Transcripts For BLOOMBERG Bloomberg Surveillance 20161004

Francine the clot in london, tom keene in new york. Francine lacqua in london, tom keene in new york. This is a pretty punchy move because we have a new central bank governor. I do not know whether you will have a rupee board that it is extending gains. It will be interesting to see the global disinflation and deflation. This will be a back story at the imf meetings coming up today. Francine this is my repeat chart. It is going to be one of the stories we will be following very closely. This is the date date chart for the rupee. 6. 475, gainingt 0. 5 . More on that rate cut but lets get to the bloomberg first word news. Taylor theresa may wants to change the relationship between the government and londons Financial Services industry. According to senior officials see will just she will refuse to give priority to banks after the u. K. Leaves the European Union. The have dismissed demands for an interim deal. Things have gone from bad to worse in u. S. Russia relations. The Obama Administration has proclaimed that the bilateral peace talks and the Syrian Civil War are dead after vladimir toin suspended a treaty reduce the risk of nuclear proliferation. Donald trumps taxes were the focus of the president ial campaign. Hillary clinton ripped trump over the fact that me he may taxes over 20 years. He boasted of the way he used the tax code. Mr. Trump i used the tax laws to the benefit of my company, my investors, and my employers. Honestly, i have brilliantly used those laws. Taylor trump also says that people who make the mistake of underestimating him are in for their biggest surprise. Hurricane matthew may be catastrophic for haiti. It stormed it skirted jamaica hurricaneiti with force wind. Haiti is still recovering from a deadly hurricane in 2010. 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. Tom lets get right to the data, equities, bonds, currencies, commodities, sterling front and center. Euro is a cool story. Break. Ally takes a , 13. 16, showing better markets. , 1. 2776. Sterling i will let francine talk about eurosterling. Francine slumping to a low against the dollar angst over brexit. 1. 2777. The psychological level, it opened above 7000 on the ftse 100. The stoxx 600 gaining a touch. I wanted to show you Deutsche Bank because we tend to focus on when they are doing badly. They were closed yesterday and today there up 1 . Tom a nice pickup from an 11 handle. Over to the bloomberg, not sterling, how about europe . Mark chandler with a bold call, calling for euro weakness. That is in voided inverted deutsche mark. Up we go, euro strength. We do not get through parity, the yellow line. Chandler looking for a starkly weak euro in tandem with a week sterling. You wonder how this will play out, but there is one view on eurodollar. Francine im glad you looked at that because i benchmarked what the ftse has been doing compared to the pound. I have the ftse in dollars and pound. Ftse and dollars is in blue, pound is in white. We have the queen of charts, Hillary Clark just moved to london so my charts will get better. The orange line is june 23 and in purple is the pounddollar rate. Drops, exports go up and it puts the ftse up and up. Lets get a lot more on brexit and on pound. We are joined by Simon Kennedy and kit juckes. Thank you so much for joining us. People verythree close to theresa may and we understand she will make no preference for Financial Services in negotiating with the eu. At will be a big disappointment for the banks who hoped they would be receiving special favors, and they have some Economic Data on that side that contributes to the u. K. Coffers each year. They were hoping to use those contributions to persuade the government to look after them in the brexit talks and at the very least to help them get a transitional deal to the new postbrexit world. It seems those requests have been rebuffed from within the administration. Francine we also understand that theresa may has dismissed the key business demand for an interim the real and term deal. That is spooking the markets. The u. K. , and British Banks Association have all been seeking, they have kind of accepted in recent months that passporting might be too much to ask for so they were asking for this translation this transition deal. At the moment it seems the government is not looking to do them any special favors. Tom make Simon Kennedys life easier, where is key support on sterling . Kit i think we are talking psychological levels at this point in time, 1. 25 against the euro dollar, it is almost a simple as that. The big number is . 90 for eurosterling on the upside. In terms of, from where i am it is surprising the extent of the move that we have seen over the last 30 hours, a day and a bit on the back of that initial news that we are going to see article 50 triggered by the end of march. I thought most people expected that, positioning and short sterling. Were quite athere lot of people hoping out is holding out hoax for a for ag out hoax hopes banking deal. It is all about psychology but i would not be surprised if somewhere at 1. 27 we get a day of respite. My point, if we are playing in the currency sandbox are you more concerned about rhetoric out of london or rhetoric out of europe that would slow down sterling depreciation . Kit we will wait and see some rhetoric out of europe. I do not think anyone out of europe is doing the u. K. Any favors at this point in time because there is just be me is musement europe, be in europe. We want to have control over immigration and access to the Single Market with everyone in europe saying the four freedoms are all that counts. At standoff i think is effectively seeing the u. K. Move its position but im not sure they will get much encouragement until the pound falls quite a lot further and they start thinking it affects the outlook for the euro. I think that is the stage where you would see a different time but it is perhaps months away. Francine do we have a common voice from the u. K. . What do we understand about their interaction . Simon we try and work it out as we go along. Yesterday writing about the and how its voice is not perhaps as powerful as it was, that is no reflection on Philip Hammond, to reflection about how in the past the treasury was almost number two in the structure behind the Prime Minister, and now you have a foreign secretary, trade secretary ago sheet or who are pro negotiator who are probrexit. ,t is going to be a real job that tension will still play itself out in these few months as we held toward had toward the brexit negotiations. Francine kit juckes stays with us for the hour. We also speak with pravin finance minister of south africa at 9 30 new york. This is bloomberg. Francine this is bloomberg surveillance, Francine Lacqua in london, tom keene in new york. Taylor job cuts on the way at ericsson. It will eliminate 3000 jobs in its home company. The parent of Louis Vuitton is buying a majority stake in the majority luxury suitcase maker in germany. The seller is the grandson of the bank of japans easing policies may have come to an end. Potential buyers can get mortgages at slightly over 1 but some are being scared away by the prospect of stagnant wage growth. That is your Bloomberg Business flash. Francine thank you so much, taylor riggs. This is what we heard from the cleveland fed president , saying the u. S. Economy is ripe for a rate hike. She said the case for a move at the November Fomc meeting will likely be strong despite its proximity to the election. Taking another step on that gradual path, and there are some people who think, you want to curtail expansion. Not at all. The reason i think it was appropriate to move the rate up 25 basis point as we want a sustainable expansion, and i think moving rate up is consistent with that. Francine lets get to kit juckes. It would be pretty punchy if you were to hike Interest Rate in the u. S. Right before a president ial election. Think anybody, very few people think is going to happen. I think what she is doing is locking in a december consensus that they will get one rate hike this year. This is chinese water torture for the treasury market. Just locking in confidence about a december move. The top of the hour we had the decision by the central bank in india to cut rates. It is clear they are basically trying to support growth. Kit it was a surprise to a market that thought they would wait and see, that they were pretty much done and they would balance and for a out and leave it on hold. It will please a lot of investors and has been a favorite carry trade for many investors across asia. A surprise, but it is a progrowth agenda at some point. The Foreign Exchange market is going to wonder whether it is a change with a new administration. Tom i want to introduce a chart. Forward. He fiveyear showing the great disinflation of the last two years, and those yellow arrows are the longterm guesstimate of the dots in 2014, 2015, and 2016. Have you ever seen experts like Loretta Mester so wrong . I think this just tells you something about how surprised everybody has been, policymakers have been, by i do not think the persistence of low inflation but how it has dragged longerterm inflation down. It is over 12 months since the fed wrote a paper saying the next forecast is not fiveyear, fiveyear, or analyst inflation, it is 2 . They cannot get us to price 2 despite that, so i think this is a challenge for the fed in terms of its mandate of what they are supposed to do. It raises this question, is the fed supposed to be raising Interest Rates to safer levels now because there is some Economic Growth, or should it wait until inflation goes up . The debate goes on. Tom jpmorgan and michael for rowley have taken this quarter ing to 3. 0 . Do you look at Economic Growth as a trend for a one off . Kit i think we have got a trend of growth trundling along at the moment. Economy, the big problem in the u. S. Is a lack of productivity growth and we know that the challenge is at some point the Unemployment Rate will get low enough that even if it does not send wage growth unemploymentll see slow to 1 to one and a half percent. For now, the lack of investment and productivity, but these 200,000 every month job numbers mean we have a stable underlying job growth wrote rate. Tom kit juckes with stopped in with us. Socgen with us. Arguablysation with one of the number one maurice , really looking forward to that conversation. Tom good morning, bloomberg surveillance. Hsbc has been a major house most out in front of lower Interest Rates. Ago, steven major of hsbc london has two bombshell calls, the first one isnt end of 2017 adjustment to a lower yield of 1. 35 . This is an extraordinary call for a major house. Critically, kit juckes, the basic idea here of holding rates lower until 2021, is global wall street in any way prepared for lower for longer as mr. Major suggests . I think wallt street is permanently forecasting higher yields and sent tightening and has been bludgeoned into submission. I guess stephen major is saying we are staying here. At theook last week longterm chart of 10 year treasuries and reflected that this is the 10th time in my years, a little over 30 when i can reasonably call a low in the yield cycle. I do not want to go back looking at all the forecasts i made in the 1980s and 1990s. I think we have seen lower yields until the next recession in the u. S. Tom this is what we love, a collegial disagreement. Do you escape financial repression with kit juckes hugely rosy scenario . That was a joke. Kit you get slightly higher rates and i think you get a to handle on treasuries for a bit without changing the longterm youook, but i do not think can continue to see the Unemployment Rate following month after month without getting enough wage growth to feed the Federal Reserve consensus view that rates should be higher in the next 12 months. I do not think we can do that. Is amazing how this filters into what we will see from the World Economic outlook at the imf. This debate over yields filters into everything. Francine and it is a really important debate, and we have to look at treasuries. We have a great peas on the existential threat to the world order that will confront people at the imf. The problem is if you keep rates for lower for much longer they create even more inequality, fair . Kit yes, it feeds populism. Francine this is like a catch 22. The circle by getting more longterm investment and productivity, boosting investment that creates jobs which is where you feed it. We need more below average income growth. I need to get away from when i have had for 15 years. When unemployment goes down, wage growth goes up slowly. Francine there is no inflation so you should be feeling richer. People, but the time they have had a look at what College Tuition does or medical insurance durant does, they look at the headline inflation rate and it does not seem like zero. Francine get jukes is a global strategist. ,e speak with Pravin Gordhan the finance minister of south africa. One of the most important things we also need to talk about is a political upheaval, and some of the cases being brought against some of the ministers. Africa. Ackouts in south this is bloomberg. Hey hows it going, hotcakes . Hotcakes. This place has hotcakes. So why arent they selling like hotcakes . With comcast Business Internet and wifi pro, they could be. Just add a customized message to your wifi pro splash page and youll reach your customers where their eyes are already on their devices. Order up. Its more than just wifi, it can help grow your business. You dont see that every day. Introducing wifi pro, wifi that helps grow your business. Comcast business. Built for business. Tom good morning, everyone. Francine lacqua in london, tom keene in new york. 8 30,is a debate tonight, Bloomberg Television and radio. A Vice President ial debate ence. E, p saturday night live opened with the debate. That picture we had of the two of them, can you name which is which . Tom i can do that. Michael more than 40 of americans cannot. His is a chance for mike pence and tim kaine to introduce themselves to the american people. Be talkingt going to as much about themselves as they will about their principles. Since mice president ial debates tend to be attack dog times, you can expect to hear a lot about benghazi and emails and taxes and the ongoing troubles. Pence may have his own problem to defend. A federal Appeals Court ruled against his decision to bar as governor of indiana Syrian Refugees from the state, calling it discriminatory and illegal. Tom what is their job in the last 40 some days to the election . Michael bice president ial candidates are sent to tear down the other side. A nice guy, hech does not really do that and because mike pence is on the defensive so much trying to defend the things his boss says, it is not a traditional Vice President ial race. History shows Vice President ial debates and candidates matter very little. The best line ever was lloyd benson to dan quayle saying, you are no jack kennedy. Electiond bush won the and benson did not. Francine my morning us read is a piece by francis wilkinson. ,he argues the indiana governor politically seems normal. He seemingly is decent, is how she says, it makes him the odd man out and Donald Trumps campaign. Merely surrounding him reflect the varied facets of his own character. Too quiet his unsuitable insecurities, trump goes too pathetic extremes to surround himself with pretty women. It is remarkable how ugly trumps men are. The problem for donald trump is finding anybody who would run with him that he is not going to have second thoughts about because for trump it is all about donald trump. Point,ke the interesting he just set off a firestorm talking about a former beauty pageant winner being too fat. Then you look at Chris Christie and newt gingrich, his defenders who have weight problems of their own. Tom why are you looking at me . Michael we are looking at you with the red, white, and blue today. Tom the pound is beleaguered so i went british festive. Francine very french. Tom michael mckee, thank you so much. A debate tonight at 8 30, Bloomberg Television and radio. The new Monetary Policy committee in india has unanimously agreed to cut Interest Rates. Cut indiasrs benchmark rate from six and a half percent to six and a quarter percent. You are looking at live pictures. In afghanistan, the taliban has run over areas and the u. S. Is going to send forces. The taliban captured the cities 10 tro square central square. According to turkish tv, almost 13,000 Police Officers have been suspended as part of an investigation into those suspected of backing a muslim cleric gulen. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. Riggs. Ylor this is bloomberg. Tom thank you so much. We begin our coverage for the International Monetary fund meetings. What is so wonderful now is to speak to the finance minister of south africa, Pravin Gordhan is. Rom south africa wonderful to have you with us. I want to bring up a chart of the gross domestic product, the real economy of your south africa, and it is a wonderful success at of 1994, different commodity drops and the crisis of 2008. There has been a struggle. Let me cut to the news item for our print bureau in south africa. Are your Credit Ratings at risk when i look at the economic chart . Pravin there is no doubt when growth declines Credit Rating agencies become concerned and begin to ask the fundamental question of us, are you able and willing to pay . South africa is willing and able to pay. We are going through a difficult. Atch economically speaking our belief is we have bottomed out and we are not moving into recession. We look forward to better times in the next few years. Tom bring up the chart again with the decline of the gdp, and this goes back to durban and the heritage. Industry that is unfortunately my stereotype of south africa, link the Mining Industry into your future success. Usedn the Mining Industry to be very important and still is in export terms. Notwithstanding the fact that we have had a demand decline, particularly from china, but is is a small part of our gdp. There are other sectors of the economy have been growing and can grow into the future. Agriculture and reprocessing, Many American companies are invested. Latest invest meant is an investment is in Chinese Companies building small cars on the african continent for the first time. We move into Space Technology innovation and science as well, including benefiting from that depreciated brand and large numbers of two wastes. Those of the new growth areas large numbers of tourists. Those are the new growth areas. Tom was showing, it is tough times. You had to lower your Economic Forecast from what you have given out in february. How much are you expecting south africa to grow this year and next . Pravin we will make an announcement on october 26, and it certainly is going to be above zero. Not as close to zero as some people predicted. Already i think our central bank is protecting predicting 0. 3. We are slightly more optimistic for this calendar year and the fiscal year is a little bit better than that as well for 2016 and 2017. The year ahead will be even more policy. Francine what does that mean for your fiscal spending overall and im focused on education for the tertiary education, which we are seeing a lot of social upheaval about . Pravin that is an area of concern. Since the recession from wall 2010, youited us in have to share some of the blame for where south africa finds itself today and some of the other emerging markets as well. The fiscal space has been narrowing the government has been very good at working with the finances that it has, cutting where it is necessary, and will continue to do so until the growth factor kicks in and i more substantial way increases the fiscal space. Southno question africa is busting the bank. Francine do you expect inflation to increase . Pravin it seems to be on a decline. Francine do you need to look through that, is it difficult to see what inflation will do in six months to 12 months from now . Keeps the central bank an eye on the inflation and has been doing reasonably well to send out the correct messages in terms of its intent, and responds to inflation. To the fiscal side, they have done extremely well, and to come back to it earlier question about the university fees, i think the majority of students and parents in africa understand the government has done its best in the last year and will again do its best for the coming year. The University Money will be found for the next two years or so. Francine minister, thank you so much. Pravin gordhan stays with us. Tomorrow, Philip Hammond will join our bloomberg interim chief John Mickelthwait on the british economy after brexit. ,hat is 9 15 a. M. In new york 2 15 in london. Francine this is bloomberg surveillance, Francine Lacqua in london, tom keene in new york. Lets get to the story that broke at the top of the hour, indias Monetary Policy committee lowered Interest Rates , taking advantage of easing inflation to boost growth. We are seeing stocks rise and the rupee extending grain gains. We are joined by the South African finance minister. Wasnth of a surprise that the r. B. I. Cut Interest Rates today . This has taken many by surprise. The poll indicated the market was not expecting a rate cut the governor has cut Interest Rates by 25 basis points. Ais is the first time Monetary Policy committee is taking a call on industry. 22 point on growth they expect gross value added to be close to 6. 7 . Growth is positive. Inflation, the message from the reserve bank of india is one of continuity. They expect inflation to be around the same level as last time, about 5 . Francine what does this tell us about the new governor . It is a pretty bold move to cut rates straightaway. Harsha you are right. The environment sort of helped him quite a bit. A time thatng at core cpi inflation has come down to 5. 5 in the month of august but the overall timing is what economists are pointing out. The fed has not moved on hiking rates and this was perhaps the window of activity for the reserve bank of india to cut rates, and that is exactly what has been done. All six members have unanimously voted in favor of cutting Interest Rates. India is not used to this kind , thisetary policymaking is the first time, and the minutes of the meeting will be revealed in about two weeks time where we know the deliberations that went into this decision. Tom how stark a break is this administrationus of their former central bank had and the university of chicago . Harsha it is a dramatic overhaul. So far the 81yearold reserve bank of india has always been a decision taken by the governor only. Now you have of Monetary Policy committee existing of six people , three from the reserve bank of india and three academics appointed by the government of india. In the case of a tie the bank of india has a casting vote. We do not know the rules of the game. This is the first time it has has takenned and it into account multiple perspectives and input from the government. Tom Harsha Subramaniam in mumbai. With us is the finance minister of south africa, Pravin Gordhan. You grew up in durban and we are talking about the dynamic between india and south africa, it is about 3 of the population . Tell us about the modern durban. It is a metropolis of some two and a half to 3 million people. The Indian Community that came during the colonial times from different parts of india, largely sugarcane workers and slaves and small merchants settled largely around the port of durban. They would probably constitute about 11 to 12 of the population in that province. The community has grown economically and in numbers terms, the White Community would have a Household Income of over 300,000 and the African Community is between 55000 and 65,000 rands, and the Indian Community just over 200,000 rands. They have educationally benefited but you still have a significant poor population. Tom you need to benefit from janet yellen. She is central banker of the year. Bring up the dot charts. That is what we have in the united states, the expectation of rates. I would suggest india and south africa are saying maybe not. How bad do you need chair yellen to stay lower for longer on right . Pravin i think we do not require any more shocks or surprises to the global system, and as central banker to the world, when of the challenges the fed had before janet yellen in which she has understood very well to her credit, is how to communicate changes in the fed it has and the impact on emerging markets. If you remember the taper tantrum up 2013, a huge effect. The volatility is something that organizations never come to terms with. Tom im going to speak with feldt with the imf. The South African rand has been on a tear of propitiation tear of depreciation. The circle is 1994 in south africa. How important of a tool is currency depreciation . Pravin not an active tool but it does provide benefits to the nasdaq shrink sector. The flipside is if we relied too much on imports, that introduces cost pressure into the situation. Import fuel and oil. That also is a push back in our economy as well. On the tourism side, has been a huge benefit with a 14 increase in tourists. That will continue if the rand is around 13 rands or so. Tom Pravin Gordhan with us, the finance minister of south africa. Sterling is really front and center today. I have not looked at sterlingrand. Weaker pound7, overing and dollar well 196. This is bloomberg. Surveillance, we are focused on sterling under a 1. 28 handle. To our business flash. Deal betweentative Southwest Airlines and its pilots may be in jeopardy because Delta Airlines is a pending a deal to pay its pilots more. Southwest pilots union once to renegotiate. It is a buyers market in manhattan, apartment sales plunged 2 in the third quarter. Meanwhile, the number of resale apartments on the market at the end of september was 53 higher than late 2015. That is your Bloomberg Business flash. Francine thank you so much. We are back with the South African private finance minister. I assume you are in new york to talk to the investors ahead of the imf meeting. How difficult is it to tell investors they need to invest money in your country when you are probably still investigated by police . This is a risk i imagine police investors want to know about. Harsha we have had huge pravin we have had huge inflows into the bond and equity markets in south africa, and foreigners own over 35 of even our rand denominated bonds. Southhat point of view, africa remains an attractive destination and we had a very loyal and Diligent Group of investors that we briefed every few months. As far as the socalled investigation is concerned, that is no more than political mischief which every country will have. You have elections in the u. S. , you have seen brexit and its consequences in the u. K. , and i know the police do not get involved in the situations. I am sure we and south africa will resolve these difficulties. In the meantime, the economic institutions are made up of extremely excellent professionals, and we know what we need to do to keep the economy on track and advise the president and cabinet. Owgo it to our country we e it to our country. Francine have you been contacted by the police or the National Prosecuting authority in regard to the investigation . Are you still under investigation . Pravin they cannot make up their minds and in the media, they believe they do not have a case and that is why i call it political mischief. Francine you do not feel weekend and anyway question mark in any way . Pravin no, that is why i am here. When investors ask you if you will be stepping down, what kind of guarantees can you tell them . Any minister anywhere in the world can say im going to stick to my job but all ministers serve at the pleasure or stateof government and they determine whether you continue or do not. As far as im concerned, i am in the job and i have the responsibility to deliver a mediumterm expenditure framework for the next those go years and we are busy with that. Tom minister, thank you so much for being with us. In our next hour, michael pond will join us from barclays on inflation dynamics. Callum henderson with Eurasia Group about a week or sterling. This is bloomberg. Tom theresa may is not david cameron. United kingdom banks will not get special brexit treatment. The sterling tumbles to a 31 year weakness. The state of american disinflation. In this hour, michael pond of barclays. Trumps personal finance. We are live from new york headquarters in new york. With me, Francine Lacqua in london. What is the why of sterling weakness this morning . To three we will speak allies of theresa may, people very close to her. We understand the Prime Minister of the u. K. Will not fight for Financial Services. Or she will not fight unduly to maintain relations with the eu. What we call a hard brexit is more likely. That set the ftse below a psychological level. Tom sterling lower. Callum Henderson Joining us from Eurasia Group in a minute. First, taylor riggs. the new Monetary Policy committee in india has unanimously agreed to cut Interest Rates. Policymakers cut indias benchmark rate from 6. 5 to 6. 25 . They took advantage of using an vision to boost growth in asias thirdlargest economy. Bridges for mr. Theresa may month to change the relationship tween government and londons Financial Services. Officials,o senior may will refuse to give priority to protecting banks after the u. K. Leaves the European Union. The government has also dismissed demands for an interim deal to help with the brexit transition. Things have gone from bad to worse in u. S. Russia relations. The u. S. Government complains that bilateral talks are now dead. Deking hours after vladimir toin suspended a treaty decrease risk of nuclear proliferation. Taxesgain, Donald Trumps were the focus. Hillary clinton ripped trump over a report he may have paid no federal taxes for years. She says he represents the rate system he claims he is going to change. Meanwhile, trump boasted of the way he used the tax code. Andtrump as a businessman real estate developer, i have legally used to tax laws to my benefit, and to the benefit of my companies, my investors, and my employees. I mean, honestly, i have brilliantly i have brilliantly used those laws. Taylor trump also said that people who make the mistake of underestimating him are in for their biggest prize. Hurricane matthew may be catastrophic for haiti. The storm skirted jamaica, but started to hit southwestern haiti with lifethreatening winds and torrential rain. Haiti is the poorest nation in the western hemisphere, still recovering from the deadly earthquake that hit in 2010. News 24 hours a day, powered by more than 26 hundred journalists and analysts in more than 120 countries. This is bloomberg. Tom lets get to francine and sterling. Likely, lets hit equities bonds, currencies, commodities. The next board, oil a little light this morning. Outrageously, weaker. The dollar is really important. Francine . Francine it is really all about the pound when you move away from some of the financial stocks. In aing to its lowest decade. There is more concern the uk is heading for socalled hard brexit. That would restrict access to the European Union Single Market. Look at the ftse. It is almost 100 points. Reopened afteras a German Bank Holiday yesterday. On to my terminal. This shows a Bigger Picture for the ftse. In blue, you have the ftse in pounds. This is in purple, the pound u. S. Dollar rate. The orange line is when brexit happened. You see a clear reversal. The more the pound weakens, the more the ftse goes up. A vote oft confidence, is how i would put it. The right side of the chart showing the new sterling depreciation. Michael pond is the head of Global Research at barclays. He spends most of his day explaining to people why inflation will not go up. There are certain inflation series that are rising. Fiveyear forward and other inflation indicators just do not left. How can you have both . Michael they has started to rise. Kicking ands screaming, acknowledging inflation is not as low as has been priced in the market. That fiveyear low is still about 80 basis points a level below a level consistent with fed tom 0. 8 really says it all. This is dazzling. How about fiveyear forward . There is where we are on inflation. There is the great michael pond disinflation. On the yellow line are the dot 2015, andptember 14, 2016. We all know this chart. The fed keepshow hoping or modeling for higher rates. Do you just assume those yellow arrows come down and down, or do we get back to trend . Michael we think we will move modestly higher from here. Things are not as do and gloom as have been priced in the market, but the fed has not been able to convince the Central Banks have not been able to convince markets that they have the tools to push inflation up, the willingness or the ability to get back to get inflation back up to its target. The markets are consistently, around the world, pricing in inflation to be lower than Central Banks are saying they can get it too. Francine but the opec accord last week in algiers must have helped a little bit, right, with Inflation Expectations . Or is that just at the margins . Michael it pushes up very nearterm expectations. That should feed through into cpi in the coming months. But it also does help sentiment that oil is not going down to 30. That has been a concern in the market, that while the core remains fairly stable, as it picks up, investors might lose on a position Oil Continues to go down. That brings the headline weight down. That negative sentiment seems to be abating in the market. That is helping out sentiment. Francine at the same time, we see the boj doing more, trying to cap 10 year yields. Is anything like that going to help with inflation, or should they abandon their target . Michael again, it is willingness versus ability. Central banks seem to be convincing markets that they are willing to do what it takes. You look at the actions taken in japan or by the ecb or the fec and the uk, and they are doing more and more. Convinced that what they are doing is going to work. A bigger announcement by the bank of japan, we think, is on their inflation target. They will be looking at inflation, looking for it to move above the target of 2 for a period of time. That is a big announcement by a central bank and the market shrugs its shoulders. If they do not have credibility getting to 2 , they certainly do not have credibility overshooting 2 . Francine michael pond of barclays, thank you for now. Tomorrow, uk chancellor Philip Hammond will join bloomberg for a conversation on the british economy after brexit how his government will approach the applications for trade markets and economies in europe and beyond. That is at 9 15 a. M. In new york. Tom good morning, everyone. A gorgeous hong kong. What a shot. Thanks to all of our Technical Team for great shots around the world. Michael pond of barclays in our studios in new york. Joining us from london, stephen major of hsbc. Congratulations on your continued call for lower rates. You stunned this morning with lower for longer, 1. 35 until the end of 2017. That is an outlier call. What does the street get wrong . Stephen it would be the fifth or sixth year in a row when the street has been calling it the wrong way. History is no guide to the future, but i think we have got to understand that this structural backdrop to markets is getting worse. It is not getting better. I look at the charts, and everyone has got the same charts of the last 30 years. Yields have been falling. This moved to lower real natural rates is not a not a new thing. We all understand the structural backdrop, so why are people thinking the problems will suddenly go away . It is quite unlikely. On the one hand, i think our goal is quite modest. Compared to what others are saying, it seems quite outrageous. Tom i will bring up a chart, with mr. Major, michael pond. Steven major, the other part of there isthy report full or on the left. M down we go in the great moderation, which mr. Majors says will continue. You make it very clear deleveraging has not happened. Why is that a surprise . Steven the facts are quite clear. In the last 10 years, there has been an increase in leverage. So in developed markets, the sovereigns have increased their debt quite significantly, according to the bif. Emerging markets are even worse. What is missing is the private sector. You have these that overhangs showing up in the italian Banking Sector or, or chinese corporate, australian households. This says to me that the overall picture is still, there is too much debt. I do not get the cause for fiscal loosening. It is quite an easy call to make, but it does not it with the data. There is too much debt francine . Two much debt. Francine it struck a chord when you said everyone is looking at the same charts and different analysts look at Different Things differently. What you think the mass market is getting the most wrong . Steven there is the hope things will get better. Bitn be accused of being a grim, because this outlook does not really suit any of us in the Financial Services sector, and we all want to be optimistic and in theings are better future. But i do not get the estimations people have asked why the year tod yield chart is going start mean reverting. It seems to be more of a hope than a piece of robust analysis. Francine to be clear, you are not predicting a recession. Steven most people recognize that within the next five years it is quite likely the u. S. Will be going that way. It is probably less than five years. That is why when i look at the forward, i am thinking that anything above 2 for the fiveyear rate, in five years time, is on the high side. I do not see the fed getting to that number within the next two or three years. Forward,ly, five years it seems like good value to me. Francine michael pond, your initial thoughts . Is there Wishful Thinking on the side of analysts and markets that things to get better when the hard data suggests otherwise . Michael if you just look at that chart, you say the calls are low, and therefore they are rich. We think that is the wrong way to look at things. The structure of the economy, the potential gdp in the economy , the fed neutral real rate of policy has come down over time, along with productivity and slower labor force growth. And that justifies lower real yields. Hope fornk there is Inflation Expectations and inflation risk to move higher here. Low real yields seem quite justified against the structural backdrop of the economy. Tom lets bring up this chart we showed. Michael pond, do you just presume that we come up but stay below the red extrapolation, that we do not get back to the joyous rates of 2013 and 2014 . Michael that is right. Where we agree with the fed on breakevens is that part of the reason breakevens are low is that inflation risk premiums are low. You can think about that as the markets worrying about 5 , 6 inflation. No one is worrying about 6 inflation right now. Tom chart of september. Deutsche bank. You mentioned earlier how the street and central bankers Good Intention policymakers have been wrong for three or four years. 2021. Out to i will be older than. You go out to 2021. When do we see the collapse in the expectations of the dots . When do we see a collapse of the dream and hope of yields higher . Steven the reason i have looked five years out is to try to get a clearer picture for the next one or two years. I think the danger is, many people are looking at one thing at a time. And obviously there is the u. S. Election and the political backdrop in europe, and all the various fed and ecb meetings. My concern is that nothing much is really going to change. I know people are talking about the rise of populism, the change of central bank mandates, all this kind of thing, but i do not see it. If you look at the path of that longterm. That you referred to, it has been coming down quite systematically. And i can imagine one year out, it will be even lower and one day it will be at the right level. But we are not there yet. Tom francine, this is critical. It is the three arrows coming down from just under 4 down to 3. 5 , and the lower yellow arrow is where we are. Mr. Major suggesting we will drive lower and mr. Pond saying maybe not. , whatne steven major will the world look like in 2021 . Have not really moved on from what we are seeing now. Is it a hard brexit . Are we looking at will we still be discussing syria . Pincus the picture overall for 2021. Steven within the next five years, there is a good chance we would have something quite radical, like helicopter money. I will start with japan. I can imagine we will still have negative rates. They will still be trying to cap below zero. In the eurozone, i imagine we will have steps toward fiscal union. If we dont have that, there will be no euro. So there will be a completely different looking eurozone in five years time. The uk will be out by then of the European Union, by the sounds of things. It is the timeline we have been given. If it is fulfilled, there will be some slippage in five years time. The uk will be out if the targets are hit. Tom we are going to have to cut you off. I am so sorry. We will get you on this. With hsbc. S and thank you so much to michael pond for participating as well. Just extraordinary. Later today, Callum Henderson coming up. We will look at weaker sterling. Later, a conversation with maries from the imf, and a professor from berkeley on the dynamics and Financial Stability of the Global Financial system. Is no debate francine and i need our daily dose of politics. Timothy obrien of Bloomberg View is the expert on mr. Trump s taxes. He has written a book on it. All kinds of background, going back decades. Esther obrien writing up the latest festivities with his authority. This is pieced together. He would not release his taxes because they would reveal that the career he boasts about is built on sand. We need crucial wisdom from megan murphy in washington on this. What is the likelihood we will see mr. Trumps tax forms . Megan very unlikely, before the election, because he has nothing to gain from releasing them, if you look at the hit he took over the weekend, with the New York Times on nothing his return with that 916 million loss. What is there to gain for him releasing for explaining . There are certainly things in those returns he does not want the public to see. Tom what does it mean for marginal voters . I cannot figure it out. Megan it is tricky to see whether they are buying into the image of him as a successful businessman, or if the sex returns are taking a hit. It is hard to explain to people how someone could record that kind of loss, and potentially eliminate or reduce their federal tax income, how much they have to pay, for nearly two decades, as the New York Times has reported. That is a difficult concept to get across to voters on the margin, who are struggling to get a foothold and really get ahead in this kind of recovery we have seen. Francine in the states, do people care about the vp debate, or do they just want to hear from the woman and the man on top . Megan i think it is going to be one of the vp debates that is interesting. Look at 2008, joe biden and sarah palin, a debate that was highly watched. We see about 68 of viewers say they are going to tune in, just a little lower than we saw at the smash my contest at hospira last week. Atthe smashmouth contest hofstra last week. As many as a third of voters do not even know who these guys are. They have very sharp differences. We will see how much they focus on hillary and donald, or whether we see them talk about things like economics, tax, trade, and social policies. Francine is there any doubt in your mind that donald trump and his bpr a team . Megan mike pence, governor of indiana, helps trump in the sense that he almost normalizes him. This is a solid guy. Both tim kaine and mike pence were very conservative choices for Hillary Clinton and donald trump. Some would say all they have to do tonight is not screw up, not make the mistake that would want their main candidate. Mike pence in particular has a job tonight. That is to defend attacks on donald trump, his returns, but to make a case they have an agenda, a message, and he has the discipline. In the combined pulls a leg up recently for secretary clinton. What is different about this leg up versus the last time she did better . Megan this is exactly the point. We have been taking 32 four fours up three to points up. That has to do with women. Whether trump can turn it around remains to be seen. She has lost these little margins before. , thank you so much. Michael pond will continue with us. Callum henderson with us on sterling. Senator tim kaine, indiana governor michael pence, the Vice President ial candidates, will tee off a 30 tonight. Francine this is the picture of london this morning. The pound has dropped to the lowest since 1980. London bridge, overlooking st. Pauls. A little cheaper for all those travel holiday years holidayers as we enter the festive season. Is not donald trump disputing the report on his taxes. He seems to be embracing it. There are public and president ial candidate addressed the speculation that he may have avoided federal taxes for more than a decade. He told a crowd in colorado that he brilliantly used the tax laws. Meanwhile, Hillary Clinton said trump represents the same rate system he claims he is going to change. She says trump has taken corporate excess and made a Business Model out of it. No one is expecting fireworks in this debate. The Vice President ial candidates square off tonight. The debate being held at Longwood University in virginia. Kane and pence are considered mostf the nations mildmannered political figures. Our coverage begins at 8 30 p. M. Eastern. In afghanistan, the telegram have overrun parts of a crucial regional capital. U. S. Officials say they are sending assets to help afghan forces. Officials say the telegram captured the taliban captured the central square. More fallout from the failed coup in dubai. According to turkish tv, Police Officers have been suspended. It is part of an investigation into those suspected of backing and south muslim cleric turkey blames for inciting the coup. More than 2600 journalists and analysts in more than 120 countries, this is bloomberg. , thanks so much. Sterling on the move. A backdrop to global disinflation. Michael pond of Barclays Capital with us. Callum henderson from Eurasia Group with us as well. Do you have a Eurasia Group call on what sterling is going to do . Have a we do not specific date, such as september 31. We said in the wake of the brexit vote that it would bottom at 1. 20 4, 1. 25, and we see no reason to change. Tom these are two houses. Hsbc with a bold call down to 1. 10. Morgan stanley and hans redeker with the same vector. And then we go stable. Is this the guesses of the street on sterling . Is this about the current account deficit, or is it a bigger story . I think it is a bigger story in terms of the willingness to fund this. It was always substantial, although you could argue it has peaked. For now at least, there are still good amounts of portfolio flow going into the uk, as you said before. , should we stop talking about software hard brexit . Is it just too soon to know how machinations in this country will pan out . You have number 10, number 11, and the three brexiteers. You have strong data. But it is unclear how all these moving parts will play out. Callum it is extremely unclear. For a politician to say hard brexit means hard brexit. Certainly, the bias for sterling is lower. On the other hand, that is a positive for the uk aftermarket. It is certainly a positive for the ftse, or 72 of earnings, from abroad. As sterling falls, that is good news for uk earnings. It also mean that this economy i know depending on whether you take insurance or not, it is certainly a percent of finance certainly a percent. Finance services make 8 of adp. How long does it take to skew an economy toward exports . Balancing the economy away from Financial Services is multiyear rather than multimonth. That is why this passporting issue is so critical in terms of the overall uk economy, not just the uk Financial Services sector. Tom michael pond, i want to bring up a chart to dazzle you. ,his is away from your world but at the same time it is not. This is a currency service. Callum henderson dreams about this in his sleep. The reason i bring this up, michael pond, is correlation of your world of Interest Rate dynamics and callums broader Foreign Exchange. How tight is your world focused on weak sterling, potential weak euro, and strong dollar . Michael moving currencies can absolutely have an impact on inflation. For example, as we have seen over the past several years, every time the fed talks tough, even though they act easy, the dollar tends to move higher, as it is today. , reducesces inflation export growth, and slows the economy, and the fed does not hike. Currencies have definitely played into Monetary Policy and Interest Rates. Tom this is such a oneway bet, short sterling. That yellow line in the , Callum Henderson, is the streets oneway bet on weak sterling. That gets your radar up when you see that. Short, strong, and pronounced. We are having a second wave of negativity in terms of the uk. We went from despair to euphoria, given there has been no real economic shock. We differ from the street in that what is bad news for the uk could be a disaster for europe, and no one is focusing on that. Francine are you concerned about inflation in the uk . Expected tooe is ease more. At the same time, if you renegotiate with eu, you may import significant inflation if you have to pay a larger price on the goods you actually import. Michael the move in sterling , but it ist cpi temporary. Usually, currency passthrough is fairly quick over the coming quarters, not years. The passthrough rate is pretty small, versus what i think the market is starting to price in. Inflation is likely to be boosted by recent moves in lasting, but not in a way. Not in a structural way. It is not something people are concerned about. Francine even if there is no interim agreement . I am theresa may. If i do not have an interim agreement with the eu, all those french cookies i import and all those italian cars i import may be subject to terrorists. Michael there is just so much uncertainty out there, and that date when those tariffs would come in with no agreement is probably about two years from next march. It is a bit out there. There is a lot of uncertainty. The markets have responded. If you look at break evens in the uk, they have moved higher, flicking that uncertainty that prices could be higher, import prices, in the future. But we think it is the u. S. That offers more value. Callum henderson, help us out with francine look for. Her import of french cookies the eurodollar is the great unspoken. Does europe finally get parity and find new weakness . That. we disagree with we think the dollar is becoming increasingly politicized. After the u. S. Election, we start to see a gradually weaker dollar. Tom interesting. Affordt think you can the marginal, if you take the partial differential of the importation of french cookies, i am not sure you are going to be able to swing it. Francine given the amount of french cookies consumed at my household, if the pound drops er, i will not be able to. That is for sure. For your friends dynamic the day, on cookies. You did not think we would end on french cookies, did you . We will continue with mr. Henderson and mr. Pond. Really looking forward to a conversation with david haro of Harris Associates on Equity International multinationals. That is a mouthful. We will do that. Francine this is bloomberg surveillance. Lets get straight to Bloomberg Business flash with taylor riggs. Taylor a week ago, congress cleared the way for families of 9 11 victims to sue saudi arabia. A saudi delegation has come to the u. S. , attending a two day event in new york sponsored by jp morgan. They seek Foreign Investors this year to help plug a budget deficit. A tentative deal between Southwest Airlines and its pilots may be in jeopardy because Delta Airlines has a pending deal that would pay pilots more. s pilots union wants to renegotiate sections of an agreement reached at the end of august. It is a sign the real estate boom triggered by the bank of japans using policies may be starting to end. Sales of new condominiums in tokyo fell 30 , to the lowest level since 1992. Potential buyers can get mortgages at slightly over 1 , but some are scared away by the process of stagnant wage growth. That is your Bloomberg Business flash. Francine thank you so much. Coming up shortly, bloomberg go. Jon is on set. I know you have great interviews coming up, including one with david herro. Jonathan we will talk global politics, talk banking, and m a. As we go into bloomberg , the fx market with sterling down to a three decade low. Major, theom steven comments i would discuss go a little bit later. The idea that in five years yields will be no higher than they are now it is a big call coming out of hsbc. Hsbc have been dead right over the last couple years. Tom this is workable. It will be great to followup on that. I agree with you. The bigger call is not a 1. 3517, but the 2021 no one is framing that long. The bottom line is the 30 year bull market. It is not over. Tom what does that do to retirees . Problem that is the the ecb has got as well. Later as well. Right now, oil and linkage to the u. S. Joining us on oil. What has changed in the microeconomic supply and demand . Skip the big change was last week, when opec made the announcement to consider a reduction cut. I think going into the market, everybody thought nothing is going to happen. Best Case Scenario would be a freeze. They actually come out with a framework for production. That is already, in a few days you are starting to see a change in enthusiasm. Tom i get that. Do you get a breakup . Bring up the chart of brent. We are in a range. At 50. 60 seven on the right side of the gorgeous bloomberg terminal. But this is by no means a breakout yet, is it . Skip we are still range trading, 45 50. The catalyst to break out will be the additional declines of production, whether it is nonopec production going through a natural decline or opec pulling out. Tom Callum Henderson, help us with the demand side, Eurasia Group. Is Global Demand going to be there to push to 60 a barrel . Callum i wish the answer was yes, but i would say the breakout would happen more ifause of destroyed supply, you will, then demand. Demand remains relatively weak. Francine oil declining . To what you go back saudi wanted to do they were giving up market share in order for the price to go up. But the oil price is declining. So they are giving up market share and cannot get the oil price to go up. What is going on . Is this a losing bet . Skip everybody is continuing to try to figure out how u. S. Oil fits into the global than amex. I think everybody thought the u. S. Would come off much faster than it has an much deeper than it has. Countries areec still having to try to sort their way through. How do you deal with a new production source that comes on stream so fast that you cannot strategically plan around it, like you could for decades with other nonopec production . Francine no one knows when the oil market actually balances. Skip what we do know is when you cut capital in the upstream with nonopec entities we are spending less than half of what we were spending in 2014. You cannot cut that much capital out of the upstream part of the industry and not have a boy in response. We are seeing that volume response. Market is heading toward rebalance. Because we did not have the Production Cut at the beginning of this correction, we do not know how long it takes to get there. Francine callum, do you agree with that . It seems like every time you say the oil market is about to rebalance, that keeps getting pushed back every six months, six months, six months. Callum global aggregate demand remains relatively weak. Improvement, some particularly in china, in terms of stabilization. But overall these are the weakest levels of growth recovery we have seen for many decades. Tom to rip up the script a little bit this is something would mckenzie does so well, is take a global view. Change has been governments taking over big oil production. What is going to be the next five years in price level . Can caps on, chevron, and the can big oil come in here . Of a you may see a bit swing toward more partnership and collaboration with big oil. At 100 oil, it is really attractive. Everybody is brilliant. And the size is so big that everyone your eyes are dazzled by the brilliance. You have a lot of people who governmentsa lot of that increased their take. You could see more coming back toward working with the Big Oil Companies more than they did the last five or six years. Francine do we sometimes underestimate the fact that we talk about desperation, the gulf states and sovereign wealth funds lacking money because of the price of oil. But do we underestimate how that could topple social cohesion and a big part of the world . That part of the world, saudi arabia and the gulf, is experiencing economic pain. There is no getting away from that. Are under budget constraints. Saudi arabia is trying to do a to get the u. S. Into that. A lot of companies have gone down that line in local currency debt. Pain that be due to social as well as economic pain . It certainly could. Does it make a lot of stable, ortries uninve is there still value to be had . Callum the important thing from my point of view in terms of the debt market at the moment is, if you are a global bond investor, 30 of your benchmark is negative. That means you have to invest in the u. S. Almost irrespective of what the payroll comes out as. And if you have dollars debt , you areread definitely going to invest in that at a price. The question is, what price . Francine thank you so much, skip. Henderson and Callum Henderson continues with us for the rest of the hour. This is a picture on the markets. We want to show you Deutsche Bank. Yesterday was closed and there has been significant pressure. They are gaining a touch. But really, the story is the pound. Nearing 7100ises, points, this is bloomberg. Over yankee stadium. The season and sell over it is sick. We say that because Callum Henderson is with us from Eurasia Group. How can you come out of england and be a yankees fan . That is illogical. Grey over the bronx this morning. A forex report instead of considering the new york yankees out of it. I can do it. Weaker sterling. Thank you to all of our great this morning for headlining this important move. Europe the euro tentative, with dollar strength. Callum henderson pushing against the dollar strength. Worldne later this week, leaders had to washington, d. C. For the annual meetings of the imf and the world tank. What they will be discussing is the troubles. But we have a great piece i urge everyone listening to us now to go to bloomberg. Com. This is what the world order is confronting, the elite at the imf meeting the existential threat of populism. We are with Callum Henderson of Global Market research. We are talking about the end of it mayy policy and what be doing. If you were in charge of the imf, what would you layout that needs to be done . Are we expecting too much on fiscal spending . Callum before the imf, i would disagree that it is the end of the ability of Central Banks to do good. The bank of japans last meeting did the first good for a long time in terms of boosting financials, steepening the curve, and to some degree boosting the yields that life insurers, Pension Funds can get. There is still room in the tank. But back to the imf. Francine without hurting the banks . There is clear market consensus that what the boj is doing is brave, but is not quite working. Callum it is brave. It is not enough. But it is certainly the way to go in terms of steepening the yield curve and benefiting the endusers. I cannot give you yields in 30 years, 40 years high enough. But at least it changed the direction of the curve. Tom the imf has the blue book, the green book, and the brown book. The blue book is what everyone focuses on. This time around, the green book, the Financial Stability book is that the one that matters . Callum the Financial Stability book absolutely matters. As i said, in the context of financial reform, we have had a huge degree of monetary easing, some degree of fiscal easing, and we are at a turning point in fiscal policy. What that creates in terms of imbalance in the economy is the subject. Tom you worked with dr. Ian bremmer of the Eurasia Group, the elections coming up. Is that the back story for this imf meeting . Callum absolutely. What is bad news for the uk in terms of brexit could be a disaster for europe in terms of the elections next year. Tom do you see a cogent European Response to Prime Minister may . Callum no, we see two responses, one from the European Commission and one from the european governments. The governments seen flexible in wanting to deal with the uk. We have hardline orthodoxy coming out of berlin. Tom really appreciate it with the Eurasia Group. We will continue with mr. Henderson and some other esteemed guest later this morning. My conversation with a professor from berkeley Maurice Obstfeld. He is now imf director of economic research, their chief economist. We speak to Maurice Obstfeld this morning. Later this week, a conversation with the former holder of the job, john lipsky. Let me look at the data right now, getting you to the top of the hour. Vix improving. Sterling is stunning. One point 2758, eurosterling. 0. 88 on euro sterling. Weaker sterling this morning. Jonathan a very warm welcome. Live from new york, here is the tone of the markets this tuesday. Futures positive. Equities pushing higher. Much higher in london, up over 100 points for the first time in 16 months. Story in the fx market the cable night cable rate drops to a three decade low. 1. 2763. At alix we will get the first and only Vice President ial debate tonight, in virginia. Tim kaine is up against Donald Trumps choice for the number to two spot, mike pence. The Federal Reserve Bank President of cleveland says the economy is right for an Interest Rate increase and repeated that the november meeting should be viewed as live for