Present anytime soon. Shares in the photo app maker plunge as user growth stalls. Can any filter save it from the instagram threat . This is bloomberg surveillance. We are getting some breaking news out of the iea. Dip as we are seeing a across global stocks because of the threat from the Korean Peninsula. This is what im looking at. They are cutting estimates for the crude needed. I imagine they mean the crude pumped from opec for 20172018. They also go through some of the compliance issues opec was discussing. I dont know whether this is having an impact on the price of crude. You can see brent down some 0. 8 . They say that Global Oil Demand is rising to more than 100 Million Barrels a day for the Fourth Quarter of 2018. This is what im looking at for the rest of your data check. It is a risk off kind of mood. This is what were seeing in equity. Havens are gaining because of the korean tension. We had ray dalio publishing a note, a game of chicken between the u. S. And north korean leaders. He advised investors to buy gold. We will get plenty more. First lets get to the bloomberg first word news. Heres taylor riggs. Taylor tensions are rising in kenya, where the Opposition Alliance is demanding it be declared the winner of tuesdays election. Former Prime Minister won more than 8 million ballots in the vote, compared with 7. 7 5 million for the president. The claim further escalates a potentially violent political crisis. Venezuelan leader Nicolas Maduro says he wants a meeting with donald trump. It comes less than two weeks after he verbally attacked the president. Maderos address to the Constitutional Assembly comes as america lays sanctions on his socialist administration. Initiate negotiations so that i have a personal conversation with donald trump. Initiate negotiations to have a telephone conversation with donald trump. If i travel to new york in three or four weeks for the United Nations to have a meeting with donald trump, here i am. Heres the chief of your interest. Nicolas maduro, constitutional president of venezuela. Taylor google has canceled a meeting to address gender issues. They are citing concerns over staff safety. In a note to employees yesterday, the google ceo said he called the meeting off after questions to be asked were posted online, raising concerns that employees would be harassed. Shares in snap have plunged in extended trading after growth fell short of estimates. 173y active users reached million in the second quarter. Analysts had been expecting 175 million. It feeds fears that aggressive competition is punting the companys potential. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Francine . Francine thank you so much. Y wasnt tough enough, that is the message from donald trump, saying the regime in pyongyang should be very nervous. Anythingth korea does in terms of even thinking about lovek, of anybody that we or we represent, or our allies, or us, they can be very nervous. They should be very nervous. Things will happen to them like they never thought possible. Francine markets have been jolted by the drama. Volatility spiked to the highest level since the u. S. Election. 1. 5 ,p 500 fell almost the biggest drop in three months. Billionaire investor ray dalio, who leads Bridgewater Associates, said people should consider placing 5 to 10 of their hedged assets in gold. Kamal sharma is director of g10 fx strategy at merrill lynch. Great to have you on the program. Do you believe this will deepen or will we see a leg up . Kamal in the near term, we see little reason to change the view that the yen and the swiss franc should remain the fx currency of choice. Tensione underlying between north korea and the u. S. Fact exacerbated by the that we are in summer months. Liquidity is at a premium. The bulk of our recommendations are to remain constructive on the yen. Longain a structurally bond buying into the summer. Francine are we going to see a lot more volatility . That weve always thought heading into the september period that there would be a pickup in volatility more generally. Given the approach of the potential government shutdown, tax reform measures, and a focus on u. S. Monetary policy. This is just an added layer of complexity. We are constructive on the dollar. We are becoming increasingly selective in our view. Longer dollar versus canadian, versus kiwi. Much i have a chart showing the swiss technicals compared to moving averages. We are charting swissieyen. What do you make of that . Kamal the swissieyen chart is interesting. Ishink what is interesting that we are not at levels where we would deem the s p to be interested in terms of intervention. The fact that weve had a large buildup of short swiss positions in a few weeks given the sharp rally towards 115 is probably seeing some of those positions being taken. Francine the other big issue is u. S. Inflation. We get the latest reading in a few hours. Analysts say Consumer Prices excluding energy and food probably rose 2 . That would snap four straight months of subpar readings. That has been causing the Federal Reserve a lot of stress lately. Yesterday the new york fed president said reaching 2 is not going to happen anytime soon. Until some of these very low readings drop out of the statistics, we can take some time. Francine first of all, why is measuring inflation such tricky business . Kamal the world has changed since the financial crisis. Theres demographics, technological changes. This is not just a problem specific to the fed. They have been talking about alternatives to inflation targeting. This is a problem that is impacting the broad g10 and developed economies. The market remains very sensitive to inflation numbers. Pbi was softer than expected. That left the dollar vulnerable. The market will be focused on changes on that inflation for currency markets. Francine you were mentioning you were constructive on the dollar. I have a chart which basically shows the u. S. 10year. Are you constructive on the dollar because of inflation figures or is it more to do with the Korean Peninsula . Kamal constructive on momentum. If you look at the broadbase moves in the dollar, we are technically very oversold. The levels are consistent with moves in the yield. I think from that perspective, the recent improvement in u. S. Economic data has largely been ignored. Also, the flipside of this equation is that some currencies versus the dollar have gone a long way. Optimism in the likes of the canadian dollar, some verbal rhetoric against the kiwi, make those the ideal candidates to be short against the dollar. Francine do you still look at the phillips curve . Kamal it is flattening. The phillips curve has been a key focus for Central Banks for many years. We continue to focus on that. It is flattening. We are not getting any kind of inflation. It is still the benchmark that most Central Banks use. Francine i have a question from a viewer. The viewer says, what is the logic of safe haven flows heading into yen with japan being at risk from the worsening north korea situation . Kamal one of the things we focused on this week was, if there is an extreme uptick in these geopolitical tensions, one thing we are concerned with is the viability of the again. Earlier,eport said gold and the swiss franc make better safe haven prospects, given the geographical proximity. It is an argument you can make that the yen may be vulnerable in the longer term if the tensions intensify over the coming months. Francine what are you expecting today from that u. S. Inflation 0. 2 on theal on the basis, 1. 8, 1. 7 underlying basis. I think the market is a little bit defensive, because of the pbi number. I think the risks are in line with expectations. Francine thank you so much. Kamal sharma stays with us. We will get his thoughts on euro. First lets get to the Bloomberg Business flash. Taylor google u. K. Has won a proposal to build a campus alongside the offices in london. The project will accommodate as many as 5000 workers. The building will be longer and construction is due to start next year. Chinas online watchdog has launched an investigation into reports of violations at new services. The Cyberspace Administration of china says it will look into reports of some of the Largest Online services carrying User Generated Content laden with violence and rumors disruptive to social order. No immediate comment on the notice. Ryans grave, the first employee at uber, is stepping down from his management role. Graves service as Senior Vice President of operations and is tasked with running the business in absence of the ceo. He will remain on the board to help the Company Search for a boss to replace travis kalanick. That is your Bloomberg Business flash. Francine six weeks from the german election, Angela Merkel has returned from her vacation with a commanding lead. According to a new poll, the cdu csu has a 16 lead over Martin Schulzs spd. Bloombergs German Government reporter is in berlin. Patrick, is there a danger that Angela Merkel and her team are now complacent, so the polls change . She is so far ahead in the polls, even after a vacation, that Party Officials have said, if anything, complacency could plan tossue, and they go in strong with the election campaign. Francine i guess people in germany like the status quo because the German Economy is powering ahead and theres nothing huge in the manifesto. It is pretty stable. The economy is very strong. Unemployment is low. Certainly helps. She is the force of stability in germany. Her strength has also to do with the weakness of other parties. The social democrats have struggled to reverse the momentum. There could be a contest back as far as february, march, but now merkel and her christian democrats have pulled way ahead. Francine is there a contentious issue that Martin Schulz could turn into the main event, or is it really a done deal . Nobody is saying it is a done deal. All of them will tell you that german voters tend to Pay Attention only in the last days and weeks of the election. We could see some tightening. Nobody is willing to call it yet. Unless theres some outside event, merkel is in a very strong position. Francine patrick, thank you so much. Bloombergs German Government reporter. We are back on the Trading Floor with kamal sharma. Im looking at a very simple chart, charting euro, and it shows that euro is definitely back in favor. You can see bullish wagers on the euro. Is there a danger that the euro will be overbought . Kamal we think there are some risks that the euro does come under some pressure. We have been surprised by the resilience of the single currency. Something weve been focusing on is asking the question, are Central Banks buying euros again . 19 ve fallen from 28 to as of q1 2017. That is a combination of a number of things. 2012,cal crises through the political crisis potentially this year from the french election, and the ecb quantitative easing. Heading into the next year or so, with the ecb considering tapering and european bond yields rising, that makes the european project a more appealing proposition. You could argue that the resilience is being driven by the asian centralbank reserves starting to rise and europe could be the beneficiary of some recycling flows. Francine have we discounted all Political Risk in europe, and is that dangerous . Kamal if we were talking at the beginning of the year, we would be talking about geert wilders, marine le pen, all of those events that passed without any significant disturbances or adverse reactions. Pollscond person in the is a fairly centrist party. One of the parties look likely to win the elections. Are veryhe tail risks low, which is why i think markets are not focusing on this particular event yet. It would be prudent for markets to price in some vol, but this is not really an event for fx markets. Francine what is the one thing that worries you about the currencies . Swingsgoing to have huge . All the focus seems to be on currencies. Kamal i think the positioning argument is very important. Tradingicking up some in the g10 fx space. That suggests there are some risks. The concern i think will be that if this tension spreads into macroeconomic data and we start to see some declines in business confidence, then it becomes a more meaningful driver for currencies. At the moment, we are focusing on the geopolitics. Francine before i let you go, we have the brexit show. What is your call on pound . Kamal we still think it is probably vulnerable to the downside. We have a significant amount of brexit related events over the next six months. Weve got three more negotiation rounds. We got a conservative party conference. I think the pound will continue to trade on the politics rather than the data. Francine thank you so much. Kamal sharma, at merrill lynch. Up next, going to the dogs. Snap slumps as user growth stalls. We discuss that next. This is bloomberg. Francine this is bloomberg surveillance. Shares in snap have plunged in extended trading after growth fell short of estimates. 173y active users reached million for the second quarter. Analysts had been expecting 175 million. It feeds fears that aggressive combination from facebook is blunting the companys potential. Lets get more with giles turner. A lot of people know what snap is. A lot of people dont know. Basically you put your face and change everything. Why has it not taken as much traction as analysts thought it would . The massive problem is no one really knows what it is. First thing is says is snap is a Camera Company. They are not selling many cameras. Is it a social Media Network . Its followers make a big play about, you cant compare it to facebook, but all investors want to do is compare it to facebook and say, you are not good enough. You should be focusing on how innovative you are. But investors are more interested in how many users it is getting. Francine this is kind of, they said they do photos and videos. The real concern is that instagram has very similar functions. Really bad. I dont think investors are going to be sending each other snapchats of happy cartoon dogs anytime soon. It is going to be more vomiting rainbows. The average revenue per user is increasing, but not as much as people hoped. They overlook the net losses. There were 443 million. The one positive you can get is the under 25s, that key demographic, they are using it on average 40 minutes a day. Almost as much as financial journalist use twitter. Francine i need to get onto the vomiting rainbows. Ive never seen that. Basically this is a line chart looking at the equitie since the ipos in march. What does snap need to do . All investors really care about is growth. They see it as a network. Networks need to keep on growing. The more the founders keep arguing with investors and say growth isnt important, the more investors are going to be convinced they are not answering the questions that need to be answered. Francine thank you so much, giles turner, bloomberg tech reporter. With theresa mays cabinet split over how to deliver brexit, we speak to the head of the u. K. s biggest business lobby group. We will talk about what the boe can and cant do. We will talk about pound. We had a call from kamal sharma. Ive heard everything from no parity or we touch it in 16 months. This is bloomberg. Got you outnumbered. The dinosaurs extinction. Dont listen to them. Not appropriate. Now im mashing these potatoes with my stick of butter. Why dont you sit over here. Find your awesome with the Xfinity Stream app. Included with xfinity tv. More to stream to every screen. Francine welcome to our weekly brexit show, live from bloombergs European Headquarters in london. Lets get a roundup of the big brexit news. Heres taylor riggs. Taylor a report says the u. K. Is offering to pay a brexit divorce bill of 36 billion pounds to push talks towards a future trade deal. The paper cited three unidentified government officials. Brexit secretary david davis told the sunday times the report was news to him. U. K. Consumers cut back on spending for a third month in july, putting them in the worst slump in more than four years, dealing another blow to the economy. A report said the 0. 8 drop in spending was broad ranging, with clothing, household goods, food, and transport among the worst hit. The recruitment and Employment Confederation said the u. K. Labor market is tightening and it is difficult for employers to find staff. Las the availability of workers fell sharply. The rec said that helped boost the measure of starting salaries. The organization said the results show the importance of the u. K. Having easy access to labor from e. U. Nations after brexit. Google u. K. Has won approval to build a campus alongside the existing offices in london. The project will accommodate as many as 5000 workers. Construction is due to start next year. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Francine thank you so much. This is the brexit show, but sometimes we have breaking news from abroad. Hong kong, secondquarter gdp expanding, a little better than expected. 0. 6 mists were expecting a increase. Now, back to the brexit show and the u. K. Prime minister theresa mays cabinet remains divided over a transition plan. That is according to research by the groups is a row. The government is split three ways, with those who want a harder brexit calling for the shortest transition possible. A poll by the British Chamber of commerce found members want it to last three years or more. The director general, Adam Marshall, is here. What worries you the most . It is a quiet month, then we get back to business in september. What should be the priority . Answerne is starting to the practical questions businesses are asking about brexit. They dont talk in terms of the highlevel politics. What we say is, who can i hire . Am i going to have to comply with different standards . Starting to drill down is important. The second thing we are hearing is, theres a lot of stuff we have to do in the u. K. That doesnt have to do with brexit. If we dont, we wont be able to take it vantage of whatever opportunities brexit may bring. With got to get the basics right. Francine how can you drill down to details if you dont know what kind of agreement you will end up with . Adam what we need to see his business working closely with the government on these issues. Take aviation. Will planes be able to fly between the u. K. And europe the day after brexit . I would like to say the answer is yes. The way is for business and government to be working together. We need to drill down into the fine detail, whether it is sector by sector or things that go right across the economy. I dont like that it feels like that has slowed down. Francine do you believe your members are planning for the worst . Adam about a third of my businesses are thinking about brexit. Two thirds of them are simply saying, this is way past my Current Business cycle. A third who are directly affected, whose operations are affected, are taking active steps. Saying, this is a geopolitical development. Im not going to get distracted from my business. Francine are they holding back from hiring because they dont know the implications of hiring he you nationals . Adam skills gaps are so big that they are not holding back on hiring. We do see holding back on some investment. But not necessarily on hiring. Businesses have said for quite a long time they have gaps in their workforce. Francine when you look at the Industry Groups, is there one Industry Group that seems to be better prepared . Adam i dont look at things on a central basis. I look at things geographically. When i talk to different sectors, they are trying to get organized. Some have bigger and stronger trade associations. Others are a bit more worried. It does depend. Francine you want against the swiss u. S. Trade deal. You worry that if something gets done too quickly, the best companies in the u. K. May be takeover targets. Adam i worry about this because the u. K. Is just getting back into trade deals on its own. The u. S. Trade representative is one of the best oiled machines in the world when it comes to negotiating trade deals. I wouldnt want to go against them early on. Theres lots of things you can do that would let trade flow more freely, but they are smaller. Francine what is one question you get the most . Do we have the transition agreement . What happens to pound . Adam the one question i get most is, do we think we are up to the challenge of getting this right . I think we have some way to go before we answer that question. There are so many realworld Business Concerns where we dont have answers. Months, we3, 6, 12 have to keep asking that question. Francine do they worry about the politics of this . We had a survey, saying even the cabinet is split three ways. Adam business has a lot of different opinions about brexit. When i look at our members and what they are saying to us, there is no appetite to walk away from the negotiating table without a deal. Members think that is a good idea. About 28 of our members are saying, the current approach seems about right. Then theres a big chunk who want something that keeps some closer links to our trading partners in europe. Theres appetite for a comprehensive deal. Francine adam, thank you so much. Adam marshall, director general of the British Chamber of commerce, stays with us. We will talk about the markets, the implications for the boe, what it means for u. K. Business. This is bloomberg. Francine welcome back to our weekly brexit show live from bloombergs European Headquarters in london. Joining us now is oliver harvey, strategist at deutsche bank. He also heads Brexit Research at the bank. Still with us, Adam Marshall. Thank you for sticking around. Welcome to the program. Let me go straight to the chart. If you are looking at pound, it has to do with how the boe positions itself. This is a simple chart looking at the base rate and the inflation. What happens to inflation . Is it impossible to predict . Oliver i think you make a very good point. The whole bank of england reaction function is predicated on brexit. We dont think the bank of england are going to be able to hike rates until theres more clarity. Adam was talking about transitional agreements. Last week, carney made that extremely explicit. Until brexit uncertainty is resolved, we are not going to get the bank of england hiking rates. The bank of england assumes that the Household Savings rate is going to remain unchanged over the next three years. Basically theres going to be no buildup in precautionary Household Savings. That is a pretty big assumption to make. I think it is very difficult for them to move. Francine ive had about 40 fx strategists over the last two weeks coming on and only one of them said it is time to hike. Why did carney go to the pains to sound more hawkish . Oliver there are some legitimate reasons to want to hike rates. The Unemployment Rate is where they think equilibrium is. Inflation is overshooting the target. That is something that has only happened three or four times in the last decade. On the other hand, growth is clearly slowing down and you have the brexit process. I think the bank of england are becoming a bit more sensitive in terms of how they view the impact of big Exchange Rate falls. Weve seen this big collapse of the pound. What we are not seeing, what the bank of england had been hoping for, is the economy rebalancing. Suggestsy data manufacturers are enjoying a fantastically good time. Manufacturing has been the worst performing sector in terms of economynt in the u. K. Since brexit. We are not seeing this rebalancing of the economy towards exports and manufacturing. That is why i think they are a bit economy since brexit. We are not seeing this worried about another big fall in the Exchange Rate. Thiswould reinforce negative picture for the consumer. Francine adam, would your members be able to withstand an Interest Rate hike . Adam what theyve said to us is, when rate hikes come, they cant be sharp. Small step increases is something i think most of our firms are prepared for. Many will expect them to be coming. I agree with all of her about manufacturing. Manufacturing is not big enough to overcome some of those headwinds. A lot of manufacturers are having a great time. They are doing really well. They are taking advantage of sterling. Theres just not enough of those. Francine that could take 10, 15 years. With time, would manufacturing make up a larger chunk of the u. K. Economy . Oliver it is a 10, 15, 20year process. You cant expect this to happen overnight. Maybe there are some signs in the right direction. While there is still uncertainty about brexit, manufacturers are going to be very unwilling to increase capacity, to invest in market share. They dont know what the trading relationships are going to be with the rest of the world. Adam was mentioning that companies are expecting some Interest Rate hikes. One part of the economy that is going to struggle is the household sector. That is obviously a very important part of the economy. At the Debt Financing costs for households. The u. K. Was the most vulnerable, or one of the most vulnerable. We have a very pessimistic backdrop for the consumer. You have negative real incomes. You have record low savings rates. Francine could you argue that households are feeling the pressure i have a chart which i will get up in a second. Wage growth is not really there. But as you cut immigration, wages will be forced to go up . Oliver we wrote a big paper on the impact of immigration on the economy and what brexit means. People often look at brexit in terms of trade. I would argue that future immigration policy is more important than trade in the longterm Economic Outlook for the united kingdom. Our conclusion was that it is going to be very difficult to increase wage growth by reducing immigration. There are maybe some sectors that have seen wages pushed down by immigration. In aggregate, immigration improves productivity. Evidenceery little that has had a negative impact on wages. I want to make one final point. Immigrationspike in , the u. K. Labor force would not have grown over those decades. The demographics in the u. K. Do not look very good. Unless we have migration, we are not going to be able to create the amount of jobs we created before. Francine is it something they dont even talk about austin mark about . Adam they dont talk about it much. The actions of the boe do matter a great deal. But it is not the first phrase off of their lives. Migration and the availability of labor is likely to come off of the top of their risk list. Francine thank you so much. We will be back with Adam Marshall and oliver harvey. I found that chart looking at inflation and wages. We will show that next. This is bloomberg. Francine welcome back to our weekly brexit show. Im Francine Lacqua. Lets check in on your markets with nejra cehic. Nejra i want to start with this great index that bloomberg has put together. G btv 5232. This compiles a number of Global Equity benchmarks. Sovereign yield, brent crude, gold, as well as dollaryen. You can see that Risk Appetite is really waning. This is a big index. If you dig into various parts of the market, you can see that that is reflected. We saw u. S. Stocks drop yesterday. The vix has gone to its highest level since President Trump was elected. If we look at the vstoxx index, look at that spike. It has dropped back below, but it hit its highest since april. European stocks heading for their worst week since november. Money coming out of equities. If we take a look at dollaryen, this is a good reflection of where risk is going. 1. 0896. It has dropped below the trend line. This is where we are. That is going to be key as well. A lot of analysts say the risk is in symmetric is a symmetric. Jump inhat bigger yields. Perhaps dollaryen could pick up. And what happens in the treasury markets, very important to what is happening in the credit space as well. There has been talk about the slump in junk bonds. We have seen those spreads widen out. Weve even seen Investment Grade spreads widen out. This is the Bloomberg Barclays u. S. Highyield average. We are at 3. 8 there. That is quite a way below the average over the past five years. It does beg the question, are these highyield bonds really at risk when theres still such a hunt for yield . Francine thank you so much. Still with us, Adam Marshall, director general of the British Chambers of commerce, and adam harvey. Adam, when you speak to your members, do they read the papers a lot more . How do they keep up with how they need to position themselves . Do they wait for the government will follow negotiations . Adam a lot of them started following the negotiations in the immediate aftermath and then a lot of them stopped. They were spending all of their time dealing with noise rather than fundamentals. A lot of them paired back there brexit consumption. Want of folks say, i dont to talk about it all the time. I want to be reassured that the negotiations are in hand. Then i will reengage. So many firms dont have the capacity to deal with this on a daily basis. It is only the large ones who are directly affected. Francine how should investors look at it . Oliver adam said that hes paired back on brexit consumption. I think the best adjective to describe the markets attitude is fatigue. Fatigue with u. K. Politics and the brexit process. We looked at basically the options volumes that had gone through over the last 12. You have a big spike in options over brexit. A big spike over mays speech to the party conference. A big spike in volumes at the lancaster house speech. The u. K. Election came along and there was no spike in volumes. The market has almost given up trying to predict the nuances of u. K. Politics. Fundamental drivers have come back. I dont think that is going to last forever. When we get closer to the deadlines, the european council, december deadlines, then brexit will become a focus again. Francine do you think it is boredom or they dont know how to traded . Oliver a mixture of both. Francine what kind of reassurance message . We talked about it at the start of the interview. If you were theresa may, what is the message you would give to the bcc . Adam one, we want to partner with business francine has that changed . Adam there has been some change. Im now looking for that engagement to start dealing with those practical detail issues. I think the second message is, were going to accept that some sort of transition is needed to get to the final settlement between the u k and e u i think the third message has to be, we are looking at domestic factors. Oliver mentioned fatigue with brexit. A lot of businesses saying, i dont really want to engage with this that much anymore. A lot of them do want to engage with those breadandbutter issues. Are they going to be able to get goods down the roads . Are we going to build a new runway at Heathrow Airport . The problem is, all of the energy in the government at the moment is going into brexit. There are lots of issues, lots of things we can fix, lots of things we can help businesses with. Thank you so much. Adam marshall is the director general of the British Chamber of commerce. Adam harvey, strategist at deutsche bank. Bloomberg surveillance continues in the next hour. Tom keene joins me out of new york. We will be talking to Daniel Morris from bnp paribas and Vasileios Gkionakis. This is bloomberg. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. Francine going further than fire and fury, President Trump steps up the pressure on north korea. They should be very nervous. Things will happen to them like they never thought possible. Francine stocks drop and volatility strikes. Dalio tells investors go to gold. Bill dudley says do not present just expect to present anytime soon. This is bloomberg surveillance, i am Francine Lacqua in london. Tom keene in new york. Tom the Korean Peninsula is front and center after the president s extended press conference yesterday, Kevin Cirilli to lead off the 6 00 hour, but you really see it in the vix. It is front and center. Francine lets get to the bloomberg first word news. President trump is not backing off his threat of retaliation if north korea strikes the u. S. Or its allies. He warned them not to cap carry out a missile test and said North Koreans should be very nervous because things could happen to them like they never thought possible. Trump has escalated his war of words with Mitch Mcconnell and says he is very disappointed over the failure to eliminate obamacare. He urged mcconnell to get back to work. Election sixs weeks from now, she is favored to win her fourth term as chancellor. She has a lead over her primary challenger Martin Schulz. She will lead a 50 stop Campaign Tour across the country. International Agency Energy agency has cut its forecast of the amount of energy needed from opec. The agency says there are growing doubts that all the countries involved in opecs Production Cuts agreement are fully committed. 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 equities, bonds, currencies, commodities, it could be a real eventful market today. At 35. Ures curve flattening, euro churning and oil, 48. 19. Lets sit on this screen. There is the vix, 17. 04. The vix is a 20 average over 20, 25 years. We have had an uncommonly quiet us and market of nine and 10 and 11 vix. We went to 12 with the korean news and blew out yesterday afternoon to 16 and we are now at a level of 16. 04. The convention on the street is not to look at percent change i know it is a big number, 6 what look at the point change and that one big figure move in the last 24 hours or so is a big deal,. 98. The threeyear bond really crushes. Look at the yen, it is extraordinarily strong. Francine yet his significant which is why i put it up there yen is significant which is why i put it up there. Overall, european stocks slumping, investors seeking haven, amid what ray dalio termed a game of chicken. I put gold, and oil set for a second weekly decline. Tom i want to bring this up, inflation data today. Great experts are linking the fixed rate market into economics will be joining us, and this is two inflation rates, whites core. White is core. The red line is the cleveland cpi, an odd set of core inflation mathematics and i would suggest it is much more the inflation that our viewers feel in america. It is right now and 2. 18 on that redline, cleveland cpi. Francine you have the perfect chart looking at inflation. Your chart and my chart capture what we need to look out for today. You have the inflation chart, i have a risk off chart. This is a bloomberg risk on, risk off sentiment. They track 18 factors and this tracking index of sentiment began before the 2008 crisis so i will not go through how we measure it but it shows from 2008 we are seeing a little bit of a selloff which is here, a risk off. Morearket increases the people by risky assets. This is nothing like what we saw after 2008, said something to keep in mind as we bring this index further out. With more on the market route, lets turn to our guests, Vasileios Gkionakis and Daniel Morris. Thank you both for joining us. This is what we have seen, we call this around but the market does not really know how to price these geopolitical concerns. Daniel clearly it is challenging, let alone dealing with trump, when all the cards are shuffled in a slightly different way that we are used to historically. People do not necessarily know what to do and the default reaction would be to take off risk. It is a bit of weight and see and uncertainty, certainly a lack of pleasantness with the situation but i do not think there is much more you can see. Francine how do you apply these havens in the currencies . There has been quite a strong move in the yen but japan would be impacted by the korean crisis so why not be swissie . Vasileios this is the risk scenario we are talking about. On the fundamentals, nothing has changed as turn as far as Global Growth has. Largely because we are talking , the facting up risk that we are trading, thin liquidity, i still think the yen is the most straightforward because the reason why you get yen surging in risk aversion because japan is not a creditor, and japanese investors because of the risk aversion, they repatriate assets. It is pretty much the same argument for the u. S. Even if the u. S. Is the center of all of this. I still think the yen will be the most straightforward hedge among the safe havens. I am not convinced about the swiss franc. I think correlations of risk have broken down the past few days. There may be some pressure on euroswiss but not above 1. 10 or 1. 11. Francine ray dalio recommended placing 5 to 10 of assets in gold as a hedge against geopolitical and economic risks. There will be a challenging to pricing but go to gold. Do you agree . Daniel it makes sense to be more defensive in this environment, whether it be gold, the yen, or the dollar. This is not the only risk that is out there. Clearly this was difficult. We have been talking about korea for years and he has been an issue for but we know that jackson hole is coming up. Yout were just this maybe could be potentially more complacent, but it is not the only one, making the defense be more defensive. Tom with the korean news flow and who knows what we will see, when i look at what do i do with my money, do i basically just sit through the weekend . Isthis a time where bnp changing avocation this allocation or having a beverage allocation or having a beverage of your choice . Daniel not changing allocation. With the anticipation that this could be the time when he saw a risk off event, did we anticipate north korea . No. Feeling previously, you lacked really good obvious investment opportunities, spread is high, so on and so forth. I think we are moving into that, not at the bottom. Tom let me go to the yen chart. We have shown this for ages, basically the kuroda bank of japan chart. A historic day where they tried to defend against a stronger yen. He did not get their way. Mr. Corona ended up with a stronger yen mr. Kuroda ended up with a stronger yen. Full and bank of japan action with what we see from north korea, if i have this very important year with stronger yen, look at how i can do that. I can do this on a friday while i am butchering that yen symbol. And mr. Corona, kuroda, test can he use the north korea upset . I do not think he has control. I agree i think we need to somewhat get out of this mindset that Central Banks are managing currently markets currency markets. We went through that in 2015 to a large extent on the back of what the ecb went through, but i do not think Central Banks are in the game right now. That is absolutely true for the bank of japan because at the end of the day, we are talking about an environment of zero Interest Rates for pretty much everything. They are managing the yield curve and it is quite clear that when you get this flaring up of risk aversion, you get the yen responding simply by the market. Tom i want to show this again so you know i can use this teleprompter to make a yen symbol. There it is. Francine well done, tom. Tom this is what we are doing on commercial breaks. That works out pretty well. Francine, i want to emphasize the president s press conference yesterday moved the markets. There was a story that mrs. Huckabee had a page, one more question, and he kept going on and on and it really dislodged the markets late yesterday. That is where you see the yen, 1. 08 handle 108 handle. Francine if these kinds of words came from any other president the market may have sold off a lot more. Investors do not really know how to take these threats, whether they are real or temporary pressure. Tom we will do more on north korea in this hour, and Kevin Cirilli will start our 6 00 with a story from washington. We continue with Daniel Morris and Vasileios Gkionakis. Coming up, michael mayo. Company,e stagecoach wells fargo, in the 9 00 hour this morning. Taylor this is bloomberg surveillance, i am taylor riggs. An early investor in uber is suing the former ceo. The lawsuit is a combination of a bitter fight between cala next and benchmark. The suit says he tried to pack the board willing with with allies willing to keep him on the board. In china, the government is setting up scrutiny over the internet. They have launched investigations into possible content violations. There are reports they are carrying User Generated Content with violence and pornography. The swiss bank says it has no appetite to support the government of president Nicolas Maduro. That is your Bloomberg Business flash. Francine thank you so much. The new york fed president bill dudley offered a generally positive outlook but he cautioned it will take some time for inflation to rise through the Central Banks 2 target. We anticipate a continued moderate growth trend with continued strength in the labor market which we think will push inflation over the mediumterm back toward 2 . Francine we will get cpi data for the month in the u. S. In a few hours. We are back with Vasileios Gkionakis and Daniel Morris. When you look at inflation in the u. S. , this is the number everyone is expecting to indicate what the fed does next but why is it such a tricky business . Vasileios i think that is largely because i was a two things. We had just we may have undergone a structural change in the number of production capabilities in the economy which may have shifted the phillips curve, which is basically what really matters, the relationship between inflation and employment. At the same time we are going through a period of unprecedented monetary response. Many yearsn talking of Monetary Policy stimulus which has not been used in the past and we do not yet really know the effect that all these things have on inflation and yields. That makes it a tricky business but let me highlight one thing. Yesterday we were going through, looking at the data, stripping out the component from the overall variation, from a trend perspective even inflation has turned in the u. S. And pretty much everywhere. It is the pace of the uptrend that is probably not satisfactory but it is no longer trending lower. We are clear on that. Chart,t me bring up this which goes to what he was talking about. Sector, goodervice sector inflation in the United States and i think it is pretty much the same in england. Goods prices are down under the zero bound, and there is this other world. 2010is the trend up from in Service Sector inflation. We have had this transitory ,ollover but it is irrefutable Service Sector inflation has risen over the last five to six years. Exactly, but with the rollover you see in services increases anxiety over the longterm trend. We have seen a disinflationary trend in goods over a long time. What we have got to remember is far consumers ultimately it is good and will support growth, but services is a different story, more significant for the u. S. Economy. If you see sustained weakness you have to look at the assumptions the fed is making about the outlook for the economy. Francine what are you expecting it is unclear, even if we had stronger inflation today that this is a sustainable trend. Daniel the data we got yesterday with the ppi, it was disappointing so what makes you less confident about the consensus estimate for cpi today. Core cpi should come in above. 2 and if you annualized that figure we are back to. 4. There is a big change in the expectation. If you get one more month where it is weak, it is much more typical to sustain the narrative because this is five months in a row. To we are literally down the comedy of every 30 days trying to define what transitory means. What we know anything this morning at 8 30 . Vasileios i highly doubt that tom i agree. Vasileios that we will have a very strong conclusion. Even if you do get the number close to expectations, what does this really mean . s does this shakeout the previous three to four downsize surprises . I doubt it will. I think the fed is gradually moving toward the point that it has been much more cautious about the downsize surprises being temporary. It seems to me they are a bit more inclined to think there is a bit more of a permanent component in this. Tom this chart was great, i will put this on twitter, this idea of the trend the basis on Service Sector as well. We will come back with Daniel Morris and Vasileios Gkionakis. Coming up, diane swank on the pulse of american manufacturing. This is bloomberg. Francine the official start to the German Campaign trail kicks off this weekend. Holds aor Angela Merkel 16 point lead over Martin Schulz, her main opponent. She will begin a 50 stop Campaign Across the country. Vasileios gkionakis and Daniel Morris are with us. When you look at this german we are not expecting so far any surprises. Is that what euro investors are looking at or more at ecb . Vasileios they are far more focusing on what the ecb will be doing in september or october announcing, actually. The germanink elections are on the investors radar screen and i think for the right reasons. It is different from france and the netherlands because even a different result does not respond correspond to a tail risk as was the situation in france and the netherlands. The ecb is by far the number one topic. Whichne have a chart basically shows your net positions increasing quite significantly. Are we over bullish on euro and european equities . Daniel we are modestly bullish. Fundamentally, we see it as undervalued and with the expectation of what the ecb will announce seems to support it but not odor not to the degree that we have had over the last month or so. If you go back to the beginning of the year, more or less everyone was overweight europe versus the humorous versus the u. S. Maybe the midpoint of this year will be the turning point where they can, head of the u. S. But the euro is a big factor. Francine Vasileios Gkionakis and Daniel Morris, thank you. Do not miss our 30 minute special every monday called we will bringes. You the political analysis in the lead up to the election on september 24. At special program a 30 a. M. Every monday in london. Just 8 30 a. M. Every monday in london. Tom it is a different summer friday in washington. Jerseysident is in new at bedminster, but washington looking to south and north korea. Good morning, bloomberg surveillance. Now to our first word news. Taylor starting with north korea, President Trump is ratcheting up the pressure. He warmed the regime not to follow through conducting a missile test near glom. E failed guam President Trump says he is ready to declare opioid addiction a national the and that could clear the way for funding to deal with a wave of over does deaths. Robert3,000 mueller is turning up the heat on former Trump Campaign manager Paul Manafort in the russia investigation. He has subpoenaed banks to provide account information involving manafort and some of his companies. His home was raided in virginia. Ray dalio is urging investors to consider gold. He runs the Largest Hedge Fund at Bridgewater Associates and says placing 5 to 10 of assets and gold would be a hedge against economic risk. 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. Francine thank you so much. Fire and fear he may not be fury enough, fire and may not be tough enough, warning north korea of a massive response. If north korea does anything in terms of thinking about attack of anybody that we love her we represent or our allies or us, they should be very, very nervous. They should be very nervous because things will happen to them like they never thought possible. Francine the australian Prime Minister Malcolm Turnbull says he would back the u. S. If north korea attacks. We are joined by john nilssonwright. Great to have you on the program, as always. What will it take for china to intervene . They are staying neutral, staying out of it. John the chinese are trying to send a signal to donald trump that on the one hand, they are interested in reaching a solution and we saw that with the recent decision on the much tougher u. N. Sanctions. Donald trumps rhetoric will be a source of concern within the is thatnd the danger the president may have boxed himself into a corner by threatening a preemptive military strike on north korea. What happens if the North Koreans go ahead with their claim to launch missiles in august in the direction of guam, not necessarily an attack but an attempt to demonstrate their prowess. What with the president to . What would the president do . Tom you allude back to a history that korea knows, japan knows it and i would suggest the president of the United States does not know it, the spain of the 16th century, attacks of spain in the pacific and attacks of spain on korea around 5092. Does the leader of north korea have this the historical memory of john nilssonwright . John that is a good question, i am not sure. I am not sure what kim jong un is reading. He is very conscious to the extent of koreas troubled bytory, the intervention external powers is something koreans take various syria very seriously. Priderth koreans themselves on independence. Toald trump i think needs listen to the advice of his senior advisers and as everyone has been saying from previous administrations, resolving this crisis will require some degree. F dialogue and discussion military option is not an option. Tom within the options that were given and i think the Washington Post did an uncommonly good job of park shinning out these options par shinning out these options how do sanctions fit in with north korea . John sanctions, i think are a way of doing a couple things. One is demonstrating and underlining the resolve the international community, showing the world is united in opposing north koreas actions. It is one reason why the steppedup rhetoric from trump is contradictory to he has been quite successful in the last week of getting the sense of International Consensus through the u. N. He immediately has undermined it speaking out in a provocative fashion that the australians i think our right to push back against this, the west german minister stepped back said this is not the right approach. Tom you are truly one of the worlds experts. I had to go to a map and figure out where guam is. What is your number one message to you to our audience about this historical president with Great Respect to the audience what is your number one piece of advice to mr. Trump . John listen to your advisers. Use the bully pulpit of the presidency sparingly. Measure your rhetoric. Take a lesson of past american president s, i would cite president eisenhower, a former general. Donald trump likes his generals, respects military men. Learn the lesson of the president who had to deal with nuclear standoffs in his relationship with china, and he was the president who helped end the korean war. Recognizing that you should use rhetoric sparingly and keep the door open to negotiations with the North Koreans. President trump has said as a candidate and in the first few weeks of taking office, he was prepared to sit down with kim jongun and needs to keep that auction open option open. Francine how do you expect pyongyang to sit down with the u. S. If china is not involved . John you offer them something significant. Francine like what . John it has been talk of potentially a peace treaty, recognition. Maybe in the additional stages and establishment of a Liaison Mission to allow americans to have dialogue with north korea. What pyongyang wants his respect and that comes as being treated as an International Actor who has sovereignty and status. It is perhaps premature to do that at this stage given the provocations. That is why sanctions are so important, but opened the door to a sort of dialogue, perhaps the deployment of a special envoy to north korea to begin negotiations. We have in south korea with the new administration, an administration that is willing to talk with north korea. We need a more imaginative join up approach and President Trump needs to develop strategy and not keep shooting from the hip. Tom thank you so much, john nilssonwright. Continue our discussion on economics, finance, investment, inflation data front and center later today. Christopher naumann on the failure of the American Retirement system, he is with callisters. This is bloomberg. Francine this is bloomberg surveillance, tom and francine from london and new york. Tom sometimes goes on snap. Res of snap are poised daily active users of the photo video sharing app reached nearly 300 million. Aggressive competition from facebook in instagram our lending the younger social media limiting potential the younger social Media Company s potential. Still with us, Daniel Morris. When im looking at the share price which i will get in a second, the ipo price listed down and down, what exactly is this company . What are they trying to be . I have no idea. They said that snap inc. Is a Camera Company and we have noticed recently they are not sending as many as they had wished. They are definitely not like facebook although investors are keen to remind them they have look as good as fast not as good as facebook. Francine is this a problem for tech in general or a specific problem for snap . Giles i think it is not good for tech valuations in terms of the Companies People choose to hype. The ipos at the roadshow in london you had jes staley introducing the roadshow. This is a big deal. I do not know if he uses snapchat but it is clear that the companys story has not played out well. Tom thank you so much for coming on today. I see a summation of things here, snap, blue apron, google diversity, on and on. Is this a summer where the tech arrogance finally ends, the arrogance of extrapolating values into the ether, the idea of seeing what blue apron is cratered and the madness at snap . Is this a summer where every go everyone grows up or will it continue . Giles i hope it continues. A lot of the smaller failures for smaller companies, not for large companies. Will be a while before you see the effective google and apple having a hit. I do not think that will happen for quite some time. Francine what does this mean for valuations . Are you invested in technology . That weeing very lofty use technology in everything we do. Daniel certainly we can find companies with what people would think our extreme valuations but if you look at tech as a whole, the u. S. Tech sector as a whole, many tech sectors are lower than others in the u. S. If you looked at all of the different sectors and asked which has the best Earnings Growth potential i think you would have tech as one or two but you are not necessarily getting a high multiple so i think valuations are reasonable compared to other sectors and the potential should be there. Tom a very sophisticated question. The growthiness done . Is it over for some of these companies . I think so. Snapchat has been a problem because unlike facebook, everyone has been on facebook. Your mom and gran are on facebook. Snapchat has a very limited demographic and they make a great play at tracking the under 25. They do not have the disposable income of other sectors. Nterest has been struggling for years and years. I do not see Critical Mass except a select few names. Does that trend end . You could change the question and say it is the investors thought. Tom thank you. Francine thank you. Growth we worry about that . How do you keep up with trends of the 25yearolds . Maybe they abandoned snap or do not like it so much but how do we know what the next trend is unless you value it hi and hope for the best . Daniel it is a quite difficult thing to do. We tend to operate more around Business Operating Services as Consumer Sector because it is difficult to anticipate what the next big thing will be and for how long. Withine what do you do Driverless Cars . Do you bet on it through automakers or Technology Companies . Daniel i think it is technology but it highlights a broader point. We focus on facebook but i do not know if we appreciate to the Degree Technology is been using being used by other companies in the sector. They are talking about how they are using technology in their business so that is underappreciated potential. Francine thank you so much. We will continue with Daniel Morris. If you are a bloomberg user you can put questions to Daniel Morris by going onto tv. That is how you can watch the show, look at cool currency charts. And then ask questions for Daniel Morris through tom and i. This is bloomberg. Taylor this is bloomberg surveillance. I am taylor riggs. The Justice Department is investigating pfizers generic an investigation into pricefixing. About a Dozen Companies have received subpoenas. Knockedet selloff has jeff bezos down on the billionaire index, seeing his fortune shrink by 2 billion yesterday, pushing him to the third richest in the world. That is your Bloomberg Business flash. Is mark shelley and friday, supply and demand in the classic ask. Acts. Daniel morris with us of bmp air ball bnp paribas. That brings us to oil, the mystery of demand analysis and the certitude of where the supply is. A great iea report today, the demand is not there. Do you care . Daniel absolutely. We need to think of three factors supply, demand, and the dollar, and whether those are aligning in a way for it to be up or down. The challenges that if you look at supply and demand dynamics you are probably looking for lower oil prices. Certainly ongoing supply out of the u. S. So weaker prices. You do have dollar weakening and that is a bit of the balance we see. We are not counting too much on the opec Production Cuts to be lasting in terms of the impact. Tom grant smith kills it with a nice paragraph on the supply side event, opec compliance, 75 , trailing. Iraq 34 . Venezuela 20 . How about abu dhabi, uae, Something Like 53 compliance. That is the supply that is cheating and is going to run into that wall of no demand. Daniel exactly and even if you go back to november of last year with the initial announcement and the big runup, investors evidently believed opec would come through with those cuts but if you look at the history of those agreements you should have been more skeptical, and i think that has come out of the market. Once bitten, twice in, the market will not be so bullish. Francine the Big Oil Majors could benefit from this because they will run a tighter ship so they will still invest but will have better returns and will be more focused. Daniel i have heard this story before about when it comes to big oil. Capex when it comes to big oil. Instead of trying to anticipate what is going to happen is in the supply and services, u. S. Shale. At your when you look portfolio do you look at it regionally or sector wise . Both . Daniel depends on the sector and how international they are. Francine international is good . There was a backlash against globalization. Does that need to be factored in . A factor think it is in this goes into what you think the outlook will be for trade. To the degree that globalization is an issue an important for global revenues, we have seen a bit of a rebound in asia for global trade. Will we be back to 2007 . Probably not. The opportunity that drives the Revenue Growth will not be as much of a help as in the past unless you see a change in attitude from the trump administration. , i this is brent crude rarely use a two Day Moving Average 200 Day Moving Average. We have gone absolutely nowhere. His bnp paribas Strong Enough to say out of the range we go . Daniel it sounds not very convincing. We do think it will be in this range for now because supply and demand are for weaker oil, weaker dollar is for stronger oil so we think will be keeping this balance for a while. Tom we were doing tictactoe earlier. Anddont we do marcia ally marshallian economics. We really do not know the demand dynamics of oil. Said it has been a huge mystery about oil demand. Francine when you have so many shale producers in the u. S. You probably do not know the supply dynamics. And saudi arabia and russia are coming together, it is all to do with shale producers in the u. S. It is difficult to count. Daniel you have got such disruption that we talked about on supply and demand sides. Electric cars, people using uber, so on and so forth, that is something we arent evaluating minute by minute or dite are evaluating evaluating. The expectation that it is such a new industry and the potential for technologies to bring the cost curve lower allowing them to produce a lower price, that is a completely different way of analyzing it. Tom Daniel Morris, thank you so much. Coming up in our next hour, we will do a number of things. Kevin cirilli will join us on north korea, south korea. Christopher wrote ken will join us, the perfect economists to speak with us on fixed income dynamics as they relate to the greater economy. Coming up next. This is bloomberg. This friday morning, a weighing of the four options, the consequences of the status quo, tougher sanctions, diplomatic talks or unthinkable lore with north korea. The president goes on and on in a short press conference. The markets react to the president , the vix explodes from 12 to 17, the yen ever stronger at 109. Lower rates for longer, 10 years on with financial repression, it continues. This surveillance, live from our World Headquarters in new york. Francine lacqua in london. Korea front and center. Francine that is giving a lot of impetus to the market to sell off. I am looking at havens, oil, gold, and yen. Tom a lot of dynamics. We will go to Kevin Cirilli in a moment. First, a briefing. Trump is notdent backing off his threat of retaliation if north korea strikes the u. S. Or its allies. He warned them not to carry out a missile test and said the North Koreans should be very nervous because things will happen to them like they never thought possible. President trump escalated his war of wards with Mitch Mcconnell, saying he is disappointed with congress failure to eliminate obamacare and urged mcconnell to get back to work. Angela merkels election to lose, she will be favored to win her fourth term as chancellor. She has strong personal approval. Tomorrow she will start a 50 stop Campaign Tour across the country. Agency cutal energy its estimates for the amount of oil needed from opec this year and next. They say emerging nations like china and india will not consume as much crude and there are growing doubts that the countries involved in opecs Production Cut agreement are fully committed. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Riggs. Ylor this is bloomberg. Tom i want to get to the data here, there is important data but it is urgent we get to Kevin Cirilli. Futures, nothing like we see on the vexed with curve flattening, well to the 90 level, 87 basis points on the 210 spread. The vix out from 12 to 17 16. 73. Ago, right now a calm her market in the last 10 minutes. Yen was a 108 handle. Francine . Francine the selloff is deepening so we are seeing a little bit of european stocks slumping, following drops in asia. U. S. Futures are down because volatility is soaring. We heard from ray dalio saying he would by 10 to 15 of his portfolio in gold and i want to show gold hitting a twomonth high and the yen pushing through 109. Tom it is not news that the president yesterday went on and on. Maybe it is fire and fury. Maybe it is bluff and bluster. The president was in vintage form yesterday. If north korea does anything in terms of even thinking about the attack of anybody that we love or we represent or our allies or us, they can be very, very nervous. And they should be very nervous because things will happen to them like they never thought possible. Tom very good, the president , and joining us Kevin Cirilli in it sober washington, d. C. In a sober, washington, dc who is briefing the president on the individual making these decisions in north korea . Kevin the president is receiving his briefings from the intelligence community, led by his chief of staff general kelly who has become the gatekeeper of sorts for this white house. Remarks, thee bysidents remarks were met some skepticism and washington circles just about what exactly this would mean. Chinese have responded in a global times editorial in which they are saying they are urging the United States and north korea to back off this type of fiery rhetoric. I do not think it will help. Tom the Washington Post harsh fourons partitions outcomes we could see. Talks,s more important, military dynamics of getting near war, sanctions, or simply about bluff and bluster and a too long press conference . Kevin we have to know that kim jongun, who is 33 years old, since assuming power has increased in missile launches that he has done with testing and significantly. To surpass the recordsetting the salons is that he did last year alone. Recordsetting missile launches that he did last year alone. The u. S. Wants to put together an International Geopolitical coalition and that is where trade and Foreign Policy are intersected and how it could impact the markets. The u. S. Wants to use economic interests to address the growing threat of a nuclear north korea. Tom this sounds like crisis 101, kevins a really and tom keene talking it up in a normal way. Atre did that nationalists the white house fit in . I think the folks in washington are aware they could rip up the script at any moment. That is why the president s tweeting could significantly impact and change the course. The comment earlier, the fire and theory that he made fear was a show that in the white house the nationalists have the president s year. That is criticism from the generals who were not briefed on that topic. The president who says his unpredictability is an asset and his critics say it is a liability. Francine how do you get china onside . Who does he need to call to make sure he gets the support from china . Kevin those meetings with the chinese that had originally been scheduled earlier in this administration when the are beginning to get underway, and north korea is the top priority but in terms of trade, in terms of what the administration fails is the card they have up their sleeve is when it comes to terrorists, whether commerce secretary whetheross tariffs, commerce secretary wilbur ross will impose more tariffs. Be more feels they can tough on economic sanctions and that has a domino effect on other economic interest. Key justn cirilli, our our chief our chief washington correspondent. You just heard Kevin Cirilli give us the update as we stagger into the weekend. What is the cato thought . If you were to write an essay on the Korean Peninsula, how would you approach it . Doug bluff and bluster do not help the United States. The North Koreans do it because they are weak and we do not have to. It will not help us with the chinese, south koreans, or japanese, all who get very nervous at the thought of war happening on their side of the world. Tom we were talking earlier with the gentleman from Chatham House taking us back to 16th century and the attack on japan in korea. If youre reading of the International Relations in northern asia, is there a collective memory or is everyone flying as blind as it appears the president is . Doug i think the memory is more recent. The North Koreans point to libya , afghanistan, iraq. They made a deal and then the u. S. And europeans took him out. I was there in june. They are afraid of the United States. This is deterrence. It is rational even though it is an evil leadership. Francine do you continue to deter them with menaces or actually try and sit them down at a table to negotiate . Is there any chance of pyongyang doing that . Doug what you want to do is follow multiple paths. Sanctions,otiations, deterrence is, and engage the chinese. They do not want a failed state on their border and they do not want a united korea with u. S. Troops on their border either. It is possible we have to negotiate. Francine why are the chinese so slow to signing up to this deal . What does President Trump need to offer for them to do something . Them unitedld tell korea, there will be no u. S. Troops. He probably would have to offer if they put sanctions on and the north korean state collapses and half a million refugees run away, they probably want support. He cannot just tell them what to do, he has got to recognize their interests. Francine who should the president listen to . Who is the smartest within his administration . Doug i think tillerson is smart understands war is quite foolish, kelly is a smart guy. He needs a number of voices. He does not need to listen to just one person. Tom can there be a republican response to this . Is there a political divide between democrats and republicans inside the beltway on these Important International issues . Isg i think the only divide whether the president himself is too less strength, to blustery and impetuous. A look a sense of between kim jongun and donald trump, they sound kind of the same. Both of them could potentially make a mistake in trying to out lester the other. Out bluster the other. Tom thank you so much. We drive forward the conversation on too big to fail. We are honored to bring you michael male of wells fargo, not only on his thoughts on bank of america but maybe some attraction to mr. Corbett. Citigroup is doing well in washington this morning. This is bloomberg. Francine kenya bracing for the vote result that they were voting last sunday as the opposition has claimed a victory. We are seeing live pictures out of kenya, that independent Boundaries Committee should declare the victory in about an hour or an hour and a half, but the opposition figures showing the opposition president ial candidate won the race. He said this was plainly falsified so we are looking at preliminary data. That means the incumbent president as commanding the lead. It looks quite messy with the opposition saying they won the election and that is simply not true, so the country is bracing itself for the official result. Lets get straight to the Bloomberg Business flash. Taylor an early investor in uber is selling suing the former ceo. The lawsuit is a combination of a better fight between the ceo and eventual dutch venture china, them in government is stepping up scrutiny over internet content. The chinese online watchdog has launched an investigation into possible content violations. There are reports they are caring User Generated Content filled with violence, pornography, and rumors. Credit suisse band trading in certain venezuela in venezuelan funds. Credit suisse also is restricting business with venezuelan counterparties including private individuals and companies. That is your Bloomberg Business flash. Tom thank you so much. It is 10 years out of the financial crisis and of course next week, the first blow up and libor in libor. No one synthesizes the yield market, fixed income market with a greater macro economics than christopher rupkey, joining us this morning, chief financial economist. I want to go two ideas here. First is it has been quiet. Here is the idea of the vix, we quieted up yesterday from since to something a little bit sweaty. Is a good for chair yellen if we get off the quiet of a 10 vix . Christopher we want to see a little more volatility. The market has kind of gone to sleep simply because the fed has this gradual rate path Going Forward. We have never been told in history where the fed is going to put the fed funds rate over a threeyear here. Looking forward threeyear period looking forward. It is good to have a little bit of volatility but not for the reason of north korea. Rupkey and other people have not been wrong but just waiting. This is the 10 year yield, slope matters, and we are on trend for great loan moderation. You want to get back to that nirvana of 2006, a 10 year yield. Yesterday they said there is no way you will see that. Do you agree . Christopher lets try to get up to 3 . The 10 year yield, the bonds do not overshoot what the fed is going for. Where is the ultimate end game for the fed . In 2006, five and a quarter percent fed funds rate. Now the game is we are just trying to get to 3 on the 10 year yield, and that is the battle. A qe wind down, the Balance Sheet line down will do something unleashing a little bit more supply in the market. People are reluctant to push up yields in front of the fed. Francine do you think actually good morning, first of all. Do you think we will get treasury yields at 3 . Christopher i keep forecasting it so i have to say, it is not the old rates call that it was like 10, 15, 20 years ago. Now it has become a political battle. To a 3 ary impediment 10 year yield is fed policy itself. Yieldskbone of 10 year is the fed funds rate and if the fed is going to stall out at one and a quarter, 10 year yields will take their sweet time in lifting to the 3 area unless we get more inflation. Francine where will the inflation come from . Why is it so difficult to predict . Christopher if we go back to 2004, 2006, the core inflation was not too much higher, 2. 2 pce inflation, but how did we get there . There is two primary things different today gasoline prices at the pump were going up tremendously. That is a big boost to other prices in the economy so you need gas prices going up. Barrel,l at 60, 70 a and Health Care Prices need to go up again. Health care prices in the middle of the 2000s were much higher than they are today. Tom we will talk with Michael Mckee on inflation within the hour. They have to do with the economics, the dynamics of the full faith and credit 10 year. Double digit world. Stay with us, from london, and new york, red sox and yankees this weekend. This is bloomberg. Maybe it is a trip to disneyland, we did that earlier this week. Disney and netflix. I am tom keene. Lets go to the fantasyland that is snapchat. Dogs. Ue apron, dog of lets get to the chart. We have not done much on this. I am not a big fan of these train wrecks. The yellow line, snapchat. Francine has it, i dont. Public, we come here, everything is great. And then down we go and right now here is where we close, and here is where we open. Enter blue apron, 10 a share and we are down here 50 . Francine, it is not that i have never seen anything like this. What amazes me is the response of Ernest Technology to these debacles. You wonder when it is going to catch up with them. Francine i think it is a question of valuations and also what analysts think these companies will become. Blue apron, a lot of our global viewers do not know what it is. Tom fair. Francine you make your meal and you have the ingredients and put it together. The snap ipo was a little bit different, happened in march. This is about a turnaround for two of the most prominent Technology Companies from 2017 that just is not bayer. Is not bayer. Is not there. You do not know what it will become in five or 10 years which is why you see that chart, and the share prices sink. Tom i would go back to almost the morality of the red herring. The red herring is a document from a millions ago millions of years ago. The answer is, the way these things are structured does not incentivize good stewardship. That is the number one thing going here, the number of shares in all the rights coming in, this chart, i can tell you i have not seen a chart like that of two dogs ever. Francine it is interesting productshey had niche but then both were almost taken over by facebook in the case of snap and amazon for blue apron. Tom we will continue here with christopher rupkey. From new york, from london, this is bloomberg. Stay with us. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. This is bloomberg surveillance. Fire is breaking out one of the london subways. This was at oxford circus. Well keep an eye on it. Medics have been called to the scene. Its a beautiful day. Lets get to the news. Taylor President Trump is ratcheting up the pressure on north korea. He warned them not to all through the threat to conduct a missile test near guam. They should be very nervous. Things will happen to them like they never thought possible. Taylor the president refused to rule out a preemptive strike. The president says he is ready to declare Opioid Epidemic of national emergency. There could be money to deal with a wave of overdose deaths. Robert mueller is turning up the heat on Paul Manafort. According to people familiar with the matter, he is subpoenaed thanks to provide account information involving matt forte and some of his companies. Fbi agents raided his home in virginia last month. He is urging people to consider gold. It he heads bridgwater. Be acing 10 in gold would hedge against current economic threats. Gold has risen 12 this year. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. I am taylor riggs. Tom thank you so much. First inflation, then the memories of the tenure. Great work over the financial crisis. Michael mckee is on his way to jackson hole. On retailthe note sales. Know . S yellen need to over forsitory drop bringing that up, the transitory drop, what does it mean that retail in the spirit of consumption . Michael everyone is trying to figure out what is wrong with the laois and dynamic. Inflation dynamic. Demand walls, it may be demand driven. Retail sales are paralleling each other. Tom do you buy that . Consumption just as there. Chris it was there in the second order when inflation and started to slow. Of retail flails have been slow. They are supposed to pick up next week. I dont think you want to go down the road of aching this is stagnation. You dont want to look at prices and say economic demand is weak. Tom youve been at the front row of these press conferences. What does transitory mean to the chairman of the fed . Michael thats an interesting question. Its been 10 years now that we have seen transitory low inflation. The fed cannot seem to generate any. They are looking at one offs. Airline fares are the latest. If you look at a broad range of categories, moving and Storage Company prices are going down. If these things are supposed to disappear, but it seems like Something Else is coming up. Some people are getting closer to that. The that is beginning a debate about why we cant see inflation dynamics changing. He thinks they have. Francine what is his argument . Michael we may have seen some sort of change that is permanent in the way people think about inflation. Raises. Not hitting they are looking for argans. At this point, they anticipate lower prices, which is not quite but in us into deflation, but its a change of attitude, and that of expecting prices to go up. If people are looking for bargains. Its not like its falling. It is 1. 5 . There is a debate at the head. Yellen thinks this is transitory and the need to push rates up to normal for when the day inflation except. Thats the positioning. Michael can they get inflation up . It will take longer than people thought. Chris are people going to care western mark the public is blind to this issue that the fed ranks is so important, once in the water in the midwest . It,get the minneapolis that chicago, they think inflation is low and a problem. I dont see the problem. Tom this is an interesting geography about economic opinion. Francine i guess the concern is if the bond market is wrong, there could be a huge shot to the market. Market is aond little broken at the moment. There are lots of Interest Rates swapping going on. There is downward pressure on yields automatically. The bond market does not believe any inflation. It is very tight. Michael mckee is wearing Denver Broncos orange and blue. Were00 and seven, they 79. What is your number one emery of that august . Michael ben bernanke saying there was no problem out there, which he had to walk act very quickly. Back great quickly. The fed and others had to supply additional liquidity and lower rates. To single out this path, what we learned and what are we doing Going Forward . Economics . New micro disruptiveg back to economics of 2006 . Michael i dont think anyone has come up with that. Would people are doing is paying more attention to more thecators and epa i on evolution of the economy from the financial side. If the fed did not have good models that incorporated the financial markets. They are at least running it in there and looking at it as a determinant. Francine lets say inflation is higher than expected, to other Central Banks change their models . Michael no. People will change their models and youre out of a need to it this point. Inflation is starting to go back , that would take some of the pressure off. The ecb is dependent on the inflation reading. They believe that inflation is going to rise, its taking longer than in the past. Francine will there be a repricing . If inflation is above expectation today, what will the markets price in . Chris yields could go up a little. For all the talk about inflation that is coming this week, dont forget yields came down after the refunding options due to all andhis ruckus about tweets bluffing going backandforth with north korea. If we have come down on the weakening stock market. Will bounce up a little bit anyway. Tom i believe we get another set of inflation data. Does the september 20 meeting change in importance . Michael it went from a meeting at which they might raise rates to the meeting at which everyone expects the allergy reduction. I am looking for a rate hike. Everyone thinks the Balance Sheet. The markete got convinced thats what its going to happen. Unless janet yellen says we are rate thinking about a hike, they have not prepared the market. R that during then you have a real market problem. Christopher even the doves of said they can start it. Tom that is a viewer question. The people there said the original target, we did not hit a target until 2012 when an act he made it a target. Be 1 to 2 . To debt 2. 0hard and fast percent. I think its due to the taylor. Tom this is a great question. Bring up the chart. This is 2 . We were above that for years. Did the world, to an end . Michael a lot of people like did it 2 . Suggested that is you enough margin away from deflation. It did talk about a range. 2 is a feeling rather than asymmetrical target area they can go above it for a while. If they should try to push it both ways. Tom you look great in Denver Broncos orange and blue. A conversation about the American Economy with a particular tone it to manufacturing. Believe. New york city this morning, red sox and yankees as well. There is beautiful new york city this morning. Stay with us. This is bloomberg. Taylor an early investor is suing a former ceo off uber. If its a fight between them in the Venture Capital firm. If he tried to pack the board with people willing to keep them after director after he decided to resign in june. The Justice Department is investigating a junior drug business. It it is about pricefixing. About one Dozen Companies have received subpoenas, including mylan. That is your Bloomberg Business flash. Francine the official start of the German Campaign trail kicks off this weekend. Lead. Has a 16 point Campaign Tour a across the country. Financial. Chief of matt miller is our german correspondent. New show starting through the german election. It seems she is firmly in the lead. Matt we recall with Hillary Clinton had a 15 lead over donald trump as well. The germans who are historically very good at pulling said she had a massive lead enchanted up barely scraping by with a couple of points. She doesnt want to be complacent. She wants to hit every day. She has a lot of issues to defend herself on. Its going to be a very busy campaign season. Anything shethere can do to get tempted attention away from the strong economy. Matt one thing you can do is attacker on the diesel front. She is been so close to the german carmakers. Some of them are on the board of volkswagen. He can come out and say he would be harder on them. He could hit her hard on that. Thiser thing nobody wants he could see the immigration problem rear its head. The refugee crisis no longer really just. Far,of integrated well so relative to what everyone thought was going to happen. If that problem starts to rear its head again, you could see a drop in the polls. Francine where does she campaign . Now, she is at a former prison that held east german political prisoners, giving a speech there. About howd talking she does plan to be hard on the automakers. You cant be too hard on them. They employ 800,000 people. Is connected in some way to the auto industry. Hes got to look tough, but occupy the middle ground. We have a great piece on bloomberg. Popularity yielding to the french president . Matt its not linked to the rent president. If he is waning in popularity, that must be us all weighing. He is the superstar of european politics. It looks like he is hitting all the right ones. She has worked great closely with him. She is counting on him to do some of the reforms she needs. Germany may have to pay up a little bit as far as this deeper integration. This is than part of her platform all along. Francine matt is fronting our coverage of the german election. Dont miss our special every monday. We will have analysis leading up to the election. Matt will be doing that every week day. This is bloomberg. Francine this is bloomberg surveillance. Come up shortly, its daybreak america. Tot you most looking forward two . N mark this is his new big. Its not only going to be about where financials that. We see all risk assets roll over. Its going to be about goldman sachs. I spoke to lloyd blankfein. Tom thank you so much. I believe he will wander in on surveillance radio as well. Lets do single best chart. This is the yen. Here we go to corroded. This is the weaker yen. Iit didnt happen. We have a little bit of a rebound. Here we are again, migrating away from it. Up withy shows International Relations. That can really cold into japan as well. The yen is a safe haven currency. Its been coming down. I consider that to be a great clinical miracle. When he came in, somehow the yen want from dollar went from etienne to ¥100. The first part of that was done i him. He got some gravy going from 100 to 120 because crude oil prices collapsed. Thats kind of it. Maybe he shouldve declared three. We had three years of inflation over there. Now it has come back down. Tom lets go back to the chart. Up we go. About . Eed a new to the need to the structure japan for the new normal, which is not a political theory . Chris it depends on what is the nature of deflation. Mean a weaks it economy . You would have to say no. Of we have 15 years of mild deflation. We had a couple of instances where the economy took off. People are getting jobs, the Unemployment Rate is coming down it. If i think if there is a mild deflation, it doesnt deflatione with meaning a stagnant economy. That is simply not true in japans case. Francine i have a difficult question. Today, we is a haven hear that japan is raising its missile shield. Does that make sense . Chris thats the irony. An islandow of tranquility even though missiles are pointed at it. The japanese yen is traditionally a safe haven currently. Whole country is going on vacation. Activity is going to be pretty quiet next week. I dont think the yen is going to continue to appreciate in this way. Francine will the Prime Minister survive . Chris they dont like me talking on politics. Hes got some issues, political issues. I think he is still the oddson favorite. Tom thank you so much. Us onl continue with radio. Its a quieter market. All in all, the markets are fairly quiet, even with stronger yen. Stay with us. This is bloomberg. Whoooo. Youre searching for something. Like the perfect deal. On the perfect hotel. So wouldnt it be perfect if. There was a single site. Where you could find the. Right hotel for you at the best price . There is. Because tripadvisor now compares. Prices from over 200 booking. Sites. To save you up to 30 . On the hotel you want. Trust this birds words. Tripadvisor. The latest reviews. The lowest prices. Alix buy gold as President Trump and kim jongun play chicken with each other area snap has slowing growth in the second. Analysts cut their price forecast. It that that determines if the recent weakness is transitory. A very warm welcome to you on this right eight. We made it. Tgif. I am alix steel. Jonathan ferro is off today. Its a bit of a risk move as teachers are down by four points. European stocks are at a five on flow. The dollaryen broke below 109 haven. Is attracting a the rally is modest. The week is been a big room for gold. David the north korean crisis is playing out in a pattern. The pre