last china has told the u. K. To reach a decision as soon as possible and said the relationship is at a crucial juncture. In syria, Government Troops have repelled a rebel offensive near aleppo. Rebels have held the eastern part of the city since 2012 and have battled syrian troops since then. Russias defense minister says talks with the u. S. Are closer to finding ways to diffuse the fighting there. High drama on the track. Beat outmiller favorite Allyson Felix for the gold medal. The gold medal is in first with 75 medals. China is second with 46, Great Britain is third with 41. 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 lets go to equities, bonds, currencies, commodities. The bull market will never end. We will get to dean curnutt. , slight riskon to modest riskoff. 46 is brent, sort of in the range of 50 a barrel. We are not there yet. Vix, 11. 93. Francine we will have plenty more on yen in just a second. Emerging market to commodities, 46. 01. See crude oil, we had inflation on the u. K. , which has also been hit. Commodities h sorry, lets stick with Foreign Exchange but look at the yen. Yen strengthening toward 100 per dollar. We will probably get a 99 handle fairly soon. Following amongst all the major developed a all the major developed currencies. Jane, first of all, is it yen strength or dollar weakness . Jane it is a little bit of both. Inare seeing dollar weakness many of the crosses today. This is really interesting. If you think about the stock markets reaching new highs yesterday, i really should mean that the yen should be weakening, but the yen has lost its ability to weaken. That is something we can trace back to february. I think this has all to do with lost confidence in the bank of japan policy. Francine why now yak of why today . We are looking at levels that we saw after the u. K. Voted to leave the eu. We are not there again, are we . Jane we are not. If you think about july, i think that was an anomaly in the present conditions. The movement higher i think was theted to the elections, success there, and he managed to bring in the excitement of a fiscal policy and Monetary Policy. In july we have a better payroll state. Right now i think there is a significant chance that we will break below that 100 level. Lets go to the wall right now. The bloomberg surveillance wall. Dollaryen. The basic idea is, when do they intervene . All that talk, the extrapolation of preabenomics is ¥80. Soonerve to panic a lot than ¥80. Jane if you look at the bank of japans Effective Exchange rate, the yen is still fairly soft. It has strengthened this year, the last year it was at its weakest level since 1973. That is one significant difference between the yen at the swiss franc. We do get moments of intervention. It will be difficult politically for the japanese to defend intervention, particularly against the americans. There is pressure to let Market Forces work. Tom within your academics, has there ever been a successful noncoordinated intervention . If they act alone, it does not work, does it. Look back through history when intervention has worked, it is usually because you can say in hindsight the fundamentals are changing anyway. Intervention can be tricky. Look at the swiss. They have been intervening for years, and that has not turned around the value of their exchange rate. Tom jane foley, thank you very much, with probably with repo bank with rabobank. I guess the 100 is sort of like dow 10,000. You get a 99 print, it is a big deal as well. He knows dow 10,000. Dean curnutt with Macro Risk Advisors. Do you put a big asterisk next to the good market and the complacency in the vix because it is august . Dean a little bit. Last year was a significant risk off with chinas currency selloff. At the same time, i think there is this circularity between the circularity because there is no volume, there are no traders. There is a shockingly quyen period there it is a shockingly quiet period. You have five straight weeks without a 1 up or down move in the s p 500. Since 2010i count five other instances of that. Over the past 21 days, you are in a 1 range, all in from high to low. These are the things that cause option prices to melt away. It is very difficult to fund hedges, even though the vicks looks even though the vix looks optimally looks optically low. Francine for the counter argument i do not know if it is a counter argument, but if it is void teams that are this low, it almost means like it is like a tie. And then you see what is not working properly in the markets. We could take stock in august and try to figure out how we do with the next crisis and where it comes from. Dean there is a low volatility that tends to beget lower volatility. Seasonally what you observe is september and october folks come back from Summer Vacation and they tend to sharpen the pencils a little bit and look around with a bit more skepticism. Frankly, there is a lot to be skeptical about in the Global Economy. Post exit, what you have had is this very post brexit, what in had is this rally sovereign bonds, and as a result the stock market. You think about the 10year treasury yielding 150 basis points. It speaks to a negativity about future growth and inflation outcomes. These assets are very well linked. It is the terrible valuations in the sovereign bond market that have lifted the stock market up because it is cheap by proxy. We would argue it is a ridiculous proxy when folks are committing capital out 10 years at a negative nominal yield to maturity germany, japan, and switzerland and you have 13 trillion all in of negative nominal yields. It makes stocks in some ways the only game in town. Will it correct because you do not have real growth . These stocks are aided by Central Banks. Two, they are going to be cut when a lot of the rationale for the companies, such as costcutting, is over with. And the williams piece bernankes blog post from last week are interesting from where the fed is and where it has been and where it is going. There is some version of the fed understanding that it is impacting asset prices far more than it is impacting the economy. So maybe there is a pass off from the fiscal stimulus standpoint. When we step back and think about the one asset that has truly been sold off over the last couple of years, it is global inflation expectations. A concern for us is the pricing of sovereign bonds. It leaves no margin of error whatsoever. Even slightly better growth in outcomes can benefit the sovereign market. We think a selloff in sovereign in equitiescause selloff as well. That is an underpriced outcome. Francine thank you so much. Conversationay, a with william with wilbur ross. That is at 10 30 a. M. In new york, 3 30 in london. This is bloomberg. Francine this is bloomberg surveillance. Tom is on yen watch. Lets get to the Bloomberg Business flash. Here is taylor riggs. The home depoton watch. They have raised their earnings got for the year. They reported Second Quarter saless with comparable rising 5 . It is the latest flow to president obamas signature policy law, the of four double care act there it 11 of the 15 states where it had been taking part in the program it is the latest insurer to pull out of the Government Run Health Care products, aetna, because of mounting losses. Prices rose an annual rate of. 6 . Biggest jump in import costs since 2011. That is your Bloomberg Business flash. Francine, you are sticking with brexit. Francine we are. We understand we will start the process of moving jobs for the u. K. Within weeks of the moving to brexit faster than people assumed. By oure, were joined guest, in new york. Thank you for joining us. We do not know when brexit actually will happen. How many jobs are we talking about . Is it hundreds, thousands of jobs actually leaving london when brexit gets triggered . It is very early in the process. Some of the banks have given the number at about 1000. Employeesright now from the big banks is 45,000. We are still not talking huge numbers. Now you are just managing the risk, looking at the potential risk, not doing anything until the last month. Encapsulates the feeling of the Financial Services here. The government says partl the most important of the story is seeing what the Financial Sector thanks. If the government is able to seal a good deal, that does not seem to instill a lot of confidence now. U. K. Will not give this up without a fight. Tom lionel, everybody is looking hes. I had a viewer email in about 40 minutes ago who said you have to look northwest. Is this all dublin, dublin . Language, culture it is a nobrainer, isnt it . Lionel i completely agree. Dublin is the obvious choice. It is close by. The tax rate is attractive. Supply, of Office Dublin does not have a lot of it. If you want to go there, you have to compete with the big tech giants. Facebook, google. Tom you are a hipster, the stud of the london social scene. Are these people going to want to move somewhere . Dont they want to stay in francines social scene . Lionel i think you are right. I speak to actual hipsters, and they are french and they tell me they do not see themselves wanting to go back to paris anytime soon. Tom excuse me, francine. Surveillance exclusive. He speaks to hipsters. Francine the idea that all bankers are hipsters i disagreewould not with. Tom i have never spoken to one, francine. Onncine news you can use, bloomberg surveillance. Tom there we go. Lionel speaks to hipsters. Lionel, thank you so much. Go out and speak to a hipster. Coming up, dean curnutt hear from Macro Risk Advisors. Worldwide, bloomberg surveillance. Tom good morning, everyone. ,ashington, d. C. , the capital the canadian embassy, also known as fortress schatzker, off to the left. We will get to megan here in a minute. Francine lacqua, good morning. We are on yen watch this morning. Atncine we are, currently 100. We are close to breaking that 100 level. Tom megan murphy is with us. Dean curnutt with us. Extremely going after the bad guys. What is the execution plan . Did you hear that in mr. Trumps speech . Megan the cigna the signature speech, this is something that is coming out, and extreme vetting of people who want to come into the u. S. Which of our allies are trying to combat the spread of radical islam. Tom what are the ramifications of his tone abroad . I cannot fathom how a good hunk of the world observes this. Megan breaking down these policies in various different forms over the past several months, there is concern that they will not actually work. Withu look at countries 90 muslim populations, 50 muslim populations, countries where extreme activities have been launched including britain, areas all across western europe are we going to look to ban people coming from there . Tom the wall street journal takes a more republican angle on it. The basic idea is that there has got to be some good in here of saying, ok, maybe what mr. Trump suggests is not what we want to do. But what is the new outcome as we try to keep the bad guys out of the nation . What the secretary clinton propose . Megan there is no question that this is fixing both candidates as far as policy strategy. There is no question that people are scared, that people want some type of easy fix. But the reality is there is no easy fix. It is incredibly difficult for the u. S. Or any country to block the spread of these kinds of attacks when they are flying under the radar. Most significantly, the attacks being the hallmark of francine every time donald trump opens his mouth and says Something Like it, does he lose voter support, or can he turn around before november 8 . Megan it is always possible that something could happen that is unexpected in the campaign, whether it is Hillary Clinton pas candidacy or he does have some kind of way back. Isy do think Foreign Policy a potential sweet spot for him, and that Economic Policy is a sweet spot for him, but in these two flagship speeches, he says Something Else to take the focus of the nation away from the policies he is enunciating. Even when he does it in a very calm president ial style. There are other things that he says that dominate the attention for new cycles to come. Francine are there any allies left, any allies that he has not insulted yet . To forge are trying closer relationship with russia. That came up in yesterdays speech. He backed away also from his criticism of nato. Tom what do we do over the weekend . Speeches do not sound very gop to me. How do speaker ryan and the other elite react to the flourish test . Megan speaker ryan has been outspoken about condemning this proposed ban on muslims. Although he has walked back on that. When you attacked when you attract such vociferous critics, with foreignpolicy advisers saying that he is not qualified, others who say with more extreme language that he is dangerous tom every time you are on the set, we flourish. Megan i am a hipster. Tom thank you so much. Mark halperin and John Heilemann tonight at 5 00 p. M. , with all due respect. Good morning. Tom good morning, everyone. On the yen 100 watch, stronger yen this morning. Right now to our bloomberg first word news, here is taylor. Taylor donald trump is calling for a new ideology test for immigrants to guard against terrorism. He said in youngstown, ohio, serious measures must be taken right away. Mr. Trump the time is overdue to develop a new Screening Test for the threats we face today. Vetting. Extreme i call it extreme extreme setting vetting. Our country has enough problems. We do not need more. These are problems like we have never had before. Taylor trump repeated he would halt immigration from nations with a history of exporting terrorism. 15 prisoners at the Guantanamo Bay Detention Center have been sent to the united arab emirates. It is the largest single release of detainees since president obama took office. Some have her been held for more than 14 years. There were 12 from yemen and three from afghanistan. For the first time, russia has said its warplanes are using the base in iran to attack Islamic State and other rebels in syria. The planes attacked targets near aleppo today. Last week brush, vladimir one and 20,000 people in southern louisiana have been forced out of the homeless by record flooding. At least six people have been killed or it over a 48 hour period, over two feet of rain fell in some places. Many rivers increase are still above flood stage. 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 thanks so much. Dean curnutt looks at the economy but folded in that but folds it into particularly the equity markets. He is with Macro Risk Advisors. Lets go over to the chart right now. Is priced to perfection. Is it a bubble perfection, or is it a normality to corporate dynamics that move Prices Higher that gives you the low vix . Dean the vix is a very monthterm look at one option prices. What matters to folks who trade onemonth options is realized volatility. The day to day moves in the s p bull marketinghe quiet is tremendous at this point. You are not getting any movement. That brings the vix down. It is important to note that it is optimally it is optically lower. Tom where should the vix be . Bring up the chart. Is this a question of nuances, that pros with that pros like you would do . , someone argue that it should be lower because the realized relativity in the s p is only 5, so even at 11. 8, it is trading double what the s p is realizing. If this continues for another month or so and you get a market that seemingly goes sideways, at some point the exhaustion from buying the option causes the volatility to go lower. Tom i am fascinated by what you think this will mean for global wall street and new york in particular. How do companies survive . Dean it is a challenging period for markets and investors. It has been a difficult stockpicking environment. When you did not get when you do not get stocks moving back and forth, it is difficult to generate alpha when the market is not moving at all. Francine when do we go back to more volatility . Earlier, low volatility tends to beget more low volatility. The cycles tend to reinforce themselves. What changes it, at some point the market has to take a closer look and decide to be more worried. That starts with the damaged asset prices, a little bit of derisking, and then you start the markets tom you have to put it over to the whole economy as well. Francine i am looking also we need to look at the economy, we had inflation figures, and we are also on yen watch. Inflation accelerated in july. This more has to do with the pound moving to the largest jump in import costs in more than four years, then it does with trade tariffs moving up. Lets get more from ian shepardson. Still with us, dean curnutt. When you look at the inflation figure in the u. K. , first of all, does the boe need to look through it like mark carney said, or because it is tied to brexit, this could be a dangerously high level for longer . We think it will go up substantially over the next year, and we are seeing the start of it today. Foods like imported prices, and the price of gasoline, which has gone up in sterling even though the dollar price is subdued that is an early sign of what will come over the next year, and we will. Ee a clear increase we think the headline number could be 3 one year from now. Pretty big changes coming over the next year. Francine this is directly linked to the effects of exit or of brexit or is it weaker pound because of brexit . Ian absolutely, yeah. The sheriff important british gdp is double what it is in the states. You see an impact more quickly and aggressively when you get a big move in sterling than you would in the u. S. For a similar move in the dollar. A large proportion of goods in the u. K. Cpi are imported or they compete with imports, so when sterling moves, the prices go up. This will run a long way for a long time. Francine another top fed official was saying that we could look to inflation in general. If we look at Central Banks around the world, lets forget the inflation target of 2 and rise that. Should the boe do that . Ian the boe faces a difficult position because nobody knows what the impact on Economic Growth would be. It is clear there will be a sharp drop in business and Consumer Confidence in the u. K. What we do not know is how long it will last and how it will play through in the gdp numbers. They have to deal with an impending downturn of an uncertain duration. On the other hand, they have to deal with a clear upward impulse to inflation. They have to balance the two. The Immediate Response has been to ease, but there is no guarantee that that will carry through to 12 months time. Tom back to 2013, new yen strength, the pound falling to a 99 handle. Once again, the market vigilantes seem to be telling elite economists like yourself what to do. What is the signal the market sends to bank of japan, or what is the signal on the dot chart for chair yellen when the vigilantes say, no, this is the way it is going to be . To the Central Banks listen vigilantes until the data tells them something different. In the case of japan, the economy is sluggish so the strength of the yen will decrease exports further, causing more problems on the growth front. That pushes the inflation target further out of reach. , at the moment the inflation picture is allowing chair yellen to be very dovish and the fed to sit back and watch and see what happens. We have had two quarters of sub 2 growth. Looking into the third and fourth orders, i am looking for growth to be substantially stronger. Up. Ation is picking core inflation in the u. S. , we get the july numbers today. I think it will be 2. 2 , 2. 3 , but by next easter, i am looking at 2. 6 , 2. 7 . That will force the fed to change tack. Tom lets go to the japan intraday right now. Bounce this is a massive dose of convex city, where you usually see a bounce off a key level like that as people closeout trades on the goal of getting through 100. It will be interesting to see where that 100. 08 migrates to through the morning. Jon ferro will give you a lot of perspective on this on bloomberg as well. I look at dollar yen, i look at jackson hole. Will be at jackson hole. It is going to be fascinating. What is the thing you look for away from the papers at jackson hole . Is it negative rates . Ian negative rates have become deeply unfashionable. It is amazing how quickly the. Entiment has turned away now they have the money, and it was the flavor of the month. Now the backlash is truly underway. You can see it across the media and the u. S. Now. Central banks collectively will have a major rethink on the unexpected cost of negative rates. It is not working. It is hurting bank profitability, scaring people, scaring businesses. It is not making people spend more and invest more. It is making people terrified that Central Banks known for something more about the economy that they do not. I am expecting to see a substantial rethink, and a real stepping away from this fairly soon. It just isnt working. Tom Ian Shepherdson, thank you very much. Dean curnutt is with us. You heard Ian Shepherdson there going back and forth, and yet i am guessing equities will drive higher. Are they dealing . Is the Ian Shepherdson world dlink from the dean curnutt world . Dean i dont think so. We are seeing the end rallying and the vix sagging. Those are pretty inconsistent. One is saying riskoff, the other is saying riskon. Should investors be fully invested now against all this gloom . Dean it is really challenging. The only thing that makes stock prices look a little bit cheap is the proxy that is bonds, bonds, which are so expensive with negative yields. Francine why are we seeing such big moves on yen . Does it have to do with volumes . If it is sentiment, how is it priced in a couple of days . The question before was, is it the dollar or is it the yen . Currencies are doing quite well. Even as the yen rallies, those are inconsistent. It links back to the dollar, back to bernankes blog these, williams piece. It is the fed suggesting that they have done a lot, that there is not a lot more that they can do, and in some sense it is this goldilocks at least for asset markets if not goldilocks for the economy, but for asset markets, the s p 500, for example, it will do better in lowforever environment. That is what the fed is coming to terms with. Tom dean curnutt with us. A weaker yen over the last two or three minutes. , ang up on bloomberg conversation on real estate. A conversation on the vitality chicago. Worldwide, this is bloomberg. Tom how about the yen . There is the breakthrough, 100 down to 99. 95. ,ndy alwaysexpected bounce totally normal at 100. 05. We will find out if we are going to test in the coming minutes, on bloomberg later this morning. Francine lacqua in london. I am in new york. Here is taylor riggs. Bhp billiton says fullyear earnings fell 81 . It is bhps first result since 2001. Iron ore and other commodities fell to about half their peak from five years ago. The company sees a brighter longterm out put from copper and oil. Openinge next step for China International investors are chinese regulars have approved the longawaited stock trading link between hong kong and the city of shenzhen on the mainland. Overseas investors that is your Bloomberg Business flash. Francine, you have more on this shenzhen story. Francine it is only quite significant because we have been waiting for a for a a while. It is something that has been waiting to be opened up, but it is a sign that they are trying to attract foreign investment. Happen in 2015 because of the volatility we saw in chinese currency. I want to show you the offshore yuan, renminbi. , just because it has been flagged for a long time, and chinese authorities still proposede planning aggregate on training on trading. Tom dean curnutt is with us with Macro Risk Advisors. And finally, we have dragged him off madison avenue. Oliver chen. Lovely to have you here. There are a lot of empty storefronts in new york and around the nation. His bricks and mortar just going to die . Oliver i think there is a Bright Future for bricks and mortar. Tom where is it . Oliver hipsters want to go to the stores. Mall traffic is declining 5 to 7 . That is concerning. This chart last week and somebody said that cannot be true. The yellow line, buried in the zero line at the bottom, is macys. Amazon, the white line going up there was almost a point where they were almost together at the share performance. You have to sell me that fortress lundgren is going to survive. Oliver we think the touch and feel matters. We prefer nordstrom. T. J. We like ross and maxx. Tom do women still need to touch the merchandise, or are they going to buy it off amazon . Oliver the burden is on stores to transform. Tom robert burke was on the other day. You were so good at this. What do you mean when you say Abercrombie Fitch or nordstroms has to transform . Oliver bring excitements back bring excitement back to the stores are there are changes in products. B leaders. It is a lot about duration. Tom it is about finding a size 5. Oliver it is about that, too. But it is also allocating inventory at the right time. I know you are concerned about sizes. Francine, youean, go to the stores and you cannot find what you want, so you go to the internet. Aboutne i know it is all franchises, but i want to buy something that i liked her whatever product you sell me, you are only going to attract customers if it looks right, thats right. So why are we not if it looks right, if it fits right. So why are we not focusing on the people who make the clothing . Oliver it is a lot about function and comfort, and how it looks. If you do not have a good product, you are dead as far as what matters. We have seen fashion misses and fashion wins. It is very competitive. You can get very inexpensive alternatives for a great price. On the other hand, i really like lululemon. They are doing a right they are doing a lot right in terms of their technology. If you think about the denim market, genes have done better. A lot of it is performance there, too. Tom the difference is that oliver says this with a straight face. If i said that, it would be an hr violation. Francine lets go back to one if i cannot deliver my package to or someone accept it, i am not going to buy. Is that not there biggest problem . Oliver we think the future is bricks and clicks. Retail at large is a lot about online pick up at stores, reserve in store, shipped from store, and leveraging a store based to drive a competitive advantage. But amazon has an unbelievable Distribution Center strategy as well as fulfillment and shipping. Tom i cannot believe we are going to be at five months level in five years. Clearly it is out there. We are going to come back. Bloomberg surveillance on economics, finance, and investment. And on a yen go cash. Tom no other story this morning the history of the end blowing through 100, ¥99. 99. We have been week, we have in stronger, rather. Sterling does ok, 1. 2979. Francine coming up shortly, it is bloomberg. David, you have a packed show coming up. We will have sam zell, out of chicago. More broadly, the weakening of the u. S. Dollar what it means for his investments. Talk about real estate, energy, and politics. We will also be joined by nick burns, former undersecretary of state, it also former and acid or to nato and greece to talk about what is going on with the brexit negotiations. Westin family climbed mount fuji three years ago, for americans, it is great, but you really wonder what the japanese are going to do with the antiabenomics yen. You have jon ferro medicated for the show, right . David westin, thank you so much. Dean curnutt with us from Macro Risk Advisors. I look at all of the gyration, and once again when do we break out of this . We do not know. Dean again, it is august. It is quiet. We did get hit with a grenade last august, just around this time. From 13 to 40 in just a couple of days. The next couple of weeks will be quiet. People come back from labor day, they start to look around, and there is plenty of vulnerability. The market needs to focus more. Tom maybe we get a bombshell out of jackson hole, but none of their theory is on my bookshelves at home. Is uncomfortable is the degree to which Central Banks are wrapping themselves up in asset prices. Tom we will continue with dean curnutt on radio. Look at the data right now. As you mentioned earlier, a relatively quiet day. There is just nothing more amazing than yen. 99. 97. That vector, a decidedly strong yen. We will continue. Bloomberg surveillance on radio, bloomberg on television. Sam zell white sox or cubs . I think sam zells white sox. That is a gorgeous manhattan. Worldwide, this is bloomberg. Jonathan bring back, pull back. And Dollar General breaks back for a hundred. David fed up. Fed president makes a case for a new approach to central banking. Alix and bank plan of brexit. Why lenders wont be waiting around to find out what deal the u. K. Can get from europe. Jonathan a warm welcome into bloomberg. Right here in new york city and the highlights in the fx market, a weaker dollar. David across the board. And yen as it drops below 100. Partly because they anticipate the fed is not going to raise despite what people say. Alix the dollar is at its weakest level to the yen since november of 2013. And we did start to see the dollar roll over once we got back from John Williams that saying that the old models are out the window