Watching from asia. Welcome to bloomberg surveillance. You are just getting that decision from gorgeous norges, this is an interesting rate on how to set Interest Rates. A hawkish stance because of weakness in the national currency. But given the rest of the world is much more dovish and weaker President Trump putting pressure on the fed to cut, it is interesting if you are one of the lonely banks out there that wants to hike. Overall, european stocks are unchanged. , which gave sold much fear and anxiousness on the markets, currently stabilizing at 2. 01. Will have extra checks throughout the day and more on the inverted yield curve. Coming up, axis of conversation with Philipp Hildebrand, the blackrock vice chair. And exclusive conversation with Philipp Hildebrand, the blackrock vice chair. Lets get straight to bloomberg first word news in new york city. Warren buffett has upped his wager in amazon. Hathaways stake in the ecommerce giant rose 11 in the Second Quarter. It is now valued at more than 1 billion. The stake in amazon is still much smaller than holding an apple, worth 49 billion at the end of the quarter. Filings,from the 13f this investor has taken a big stake in berkshire hathaway, worth 690 billion. But we are told the activist investors stake is not expected to be an active one. A great leader, that is how President Trump described xi jinping in a series of tweets. He says his counterpart is a quote good man in a tough business. He ended by saying personal meeting . He did not clarify if he was suggesting a summit. Could the u. S. See a caretaker government to block a no deal brexit . That is the plan of jeremy for a bid tog block Boris Johnsons plans. Corbyn says that if successful, he would delay brexit and call a general election. Indias Prime Minister has rescinded its moved to revoke kashmirs economy. Modi says the regions special status has only lead to terrorism and separatism. He says the recent moves will allow kashmir to play a meaningful role in indias ongoing development. , hongbloomberg scoop kongs ongoing protests are making Companies Think again about fundraising in the city. Have learned several companies are reconsidering plans to ipo. One company scrapped preliminary public going preliminary plans for going public and will look at a u. S. Listing. 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 month thank you very much. Lets kick off with the bond markets have dropped below 2 . Tot was for the first time miss concerns about a slowing Global Growth. Dippedle, the yield below the twoyear rate for the First Time Since 2007 in what is considered an omen of recession on its way. Blamed therump has fed for what he calls the inverted yield curve, slamming them as clueless, deflecting criticism that it is his trade war doing the real damage. Joining us is Philipp Hildebrand vicechairman at black rock. He was previously chairman of the governing board of the Swiss National bank. So you are the perfect guest to figure out the conundrum of the central bank but also what markets are fearing. First, the money question. Is it an impending slowdown or is it different . Philipp we have a slowdown. What yield curves and Interest Rates generally tell us is that the risks of recession in 2020 are more elevated them may have been in this entire cycle. From a risk perspective, the slowdown is already here. The question is, does it lead to something worse . Francine let me bring you to the money chart. We brought it back to the 1960s, you can see that every time there has been an inversion, the recession odds have increased. Are we in recession territory . Some of what we are seeing is wanted by fundamentals some of it is also just the politics. Policies inrnmental many places across the world, including the United States, that give rise to great worry and uncertainty, questioning the world order. So we see flights to safety as a precautionary measure. Francine could that lead directly to a recession . If the trade war gets dealt with, and we just go back to normal . Confidence works with a lag. Unfortunately, a lot of damage has been done already. I do think populist policies across the world cannot lead to prosperity. What we have today is confidence being undermined. There are starting to hit the economy as a whole and reflect itself. We also have the particular issue that if there were to be a recession, it is not clear what the policy response would be. The problem of being without ammunition adds additional concern to markets and an additional excavation of why we are seeing these extreme movements. Francine Blackrock Investment has a wonderful paper out about dealing with the next downturn, from unconventional policy to unprecedented coronation. One of the authors is stanley fischer, a former fed. Does the inverted yield curve impact the Central Banks and markets worry about Central Banks inability to deal with it . The point of the paper is that more of the same is unlikely to be an appropriate response if we get into recession. The question is, what comes next . Is that it iscing not at all clear what Central Banks will do. What we are proposing is the next step has to be more than just more of the same about into ways oft goes putting money into pockets of consumers reports in order to spend. To go around the Interest Rate channel or additional rate Central Bank Plan which always works to the Interest Rate channels. Francine so you have to be correlated . Philipp helicopter money is a catchphrase from that famous paper, but yes, you have to go in a different way and work into the Interest Rate channel because they are already so low. Thatit means inevitably is we will see much closer coordination between fiscal and Monetary Policy as a critical element of the next policy regime. Francine who amongst the Central Banks would have encouraged to that . Have the courage to do that . Philipp the obvious one is the ecb, simply because they are closest, or perhaps at the point where more of the same simply will not work you can see the entire yield curve in germany is the alltime lows. The notion that you cant really cut Interest Rates anymore, you cant really drive the more it is no longer available. You cant really drive them anymore, it is no longer available. Francine we had nor just bank bank talking about greater uncertainty, with a greater a hawkish tone to the messaging. Can you be a bank hiking overall . Philipp it is difficult. You see the connection between the ecb and the Swiss National banks, the reality is, this is a global phenomenon. Forcing alltime lows in the u. K. , the u. S. , across the globe in germany and switzerland. This is a global phenomenon and it is difficult for a single centralbank to conduct policy free of the context of the global system. Is, in a sense, coordination between fiscal and monetary authorities but inevitably a sense of all Central Banks having to think of how to respond if this gets worse in the aggregate. Francine looking at the currency, it is hitting a high of 10. 047. Something we have to keep a close eye on. Norges saying it contains greater uncertainty. Philipp hildebrand stays with us and we will have plenty more from the currency move. We talked Dollar Strength and banks next. This is bloomberg. What happened today is broader than just the fed. It is about Global Economic weakening. You are seeing slowdowns in major developed companies and the bond market in the u. S. Is finally screaming they have had enough. If you see six weeks, eight weeks of inversion, followed subsequently by the yield curve starting to steepen, then i would say this is a sign of a recession and also signaling a turnaround. The answer is more frugal policy to lift structural impediments. Is unlikelyy, that to materialize, and that is the big concern moving forward. Those were some of the highlights of our guests yesterday talking the market downturn. Lets get straight to the Bloomberg Business flash. Morgan stanley and this years largest ipo. But the firms missing out on the secondbiggest rework. We learned they step back from a role in the Public Offerings they have rejected the pitch to be the top underwriter. Fund iss second vision already toward an unexpected win. New investments probably wont hurt its debt outlook. Softbanks pile of debt is amongst the biggest for a japanese nonfinancial company. But analysts are starting to look at the company differently as it increasingly takes on the characteristics of an investment firm. Elliott management is waiting deeper intoding some of wall streets hottest the debt. That is as some fear were seeing the moments before a debt bubble burst. Is pouring hundreds into asset management, the money manager it set up to bundle corporate loans into clos. That is the Bloomberg Business flash. Francine thank you so much. Its get back to our conversation on ultralow rates and what it means for europes banks. Still with us is Philipp Hildebrand from blackrock. Blackrock owns a large chunk of these banks. A lot of the banks touched record lows in the last couple of days and weeks. What does it mean, that the Business Model is broken . Philipp it is remarkable that 11 years after the crisis, we are back at record lows, more or less. What it shows is that the environment is difficult. Curveis no doubt the of is hard for banks. But it also shows there has not been enough to fundamental enough fundamental rethinking of cases in europe. This is something we have talked about many times. They have restructuring of the Business Model and what we have today is basically the consequence of that. It is an environment that is difficult for a bank to operate in. Francine is it almost too late to rethink some of the Business Models . Banks will not disappear, at least for the for siebel future. My guess is that it looks very different and i suspect one of is ahings we see rethinking the activities in the u. S. Instead, focusing european banking much more on an integrated european market. That is where we are going to see a big changes in the future. Ive always been convinced this is going to come. We are now seeing that the market pressure may be a final acelerant and goes through value appears before we come out on the other side. Is that through consolidation or becoming leaner as a company . Philipp it is three things. The mix of the Business Model, particularly in the context of investment activities. , thatthe European Focus will require proper european integration so there are things that need to happen. Finally, it is the cost structures. If you think about in many more or lessperate the same as they did 10 or 20 years ago. Technology is changing, but it has been slow. If you compare this to things that have happened in industry, banks have been lagging in being able to embrace this change. So it is really all three factors that will move forward. Francine the ecb has been trying to mitigate some of the effects of negative yields on their banks. Does that help in any way . Philipp it is tough. The yield curve matters a great deal for banks. Wayth management can be a to diversify away from some of the risks of having a flat or inverted yield curve. But it is difficult. We are not going to see booming the banks in an environment like today. Francine i have this amazing chart i look at almost weekly. This is the value of negative yielded a bonds topping yield ed bonds topping 16 trillion. Our bonds in a bubble . Are bonds in a bubble . Philipp markets are seeking a safe haven and bonds are where you go. I would not say it is a bubble, but a consequence of, on one hand, a cyclical slowdown. Risks of recession are increasing. But more importantly them a it is also a consequence of governmental, particularly populist, policies we have seen. The notion that this will not harm the Global Economy is simply a fallacy that is now revealing itself. Populist economic policies will lead to bad economic outcomes and markets are reflecting that. Francine but the person on the street does not necessarily look at bonds and say i need to change my vote. Does this get worse, does it lead to a recession . Philipp it would be nice if we could avoid it. My biggest fear is not so much of the slowdown, but the fact that we have very limited policy space if we were to hit a recession. The u. S. Has some, but thinking about the rest of the world, there is virtually no traditional monetary space left to react to a global recession, let alone a sharp crisis or a slowdown. This also reflects itself in what were seeing in the market. The market knows this, it sees there is very little ammunition left. That in and of itself adds an additional layer to all of us. Some of what you are seeing in your charts, these extreme, alltime record lows in yields, are a reflection of current weakness, current populist policies, and the notion of what will the Central Banks and authorities do if we hit a real recession. Francine thank you, we will get back to the policy mistakes and opportunities, focusing on the ecb. That was Philipp Hildebrand from blackrock. Its 10th week, we look at the economic price of the hong kong protest. Protests. We are live in the region next. This is bloomberg. Francine President Trump has made what seems to be an overture president xi jinping in a series of tweets, saying beijing can quickly and humanely solve the hong kong problem. Lets get straight to your yvonne man. She has been to your yvonne man. To yvonne man. How hard has the market been hit . The hang seng has been down and recession calls are growing for the economy. We are standing in front of the Pacific Place mall is owned by a group that has been dealing with this protest from all fronts. The retail value of Luxury Brands are talking about how businesses have been hit by these store closures and the drop in tourists coming into hong kong. Well with the as likes of marriott and conrad, bookings may plunge as much as 50 as month according to a hong kong lawmaker who represents the they have beeny dealing with these issues with the pilots that were fired over there. At comcast, we didnt build the nations largest gigspeed network just to make businesses run faster. We built it to help them go beyond. Because beyond risk. Welcome to the neighborhood, guys. There is reward. Beyond work and life. Who else could he be . There is the moment. Beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. Take your business beyond. Bonds flash recession. 30 year treasuries hitting an alltime low. Is the Global Economy headed for a serious downturn . Saying therump is central bank is holding the u. S. Back. Worlds largest shipping line reassures investors that of its outlook despite an uncertain trading environment. Good afternoon if you are watching from asia. This is bloomberg surveillance. I am Francine Lacqua in london. We are getting data out of the u. K. Something, inflation, that we follow very closely. Rising 0. 2 instead of the 0. 2 percent decline we were expecting. I need to break it down to see whether it is weatherrelated or bank holiday related. For the moment, retail sales ofing 3. 3 for the month july, compared to a month earlier. It is also a better than expected pound, 1. 2085. Lets check in on what is moving in the markets. Here are the main market movers. We are still in earnings season in europe. It was a miss, amid lower guidance for the year. They are down 4 . The ceo asked about the trade wars. The new ceo said it is up to both men on either side of this negotiation. We have to think the Raw Material Prices are coming up for the turbine maker. A strong firstp, half. And it was due to strong beer sales. Is sounding the alarm about what concerns are for Global Growth theyre it i know we will be hearing from him shortly again. Francine thank you so much, annmarie hordern. First word news in new york city. The bond rally continued with u. S. 30 year deals falling below 2 for the first time ever. Yesterday the Treasury Curve inverted for the First Time Since the financial crisis. But it might not be time to jump out of equities just yet. 500 topped out anywhere from two months to two years after previous inversions. 16 trillion. That is the pool of negative yielding debt was just hit a new your head high. That total could be about to be getting even bigger. Says 10gan strategist year treasuries could hit the level by 2020. The u. S. May even join japan and germany by going negative. Global risks mean greater uncertainty for the path of Interest Rates according to norway upon central bank. It held rates today at 1. 25 . Hawks leftf the few in the world of central banking. It has raised