The german chancellor says the cost are two great. 00 too great. Good morning, everyone. This is bloomberg surveillance. I am Francine Lacqua here in london. This is what markets are focusing on, partly what Angela Merkels, partly Emmanuel Macron. Let me go through the impact heavy on the markets. Areou look at stocks, they really fluctuating after data from the economies here in europe, and that is really costing casting doubt on the resurgence virus infection. We have french manufacturing unexpectedly contracting in august. Highlighting the need for further stimulus. I am also looking at offshore to extend less than six months, seven months, actually, when china market from the pandemic became one of the worlds fastest. This is what we are getting in terms of pmi out of the eurozone, expectations or certainly there in mind with what we were expecting. Barring 50. 1. Coming up later, everything you need to know about Exchange Traded funds. Iq europe is back. Exchange data funds. Pmi worse than expected. Now lets get to the bloomberg first word news in the u. S. , we will start with the u. S. And iran, a demand to reinstate global sanctions against iran. The secretary of state, mike pompeo, is hinting out at european hitting out of european allies, accusing them of failing to lead and refusing tehran. Iran is pushing back, saying the u. S. Is attending to mislead the world. Former trumpet advisor team trump advisorer steve bannon is out on bail. Of saying he would build the wall for a campaign and then pocketing the money. Alex is being treated abroad. Doctors say his condition is too unstable to travel. He is still in a coma. A plane has already arrived to transport him to germany for treatment. His team blames that amir putin phrase blames Vladimir Putin for his illness, saying he was poisoned. Bloomberg sources tell us the british negotiators sought to break the deadlock, submitting a draftfree trade agreement based on what they thought was Common Ground with the eu, but so far, that has not led to a breakthrough. And that is our first word news. Lets get straight to our first word news today. Has excepted the democratic nomination to challenge president donald trump. In a speech, he asks for leadership that will overcome Political Division in the united states. Mr. Biden the current president has cloaked america in darkness for much too long. Too much anger, too much fear, too much division. Now, i give you my word. If you trust me with it presidency, i will draw on the best of us, not the worst. I will be an ally of the light, not the darkness. It is time for us, for we the people, to come together. And make no mistake, united we can and will overcome this season of darkness in america. Francine well, joining us to talk about this and the impacts bevan,markets is james chief Investment Officer at ccla investment management. Do the markets believe joe biden will become president . There isthink increasing excitation that is entirely what the market expects. There is an interesting taza whether the additional spending mr. Biden will certainly undertake, per his manifesto, relative to the tax take that i suspect might take some 10 off the s p 500 corporate earnings. Francine so why do you think they will focus on . Is it tax . Is it Something Else . It seems like a lot of the rhetoric now is why President Trump should not be president for a second term. When do we arrive to the real policies of joe biden . James i would say there are four policies i would be having under clear scrutiny. First is the tax policy. As i said, i do believe it is likely to be worth around 10 to the s p 500 earnings in 2022, if fully implemented, given that the expectations are the index earnings would be about 100 65 next year, that is quite a big hit. Of course, this may be watered down, and full implication would require mr. Biden not only to take the white house but democrats also have control of the senate and the congress. There is a risk of course that mr. Biden takes the white house, republicans, however, can control the senate. That thwarts the capacity for him to implement his strategy, may be quite limited. The second issue, which i think is important, relates to his maiden america planning, and a rotation that he will seek to drive the domestic economy, and that will be good for domestic participants. The third issue is he is just as hostile to china as mr. Trump, and that is why you do not see any Material Change in the cold war that is such a big wrist to Global Markets in u. S. China relations. The third issue is mr. Bidens desire to curb climate change, and that will be really bad news for the fracking industry. Francine so, james, when you say, you know, a President Biden is just as hostile to china as President Trump, does it mean that the move we are seeing toward changing supply chains will continue and accelerate, and does that lead us to higher prices . Does it automatically lead us to inflation . James i think it certainly leads to a reorganization of the supply chain. The covid19 episode and lockdowns has reminded everybody that many supply chains are fragile, and it is not smart at having production from abroad if you have no control over the process. In terms of the possibility of inflation, i would say that one of the really interesting and important drivers of deflation over the last decade has been new technologies, and new technologies have the capacity to drive down prices by assisting productivity and enhancing processes and procedures, both for manufacturing but also for product specification. So it is not necessarily the case that the disruption of globalization leads to a step shift up in inflation. A far bigger issue, which i think markets tend to not recognize, are the involving demographics that are involving so many economy. Japan, as we know, has a rapidly aging population and is being mired in low, slow Economic Growth and almost no inflation for decades. I think europe and china are following in the same direction in terms of the demographic pattern, and most have a Slower Growth in my generally been expected than might generally have been expected. I think it is therefore underpinning continue to overweight u. S. Equity markets. So your favorite in all Asset Classes is, what, u. S. Equity markets Going Forward . And what is your least favorite . James well, i would say, stylistically, i am very much focused on the growth, and i am less concerned about which country i am invested in. Of for example, in terms growth, there is obviously the u. S. Information technology, but in europe, for example, i would highlight kearing, which is a luxury Goods Company whose principal brand is gucci. Fantastic european company, just not in luxury. Pharmacyuropeans growth is relatively risky, because they are pricing discounts, a return to a european recession. And although the pmi, the index numbers today were not strong, they are almost certainly not consistent for. A return to resurgence. For a return to resurgence. Francine james, thank you so much. James bevan from ccla investment management. Coming up, europe should Work Together to avoid another lockdown. That is the message from the german chancellor. She says shutting down just cost too much. We will discuss that next with james bevan. This is bloomberg. James bevan. This is bloomberg. Francine economics, finance, politics. This is bloomberg surveillance. I am Francine Lacqua here in london. Now, lets get straight to the Bloomberg Business flash we start with pfizer. The Covid Vaccine they are working on is on track for Regulatory Exchange next october. It would make it one of the fastest moving vaccines in the world. They previously secured a deal to supply 100 million doses to the u. S. Has a stay in california. A judge has allowed to challenge a previous order complying with the state law. The state wants them to treat workers as employees, a move that would upend their business model. Pay 1. 6 agreed to billion over is now withdrawn essure device. It caused bleeding and failed to prevent pregnancy. 39,000 lawsuits, considerably more than bayer paid to the company that actually made the device. And that is the Bloomberg Business flash. The german chancellor made comments during a visit to french president Emmanuel Macron. She said closing borders should be avoided at any cost. Meanwhile, brexit talks said to end today without an agreement. Bloomberg understands negotiators submitted a draft, free trade agreement, but so far, it has not led to a breakthrough. Ofs get back to james bevan ccla to look at europe and the u. K. As well. James, thank you so much for sticking around. We were talking about things that you liked and did not liked in the market, and you prefer u. S. Equities to european ones. Do you worry about the u. K. Leaving without a deal, and what kind of a pressure without put on europe . James oh, i think it is a terrible risk and with quite a high probability. I had assumed that with the implosion of the u. K. Independent statute, that mr. Johnson would go for an the basis he was always very hopeful to get full agreement on the way forward done by the end of the calendar year. He seems absolutely adamant that he will have a deal or no deal in place by the end of the year, and therefore in january of next year, we will have whatever we is a and that, i think, huge risk for the economy, one that is far more damaging, to my perspective, for the u. K. Economy. We fired an awful lot of money at the covid19 crisis through sunacks at mr. Fiscal largess. I would expect fiscal integrity across the arena meeting we can introduce for the first modernme in europe theories, whether the European CentralBank Activities actually Fund Government spending. I think we might affirm the commitment to buyin, 1. 3 inllion of Government Debt the eurozone, and the bank then 160itting by very roughly billion euros, all the cash. Ability tonies the be critical and is not get Corporate Cash flow. We need Corporate Cash flow to get the sector moving forward, to therefore restore government revenues. Expenditure on capital, and then to improve household confidence. So this shift, i think, from relying on the European Central bank to emancipating government is really important. I have a james, headline on india, which i will get to in a second, but first of all, today we found the u. K. Government talks about 2 trillion pounds for the first time ever. Going back to what you said, this is a theory that was really derided 10 years ago. What are the dangers, you know, unintended consequences of actually doing lmt . The modern, lmt, theory, is indicating that the market is better at allocating resources, and the efficient down with these aficionados is different, it from where it was. Talking about shrinking the private sector and allocations of resources. This is, i think, an issue of politics rather than economics. The jury will be out about whether modern monetary theory works. But the idea is a rising expectation that what we provide the market is not quite limited and is akin to pushing on a piece of string. The Government Spending route can absolutely drive forward. The question is what happens when inflation accelerates . Because the real factor of modern monetary theory is we pull back spending when government rises, because that would be the keynesian approach. However, there are a number of academics writing on modern monetary theory, saying what the hell, we can carry on even when inflation is higher, because we think government is a really important part of building a better society. Francine so, james, we have a headline from india saying india is slashing new curbs on visas cards coming from china. China may be a bit more marginalized in terms of influence, certainly when it comes to, you know, u. S. China trade, india taking a further stance to curb that influence. Does it have any implications on the chinese economy, and therefore on investment . James i would say that the real issue for china is dependency on dollar and flow to provide capital. I have to say most people anticipate that china generates its own capital. In fact, there is a very strong flow from the u. S. , leading by the federal reserve, typically by the french banks, sometimes via the japanese banks come into china, and that has been a significant factor. Reigning end be a of that dollar availability, i think the China Economy would weaken and present a significant risk for investors. That said, some chinese tech companies, like alibaba, our global giants and do merit portfolios. Francine do you see any value in some of the emerging markets . Yesterday, we also have the Turkish Central Bank decision. I am veryncine, absent or underweight exposure to emerging markets, because i still believe that they have over borrowed in the u. S. Dollar, and i think there is a risk that the u. S. Dollar rises again this year. The liquidity in the dollar begins to reduce, and that leaves emerging markets relatively restricted. I also anticipate that there is no reason to take on additional risk when there are so many great opportunities in developed markets. I can still buy fantastic companies with high returns on Investment Capital and or free cash flow. Stress see the need to for additional risk, albeit in exchange for significantly higher risk. Francine ok, so lets get back to what you like, which is u. S. Equities. How many bankruptcies are we going to see in the u. S. . Does that make some of your Equity Holdings in the u. S. Stronger, or do you worry about side effects . James i would say that we are likely to see a rising tide of bankruptcies in the states over time, but i would make two sub points, one is that an awful lot of those bankruptcies are in the old energy sector, and we are absent the hydrocarbon complex on the basis that it is on as wellthe planet as losing money, and in that it is at is a very risky place to invest in. Jp morgan is a giant and very regulator, so it is a core holding in our u. S. Exposure. The other area, of course, are the smaller retailers, because of the competition that they receive from the online players, such as amazon, and amazon is also a core holding in our portfolio. Francine james, very quickly, i love having you on, because i always ask you things that, you know, during the week you kind of have my little grace, i was thinking. James that i am annoying you with. [laughs] germany, negative, what is the reason behind that . Does that makes sense . James from my perspective, the negative rates are an absolute reason why i would not be in the bond market. Actually, one of the things about the corrosive implication about the negative rates, it means that an aging population, as is the case with germany, needs to save more to hit the capital they require for retirement. The more negative you make these rates, interestingly, the higher the saving rates is moving in germany. The same is happening in japan, and that is why the negative rates are absolutely not shifting economic recovery in core aging economies, and we ought to see a change, we ought to see a shift. Meanwhile, i think the german Banking Sector is uninvestable. Francine all right, thank you very much for the insight, james bevan, chief Investment Officer at ccla investment management. Now lets get more on u. S. Politics and the latest from new york. Postmaster general louis dejoy is said to be questioned over two days and capitol hill. That is as he has become embroiled in a political fight between the democrats and President Trump over mail and votes and the integrity of the november election. Joineddelighted to be for more on this by jennifer, our bloombergquint take reporter. Always great to speak with you. Why are the mail Service Cutbacks contentious, and how do they offset the election . Jennifer i do not know about you, but i feel like i have been saying postmaster general more recently than i have in my entire life. It is a big issue, mainly because, as you mentioned, President Trump has really tried to delegitimize voting by mail, and that is an issue for democrats, because this year, several democratic voters have said they are opting to vote by mail as opposed to voting in person, so the reason this has come into the spotlight is because louis dejoys costcutting actions earlier this year delayed voting and getting mail to voters, and, you know, leading up to the election, it is going to be an issue, and democrats do not want to be an issue. Democrats have spent the last few days during the dnc trying to reassure voters that voting by mail is safe, there is nothing wrong with it, they should trust it, but also, we are going to be paying very close attention to what dejoy says over the next few days. Today, he is on capitol hill, testing in front of the house committee. Monday, he will meet in front of a senate committee, so it will be really interesting to hear lawmakers pressed him on some of the decisions he has made and how this could potentially impact voters and impact mailin voting specifically, leading into november. And just to note, you know, his testimony on monday is something President Trump is not very happy with. He actually tweeted and tagged Senate Majority