Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

Afternoon if you are watching from asia. These are your markets. We have quite a lot going through and extra data to check. You can see the stocks europe 600 down 2 because of the fair catch fresh tariff ramp imposed kind of came out of nowhere. People are wondering if it means we will not see a resolution. The one to watch, extending gains and treasuries heading higher. Crude at 54. 8. And if you break down some of the stocks and where we are seeing nervousness, you can see basic resources down 4 . And the u. S. 10 year yield at 1. 84. Coming up later on the program, we have a great exclusive for you. When youre on from taking the ,op job, we talk trade, china and luxury with chief executive. Dont miss that interview 30 minutes from them. From now. Now lets get first word news. The new Prime Minister has seen his parliamentary majority cut to just one after losing an wales. N and the liberal democrats won the special ballot. The tory mp for the area have been recalled after a conviction for faking expenses claims. The trade were between japan and south korea escalated. Japan remote south korea from the easy trade list and soul has ul has vowed to retaliate. Labeling donald trump the protests in hong kong as riots signaling the u. S. Could stay out of the issues, saying it is at between hong kong and china. Trumps handsoff approach could bolster executives. A blockade of venezuela, that is what President Trump is considering as it raises the pressure on nicolas maduro. They have thrown support between Opposition Leader juan guaido, recognized by 50 nations as the rightful leader. Saudi arabia will allow women to travel abroad without the permission of a male guardian. That is according to local media reports, ending a restriction that came under heavy criticism and let women to flee the country led women to flee the country. Genderntry has relaxed segregation and lifted a ban on women driving. Global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you so much, now lets talk trade. President trump says he will be imposing a 10 tariff on a further 300 billion in chinese imports. Until such time as there is a deal, we will be taxing the hell out of china. Thats all there is. Francine the new import taxes will come into effect september 1. Pompeo told bloomberg that the Administration Still wants a deal with china. The president is determined to achieve the outcome. What we are asking for is easy. Indeed, the chinese agreed to it and then walked away. We want fairness and even this, these are Core Concepts even this eveness, these are Core Concepts. Francine joining us for more is our chief asia correspondent. China has said they will respond, are we looking at retaliation . Pretty robust response, as you would expect, from the Foreign Ministry spokeswoman. , saying the trade talks have gone off the rails since the osaka truce. They have warned china will not be shoddy about responding shoddy about responding shy about responding. Clear that the ball is back in their court. And i think there is a real sense of surprise in this part of the world, given that the trade talks had only this week kicked off for the First Time Since may. They were described as constructive and more talks were planned for september. But now everything is up in the air and plenty of economists are asking where everything will go from here. Francine what does this mean for the chinese economy . Isa by all accounts, it negative. Chinas economy is slowing. There is plenty of downward pressure for domestic reasons. , of course, the tariffs have been hurting chinese goods. But the best way of putting it is that it will add pressure, but not necessarily tip it over the edge. As one economists said, it is unlikely beijing will panic. They have plenty of options up their sleeve. Remember, the have a growth ande between 6 6 6 6. 5 . Central Government Debt is still relatively low. There is plenty to do. Obviously, it is a negative, but now they can withstand the pain at least in the nearterm. Francine joining us for the hour is the investment director at Fidelity International and head of Investment Strategy at j. P. Morgan private bank. Lets kick off with you, david. We have 10 extra tariffs. A couple of hours with a stop talking and we were not sure what was happening. What does it tell us what is in the administrations mind . David the continued focus on a deal that works for them in their mind in terms of addressing issues they feel have been at the core of this important relationship. Ie that it is unbalanced and china is not playing by the rules. The comments we heard earlier about not rushing for a deal, this is obviously a very this is a focused a president focus on the reelection. It is not clear if this deal is better than a deal in the Second Quarter of next year. The chinese have shown a remarkable patience as well and a willingness to not withdraw some of the statements they have made. Especially when markets have done well we get more bellicose language and it will be with us for a while. Andrea we are seeing the markets take a step back, but it seems it will be translated into more fed action, if anything. Could say that this is part of what trump is trying to do. We have had a bit of a mixed press conference this week. Francine ill say. [laughter] andrea but given how things are developing, should we see this trade spat spillover into further manufacturing slowdown, slower global trade, slower and , then weternal factors expect more cuts coming up. Francine the market has to take about. Lets say there bet. Does the slowdown we see get reversed . David it is more of a question of sentiment. We have seen treasury yields fall by around 20 basis points just on the back of the announcement. , we woulds a deal expect that negativity to reverse somewhat. We have seen the stocks coming off and that will be a market that could benefit them obviously. Francine are we expecting more contraction . David absolutely. If there is no fix, you will see further pressure upwards on safe havens and a compression of valuations. A Solid Earnings season will help push the other way. But that is why we have not been recommending people sell core bonds. Bond, even before the surge, was up over 15 . That plays into the affect we always talk about, the negative correlation with risk assets. Absolutely, that has played an important role. And if there was a deal tomorrow, could fix all the damage that has been done could it fix all the damage that has been done . It affects the stability of the trade relations and what to capex. There is some damage in terms of efficiency. Bit, are winners a little the idea that you have a deal that is so comprehensive incredible it would turnaround Business Sentiment tomorrow is naive. Francine thank you both. David from j. P. Morgan and andrea from fidelity stay with us. Coming up, we speak to larry kudlow after todays jobs report. Dont miss that interview at 2 30 p. M. T basic yields in europe are down 4 . This is bloomberg. Francine economics, finance, politics, this is bloomberg surveillance. We have a sea of red when it comes to the markets. Check out this great application on the terminal called the world map. It is realtime and you can see the ftse down, the cac down. If you break it down in terms of areors, basic resources down some 4 overall. This is because of the extra tariffs President Trump has put on china. China is pledging countermeasures as President Trump is escalating the trade war. Lets get straight to your business flash in new york city. 400 people cut from citigroups trading division. This week, the Company Dismissed dozens of employees. They join other banks including deutsche and socgen and cutting jobs in cutting jobs. Rbs plans to award a special dividend, paying a oneoff award. They are saying they are unlikely to meet some profitability targets amidst political and Economic Uncertainty. We are very sensitive to rate cuts and we have got some quite a detailed disclosures that have a big impact. In the first year, it would impact us by 144 million and grows about 300 million by the 30 year. As you can see, our structural hedge wont roll over on it. Allianz profits climb as the Asset Management business lips earnings. Lifts pimco attracted money lower investment money hit the business. Operating profits from nonlicense insurance fell from the year earlier. That is your Bloomberg Business flash. Francine first, the rate cut, then the data. First later today, we get an update on payrolls. A survey suggests the United States added 165,000 jobs, slowing from june space junes pace. The pace of hiring appears to be at 175,000 jobs per month based on trading averages. Todays data will shed light on the rate cut and jay powells decision to signal he is not embarking on an extended easing cycle. Still with us is andrea from fidelity and david from j. P. Morgan. Fed andly mentioned the the first conference that had a lot of traders confused. They are hiking, but it is not a trend. Was it a miscommunication . Would jay powell have woken up and said this is not the direction he wanted to go . Andrea it is a tricky one for jay powell. Slowing, butomy is not falling off a cliff just yet. Time, it was a mishap from his part. We have seen it in the price action and the ranges of twoyear yields going up and down. In this context, the job numbers will be very, very important, even though they are a sideshow. Given the focus that is still very much on the u. S. Consumer, that is the only engine of growth in the u. S. , whether jobs and average Hourly Earnings continue will be an important barometer. The most important question you could answer today is what we are discussing on our mliv blog. The question is do trumps policy or tariffs matter more do fed policy or trump tariffs matter more . David fed policy. It has been one of the dominant themes. Financial conditions take a while to adjust. It does not mean the trade is not important and we can have a lot of mess caused by trade as you can see, but fed policy is more important. And i am sympathetic to jay powell. He had to sound reasonably upbeat so he does not pile on negative sentiment while being dovish, that is a hard balance to get right. I am somewhat sympathetic. We always thought there would be at least two cuts. That is, for me, the baseline. Maybe we get another one trade continues to ramp up. Andrea we are aligned on that. To answer the question, Central Banks have been and provided the tide that lifted all bolts. Arguably today about the market is looking at Central Banks yet again to see if they will step today, the market is looking at Central Banks yet again to see if they will step in. Francine how much of a problem is a higher dollar . . It is something exclusively watched by the federal reserve. If it continues to depreciate as a result of a risk off environment, that will lead to tightening financial conditions which will then pushed even further. Push even further. We expect them to cut once more this year. Of how be a matter markets react and how the economy stabilizes or not. Francine are you expecting stronger dollar . David you could get it one of two ways. Either through growth remaining stronger or some of the asia risk off sentiment. Neither is particularly good for the World Economy right now. Risk sentiment would be awful as you are piling on a higher dollar and tightening conventions conditions. The whole investing world would like the dollar to start gradually decline. Gradual moves the market can deal with, fast ones is trouble. But the world is expecting more Interest Rate cuts and u. S. Growth to slow, so do we. If we do not get either of those things, the dollar remains strong. Francine thank you both. David from j. P. Morgan and andrea from fidelity, both stimulus. Commodities both stay with us. Commodities are roiled as trump wants gasoline on the inferno. This is bloomberg dumps gasoline on the inferno. This is bloomberg. Francine this is bloomberg surveillance. This is what we wanted to show you. This is a function you can have on the bloomberg terminal. Breaks down, sector by sector, the ones that are losing or gaining depending on the day. You can see discretionary is down and looking at materials, basic resources are down some 3 . Aftert for a weekly loss the steepest drop in more than four years. This is after President Trump abruptly escalated trade war with china. Is andrea from fidelity and david from j. P. Morgan. I dont know what you do with basic resources, it is such a direct play towards world growth, trade, and china. Markets,f you look at they have underperformed. It is expected that in a world where global trade slows, resources take a beating. Valuations are not superexpensive, arguably. They have been lagging most of the year. It is a matter of finding the right balance. If you look at the latest earnings season, look at the performance of the leverage companies, anything that is related or has got anything to or the external Manufacturing Sector or auto sector has come under pressure and underperformed. As long as the situation and tensions remain, this is likely to continue. Francine we will get back on this shortly. David from j. P. Morgan and andrea from fidelity stay with us. Up next, before taking the top job at ferragamo, we speak to the chief executive. Francine wrapping up the trade war, President Trump announces a new 10 tariff on 300 billion of chinese goods. Beijing vows to retaliate. European stocks tumble. Miners get it especially hit hard. Today is the jobs report, and the u. K. Prime ministers majority cut to just one after the antibrexit democrats win. You are watching from asia, this is bloomberg surveillance. I am Francine Lacqua from london. We are getting a little bit of data from construction pmi. This is significant. Anything below 50 means there is a contraction and it is a little bit below even the, i guess, bottom end of the estimate. Construction pmi for the u. K. Is at 45. 3. The forecast we had was 46. Pound at 1. 2126. I was at a press conference with mark carney. Governor carney was trying to say as little as possible about the possibility of a no deal brexit. Thats check out what is moving in the markets. The biggest movers today across the stoxx 600 are companies that are sensitive to auto and we have luxury. The chipmakers are down more than 11 . Faurecia auto parts maker is down 2. 85 . Which isresponding, gloomy for a luxury maker, especially impacting consumers. Traders worry that trump will go after french wine. Produces wine, champagne, and luxury goods. Francine . Francine lets get to first word news with viviana hurtado. Viviana we begin with the escalation in the u. S. China trade war. President trump with a 10 tariff on 300 billion of chinese goods. There is the potential that it will hit American Consumers more directly or the list of targeted toducts are respected think are expected to include smart phones, laptops, and childrens clothing. Taken decades china has advantage of trade versus the United States, and southeast asia, and it is time for that to stop. President trump has said we are going to fix it, and to fix it requires determination, and that is what you saw this morning. The president is determined to achieve this outcome. Viviana the u. S. Federal trade commission is looking at whether a Company Bought upstart for competition. This is part of the trump administrations esca living scrutiny of tech giants. Boeing redesigning escalating scrutiny of tech giants. We have learned that boeing is still aiming to present software to regulators by september. The timeline could slip after the changes of a Flight Control system will read input and max planem the plus computers. There is an order that appears to offer authorize a second round of sections on moscow come as punishment for the 2018 nerve agent attack on a former russia spy in the u. K. The order for this u. S. Bank loan global news 24 hours a day on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries, i am viviana hurtado. Francine lets get to an exclusive interview, it is one year this week since the Italian Luxury Company made headlines with the appointment of a new chief executive. They are known for making shoes for Audrey Hepburn but has struggled for a fresh look in recent years. Adding to challenges is the u. S. China trade war, and the whichtion in hong kong, affect sales. She brings in 20 years of experience with the gucci brand. Welcome to surveillance. Dropping by in london. Concerns t your about how these trade concerns impacting the u. S. And china are affecting your business. They wake up this morning has been looking around and seeing what is happening in the trade that wehow i believe have to stand and to stay consistent with our strategy. It is very difficult to make any kind of anticipation. What is more important, i believe, is to keep to stay consistent. Know, Salvatore Ferragamo is based in italy, and this is one of our we want to keep these andhe core of the company, this will not change with the impact of the trade war. We need to keep alive the use of beenand what we have deliverin. Much have sales in china been affected because of the trade war, and how much have they been affected in concord hg because of the protests . We have been announcing a few days ago, we did not perceive any major impact from the hong kong protesters. The protests are continuing, and it is hard to make any kind of prediction about when it will last and how it will last in a way, so we are working particularly on all of our , andmers, considering that the people that we have been engaging with. Impact it remains a situation with the Chinese Consumer who buys abroad. It is affected by the movement of the Chinese Consumer. Francine does it mean that your Opening Stores or adding stock to the stores that you think will be better because the people in hong kong would buy somewhere else . What is happening is that the mainland chinese are reducing their buying in hong kong. Foro not have visibility the beginning of the month of july to stay in china. In their own country. On the other site, it is true that we have customers, and engagement, and a strong loyalty with the brand, so we need also to engage with them and take care of them. Francine i want to talk about your products and things that you control, but first, is there a way of hedging currency swings . It is quite a difficult world to navigate things that are outside your control. Is there anything as a chief executive of a big luxury brand that you can do to mitigate that impact . We choose a policy which has been established during the course of the year, and we are keeping it alive particularly in this moment. The p l and the financials from the company. These policies are allowing us anticipate, and the technology is allowing us to mitigate in a way the discrepancy, but in any case, to anticipate based on the trading of the value of currency. Francine you have been in charge for 12 months. What have your priorities been, and what will they be in the next 12 months the echo selling products to millennials . Micaela the balance im starting to do because after one is what has been really important, fundamental, is that the number of talent that i have put into the company. To establish a vision , we areerterm traffic currently working at implementation. We started to concentrate on the design, marketing, and communication, that we believe we need to communicate, with the product on the others. How difficult is that . There are a million products out there, a million shoe companies, a million luxury Clothing Companies you could choose from. How do you separate from Everything Else . Micaela i believe the way of separating is to express our own point of view. What we do not want to be is a follower. March, we of is anted a director who british talent, and we have been working in order to get under the creative vision. We do believe that in this world, what we can communicate are the values in a way that could be perceived as contemporary by the contemporary consumer. This is what we are trying to do. Delivering two different age ranges of consumers. Francine when you look at the theon, you can look at u. S. , latin america, and areas we have touched on. Where is there more strength . Europe is in a tricky situation as well. Micaela i believe we currently in europe andties the u. S. The brand that has lost a little bit of traction in these markets tohat we would like to do is get track on these markets as connection make a with the younger generation. We have to look at the generation because we do believe that they are really looking for some values, and these are two aspects that we think we will be able to deliver as a brand. Francine how are you planning for a possible Nodeal Brexit . Is it the same exercise you had to do at the end of march . Micaela this is hard to predict, considering there are not clear goals yet. The point is that we would like potentialanticipate problems as much as the other Luxury Brands would do. So we are looking at the possibility of trying in a way to accelerate some of the deliveries in order to make the conditions getting over the brexit. For the time being, to be honest, what we hope is that we will also be clear and able to manage it, but on the other side we are trying to anticipate some potential plan b. Francine we have a viewer question. We ask them to write questions at tv. You have any concerns about the availability of Raw Materials in your products . We dont have in these moments any concern about the availability of Raw Materials. It is true that we need to Start Research of to materials. We just created a new department announcing all the digital moves. And on the other site to try to facilitate a way of research and a way of looking forward in terms of new materials, in terms of technology, how the technology can be with the craftsmanship. In a way, tension that we have to work with the company. Francine thank you so much for joining us today. Le diveleccaela the divot let lemmi. Hiss johnson has cut majority in the house to one. We will bring you uptodate in the market. This is bloomberg. Francine these are your markets. We are seeing quite a lot of red on your screen. President trump ignites a fresh trade fear. What it means as you look at sectors that are losing the most, you have basic resources, energy, and just human and Consumer Discretionary down 2. 5 and 3 . Lets get to boris plus working parliament, down to one. The loss leaves johnson very little room to maneuver as he seeks to deliver brexit by october 31. Lets bring in our guest, heading up all our brexit coverage. All, a working majority of 1 what does it tell us for the way that Boris Johnson will be working . Boris johnson probably already did not have a brexit majority, already did not have there wouldsee if be majority for any deal. Of one, obviously very perilous. It makes the department very tight. I suppose you could say it it alsohe chances shows why it would be dangerous for Boris Johnson to go for a general election before brexit is delivered. Had the tories taken all of the brexit vote, they would have won the election last night. It is a reminder of why the brexit party is such a threat to Boris Johnson if there is an election before he can deliver brexit. Onedline, if you like because, two other pro e. U. Parties step back. Are gettingat they very excited that this could be replicated on a National Level in a general election. We will see. I dont know if what you see in the markets right now is whether there is a no deal or an election. Weis either we crash out or seek. David sure. They no deal brexit is still feared by the market and it would be quite disruptive. It is not like you are actually going to resolve this. We absolutely think a no deal brexit and a general election are by far the two most likely outcomes. Through anbably get election not with Boris Johnson calling one but with september 13 is when potentially that would happen. It is a very tight deadline. All of a sudden the people in parliament that are concerned about it are in his own party. It will be put up or shut up time. Surely at some point there is ofng to be one, a vote noconfidence. That will be the moment of truth. Now deadwe will are where we are now versus where we where we are now, versus where we were a year ago, with a softer brexit, right now i give the chance of what is a hard brexit or a general election, increasing substantially to allow 80 , given the dynamics that are going on today in parliament. Itn it comes to markets, is affecting sterling assets . Probably not to an extent. Even the pound will continue to valve for any pressure coming out of westminster. We are being cautious around sterling assets. I dont even think the bank of england knows in this contest. That in this context. Yesterday was a surprise. Where it stands, they are the more hawkish once in an environment where they have brexit, trade wars, all sorts of weird and wonderful things going on, and we do think that eventually they are going to have to go ahead with an insurance cut of 25 basis points. Someone ins there Boris Johnsons inner circle that would guide to a no deal . His cabinet, his advisors give an indication of whether he is plenty for a general election . Is ready for a general election . Emma does johnson even know what he is going to do . He doesnt have a long track record of pushing deadlines up to the last minute, and i would not necessarily bet on him knowing what he is going to do. This, sort of looking at at the summit in the middle of the night, he says you guys arent budging, i am calling and election. Calling an election. The other thing to throw out there is that even during the campaign, johnsons team were wargaming the possibility of an election. You really are trying to game this out is a vote of of johnson as tory leader. Francine thank you for joining us today. David stubbs, head of Investment Strategy at jp morgans private bank. In the meantime, i am seeing a lot of red on your screen. Looking at basic resources, down 3 . I am also looking at materials, energy, industrials. It is quite a lot of pressure on the back of those extra tariffs President Trump impose on china yesterday. This is bloomberg. Pres. Trump until such time as there is a deal, we will be taxing the hell out of china. That is all there is. Francine that was President Trump talking about the trade war with china at a rally last night. As we head into the next hour, lets check on your markets. Stocks are down. Trump is reigniting trade fears are looking at the sectors that are moving insulation technology, disk Consumer Discretionary down 3 . Down 2 benchmarks after japan moved its neighbor. South korea also vowed. Coming up next, tom keene joins me out of new york. Dont miss it. This is bloomberg. Francine ramping up the trade war, President Trump announces a 2 tariff on 300 billion of chinese goods. Beijing vows to retaliate. The next big thing to watch, the jobs report. And the u. K. Prime ministers majority is cut to just one after the antibrexit liberal win by election. This is bloomberg surveillance p i am Francine Lacqua in london. Tom keene is in new york. Extra data checks, more extensive data checks looking at the sectors because they tariffs kind of came out of nowhere, 10 , and hit the markets quite hard. It also renewed all the anxiousness and fears about the trade war escalating. Tom i looked across three of the great geographies, and instantly it is about contraction, completely readjusting what the Central Banks do going forward. Francine we will have plenty more on the markets, 20 more on inflation on expectations. Lets get straight to first word news with viviana hurtado. Viviana beijing vowing countermeasures if the u. S. Follows through on the threat of extra tariffs. To chinese imports. At a came pan rally in ohio, President Trump said the proposed 10 tariff hike could go higher, to 25 . Time asump until such there is a deal, we will be taxing the hell out of china. That is all there is. Viviana the Chinese Commerce ministry saying President Trumps tariff announcement agreement with president xi. Puerto rico governor has still not been chosen. Lawmakers there have delayed a vote until at least monday. You may remember, he just stepped down after weeks of massive protests. Over to the u. K. , where the new Prime Minister has seen his parliamentary majority cut to just one. That is after Boris Johnsons conservative party lost the election in wales. There was a recall after a conviction after faking extensive claims. Theld trump is raising juan guaido is recognized as the rightful leader of the south american nation. Global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more i am vivianantries, hurtado. This is bloomberg. So much. Ks i took the surveillance nap yesterday and woke up not only to new data, the stunning news by the president , as we saw with his comments in ohio. Lets do a data check. It is way different than before yesterdays surveillance nap. 89, 2 sentat spread. We are watching that very carefully. Dollar weakens, euro strength. Oil cratering with a bounce today. 18. 14 right now. And then the carnage, the 10year yield, that should be read on the screen. That is lowered by five basis points. We will do a chart on that in a moment. Row,enminbi, two days in a junk conditions out on a seven yuan. We are not there yet. Francine i am glad i caught onto that. Tom the official surveillance map. Francine china pledging counter warsures, as the trade is basically freaking out the market. The renminbi in there, the vix gaining 1. 5 . Yen, and overall the President Trump is trying to figure out what trying to figure out what President Trumps escalation of the trade war means for the markets. Tom here is a chart of the carnage yesterday afternoon. This is the 10year yield. We go back to 2007 and the financial crisis. Remember a 4 yield . The longterm reduction that we have seen, the trump election, and we are back almost to the trump election level, and critically, we are below, francine, that longterm disinflationary trend. You wonder how all the Central Banks have to adapt and adjust. Francine i like your chart. Mine is not really a chart. It is the imap function. It gives you a snapshot view of the sectors under the most pressure today. Intraday, you can see information technologies, down 3 . One of the questions we need to ask ourselves, if there was a trade deal, a trade that stops all of a sudden, the capex on investment comes back straightaway, if that would reverse the slowdown or not. Lets bring in enda curran, the chief asia correspondent in hong kong. First of all, do we have any insight on the countermeasures from china, what they could look like . Askedwell, they have not rest how they would do that. They have not expressed how they would do that. It has been made clear that they will respond in kind if the u. S. Goes ahead with the latest rounds of tariffs on chinese goods. They have made it clear that the ball is back in the u. S. s court. It seems to me they are putting the pressure or the onus back on the u. S. Side to get things going again. While we await details on how they will counteract chinese tariffs, i think at the very least it raises severe doubts as to whether or not these talks will go ahead in september. Francine what does it all mean for the chinese economy . Economy had been slowing. It does not need this trade war. There are domestic issues going on there. The World Economy is slowing anyway. That is hitting the demand for chinese goods. Now there are more u. S. Tariffs on the way. By all accounts, there is a feeling it will make the economy test the lower range of the governments 6 , 6. 5 growth target. It does not tip the economy into the abyss just yet. A lot of economists say china has plenty of weapons up its sleeve. Tom i want to go right to this lets listen to the president again. Here is the president of the United States on trump economics with china. Pres. Trump until such time as there is a deal, we will be taxing the hell out of china. That is all there is. Economist from wharton, enda curran, how does president xi respond to this . Every single mainline economist, paul kearney in new york, will say the president does not know what he is talking about. How does xi adapt and adjust to this . Enda the first thing is, they cannot match the u. S. Dollar for dollar in goods. That is the first issue. They could increase existing tariffs on chinese goods. Beyond that, there are nontariff barriers, and here is where things could be much more awkward for the u. S. Operating in china. They could slow down approvals, rollbackregulations, Market Access where they have problems already. Enda, you and i read Jonathan Spence. This is the third or fourth go round with the president on taxes in china. His the Jonathan Spence analysis that china goes silent for a number of months . And a coabsolutely, there is a case. A lot of people made this enda absolutely. There is a case. A lot of people made this point. Dont forget, they have plenty of monetary and fiscal arsenal to deploy. Beyond that, they couldnt look they could look for new markets to sell their own goods. So, yes, china has options and they could dig in for the long march. Francine for all of our viewers, the questions have been on fire, so keep coming with your question to our experts and our guests. This one is for you. With the latest round of tariff threats, what does it mean to europe and asia . Enda the most obvious would have to be the supply chain effect, francine. There are some economies that will see disruption because production will have to be relocated out of china and out of the region, perhaps back to the u. S. , but some economies will also benefit. Vietnam, for example they have been benefiting as some chination moves out of because of the tariffs. So there could be some positives. One of the spillover effects is, korea. Eye on japan and that will have an impact on trade and growth. Francine thank you so much, enda curran. Peter chow will joins us. Peter chat well joins us. Thinking, arerst we back to escalation or is it just President Trump it is a combination. There is electioneering, they are pressuring the fed. Channels umber of the problem i have here, when looking at the global economy, when looking at various asset they arei dont think extrapolating this behavior from donald trump and thinking about the positive consequences it would have on his chance in election success. In getting what he wants terms of a lower funds rate. Now atter, i look right where we are in the markets. What are we watching . In,ave the two since coming ntsthe two the 2 ce coming in. What are you looking at on your screen . Peter i am looking at the s p 500, looking at when we laugh at the u. S. Manufacturing sector in recession, in late 2015 there is a peak, and in early 2016, looking at the possibility that that could be repeated, taking the s p 500 to 2600. I am looking at the level of u. S. Rates relative to european rates, and thinking that they could converge dramatically. I also think we should be looking at the possibility that it does invert in the coming weeks. Francine what is your take . How bad can it get . Lot with what peter just said. If you look back at dynamics, driving the trade war on the u. S. And chinese sides. Everything points toward escalation rather than receding. There is the electioneering, the fact that we are in the election see nice thats the lesson season in the u. S. The chinese are not going to give up ground on any of that. That is why we are seeing this escalation. I agree that the stock market is more interesting this go round. The treasury market is equally interesting. Shearing. Good, neil it is supposed to be about jobs day, but somehow i dont think that will be the case. In the 9 00 hour, our john farrell, in a conversation with free trader mourns kudlow, on the president and the president s with free trader Lawrence Kudlow come on the president and the president s taxes on china. This is bloomberg. Viviana this is bloomberg surveillance p lets get the Bloomberg Business flash. Allianz getting a boost from pimco in the Second Quarter. Pimco attracted 25 billion of new money. This after a push for overseas outside clients, operating profit from nonlife insurance missing estimates following falling 5 from a year ago. Campbell soup inking a deal to Sell International operations p this includes australian Biscuit Maker arnett. The dealer completes the soup makers asset plan it announced last august. This would pair down its debt. Investors will likely turn their attention to the new ceos idea for revitalizing Campbell Soup and snacks. That is the Bloomberg Business flash. Francine lets get the latest on the u. K. Boris johnsons working majority in the house of commons has been reduced to one. Liberals impacts liberal election. Won a bye byseeks to deliver brexit october 31. Our editor for brexit joins us. Neil shearing and Peter Chatwell are also still with us. First, what this means for how Boris Johnson views the possibilities. It probably makes another election more likely. It has been pretty complicated for a long time, and already johnson did not have a majority on his brexit policy. This just makes it all the more perilous, doesnt it, and when they come back in september, there is the possibility of a vote of noconfidence. Theng that i think headline here is that the lib dems won because two other proe. U. Parties essentially stood by and pushed the vote that way. The other really important take away is that had the conservatives won, not even all, i thing about half of the vote of the brexit party, the tories would have won. As long as brexit has not been delivered, the brexit Party Remains a massive threat to johnson. It also means that this seat, which did go the same way as a nation in 2016, this seat is probably april brexit seat. Despite the fact that the liberal dems won. Add together the conservatives in the brexit party, they did better. Francine what does it mean for how Boris Johnson will try to negotiate brexit . Emma what we have seen so far, some people are expecting the showdown not really to happen until the middle of october, a summit on october 18, when and possibly the g7 in august, a bilateral with other e. U. Leaders. Many people thought he was talking tough in order to win the tory grassroots vote, but now he has absolutely doubled down. And it is pretty hard to see how he could tweak a deal. That is why i think the consensus increasingly is that a no deal general election peter i think the general election is much more likely. He cannot deliver it. Tom we are looking at the markets today. Major moves here. Less so on the currency markets that we saw with the fed meeting as well. Emma rossthomas leading all of our brexit coverage. Peter chatwell and neil shearing as well. Us, vankeeyer joins of america and merrill lynch. And Ellen Zentner for morgan stanley. This is bloomberg. Tom bloomberg surveillance. Good morning, everyone. Extraordinary Market Movement today, wrapped around the bet on further Economic Contraction of consumption tariffs on a 10 bolt on tariff in september. Neil shearing and Peter Chatwell provide wisdom this money. We got a little breath of fresh air in the last number of weeks. Do we give it up again . This is the u. K. Fiveyear which has not moved. The u. S. One with a rollover, the e. U. One with a rollover. Get a going to contraction because of the global trade war . The thing with a fixed income markets, the equity whether that is because of a trade war is up for debate. There are certainly no winners and there is certainly a headwind to factor into the forecast that can escalate for a a while. There are other things going on, though. You have written brilliant notes on the linkage in economics with the Financial System. What does this new bout of instability do fragile banks that are out there dealing with Economic Contraction and dealing with ever greater negative Interest Rates . Neil i think when we look back on this episode in 5, 10 years, one of the Big Questions will be how has the Financial System weathered not just in europe but in japan and asia and in the u. S. , too, the flat yield curves and the low level of rates . We are getting to the point where Central Banks are out and about not because they are pushing on the string, but because the more they start to loosen, the more the lower rates become, the more damage they will do to Financial Systems, the bank systems, and they will make things worse in the real economy. More emphasis on government. Slowdown,an economic fiscal policy is the key to getting out of this next slowdown. Our marketster, questioning whether Central Banks can get us out . What would have happened three or four months ago, the fed is being much more aggressive. The value commodities are kind of flattening. Peter there is no sign of any optimism that the next round of monetary easing will stir inflation in any material way. That theof magnitude market would need to begin to expect for it to be viewed as inflationary is equivalent to about 100 basis points of rate cuts in the euro area, which would be a package of 20 or maybe 40 basis points of cuts, along with qe. That would weaken the euro. That would be inflationary. They cannot deliver this really without massive engineering. Francine we will come back to that and we also have a viewer question talking about trade issues. We will get back to our guests. This is bloomberg. This is bloomberg surveillance, tom and francine from new york and london. Lets get straight to the bloomberg first word news. Viviana donald trump a raucous crowd at a Campaign Rally last night and said 90, ohio, flaming agendar left destructive prioritizingand undocumented immigrants over american citizens. Isbangkok, mike pompeo defending the decision to impose more tariffs on chinese products. During an exclusive chat, pompeo cades. Hina has been taking it cannot be case that a nation, or text and is him protectionism, to deny other economies the chance to grow. Cannot he added china come back to the agreement that was originally on the table. South korea is warning japan over its unprecedented decision from a list. Ul japans move is clearly intended to block south koreas growth. Todi arabia will allow women travel abroad without permission from a male guardian. The system makes women relatives of male throughout their lives. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. Tom thank you so much. I want to get to the data. It is really in the fixed income market. With theuity markets difficulty we saw yesterday, further deterioration. Dow futures at 88. I am watching the vanilla 210 spread. The vix, 19 comes in. 1. 85 , aar yield is lower yield by four basis points. The thirtyyear german bond is about ready to go negative, as we have seen in switzerland. That would be extraordinary to see the thirtyyear german yield go negative. Francine i like your data check. Bonds, yenling, jumping in the move to escalate the trade war. The yuan at the weakest point since november. The vix gaining 1 . Tom let us talk again on these markets. Chatwell go to peter and neil shearing. Central bankers have to react and they will react on the gamma or acceleration of the trends. How gamma are we right now and does it lead to the drama of emergency rate cut or a significantly different rhetoric from powell, kuroda, and the rest . Neil i dont think we are there quite yet, but it is clear from the moves a few get more and the way of similar moves we will get there quite quickly. What the Central Banks are trying to do is wrestle with two things. The deterioration of service data is pointing to contraction and recession. Data,y cases, the hard activity data held up well. It is particularly true in the u. S. Consumers have had a strong q2 going into q3. The survey data sending more ahead of thefar curve should they get . Tom i want to get up right now a germany chart. , have never shown this before and what is extraordinary to me is the gamma. This is the german 30 year yield on 0 and we may get that in the next hour or so. What is the significance that germany will enjoy the negative very scheme we see in a different switzerland . Peter the significance is that german securities and government bonds are of systemic importance. Some investors are mandated to hold a certain portion of their portfolio in the safest asset in europe. Buy are mandated to positive yielding asset. Zero, curve goes below then they are no longer able to buy them. The gamma you are observing is there are less positive yielding german securities available. That is why it accelerates. Francine does it create bubbles elsewhere . Peter i dont think it creates bubbles elsewhere. It will force investors to diversify. It does have a number of positive benefits. It means that if you are a riskier company or sovereign, you have a lower refinancing rate so it can cause spreads to tighten. There must be a bubble somewhere , but effectively this is a state owned security in a state owned market. The ecb funds the banks and sets Monetary Policy. Where is the bubble when ed is caused by bank test it is caused by bank policy it is caused by bank policy . Francine are you worried the slowdown will not be able to be reversed or contained by Central Bank Action . Neil we are right at the limit of what Monetary Policy can do. They can cut rates a bit further and there is more they can do in terms of nonconventional policy. The question is, how effective are they . That is my big concern. On your point about asset prices , difficult to see bubbles forming at the moment. This cycle has been incredibly strange. We have had incredibly weak growth and high asset prices. Monetary policy has been supportive. Lingering trade imbalances around the world. I would not be surprised if we get another crisis. Francine where would the shock come from . Neil china would be an obvious one. We know debt levels are extremely high. I expect the other issue we need to think about as there is some esoteric part of the fixed income and credit market where things are frothy. Leveraged loans got a bit of attention this year. Systemic. It ripples through the financial plumbing. That is the big risk in all of this as we get yields lower and asset prices higher. Tom how is Business Investment in europe, in the United Kingdom . Neil it has taken its leave from america if that is how you want to frame it. It is simply not there. It has been a challenge for economists to work out why Business Investment has been so weak. You could claim a few we test years ago a few years ago that we were miss measuring this, particularly when a lot of investment is in intangibles. It could be there but we do not measure it or capture it. If you look at the relationship ofween Capacity Utilization Business Investment, they track each other nicely until 2016, when they start to break apart in the u. S. And europe. There was the vote for brexit and the election of trump and the escalation of trade wars. My explanation is it is no longer a mirage that we cannot measure this stuff properly. It is a function of the fact that businesses should be invested but the uncertainty is so great they are choosing to hold back. They might invest in more capital. That explains why the Unemployment Rate is so low. Bloombergcoming up on , we speak to the National Economic Council Director and white house advisor, Lawrence Kudlow, after the jobs report. That interview 9 30 a. M. New york. Global equity markets continuing their slide after President Trump escalating the trade war with china after imposing extra tariffs. This is bloomberg. Viviana this is bloomberg surveillance. Lets get the bloombergs newsflash. Citigroup is beginning the process of eliminating 400 people from its trading vision. Division. They dismissed dozens of employees. Deutsche bank and socgen have u. S. Announced job cuts the federal trade commission is looking at facebooks acquisition is a broad antitrust probe. Ed is part of the trump administrations escalating scrutiny of the tech giant. Bp says it plans to double its drilling capacity in the permian over the next few years. Arehe key here is we running three wells right now, three rigs right now. We will ramp that up to about six rigs. We will wait until take capacity is in place. We will step away from it steadily and get free cash in 2021. Viviana the Company Plans to continue with its disposal of legacy on shore u. S. Assets. Francine lets talk trade, the Terror Threat is back. President trump tariff thrift is back threat is back. Until such time as there is a deal, we will be taxing the hell out of china. That is all there is. Francine the new import taxes will come into effect september 1. Mike pompeo said the Administration Still wants a deal. The president is determined to achieve his outcome. The chinese agreed to would at one point and walked away from the deal. We want fairness, evenness, reciprocity. These are Core Concepts. When that happens, asia will thrive. Francine Global Markets sinking on the back of this fresh trade threat. Joining us is jody schneider. I dont know how much this could escalate. Some of the things china could target, go through the list chinasme, but is it in best interest to go hard at the risk of hurting their economy . Jody that is the real question. President trump is saying this will not take effect until the beginning of september so that gives china some time to respond. We heard from their foreign minister today, basically decrying the tariffs and saying this is not a way to conduct trade negotiations, but we have not heard whether china intends to retaliate. They could retaliate with further tariffs or they could walk away from the deal. President trump, at the same time he says he will go through with the tariffs, is saying he would still like to go through with talks. The reason he said he will impose further tariffs as china has reneged on its promises to Agricultural Products and stop fentanyl importation. Francine this could be threatening boeing and u. S. Crude oil. What would hurt the u. S. The most . Jodi part of what is going to hurt the u. S. If this is not resolved as President Trump has campaigned on the strong economy. That is one of the tenets of his campaign for reelection. He had been helping to book a narrower trade deficit. That not happen if they cannot make a deal. If these trade tariffs go into effect, higher tariffs on more products, these will affect u. S. Companies in a way they have not for, and u. S. Consumers. Apple products are largely sold to the u. S. Market but are assembled in china, so they are imported. Tariffsl get additional as well clothing, footwear, additional electronic products, and that could hurt American Consumers which could become a political issue for President Trump. Tom we have two guests with us. I look at the timing of these tariffs and the idea that the communist party will go on their summer soiree in northern china any day. The back chop here is a china where the leadership has to backdrop here is a china where the leadership has to coalesce behind a strategy. What will that strategy be . I think at this stage, what we will see is china i struggle to say play the long game, because that is a term that is lazily bandied around. They will think, we are into election season. Lets see what comes out of the election next year. What is clear is as soon as it moves away from trade deficits and towards industrial strategy, they are not willing to go there. The other interesting thing on timing, the summer break, and the tariffs come into effect in september but the next round of trade talks is due to take place in washington in metal september. Middlele this september. Surprised if we see this next round get kicked into october or november, but it will not escalate. Tom secretary mnuchin and mr. Kudlow, speaking with jon ferro in a couple of hours, they have got to advise the president of the market signals of economic slowdown. Lets go through the list. Do we assume europe is in recession . Sub 2 nomics assume a gdp for the United States. Surveys you look at the , the ism and pmis surveys, it is almost sub 1 idealized in the u. S. Europe is on the brink of recession, german industry is in recession. Does the white house care . No, so the answer is long as the u. S. Labor market is holding up and we do not see a complete rout in the stock market. He does not really care about the fluctuation in q on q gdp. Unless we have a complete meltdown in the u. S. Economy, he will keep pushing. He thinks tariffs do not do economic damage. It is quite helpful for what he is trying to get the fed to do. If we see the equity market fall over, the fed is under more pressure to ease policy and that is great from his perspective. Peter i completely agree. I think the market is not pricing this. The more trump uses these tariffs, the fed has made its reaction function very clear. Powell made in his statement but they are learning by doing about the Monetary Policy reaction to more tariffs and escalation of the trade war. You have to extrapolate this and think about the fed levering a series of cuts and this not being priced by the late delivering a series of cuts and this not being priced. Francine this is bloomberg. This is bloomberg surveillance. We talked about brexit from the political point of view. Pound, 1. 2129. Trying to figure out what boris will do with a no deal brexit and how they will afford their holiday. Neil shearing and Peter Chatwell are both still with us. The concern, when you look at brexit, it seems very binary. Believend of do you Boris Johnson will force through a no deal brexit, and it is unclear whether the Prime Minister knows himself. Peter he is saying he is ready to deliver a no deal brexit but the chances are vanishingly small. He doesnt have a parliamentary power to deliver on what he is saying. This is all electioneering. The probability of a no deal brexit by october 31 is much lower than the market is pricing. The chance of a no deal brexit article 50 would get extended by a general election being called and i believe that will get called in september for tober. That will extend article 50 and give the government a new keepte where they get to no deal brexit is a negotiating policy and that is when risks should be rising. Rather than having the risks priced now, they should be on the event of the tories getting the majority next year. Francine do you agree . Neil i think that is probably right. The next stage is the promise to go to brussels and try to get a deal and take backstop out of the agreement. It is clear brussels will not move. Ball, i is not playing am going for no deal brexit. The house will say, no chance, and the only route out is a general election. That changes the parliamentary arithmetic. Im not sure does. The country is split straight down the middle between those wanting to leave those wanting to remain. Those who want to leave have no way of articulating what form of leave they want to pursue. I dont think this gets resolved. I can see they can getting kicked down the road and we are stuck in a perpetual state of limbo, which compared to no deal, would be great. Tom neil shearing and Peter Chatwell. Extraordinary markets wrapped around jobs day and singular talk of the president and his taxes on china. Next, Michelle Meyer. This morning, Global Markets continue to react to the president s threatened increase of american taxes. China responds. , ais jobs day in america fully employed and confident america, or is it . , ander wales nor england the mountains of Wales Jeremy Corbyn loses big. The combined vote is impressive. This is bloomberg surveillance, live from new york and Queen Victoria street. Andaordinary market moves sterling with a bid. Francine sterling was a bid after a difficult week. Listening to the bank of England Governor Mark carney trying not to politicize brexit and trying not to move the pound. He would not give odds about a new deal brexit. Today, the falling out of bed of everything but pound is significant because of extra tariffs from President Trump. Maybe he is testing Central Banks. Tom all of this leading to jobs day in jon ferros conversation with Lawrence Kudlow and the 9 00 hour bank. That 9 00 hour. Beijing viviana vowing countermeasures if the u. S. Follows through with extra tariffs. At a Campaign Rally, President Trump said the proposed tariff hike could go higher to 25 or more. Until such time as there is a deal, we will be taxing the hell out of china. That is all there is. Viviana the Chinese Commerce minister is saying the announcement violates an agreement with president xi to revive talks ending the trade war. Resignation takes place today at 5 00 but a successor in puerto rico has not chosen. This after his choice for the job failed to get enough support. He is stepping down after weeks of massive protests. Minister hasprime seen his parliamentary majority cut to just one, after the conservative party lost an election in wales. The tory mp had been recalled for a conviction. Islockade in venezuela, that what President Trump is considering. He is raising the pressure on president nicolas maduro. Guaido is recognized by about 50 nations as the rightful winner of the election. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. Tom lets get to the data. We have a jammed our. Our going. Hour. Futures at 82. Curve flattening, we are watching that. On the equity collapse yesterday, 18. 05, way off the joy we saw post meeting. 1. 84, that is the 10 year yield, not the two year yield. We are looking for the german 30 year bond to go negative in a bit. Today,kes an advanced 1415 an ounce. Francine stocks are down, trump reigniting trade fears. A little bit of movement on china one china one. Im looking at european stocks down 2 . Tom i want to bring in derek wallbank. I want to rip up the script and fold in what we are observing right now. Lets look at President Trump in ohio last night, trump microeconomics. Deal, wes there is a will be taxing the hell out of china. That is all there is. Tom we will go to an acclaimed economist in a minute, but taxing china, what are the knockout effects of desh to the pacific rim of the strident addon to china . Derek you start in singapore. Singapore has seen slowing growth out of being so hyper exposed to the trade war. Do we go into recession . Then you talk about other globally trade connected cities in asia. This ripples all the waydo we g . Through, it absolutely does. I have said this before but i will repeat this, the u. S. And china have a pretty big trade deficit and china has gone as far as it is able to go. If the u. S. Goes forward and china wants to respond, you have to put contagion in play. You have to sit there and say, what else could they possibly do . Tom this goes back to my book of the summer last year, asias cauldron, by robert kaplan. , explainges to vietnam the scale of that for us. Derek i think that is exactly right. What you have in a protracted environment is you have to take a look at the supply chain and say, where is this coming from . Where can we go that is a safe harbor . You see a flight to places like vietnam. I think a lot of that is oversimplified. We have had reporting in recent weeks where you start to see trump and his allies mentioned vietnam and start saying, what are they doing and what is their trade deficit . Looking attention and to see where this place is safe, the in moves toward you eye moves toward you and have you escaped it . It is not as simple as a lot of people think. Instead, you are just trying to stay one step ahead of a president who when he looks and puts that laser eye on you, things could happen. Francine i was told by chief executive that the basic resources a basic executive in china, leaders think they were about to sign a deal or President Trump could sign a deal tomorrow but he wants to game this out because by acting tough on china and at the last minute taking a deal will win him the presidency. Derek i dont know how much stock i would put in any individual scenario. There is a central truth that you cannot decouple what is going on in the president s economic tweets and ideas, from the president ial election. Election2020 is the and donald trump has made a big point of saying he thinks democrats are weaker on trade than he is. If i look into the elect oral map, there is a simple reason you go there. Trumps road to the white house was to flip midwestern states like pennsylvania, ohio, michigan, wisconsin, places that are fairly skeptical of trade deals anyway. If he holds those states he probably holds onto the white house. You cannot decouple these issues. Tom the view from singapore on the pacific rim and the ramifications from the trade war. We now begin a four hour conversation with Michelle Meyer , bank of America Merrill lynch head of u. S. Economics. Her original claim in the housing economics area, which we will avoid because of the news flow. His bank of America Merrill lynch going to adjust down your xl spreadsheet because of yesterday afternoon . Michelle it creates some decent Downside Risk to growth. The challenge in forecasting this year as we are continuously reacting these exogenous event and one is around trade. We have to account for these tweets and potential changes to policy will impact uncertainty and Business Investment and terms of trade globally. Billion is not 3 a large dollar amount but what matters is what it does to confidence. If the tariffs go through, the risks are we see weaker growth. Tom the 30 year german yield just went negative because of Michelle Meyer. It is extraordinary, switzerland negative yields, essentially all of germany negative yields. We have a lot of moving pieces right now. When you look at think of america global economics, what is the moving piece viewers and listeners need to focus on . Michelle the global backdrop has been decisively weak this year, so we have been steadily revising down forecasts and we are looking only for 3. 2 local growth. Global growth. A number of economies on the verge of recession, if not these technical recessions you are seeing in europe. It is a clear shock to ripple through the economy and the u. S. Does not look as bad as a lot of its trading partners, despite the fact that the shock is originating in the u. S. Around trade. Francine i am struggling to figure out the market reaction. Does the market not believe if you have extra tariffs and a slowdown, will Central Banks not step in and be more accommodative and stocks should rise . Michelle that is the adverse feedback loop we are worried about because it uses policy ammunition. To the extent trump continues to push on the trade war and create Downside Risk, Central Banks will create easier Monetary Policy. This can get dangerous because it means the fed and other Central Banks have to use limited ammunition to fight this war and offset the drag trade. It is problematic in the markets are interpreting, rightly so, chairman powell said they are cutting because uncertainty around global trade and growth is weak. A tariff will just add to that. Tom the jobs report at 8 30 this morning. Yields deteriorating, 10 year under a 1. 84. The german jawdropping 30 year yield. That is price up, demand for paper is original. It will be an original conversation in the 9 00 hour bank hour. We need to speak with free trader Lawrence Kudlow. Michelle meyer with us. Surveillance, we welcome you all worldwide, and extraordinary friday. Jobs day, we go beneath the headline data at 8 30. Much more, the cacophony of the news. We are thrilled to bring you Michelle Meyer of bank of america. Investment is down. There has to be a base level of investment in business. ,f Business Investment is south how south is south right now . Bounde reached the zero of Business Confidence . Michelle i dont think we have. Business confidence has fallen but has not reached the lows of the recession. Court capital goods orders and shipments, they have not outright contracted either . They are grinding sideways. I think there is further downside ahead for investment. Depending on how some of these shocks unfold around trade, the latest threat will further weigh on an already weak, uncertain confidence. Tom on capitol hill for the house to get elected, a perfect time to bring in henrietta trey. She links politics with economics and finance. The president dropped a bombshell on consumer tariffs. Why is that different than previous tariffs to the capitol hill you know so well . Henrietta i dont think it is very much different. They are going to continue to allow him to get away with imposing tariffs. One of the things we have done consistently over the last few years is to count the vote, are there 67 votes to stop the president from imposing these votes in the senate and 218 in the house . Consistently, the answer has been no. House haveand the allowed all of this and will continue to do so. Francine is this going to bring china back to the table, or is it going to push them further away and therefore we are going to see strong retaliation . Henrietta i dont think this will bring china back to the table. The meeting that just wrapped up in shanghai was the most binary event we have witnessed in the last two years. Either the tariffs would go up or the u. S. Would stall through the elections or some other data point. The reality is that the president believes the china trade war is worth the cost of admission, that the tariffs are the only way to get china to play ball. Robert lighthizer said publicly whenever he is given the opportunity, give me another other give me another option and i will use it. We expect to hear from china that they will retaliate. After the second round of tariffs, they moved for a proportional response. Now they will tack on an additional 40 which is somewhere in the 40 billion to 80 billion range. I suspect that will come in the next 24 to 48 hours. I believe they will come over in september. They are trying to prevent to the Global Community that they are the rational actor in this trade war. Tom Michelle Meyer continues with us with bank of America Merrill lynch. What are you going to write about this weekend . What are you going to publish for monday . Howelle the big themes are you handle these offsetting factors. The fed is cutting and trying to force the economy and as powell says, sustain the expansion. You have a continued trade war that seems to be getting worse. Tom a 1. 8 310 year yield. A model gets us to a 0 10 year. That vector is ugly. Michelle the 10 year has moved dramatically this year, more than 100 basis points. Tom we are back to the trump election level. Michelle that is a function of what is happening in the u. S. And globally. Tom september 2, will we have chairman powell come in with an emergency rate cut to keep up with trump . Michelle i do not think at one emergency but i believe he will cut again in the september fomc meeting. Tom Michelle Meyer with bank of america later on from morgan outlook,ith a cautious Ellen Zentner. This is bloomberg. This is bloomberg surveillance, tom and francine in london and new york. Boris johnsons working majority has been reduced to one after the antibrexit liberal democrats won a by election in wales. The loss leaves johnson little room to maneuver if he is to deliver brexit by october 31. Joining us now is Emma Ross Thomas. A majority of one, what does it mean . Could he lose his working majority altogether . Will he be more careful in negotiating with parliament . Emma a majority of one makes it more difficult here. The math has been hard for long time and now his position is more perilous which makes chances of a snap election higher. The other takeaway is the brexit Party Remains a big threat to the conservatives, so while it comes more likely in a general election, it is more dangerous for johnson to face a general election. Last night, the liberal democrats won because two of the pro e. U. Parties did not stand so they pushed the supporters toward the liberal democrats. If you add up the votes of the conservatives and brexit already, they would have won. Brexit party, they would have won. That is important as we are looking toward a possible general election. Francine lets say there is a general election in october. Will there be a clear the only policy issue is brexit so will it be no deal brexit work for brexit . Who would win . Emma that is the question. Impossible to predict. What Boris Johnson campaign on no deal or campaign on delivering brexit . Position, partys they have been ambiguous about brexit and they are veering towards campaigning for a referendum and possibly for remain in that referendum. Francine Emma Ross Thomas is in charge of our brexit coverage. Digenan isoming coming up. Morning, everyone, bloomberg surveillance. Tomkeene and london keene and Francine Lacqua. The 30 year bond negative in germany. That is a big deal. Francine it is a huge deal. The amount of bonds and negative territory is something the banks are watching and the ecb is trying to tier it because it has an impact on the banks. Tom Deutsche Bank coming off a better than good week. Here is viviana hurtado. Viviana donald trump addressing supporters at a Campaign Rally in cincinnati. He blamed the far lefts destructive agenda for poverty theurban crime and accused democrats of prioritizing undocumented immigrants over american citizens. , mike pompeo is defending President Trumps decision to impose more tariffs. Pompeo said china has been taking advantage of trade with the United States for decade. At cannot be the case that a nation can use protectionism to protect its own goods and use predatory tactics to deny other economies the chance to grow. Viviana he added china can come back to the agreement that was initially on the table. South korea warning japan it will face repercussions over the from an to remove seoul list of trusted export destinations, saying it would take japan off its list. Moon jaein says it is clearly to block his countrys growth. Saudi arabia will allow women to travel abroad without permission from a guardian. The guardianship system makes theira legal guardian of male relatives throughout their lives. Permission to marry or get a passport. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. Tom thank you so much. This is extraordinary news flow. We go to interNational Economics and u. S. Economics, Michelle Meyer with those today. Lets try to get you to the weekend with what you do with your money. He runs a fancy shop called Intrinsic Value equity team, also known as the courage team at ubs. How do you keep the courage to stay in the economics . The economics are pretty strong. There is a lot of fear but economy is strong. For investors waiting for the dip, they got the dip. Tom yields come down. You take the reciprocal and that is a pe multiple, and you rationalize pe multiple younsion and a value meal given all this noise . Thomas the u. S. Value is over 50. Tom she is in the triple leverage growth. Thomas it is as almost almost as if they do not believe the Interest Rates. The discount rates are a big deal and i dont think people have adjusted. There are too many people my age, it is unreal. Tom we talked about the actuarial assumption of pension plans. It used to be 6 . What is it now, for percent . Thomas there bond component is below two. Francine good morning from london. What are people mispricing . If you look at some of the things in the market, what are people getting wrong . Is there a metric to indicate a sea change . Thomas the metric is basically multiples. I think the market still feels expensive for a lot of people when they say the market is at alltime highs, which it is not today but was a couple of days ago. They are not looking at relative to historical multiples relative to the 10 year treasury. Francine hasnt the world changed with all this cheap cash . Maybe that is why people are not looking at that metric. Thomas the world has changed, but what does not change as the value of securities. Rate, theower the future cash flows become if you believe we are in a world of dramatically low growth, you can argue like im not saying equity should be a 50 multiple but they tend to give a higher multiple than treasuries. 40 below the level of treasuries. Francine maybe what the market is pricing in a low growth environment that could change if we did not have political tensions and trade concerns. Thomas we are in a lower growth environment and that is the reason Interest Rates are where they are. It could be a surprise on the upside. The level of Economic Uncertainty in the market relative to the underlying economy is dramatic. It is a goldilocks economy, unemployment 3. 6 today, no wage growth. Little or no inflation. That gives the fed headwind. Tom the economics and equity view at bank of america, given all of a sudden President Trump has given us further economic traction globally. Do we get more gloomy or can we share the optimism . Central banks, the conversation we were just having in terms of lower level of Interest Rates, there is a risk of the economy weakening more with a further leg and the trade war. Well Central Banks use their ammunition more aggressively and will that support Economic Growth and underpin markets . Markets seem encouraged by this dovish pivot and Central Banks. Tom am i long because of Jerome Powell or the president s tweets . Tweets,the president s i cannot predict, but Jerome Powell i think you can predict. Tom the central tendency. When you look at this time, and i want to go down to sector analysis, where is the Intrinsic Value . Thomas the real value are the banks. Tom that is the story a year ago. Michelle did not deliver bank of america, so when do the banks turn it on . Thomas this is a patient straight. E trade. Patienc the yield curve is so tight and you get any kind of spread. Tom the yield curve steepened from 13 to 14 basis points. I cannot believe im saying that. Francine i cannot believe you are saying that. When do we see more anxiousness in the market . We thank our viewers for writing in. One viewers says if you look at vix, it is ultra low. One has to pick up that happen for volatility to come back what has to happen for volatility to come back . Michelle if Central Banks do not live up to expectations or talk about the need of monitoring data. I think what is keeping markets calm is this idea of a central bank put. If there is any sign that put is not as strong and will not be used as quickly, i think markets become concerned. Werel, even though there ups and downs in the press conference, the underlying message was very much there that they will use the tools available and sustain recovery as needed. Francine when you look at the very sectors, do you break it down to find Intrinsic Value . Thomas definitely. There is also traps. Areas like utilities, they are the bond proxy and they are historically expensive. When i mentioned banks, my favorite is when people complain about the Bank Regulation that it is like utilities. They are trading at 10 times and utilities are trading at 20 times so there is dispersion within the market. Tom Thomas Digenan and Michelle Meyer with us. I can never remember a jobs day where we have talked last about the labor economy. Ferro, an important conversation with Lawrence Kudlow. His adamantbout view on the value of free trade. Stay with us. There is a bit of pressure on income because of the uncertainty and the rate curve moving now. Down. That is the driver of the 12 . We made it clear at year end that we were on a track to 14 and because of the profitability we had in this third quarter, 2 billion pounds aftertax, 48 , a huge driver was a transaction we did. We wanted to pass the gain of that back to shareholders. The most important thing we can do as a bank is make sure we have the right liquidity. We have a strong Balance Sheet at 16 . We are the strongest in Balance Sheet terms because of our recent history, then you see amongst any of the banks in the u. K. That side is important and ready. We need to make sure we are administratively ready. Francine that was the world Bank Royal Bank of scotland cfo. Slid as a state control lender, unlikely to reach a profitability targets because of brexit and the tensions surrounding it. Tom a history making chart today, moving from scotland to germany, the 30 year bond. Thank you today and tillis for bringing this dan tillis for bringing this to my attention. A gamma rollover, massive acceleration of demand to buy the piece of paper, price up, yield down with a maximum curve. It is the greek letters we all wander by and gamma as acceleration. Theoes to the left tail, uncertainties in the global Financial System. Michelle you have seen some dramatic moves. Yields falling across the globe and quickly this year. Weekly fold over into the Economic System . Michelle yes, and you need to think about why. Why are we seeing yields fall as dramatic the as we are . Dramatically as we are . Think there is a view that inflation is stubbornly low across the globe and we will not see higher inflation so expectations have come down. I think Central Banks are trying to fight that, but it is not that convincing. Tom lets go back to the wednesday press conference. Michelle it has been a long week. Tom what is midcycle . Michelle i think what powell is trying to say with this midcycle correction is it is not, in his view, not intended to be the start of a long easing cycle. Am the 30 year bond is at 2. 38. Michelle right. The view and the hope i think of the fed is that they can engineer insurance cuts, whether that be 50 or 75 basis points, not a return to zero lower bound. It is the idea that you can cut a bit and turnaround and extend the expansion. They continue to fight against the fact that globally, growth is weak and the trade war is seemingly getting worse. Iine one of the things want to go back to some of these negative bond yields. If the trade issue drives lower Interest Rates this is a viewer question what does it mean for domestic markets like housing in the u. S. And automotives . Michelle you would think there are positive spillovers and that Interest Rates are coming down so low, Interest Rate sensitive sectors should do better. Housing would be front and center. So far, the response from low Interest Rate housing has been muted. Mortgage purchase applications are up slightly and refinancing is up slightly. You have seen slowdown in home price appreciation and sales moving sideways. They have been moving in that direction since the end of 2017, so there are bigger issues at play instead of just the relative level of Interest Rate. It is not generating a big turnaround in housing, unfortunately. Francine we will get back to Michelle Meyer, bank of America Merrill lynch. Lets check on your markets. We did not see a reversal but we are off the days lows. Crude at 55. 23. More on your markets and american crude. This is bloomberg. This is bloomberg surveillance. Shares of ferrari falling by the most in almost 10 months. They posted a slowdown in Profit Growth and shipments. Shares declined 6. 9 for halted from trading. X ms. Fromfrom expectations citigroup is getting ready to eliminate 400 people from its trade division. They have dismissed dozens of employees. Deutsche bank and socgen have also announced job cuts. Tom thank you so much. This is the worst jobs day friday i have ever had for ignoring jobs day. The news flow is so extraordinary that we have been remiss in looking at 8 30. Lets solve the problem with Carl Riccadonna. What will you look for . Michelle i think we can carl i think we can move away from focusing on average Hourly Earnings and whatnot because we are focusing on realtime economic activity. Not so much today but a month from now, we will be watching increases inayroll goods producing sectors. The confidence in the business thatr in q2, how we see play out in hiring plans in q3. Today the focus will be on Household Income creation. Consumers are the main workhorse of the economy now and we need to see that that income creation is Strong Enough to keep propelling. Tom i have eight questions. Adp shows Small Business, it aint happening. Fullye see a partition of employed america and other parts seeing angst . Carl we had this Small Business hiring intentions come out and it increased by a couple of points. They are having increased anxiety, but still looking all right. The adp number we saw this week is consistent with the payroll gains in the vicinity of our forecast of 185,000. Francine as the trade war escalates from here after tariffs were imposed, what does that due to to the job market . Carl then we focus on the Manufacturing Sector and trade related sectors to see how they are impacted. We saw scares in the first half of this year and elevated volatility. With the robust june hiring figures and the backup in jobless claims that momentum was intact despite the cage rattling earlier in the year, now we go back to that playbook. We see that as nooses are pulling back on Capital Investment businesses are pulling back on Capital Investment. Often when animal spirits are dampened, there is a pullback in Capital Spending and then in the pace of hiring. We have to watch for the latter going forward, especially if tariffs go forward on september 1. Francine is the u. S. Creating quality jobs . And quality jobs lowquality jobs across the spectrum. The the jobs economy, number one mail i get is when guys like you say it is a fully employed america. No, it is not. How do you respond to people who say Carl Riccadonna is out of his mind . Carl we know we are fully employed when we start to see wage pressures. I have been holding back on the notion tom buttressed up against 4 unemployment growth. An earlystarted to see indication that we are getting closer to neutral unemployment, but the lesson of this cycle is neutral unemployment is much lower than it was in previous cycles. I think we will see that extend through the next couple of rounds forecast updates as well. Francine Carl Riccadonna with bloomberg economics. We are keeping an eye on hong kong. Civil servants are rallying in support of prodemocracy protesters. We are seeing the fallout. Retail sales and gdp, it is having an impact. Chiefer of luxury executives were saying the same thing. Thinghis was a huge through the weekend, the arrests of the protesters through the last 12 and 18 hours. We will look forward to the job report and an exceptionally important interview with a free trader, Lawrence Kudlow. This is bloomberg. Pres. Trump until such time as there is a deal, we will be taxing the hell out of china. Beyond,5 percent and President Trump threatens even higher tariffs. The flashpoint is now the u. S. Consumer. U. S. Jobs day. Is good news actually good news . We will look at the bar for a fed cut on good data. Goldman sachs raising its probability for another rate cut. Go . how low can you germanys entire yield curve slipping below zero. Fear fueling a bull market in bonds. Welcome to bloomberg daybreak on this friday, august 2. It is jobs day. Im alix steel. David westin is off today. It is risk off in the equity markets. Equity futures only down 3 10. Europe is getting hit very hard. The dax off by 2 . Youre seeing voraci