In london, Boris Johnsons plans to suspend parliament stoked no deal fears. Manus warm welcome to the show. There is only one thing that really drives the bond market, and that is trade and trade angst. If you look at the balance of scales of justice, in the past 24 hours, it comes down to mnuchin trying to steepen the curve and navarro keeping it real. There is not going to be anything likely quickly on trade , therefore we are flat. Nejra you certainly feel that pressure on the yield, hitting a record low. That is something that has caught our attention today, and i know its what you kicked off your data check with as well. Manus indeed. It is the white house really trying to have a go at controlling the yield curve . Thats what we need to ask. The 30 yield bond curve has spiked on the back of mnuchin talking about 100 year paper. The bottom line for the market as the tradings prevails, looking at dollar yuan, is anybody listening . Thats what we need to ask about dollar yuan. Yesterday the pboc sent a message, we have had enough. Today they sent another message. The strongest fixing for the seventh day in a row. But there is a challenge. We want to weaken the yuan. Lets see what the response mechanism is. Gold is up a quarter of 1 this morning. Money flowing into the etf. Central banks have plenty of room to increase their holdings. Just a flavor of the markets. Trade prevailed. Nejra. Nejra what the bond markets look,o be signaling is, Central Banks have limited effects in its concerns around global growth. The 10 year yield continues to fall in the u. S. Looking at futures in the u. S. As well, we are seeing weakness after seeing gains in the s p 500 yesterday. We are still waiting for Key Headlines around trade. Navarro showed reticence about quick movements in terms of the trade talks. Equities are what we are waiting for, any big movements on that. The bloomberg dollar index is completely flat. Steve mnuchin said there is no urgency at this point to intervene in the dollar. Lets get back to Steven Mnuchins comments. He is talking about the issuance of ultra long bonds. It is under serious consideration in the Trump Administration. This could set up a move that would mark a historic revamp of the 16 trillion treasury market. In an interview with the u. S. Treasury secretary, they will only 80 they said they will only issue 50 to 100 year bonds if the conditions are right. Mnuchin said interest in long bonds was unrelated to the drop on yields on shorterterm debt. Nejra these comments may have been an attempt to drop else higher. Rebounded fromld an alltime low and the u. S. Curve steepened from the remarks talking about the 530, but much of those reversed in asia trading. Is Eric Longeran from g investments. Lets talk about the attempts to steepen the yield curve. Is there anything that can meaningfully steepen the yield curve at the moment at the very long end, given the pressure we are seeing on duration yields . Insight into good what is a longstanding debate in the markets of whether the bond markets have significant supply versus Interest Rate expectations. I think what this tells you is even when you have a real announcement that we are going to respond to low yields by increasing supply, markets are about expectations and risk properties. Want to buydo long dated u. S. Government bonds. It doesnt matter how many there are, the eyes will be set by the market. I think if you step back for this from this, there is a bigger question, which is you can absolutely see the feeds emerging for what is now becoming a bond bubble that could actually unravel. You are going to get a fiscal response, because it is blindingly obvious that fiscal authorities should respond to the level of bond yields. Manus good morning, eric. What the current bond market bubble might look like. Eric i would say theres three components to it. The first is the rapid move you have seen in prices. The latest movie and bond markets is prices driving price the latest move in bond markets is prices driving price. You need people experiencing losses and it can kind of accelerate, or reverse, very aggressively. The most recent bond price action is indicative of the kind of behavior that is very vulnerable to rapid reversal. But if you stand back and ask yourself what is happening, we are seeing conventional policy is over. That is Crystal Clear to everyone now, that cutting Interest Rates will not make much of a difference, which means the next move in Monetary Policy will be unconventional. There are a few things that the ecb in particular has innovated on that i think could easily be the next stage, and they are going to be brutally powerful monetary power prior monetary firepower. You are going to get a fiscal response to this sooner or later. Seen the defeatist conclusion of jackson hole. You have mariota rock he saying if things get worse, we need more fiscal policy we have mario draghi seeing if things get worse, we need more fiscal policy. When there is no problem with fiscal sustainability, you issue a whole load. You can see the seeds. It is a bit like the tmt bubble. You drove Technology Stocks up to levels and ratings we have never seen before just as earnings were about to collapse. Bond prices have collapsed to levels we have never seen before. Yields have collapsed to levels we have never seen before just as you are setting the conditions that can reverse the fundamental picture behind these assets. Nejra a lot of people have come on the show and send what bond markets are trying to do is push governments into having a physical response, because they are pointing to the limits of Monetary Policy, saying all it can do right now is halt the slowdown, but it cant stop a recession coming. The thing is, in the u. S. There has already been some fiscal response. Eric for sure. There is a big difference between what might happen in europe and what might happen in the u. S. I think what is likely to happen is if you see serious deterioration from europe, you are going to get very radical innovations of Monetary Policy. People have not paid nearly ofugh attention to the power the potential to have a dual interestrate policy in europe, which is, in other words, you effectively freeze the Interest Rate on the tltro from the deposit rate. What i mean is the problem with negative Interest Rates is, as we all know, bowers benefit, the problem is savers when it comes to climate. This is why negative Interest Rates dont work. What if you leave the deposit rate unchanged and start cutting the Interest Rate on the tltro . That is a monitory bazooka. You can save, we will cut the industry on credit, but we will leave the interest on savings unchanged. You start cutting credit. Under the tetris game, you say, we only make these available to you if you make new loans to Corporate Investment spending or the household sector. If they start to dip, that is a big, courageous move. Manus i get the differential you are making. Rates unchanged, but get aggressive with tltro. At eric, you need demand in nonrecessionlike environment to go to the banks, to borrow the money, to make tltro effective. I challenge you in that we are in a major slowdown. Can you stand up the demand side . Eric thats a great question. There are two components. The first is you can go with dual Interest Rates. I think you could generate a large amount of demand. If you did a 10year tltro minus 2 Interest Rates, conditional beingnew Interest Rates made and those being passed on, that would create demand instantaneously, because no corporate scan found themselves with those kind of Interest Rates, and it effectively is a huge transfer to the corporate sector no corporate scan fund click no corporates can fund themselves with those kind of Interest Rates, and it is effectively a huge transfer to the corporate sector. You can say, we will provide a perpetual tltro to all european citizens. That, in effect, is a helicopter drop, and except it is done in the shape of a loan. You can make it available to all household and distribute it through the banking system. To be honest, i think the ecb is aware they could do this. This came up before when we were in the euro crisis, when people were worried about recession in 2016. They have done the thinking about this. The problem is they are very reluctant to do these things because the probability of political resistance and confusion. But these options are available and very powerful. Nejra what impact do you foresee there being, on the market, globally, of a move like that . These are big changes, and others have hinted at them before. We had blackrock talking about the prospect of helicopter money in europe. Plea i think hildebrandts in the blackrock piece is important. You cannot get a more mainstream, authority of macroeconomists than stan fischer. I studied his test books textbooks. These guys are the mainstream of central banking, and they can see what is becoming pretty much obvious to everybody, which is, qe, the marginal impact is negligible. Forward guidance was always questionable. Stage really has to be about transferring money from the central bank directly to the private sector in europe, because that is the only option available. What happens in america is very different, because the fed does not have the same degree of monetary flexibility that the that the ecb has. It is likely the endgame would be fiscal. You will either get helicopter drops or a huge fiscal stimulus. We saw what happened the last time they had a fiscal stimulus what it did to the bond market. Manus so i have two bubbles to worry about. One is the inflation bubble. By the way, i will have a bit of loans at 0 on another property and i will be off to portugal. Eric there you go. Manus the problem is you are propagating potentially a huge bubble. These are two potentially huge nightmare bubbles that you have suggested. Eric i disagree. Manus ok. Eric if you do a perpetual tltro, what you are doing is stimulating demand aggressively without further reductions in Interest Rates. The bubble as a term is misused, and i am guilty of that myself. Asset pricehuge distortions or unsustainable levels of asset prices where we get taken away by price action itself, and that kind of loses connection with reality. To some extent, that is what is happening with the bond market. But it is also caused by the fact that Interest Rates can keep going lower, and the emergence of negative Interest Rates. I think there is a general assessment now that negative Interest Rates are causing financial instability and interrupting financial mediation , and potentially causing asset price distortions. What you are going to get now is you start moving the price of money and start distributing money directly. That will create demand. I dont think it needs to create an inflation problem. There is loads of Spare Capacity globally. But we need is Consumer Spending and Corporate Investment spending. I think the ecb could legitimately defend these kinds of policies. Manus ok. Eric, you have defended them very well. It is a good, healthy debate to have. Gic lonergan from m investments. Lets get your first word news. Annabelle is standing by in hong kong. Annabelle thanks, manus. In italy, cant people get a mandate today to form a new Coalition Government. This after the former alliance collapsed in chaos early this month. The new administration will include the fivestar movement and the democratic party. But those rivals have little more in common than a desire to avoid elections. Argentina is looking to extend maturities on over 100 billion of debt. It wants to delay repayments to the International Monetary fund after a collapse in the peso and its bonds. The government will also post 7 billion in payments on shortterm notes. Johnson ister boris being granted permission to suspend parliament. It sets the clock on opponents who want to thwart his plan for brexit. Comments speaker john bargo called it a constitutional outrage. That suggests he may facilitate opposition plans to retake parliaments when it returns. Hong kong police band a protest set for saturday. The organizers says it was to be a 13th straight week of democracy marches. It was earlier reported that Police Believe approving the protests is too risky due to safety concerns. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Seek weng up, we speak with the flyway the huawei Vice President about the companys u. S. Business and its relationship at the white house. Up, the rates debate. Fed president mary daly justifies rate cuts as necessary to face strong headwinds. Warm welcome back to daybreak europe. I manus cranny in dubai. Nejra and im nejra cehic in london. Manus more changes in the u. S. Was president for 1. 5 years of Wealth Management. If you look at some of the big shifts we had last year, we saw go from the investment bank. We saw zellner go from the global head of Wealth Management. Strategic changes. More changes to come. There is in addition to the portfolio. An addition to the portfolio. Khan are to join the executive board. 60 Martin Blessing. Blessing will step down, but he will stay with the bank until september 31. Kellerbusse will become president of ubs middle eastafrica. Lets check out the business flash with annabelle druhlers. Annabelle michael bari of the big short fame sees a bubble in passive investing. He says smaller value stocks are being neglected. Is alwaysthere opportunity, but so few looking to take advantage. Barclays is in talks to sell its automation business gts. It is automated volatility trading. It buys and sells options to offer liquidity. We have learned negotiations are at an advanced stage, but no word yet from either company. Plans to make an entry into the copper sector in the 20 20s. They will capitalize on the decline of aging mines and rising demand. The Company Started drilling for copper in ecuador and plans to begin similar work in argentina later this year. We think expiration is a great way to unlock potential growth, and we think copper will be in demand globally. There are depleting assets around the world, and we are seeing an opportunity to participate in that growth. Annabelle that your Bloomberg Business flash. Nejra . Nejra annabelle, thank you so much. Sticking with the fed rate conversation, bloomberg spoke exclusively with San Francisco fed president mary daly. Take a listen. We were below the neutral rate of interest when we had those conditions. Subsequent to that increase, that rate hike, what we saw was the mood and the data were becoming more pessimistic, if you will, a little bit softer. Thats partly because of the strong headwind intensifying. It was not just a gust that went away. The whole wind gust got stronger, and it blew against us. These types of things, the global slowing, the headwinds from uncertainty, those way on the economy. The neutral rate of interest has been coming down. To recalibrate policy, thats why i supported the july 25 basis point cut, to recalibrate policy, to put the economy back in a good position. Rishaad tell me something. This is for my colleague david ingalls. If the ecb recalibrate setasides to reenter toalibrates and decides reenter qualitative easing, what do you take away from that and what is your reaction to it . All Central Banks are responding to the fact that they have Economic Conditions that are changing. In the European Union, the Economic Conditions have slowed quite a bit, and inflation is under the target, so that requires Central Banks to take action. They are doing that. In the United States, we see how the Global Factors affect us, and we have to take our Interest Rate decisions based on what we see for the domestic economy. Sense thatere is a Central Banks are being held hostage by the markets. The more Central Banks do, the more the markets want. Is that the new normal . Are you comfortable with how it is panning out . Well, markets are moved daytoday. They are fighting around fitting, and some of that is based on the outlook they have for the economy, and some of it is based on just trying to figure out what is coming next from Central Banks. What i do is i take market information, financial conditions more generally, as an input, financial conditions being tighter or softer or easier would influence how stimulative the economy is and how well supported growth is. Is not abut it determining factor in my decisionmaking. Manus nejra, there is an interesting word mary daly used. She talks about recalibrating policy. There was a lovely line this morning, the fed now controls the highest Interest Rates anywhere in the developed world. Lets discuss if they are behind or ahead of the curve. Nejra on that, i was talking to peter cap worth yesterday, and he said we will see the fed behind the curve because the neutral rate is low 1. 4 . That shows you how far behind we are given the year, and we are going to see qe, manus. Manus indeed. Coming up, Boris Johnson requests to suspend parliament. It is approved the queen. What does it mean for his opponents . For pressure on the eu . We will discuss. Manus this is bloomberg daybreak europe. Nejra lets get to breaking news in south korea, the top court ordering the retrial of the expresident. This is all the news we have at the moment, but south Koreas Supreme Court has ordered the review of the lower courts ruling on the former president s bribery case. Weve got some lines at the top of the hour at of ubs. Manus we have indeed some changes coming through. Youve got Martin Blessing stepping down as the president of Wealth Management. You have some other changes. Khan will join ubs to succeed blessing. He will sit alongside a much about about discussion where khan would go from from Credit Suisse. He went on holiday for a while, and we know the holiday ends with a destination. Moving the chessboard again, there are some big key heads moving last year. Ets get to the breaking news a couple of red headlines. Pernods debt limit a one billion is to implementing 1 billion euro share after the fastest Profit Growth in seven years. It sees 2020 recurring operating profit organic growth at 5 to 7 . Those are the two red headlines. It has also raised its dividend to a 50 payout, proposing 3. 12 euros per share. The takeaway is it is planning to buy back after its strongest annual Earnings Growth in several years, fueled by chinese demand. Indeed, they do like a little tickle of whiskey, irish whiskey, i believe. Alexander ricard will be , 7 30 a. M. Ter 10 30 a. M. London time. Lets go to our partner in mumbai and london. Indian equities are falling with the rest of the asian markets, but it was the real estate stocks that seem to be bucking the trend. Talk us through the moves. Yeah, manus. Good morning for you and your viewers tuning in. Weekirst two days of the were very good. We are down in the red currently for the banks. Tois a bit of a contrast what the benchmark indices are doing. Index is up for a fifth day in a row. To what ther benchmark indices are doing, because it is usually the weakest index in india, but right now it is doing well on hopes of stimulus coming in by the government. The government has announced they will be doing that today or maybe tomorrow. In light of that, we have seen remarkable moves. It depends on the kind of stimulus announced, but if this index is doing well, the market not quite. Nejra thanks. Ofmarie, we dont have a lot visibility on the benefits. We have had comments from navarro. Annmarie equities seem to be mixed, but the major industries, we are seeing breath to the downside. Navarro talked about there is unlikely to be any quick deal regarding the chinese trade talks, but bloomberg spoke to Steven Mnuchin, who said they will sit down, just not sure when. No clear guidance, and thats probably we already thats probably why we are seeing a mixed session. We did see money move into a japanese yen. Downealand dollar is fortunes of 1 . Business confidence has worsened. We are all watching the 30 year yield on the u. S. Treasury market. In oil, we are seeing softness in the oil market. Brent crude is down nearly 6 10 of 1 this morning. I am looking at table, because traders are likely going to be bracing for more java here in the city of london. Yesterday, the highest we have seen this year. It puts it in the same basket with em currencies like the mexican peso, the colombian peso, and the brazilian real. This comes as Prime MinisterBoris Johnson requests to suspend parliament for five weeks. Twomy stretch says the next weeks in parliament are likely to be brutal for cable. Manus it is surprising, 6 10 of 1 on that move yesterday. Surprised it did not move more. Great work on the markets. Lets get to first word news with annabelle in hong kong. Annabelle next, manus. The u. S. Is considering issuing altar long debt, according to treasury secretary Steven Mnuchin speaking to bloomberg. The remarks set the 30 yield higher, but much of the moves were reversed in the early hours of trading today. 50 to 100 eurobonds would limit the cost of tax space plugging the budget deficit, which is heading toward 1 trillion annually. Argentina is looking to extend maturities on over 100 billion of debt. It wants to delay repayments to the International Monetary fund. The government will also postpone 7 billion in repayments on shortterm notes and 60 socalled voluntary were filing of 50 billion of longerterm debt. Prime minister Boris Johnson is being granted permission to suspend parliament. It sets the clock on opponents who want to thwart his plans for brexit. Comments speaker john perko called the move a constitutional outrage. That suggests he may facilitate operation plans to take control of parliaments agenda when it returns on september 3. Ray dalio thanks Central Banks are losing the ability to reverse an economic downturn, they says the Global Economy enters what he says is the late stages of a longterm debt cycle. The billionaire founder of Bridgewater Associates says Interest Rates get so low that lowering them enough to stimulate roads does not work well. To stimulate growth does not work well. Hong kong police band protests set for saturday. Organizers said the move could anger demonstrators ahead of a plant 13th straight week of prodemocracy marches. He was earlier reported Police Believed the protests were too risky due to safety concerns. Local news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Nejra turning to italy, the countrys acting Prime Minister has already led an Unstable Coalition of two disparate parties. Today he will get a second chance. The president is due to give thee a mandate supported by fivestar movement and the democratic party, two longtime rivals who have little in common. Lets go to maria, who has been covering this story all week. Where does conte go from here . Maria conte is back for round two. We understand the deal is very close and it is a question of making this public. 9 30 will meet with him at cdt and will be given a formal mandate to create a new government. You are looking at the same Prime Minister, a different majority. It is really a stunning comeback , who upet the conte until a year ago did not have much experience for Giuseppe Conte, who up until a year ago did not have much experience. Now he is a Prime Minister. As manus will tell you, it is a big win for conte when it comes hisis personal fight with predecessor over the past two weeks. It comes to the success of this new coalition, what is going to be paramount . Maria this is going to be shaking from day one. You are looking at two factions that essentially compete for the centerleft voters which come up until two weeks ago, were really going at each other. The only thing that really binds them together is that they did not want to go to an early election because they were pulling so badly, and also the fact that they wanted to stop salvi need from becoming the next Prime Minister. They had to make difficult decisions before the end of the year. We know they have to put together a budget. The debt and deficit are always an issue when it comes to italy, and there is a planned vat hike in 2020. Even this morning, theres already question marks about how long this coalition can last together. Nejra thank you so much to maria tadeo in rome. Eric is still with us. Earlier you said the signals and global bond markets point to a rapid reversal. Does that include italy with the 10 year btp yield heading towards 1 . I know it is a separate case. Eric it absolutely is a separate case. Italy is fascinating for two reasons. One is because markets overreacted to positive moves in italy. The italian political system is profoundly conservative. You always have coalitions, never really concentrated power. Thats what we are seeing now, a shift in the coalition again. I would not be surprised if he and two or three years there is a new coalition be informed. It is usual to do dramatic and radical things. Draghiond point is mario has created what i like to call a contingent of safety asset. This is essentially he has transferred to the market the disciplining power on fiscal policy. If you breach the fiscal rules, you are not available for qe and the market effectively attacks you, and you have to fall in line with europe. You see that is what has happened in italy, even as the populace government was going to fall in line fiscally, because if they dont, spreads will widen and any options they have in terms of their own domestic policy are undermined. Btps isappening in kind of video syncretic. Certainly the spread could compress materially from here. Manus if that trade continues, the biggest risk that you flagged in the past 45 minutes has been about the risk of some kind of unsettling in the bond market. This has been the best month of global bonds since brexit. Continuing the conversations in the gdp library about the btps, in the event of this aggressive forechecked in bonds unwinding, with the btps not be ground zero for a literal obliteration of that market . Eric there are two issues here. As an investor constructing a portfolio, but i want to be out right long with btps . No, i would not. As for the spread versus german bonds, that is a more attractive trait. I had that position, closed it now. I dont think it is as episodic as i would have viewed it 12 months ago. I can certainly objectively see the case for wanting exposure to the italian spread. Directionally, i think there are few bond markets outside of the human currently want to be outside of em where you would currently want to be out right long. You want to be sure global rates short global rates. Manus eric, thank you so much. Lets continue the conversation and switch to politics, to Boris Johnson, throwing down the goblin on brexit. The queen has granted his request just expend to suspend parliament. That effectively gives the Prime Ministers opponents two weeks to stop britain from leaving the eu without a deal on october the 31st. The finance minister told bloomberg he is not that optimistic about such an agreement. Obviously the no deal scenario is today the most likely scenario for the u. K. Manus thats the french position at the moment. Bloombergs International Government executive editor joins us. A lot of political response to this. They a lot of, i suppose, arguments to and for it. How surprising was this move, and it is and is it a machiavellian move by boris . Annabelle rosalind Boris Johnson had been talking about this for weeks, so it is not really a surprise. The constitutional advice given to the queen was that she should sign off on this. His argument is it is only a few extra days on top of suspensions that were planned, so it does not matter that much. It means that the debate is going to be even smaller. It could be interpreted as quite a successful move by Boris Johnson, but what he has done is it is going to give him about a week at the end of october to decide what he is going to do with brexit. Parliament made say, right, we have the option of no deal on the 31st, or we have the option we dont like. The only option for us at this point is to take that deal, which we dont really like, but the option of no deal brexit is even worse, so we will sign off on that. They could actually get a deal at the last minute. Nejra on that point, eu officials described the move as sinister, but it does not necessarily increase the risk of no deal. It might lessen the risk. Rosalind brussels is saying perhaps this might squeeze parliament into accepting a deal. The reality is the European Union is saying, we are not going to renegotiate the backstop. That is a stumbling point. Boris johnson says the only deal he will present to Parliament Must include a renegotiation of the backstop, or perhaps lang which of the future terms beyond the initial backstop language of the future terms beyond the initial backstop. Lets bring in Eric Longeran into the conversation. Eric, from what you are seeing, it was not much of a shock, but it is going to be the longest 1970s. Ion since the does this move put more pressure on the eu to yield, given the recessionarylike complex theyve got with the economics . Eric i dont think so. I think this is aimed at a domestic audience, and it is a very high risk strategy, because it seems to me it is unifying the opposition because it is perceived to be very aggressive. It is high risk for a very straightforward reason, which is the government currently does not know if it has a majority and probably does not even have a majority for any type of legislation. Boris johnson himself has not been elected. In effect, he is governing without power. He has to try a very highrisk strategy, and we dont even know what the motivation behind this is. I would say the uncertainty is as wide, if not whiter, than it has ever been at any went in this process, and i think we will get more twists in this plot as it is over. We approach, supposedly, the end date, but it may not be the end date. Lots of things could happen. All i would say that this will achieve is to unify opposition. There are people who will be in favor of brexit who will not like this tactic, putting those people who are in favor of brexit dont think this should be done by any means necessary. Any meansnd of an necessary strategy, because nobody can defendant objectively. I think europe will stay back and watch this. The big concern with brexit would be a domino that would undermine the eu. This is something where other European Countries will go, hang on, this looks very extreme. This is not the kind of thing we want to be doing ourselves. Walk us through how this could lead to a general election. Rosalind there is the theory that boris is doing all of this to try to get to an election. He is in Campaign Mode already. This is what the conservatives are. There is news that the tory leader in scotland might step down because she is very influential in the party. She delivered the seats last time they got theresa may over the line, and if she steps aside, that is a real russian for Boris Johnson. Best say his hes trying his best, im doing everything i can, so im going to have an election, and im going to have the people tell me that they want brexit, and i will come back to parliament with that. It could all be a tactic to have an election. Nejra rosslyn, thank you, and Eric Longeran stays with us. Later, we will speak to u. K. Shadow chancellor john mcdonald, after 11 30 london time. Argentina is up, struggling to roll over its treasury bills after a brutal week of declines. The president asked predators for more time to pay back the countrys debts. Nejra this is bloomberg daybreak europe. Manus argentina is pushing creditors for more time to pay back its debts. President macri laid out a series of Desperate Measures to try and lighten the countrys debt load. They will force investors into shortterm notes issued in the local markets to accept longer maturities. Our managing editor for Global Emerging Markets joins us. Eric longeran is in our london studio. Justin, to you first. Your take on this move by macri. Justin the timing was quite surprising. Everyone knew things were extremely bad in argentina. They were burning through preserves quickly, having increased difficulty in rolling over shortterm debt. I dont think anybody thought this would happen quite so soon. Maybe what tipped the scales finally was the extraordinarily low level of their ability to roll over the debt. They thought with the real election coming up, macri thought, i had better act sooner rather than later. I think he is widely considered a lameduck president , so it is perhaps a final throw of the dice. Nejra nejra what sort of response might we get from the imf to all this . Justin the imf said they are already looking at it. It is interesting that imf officials have been in buenos aires for the fifth review as agreement theyan have with argentina. I would be interested to know if they were aware that this was coming at all. If they did not, then we dont know quite how they are going to see it. It probably is a form of pragmatism, but i suppose with the benefit of hindsight, you might say that president macri and the economy minister probably had no choice. Manus what is the contagion effect of this, justin, in the rest of our markets . Justin i get asked that a lot. To be fair, it is not good, and you have to say the path of the stressors that have erupted in argentina, putting aside the very serious idiosyncratic problems that the country faces, part of the stresses have been exacerbated by what is going on globally. The whole point is that argentina is a small part of the overall em universe. If you look at the big day when the peso and bonds fell out of bed, there was not much impact anywhere else. Nejra how does it impact your world, eric . Eric i agree with that. You would hope from a Global Investor standpoint, there has been contagion. You would hope that the headlines diminish and that the imf tries to be cooperative and amiable. I think there is a bigger policy question here, which is the imf should be encouraging countries like argentina to reduce their dependence on external debt. It is not that long ago since argentinian debt was restructured, and here we are back to square one again. There is a lesson. For economic of element, countries need to develop sources of finance. Manus therein lies a lesson for them all. We will see how the story plays out and if there is a backlash in contagion. With nejran the show and myself, it is a constant rates debate. Mary daly justifies the rate cuts as necessary in the face of strong headwinds. 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. Nejra good morning from bloombergs European Headquarters in london. I am nejra cehic. Manus and i am manus cranny live from dubai. This is bloomberg daybreak europe. These are todays top stories. Going long. U. S. Treasury secretary Steven Mnuchin tells bloomberg ultra long bonds fall under serious consideration in another exclusive consideration. Another exclusive, mary daly. I do not consider political issues. I consider only the congressionally mandated goals we have been given. Manus finding a mandate. In rome, Giuseppe Conte will form a new government. In london, Boris Johnsons plan to suspend parliament stokes no deal fears. The no deal scenario is today the most likely scenario for the u. K. Manus ubs makes some big changes. UpCredit Suisse banker turns as a key player in Wealth Managements business. Nejra welcome to bloomberg daybreak europe. Some market watchers say that perhaps Stephen Mnuchin was trying to steepen the curve a little bit. Ultra long bonds under serious consideration. The gravitational pull on the long end. Manus i love that phrase, the gravitational pull. It does not last long. Navarro says you are all too excited about trade. It is trade versus white house angst withthe fed the fed. Etingd trump twe about that last night, the fed. Nejra we have had the absence of trade headlines in terms of any progress. Equity markets have been struggling for direction all week on that. Yesterday, we saw some green on the screen for the s p 500. Conversely, we saw some weakness on the stoxx 600. Across europe, you see a weaker print on ftse 100, dax, and cac 40 futures. Stepped s p 500, dow futures all off. It fits with the general risk on picture if you look at the bonds as well. Manus there is no doubt about it. Withntum which with which we saw the Italian Government move yesterday was incredible. Record lows on the prospect of political mario draghi has created almost a default asset to go to. Lets take a look at the bond markets. Tvgo,e to go back on have a look at the first 40 minutes of the show and you begin to understand what he is talking about. He is talking about a perpetual tltro, the citizens of the eu to stoke demand. 0 tltro. He is talking about major innovation of what you want to do with your lending programs at the ecb. Bond markets rise ever slow slightly. There is angst around the world and that is what prevailed in the bond market. Whatever mnuchin was trying to do with the bond market, it did not last very long. Theres no doubt about, these bond markets, and that conversation was probably one of the most innovative we have had in a while. Nejra it was wonderful. Lets check in on the markets in asia. Juliette saly has more. We see a bit of weakness in these markets. Juliette we are. I want to focus in on the on ,hort yuan onshore yuan because it is on record track for a record losing session against the dollar. We saw a strongerthanexpected fix from the pboc for a seventh session in a row. Also watching weakness coming through in the kospi and samsung shares in general. We heard in the last 20 minutes or so that south koreas top court has ordered a retrial for samsung. Samsung shares off by about 1. 7 . Money going into the yen. Money coming out of hong kong today as well. When it comes to hong kong, the top question everybody is asking processe see this going into a 13th week, are we going to see money leave hong kong . There are a few indicators to be watching for the risk of capital outflows. Watching the risk of capital outflows watching. The risk of capital outflows quite big. The answer to that question is no. People are not fleeing so far from those stock indexes. You are seeing money still go into hong kong stocks from mainland china. 8. 4 billion dollars of hong kong stocks bought by mainland investors in the 28 days to tuesday. At this stage as we look to see whether or not investors are fleeing out of hong kong, the answer is no. Nejra thank you so much, Juliette Saly in singapore. Manus wasback to referring to at the top of the show. Steven mnuchin and sing the Trump Administration is seriously considering issuing Steven Mnuchin and saying that the Steven Mnuchin saying that the Trump Administration is seriously considering issuing ultra long bonds. San francisco fed president mary daly saying that fed cuts are needed to shield the u. S. Economy from the headwinds it faces. Bloomberg spoke exclusively to mary daly. Take a listen. We were below the neutral rate of interest, so we were stimulating the economy when we had those conditions. Subsequent to that increase, that rate hike, but we saw was that the mood and the data were becoming more pessimistic, if you will, and little bit softer. Softer, andittle the mood more pessimistic. The headwind intensified. The whole wind got stronger. That blue against us blew against us. Global slowing, headwinds from uncertainty way on the economy weigh on the economy. To recalibrate the policy is why i supported the 25 basis points cut. To recalibrate, to put it back into a good position. Tell me something as well, mary. This is a question from my colleague, david. If the ecb recalibrate and decides to reenter quantitative easing, what do you take away from that and what is your reaction to it . Mary all Central Banks are responding to the fact that they have got Economic Conditions that are changing. In europe, in the European Union , Economic Conditions have slowed quite a bit. Inflation is under the target. That requires Central Banks to take action and they are doing that. In the United States, we also look at our economy. We see how the Global Factors affect us and we have to take our Interest Rate decisions based on what we see for the domestic economy. Is a sense up there that Central Banks are being held hostage by the markets. The more Central Banks do, the more markets want. Is that the new normal . Are you comfortable with how it is panning out . Markets are moved daytoday, they fluctuate, they are finding their own footing. Some of that is based on the outlook they have for the economy and some of is based on trying to figure out whats coming next from Central Banks. Is take market information, financial conditions more generally as an input. Financial conditions being tighter or softer or easier would influence how stimulative the economy is, how well supported growth is. I think that is an input but not a determining factor in my decisionmaking. Manus that was mary daly making her voice heard on policy in the United States of america. You will see btps flash at the bottom of your screen. You are just seeing again and new momentum on the btps. Ella offering the record lows on btps after he offers Giuseppe Conte that new mandate. Quite an incredible move, breaking the 1 level. Lets get to james athey, Senior Investment manager at aberdeen standard investments. Let me ask you this, on the back of mary daly and listening to her, i put it to you, the word she used is recalibrate. This is the fed funds rate in the United States of america. This is the highest Interest Rate anywhere in the developed world. My question to you is, are bond traders crazy or is the fed hopelessly behind the curve . Insertcan i concert an additional option . Manus you can do anything. James the fed is crazy because listening to mary daly from san ofncisco, it just is a sort intellectual gymnastics that seem to have to go on to explain to the world at large and Financial Markets specifically what on earth it is they used to make decisions. It is getting quite ridiculous now. If you are watching watching your coverage of the jackson hole summit over the weekend, you had five or six regional fed president speaking. It sounded like they were all talking about a different economy to me. There was absolutely zero consistency about what exactly they were looking at. Essentially, Central Banks have gotten themselves into an incredible mess here. If there had been policy may mistakes policy mistakes, there were in 2015 and 2016 and they kept the price of money to cheap way to long. In trying to rush to catch up, he popped the i dont want to you popped the i dont want to use the word bubble. The reaction of equities has caused the central bank to retrench. Things have snowballed from there. Nejra i would say that disagreement among fomc officials in terms of what the where the economy is is healthy. In terms of the fed being behind the curve, a lot of people what certainly agree with that would certainly agree with that. Peter chapman said neutral rate is below 1 . T is your terms on that what do you think of that . Doves you have hawks and and thats really essentially about whether you prioritize lowering unemployment or controlling inflation. Disagreeing about where we are in the economy, whats the notion of data dependency . We can pick and choose which data we look at. We can look at the front windscreen of the cart, the Rearview Mirror and drive vastly different conclusions. Policy works with a 1224 month lag. You have to be looking forward and making assessments about r best judgment assessments with your best judgment about whats going to happen. Unobservablelutely ands. His concept. To be using the now to a justify rate cuts is redundant in the extreme. Manus you are on a roll this morning. [laughter] what should the fed do . I am going off of what donald trump is think. He said are Federal Reserve saying. He is saying that are Federal Reserve cannot mentally keep up with the competition. James essentially, the situation which i think that Central Banks globally on the fed as well will be facing in the next year or two will not be a pretty one. Essentially, they have one very blunt tool. Every problem they see is a nail. Thats how they have acted for 20 years really. To sit back now and watch the economy slide towards recession if thats where we are headed and just say, actually, i have done some calculations around the neutral rate of this that and the other and i think we should be on hold will probably be a worse case outcome. I think the realistic outcome outlook is that growth is slowing everywhere, growth is slowing dramatically in china and germany. Some of that is lapping onto the u. S. Short. The psychological shore. The psychological factor will play out with the recession. Once consumers start to lose their jobs in small numbers, you start to see a proliferation of that trend. Once unemployment starts to rise, it does not tend to stop unless you get to the low point of the cycle. I think the fed will have to cut rates back to zero in the next 612 months to ameliorate that process. Nejra tell us what exactly is concerning you with front and dynamics end dynamics. James this is very technical. Im not sure that the fed is all over this. Its difficult to tell. The nature of the Financial System and the shadow Financial System we have created, both in terms of how Monetary Policy is regulated, but how we have regulated banks and made it difficult to become profitable, all of these things have led to the and the excess reserves regime the fed is running, have led to this strange world where the price of money is no longer set by money being scarce in the system and the Federal Reserve lending marginally to those who need. You now find it is the highest rate that you can achieve riskfree to lend your money because everybody has got so much. That means the fed has really been running to catch up and keep control of the front end pricing. It looks at the moment based on where certain are trading, that we have got some stresses at the front end. If the fed does not do something to deal with it, they could still over into funding shots. Nejra james athey staying with us. We will get into the btp conversation with him in a moment. Lets get the bloomberg first word news with Annabelle Droulers in hong kong. We start in italy, where Giuseppe Conte will get a mandate today to form a new Coalition Government after the former alliance collapsed in chaos earlier this month. The new administration will include the fivestar movement and the democratic party. Have two longtime rivals a little more income and then a desire to avoid elections. Argentina is looking to extend repayment of over 100 billion of debt. The government will postpone 7 billion in payments on shortterm and seek the socalled voluntary reprofiling of 50 billion of longerterm debt. Prime minister Boris Johnson is been granted permission to suspend parliament. It sets the clock on opponents who want to stop his plans for brexit. Comments Speaker John Bercow called the move a constitutional outrage. That suggests he may try to take control parliament agenda. Hong kong police band a protest except for saturday. The organizers said. The move could anger demonstrators ahead of a planned protests. T week of Police Believe approving the protest was too risky due to safety concerns. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Manus . Manus thank you very much. Ubs are making some big changes. ExCredit Suisse baker turns up as part of this major reshuffle. He will take control over the key Wealth Management business. Lets get to zurich. Our banks reporter. This was the talk. Big move . Quite an interesting one. As you say, nobody is baffled about it. We have been reporting about it khan mighthat iqbal be joining ubs. He has quite a reputation. Yearsw just within three profits at Credit Suisse at the international Wealth Management unit by 80 . He managed to bring in millions of assets in regions with no wealth creation. This is quite an interesting move. He is taking over quite a mediocre business. Ubs has struggled lately. They struggled with litigation in france. Wealth management is definitely growing slower than at Credit Suisse. This is a bigger job now for him. He will have to prove if he can do it again, you know, growing profits, bringing in fresh assets. Its definitely a big announcement. We see the potential success for the biggest Wealth Management in the world manager in the world. Finally he is joining after so many rumors. He left Credit Suisse apparently due to nejra it is a big reshuffle. Talk to us a little bit more about why this is happening now. Its interesting. At the beginning of the year, ubs was stepping up succession planning. We reported they are intensifying it. The idea is to bring in one or two new executives into the board who may be able to take over and also find internal candidates. The other interesting coo isement is that the taking over the european business. I think she is also a potential candidate for succeeding sergio ermotti. I think you have to also get it in the context that ubs has lost strategic momentum. They restructured, they scaled down their fixed income operations years ago. Since then, there is a sense in needsrket that the bank fresh blood and new strategic ideas. I think that will be in the main be the main task of this new executive. Nejra thank you so much for joining us. Coming up, Boris Johnsons request to suspend parliament is approved by the queen. We speak to the u. K. Shadow chancellor, john mcdonnell. Dont miss that conversation. This is bloomberg. It has just gone 7 23 36 minutes away from the start of the european trading day. I am manus cranny in dubai. Nejra i am nejra cehic in london. Turning to italy, acting Prime MinisterGiuseppe Conte will form a government today. We see continued gains in btps with the 10 year yield briefly going about 1 . James athey is still with us. You have been a longstanding bear on italy. Are you ready to change your mind now . James in terms of how i am invested, certainly. You cannot stand in the way of the price action and the influence of btp yields. Whatever you think about the longevity of this potential coalition which is being formed at the moment, it is certainly more centrist and less scary looking with respect to budgetary policy. The one you had previously where you had labour and fivestar. Some of the concerns are ameliorated by that factor. Come the middle of september, we expect the ecb to step in and start using policy possibly relatively aggressively again. He sounded pretty all guns blazing for a shock and awe approach to policy. You dont want to be on the others that just yet. Conversatione this started this conversation with energy. Be 2 radical would tltro. What do you make of that . Yeah, i mean, that is the world we seem to be living in now, isnt it . Everybody is wrestling around in their bags and sing what kind of crazy monetary policies we could pull out. These things are not going to deal with the underlying problems we are facing. They will certainly not deal with the underlying problems the euro zone has. Ltro to the public, im not sure how that works. That implies it is a loan. Im not sure what the relationship would be. If youre talking about the idea of decaying government issued promissory notes that the consumer has to spend or lose, you are at the basement of the currency essentially now. The history of fiat money is the history of a debasement and collapse. Even some countries in latin america have quite recently started because they have been through this process. Governments get hold of these things, debase them too much, and confidence in them collapses the system collapses. Nejra you dont want to go near gilts. Tell us why. James it is pricing a lot of bad news. They are pricing a heck of a lot of bad news, not just brexit, but the Economic Future beyond that. The bank has made it clear they dont want to go into negative rates. Manus james athey joining us, Senior Investment management at aberdeen standard investment. John mcdonnell will speak to us. You dont want to miss that conversation, as boris plays the big trade in brexit. 11 30 am, bloomberg is your destination. Nejra good morning anna good morning. Welcome to Bloomberg Markets european open we are live in our European Headquarters in the city of london. I am anna edwards alongside matt miller in berlin. Matt Steve Mnuchin tells bloomberg that ultra long bonds are under serious consideration. Stocks and futures trading mixed ahead of and other data heavy take another data heavy day. The cash trade is less than 30 minutes away. Anna