No punches Central Banks are a topic of conversation with prominent banks that pull no punches. The work is never done, and i do not think you can say one and done and that is it. Raising by 25 basis points in september, and then doing it again in december. Nejra plus, a oneonone with russian president vladimir putin. Pres. Putin we will work with if someone says they want to work with russia, we will welcome it. Nejra it is all straight ahead on bloomberg best. Hello and welcome. I am nejra cehic. This is bloomberg best, your weekly review of the most important Business News, interviews, analysis from Bloomberg Television around the world. The week began with the markets still buzzing from friday when remarks from Federal Reserve chair janet yellen signaled that the case for higher rates is strengthening. If investors were worried, mondays Equities Trading did not show it. Joe the s p 500 index is on pace for its best day since august 5, rebounding from a threeday slide. Right after yellen spoke, we saw the big rally in everything, stocks, bonds, treasuries at the same time, then it reversed. Today, were seeing a reversal of that. Everything is flying from treasuries to stocks, sort of trading as if the fed is not really in the picture or a problem. What do you make of the Market Action recently and what we learned from the fed speakers in jackson hole last week . Russ the short answer is not much, or at least you know, not enough to dispel the confusion. Today, the market is moving higher on good economic data, which is probably the right thing. Friday was was confusing. It is confusing because on the one hand, we know september is in play. We will probably get a hike later this year. At the same time, if you listen to the comments by janet and other members of the fed. What is apparent is even if the , fed goes this year, this is going to be a shorter, shallower cycle than what weve seen in the past, which means the fun rate is lower, bash fund rate is lower, which confirms that in the cycle, we are still a woeful environment. We have a combination of better economic data, people are not overly worried about the fed. That is producing some good market movements. The European Competition or, thet best figure European Competition commissioner has ordered apple to pay a record tax bill. How is ireland responding . How has apple responded . There is massive shock here today. Reports were saying the arrears could be as low as 100 million euros, yesterday afternoon, the sentiment has changed. Figures might be in the billions, but i do not think anybody was prepared for a figure of over 13 billion euros, so it was a huge shock here. It sparked an intense debate about what they should do next. It is not clear that apple is not very happy, pointed out that corporate environments have paid its taxes and everything right, and it is not fair that it should be treated this way. There has been an angry response from ireland and apple back to the commission. Mark there is disappointment from both parties as well as the u. S. Treasury. Why did you feel the need to act unilaterally when the oecd has made so much progress over the last three years . Margrethe the case here is specific because we have a longstanding prohibition of Member States handing out benefits or advantages to specific companies. This is the case here, more than it is the case of taxation because these benefits, they can come in all forms. They can come in a form of cheap piece of land, a generous loan, a grant, or a tax benefit. That is the case here much more , than it is a case of interfering of the work done in the rain of g20. Why fight this decision . Is apple putting pressure on you . Mr. Noonan no, apple is doing it separately, and the Irish Government will make a decision tomorrow to reveal to the court of justice. We are repealing it because we do not accept that the irish authorities did anything improper, incorrect, or illegal. Secondly, we think that confidence under european law is with sovereign governments and we think the Competition Commission in europe is trying to get through a back door to influence tax matters and portray them as state issues. David apple insists it did nothing wrong. Tim cook says, apple follows the law and pays all of the taxes we owe wherever we operate. What does this mean for apple and their mode of doing business . This bob this is a small hit to them, even if they are forced to pay it. Longerterm, how they think about dealing with europe, does it impact of other companies impact europe . I think there is a possibility. Caroline the ceo of germanys largest lender, john kline, shooting down a merger with saying he would like to see his Bank Actually shrink. John part of the work we are doing is to make our banks smaller in order to make it a bit simpler. We want to set Higher Standards for control, but we want to make be more successful. Caroline this news, this report, was it really news . Elisa it certainly was, and it comes on the backlog. We have seen european banking shares coming under a lot of pressure. Banks, italian banks finding a solution, but there has been a great deal of focus on the power of the banks, managed, restructuring, very difficult market conditions, negative rates, squeezing further. It is on the back of that, it is a lot of focus on whether this is something that might have been on the table at some stage as a means to grapple with these longterm difficulties that the banks have. Caroline there still seems to be cause for consolidation in the german banking market. We heard from the ceo of commerzbank is saying exactly that. I am sure they are talking about the land is bank elisa yes, that is right. There is a lot of competition in germany. They shouldve gone with one of the smaller players, not the large players. The larger the banks become, the more capital, and the regulators asked them to set aside and this is precisely the difficulty Deutsche Bank is up against. To build up the capital buffers, it is hard to see what they what combination would solve this in the immediate term. Angie a bit of optimism, you could say, from chinese manufacturers with the official , factory pmi rising to a twoyear high. What do the numbers tell us . John they tell us it was a surprisingly robust number for official manufacturing pmi out of china, coming at 50. 4, and that signifies a beat over the median estimate of a reading of 49. 8. This is the highest reading since october 2014, and it shows that julys dip, as you can see here to 49. 9 may have been a bit of an aberration caused by severe flooding we had in southeast china that affected about 1 5 of chinese economic output. Guy is this just a blip . Can we take a trend on this . Tom you are correct to question it, guy. I think people tend to over interment small movements in the pmi survey. In this case, you can be a little bit reassured. This is a slightly longerterm trend and secondly, it is broadbased. We have not just seen an improvement in the official pmi. We have seen a range of different measures from an index based on satellite images of Chinese Industrial zones, to the flash reading on koreas exports, which tends to move closely in line with chinas exports, all improving slightly in august. Erik 151,000 jobs. That is the increase in nonfarm payrolls last month, the Unemployment Rate steady at 4. 9 , annual rate growth slower, wage growth slower, it adds up to a disappointing jobs report for the month of august. Far from a disaster, of course, but falling short of expectations by enough to throw a rate hike at the feds next meeting into doubt. Bill i think september is on. I do not think it is 100 on, but i think it is close to 100 . I think janet yellen told us not just in jackson hole but in other places that she looks at jobs, jobs, jobs, and that gdp is not at the top of the list. If these types of jobs dont do it, i am not quite sure what does. Alan i do not see alarm flags in this report. I suspect it is less likely that the fed will act in september, which i always thought was a low probability to start with. I do think there is enough here to keep them on a path to raise rates by the end of the year. Mohamed this is going to ultimately come down to one fundamental issue how worried are fed officials about the Collateral Damage and the unintended consequences of a protracted period of low Interest Rates . If they are as worried as i am, then this report is a green light to hike. If they are not worried, then they will wait. Nejra the august jobs report gives the Federal Reserve more data to digest. Later, we will get further fed insight from tom keenes exclusive conversation with Stanley Fischer. Plus another exclusive interview interview in chief editor in chief john sits down with , russian president vladimir putin. Robert shiller on home prices. Eduardo li oil market and bill gross on why Central Banks need tough love. This is bloomberg. Nejra this is bloomberg best. I am nejra cehic. Economists, investors, and policymakers around the world were watching closely this week for positive signs of global growth. Indications continue to be mixed. Lets look at the best, starting with the prospect of more centralbank easing from japan. Rishaad the bank of japan has reiterated that it will boost stimulates stimulus if needed. Kuroda says he has ample room for additional raising when he addressed central bankers at jackson hole. What clue does this give us to this meeting next month . It means we have a tense wait until the next meeting. Governor kuroda, as you mentioned, is signaling with again, as he has before, that an increase to Foreign Policy is possible. We know negative Interest Rates could be cut further. It also could mean an increase in asset purchases. He is certainly pushing back on the view from some that he is running out of ammunition. On the one hand we have analysts indicating that he is up against a limit on bond church bond purchases that negative rates can further but we do have some , other analysts starting to question the idea about whether the bank of japan could move in to local government bonds or government corporations, and we can see the effects on the funding infrastructure projects. Alix if you take a look at home prices, up 5 , personal income up over 2 . How much housing appreciation can we see without income rising just as much . Dr. Shiller there has been a lot of momentum in home prices. They are different from the stock market. They have been going up since 2012, but at a slower pace. It was more like 10 . Now i am kind of worried that it will slow further. Seasonally adjusted, we are just about flat in the latest month. No change. Half of the cities are down slightly. It seems to be a weakening mark. Market. It was still an apparent uptrend caroline in london, the minute we see a cooling down, panic strikes. We focus so much on what that makes us feel from a consumer point of view. Does this spell doom and gloom Going Forward for the u. S. Economy . Dr. Shiller doom and gloom is too strong a word. But i agree. , i have done research on this myself with some partners. Housing has a very strong wealth effect because housing is held , more broadly than stocks are, and it is not held in a retirement portfolios. People see it, and they are very aware of these house price movements, so i think it is possible that there could be weakness coming this fall when the seasonal pattern no longer boosts home prices. If the fed should raise Interest Rates, it might be a kind of a signal that the market is headed down, and so there could be a change in confidence. We have not seen it yet, though. Caroline this morning, we have gotten fresh data out of the european area. Inflation failed to accelerate in august, adding to signs that the euro era of Economic Outlook has deteriorated. These numbers came ahead of the ecb decision, but not 2. 4 lackluster. , a surprise . Paul not massively. A lot of this is still the energy price. That oil price is lingering on. The important point about inflation, when we are looking at inflation is we should not be sort of dazzled by the decline in the energy price. Look at the underlying trend. In some countries in europe, and some of the underlying trends show signs of picking up. In germany, for example, we have got some signs coming through there. Core inflation was not great, but do remember that core inflation still includes energy. Even though it says it excludes energy, it does not actually exclude it. It includes airfares which are strongly influenced by industry price. I am not too worried about this sort of level. If it were coming in a 0, i would be a bit more concerned, but. 2 is ok for now. Caroline it gives you more breathing room for mario draghi to act next week. Paul i do not think he is going to act. Even a serial easer, i think even somebody that is addicted to accommodation. Even he will have to admit that additional action over and above all that they are doing is really not required at the moment. The economy in europe is not falling off the edge of a cliff. Europe is not exactly a dynamic economy, and it is performing reasonably ok in most parts of the euro empire. Tom the sport of oil means you must speak with edward morse of citigroup. We speak to dr. Morse about the certitude that he sees, which is an either or world. I love that phrase. What you mean by that . Edward the market is receiving a lot of reasons to be short and a lot of reasons to be long. Which is going to be right . A lot of this is whether your focus is on opec, or on the rebound that u. S. Wildcatters can have. I usually do not do a 200day, but it works here. Massively range bound. With a flat line 200 day moving average. What is the citigroup call . Edward 48 for this quarter. We are there now. 50, 52 for next quarter. 65 by the end of 2070. 2017. Tom so it works higher. Edward it should work higher. Francine does it mean there is no shell cap on the price of oil . Is that a false analysis, or should it change . Edward it is really a moving target. The moving target has to do with one of the things we cannot you not really talk about all the time, and that is how much does it cost to produce oil in the United States . That price keeps going down. How much does it cost to produce oil in deepwater . That cost is going down here and we are in a cost deflationary environment and that models the dlesure that mud the picture. We have not really been in a position where we are in a cost deflationary era, and we have u. S. Shale. It is a big experiment. Bill i think Central Banks are addicted to low and negative Interest Rates now and are addicted to quantitative easing, so lets call it what it is. How do you cut the addiction how do you move from heroin to methadone in perhaps a normal economy Going Forward . There are two ways. One, to gradually raise Interest Rates and to take your medicine and to hurt the economy now as opposed to hurt it later, which i think they are trying to do in terms of their addiction. The second way is sort of conceptual, but out there in terms of standard deviations. That is to keep on doing what you are doing talking about , Central Banks, the bank of japan as the lead dog here, you basically keep on keeping on by buying up government debt, and ultimately down the road, the central bank basically says to the Fiscal Authority that they do not have to pay any more. That is the longshot way out. Erik that is not a shot, if you will, that you are arguing for, though. Bill no. I would say, come on, lets raise Interest Rates in september by basis points and 25 and six to nine months, lets do it again. Lets realize that capitalism cant really do well, they can survive, but it cant do well with 0 Interest Rates or negative Interest Rates because, as i pointed out, it is an interesting concept, 11 trillion worth of government bonds in negative Interest Rate territory for those that hold them that is not an asset at , all, it is a liability. Nejra you are watching bloomberg best. I am nejra cehic. Later this month the federal , reserve open Market Committee will meet, and fed officials insist they will continue to be data driven in that decision. In an exclusive interview on Bloomberg Television this week, tom keene asked Stanley Fischer how that approach will affect policies in both the shortterm and longterm. Tom can you do one and done our or even two and done, or do you have to go to a measured set of rate increases like we saw a decade ago . Stanley well, the work of the central bank is never done, and i do not think you can say one and done and that is it. We can choose the pace, but if we choose the pace on the basis of data that are coming in so i do not think we know at the time we start whether it is one and done or several. It depends entirely on what is happening in the economy. Tom in your speech, you stated, i am an optimist. You are surrounded by pessimists. We speak to them everyday on Bloomberg Television and bloomberg radio. I want you to redefine markets, the comment in jackson hole of pervasive pessimism is out there. It exists today. How do you push back against that . Stanley what is the pessimism about . Its not about employment. Full employment is very close to employment, it is about growth. And that is largely about productivity growth. That is something which is very hard to control by policymakers. It depends enormously on what private individuals are doing in their comp