In the media are trying to build up because they would love to see a recession. We are very far from a recession. Asus italian bonds rally the Prime Minister resigns, blaming matteo salvini. Boris johnson will talk brexit with Angela Merkel. We speak to the German Economy minister. So what is the big market event . It is the 30 year bond auction. 30 years the duration. Already trading at negative. What will the appetite be for 30 year paper . 2015, there was a buyers strike. That could be the risk. The reason i focus on the difference, last week with there was talk of fiscal stimulus. That backed up longer dated yields in the United States. It was the tail that whacked the dog. The german bond market move the u. S. Treasury market. We have had near record low rates of oversubscription in july. The past three options, feeling, feeling. We will bring you the data. Have a look at wti. What is the big driver of Market Sentiment donald trump talking about tax cuts, talking about tax cuts, not delivering tax cuts. Mind, the equity market manages to get itself payroll tax cut, Capital Gains tax reduction, jp morgan saying you are going to see a pivot back before the end of the month. It may just be your coming to a squeeze in the market. We have a lot to cover from the bond market to double talk of recession. We could talk ourselves into a negative spending pullback. For a while, the world has been waiting for resolution. U. S. President donald trump says he is not ready to make a deal with china. Beijing wants one. Something could happen soon. As Global Growth concerns rise, barclays is forecasting three further rate cuts by the fed by the end of 2019. This comes as the San Francisco fed president does not expect a recession in america anytime soon. Points tohe data continued economic expansion. Trump echoed the comments. The word recession is inappropriate. It is just a word certain people in the media are trying to build up. We are very far from a recession. If the fed would do its job, i think we would have a tremendous spurt of both. Spurt of growth. Manus the president rebuffing the use of the word recession. Trying to recalibrate the mindset. We have gone into frenzy mode over recession. Worried is the desk in the United States . We are not super worried. The fact is if you look at data in the u. S. , it has been relatively strong. It is very light cycle. This is the longest cycle in history. This rise in protectionism i would say we need to be worrying about 20 20, but not 2019. You say the risk is the fed could be behind the curve and the markets desk you speak to, they want aggressive action. The risk is of course this week that jay powell does not deliver on the narrative that the markets want. The markets want 50 to 75 basis points. Barclays note this morning talking about another three. Is that the biggest risk . A powell failure to match expectations . I think it is a very big risk. It has been the story all year. The fed has been beside the market. Whether or not the market makes a lot of sense to have 75 basis points a rate cuts priced in given the current economy is neither here nor there. It is going to be a difficult balancing act for powell to meet the market expectations. Thats going to be a big risk this week. One of the things that came through clearly from blackrock and a number of others is the ability of rate cuts to do something substantial. But pimco flagged the possibility of rhetoric changing fiscal stimulus. Lets take a listen. There is a lot of corporate debt outstanding. It does make sense if investors are going to credit markets, but you want to be selective and defensive right now. The Global Economy is slowing. Monetary policy has limits. We are likely not going to pivot soon enough. The reality is risks have increased a lot. Credit investors need to be or defensive and selective. Defensive and selective. Manus trump painting we might do payroll tax, Capital Gains tax the narrative seems to be from the fiscal front in the United States in america. Is that the new momentum . I think the u. S. Has been using fiscal policy aggressively for quite some time now. It surprises me we are even talking about it, given the u. S. Has the largest structural budget deficit since the 1960s. What we really need to see his fiscal policy in europe. We are starting to see hints of that. We are not quite there. Why do you think goodness knows why anybody knows what goes on in the minds of anybody. Why do you think trump is leaning into taxi echo into tax . You would say that is not the solution. To sustain the economy . Listen, i think the key point is the u. S. Is in a situation where it does not have a lot of fiscal room. It has monetary room. Europe is in a situation where it has a lot of fiscal room. Im not saying payroll tax cut would not be helpful. The problem is in the u. S. , you have a large budget deficit. There is only so much room on the fiscal side. The point trump is talking about shows you the administration is getting worried about a recession in president ial election year. Thes i was looking at dollar. Is away, asking me to drive the bus. One second. Rolling the dice. There she goes. Dollar. About the look. I asked this question of my guest yesterday. The value of the dollar. If we take the three pillars of this trump administration, it is strength of the dollar, it is, inadequacy ofhe the Federal Reserve to act, and china. To what extent does this dollar need to reflect that . Does it sustain at a higher level because of trade angst and real yields . Reality is the environment for the dollar has been very positive the last couple years. You have a Better Business cycle in the u. S. , better yields. That is getting clear in recent months. Dollar we should recognize is sitting at the highest level in real effective terms in history. It is expensive. It is a problem. It is going to start showing up much more in earnings. Something has to give. I want to finish up with one other thought. I find this interesting. Implied volatility looks too low and risk asset levels look too high. Going back to this narrative, do i buy volatility . Which one . Which risk assets looks too rich for you . Buying volatility, yes. Which one, i would argue probably Foreign Exchange volatility in part because of all this currency war discussion that is increasing. Why . The global Business Cycle is very weak, which is typically an environment of higher volatility. In terms of risk assets, listen. There is a lot of candidates. I would say the s p probably looks the most extreme to me given all the risks we have around the earnings picture, the strength of the dollar, and the outlook for the u. S. Economy heading into next year. By 10 . Ould be correct what does it take to correct . Seen a near 25 correction at the end of last year. We saw 10 just a few weeks ago. What do you need to have a 10 correction . A continuation of what has been going on recently. Andfed behind the curve escalation of trade tensions and weakness in the u. S. Economy. Had a crystal ball, i would say we could deliver. Stay with me. Have a crystal ball, by the way. Lets get your first word news. Thanks. Regulators have rolled out changes to the rules and limits banks must follow. Wall street lenders have been pushing for the better part of a decade. It is hardly being change needed to spark a revival. Eu on Boris Johnsons attempt to renegotiate brexit. A backstop in ireland is a vital part of the agreement. With just two months until britain crashes out of the block, the sides are deadlocked. The u. K. May delay naming the next bank of england governor until after brexit. The chancellor may also postpone the budget until 2020. If the government is forced into a general election next month. Mark carney stepped down at the end of january. He twice extended his tenure to provide continuity during the split from the eu. China has detained an employee of the u. K. Consulate during his trip to the mainland according to his girlfriend who says he has been missing since august 8. Police in hong kong have launched a missing person investigation and are keeping contact with chinese authorities. President trump is canceling his meeting with denmarks leader because she does not want to talk about selling greenland. He tweeted copenhagen saved a lot of effort by being so direct. Trump described it as a large real estate deal. Denmarks Prime Minister has ruled out the sale saying she hopes he is not serious. 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. This is bloomberg. Manus coming up, italys Prime Minister quits after launching a scathing attack on matteo salvini, good but could he return . This is bloomberg. Manus it is a Beautiful Day in the city of london. That is a shot from our london hq. Selling pressure is back as Boris Johnson puts forth his new ideas for a backstop. We will dig into that later. Juliette saly standing by in singapore with the latest on the markets. A mix in asia. The Msci Asia Pacific index down by 0. 3 . Low volume. Japanese stocks halting three days of gains. President trump indicating he once again said hes not ready to make a deal with china. Hong kong stocks recovering. A lot of buyers in the pharmaceutical space. New zealand the laggard today. People coming through as they warned about the impact of the china trade war on demand from china. Koreas market is flat. We have seen some money going into the korean won. A big focused on south korean exports, sometimes seen as a bellwether as to how we arguing trade in the Global Environment in terms of the south korea 20 day trade data. Another disappointing picture. In the first 20 days, with saw exports down more than 13 . Shipments to china were down about 30 . All of this is setting south korea up for a ninth straight month of declines when it comes to exports. That is going to show disappointing moves when it comes to the overall trade balance with south korea. Of 13 in that first 20 days. Interestingly, thailand came through with export data today. That was a bit of a surprise. It rose 4. 3 year on year in the month of july. Much aversive expectations. Manus thank you very much. Headlines, the latest in hong kong. Probing facebooks cryptocurrency project according to a document seen by bloomberg. The antitrust probe is looking at concerns the Payment System could shut out rivals unfairly. Facebook and the European Commission declined to comment. Sachs is conducting preparatory work for saudi aramcos ipo according to financial times. It says the work is ahead of pitching progress in order to have even work for free on specific projects. A breakdown in communication. What areview of review of boeing 737 max 8 is expected to site. Highlights the need for improvement. That is your Bloomberg Business flash. Thank you very much. As italysnte quit Prime Minister. He blamed matteo salvini, accusing him of irresponsible rebellion. Crisis willnt compromise the work of this government. Conte announcing his resignation. The fivestar movement and the democratic parties are holding talks over a possible coalition. James mccormick is my guest host. As you look at the potential political, somewhat say chaos in italy, do you think we are going to elections or do you think we will get a deal between fivestar and democrats . Our base case is we are going to get a centerleft coalition. We think snap elections, the risk around that is now much managed. We are probably looking at much diminished. We are looking at next year for elections. Of positioning, the risk is salvini came to power, there would be fiscal indiscipline. The fivestar and the democrats, does that reassure you . I dont think so. Longterm we have to recognize italy has clear fiscal issues. The european economy is weak. The ratings in italy on btps is one notch above junk. You are always going to have that problem. Looks like werisk have dodged that. Manus lets get to our reporter in rome. Gerald. R Senior Editor good to see you this morning. We have just been talking about this. Some might say it is an unholy alliance. How would you describe it . Im not sure i would call it unholy, but there have been archenemies for some time. One of the most successful policy platforms for fivestar the previous administration, the democrats. It is a strange prospect, the idea these groups could come together. We have seen stranger things. The government between fivestar and the league was even more unlikely. Anything is possible. Manus thats what i love about politics. Of power and whiff all across the world, they get a little bit desperate. Tell me what happens next. Run me through the choreography and how markets have got to judge what happens. Today we start the consultations between the president and all the interested political parties. We will begin with the smaller parties first. The real action in terms of the heavy hitters is likely to take place tomorrow. Away from the president ial palace today in rome, there will be a meeting of the Democratic Party. An internal meeting in which we expect them to decide what their line is going to be toward fivestar. We are hearing fivestar is more eager. That meeting could be crucial. Manus thank you so much for coming in early, keeping us real on the politics in italy. Back to my guest in london. Position,f your btp obviously, yesterday we saw a nice reprieve on the btp trade back to 2019 lows. Thatpread is back below 250 basis points level. Is there a further compression in the spread . You did warn we are one notch above junk on this paper. How best to play it . The spread makes a lot of sense for a number of reasons. It is still pretty high. Political a period of quiet combined with an ecb thats going to restart qe, you can be looking at spreads back 175, maybe even 150 if things go particularly well. The other side, the german bund yield, if we are beginning to think about fiscal policy in germany, that could start to push up the yield as well. Spread trade makes the most sense in this environment. Manus we have this 30 year paper. Yada yada. This is on 30 year Government Bond paper. It is quite important. What is the risk of a buyers strike after 2015 . Is it different this time . Would you buy this paper . Is there a risk of a buyers strike . I think the way you need to look at the curve at the moment is that we are kind of in the middle of a transition. The First Response to weakness in europe is going to be monetary policy. Our view all along is that would flatten the curves substantially. We have seen that. Start transitioning into a discussion around fiscal policy, you need to get out of the bond curve. Ve. Bund cur stay with me. More work to do. Coming up, Boris Johnson heads to germany to meet with Angela Merkel. Will has planed to renegotiate brexit get a better response than it did in brussels . We discussed that coming up. This is bloomberg. 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. Manus here is a live shot of sydney. The aussie dollar is stronger this morning. , it was asie rises bit of a strike in some paper that was brought to the market. This could be a bit of a precursor to what is going to happen in germany. People are now talking about aussie yields getting back above 1 . Thats on the mliv blog up there. Have a look. If you are desperate for yields the turnaround, i am. Lets get to annabelle in hong kong, she has got your first word news. Fulda full. 2. 0 is looking more like a tweak them an overhaul. They have ruled out limits that banks must follow. Wall street lenders have been pushing for some of the updates for a decade but they are hardly the changes needed to spark a revival of trading discs. The u. S. Economy does not appear to be headed towards a recession according to San Francisco fed president. To continued expansion. She wrote it looks towards continued expansion. She downplayed white house fears of a recession. Proof the word is inappropriate. It is a word that certain people in the media are trying to build up because they would love to see a recession. We are very far from a recession. In fact, if the fed would do its job, we would have tremendous growth. In china has detained an employee of the u. K. Consulate in hong kong during his trip to the amendment. That is according to his girlfriend. Hong kong police said have launched a missing person investigation and are keeping close contact with chinese authorities. President trump is canceling his meeting with denmarks leader because she does not want to talk about selling greenland. He tweeted that copenhagen saved a lot of effort by being so direct. Trump described it as a large real estate deal. The Prime Minister has rolled out the sale, saying she hopes he is not serious. 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. Manus thank you very much. Lets check in on the rest of the markets from around the world. Mumbai,tanding by in and in london, dani burger has the latest. , what doain benchmark you think is holding the traders back . What is the deliberation . Manus, good morning. Maybe a bit of both. One point you made out, waiting for communications, the Indian Central Bank has minutes coming out today and that might have a bearing on whether