Transcripts For BLOOMBERG Bloomberg Surveillance 20170706

Politics and economics here. To my knowledge, nobody has asked for clearing to move from a business standpoint. Francine good morning. This is bloomberg surveillance in london. E lacqua we have a lot to get to. The fomc meeting some underpinning everything we see on the market. Bunds are very important because they are getting closer to taking out that 0. 5 yield level by the day. Todays push could be coming som comments by the bank nonstandard measures. Oilnted to show you crude as well, 45. 47. Lets get straight to the first word news. Reporter the United States has warned military action might be necessary to deal with north korea. This is after the test of a Intercontinental Ballistic Missile on tuesday. The United States is prepared to use the full range of our capabilities to defend ourselves and our allies. One of our capabilities lies without considerable military force. We will use them if we must, but we prefer not to have to go in that direction. Reporter the Trump Administration says china and others are not doing enough to reign in kim jong uns regime and threatened to cut ties with any nation that does business with with korea. The issue is set to loom large over the g20 summit. Polands defense minister says the deal would not have been possible without President Trump, who is visiting warsaw. This was the the first patriot missiles delivered by 2022. Deutsche bank is preparing to move large parts of the trading and Investment Banking assets they currently books in london to frankfurt. According to people familiar with the matter, the plan, which is still being finalized and would be reviewed if the brexit scenario changes, will be implemented over the next 18 months. A spokesman declined to comment. John mcfarlane says he is confident much of the trading, clearing, and Fund Management activity involving the euro will remain centered in london. That is in contrast to dire predations of a mass exodus of britain. Eaving he spoke to bloomberg in his capacity as they head of the lobby group thecityuk. I think the issue is a conflict between the politics and the economics here. To my knowledge, nobody has asked for clearing to move from a business standpoint. Its actually working very efficiently the way it is. Francine global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. This is bloomberg. Francine thank you. Now, consensus is fraying in the fed as minutes show a split in central bank on when to start shrinking the Balance Sheet and went to approach policy strategy in a time of low inflation. Gradual Interest Rates, mustard in the process of unwinding the 4. 5 trillion Balance Sheet. There has been unease over recent weak inflation readings. Lets bring in the chief asset strategist at Morgan Stanley and Giuseppe Lavazza and kit juckes. Andrew, what did we learn from the minutes yesterday . I think we knew already there was a division of opinion within the fed. What i think we still think is that the fed is going to announce tapering of the Balance Sheet in september and start it in october. We did not see enough in the minutes that would suggest they were seriously considering a much earlier start to that. We also think they continue to emphasize the inflation weakness as temporary and transitory, driving them to this Balance Sheet reduction plan. Francine what did you learn, kit . They are not sure about an enormous number of things, but they will start shrinking the Balance Sheet. Whynot sure, in my mind, there is a focus on doing that, but that decision has firmly been taken. Which exact month they start it is not so important. The bigger question is how much does that affect credit spreads, in particular to the global dollar and bond markets. The relationship between unemployment, growth, and inflation is unclear. Fedcine this is fthe Balance Sheet breakdown. When he to see exactly when they start giving us details on how it will happen, but could it be seen as something that shocks the market . It really think so. It is a step into the unknown, but when we first went down this path of ordinary measures, we knew we did not know how to come back from it. I think starting at some point, moving slowly, seeing how it plays out, i doubt if in a low r atelow inflation environment, i doubt if you get armageddon just because the fed starts slowly shrinking its Balance Sheet. Frankly, i would rather the fed started earlier because they would not want the fed, the ecb, and the bank of japan doing it at the same time. Francine do you agree with that . I do. It has been well flagged. I do think it is the right thing to do. I do think it hits on a very important point about next year, which is next year you are going to have the Balance Sheet continuing to shrink in the u. S. We think the bank of japan will be exiting from yield curve control and you will have the ecb tapering all hitting at the same time. That i think, makes for a much more challenging 2018, but i think the idea that the fed starts this this year is the right policy move. Francine but is there a feeling of pessimism about the inflation outlook . What does this tell us about the future of passive Interest Rates . It clearly tells us that they can remain pragmatic because if fed governors want to hit their inflation target, theyre not afraid of low unemployment. The challenge they face that we amount is, is there any of growth of that generates inflation when the growth comes from places such as online production of online goods for online consumption, where the marginal supply cost is zero . How does this work when technology is the force holding down inflation . We do not fully understand how this works. This allows them to be pragmatic, saying, when the sunshines in the markets are happy, lets try to normalize a bit, without any great reference to the end. Talkingys hear the fed about, lets elaborate to 3 , but no reference to that. Francine should this make investors nervous, that there does not seem to be any great conviction . I think actually investors should take some comfort by the fact that they are moving slowly, and they are going out of their way to communicate about what they are going to do. This is a fed that is trying not to suppress the market, which is not the way Central Banks have always acted. I think this will be a very big as well asor 2018, for parts of the market, especially parts of the credit market, which have had out that support from an increasing Balance Sheet size. I think the markets overall, we still expect to see Global Equities. Francine i am still looking at the german 10 year yields. Handled o ona 05 it. If you think in the u. S. , the peak in 10 year yields is the same as fed funds. In europe, i dont think peak rates, five years out, wherever it is, they are not down under 0. 5 . If we are normalizing, we will have a 1 bond yield. Bundok, we also think the will had higher now. Our forecast for the middle of next year is about where the forwards are now, around 80 basis points. We think you have had the biggest move relative to Market Pricing already. We do expect them to continue to grind higher. Francine thank you, andrew sheets and kit juckes. Lets get straight to the Bloomberg Business flash. Reporter the Main Hedge Fund suffered its fourth straight monthly loss in june, slumping 1. 5 . The decline pushed the Macro Hedge Fund down 0. 5 this year, its worst loss since it began trading in 2003. Private equity fund is considering building a Minority Stake way purchasing shares on the market. Cerberus could still decide to pursue a different strategy to capitalize on the improving outlook of the industry. Representatives for both have declined to comment. Fell inn youngchina late trading after the pizza hut restaurant dragged on earnings. This a overall Comparable Store sales expand by 3 in the second quarter, but pizza hut sales were unchanged. The company says it will focus on growth offering more delivery options and expanding the portfolio of more than 7600 restaurants. Francine the United States has warned military action might be necessary to deal with north korea. The Trump Administration says china and others are not doing enough to contain kim jong uns regime. Lets get more now with our washington correspondent, who is in warsaw, where the u. S. President is starting his european trip. Good morning. What is on the agenda for trumps meeting with the leaders of poland . A lengthy agenda here in warsaw before the president goes to the g20. He will be talking to polish readers about a number of different issues, including a recent purchase of natural gas by the polish, of u. S. Natural gas. He will also be giving a speech. It is being seen as a speech to all of europe. We have just seen some clips from that speech, where the president will be striking a more populist and nationalist tone, talking about the threats to the culture and the bonds that taught europe together, a very implicit reference to the migration that is affecting various parts of europe, in which paul iolish leaders have pushed back against. Polish leaders have separated themselves from the rest of europe by having a more nationalistic policy on immigration and pushing back against the media. The president will be speaking to the press and to the polish people here today and after that, he will be going to the g20, where he is likely to face more of an antagonistic audience on issues like trade and Climate Change. They have separated the u. S. From the rest of europe. Francine what is the president s message . He shows up at g20, we know Angela Merkel wants to promote globalization and free trade. She wants to take the limelight and be almost the leader of the free world. Will trump want to get china on board to deal with north korea . The president , before coming 0 is to europe for the g2 facing a crisis with the north korea situation and is hoping to push china further to get them to take action against its neighbor. He is not had much luck our success in that thus far. You can expect the president to take a harder line and eventually push for trade sanctions against china, eventually attack some of the trade imbalances the u. S. Hasnt china. Now the north korea issue does not seem to be moving forward in the way he wanted it to its china helping out. You can expect the g20 to be incredibly contentious with countries like germany and china, potentially separating themselves from the u. S. And having a few flash points that need to be worked out. Francine thank you so much, our washington correspondent traveling with President Trump, currently in warsaw. Still with us, andrew sheets and kit juckes. Kit, when you look at the g20, is it actually market moving . I mean, part of me wants to say that because markets are driven by politics more than economics at the moment, the big movers have been the trump election, brexit, macron. Hopefully we will take politics more seriously, or get better at it. The north korea situation is not an immediate market moving one. There is a debate about trade or nationalism versus globalization. It is not immediately market moving. I think the danger is if we create flash points, they will be. Francine flashpoints like what . I think kit is alluding to some kind of crisis that would put angst in the market. There is a lot to unpack in that segment between poland and north korea. We could have sat here on january 1 talking about the risks and unforgettable policy. It might not be negative on markets overall, or even be negative on equities in the region. Three and equities have been one of the best performers in a global market. There is that challenge of separating concerning geopolitical trends in the market. I still think we are likely in that environment where the markets for now, though this is a concerning thing, they will not have geopolitics yet be the thing that derails us. Francine because they are looking at Central Banks . Central banks and also, still pretty decent global data and global earnings data. We are still in an environment where we have a synchronized global recovery, synchronous earnings growth. I think that is all very supportive and once you move into next year, you are talking but three of the largest Central Banks in the world tightening policy at the same time. You have headwinds that are mounting, but for now, they offer support. The world economically is quiet. But the quietness provides what it is, which is, i get the n oneff in the korean yua morning because the temperature rises or the South African rand because of local politics and so on and so forth. Beneath that, there is no contagion between emergingmarket events. Carry dominates everything else. And then there is this market angst, which says, this is great, but we have been doing this for a while and we can see storm clouds six to 12 months out. How do we cope with that . When you look at the correlations between various markets, they have been much lower this year. This speaks to this idea, whether it is brazil or mexico or north korea, the market is treating these at the country level, or even the industry level as idiosyncratic. Francine up next, will we get anymore on the ecbs tapering plans . We look ahead to that. We will be talking mario draghi and rates. This is bloomberg. Francine you are watching bloomberg surveillance and im Francine Lacqua in london. Later today, we get the minutes from the ecb as they publish the account from the june meeting when the central bank moved its easing and ruled out taking Interest Rates in the foreseeable future. Since then, we have heard from draghi from the ecb summit. The minutes could garner interest if they display signs of discord on the next stance for policy. With us, andrew sheets and kit juckes. Kit, i mean, it would be news if they did not dissent . Are we not expecting a kind of tension within the euro land, similar to what we see in the fed . Isyeah, at the heart of this the process of exiting from these extraordinary policies that we went into it without really any good idea of how we were going to exit cannot be smooth. It cannot possibly be smooth, so we will find out they are having a debate about doing it. Some people are not sure why you should bother. And others, where the negative Interest Rates and very low bond yields, and there is a sense that extraordinary conditions are not justified anymore and they will be pushed. I think we will see this through the tightening cycle, when it finally gets done. Cannote if the fed explain the stickiness with noninflation, how can the ecb do tit . Mario draghi was trying to say it is structural because we are not treating quality jobs. Will that change . Enough to focus on a couple things. First, we have not had legitimately strong data from the eurozone over the last six months. In the face of that, the ecb has been relatively dovish. There is an element here of removing some accommodation is still pretty monist in the face of what has been very good domestic trends. To the point of inflation, they are dealing with the same issue the fed is. Over the last 20 years, core pce in the u. S. Has been around 1. 6, not that different from where it is today. That is the last 20 years, this idea that we should keep extraordinarily accommodative policy in place because core inflation is a little bit below the 20 year average is a little bit harder to testify. I think they will focus on the stronger data. Francine they have not reached their target at all. No. In europe, there is a marginal defense. If you want to draw pictures of phillips curves and say there is a relationship between inflation and unemployment and wage growth and unemployment, you have a better shot in europe where we have more unionized labor markets and in that sense, they have not changed as much yet. You have a better chance of justifying the staff of the project. Ro is different with the eu because fair value against the you start1. 25, and if normalizing, the only reason we are down here is because we have bond buying a negative rates. If you talk about normalizing, the currency market will be a massive headache immediately. Francine but they also want to start normalizing because there are not enough german bunds to buy. It is almost a technical reason. Yes, he has a problem. He would like to taper the bund purchases before doing anything with rates. Frankly, he needs to do it at some point. But he knows that he has managed to get the eurodollar to 1. 0515 on the back of that policy. He does not want us at 1. 20 by september. Francine andrew . There is an element missing from the cbn the fed. From the ecb and fed. Inflation might be high now and frustratingly absent, you might not be able to tighten our move fast enough that will not cause further disruption. There is another element to say, look, that core inflation is absent, but it is not that unusual relative to recent history. We see improving labor market and the europe and the u. S. Area and does, moving policy away from these measures makes sense. Francine thank you both, andrew sheets and kit juckes. Up next, londons euro clearing hub is safe. We bring you our exclusive interview with John Mcfarlane. This is bloomberg. Francine this is bloomberg surveillance. Lets get to first word news. Nejra military action may be necessary to deal with north korea. That is after they tested an Intercontinental Ballistic Missile tuesday. Click the United States is prepared to use the full range of our capabilities to defend ourselves and our allies. One lies with our considerable military forces. E will use them if we must we prefer not to go in that direction. The Trump Administration says china and others are not theg enough to rein in north korean regime. The Federal Reserve consensus about when to shrink its balance isand how to approach starting to fragmentary policymakers continue to view gradual Interest Rate increases as appropriate while starting the process of unwinding their Balance Sheets this year. The debate highlighted divisions over the timing of the rolloff. Bank is preparing to and large parts of trading banking assets from london to frankfurt. Which is being finalized and would be reviewed if the brexit scenario changes. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Francine in an exclusive interview, told anna edwards he is confident that activity involving single currency will remain centered in london after brexit. London is the eu pas financial center. It is being built over centuries. It is not easily replicated in one place. Or even in a number of separate places. Replicated, we take enough time, you need a lot of buildings to replicate that. If the worst came to worst and were not allowed to do eu related activities in london, you would have to move a bank the size of barclays out. We dont think that is likely. The right thing for the eu and u. K. Is to retain a significant ortion of that in the u. K. That is what we are looking for, a Free Trade Agreement, mutual access to markets. Time, if things have to move, we cannot move things that size in two years. Periodd be looking for a post that. If there is a transitional arrangement, he gives time to solve that problem. What role will equivalence play . My opinion is facetoface activity will largely move into the eu in a domestic cents. The crossborder activities may not. The g20 has a policy of open capital flows. Too much . That change we are confident the private degree of wholesale activity, Fund Management will remain in the u. K. And london. A pause is necessary here. Whether that happens quickly is another matter. Talk about clearing. ,e talk about this in the u. K. A fragmentation of clearing would be a bad idea. Is it that kind of logic that you think will make a decision wherever it is made, or will other political factors come into this. Is a conflict between the politics and economics here. To my knowledge, nobody has asked for clearing to move from the business standpoint. It is working efficiently the way it is. Costs onaction Interest Rates swap is across the basis points because the scale is enormous. , the euro aspect of that has to move into the eu. Of. E the benefit say, lets open up a multicurrency system, but you u. K. , that will be more efficient, but less efficient than today. You are moving is going. O be difficult this is really political. They seem nervous to have a big percentage of the euro clearing business on their doorsteps. You can understand why that would be a concern. Is there a role for ecb oversight . I do think so. Francine that was John Mcfarlane. We are looking at live images out of warsaw. This is where trump is talking with the president of poland. We expect him to be warmly received. Polands government conservative. It shares a little of the president s view on immigration. If you look at the president s europe, warsaw and poland will be the one that will welcome him with open arms compared to everyone else. Andrew and. The president probably will not be greeted with as much friendship when he shows up at g20. What will the be the message . Trump is underestimating how seriously the rest of the g20 or the rest of the members of the g20 take Climate Change. Well, there will be competition. Polish americans came out in jarreaus. They came out in the last election. It is an on her to be here. Majestic nation, a spectacular place, some of the most beautiful sites. Very inspirational. In history and have an unbreakable spirit. That is something we have learned over the course of many years. The president and i concluded a productive meeting in which we confirmed our in during bonds of friendship that have united our citizens for a long time. A great friend and important ally and a partner with respect to our military. We have had great cooperations with poland, fought shoulder to. Houlder anytime we request help, they were there. Very special people. I want to thank the polish people for their kindness. Our Alliance Remains critical to deter conflict and ensure that war never ravages europe and the world will be a safer and better place. We are working with poland in response to rush upon actions and destabilizing behavior party. I have been hard on some of the and the money is pouring in, i can tell you. I was criticized, but i can say that people at nato are not criticizing me. They are happy. The money has then pouring in in the last year, far greater than it ever has been. We discussed our commitments to safeguarding the values at the heart of our alliance. Freedom, sovereignty, and the rule of law. Poland joins the Security Council at a critical time. Not only must we secure our nations from the threat of terrorism, we must confront the threat from north korea. The president and i call on all nations to confront this global threat. Publicly demonstrate to north korea there are consequences for their bad behavior. Discussed the humanitarian catastrophe in syria and the need to defeat isis and other terrorist groups. We have fought hard and powerfully against isis since i have been president and we have e tremendous greetings tremendous gains, far more than have ever been made with respect to that group. The cities of raqqa and mosul will be liberated. Syria requires a political solution that does not advance irans destructive agenda and does not allow terrorist organizations to return. Humantion that values life can never tolerate the use of chemical weapons. We wont tolerate it, either. We work to expand commerce between our come our countries. America stands ready to help poland and other nations diversify their Energy Supplies so you can never be held hostage to a single supplier, or a monopoly. The first shipment of american liquefied National Natural gas arrived in poland last month. Be many more coming. Maybe we can get you priced up a little bit, but that is ok. He is a tough negotiator. We want reciprocal trade relationships. We dont have too many of them. States hasunited made some of the worst trade deals ever in history. That is going to change. That is going to change. Friendship between our people dates back to the american revolution. That is a long time. I look forward to speaking about these in during bonds these enduring bonds. We have a big crowd. Are showing up for you, not for me, right . Thank you for whelping for welcoming me. Together, we can make the partnership between our two nations stronger than ever special people, special place. It is an honor to be here. Thank you. Francine that was donald trump as he starts his trip to europe. He will go to the g20 in hamburg. We expect the big speech will be later on, about four hours from of a huge crowd of polish citizens and the press. We will keep an eye on anything the president says, any body language. Talking a little bit about yields, looking at the 10 year german yield. Enters italybucks next year. Vicechairman of a group. This is bloomberg. Francine mrs. Bloomberg surveillance. We are listening to trump talking in warsaw, accompanied by the president of warsaw. Have a lot in common. They share hostile views of immigration and a strong sense of national sovereignty. This is the First Press Conference we share as trump arrives in europe. The president saying north korea is behaving in a dangerous manner. He was also talking about the islamic threat, isis. He is giving a big speech in the square in warsaw and about three to four hours. Then, he is having bilateral meetings. On to something less serious, certainly for the italians, love lavazza. Lavazza is very wellknown. You have 42 of market share in italy. How do you grow that abroad . It is important to use big advance a big events, like the wimbledon tennis championships. That is why we are not only sponsoring wimbledon, it is our ability to offer a good cup of coffee. Francine you have a big treasure trove. Where do you want to spend it . Acquisitions, we estimate to be in a comfort zone in our industry, the group has to achieve about 2 billion euros. Organic growth is not enough. Francine we are looking at live pictures out of warsaw. How much focused do you spend looking at back . We have to take it into consideration. Areglobal scenario, we acquainted with taking home. Eadwinds in our operations this is not uncommon for us. A company with ambitious plans. We want it to grow faster. Affectal instability can this pace. Nevertheless, we want to try to do our best. , this couldcorridor ,nsure alternative supplies alternative supplies for ukraine. This is him this is important and this is what we discussed. I am convinced the future is a contract will be entered into. We are going to develop our as and other directions. [indiscernible] you mentioned military operations. Find out if to during your exchange, were there concrete guarantees . We did not discuss guarantees and we were not in that position to discuss guarantees. We have been here for a long time. We have troops here and we will continue to do that and work with poland. A we discussed in the context mentionedrs we have to and from that point of view, there is no doubt the president s troops in [indiscernible] this, it is clear, but we are going to discuss it further. We made an agreement to make next year in the white house to meet next year in the white house. Next year, we going to celebrate the centennial of poland independence. We would like to stress the importance of that. This shows the contribution of the polish people. To attend. Has select the next journalist. You definitively say russia interfered in the 2016 election . Think it was russia and i think it could have been other people and other countries. I said it simply. It could have been russia. It could have been other countries. I will not be specific. I think a lot of people interfered. I think it has been happening for a long time. Thing i have to mention, barack obama, when he was president , found out about this in august. The election was in november. That is a lot of time. He did nothing about it. Why did he do nothing about it . Theas told it was russia by cia, as i understand it, it was well reported. They said he choked. I dont think he choked. I think he thought Hillary Clinton was going to win the election and he said lets not do anything about it. He was told in early august by presumably the cia that russia was trying to get involved or meddling with the election. He did nothing about it. The reason is, he thought hillary was going to win. If he thought i was going to win, he would have done plenty about it. Question, whyal did he do nothing from august to november . His people said he choked. Think it wasu russia. Your agencies have been far more defended the far more definitive. They say it was. Why wont you agree with them . I heard it was 17 agencies. Lets that is a lot, check it. It turned out to be three or four, not 17. Many of your compatriots had to change their reporting and had to apologize and correct. With that being said, mistakes have been made. I agree, i think it was russia, but i think it was other people and or countries and i see nothing wrong with that statement. No one really knows for sure. I remember when i was sitting ,ack listening about iraq weapons of mass destruction. How everyone was 100 sure iraq had weapons of mass distraction. That led to one big mess. They were wrong. It led to a mess. It was russia. It was others also. That has been going on for a long time. Didig question is why obama do nothing about it from august until november . It wasnt because he choked. Thank you very much. We must go. Why havent you shown anger towards moscow . Thank you very much. Thank you to the members of the delegation. Thank you, ladies and gentgentl. Francine that was donald trump speaking in warsaw. He was flanked by the president of poland. He will give a major speech in the polish capital. This time, in the historic is in cease the historic square. At 10 00 a. M. Here in london, i am joined by tom keene. We will follow the president path comings and goings. He was talking about north korea and the fact they could take significant action. Tom the overlay of stories here is too much. 6 00ill join us in the hour. What is remarkable, it is about to change poland. Initiative i find interesting. The former communist countries with austria. It is an important project. Poland has raised eyebrows and concerns about cracking down on the press becoming inward looking. Trump arguing the future of western civilization is in poland. You can see that as they fight against extremism. Tom lets get started on this hour of bloomberg surveillance. The u. S. Ambassador to the United Nation is threatening trade ties with countries that do business with north korea. Nikki haley told the un security u. S. Will present a resolution with response to north korea upon action. We recognize north korea continues their Nuclear Weapons and how to uphold the pressure on the north korean regime. Moon says the crisis should be resolved in a peaceful way. Changes would help foreign nationals and others could generate 55 billion of economic gain. The group admits those changes will not bring as many benefits as staying in the eu. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom geopolitics this morning. Dean will be out to talk about the quiet of the markets this morning. Not much going on. I want to sit on this screen. Francine, here is your screen. It is a pretty good screen. A bounceback for oil. This is after we had data showing stockpiles declined. European bonds slipped. Gold falling and major currencies. Tom lets look at synthetic euro. This is the crushing decline of polish zloty. Ascension, 2004 where so much of Eastern Europe came in. This is remarkable and speaks to the triumph of poland. This stability of poland is the east is the juggernaut compared to france and germany. Francine this is my terminal. This is 0. 5. This is the 10 year german yield, touching 0. 5 for the First Time Since january 2016. Todays push may be coming from comments from the ecb. There is a good deal of how quickly policymakers are going to run out of dons to buy and what they might buy instead. Of bonds to buy and what they might buy instead. Tom these are the two german yields. Your white line is what you showed. That is a 10 year yield with a twoyear yield still negative. Both of them legging up here. This is more on coordinated central bank action. Which is it . Francine it is what we are trying to figure out. How significant is this for what this means for Central Bank Monetary policy . Pretty incredible. It is a backdrop of 10 year High Consumer confidence. Generally robust growth. The surprise to me is that this is not hire. Francine we will see what simons call on that is. Jeff a while ago. He is giving a speech in one of the main squares. The hand ofshaking the polish president. Are. t think they they met shortly and they made their way to the square. What we heard from the president was it was important to act together. Countries have quite a lot in common because of their stance on National Control and immigration. Joining us now, andrew. Great to have you on the phone. We were listening to the News Conference. Trump talked about north korea. Was that the most significant thing that came out of it . That was the press conference. As you say later, he has the speech from the square. He was forceful and reiterated north koreas behavior was bad and unacceptable. He did not say what steps he would take, but did give himself a way out. Doesnt mean we are necessarily going to an act of we areut it is something looking at closely. As he heads to hamburg, it is a safe bet that will dominate talks at the g20. Francine how significant will be the president s speech on krzyzewski square . Of this is the layup. Pointsre the easy two trump can make. He had all of these billions of dollars of deals and smiles. This is going to be the same thing. They are talking about deals, joking about deals. He heads off to the g20, that will be a frost year reception. Will the audience that will greet the president , is that managed by the government . People of poland coming to warsaw to greet this president of the United States or is it stage rigged by a conservative polish government . That is a good question. It is a bit of a stacked audience. It is not fully controlled. In a speech today, we had experts, it will go over well. A lot of nationalistic tones going on about the deep state and how the bureaucracy hindered the growth. Francine thank you. Andrew barden there. Simon, when you look at what is doing out in geopolitics, your clients ask you about this . Politics have dominated headlines. Where they are dominating headlines is changed. I think it is a general tiredness. People are getting to the point of being able to separate the headlines from the fundamentals. Fundamentals today look pretty good. Francine thank you. We will get back to simon smiles. We are live in hamburg. We will talk about trump and world trade. This is bloomberg. Friend, ans a great important ally and a partner with respect to our military. We have had great core operations, we have fought shoulder to shoulder, many different encounters. I am grateful for the role poland has taken in defeating isis. Francine that was trump speaking with the polish president. Later, the president heads to g20 in hamburg. These are live pictures from warsaw. He is then preparing to give a speech later. He meets in hamburg with Angela Merkel this evening. I need to get a copy of his schedule to make sure i dont get anything wrong. This is closely watched because of his stance on world trade, globalization, and Climate Change. Our guest provides great great clarity and thoughts over what can or cannot happen. What is your primary concern about this g20 . Seems it could be fractile fractitious. To be the collective action as the only way. How are we going to deal with trade, if not collectively . Deal with going to Climate Change if not collectively . How are we going to deal with migrations, the Digital Economy if not collectively . How are we lets remember our own homework . How are we going to deal with that wetional growth said in five years time, by 2018, we are going to grow 2 more than the baseline . We are one year away and we are only halfway. We have a lot of homework. The only way to deliver on that is collectively. Francine and none of the leaders agree on the core issues. Will anything, out of it . Will anything come out of it . The United States and europe, they are picking up steam. This Free Trade Agreement is goodeurope and japan news on top of the news about europe and canada. , there is aof trade lot of progress. The question is going to be to find Common Ground. We going to find Common Ground . Tom you have a wonderful perspective on the United States of america. This a g20 or ag 19 . Is trump there or is he really not there . It can only be a g20. Without the United States, which was central to the creation of , with president bush, a crisis happened and then they upgraded. It has delivered ever since. The u. S. Is an interval and in triple part. Tom are they too cautious and gloomy on european and united hates growth . We have been looking at the question of the united dates. The whole question is fairly straightforward. Is the United States going to be able to have a good reduction in fors, which would be good growth. Are they goingy, to use that for investment in the United States . What happens is they market saying this is going to happen. There is a more subdued view of growth going forward. Francine all of the spending ,hat you were talking about what does it mean with the Trump Administration not pushing it out now . You have to deal with sequencing issues. You cant sam going to slash toes and then what happens the deficit if you dont have compensating elements. It is a question of arithmetic, sequencing, and you cannot go to the end of the line before starting with the front. Francine thank you. He is speaking to us in hamburg, where the president will travel to tomorrow morning. In warsaw. He is this is about energy ties. West, the United States supports the creation of the three cs business form. So your countries can build cuttingedge projects with the industry andin the do so under budget and ahead of schedule. New Energy Infrastructures we are working on the same goals we are working on to achieve for our people. We are doing well. Our stockmarket hit an alltime high. In 16 years, it is the lowest unemployment rate. Our military is getting stronger and stronger. Ofare adding billions dollars of new equipment, the best equipment in the world. Inmake the best equipment the world, by far. We are adding many billions of dollars of equipment. The United States is doing well, we are really strong. We have picked up in market value, almost 4 trillion since november 8. 4 trillion. That is a lot of money. Personally, i have picked up nothing. Everyone else is getting rich. That is ok. I am very happy. Strengthening Energy Security is what we are looking to do. The three cs and initiative has the potential to accomplish these objectives and quickly. You have incredible people. Get it done quickly. I congratulate your nations for beginning the critical projects that open us to greater access. These projects and others were crucial to ensure nations continue to diversify your energy sources. I applaud bulgaria, romania, austria, for pursuing a pipeline from the black sea. Approved a big pipeline, also. The keystone pipeline. It was under consideration for many years and it was dead and i approved it in my first day of office and it is now under construction. Another pipeline, big ones, dakota access. Are helpings Energy Receive diversification. I want to congratulate the government and people of poland for receiving their first shipment of u. S. Liquefied natural gas last month. You made a very good deal, i understand. The unitedlear, states will never use energy to nations and coerce we will not allow others to do so. The United States is committed to open, fair, competitive markets. Andica will be a faithful dependable partner. We make the best technology and we make the best technology for ships andts and equipment, military weapons, there is nobody even close. That is acknowledged. As you buy military equipment, hopefully you will be thinking only of the United States. With the expanded trade, we will unleash Incredible Energy information that is safe, responsible, and environmentally friendly. One that responsibly balances Economic Growth, job creation, and Energy Security. We invite all countries with us to achieve this. Initiative will empower your people to prosper, it will ensure your nations remain sovereign, secure, and free from foreign coercion. The three cs nations will stand stronger than they ever have stood before. Strong,r nations are all the free nations of europe are stronger. The west become stronger as well. And yoursour nation can bring greater peace, prosperity, and safety. Nextsummit ushers in the or is going on in our country is incredible. I hope you take advantage of it by using these resources. Today. Rilled to join you i want everyone to know the uniteds dates support your efforts. Will improves lives across the region and through the world. Will be your strongest ally and steadfast partner in this historic initiative. Congratulations to everybody. , willing, and able to help with your energy needs as they come along. Thank you. Tom the president of the United States in warsaw. You could say good morning, chicago. To an extent, american donations rebuilt the castle of warsaw nazis destroyed it. Francine, what is so important is the back story. Not Eastern Europe, but Central Europe in the triangle of the three cs, led by the baltic. Did i pass my geography lesson . Francine we will see. If you modernize Eastern Europe and if Eastern Europe catches up economically with the west, when you are in line to gain advantage to that, to put it into context, the three Seas Initiative is to improve infrastructure and energy links between the three seas. Tom the president of poland is speaking. Simon smiles is with us. Simon, we have an understanding of the expansion of nato buttressed up against russia and the tension that created within ukraine and with crimea. Is prudent going to have the same complaints about the three initiative . Will he look at a polishcentric europe as a threat, like nato . Ofon in the relative terms russia in europe, it does weaken their position. I am sure we say it in the same way as. Francine what does that mean for investments . What we understand through infrastructure products, as we focus on the initiative, a lot of these are on the western side area i know we are trying to work on getting a map. All of the money and infrastructure is on the western flank of Eastern Europe. If they can put money on the other flank, towards russia, doesnt mean your clients want itinvest in certain does mean your clients want to invest in certain areas . Is probably not in Eastern Europe emerging infrastructure. The interest is more with private equity and increasing in terms of impact investing. It is not just molen kneels getting more money. I would not expected to be huge, wholesale interest. Tom what is the important of the x labor to the United Kingdom . It will be a theme in the next hour. But within the cacophony of all of this speaking, let me go to this. There have been two waves of Eastern Europeans to the United Kingdom. Do you presume that will continue . Of the asre is a lot we continue with the brexit negotiations. Id investment standpoint, this is one manifestation of why we are underweight and relatively cautious on u. K. Equities. It is just immigration issues, it is the general interaction to gut the conversation. Perspective,tment we are underweight. On top of that, you have economic momentum in your favor. Different circumstances. Tom simon smiles is with us. Many good guests. Your new yorkh city briefing, here is taylor riggs. Darklys chairman, john macfarland, is cut good entire predictions of brexit. He said he is confident that much of the trading and fund. Anagement will stay in europe quirks for the eu and the u. K. , sit attaining retaining a significant portion in the u. K. And that is what were looking for. Taylor he also heads a lobbying group for financial firms. In venezuela, the president is promising to investigate an attack by his supporters on the opposition controlled ceremony. It injured at least for lawmakers. Accuse him of establishing a dictatorship. And the u. S. Congressman who was at the congressional baseball game has been moved back into evidence of care. Steve scalises doctors are worried about infection. Global news, 24 hours a day. Powered by our more than 2700 journalists and analysts, in more than 120 countries. I am taylor riggs. This is bloomberg. Thank you. Climate change will be high on the agenda as the leaders gather for the g20 summit in hamburg. Or will it . It could be for the north korea soccer dominating the headlines this week. Climate protection policies. Any such discussions have strong applications. This all comes as the Prime Minister, turnbull, declares his government open to using clean coal technology. Minister, always a pleasure to speak to you. Do you think he actually will be climatetalk about change in a day like today when geopolitics is at the forefront of everyones mind . Obviously, the actions of north korea is utterly unacceptable. South korea has condemned them in the strongest terms. And within sanctions, australia has gone beyond that in the sanctions of our own on top of that. So north korean actions will of course, it will be part of the discussion here at the g20. Our Prime Minister will raise the issue and im coveted it will be an opportunity for leaders to seriously consider events and for all of us we are keen to see china use their leverage in persuading getting back to a more sensible approach. Francine much demand are you seeing from china for some of your commodities right now . How much demand are you seeing coming from china for some of your commodities . Well, obviously china is an important market for australia. And the resale in particular with iron ore and cultural products and services. Is our most important trading partner when it comes to twoway trade so it is a very important relationship. Tom wonderful to have you with us, minister mathias cormann. What a great moment for brisbane. But there is worldwide outrage over pacquiao. Maybe your export is the welterweight champion but what do you need to sustain the australian economy . The solution has always been commodities. How are you progressing on moving away from a commodity driven australia . Firstly, we absolutely do not intend to move away from a commodity driven australia. Over the last 10 years, we have investment. Capital so we are extending our capacity so our export volumes when it comes to iron ore are much higher than what they were a decade ago. Largest ome the exporter in the world soon. Coal continues to be an important exporter. And we are the third biggest export in australia is international education. The suggestion that somehow we would be moving away from commodities is not an accurate one. ,f you look at the resources agricultural exports, it will continue to be an important part of our economic race for a long time to come. Tom tells about the australian governments response to the missile testing we see in north korea. All of the talk is about alaska. It is remarkable how some of the more developed missiles could make it all the way to queensland. I was thunderstruck by that. What do use it just will be the response that australians can give to the Civic Community to the Pacific Community as they confront north korea . We are extremely concerned about developments in north korea and we totally condemn the actions of north complete are which are completely in breach. Theed, we cannot only join International Community in supporting the United Nations endorsement for sanctions but we have gone beyond what the United Nations has put forth and we do join with others in calling on china to use all of their leverage to rein in the north korean leadership and to get them to come to their senses. Obviously, this is a very serious issue of concern for the World Community and it is something that we need to find an effective way to address that. Francine how do you convince china to take a bigger role in this . Is the bigger purpose of the g20 to get china on our side . Mathias well, china does support International Efforts and they say they maintain relative sanctions but certainly, we would like to see china do more. No doubt that will be part of the conversation at the g20 over the next few days. Francine thank you so much, that was the australian finance minister, mathias cormann. At currencies. A little bit of the movement on pound. I interviewed i am looking for to the interview with guy johnson and Jeremy Corbyn. They will be asking him about social justice but also about what we see with the brexit negotiations and where he sees it going from here. This is bloomberg. Francine this is bloomberg surveillance. Early on we talked to John Mcfarlane and he said he was confident that the trading activity involving the euro will england. Ntered in he spoke exclusively with bloomberg in his capacity as the head of the lobby group. I think the issue is a conflict between the politics and the economics here. To my knowledge. Nobody has asked for clearing to move from the business standpoint. But if that is actually working very efficiently the way it is. After cityhis comes ensuring the countrys longterm success outside the eu. The former city minister, mark hoban, joins us now. This week, it was reported that mark hoban led a delegation to brussels with a secret blueprint for Free Trade Agreement on Financial Services. So welcome. Was this a secret meeting . What was the response . Mark well, look. We have a huge show location that goes across to brussels to. Alk about the exit the point of the report their publishing today is to say that there are bigger challenges as ag london and the u. K. Global financial center. We know about the rise of the emerging market, china, singh or, hong kong all are challenging britains status. We talked a lot this morning about digital and the way it has transformed the Financial Services are. So these are big issues. Of part of the picture change in london, but we are convinced that by taking action together with government, regulators and industry, that we can transform the sector. Francine do Financial Services need to plan for the worst . I think we will get a good deal in the end, from brussels. But what we need to do is take control of our future. There are think that other than europe there. We need to better street length with asia and africa and latin america and the u. S. To build the trading and ensure that is this continues to flow into london, regardless of where. E get to with the eu tom you came out of the London School of economics a few years ago. Young peoplethe coming out of lsd today. Coming really want to today. Lse do they really want to leave london . Mark i did i think the Financial Services sector is the track of sector for them to work and what we need to think about is what are the skills for tomorrow . Absolutely. Im it progress of the London School of economics. Today, we need scientists to understand robotics, artificial intelligence. And part of our report today says that we must set up stronger links with the university to supply those who are not just economic but also have the technical skills. Tom what you need from theresa may to achieve this . If you are getting a high and Silicon Valley in the United Kingdom. What you need from theresa may . She is a bit distracted right now. Mark one of the things that the heart of the report today is that if the u. K. Remains a Global Financial sector, we need a Strong Partnership between government, the industry and regulators. Brexit, infrastructure, of digital and physical. The range of things that we want to see from the government and the range of think that we will offer the government in return. Better products and more Economic Growth. The governmentt does want to see a partnership with business that will lead through brexit and beyond. Francine has become started listening to Business Leaders . I think there has been a good dialogue between business over the last few years. I know the engagement has gone Financial Sector and the treasury and other departments. We want to continue that. But it requires industry to say to government, this is what we want from you but this is what we will offer you. This is how we work in partnership with you to deliver a stronger economy for the u. K. , as a whole. To make sure it remains competitive in the future. Tom you are on the other side of the aisle from Jeremy Corbyn. Johnson will speak with Jeremy Corbyn in the next hour. What does the labour party have to do to get their act together . Shift ingenerational the labour party, what did he have to do to get their act together . Im not a commentator. At what i see is the need for strong u. K. Economy that is lowetitive and that has tracks access which is attractive to business and provides the opportunities to the next generation. And a lot of the report is based on meeting the needs of a future generation. How canuates, saying, we make their future a huge success . And i the private sector and arencial services, those things to offer young people. But we stage them in a government and environment with strong regulations to deliver that. Francine thank you so much. The authorrk hoban of the report and he is the former city minister. We are getting breaking news out of the kremlin on the back of the donald trump speech that has briefingshas given to where he mentioned russia, saying he will declined to say whether it was only russia involved in the hacking of the president ial election in the u. S. But he seemed to confirm. He said i think it was russia. I think it could have been other countries. And the kremlin is responded kremlin, dont know what to expect at the putintrump meeting. On to tv , it should be your first way of looking at tom and i. Get the video screen up. Steal some of the headlines and tom charts. And you can ask the guests a question directly by clicking on the bottom of the video screen. Ask the guests a question. This is bloomberg. Taylor this is a bloomberg surveillance. Lets get the Bloomberg Business flash. Main hedge fund has suffered the worst loss since it began trading in 2000 three. The macro fund is down more than 5 for the year. A 1. 5 loss in june was the fourth straight monthly decline. May take a stake in germanys commerzbank. They may build a Minority Stake by buying shares on the market. A finalent made decision. The firm is seeking to add investments in european banks. Stuck china, the hunt is in a rut which is hurting its parent, young china. Comparable store sales rose by 3 but pizza hut sales were unchanged. It has young china shares falling. That is your Bloomberg Business flash. Tom the most geopolitical day. Cormann will join us Robert Hormats will join us. Do this with is simon smiles. A very holistic report and approach, i should say. The fedhe minutes of yesterday. I guess this is about communication and the reading of tea leaves. Whether it is fed minutes or inc. Of england minutes, or ecb minutes. Fromare you listening for the banks as they attempt coordination . Simon the fed minutes say they are keeping all of the options open. Our expectation is another rate hike in september and then we will look to start unwinding the Balance Sheet in december. That is priced into the markets in terms of the fed funds futures. So i think, particularly as inflation starts to rolloff in the United States, the fed will keep those options open. When it comes to the ecb, our expectation is september that we will get tapering. With the Program Starting next year. So i think appropriately against the backdrop of the strong Economic Growth we are seeing and synchronized Economic Growth were seeing in the United States and europe and etc. Francine this goes back to what we saw with the minutes. From theaw a comment ecb board executive. This is the german 10 year yield. Handle forseen a 0. 5 quite some time. I think it has been more than 1. 5 years. Will it go higher . Simon i believe so. This level is not appropriate against the economic trap that we are seeing. Obviously there are technical and fundamental drivers but they dont back up these levels. So one of the easiest traits that we have on is the overweight Global Equities with highgrade bonds. It isnt a trait that has worked out well on the highgrade bonds side so we think it is a change. But i would note that this isnt the only banks that we are talking about, moving from the central bank policy. There is a divergence. Is thing that is interesting the divergence between the bank of canada and the bank australia. A much more dovish start from australia. Hawkish from canada. Currencies, tom i havent asked this question in 11 years. Is cash and asset . Asset . Ash an simon no. It is not a positive asset. I maybe slightly biased by sitting in switzerland. Even in the United States, you are obviously, in the real terms, not protecting the wealth if you keep a significant number cash. Ets in youre are talking that cash balances in the order of 30 . You for beingank with us. That is simon smiles on the geopolitics of Central Europe today. Coming up, we speak with the former ambassador, robert limits , who worked with secretary clinton, as well as the obama administration. Stay with us without coverage from warsaw, london and new york. This is bloomberg. Tom it is not the poland you think you know. This morning, President Trump speaks from a vibrant warsaw that is decisively furring off decades of communist malaise. A divided fed. Chair yellen goes in search of a dust as it goes in search of a desk exit. Toasts will be had by all. Good morning, pennsylvania. Good morning. This is bloomberg surveillance. Live from World Headquarters in new york, i am tom keene. Ins is Francine Lacqua london. I like the vodka thing. The toast of another time and place. Francine i was living in moscow and it brings you back to my childhood. But i think of the g20, the definitelyicant will be the meeting on the sidelines between the chinese president and President Trump. We understand that the chinese president may put the onus on the Trump Administration deal with north korea. So probably that is the most significant thing i see this week. Tom i strongly agree with you that g20 is front and center, even with festivities in warsaw. We know that north korea is not part of the g20. We are starting in warsaw, and the talks from trump on north korea. Trump says he is considering severe auctions in the wake of north koreas launch on a new, longrange missile. Trump we take a look at what happens over the coming weeks and months with respects to north korea. It is a shame that they are behaving this way but they are behaving in a very dangerous manner and something will have to be done about it. Taylor the president says he doesnt drop redlines like president obama did. Angela merkel met with south koreas president. They discussed how to force north korea to change his behavior. We recognize that north korea is a big danger for global peace. The point is that north korea continues their global continues their Nuclear Weapons program and we will talk about how to react best, how to up pressure on the north korean regime. Says the crisis should be resolved in a peaceful way. And moving to return. Firms inancial according to a lobbying group, there are changes that would help hire foreign nationals which could generate 55 billion dollars of economic gains by 2025 but the group admits the changes wont bring as many in thes as staying eu. Global news, 24 hours a day. Powered by our more than 2700 journalists and analysts, in more than 120 countries. I am taylor riggs. This is bloomberg. Tom let me get through a data check. We have to get through this huge news flow before we go to her slot. To warsaw. Day, the job sa tom we dont have this on the board. I do have this on the terminal. Urrently at 0. 537 geopolitics, people are trying to figure out what the minutes from the fomc yesterday meant. Were looking at minutes from the ecb out shortly. Tom one of the themes is the traveling with the first lady lady to a different poland. Holds watch at the white house and is with the president on this getgo. This is a different trip in the last one. Isnt it . This is a different track. He paring for the g20 is comparing for the g20 but he stopped in poland. They are accepting the first shipment of the u. S. Natural gas and the president said he would be willing to do more deals. He also talked about the fact north korea needs to be dealt with, and he says he is considering severe options for handling Nuclear Ambitions of the north korean leader. Tom there was quite the pageantry at the castle within the last hour. Maybe the most important guy in the room was wilbur ross, the commerce secretary, sitting behind the president. This is all about is nice. Liquefied natural gas and such. What does the president s constituency want out of the three Seas Initiative . Toluse the president wants to open up this region of the world for Contract Energy deals. U. S. Toident wants the be energy dominant and he believes that this region is an area where the u. S. Can begin to export some of the natural gas, that he says is a great amount of wealth under the feet of the american people. So the first shipment here to poland was a big deal and he believe there will be big deals done. He does have to face a number of thorny issues with other world issues. Francine i know that you get briefed by the trump entourage on your trips. What are they expecting or how are they expecting the chinese president and the trump president sideline to look like . Toluse the president will have a number of different meetings with World Leaders here. Not only in warsaw but also in hamburg. The meetings with the president putin will be the ones that are that are most closely followed. People want to know whether the president will bring in the president ial meddling. The president just spoke, saying that he believes that russia metals but he believes other countries could have participated meaning he will not bring up that top issue. Francine the president talked about north korea. Do we know how he proposes to rein in north korea . Are we talking about military action or something more fanatic . Toluse the president is keeping his cards close to the vest on that issue. He said he does not draw already lines. He doesnt talk about actions before they happen. His policy so far has been to lean on china but he is saying that has not worked so he now will look at very different options, saying severe options are on the table. , thankluse olorunnipa you very much. He is with us from warsaw. What a good time to speak to Robert Hormats. His service to the country with rep covenants with republicans and democrats goes unspoken. Talk for fived hours and still have things to talk about. If the state Department Apparatus representing the president of United States can they handle the news flow right now from so many different angles . They can. The question is, is the president relying on them . Several levels of management of management have not been named. There are very confident people in the middle and im hoping they are relying heavily on them because they do know the area. R. M i want to bring up mm for is like it was written Robert Hormats. We did some abbreviation the world banks say poland has reached the highest level of relative income with western europe since 1500. That was when Robert Hormats was with the republicans. Jagiellon age of the kings when copernicus was at the krakow academy. In romania, the jobless rate has dropped below scandinavian levels. Events have moved on. Euro zone is now in full cyclical recovery. How does america not screw this up. Several things. The president has to demonstrate its commitment to their continued security. It is their security really provides a cover for a lot of the prosperity. Second, increased trade. Increase trade between the United States which the president has spoken of it now, the question is will they move ahead on the new negotiations. Third, the president did, to his credit, underscore the importance of energy cooperation. Sales of natural gas in particular. Not just because it benefits the United States economy because it gives many of these countries an alternative to russian gas. Russian gas is, by and large, more expensive. And it gives russia a what they cann use for political leverage. Securitys part of cooperation and for the United States. Francine good morning. Does that only work in the favor of the United States if growth in Eastern Europe in that region exceeds western growth . Robert it works to the benefit of the United States, in part because if growth in the area continues, there will be a bigger market for energy and natural gas in particular. And the assurance that they will have a stable supply of relatively inexpensive natural gas can give their own economy a boost. Because it will bring more companies in. Russiansear that the could cut it off at any point in time. So it is a big deal. The numbers at the beginning will not be that great. To buildust beginning the plants in the United States. But if the process continues to pluswill be able four gas exporters here and for european economies and, it is also aimed at reducing brushes leverage in the region. It has not come up very much but if it foreshadows the president taking a tougher line on russia in general, particularly for meddling in the elections, or at least demonstrate support for a strong article five and strong regions,ort for these that, along with energy and increased trade will be hopeful for their prosperity. Francine and terms of i dont know if it is awkwardness or tense meetings but which one at the g20 will be the most difficult for trump . Is it trumpAngela Merkel . Meeting . Trumpputin robert a good question. He has to work with Angela Merkel. They differ on trade issues and Environmental Issues and a variety of other questions and she is somewhat doubtful as to how much she can rely on the United States. Xi, he has to talk to the president about a number of issues. He is less confident that the chinese will be able to average on north korea. So there needs to be some kind of understanding and the chinese president wants to know what the american president s actions will be. Will they take action, more intense action than the action being taken already . What will that do to stability on the peninsula . And putin is, as the president suggested, meddling not only in american domestic politics but in the politics of europe. Looking tons are him, not just to talk about ukraine, which he is going to have to do, because the u. S. Wants to toughen sanctions and keep them. Syria where Rex Tillerson has said the president should have a little leverage on what happens to president assad, but also on the undermining of stability in europe. That is what the russians are doing and that is what they want the u. S. To underscore in conversations to get the russians to stop doing it. Francine Robert Hormats, thank you so much. We are seeing pictures of the chinese president arrived in hamburg, that is his airplane that just touchdown in the hamburg airport. We could hear more from the chinese leaders as they try to double down on the talks that the talks with north korea are the best action, to double the sanctions. So far, the sanctions appear to be doing very little. And the chinese plane has just landed in hamburg. Coming up, im looking for to this conversation. Talking to Jeremy Corbyn. Our very own guy johnson will be bringing us that conversation. This is bloomberg. Tom it is widely presumed that the president of the United States will be greeted with enthusiasm in caps off saw. There has been a real effort by the leadership from poland to bring in people who are in support of this relationship between the United States and poland. Of course, huge polish populations across this nation. Is really square interesting. Going back to the heartbreak of world war ii on the edge of the warsaw ghetto. Theyof it was destroyed as try to bulldoze away the memories of another poland at another time and place. So they are waiting for the president in warsaw. Francine we are looking at a little bit of market movement. We do see live pictures that are important. Looming we are also looking at the german bund. The benchmark now is the highest level of july 2016. So as markets continue to continue to adjust, mario draghi says to get back on this. Lets speak with Robert Hormats and dean curnutt. Indeed, what does this tell us for what the ecb will do next . A lot of investors that this could go even higher. Dean the previous guest made the comment on german bund yields so they have risen quite a bit from incredibly low levels to very low levels. Still well below the actual concurrent relation in germany. 1. 5 ermany is printing inflation. So when you have a nominal bond yields at 50 basis points, they are right negative on a real basis. So one of the things that it does continue to speak to is the distortion imposed by Central Banks. We have the ecb as a massive priced in buyer of bonds and sovereign debt. Thatat of the things Market Participants continue to grapple with is, what is the fair price for a riskfree asset and not being able to determine that, markets also struggle to determine what is the price of risk assets. Francine where is the biggest bubble . If you look at distortions . Bubble is the word that people debate quite a bit. I think the sovereign bond market is quite distorted. To being proposition in the riskfree assets is risky. Tom this is interesting. We will stay with dean curnutt and ambassador Robert Hormats. I want to come back and talk to dean about an important essay about recession. Coming up on bloomberg radio, somebody Robert Hormats knows well. The leadingn International Economists and economic historian. This is bloomberg. Tom good morning, this is a bloomberg surveillance. And inon, in new york warsaw. Right now, we go to a really interesting ripped up the script. Curnutt. T with dean writing an important article that is on the mind a lot of people. Your world of volatility and dampen volatility is a recursive. The move index, a bond chart. The idea here is that we dampen down to where we were in 2006 and 2007. Does dampen volatility signal economic malaise . Is the move index and it doesnt move all that much, does it . The center of one of the key problems and questions with the fed facing right now is a growth and inflation mandate but what they are doing is so asset price and volatility sensitive. Their dividend volatilities and lifting asset races. All in pursuit of higher inflation. Perhaps low rates arent the answer. Hormatss vice chairman of Goldman Sachs international. If you go into a room about recession is it dampened Economic Growth . Dean recession is an economic results. It is Business Activity slowing. Recession typically comes from the fed tightening cycle. It doesnt just end by itself. I can bet resulting from financial shock. A reversal of the causality when asset prices begin the monster that attacked the economy. And for me, i think there is some version of that that is doing. The fed is preserving higher inflation and higher growth. And theyre pushing volatility so low that they are forcing investors to take more risk. You asked her previous guess the best question. Tom i did . Dean i did. You said, is cash and asset . And the answer is no. Not right now. It is a decaying asset because it should be something you should hide out in, earn a little bit of return in and week for better prices to deploy your capital into. But right now cash is a very poor asset. Thank you for a short visit today, dean curnutt. Francine tom, take a victory lap. Tom keene with a great question simon smiles. Coming up we will be talking with Jeremy Corbyn as guy johnson just wrapped up that interview. Jeremy corbyn says he plans to meet with the ecb chief negotiator next week. This is bloomberg. Francine this is bloomberg surveillance. Had a little bit of news from santander according to people familiar with the matter. We understand four or five weeks santander is seeking to get money. They want to selloff some of the majority stakes in the 30 billion euros of real estate loans and assets it inherited when it bought banco popular. This is one of the major questions. Was not able to sell these assets. We wonder if growth has picked up enough for them to sell them off. That is something we will keep a close eye on. President trump has acknowledge that russia meddled in last years election. The president spoke at a News Conference in warsaw after meeting with polands president. The stakes have been made. I think it was russia, but i think it was probably people and or countries. I see nothing wrong with that statement. No one really knows for sure. President trump says president obama was told about russian interference last august but did nothing about it because he thought Hillary Clinton would win. Seeking Common Ground of the conflict in syria when he meets with Vladimir Putin tomorrow in germany. Secretary of state Rex Tillerson says russia bears primary responsibility for the needs of the syrian people. That russia has an obligation to make sure syria does not use chemical weapons again. The u. S. Congressman shot during baseball practice is back in intensive care. Steve scalise is worried about the chance of infection. He will need multiple operations after a bullet tore through his pelvis. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Thank you. Breaking news out of brussels. The g20 with a lot of leaders and their finance ministers in hamburg. Ahead of that, you have powerful leaders, the 20 most important leaders around the world arriving in various european capitals to meet their counterparts ahead of the g20. That is why we have mr. Shinzo abe of japan speaking with junker. They say that japan and the eu freehoist the flag of trade high. The chinese delegation arrived in hamburg. They just landed 10 minutes ago. We are expecting president xi to go around the red carpet. President is in warsaw preparing for a big speech. How north korea becomes part of the hamburg story. When you see the image of japan and china there. Francine there are a lot of bilateral meetings between the president and World Leaders. If i could choose the one to be china in, it would and the u. S. In the u. K. , Jeremy Corbyn says he is ready for another 10 role election and used a speech to pledge more spending on education as he pushed back on seven years of spending cuts. He said the state has a vital role to play in helping the u. K. Maximize benefits of automation and technological changes. Guy johnson spoke to Jeremy Corbyn. He asked him if he thinks he will be Prime Minister. Corbym we did very well in the election. We put together an alternative to this government. Not have ament does majority. They have done a strange deal and does not look to be very stable. Guy you think things could change quite quickly . Mr. Corbyn we could have another election. I am very ready for it. There are many unknowns in british politics at the moment. Mr. Corbyn youre going to tell me about the known unknowns . The great unknowns is where Jeremy Corbyn stands on the details of brexit. We hear this all the time. Im curious as to why you are being as vague as a wireless subject and when you will provide us for transparency to what you are thinking vague as you are on the subject it when you will provide us transparency to what you are thinking. Notcorbyn that we do become an offshore cap haven. I just gave questions about the levels of taxation. The european nationals guaranteed unilaterally rights to remain in britain with full citizenship and writes a family reunion. I think that is crucial. Universitytain connections across europe. That we maintain a broadly similar level of regulation of consumer products. Guy it would be a partnership with europe in the future. Mr. Corbyn not membership in the European Union because of the results of the referendum. Guy is a Single Market compatible with brexit . Mr. Corbyn it is a concept that requires membership with the European Union. We are looking for a tarifffree access to the european market. Our shadow team has had many officials, with eu members of the european parliament, and we have a Good Relationship with socialist parties across europe that want to work with us in the future. I will be in brussels next thursday to outline what our issues are. Guy would you be prepared to pay for access . Mr. Corbyn i cannot give you a commitment. We will have discussions. Our generalout objective. The general objective has to be a tarifffree access to the european market. That is key. When you think of British Industries involved in the andpean market, bmw rollsroyce, they have supply chains on both sides of the channel. A lot of manufacturing relies on the supply chain from europe. And european manufacturers have supply chains here. You cannot break that up without massive dislocation and job loss not only in the corporations themselves, but the local economy. Mw the cited not to invest further, what is the effect . Absolutely massive. North wales, a massive employer in that area, they dont make planes, they make wings and take them over for assembly. Guy you would not rollout paying for access rule out paying for access . Mr. Corbyn the priority is getting access to that market. Guy you have not decided how you will achieve that . Mr. Corbyn it is a jobs first brexit we are concerned about. Protection, employment, job opportunities. Should Financial Services be prioritized . Mr. Corbyn they are important parts of the economy, particularly in london and edinburgh. Clearly, every part of the country is affected. There has to be an access to european Financial Markets and services. Accesssay, tarifffree to the market that includes Financial Services. Guy alongside other industries . Mr. Corbyn i said jobs first. Guy johnson did that interview with Jeremy Corbyn and joins us. What was he like . This is a man that things he can be Prime Minister pretty quickly. Of a manas the aura who thinks he will be Prime Minister. You listen to the speeches he makes, he made one in london. He talks about how he is not only the leader of the opposition, he is the leader of the government in waiting. I said in the beginning, you think things will change quickly . He said he is ready. He is giving the vibe of a guy that will step in the door pretty soon. Francine he is going to brussels next week to speak to the brexit negotiator to try to figure out what he would do . Guy he sees himself coming from the starting point of i am going to be Prime Minister saying. Soon. Me minister im not prepared to answer that at this point was the answer to Single Market. He is very light on detail. Remember that he fired three members of his front bench three weeks ago because of an amendment voted on by a trench of the labour party on a. Ofter brexit he has to make up his mind soon on where he stands on brexit and the details of it. Tom thank you so much. With someone who knows english politics, Robert Hormats of kissinger associates. View of liberal and progressive politics in the United Kingdom. we have a hung parliament. A very different left. What was interesting about this interview, an excellent interview with Jeremy Corbyn, is that he seems to want the benefit of being in the eu and being a part of the european economy, which is to say free trade. The problem is, he doesnt it. Tify exactly how to get that would be nice if he could have free trade access to the rest of europe, but the rest of europe may exact relatively high price to get that. It is an ideal thing, but what is he going to pay for it, and what is the rest of europe going to ask . It is important for britain to have jobs and access to the rest of the continent on a free trade asus. Free trade basis. Tom is this a Jeremy Corbyn that wants to use other peopless money until he runs out of it . Robert the record is he wants to do more spending. The question is how fiscally responsible that will be. E did not talk much about that he has a lot of issues. He is going to talk to mr. Bonnier. Hes going to say, what would you do if you were Prime Minister to give us, europeans, the kind of access only wants on personnel and a variety of other things . Tom we could spend an hour with ambassador hormats. Robert continue with hormats of kissinger associates. In the 3 00 hour, bremmer on north korea. Stay with us. This is bloomberg. Tom bloomberg surveillance. Way too early in the morning in new york. May have acqua bloody mary at the end of the show. We day grace a little, but staying on geopolitics. Chief joined by the stoli executive officer. How did you end up at middle vermont . E barry, frenchmannusual for a to end up in vermont, but when i saw there was a ski resort, i couldnt resist. I skied a little, but not very well. All of it turns around to the relationship of this branded item in 1901 in bars and peoples houses, and our perception of sanctions in russia. Have you seen diminished unit sales . Fores it has been around 80 years and is one of the oldest brands. We have a proud russian heritage , but we are a European Corporation with operations in latvia. You go into a meeting in dallas, texas with your group of people, and they have to move america thatto an is questioning our relationship with russia. How do you do that tactfully . Hugues we have a russian heritage, but we are about stoli. It is part of the american culture. It has been there for so many years. Francine do you worry about currency when you ship a lot of your things . Is it price, or do people still drink despite currencies . Fluctuate,rencies but we have to adapt. We are sold in 140 markets. It is not an easy one, but we have to adapt systematically. Francine do you worry about being a takeover target . We cover consolidation, especially the drinks industry. Do you think someone is eyeing you . Hugues citigroup is an independent group. We have our own fate in our hands. Rum from louisiana, bourbon from kentucky, wine so we write our own story in that arena. Tom i ran into ambassador inmats at a french bistro new york. We have to make a choice of seven vodkas. How are you competing with tito and aristocrat . You did not think you would get . These questions been aroundi has for many years. Best tastingy the vodka in the world made with the best wheat. Proofe fantastic patented. Product versus all the other vodkas is incomparable. Were putting our product in the of consumers, and they come back to stoli. Tom should it be in the fridge or in the living room . Hugues it depends on how you like your vodka. Tom we will continue with Robert Hormats on the inpolitics and the president warsaw. Let me look at tv. I am cueing it up. It is buffering right now. Surveillance gerbil is going around in its wheel. I can find any number of interviews we had earlier, scroll through, and bring them over there. This is bloomberg. Tom there is no other topic. Francine lacqua and london, tom keene in new york. Lets go to our single best chart and Robert Hormats of kissinger associates. The korean boom. Gianormous 6 or 7 . We could talk for two hours about north korea. Thats go to the news of the moment. What is the to do list of this administration to provide stability and support for northern asian allies . We have to demonstrate that we support china and japan in dealing with the north or do we have to fear out a way of working with china and russia. They have more influence than we do. The question is if they will use it. The problem is not whether china has influence, they probably have less than we think, but they do not want to destabilize north korea for fear of refugees t a united korea, united by the south, would be a strong United States ally. We will have to figure out if we want the chinese to play a more influential role. What a changed korea might look like. Would there be american troops . What would the Strategic Implication for china be . Do not want instability in the Korean Peninsula because that affects an important strategic and economic area. Somewhere along the line we have to figure out what chinas Strategic Interests are and how to work with them. They cannot be out of the equation. We cannot do it alone. Francine that is the crux of the issue. President trump, who is more unpredictable than previous whendent, a good thing dealing with north korea. We listened to the speech together. He said, we have severe things to say when dealing with north korea. He said, that doesnt mean we will do them. I do not want to draw red lines. If you are the north korean leader, how do you take it . Robert the North Koreans are of the view the United States will not risk highly disruptive action for fear that they see north korea as unpredictable. If trump is unpredictable, north leader is even more unpredictable. If the United States decides it wants to do something tough, would north korea react adversely . We already saw them bomb a south korean island. Nuclear have more capability. My guess is the president will apply greater leverage to north korea and its allies without suffering too many negative consequences for the United States, but he would get pushback from the chinese and russians. Is there a strategy . , he has going to do it to demonstrate there is a strategy, not just ad hoc actions, but a strategy that will squeeze the north. Tom we need to go back to where saw to look at the imagery before the president s speech. Michael mckee mentioned the idea of not so much a stacked audience but a poll and that once to greet the United States as a buffer a poland that wants to greet the United States as a buffer. Francine he chose the most friendly nation to his hostile view of immigration and strong sense of sovereignty. He will receive a warm reception in poland. Then he travels to hamburg and the g20. Tom the president in poland. This is bloomberg. The consensus grows over reigning in blues financial conditions. The United States raises rates ahead of the g20. The president says he is considering pretty severe things on north korea. Deutsche bank back to frankfurt following britains exit from the European Union. Daybreak. Oomberg i am Jonathan Ferro alongside david westin and a special welcome back to alix steel. Auction. Ench back through. 5 . A 17 month high on the german 10 year yield. Taking the euro with it. Oat in