David we are going to go to our colleague guy johnson, the nchor of Bloomberg Markets the european close. Guy the fed is talking about easing, the ecb talking about using. The market is pricing in easing to the expectation for the bank of england. That is really what the bank is noting when it talks about the tension between its brexit assumption, which is for a smooth exit from the eu, and the market is pricing in a much bumpier view of how that brexit story is going to develop. We have the unfolding of the conservative Party Leadership contest. Boris johnson expected to become the next Prime Minister, talking about a hard brexit. Thats what the market is pricing. They are having to recognize the difference in where they are and where the market is right now. The bank has been talking about rate hikes being necessary. The market sees it a completely different way at the moment, and it is putting the bank of england in the context of the Global Economy at the moment, and the context of a tougher brexit. Suspect the trade we are at the at the screen moment has more to do with the bank of england today. At least he bank of englund is recognizing there is a difference between where it is and where the market is. Alix fair point. At 81 basislds now points for the 10 year. To dig a little deeper, the boe does see Downside Risks to the the gross greater than in may. Lets dig a little deeper into that no deal brexit. Where is Boris Johnson where are we where is Boris Johnson . Where are we in this leadership contest . Guy the expectation is that today we will know the final two candidates voted on by the wider conservative party. It is almost certain that one of those will be Boris Johnson. The question is who could be the other one. It could be jeremy hunt, the current foreign secretary. It could be michael gove, the environment secretary. We dont know that second candidate is going to be come about at the moment it looks as if it is Boris Johnsons toluse. The likely Boris Johnsons to lose. The likely expectation is that he will become Prime Minister. He talked about a hard brexit and fiscal expansion. You need to think about who is going to be the chancellor of the exchequer, who is going to have to choose a new governor of the bank of england, so it comes back to the bank of england eventually, but the politics story very much intertwined with the monetary story of the moment. All of that in the mix right now. Alix things a lot. Appreciate it thanks a lot. Appreciate it. Johnson, joining us from london. Youve got 81 basis points in the 10 year. Is that a legit reflection of the risks that the boe is now talking about . Guest it is interesting because we are all worldwide on the race to zero. Brexit, you should wait and see what is going to happen because we dont know. It is highly likely it is not only going to slow down the growth and perhaps tip into a recession, and we dont know to what degree, so keep your power to be able to cut rates. Why preempt it . I think this goes for worldwide, that is a question we all ask. Next time to crisis happens, and it will, what do we have . Lets keep something. David at the veer released, at the very least, we dont know which direction. It would be almost reckless to either cut or raise. Lale i think so. I think you just stay put, and the market always calls the Central Banks bluff, so just ignore the market if you can come about focus on the data. I think thats with the Central Bank Job should be. Alix theres a distinction because i feel like a year ago, butwere talking brexit, Global Growth was ok so global trade was going to hold up the u. K. That is like a complete 180. Andmuch is Global Growth trade slowdown affecting the boe , which is in some ways idiosyncratic from other Central Banks . Lale it is hard because you dont know what is going to happen with the trade. The biggest change in my opinion happened after the mexico issues came on. It became a policy tool for the u. S. That is a different ballgame because now you can put Different Countries into the mix. Im picking on my home country, but you dont get along with turkey, and next time you put tariffs on turkey. For a Business Owner and a , you dontrspective know how to shift your manufacturing. You dont know what to do. So i think trade is a big deal. Global growth is slowing. That is absolutely true, but it hasnt been it if with the exception of certain parts of europe. David but are there some upsides to trade . President trump is talking about having a great deal with the u. K. We are eager to increase our trade. It really is different from a lot of countries around the world. Lale it is, but you can also have a 180 on that one. The biggestu. K. , issue is really brexit. If you look at the u. K. Economy and the u. K. Stock market specifically, it is very geared toward u. K. Economy. It is the banks, the mortgage lenders, and retail. Forget the four nationals. That is the heart of the economy. That is going to change, depending on if you have a hard or soft brexit, and the whole equation of long trade comes into that, too. I think it is hard. Alix the other factor underpinning us is in Inflation Expectations. It felt what the boe is the one place you were going to have inflation, and even that has come down to the boe target and allowed them to take some hikes off of the table. If you cant get an overshoot of inflation sustainable from the u. K. , where are you going to get it . Lale it seems like if you look at the data, we are in the era of disinflation. That is just the challenge of easy Monetary Policy. But again, i am going to go back and really simplify things. It is just one of the data points you look at. Why 2 . Why is it not 3 . Why not 1 . Alix it feels like jay powell did take off before percent, but still take off the 4 , but still. David that is actually a profound question. [laughter] topcuoglu will be sticking with us. They are noticing a difference between brexit assumptions and the market view. The market view a little more pessimistic than their own brexit assumptions, so all of that playing into the election as well. In the market, it is a very clear day. This is a fed easing day. This is a lower rate for longer day. You see money flowing into u. S. Equities, most likely opening around a record high. Weaker dollar across the g10 space. The euro soaring up. 10 year yields hit their lowest level since november 2016. Some unbelievable moves yesterday in the twoyear. Crude flying as well, part of that the fed and the weaker dollar. The other part is geopolitics. This is your typical we are going to get some yield kind of day. David we have a lot to cover here. Coming up, fed chairman jay powell opens the door to a rate cut in july. More on that next in first take. And we are following a string of attacks in the straits of hormuz. Overnight, word broke that a u. S. Drone had been shot down by iran. Iran claims it was over iranian territory. The u. S. Claims it was not. Oil moving up apparently in response to that. This is bloomberg. David you and i have both been following this story overnight about a reported shooting down of a u. S. Drone somewhere between over the straits of hormuz and over iran. There is some dispute over where exactly, but everyone agrees a drone was shut down. At the same time, there was a missile attack on a saudi powerplant. Typically they are seen as being backed by iran, so to binning on how you draw the line there so depending on how you draw the line there. David we will talk with tired gadier general mark with a retired Brigadier General later in the hour. Chairman powell sets the stage for a fed cut. Then global yields tumble. Finally, slack its ready to make its public debut. Here to discuss is vincent durell a is vincents a gorilla vincent cignarella, and still with us is Lale Topcuoglu. Uncertainty surrounding the baseline outlook has clearly risen since our last meeting. It is important that Monetary Policy not over react any individual data point or shortterm swing. Addingo would risk even more uncertainty to the outlook. Our colleagues will be looking to see whether these continue to weigh on the outlook. David i found this fascinating. It is important we not react to any single data point, but they came pretty close. [laughter] i think this is maybe the first time weve seen the fed be so close to neutral in terms of where they are. Men andcally have eight women on one side of the table, eight men women on the other, all looking at their own models and saying this is what i think is going to happen. Powell i think set the stage for a july rate cut. It is possible, but he also set the stage for major disappointment by saying we are looking at the data points. I totally agree. I think he took a very balanced approach in saying we are going to look at the data. He specifically said sentiments can be volatile. I think hes just putting all of the cues in. Vincent reacting to a shortterm data point would create more uncertainty, and create a fragile feeling around what the fed is doing. Market win . S the lale the market is already winning. Alix but if you have yields at 2 or lower, isnt that going to force the feds hand . Vincent not at all. I think it just keeps the yield curve inverted. When people say this is the sign of a recession, in typical times they yield is a sign of the recession. But the fed has set shortterm rates, not the market. The market has set the longterm part of the curve. The market has flattened the yield curve on one side of the coin, and the fed has flattened it on the other side. We will see who wins, but it doesnt dictate a recession or downturn. The economy is doing just fine. Lale lets get to our second story alix lets get to our second story, and that is the craziness we have seen in yields. Yesterday was a huge rush, particularly in the short end. Td securities looking at six cuts by the end of 2020, 10 year at 1. 3 in june 2020. Lale, you totally disagree. Lale be careful what you wish for. Eithero to 1. 3 , we are having a massive recession or ill is a mistake. There is nothing or massive policy mistake. There is nothing in the data that suggests 1. 3 . The s p is up 17 . David which takes us to vince signe rella vince cigna rellas chart. How do you come up with the rate cuts . Vincent this is the chicago fed. We have one a bloomberg. Goldman has one. Im going to play with the guys who dont have a dog in the hunt, which is the chicago fed. Going back over 25 years, financial conditions havent been loosened. The credit is there. People are lending money to credible borrowers. You know . [laughter] a 500t if youve got credit score, no one is knocking on your door. But it is there to be had. Major corporations are going to the well, and people are throwing money at them like crazy. Look at tesla, essentially a junk issue, and they can borrow anything they want. Alix so is that what the dollar is responding to . Is that why the dollar isnt dropping off a cliff . Is it doing Something Different than the yield . Vincent i think the dollar is down because it has been up a long way. When you look at places to go and you think maybe there is a recession or maybe the economy is going to stumble or maybe there are trade wars, why would you want to be in emerging markets . It is a dodgy place to be if you think trump is going to start a trade war. If exports are going to shrink, they are going to have difficulties. The other side of that coin is they are mostly funded in dollar loans. With a strong dollar, that creates a double problem for them. The borrowing costs are up, and the revenue is down, so not a good place to be. Lale i agree. I think pem bullish story i think the em bullish story has been the rate cuts. If that doesnt come through, it goes the opposite way. We are long treasuries come a, and long u. S. Dollar we are longduration, and long u. S. Dollar. Compares price to revenue. It shows the s p overall took 2. 5 times revenue. They have all of these up in the 20 club. If slack goes out at the numbers we are talking about, it will be in the top 20s. These are forward revenue. Vincent revenue are not earnings. When you go back to the picture we just discussed about a c. ,ential for a recession, et i just dont see the allure of buying stock in a company that doesnt have revenue. Maybe i am just oldschool. Alix it could be the we chat, though. We chat is huge in china. People are saying this could literally be the we chat for the u. S. Lale im sure there is good within some of these companies. Profit, dont make any and the multiples assigned to them are just insane. 3 4 of those companies dont make any money. I think you think about oldschool economies, Consumer Staple Companies that have competitive advantage, that trade at significant we cheap multiples and actually generate earnings. And thats with growth. Are a plain old Vanilla Company that pays a stable dividend in this area of no yield, and you can grow your earnings in low to Single Digits in low Single Digits, thats not terrible. Vincent Perfect Point when you look at some thing like the comparison between beyond meat and tyson, who has the Distribution Network and the opportunity to get into that space as a competitor, and a company that has yet to make a dime in profit. You have the dividend yield. I was speaking to my peer who said i can give you dozens of stocks that have yields higher than the 10 year treasuries, so thats why people are buying equities. That you all should know the bloomberg capital arm is an slack. R in speak withe going to a slack cofounder and ceo, and the cfo, coming up at 10 30 a. M. Eastern in new york. You can find all of the charts we are using at gtv on the terminal. Go ahead and check it out. Coming up on this program, it is still the search for yield. Lalecent says topcuoglu says you want to go for the consensus. This is bloomberg. Alix treasuries leading the global bond rally. 10 year yields dropping below 2 this morning for the First Time Since november 2016. The corporate debt market also seeing a rally as you see spreads contract after yesterday. Still with us is Lale Topcuoglu of johcm. Do you want to be selling the highyield and investmentgrade . Lale well alix this is going to be a really deep answer. [laughter] lale for the last two months, we are basically hiding out in the flat end of the curve. The curve is inverted, so you can hide in the front and not take any credit risk. You are really not getting paid to extend anyway. Andthe Biggest Issue now, hopes ofee whether the think cut come, but i this is one equity rally that no one seems to have per dissipated in. Alix what does that tell you seems to have participated in. Alix what does that tell you . People need to generate income. You pilego down to 1 , in fixed income as much as you can. I dont think rate cuts are necessarily going to solve that problem. David so what is the smart contrarian bet right now if everyone is piling in one direction . Lale i think you wait for the trade issues to resolve. Growth is slowing. It doesnt seem like a recession. 1. 5 , i will be 2 , but think we can still live with that. I think theres a risk the rate will surprise you to the upside. We may be at 2. 5 in less than a year. Alix if that is the case, do you want to be selling at highyield and buying better in investmentgrade . Lale it gives you at optionality down the road. If you are doing the upgrade to quality, going in the investmentgrade and taking spread duration risk, i think that is a bigger issue. On highyield, i think you have to Pay Attention and be really picky. Not all highyield is created equal. Figure companies in your sectors very carefully, and go with the companies that actually generate cash flow. You know how i feel about that. Will bele topcuoglu sticking with us. Raskin, formerh fed reserve governor, joins us on why they didnt actually pull the trigger. This is bloomberg this is bloomberg. 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Buy equities, that is the story of the morning. Futures up by 8 10 of 1 . Today they are playing a little bit of catchup over in europe. The dovish fed bringing up equities there as well. In other asset classes, as we move toward record highs in the s p, still big lows for the bond market. At one point we dipped below the lowest level since 2016. The dollar weaker. It seems like the fx woke up to the fact that the fed is dovish. Has the other actually topped out has the dollar actually topped out . Gold finally getting a bid. It was stuck in no mans land, now inching towards 1400 announce. Ounce. Rds 1400 an betting soybody was much against inflation, what if inflation happens . Alix that is a whole different kind of story. We will break that down in todays commodities edge i have that in my show today commodities edge. I have that in my show today. David oil is up today on the news that there was a drone shot d