Good morning, everyone. Good afternoon if you are watching from asia. This is bloomberg surveillance. I am in italy for the ember city ambrosetti forum. Lot to do with the economy, the trade war, with no end in sight. Although the two sides did decide to meet her we go back to our wall of worry. What im looking at. European stocks were up at the open a touch, now they are down. 1 . A lot will have to with the number we get from u. S. Jobs. Looking at treasuries, they are slowing some of the declines we saw yesterday and we shot a sharp selloff. Im also looking at gold. It is probably the perfect litmus test when comes to risk on or risk off. And wti, there is little change their. There. So we will get back to the markets and great interviews, but first, lets get straight to london and first word news. Hong kongs Credit Rating has that is as months of persistent protests and violence continue. Fitch says it is testing the framework that governs the relationship with china. Carrie lam says she disagrees with the downgrade. Trade policy uncertainty is holding back Global Growth and may weigh on the World Economy in 2020, according to a Federal Reserve research note. It was hard numbers on the argument the bank has made for months, saying the trade tensions led to a decline of. 8 in global gdp but the First Six Months of this year. Barrelingof dorian is towards North Carolina where it may briefly make landfall. Coastal areas are forecast to get 612 inches of rain and storm surge as high as seven feet. Battered Charleston Harbor with 92 mileperhour per hour winds and killed 30 in the bahamas. And oil is headed for its biggest weekly gains since july as american stockpiles shrink. Inventories slipped by 4. 8 million barrels, more than double what was expected as the trade war escalated. But they are getting some rest bite respite. Robert got a has died. Mugabe has died. A controversial figure in his later years, he has been accused of economic mismanagement and human rights abuses. 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 . Ray dalio, billionaire founder of the Worlds LargestHedge Fund Says there is a 25 chance of a recession this year and in 2020. He adds that when the downturn comes, Central Banks wont necessarily have the power to reverse it. 2007, it was pretty easy, i think, to calculate that there were these debts that would come due. That there was not an adequate amount of funding. Crisisthat sort of debt is something we anticipated and were positioned well for. When i go through those calculations, its not the same. In other words, the amount of maturing debt and that whole problem is not the same. It looks more like a gradual squeeze having to do with quite a lot of debt of a certain type, but with that, pension liabilities and health care, particularly as that produces a greater squeeze. And so larger deficits the amount of promises that we have our large, but theyre going to be coming at a more gradual pace and it is going to produce a squeeze. , when you dont have Monetary Policy, being able to be effective, what kind of Monetary Policy we will have we will have more than likely a lot of debt monetization. Francine so that was ray dalio founder of bridgewater heard bridgewater. Joining us from the ambrosetti is the global head of economics and market strategy, the previous chief of staff to the former italian finance mr. Minister. Thank you for giving us a half hour of your time. I know its busy and you want to get back to the workshop. Overall, you hear ray dalio say theres a 25 chance of a recession. Can this be avoided or is this beingnomic slowdown brought forward by the trade war . Eventually, we will have a recession. This year, it seems unlikely to me. 25 , its a lower probability. But we should not be too optimistic according to the weather. [laughter] mr. Dalio has a point when he says there are limits to Monetary Policy and what Central Banks can do. But i would make a distinction between europe and the United States. First of all them a they have a much healthier economy in this moment and the data has been mostly positive. There are some contradictions, but mostly positive. Europe is quite different. We are seeing a technical recession in germany and in italy as well. France has been in a healthy position. There is also difference another difference between the u. S. And europe is the margins Central Banks in u. S. Have are much wider where in europe they are negative. My short answer is, eventually, we will have a recession. I dont think its likely in the next month. Francine but Central Banks may not have the tools. Are we creating an environment which may be risky because investors are taking too much risk . Recessionconfound a because we are creating bubbles their monetary stimulus . Or is it just that, if we have a recession, there is a limit to the ability of Central Banks . Fabrizio i dont see investors taking too much risk in this moment. The lessons of the past have been learned, for the moment at least. But there is always that hazard. From my understanding, we are not there. The other point you are making is much stronger. The fact that you have certain things which Monetary Policy cannot do although, we are moving to a more Creative Space for Central Banks. If i may sayming, so, even more important and imaginative in the way they are intervening. Francine are they too important to let to imaginative important, to imaginative . Fabrizio it is risky if we dont match what they are doing with the right fiscal policies and the right structural policies. We needed to make this link which has not happened yet between monetary, fiscal, and structural. It is particularly true for europe. Mario draghi 7 25 to his press conference. Said it 25 times at his press conference. Fabrizio that is a good point. But people may be more interested to listen as we are indeed closer than we were in the last five years, particularly in europe. Is there anything Central Banks are politicians can do to avoid a recession . Fabrizio i think we need fiscal stimulus. We need fiscal stimulus in the u. S. Its an election year, so there may be political interested doing that. In europe, we need the coronation of fiscal stimulus, particularly in those countries which have the room to do it. But also, we need a fiscal stimulus. Fabrizio stays with us. Up next, Boris Johnson repeats his call for elections but opposition parties are not playing ball. We discussed the u. K. Next. Plus, repairing relations. Es government looks to patch things up with brussels so we focus on the future of italy. More to come, this is bloomberg. Fixed Term Parliament act 2011. Can you make a promise today to the British Public that he will not go back to brussels and asked for another delay to brexit . Yes, i can yes, i can. I would rather be dead in a ditch. Francine rather be dead in a ditch. Boris johnson ending that look back with strong words. He made the comment after a speech at a Police Academy in northern england. Use of the events to double down on his plans for a general election before the European Council meeting. Opposition parties, meanwhile, are set to try and figure out what they will do next. They will possibly discuss an election date near october 31. All of this will come to a head on monday. Monday is a huge deal and monday is when we will figure out a couple of things on whether Boris Johnson will tend to treat with the election or not . Fabrizio is still with us. When you look at brexit, its quite a story. It is one that we cant stop watching and the way things work. Economically, what to that mean. Or the u. K. Are we underestimate or overestimating the impact of this . Of art ifthey sort the u. K. Crashes out. Risk, itssystemic something that can really disrupted the european economy. But it contributes to uncertainty. But if you add president to the trade wars and some other uncertainty to the fact that there is a break of investment all of that contributes and leads to the continent and the u. K. Possibly closer to recession. Systemic, bute altogether would be a big economic risk. Francine is it a Financial Stability issue, a deficit issue . ,t is now so fiercely political have you look at it through an economic lens . Fabrizio i would look at it more as a trade risk. As at not exclusively trade risk, but a trade and butidence risk their disruption in trade, disruption in the confidence of doing business in a normal part, its a major part of Continental Europe there europe. It does not provide the confidence necessary for business. In terms of banks, i dont see a major risk. I think people in the banking and Financial Sector have taken and are taking all the grip cautions that all the precautions necessary. Taking all the cautions necessary. Francine fabrizio stays with us. Up next, we focus on brexit but from the other side. What impact will it have on europe . And italy gets a new finance minister. And with slowdowns across much of the euro area what should policymakers fight back with . This is the word. This is bloomberg. Negative rates should not be overused and there is room to tweak the room to tweak or go down is small. Banks would have to reflect that, and that of course would create a big backlash. That was the former Vice President of the European Central bank speaking exclusively to bloomberg a little bit earlier. Lets focus on the euro area and its economic slowdown. Fabrizio is still with us. Were talking about negative rates and the pressure of this puts on european banks, especially german banks. Germany need something else, but you kind of wonder whether Interest Rates are good things. It kills savings and that is very negative. Fabrizio it is kind of a two edged tool. The ecb signaled the possibility of having a twotier system. We see what the decision will be and alsoxt meeting what madame lagarde think that i think that there are indeed some limits that the Central Banks have. Its not only a question of Monetary Policy alone, as i said. We to make the link between Monetary Policy. Francine we have a new government that was sworn in yesterday or the day before. People are doubting what it could hold, people say yes. What would you do to make sure italy is on the right path . First of all, this government has been welcomed by the markets. You saw the spread went down quite dramatically. 1 ,ear btps are below thats absolutely at the lowest level ever. Is that more because you think we would not have the turmoil we were expecting . Fabrizio thats true. We dont have an italy exit risk anymore. Right . Big element, [laughter] it was a big risk. Indeed, now there is an opening by the market to the government. The government cannot waste this opportunity. There are three elements we should consider when we look at what the Italian Government could do in physical terms. One is indeed the covenant of policy by Central Banks. The second is the fact that there is a new commission. It is a Commission Led by very strong leadership with an agenda and a personality which can make a change and bring change to europe. Brought incan be various at the different ways. Not necessarily a formal change to treaties or regulations, but one that can be done in the environment you create. That is very important. Also, we will see who will be the commission in charge of economic and financial affairs. That wed element is could have stimulus in the United States or another part of the world. In these environments, the Italian Government should not be shy and should go for a package which makes sense which is well thought, which has vision and intelligence, but which is expansionary. Francine such as what . Infrastructure . It is a comprehensive package people have asked for four years but has never come, and how do you fund it . Fabrizio i think we should gain some margins in terms of deficit. The moment is now, if not now, when . Italy, you need things in measures which are automatic. We have a system in the Public Administration in the machinery of the country which is very complex. It is very difficult to spend through this machinery. So you need to get stimulus measures which automatically are either used by companies or used , thetizens, for instance incentives must be taken directly by business. Or at tax rates. If you cap tax, that is stimulus. Francine and italy can afford that . Fabrizio i think they can. Francine thank you for joining thisom ray ambrosetti morning. You more couple bring about interview with the former ecb Vice President constantia constancio. We will talk about negative rates and the u. S. China trade war. This is bloomberg. Francine ray dalio warning of a 25 chance of recession this year and says the fed has limited power to fight this. The Opposition Party looks to outmaneuver Boris Johnson. The Prime Minister says he would rather be dead in a ditch than not have brexit. Speak to the former Prime Minister this is bloomberg surveillance. I am Francine Lacqua here. Work onetting hard to economics and finance. A lot of the working groups have investors from around the world. Lets get to the bloomberg first word news in london. Hong kong Credit Rating cut by fitch to aa. After months of protesters and violence continue. Hong kongs chief executive carrie lam says she disagrees with the downgrade. Billionaire ray dalio says there is a toy for percent chance says there is a 25 chance of recession next year. He recommends the Federal Reserve cut rates more cautiously than the markets are pricing in. Right now we would like to see cutting slowly, maybe 25 basis points, not as fast as discounted in the curve. s cuttinge bank salespeople and its Global Fixed Income unit. The business was spared in the overhaul two months ago. Hurricane dorian is barreling towards North Carolina where it made reflate make landfall. Coastal areas are forecasted to get six inches to 12 inches of rain and up to seven foot storm surge. It previously killed at least 30 and the bahamas. Zimbabwes expresident Robert Mugabe has died at age 95. Mugabe was a controversial figure, accused of economic mismanagement and human rights abuses. Global news, 24 hours a day on air and at tictoc on twitter, powered by 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you. Lets get the latest on a busy week for brexit watchers. Boris johnsons opponents are looking for ways to outmaneuver him. The Prime Minister has doubled down on his plan for a general election before the European Council meeting october 17. Joining us now is sir christopher pissarides, professor economics, London School of economics political science. And winter of the nobel prize in 2010. Parallel the between brexit and economics, there are so many worries about negative rates and Monetary Policy. Thing your the worst could do is bring in uncertainty on top of what you mentioned, which is brexit. The uncertainty is getting worse. Do we see months from now . I do not know. All and whatng of where there is enthusiasm for what the European Union union is doing across so many dimensions i was just in a meeting where there were agreements with singapore, vietnam, japan. You think if there is a hard lose our free trade agreements . Trade with japan and singapore subject to wto rules . We have to check rules of origin and Product Description . It is a complete disaster for companies, trying to find their way in this world. And then there is the u. S. China trade war. Is the biggest concern eventually the unintended consequences of Monetary Policy dealing with political shock event . We have the u. S. China trade war and we have had interesting discussions were we do not understand where it is going. We have tech wars which is more important. Central banks are trying to find their way, but more importantly is at thean union head of regulation for technology, and it is trying , find ay to balance balanced view of the economies of the world. When you put it together, it is about the size of the United States and bigger than china, it is gravitas, it can push ahead. Do whenbritain going to it gets out of there . How will that deal with the situation .