Transcripts For BLOOMBERG Bloomberg Go 20160831

Fisher sounded more cautious on tuesday. More voices being added to the flurry. Yields continue to rise today. We have seen the biggest selloff since june in terms of treasury. Alix the yield rally some most since november. Ofaking of the diversion years, Charlie Evans speaking, saying we do not need to hike rates. Eric rosengren saying we can normalize rates. We are nearing our mandates. Federal confusion. Caroline that is going to be our phrase today. Coming up, we will speak about the direction of yields with matthew. Managinggan stanleys director and strategic. He says by the fiveyear the fiveyearbuy treasuries, despite losses. Alix a lot on hold heading into jobs friday. If any action, it will be in the currency market. The dollar is mushy across the board. The pound is higher, moving against the dollar. The yen moving lower. The yen is looking at its first monthly decline versus the dollar since may. Is relative mushiness across the board. Banks doing well in europe. Into the jobsn number. In the bond market, selling. The japanese 30 year, basis points moving two basis points higher on the yield. In sweden, a similar story. Yields moving higher by 1. 5 basis points. That selloffs been in the twoyear treasury note, the most since june 2015. The yield backing up the most november as rate hike expectations rerate. When you still reigns have each president saying Different Things on the same day. How can the market make big bets . Caroline meanwhile the dollar sees a significant rise for the course of this month. We will dig into those moves in the next hour. A look around the world with the bloomberg coverage. We start with our top stories of the day. Our guest is here with the Deutsche Bank merger. Guy johnson is looking at weaker than expected euro area inflation. Doma recess dilma rouseffs pending impeachment. Part of the work we are doing smaller toour banks make it simpler. We want to set Higher Standards for control and be more successful. London. Are joined from the only way we can be profitable is if we wind up merging. He is message was that going to do what he is promising to do, which is to shrink the banks profitability and greatness. We should be talking about possible mergers. Every regulator is saying it needs to be done, that we do need to see fewer banks in the eurozone. This, no one believes merger is going to happen. We should appreciate there is logic behind there and it is. Ifficult for Deutsche Bank we criticize Deutsche Bank for having no way out of this apart from shrinking. Why not think about the good side of a merger if it helps . Alix he says banks need to become Like Tech Companies and less complex. He wants to shrink, but merging and helping under liars is the only way to grow Going Forward. Centralbank policy has put this to the german banks. If the market is shrinking or stagnating, you want to control more of the market, increase market share to resist that better. Mergers would help that. s message about being simpler and being a tech company, it shows there are structural changes happening in their own market of investment banking, outdoor rhythms, these could transform investment banking. He is showing there are bigger forces at work that he has to deal with. Alix the share price is down almost 40 on the year. Thank you. Line, a debate that remains as the ecb is going negative. Caroline maybe the pain will continue. You look at the inflation data, not going to be helping the ecb. Guy johnson joins us. You can link the stories. The bank sector is suffering from the flat yield curves. Push draghi is trying to money into the real economy. Inflation is not happening at this stage. It will pick up next month. Get the new stock projections coming through. It paints a difficult picture for inflation Going Forward. It remains a stagnant, it may pick up a little bit. It is difficult to see it picking up a lot. A little bit by little bit, we are beginning to see the result of brexit. It is starting to paint the picture of a slowdown that is beginning to gather a little bit more momentum. It gives more space for the ecb to stimulate. There will be hints next week. Mario draghi will talk about the idea he has tools available to him. A little bit more duration to it, maybe a little bit more science attached to it. It is more of the same. People are questioning if the bank for the buck story is beginning to run out of steam. Fiscal policy needs to do some of the heavy lifting. Governments need to restructure and reform. Also the difficulty of whether negative rates work. I suspect there are disappointing views on where we are at this time. He has a big fixed income business. Tough to make money when you look at it through a european lens. Thank you very much. That is the key question Going Forward, in terms of where we go from a negative based on perspective. We have had so many different views. Alix structure and reform are the key things. That leads us to brazil. This is the day where the senate will vote on doma recess will vote on Dilma Rousseffs impeachment. What makes it not likely . Not much. The last five days have been tumultuous. The sessione had or 3 00. 2 00 they will reconvene to vote. There are a few more speeches to be made and then they will vote. The overall sense is this will pass with some margin. Alix watching that very closely. Caroline, the markets are soft across the board, but movers are still seeing action. Performance today, i am bringing you one of the key winners of today. It is the new kid on the block when it comes to French Telecoms. Four years they unleashed themselves as a player in france. Today, their numbers are looking strong. About 5. 5 , one of the best performers on the cac. We are seeing profitability climbing and they are winning more customers. , iliad. T betweens talk of merger bank and Deutsche Bank. Through thee gone course of the month, 9 . This is your best month we have. Or the Banking Industry havere going to have to gone through some pain for the rest of the year to finally season green. States, this showing the moves down some 7 . Palo Alto Networks feeling a solid revenue. It is up 41 . First quarter outlet is not looking good. 56 percentis seeing per share. Now, lets get an update on what is making headlines. Donald trump is making a surprise visit to mexico today. The candidate will meet with the president. Will speak on immigration in phoenix. The u. S. Agency meeting the fight against zika virus will run out of money to do so by the middle of next month. The cupboard is bare. It republicans and democrats have not been able to agree on a zika funding measure. Valves she will not try to keep the u. K. In the European Union against voters wishes. There will be no second referendum on brexit. Global news 24 hours a day, s, this is journalist bloomberg. Alix inflation failing to accelerate last month. Economic conditions are deteriorating. What it meansn for mario draghi all ahead of next weeks ecb meeting. This is bloomberg. Caroline this morning we have gotten fresh data out of europe. Accelerate in august, adding to signs of Economic Outlook has deteriorated. Paul, lackluster. A surprise . The energy this is crisis. The important point about inflation, we should not be dazzled by the decline in the energy price. A look at the underlying trend. Theome countries, underlying trends show signs of picking up. In germany, some signs coming through there. Core inflation was not great. Still includes energy. Even though it says it excludes energy, it does not actually excluded. It includes things like airfares, which are influenced by air by energy price. 2, it is ok for now. Inflation is still off target purity gives room for mario draghi to act. I dont think he is going to act. Think even he is going to have overmit additional action and above all that they are doing is not required at the moment. And europe is doing all right. Europe is not a dynamic economy on a good day. It is performing reasonably ok in most parts of the euro empire. Are you surprised at how ok the european economy is doing . It is something most theomists were expecting in aftermath of the referendum result. The point about the divorce between the eu and the u. K. , this is something that is going to affect trend growth in mediumterm growth. We are seeing signs of Economic Impact coming through. Firms are more electric are more reluctant to hire. When they do hire, it is contract work. It is less job desert it is less job security when they hire. Exit from thethe eu, it is a trend growth thing. It was never going to be an august recession. That is putting pressure on the currency as well. Sterling is off by about 11 . At what point do we see the lower sterling feeding in the higher inflation in the u. K. . It is slightly complicated. Generally speaking, currencies do not impact inflation rates in developed countries. A just dont do it. Export prices do not respond. Event like this, which is seen as a structural break, that is something which is starting to lead to changing prices. This is something that will start throwing up the inflation rate september, october. We will get a lot of things coming together. Maybe we get a bit of pressure coming through on the unemployment rate. We see the inflation rate taking up a little bit. Do bear in mind there is another factor on inflation, on the retail price mechanism. Some mortgage cost are coming down. Dragging have been their feet. Does not pass through, what kind of mind does it place mark carney into . Does it placeind mark carney into . It will only have mediumterm implications if he sees it weeding feeding through the wages. The bank of england will look at this and say this is a oneoff shock and we should not overreact on the inflation side. Just one of those things and we will come to the normal reaction in the mediumterm. The bank of england regards most withe consequences, even the sterling move, as being a deflationary force. Caroline we will talk about inflation in a moment. , alex, we haves plenty coming up. Alix the fed will not hike in september. Morgan stanley managing director with more on that and why he says buy five year treasuries. This is bloomberg. Alix Federal Reserve confusion reigns. In beijing, charles evan says delay hikes while says the fed is nearing its dual mandate. At the heart of the debate is inflation shy of a 2 target. U. S. Donovan says inflationary pressures have been building. As cpi is atn rate or above its average twentyyear high. How much should the said the how much should the fed be hiking . Forecastnot my job to what they are doing, but what they are doing. When we look at inflation, we should be looking at the broad measures. There is a difference between one price for what one price falling and lots of prices falling. Lots of prices rising tells me something is going on in the economy. It is building inflation pressures. All of these indicators are at or above their twentyyear averages. We have a normal inflation environment. No one would describe the policy as being normal. It feels like the problem is the inflation targets. I have charted the u. S. Cpi versus the fiveyear forward break even. No matter how much prices are starting to rise, inflation prices are embedded at the heart of it. If you think it makes any difference in the real world. They do not. Markets are useless at predicting inflation. Thannly group worst predicting our consumers. Ouronly group you can trust economists. What you have is a situation where the expectation is always wrong. Why should the feds care about going totor if it is be wrong . It needs to care. They dont seem to be doing that. I dont think this Inflation Expectation is something we need to be concerned about. The fed seems to 10 seems policies. Out other what will reign in any decision . At thefed is divided moment. And away we have not seen since the early years of voelker. Laborve janet yellen as a market economist. They are all looking at. Ifferent things and are cobbling together this Patchwork Quilt of a narrative, lets take a little bit of the dollar and we are slightly worried about the aftermath and keep an eye on the labor markets. It is getting a shaky consensus about where they are going to be going. Raising rates. Be move tod to continue to a normalized policy. Certainly with a rate hike this year and a couple next year. We have been discussing all of the ramifications of european and u. S. Data. Coming up, a stock route slashing more than 2 billion in bank bonuses as firms struggle to turn a profit. Plus, matthew worn back on his hornb call matthew ack on his latest call to treasuries. This is bloomberg. Is bloomberg. Here is what you need to know. Deutsche bank is shooting down a german media report that it can uttered merging with another bank. Are actually looking to shrink. Has been cutting thousands of jobs. Goldman sachs is said to have lost out on a real estate deal because of a disagree and on terms. Goldman was the winner of a parcel put up for sale by a Swedish Pension manager. They could not agree on final terms. Property was sold to blackstone group. Donald trump is making a surprise trip to mexico. He will be back in the u. S. Described he has as racist. Caroline stoxx 600, what is leaving the charge. Keep an eye on some of the key terms. All being tugged lower because of the potential rate hike to come. Dax is underperforming. Up, beingide, cac 40 helped by French Telecom numbers. Lets look at what is coming up in terms of the fx market in terms of treasuries as well. Percentage point. Overall, a story of whether we have taken too much optimism surrounding the opec meeting next month. Gold futures flat. Of the feeling the pain fed hike. The dollar rally, the biggest we have seen since the likes of may. U. S. Yields continue to sell off. Yields climbing. We have seen u. S. Treasurys, the biggest month selloff since june 2015. We will be digging in more to the yield story later. Alix the 10 year yield, 1. 5, one point expert percent. That was the trading range. Not a lot of movement despite headlines. Morgan stanley is bullish, saying the 10 year yield will go down to 1 . It depends on how you read the tea leaves. Have more people coming out maybe showing they are not convinced on fishers bullishness when it comes to a hawkish hike coming from the fed. Alix negative rates have proven to be controversial. Betweens debate policymakers and business executives. We have heard from two leaders on both sides. Lessday, we are a lot profitable. Environmentlow rate is proving a headache for almost all european banks. The Central Banks, which are thinkenting them, they they are successful. They have said perhaps they will come back to try to make negative rates work better. Alix it feels like this is the academia of rates of negative rates. Tom that is the smartest video set i have seen on this debate. John cryan has to worry about payroll, nonprofitability versus one of the frontline academics. They are in two different universes. Alix negative rates work well for equity prices. It is harder for savers. That is not their job. Tom you are right. Mostis important here, econn academics, even in 10 one, finance and profitability is like chapter 23 and you dont get to a because you have to worry about spring break or whatever. You remember that in school. Never get to chapter 23. That was in the jackson hole tapers, which were removed and dealings from the financial ramifications of what made the good economic series. Are in two separate worlds. Alix in reality they are not. There is a lack of profitability that feeds through to ability to loan. Tom mario draghi is not worried about the many reasons the many reasons the mini reasons. One of those reasons is the distortion we are living in now. Wants to do away with a zero balance. Its an interesting theory. Throughout the papers i have read, there is minimal on the Financial System and banks and how john cryan or james dimon interestnegative rates. Alex is a german bank is charging their depositors their borrowers on deposits now. Rbs is charging more for collateral trades. It is starting to trickle through. At what point do we say hold on, let me think about this . At the end of fishers speech, he cites the only game in town. The only game in town is corporations are subsidizing the deposits to smaller accounts, to retail. That is what is going on in germany. Alix as profitability shrinks, how much more can they do that . Can. I will sell my i go back to the endurance the ignorance over profitability as part of the economic system. Alix there is a filter through, in terms of what it means for those employed at european banks. Bankers ares eating a 2. 5 2. 5 are seeing a bonus at the end of the day. Caroline that is what regulators wanted. , with a view line of where the bank is going. If your share price plummets, your bonuses are going to plummet as well, when youre being paid in kind, when youre being paid in shares. Grace, really a saving you are seeing your bonuses shrink because of that that is price. To the stock some of the regulation has helped you because you have cap bonuses. People have more bonuses in cash. Tom we can go backandforth on this. This is a januaryfebruary conversation. I was just this is fabulous news for the boutique banks. My take is global wall street is exhausted by a threeyear wait on bonuses, they are exhausted about the debate, and there is an understanding that the best people of every firm, they are not having this debate. They are getting compensated. Alix i love chatting with you. We dont do this often enough. Tom keene of surveillance radio. Radion for surveillance with tom keene and michael mckee. Caroline we are digging into the great debate of the fed. Will it raise rates during their september meeting . Something jackson hole set the stage for a hike. Morgan stanley says no. Joining us from Morgan Stanley is matthew hornbach. Fed inig into the september. Do you see any sort of payroll number, the number coming out on friday that will change your opinion on whether the fed hikes . View is that the labor market is fine. The fed participants believe that. A strong number could increase the market implied probabilities of a rate hike in september. Fed is going to look through that and focus on Inflation Numbers. Those have been disappointing. Not only in the United States, canalso outside, where you see Inflation Numbers disappointed in europe and last week they disappointed in japan. There is a global disinflation or a trend we think the fed is not going to be able to ignore in september. Caroline are you looking at the data when you anticipate a fed hike . It is difficult to read the views coming from the different members. They all seem to Say Something different. At the data. O look this is what we heard from stanley fischer, that the fed is going to be data dependent. We are looking at the data like the Federal Reserves. We think the fed will focus on the inflation data as they come together around the table in september. Alix you have a call of buy fiveyear treasuries. Can yields actually go in that kind of environment, when Foreign Investors come in . Yields can go low if yields elsewhere are equally as low area that is what we are seeing outside the united dates. The last time treasury sat at these yield measures, these your levels, japanese yen was 100 points higher. We investors reaching for yield everywhere we look. Fiveyear treasuries sitting around one. 2 , we think there is plenty of room for those yields to fall as we move forward into the end of the year. Alex is what happens when you wind up hedging that risk . Look in general at what we are seeing, the more you hedge, it is eroding yield big as the hedge is alex henson and there is demand for dollars. Does that put positive thesis . They would be lucky to have that choice. We are talking about an they knowt where longer have that choice. A year ago, an Insurance Company gbuld choose between buying j at the longer end of the yield curve or they could buy a treasury and hedge of the currency risk. That choice does not exist today as it did a year ago. Choices are more limited. We dont think the increase in currency hedging costs. Caroline what do you advise a shortterm investor . We see yields backing up over the course of this month. What do you do in those periods of volatility . You have to pick your spots. A payroll number of coming on friday. That presents a risk. , yields willng probably back up on the prints. We think that is a great opportunity to buy. States, outside the United States, the notationary environment is interest to high rates, even in the United States. Is not conducive to higher Interest Rates, even in the United States. Heading andhis oil where can you make money in the Energy Market . We break it down. Caroline mrs. Bloomberg. You are looking atcaroline the hewlettpackard enterprise green room. Jim mcdonald on the program, coming up. Here is your business flash. Are watchingnkers bonuses shrink. Stocks have plunged this year. Deferred shares were paid as bonuses in the past few years. Among the biggest losers, bankers at credit suisse. Jetblue makes history today. The airline is making its first commercial flight between the u. S. And cuba and more than half a century. It aligns now make about 300 flights a week to the island. In the past, people traveling from the u. S. To cuba had to use charter flights. Awarded 22has been million for being a whistleblower. He was paid for tipping off improper accounting. Businessour bloomberg flash. German tenyear bund yields are set to end their third consecutive month below zero. The country struggles to form a government. This is been played out in the spread. Look at the terminal. This is spanish 10 year versus german. Or thebuy the yield spread . Still with us, matthew hornbach. Kind ofyou do with that spread . Do you buy it or say there is too much risk. We think yields are going to remain low. A lot of investors facing this choice as to whether or not to buy do not have as much choice as they think they do. Our view is yields will remain low in germany. At some point later this year, the ecb is going to end up announcing an extension to their purchasing program, taking purchases through the Third Quarter of 2017 and we do not think investors will have much choice. Buy. Re supposed to at you pick your spots. The upcoming meeting is one of those spots we think presents an opportunity to buy bonds. Alix which monti by . Buy . Ich bonds do you and there is not a tremendous amount of value in Government Bond markets. Most strategists will tell you that. People are going to primarily come to the United States to buy Government Debt here. A lot of investors arent facing that choice. We are focused on buying u. S. Treasuries and u. K. Gilts. Give us a sense of liquidity. It is something of ongoing concern around investment banks scaling back in terms of the markets. Where do we go in terms of liquidity . Bond markets are liquid. There are various ways of measuring liquidity. With the advent of highfrequency traders coming online over the course of the past couple of decades, Government Bond liquidity is fine. We are not concerned about bond liquidity. We think investor should not necessarily focused too much on that in the sovereign space. Caroline why your u. K. Gilt call . Anticipate another rate cut coming from the bank of england. Our chief economist is expecting the bank of england to cut rates forward. Marginally, but more importantly, for the 10 year , he is expecting the bank of england to announce an extension to the tui program. With the bank of england continuing to buy and likely to continue to buy into 2017, gilt yield could continue to climb and at 1 in the First Quarter of 2017. Alix thank you. Hornbach. Great to get your perspective. Weighing in on the negative rate debate. 11 trillion dollars of bonds, not assets, they are liabilities. Pricethat into your asset objectives. Always fighting words from bill gross. The dog coming up, days of summer. This past month, we saw a low volatility and not a lot of Movement Across as the classes. Should you buy the risk . Alix mrs. Bloomberg. It was a sleepy august. The neat the headlines, a lot of moves. We are going to start off with u. S. Stocks. A slight rotation into Tech Companies out of Consumer Staples. This white line is s p Tech Companies, the blue line staples. We start to see a rotation out of the safety and into the more risk on asset like tech. Someng to the fx market, very big moves in dollaryen. In particular, this track, the premium on contracts this is going to be twoyear yields. This is what we saw in the twoyear yield market. I want to highlight what we saw in august. It was a huge year up. The biggest pop since november. The highest level for absolute price since november 2015. The big story was the fed rerating height expectations here. Turning to the fx markets, this is a premium on contracts to buy theyen in a month versus dollar. Anything below the zero level here and you will be paying a high premium to buy that yen. Anything above zero and the premium disappears. In august, we saw the premium disappear. The First Time Since november of last year. That is because we saw the stronger dollar start to rerate. We did see dollaryen hit 99. Since that, it has been a climb forward any drawback on the yen. Is oil. Asset class it went from a bull to a bear market in three weeks. Isust 8, august 11, that when we saw the saudis, other countries come out saying they could consider some kind of freeze in the market that led oil to spike a lot. We saw a lot of money coming in to oil etfs as well. On take to absorb the most money, almost 1 billion in august. And unbelievable move into the oil and commodity market. This pins on the rerating of fat hike expectations. If you look at december versus september rate hikes, this is the probability of a hike in september, the blue line is a hike in december. The september probability moved above december and has since all in below that. This led a lot of the moves we saw in the last few days. Phenomenal moves. Particularly in oil. Amazing stuff. Coming up, the ceo of germanys largest lender, john cryan shooting down a merger report. That is ahead. This is bloomberg. Under pressure, the c. E. O. Of is shootinglender own a report, looks to downsize downsize. More than 2 billion in bank touses as firms struggle turn a profit. An immigration push. Donald trump heads south of the a private meeting with mexicos president , the makeday as hes slated to an immigration speech in arizona. A very happy wednesday to you all. Second hour of bloomberg go. New york city. New york city im it is pause in the market. The best way i can describe it, friday. Nto jobs caroline we hear from evan, rosen grin. Officials coming out and saying Different Things. How to read these teams the division we see among them. Hold. King a deeper warning of the risks of this. Who do we listen to . That hawkish tone, scaled back a bit. We listen to the data. The officials are saying and all of that beating the drums to jobs friday. This is our a. D. P. Number a little later. Up, jim mcdonald Northern Trust chief investment strategist says stocks near highs and low yields could be bad news for both investors. And pause all across the market. Thats what were seeing ahead of jobs friday. See any kind of movement, most likely it will be in the u. S. Dollar, but the u. S. Dollar a little mushy across the board. Rubal all the un, the moving higher against the dollar. Youre seeing dollar yen, 103. 25. The yen is seeing its biggest monthly decline against the dollar in five months. A big movement to watch as we end of august. Theurope softness across board, and youre seeing bond china, fiveyear. 30year yield in japan up by five basis points here. Brent had a big slide in the hour. Now off by 1 . Nigeria oil could be returning maybe the market thought. So that outlier commodity making move. Great rundown. Thank you. Over the next hour well go for teame world coverage, reporting from berlin all the way to mexico city. But we start with our top stories of the day. Here in london with the latest on the potential Deutsche Bank merger. Also here in london, guy johnson is looking at weaker than euro area inflation. Its kick it off with the Deutsche Bank news. Shooting down talk of merger with rival Commerce Bank in frankfurt. He said, he had a right to see shrink. Actually part of the work were doing is to make our banks a bit smaller in order to make it a simpler. In order we want to set Higher Standards for control, but we also want to be more successful. Investment reporter joining us from london. This news, this report coming from a german magazine, was it news . Yes. It certainly was. And it comes on the back of a difficult summer. Weve seen european banking shares in particular coming a lot of pressure. Weeks. E last couple great deal of focus on just how manage togoing to restructure in these very market conditions. Theres a lot of focus on whether this is indeed something the might have been on table at some stage as a means to grapple with these longterm difficulties that the banks have. Certainly there still seems to be cause for consolidation in german banking market. The c. E. O. Of Commerce Bank saying that. Heyre theres a lot of competition germany. And they have seen the low margins. Consolidation needs being crossborder not just within germany. Out, the sense that this should involve more of the larger players, not the players. The larger the banks become, the regulators have to set aside, and this is what Deutsche Bank is up against at build up those capital buffers. Its hard to see what a kind would of this solve in the immediate term. Great to have your take. Thank you very much. Finance and investing reporter. August, andday of we have a stock reporter joining us on that. To me the standout was in stock. The sector rotation we started to see. Into tech,inancials into semis and out of those defensive names. I think youre right. Overall this is a pretty back and forth market with a little bit of volatility. In terms of going up, going down, really at the end of the going nowhere. As long as we close above 21. 73, thel be in the green for month, sixth straight month of gains. Rotation is about that where you saw some of the most outrite stocks kind of fall of favor among investors and more money move into some of the cyclical groups. Utils all those sectors we keep talking about. A shift in terms of economic supporting thats an important distinction. Pretty high valuations and in a lot of the defensive sectors. Some sort of surprise where people want to pull money out of the market, there is air to be left out of those sectors. Interesting to see if the shift is slow and happens over time or if there will be some sort of demand for that bond replacement over the next six months. You raise a point, the ubs morning, if you still see weakness, but also semis and financials running a little too hard and fast. Does that make the combination pullback. Thats one thing you have to consider when you have this type quickly its, how occurring. Some of the Technology Companies. Financials are in quite a bit of a tear. Tech did good on the back of earnings where you had surprises fundamental investors, year over year earnings contractors last quarter was pretty bad. Important to keep in mind about why these groups are rallying. At the end of the day i think theres a lot of case to be made some of the sectors in the s p, really almost every sector now. Stockswothirds of the in the s p 500 have had a bare months. Ver the past 18 when youre looking for the type of correction, the type of some degreetock, to some might have already happened. Good to see you oliver. Head into september with the fed rate hike potentially on the table as well as. Big question mark to positioning here in u. S. Stocks. The only central bank, because we have next week the e. C. B. And some recent inflation data, data. Oyment guy johnson is here to explain. Notts a big under lets get too excited about this. Sort of cumulatively, the data are beginning to point to the idea there is some sort of a slowdown beginning to reemerge. Plotting along and delivering numbers. So postbrexit, we are maybe impact being felt. Very early stages. Small. Es are relatively euros picture is not great at the moment. Probably comes a little bit too late, but nevertheless, its likely they will point to the idea more stimulus is going to be required. We are cumulatively just getting effect. The commission putting out confidence data yesterday. That little hit coming through. Apocalyptic as some may have suggested my happen postbrexit. But maybe does require further action. Germany. Still up on the euro trading a little low. Unitedting proves the kingdom. Brexit inching away at euros own growth. The board what was on at the top. The pound is up today. Maybe a little bit of market in there, maybe some postjackson hole shorts being bit. Nd a little but we have seen g. S. K. Data consumers maybe bounce back a bit from the brexit. The aggregate data still points this kind of bit by bit, small, incremental changes coming through. The consumers to a certain extent will be late to show this hit coming through, as we start supply chains. The buyers have already bought christmas. Stuff thats going to be in the shops is done. Thats when the effect will come through. Other data, and paul was pointing to this, is starting to show, just a little effect. But maybe little by little well start to get a better picture of happening. Maybe shortterm contracts a little less stable. Guy johnson as ever, great to have his take on all the data europe. Ut of i know you have some movers and shakers on the stock market. A gain in eking august. We have a lot of red in individual names. Palo alto which is a Cyber Security firm. Ismet estimates but guidance weak. It sees only 0. 51 0. 53 a share quarter. Another stock on the downside, missing First Quarter earnings estimates. The third earning miss in the last four quarters. Revenue falling short by about 5 . Company playing down that myth. Gs per shares earnings myth, nevertheless drawing the stocks down in the market. That goes from bad to worse. Delaying its 10k filing at the the issue for vestial celestialio concessions are distributors in the correct period. This supplies a lot of organic supplies and products to whole foods and is coming under pressure and reevaluating its reporting controls. It continues to hurt on this stock. Now lets get a look on headlines outside the business world. Salamat is here with news. World expected to result in recess outside. Brazil began impeachment in december every accounting tricks to hide the science of the budget deficit. Donald trump has called mexicans rapists and threatened to build a wall over the border. Today he meets with the president there. Meet with both trump and hillary clinton. Later trump lays out his latest plan on immigration. Japans Defense Ministry is seeking a record budget for the year. Iscal japan facing increasing pressure from china over disputed islands the east china sea. Antilauncho develop shipment styles. They have boosted military spending. News 24 hours a day. This is bloomberg. Thank you very much. Theng up, well break latest adp numbers as investors fridays big u. S. Jobs report. What will the magic number be to the fed move on rates be . This is bloomberg. This is bloomberg go,. Overall,e trading, softness accord the board. Fortrying to eke out a gain august. Weakerlittle bit of a dollar. Not a lot of positions being friday excepts for dollar yen. 103. 32. A. D. P. Employment adding about 177,000 jobs in august. Estimatedtter than coming at 177,000 jobs for august. I should point out also that up to 194,000,d so if this is any indication of expect on friday, this points to again, a solid picture here in the u. S. Almost 200,000 jobs according to in july. Ded 177,000 jobs added in august. But notlooks solid, massive millions reactions. Year yields in u. S. Still staying one basis point higher. Still towards movement weve seen this month. Bonds have had the worst month since june 2015. We have the dollar up, gaining this month as well. This year. Nce may of still the u. S. , kenya holding onto those gains. We have a strong a. D. P. Number a big market reaction. Us. D with a. D. P. Number. What about fridays number . A fedill it take to see hike come september . The first thing to keep in little theres always a difference between the a. D. P. And the official b. L. S. Number. I dont think we should put the the horse and assume fridays number is going to thessarily be in line with a. D. P. You would need to see something over 200,000 to get the fed moving in september. This is a cautious federal fedel reserve. Part of what keeps me on the for a september hike is the market doesnt believe that this is what the fed is going to do. As long as they believe that, i think the fed will kind of stay in their corner a bit nervous, ready to come out swinging with an Interest Rate hike. I dont think this is a fed necessarily there yet. I think they want to see some confirmation growth is picking up in the Third Quarter after a difficult first half of the year. Seeing a slight move higher in the dollar after those numbers. Becomes about the negative feedback loop. What we saw last august, and , the dollar winds up moving higher. Tighteningdoes the for the fed, and they no longer need to hike and they sit back. The market not believing the fed. How do we get out of that . Term, we think about Monetary Policy in a more complete construct. Things like the dollar, conditions, in addition to inflation and employment. For the purposes of the rest of i think youre going to see some Dollar Strength. Think it could get exacerbated by other bank moves september october. I think this is a fed thats wants to hike rates and i think december go in assuming the data doesnt deteriorate. Although we will likely see some volatility around december, i dont think it will be quite as what we saw earlier this year. This is a fed which is toerstanding they need telegraph things specifically in order for the market to be comfortable with their conditions. What im hearing three or four months more of federal confusion. And then therket, fed doesnt do anything to begin with. Typical. That mixo see within what the e. C. B. Does. Do they add to stimulus. B. O. J. , when they come out, september moves. Banks to focus in on how are reacting. We know its a difficult mix for the banks in terms of negative rates in the e. C. B. We heard from one key chief, Deutsche Bank talking about consolidation on the back end. Itgermany in particular, hasnt gone through that wave of consolidation that very recently spain has. I think italy seems to be moving in that direction. France has been threw it. U. K. Is getting in the other way. Spinning off some banks from some of the big banks. Within germany there are, in my view, just too many banks. David, is this actually what e. C. B. , the b. O. J. Want, they want to see consolidations . Is a isnk Europe Special case. I think is a special case. Is european economy overbanked. Some consolidation amongst these big players would be kind of a good thing. In terms of the way people were looking at energy in the high yield market. European financials are 20 of index. A European Equity 234 thats caused the sell weve seen this year. Inn you think of energy 2015, high yield drove the selloff. The question isnt necessarily see consolidation. I think we will see consolidation Going Forward. I think what we need to ask is there opportunity being created. Stocks and bonds both look expensive. Globally are a source of value. The one part of the market that still looks really cheap. An indication that some m and a is coming down the road and can investors benefit from it. Rallying fornks two days. Does the kind of rotation continue . Rotation from a more defensive posture towards a more cyclical posture is dependent on what happens in the global economy. Cyclicles do well when the curve is steepening and when inflation bottom. F the theres uncertainty following brexit. Were not sure if europe is on same track as last year, but i think youre seeing policyions that monetary may not be able to do a ton more. Going to take a bigger role, that means more Government Spending higher taxes. A more optimistic outlook over all for the global economy. Trade has some staying power probably. Also they look cheap. So you get Value Investors playing that game as well. David at j. P. Morgan. Us im pleased to say. And coming up, donald trump border for af the private meeting with mexicos president as he looks to shake the president ial race in a big immigration push. We head to washington next. This is bloomberg. This is bloomberg go. Republican president ial nominee heads to mexico just hours before his highly policyated immigration speech. For more were joined by the Senior Executive governor of economics from washington. Weve heard donald trump talk about a wall for what feels like years. What prompted this particular trip at this time . Think hes trying to set up his clarifying speech tonight at eastern time on immigration. And this puts him back in the headlines. So he is trying to create real to attracts attempt more College Educated voters than hes doing now. Trumps Campaign Manager on hismberg television said proposals would still include wall, and no amnesty. So what would that look like mr. Trump and president Enrique Pena Nieto. That is the curious thing about this meeting. Risks on both sides, actually. Enrique pena nieto has a ratings, thisval trip is not going down well in mexico. Trump, he has maintained that he is going to continue proposals,oversial and just how that conversation is going to go would be fascinating. Course, we dont know meeting. Ts a private recently i spoke to mexicos finance minister and asked how play out. Ing to she said theyre taking the case directly to congress, to matter whoaders, no gets the white house, still do business with us in mexico. To that point, meetings between two officials, if donald trump was to get the white house in november, actually make a difference . Well, its possible. Its certainly never harmful to become familiar with your corresponding leader in your partner. Rtant trading so it could have a beneficial effect. Happens, just what because it could also be a trap for donald trump if Enrique Pena Nieto starts chastising him for his positions. Fascinating, sort of building the drum beat into his speech in phoenix later today. Thank you marty, Senior Executive governor of economics in washington. Coming up, well be talking oil. Senseggest monthly game april. Where its all heading and where can you make money. Thats ahead. This is bloomberg. Alix this is bloomberg. The s p 500 is trying to eat out at again for august. The Deutsche Bank ceo shot down any merger rumors saying that he says the bank needs to actually get smaller. There were reports that Deutsche Bank could buy commerzbank. Said longerterm, it for the german bank. Interactive intelligence is getting a bit with 60. 50 per share. They both provide software and services to call centers. Bob evans is a country restaurant chain and its raising its fullyear forecast by a nickel. Comps sales in august were down just 2 which was better than many had suspected and consoles bythe last quarter were down 4. 3 . It was their sixth straight Quarterly Earnings beat within the space. That stock is up in premarket as well. it seems as if we are holding on to gains in the stoxx 600. Deutsche bank has popped up. The ftse is under as miners are feeling the pain. The dax is slightly down. Cac40 was up. Up strike ere slightly stronger than expected. Said lookout for 1 on your yield handle. Is down 1. 3 but it had a stellar month in terms of a rally and gold futures are down 1 . 10 of morning meeting where we hear from key banks and what they are looking at. Emerging markets had their longest winning streak in three months on speculation that the fed will keep rates low. Will this rally continue . We believe it will, to be honest. We are now discussing once again high ende around the no institutional policy. On the viewamant that yes, there will be further there will be fed policy affecting this. That shows an underlying bid. We go back to 2014 and we know this sub asset class was struggling with very depressed valuations. There will be a little bit of em equities and bonds the assumption materializing which is the mobilization of policy coming out of the states. Caroline lets talk about your affects strategy. Currency hold on to gains have seen. Repricing ofng a u. S. Rates. We are now looking at the probability of a fed height before the end of the year. Positiveot necessarily but if you look around across the area of assets for emerging will probably be more volatile as we reprice. Once we are there, it will be difficult to take the next step which is thatey hike in december, is this next step for the markets to take. Wellould trade relatively where the court term premium is is notend inflation giving a lot of indication that it will rise anytime soon. Caroline i want to focus on the fx market. World collar currency ranking and look how much the brazilian real has outperformed, 22 higher. We get gdp numbers today, down minus point 02 . We are likely to see a new president. Is brazil still abuy . We believe there is still an opportunity both from fx and other perspectives. [indiscernible] impeachment is likely to happen. The government needs to pull a rabbit out of the hat. We should look into the fiscal story and the growth story. Growth is telling you that its going to be difficult to see a vshaped recovery in the brazilian economy in the next quarter. The fixed income requirement, we are dealing with Interest Rates. Its not e something you see in many liquidm markets anymore. I believe the international flows will be biased toward the real assets in general. 14. 25 is where the rates are and is likely to stay flat in brazil. Thank you very much. Also take a look at oil heading for its biggest monthly gain since april ahead of the opec talks next month. Joined bloomberg surveillance earlier with what he expects out of that meeting. I think opec as close to capacity. We dont see much increase there. Iraq is gone back to where its been. Not much under increase and saudi arabia is a hair under 11 Million Barrels per day. Joining us now is the Asset Management partner and portfolio manager. Thinking he is saying there is no freeze because they are in fact frozen. I think thats true. If you think about the mid80s, they were at 26 of capacity but today its 4 . There really is not a lot of room for them to really crank production up. Shortfall, we have a there is not a lot of oil left in the market . Absolutely, people forget this is a depleting asset. There have been 300 70 billion of crude oil projects that have been canceled globally. That will come back to want us at some point. A greatoomberg news had oil that talked about oral discovery which is at the lowest level since 1947. Said they could not replace the oil they took out of the ground for the first time in 22 years. When does that start to create a supply crunch . The good news is, the u. S. Is now the swing producer and with shale and the ability for u. S. Producers to turn that on and off fairly quickly, there is some room and some cushion. This will come back and heard us sometime in 2017 2018 if producers are not able to start ramping up production. Alix do we see that reflected in the cost curve yet . Next year, maybe 50 for oil . I think the cost curve will be dependent on the producers. Some are significantly lower than that. Is key we have to look for where are these guys . We are starting to see some oil rigs come back. At one point is the supply demand ratio going to be off . Inventories are very high. Oil is weighing on crude and how we saw it moved from 51 in early june to 39 at the beginning of august. We need to see 55 for these producers to bring crude production back on and keep it back on. Thats the one thing that will help us avoid a supply crunch. A macro risk advisor was against big oil and he said they will have to cut their dividend and make a decision between debt and and have no choice. Do you see that future for big oil . Dont, there was a time maybe nine months ago that a lot of companies are facing the decision about yield or growth. A depleting asset, the company in order for them to survive, they have to grow. The Big Companies like exxon and chevron, they are comfortable with the yields of they are paying out. , onemaller producers hundred 42 brag bankruptcies over the last few years and those that have struggled have gone by the wayside. The rest have shored up their Balance Sheets and done it not to sacrifice growth. Of the we are coming out trough and companies are in a good position. Those that needed to cut have done it and we are moving forward. Alix what is the best value in the Energy Market now . The best place we believe to play is in the midstream space. Is a Service Space business. You dont need to have crude oil moved to 60. We have all these new supplies neede United States so we 600 billion dollars in Energy Infrastructure built over the next few decades. We talk about oil but natural gas is the cleanburning full of fuel of the future. We need infrastructure for natural gas of the mr. And companies will be the ones that will build that. Mlp etf. There was a huge runup earlier but then it did not really recover after the selloff from february. They are concerned that Oil Companies will have to reshape their contracts Going Forward because they will not be turning out supplies like they used to. How do you factor that in . There was fear about contract renegotiation and rejection. Ss we sit here now, the mlp and Energy Infrastructure contracts have been deemed critical contractors. Theyes not matter how much find it, if they cannot move it paid. Ket, they do not get the nominal fees they get paid to move these assets as critic is critical to their business. We have seen one country be rejected and the rest of been renegotiated net present value positive or neutral at worst. Its really a fear that got a lot of headlines but i dont think have a lot of impact on most of the companies. Great to talk to you, thank you for joining us. An interesting conversation so where do you find value in energy . you shine when you talk about oil. Thank you very much. The eu as the days of a safe haven are coming to an end. This is bloomberg. Caroline you are looking at the hewlettpackard enterprise room and coming up, jim mcdonald chief ingest chief investment strategist. Here is your Bloomberg Business flash. Auto sales may have fallen for the first time this month in seven years. Numbers come out and they may show an annual sales figure of 7 ,illion cars and light trucks down almost 80 million in july. Automakers scale back discounts and apparently decided not to chase sales at any cause. Jetblue makes history of the airline is making the first commercial flight beat the u. S. And cuba in more than half a century. Will fly from Fort Lauderdale to santa clara in cuba and Airlines Make about 300 flight week to and from the island. People traveling from the u. S. To cuba in the past used expensive charter flights. Budget Airline Ryanair may reduce its profits. The concern is that ticket prices will keep falling. They said the fares are down 9 which was more than expected. Thank you very much. Out of south africa, the rand is lower this is on the back of future growth Asset Management. This is your biggest private. Ixed income money manager in the whole of the content they will no longer be lending money to six of south of south africas Estate Companies because they say there is government infighting and there are threats to independence. This surrounds the finance minister who is looking to potentially be sidelined by the president of south africa. Plenty of government from oil going on and we will speak exclusively to the leader of future growth Asset Management coming up. The asset manager will join us to talk through why they are no longer going to be offering debt to south africas just state run companies. Lets talk technology. Day of the eu being a tax haven are coming to the end. Sent tongest signal was ireland. They want apple to pay 14. 5 billion in back taxes. We got the number yesterday so what happens next and what are the repercussions for ireland and other havens when it comes to deals from u. S. Tech giants . What we are seeing is the second day effects in the government has been thrown into confusion. The government was going to meet today and decide to probably appeal. What we are hearing is a little bit of standing within the ranks. Ireland questioning why should support the Richest Company in the world. They may put off financing for a couple of days. I expect the appeal to go ahead but it could be messy for the next week or so. We have seen ireland and apple talking tough. Can you give us a sense of the damage that can be done in terms of the pr to the tech giants in the United States . Ceo ofs speaking to the fitbit today who is in ireland because they are opening a new office. He was adamant that this would not affect the ireland corporate reputation. Argument that executives in the u. S. Are smart enough to look through the headlines and that a. 5 t Corporate Tax threat is not under any threat. There are so many core headlines in the u. S. Its got to be tough. One ceo says this will not affect that 0. 5 rate. You mentioned fitbit not being dissuaded but there are other u. S. Companies that could have the repercussions. Possibly but we should be clear that there is no other investigation going on. Now, it does not seem to be a contagion effect. The 12 point 5 is clear and they say they will appeal this and go forward. Caroline thank you. Up, it is new york versus london and i will take on Ryan Chilcote in the battle of the charts. This is bloomberg. Caroline this is bloomberg. Lets check on the markets. We have an hour or so to the close in europe. We are led high by banks and insurance companies. This is the best month for the banking index. Since february, 2015 on the downside is the miners. The dax is underperforming as well. The cac is led by the telecom companies. The u. S. Treasury yield remains higher today. Off the adp number. Look out for the ram, look how much the dollar is surging against the South African rand. A fixed income money manager says they are no longer lending money to the sixth biggest state run companies in south africa because of governance concerns. The finance minister is looking to be ousted. Lets switch our attention to the battle of the charts. Alix steel is taking on Ryan Chilcote. Ladies first, i believe. Im looking at the rotation we have seen in the u. S. Market. This comes to us from ned davis research, its high data etf versus the quality etf ratio. As the ratio moves higher, that means a beta is starting to outperform versus quality. What we saw in the beginning of the year was an outperformance of quality. There was a lot of volatility in february but its getting higher and the ratio has been going that way and now you see an outperformance of data over the safety trade. Its important because bc across the market. Financials are leading the way and technology and Consumer Staples coming off a little bit. Rotation or is this something more substantial . Ubs said of you have a rally in financials and tack a but they ares nd tech, is that equal a pullback into september . Great charge. Its your second timeout, give us a sense of what you are looking at . Ryan i have been looking at the milk market. This is the European Union and its market share which has been declining. They are the champions on the comes to milk consumption market share but this year, theyre projected to come in with 26. 2 of the market. India is the challenger and they are projected to come in at 26. 1 . We drink morenk milk in the United States but its the laggard, around 16 . No surprise that india is catching up. There are about half a billion people in the eu and three times that in india. This is not a per capita chart so in total figures, they are getting richer. What is surprising is they are drinking the same amount of note in the eu and the u. S. But they are losing market share and the reason they are not drinking milk. They are trading almond milk and others. This has supported the milk market. Up 58 overk prices 15 years versus the s p 500. Milkine i love the soya so this is tough. Today, i am a risk lady and i love what alex pulled out of the bag. Come back to us and give us your best tomorrow. Ryan maybe monday. Caroline stay with bloomberg. Alix we are 30 minutes from the opening bell in new york. This is bloomberg. The s p 500 is trying desperately to eke out again but is not helped by the federal confusion we are still getting today. So much we are getting divisions bitterly between fed statement leaders. Gott a hawkish tone you from fisher today . We are getting mixed messages and yields are putting up higher. Since june 2015 for u. S. Treasuries. , who knowskashkari what the fed will do . When will get an investor is taken what to watch for on the friday job number in their view on u. S. Stocks. Jim mcdonald is from Northern Trust and jonathan galona will be joining us to look at the relationship between these low bond yields we have seen and the record highs in the s p. Caroline lets look at that you can see how Asset Classes are moving in tandem. Dax ohseeing the german up by 0. 25 . The miners and metals are pushing lower. Russia is an underperform as well. On the a close eye dollar, we have seen Dollar Strength today. The japanese yen is down as well as the brazilian real. De la rue seven is stepping aside. In brent, it has been a month of rallies for oil but is being capped off 1. 2 today. The report is coming for u. S. Crude Oil Stockpiles increasing at 142,000 barrels last week playing into concerns about a supply glut. The commodity indexes being dragged lower as well as gold going down. Focusing in on yields, we have the adp number signaling strength. Will there be a rate hike in september . Is downear yield currently by a basis points but overall its been a selloff in yields. We have seen a selloff in u. S. Treasuries since, the worst since june of 2015. Of stocks are on the down mood today. Palo alto is one of them, a cyber securities firm, down as much as 6 . Guidance was weaken the company should make 50 share in the quarter and getting a downgrade at raymond james. H r block is having a different a difficult day. They have their third earnings missed in the last four quarters of the company says the tax businesses cyclical. Its down by over 5 . On the upside, lets look at chicos, . 25 per share which was a beat on earnings but their samestore sales are weaker. The comps fell 1. 3 . The chico brand the president is on a new one. Well toet is responding the samestore sales and earnings numbers but samestore sales for overall Retail Stores continue to struggle. Lets take a look at whats happening at the markets of Abigail Doolittle from the nasdaq and mark barton is in london. Lets start with the potential m a wednesday action. We have interactive intelligence shares hitting up 5 in the premarket on the news the privately held genesis be buying them for more than 60 per share. Interactive intelligence offers it unified Business Solutions so the goal is to create a premier Customer Service company. Interactive intelligence investors must be happy. The stock was already up 80 before this news this year. We are looking at haynes shares lower and they of delayed the filing of their 10k. They are unable to file their annual report by august 29 two to accounting concerns. Lower in is trading the premarket and it suggests you could see the shares of n celestial drop near 33 per share. You so much. Mark barton is in london and he looking at the euro stoxx 600 which is relatively flat. Banks of the big story in europe. Mark a big story of the month as well. The sector is up by 2. 3 . Best monthly performance since february, up by 85 . Up for theoday and month up by 8. 5 . Suggestions were that Deutsche Bank and commerzbank were considering coming together. They called it theoretical. They are saying the lender is looking to shrink in size. Commerzbank shares are up by 8 . Iliad is a big mover. It reported an increase in sales and earnings. The company is planning customers with new motions. This is four years after the company shook up the french market. Its the fourth biggest mobilephone carrier. The lowcost office shook the market to the core and shares are up by 4. 9 . No increase in cti and cpi was 0 . 2 . The suggestions are the economy is not weathering brexit as well as some maybe had anticipated. That sets us up nicely for the ecb next week. We have a whole batch of data. Executives are warning that orders may suffer from political uncertainty. Mariota druggie is up next week. Alix its been five weeks since we heard from mario draghi, we are looking forward to that. Three weeks ahead of the next fed meeting, we continue to hear sharply different takes on the risk to financial stability. Speaking at the same conference in beijing, Charlie Evans said investors are expecting rates to remain low for longer which acts as a restraint in the event of a nearterm surprise. Says therepresident could be risks to the Banking Sector so you might as well hike. An investors perspective from jim mcdonald from Northern Trust. Neel kashkari is weighing in as well. How do you do that as an investor when you get conflicting views from many fed president s . We think that rates will stay low for a long time. There is a governor on how fast the fed can raise rates and we have seen the dollar appreciate of late and that will slow Earnings Growth and slow the economy. We think the fed maybe raises once over the next year and expect to stay low for a long time. Neverwhat is the job friday that puts september in play for you . You have to see the mid to hundreds. Consensus is 180. One analyst says you might want to consider hiking in september versus december because then you have four months of risk where we dont know what will happen. Maybe thats what the fed is thinking about. Got a really good number, they might want to take that opportunity to hike. When they have had the stage set for them to hike and they have waffled, it has come back to bite them. Caroline what about the rest of Central Bank Policy . Speaking ecb members in frankfurt at the moment. Saying Monetary Policy should not be a burden. What do the negative rates due to the fed . I think it puts a real ceiling on how far they can go. We expect the german 10 year at 25 basis points and the japanese 10 year at zero so theres only so much the fed can do without overly strengthening the dollar, slowing the u. S. Economy. The Central Banks outside the u. S. Rain in how far the fed can go. Alix paul diamond says we are underpricing the market. We are seeing price increases across the board like the median cpi and wages. Is there a risk that inflation overshoots and you should be buying tips to produce . We dont think so. Whether you look at ppi, cpi or what the fed looks at, everyone is below 2 except one. The risk of a big inflation spike is low and tips will be expensive insurance. Alix what do you do as a u. S. Investor . When you look at the treasuries, Morgan Stanley says by u. S. Treasuries. Are you on that bullish band camp . We are not scared of taking duration risk. The commentary about bonds being in a bubble is my overstated. You on bonds to fund your liquidity but if you want to return, you have to go to risk assets. Sense of give us of where the buying might be outside the United States. Use a germany will be 0. 20 5 on their yield . In terms ofbe a buy the european or japanese outlook . I dont see that as an attractive market. The low yields give you know cushion against the risk and that rates and the rising. We think that will be another factor that will support a u. S. Bond price rally. International investors are biased for the u. S. Dollar. The u. S. 10 year is at 160 and that looks relatively attractive more than germany and japan. Caroline are investors hedging from japan and europe . Their yields are basically zero when it comes to buying into u. S. Treasuries. The issue that people think about his longterm opportunities. The dollar is more likely to appreciate Going Forward. That is the International Investors bias. If you are getting a 1. 6 kind of yield, you are still going to do better in the u. S. Treasury inket than you would securities in europe and they like the liquidity of u. S. Treasury markets. Liquidity in the japanese market is dried up terribly. Caroline interesting stuff. We will be digging into another area of emerging markets. Jim mcdonald will stick with us. Up, lets go for an update for the news outside the business world. Donald is making a surprise trip to mexico today. He will meet with the mexican president. A few hours later and in the u. S. , he will speak with immigration in phoenix. He has described mexican immigrants as rapists and has proposed reporting millions of undocumented workers. Hillary clinton will make the case for american exceptionalism in a case in a speech for veterans. Global news 24 hours per day, powered by more than 2600 journalists and analysts in more than 120 countries alix . Growth in the s p 500 and barclays expects streaking dividends that could mean a 14 decline in u. S. Equities and who is next after apple, we will look at the fallout eu regulators backing down on tax deals. This is bloomberg. Oil as thee putting manager in focus crude down just 1 . Its all about will opec trees in late september . This chart says not so much. The orange line is that good experts in the right line is the oil market share. Iny say they will not freeze iran to the get back to presanction levels. In terms of exports, there are about 5,000 about 500,000 Barrels Per Day lower than they were when the sanctions took place. In terms of market share,. 5 lower than in august of 2010. In terms of exports and market share, you have a lot of room which are china buying more iranian cuba spain and italy are well below their historic levels that are making it difficult for iran to get that market share level. Are they really going to freeze in three weeks . Lets turn to that page. Joining us from the cd d from the cma is thisurst. We are seeing oil come off a bit today joining us from the cme is chris durst. As you know, we focus on that dollar in the midwest. The dollar continues to be the story. Known, opec tends to say one thing and do another. Iran and saudi arabia ramping up dollarion and the strong is causing what a lot of people perceived to be a slowdown in the fourth quarter. Contract will wti correlate to print and let down and was set a new range come up below. 46 alix im looking at the headlines out of nigeria. Things are recovering a little bit there any other commodity i am focusing on is copper. It did not participate in the commodity rally in august. Why is that . Speculationn is the and the continuing decrease in purchases, bulk purchases by india and china. We saw a move below the range 122 28. Set from 2 i believe there is an intermittent level of support and i think we revisit 203. As far as the jobs numbers aning out, if we get increase in the speculation that there will be a september rate hike, i believe we can set new lows in copper in the next 10 trading sessions. Alix thank you so much. Even commodities are waiting for the jobs number. Caroline everything is so correlated. We are talking about investing in emerging markets next. Is it too late to buy into the emerging Market Recovery . We will look at that next. This is bloomberg. Caroline bloomberg. Rand down about the today after south africas biggest after englands biggest Money Managers said they will stop lending money to south africa due to government disruption. South africa has such government issues. The lender is no longer lending to state run companies because of the division between the finance minister and that may government. You also have brazilian impeachment so do you buy into individual countries . You should take a broadbased approach to individual countries. This yearown 12 while russia is up 17. The more muted outlook for the dollar and the Downside Risk being reduced in china is what made emerging markets more attractive earlier this year. I am showing you its happening in terms of Asset Classes and it looks that even fx is coming off, the bond market still continues to outperform. Which asset class and the emerging market is a buy . We like the asset market the best. There has been a negative correlation with the dollar that has helped performance of all emerging markets. The emerging markets have had quite are run. We spoke with an analyst and makes a big thats in the emerging market. He does not hedge so what is your strategy when you get it emerging markets . We would either hire an active expert who can make those individual calls and we would take a lowcost approach and index it. Do an engineered equity approach where we would buy highquality companies and high alix dividend payers so we can attack that market. Alix what we saw in august last the and in january around fed rate hike wasnt instability over emerging markets. There was turmoil all across the emerging markets. We are not seeing at this time around, why not . Peopleially because dont think the fed will get aggressive. If the market felt the fed would be aggressive raising rates and would do a couple of times over the next year, we would not be as sanguine over the outlook over emerging markets. Thisine how much does intertwined with other Asset Classes . There are oil gyrations. Its more of a macro standpoint than a micro standpoint. Its tied to the dollar. The week dollars good for commodities if you look at the major market. Emerging economies, they are genetic commodity consumers so they benefit economically when Commodity Prices go down the market does not always understand that but the dollar impact is probably the most important. The president ial election is not just protectionism from donald trump but the officials in europe as well. If you get a five of protectionism in other countries, doesnt that trickle through to latin america and mexico and china . It could but we have already seen a material slowdown in global trade. The Economic Growth in the emerging market economies is coming from domestic consumption. From is not in a fitting global trade a lot so its more of a consumption story then it is a dependence on exporting lowcost goods. Alix whats your favorite emerging markets story . Asia from a longterm standpoint, weve got the highest return forecast for asian markets. Central europe being the second most prosperous and latin america would be third. Alix thanks very much. The opening bell is up next on bloomberg. On markets and its relatively soft and flat and mushy which is my technical analysis. We are heading into jobs friday and italian banks are helping rally european stocks but the index is overall lower. Its a softer dollar across the board but it except in the comes to dollaryen with the yen continuing to slower. The 10 year yields are going nowhere fast and the range is one in 51. 6 for august. Crude oil is off by 1 . Shell says oil can come to its pipeline in nigeria so more supply potentially is happening. Caroline vonnie we are just mos away from the opening bell. We are coming off of our highs with the stoxx 600 in europe up of 1 but the miners are trading lower. The ftse is slightly up. The dax is off by a quarter of a point. Inthe upside is the cac40 france. As the bell sounds in the United States, we are keeping an eye on the futures market which has been relatively flat. The adp number was better than had been expected. What does that signal for the friday jobs number . What does it mean for a fed hike in september . Alix it means a relatively calm market today. The s p 500 is down by 1 10 of 1 but if it got again for august, it would be the sixth straight month of gains to the longest since may of 2013. Not with a lot of volatility. Its the 1 move countdown. Were taking a look at the oil price. Interactive intelligence is takeout from m a genesis and the share price is at 60. 50 and that stock is rallying. Lets get to the other Asset Classes. Oil is a big mover today. It moved to the downside about 1 with shell saying they could be moving nigerian oil on a pipeline sooner rather than later. Moving the Oil Price Lower with more supply coming online. The other mover has been the dollar. It climbed to its highs right after the better and expected better than expected adp number. This is where you will see the action if there is any into jobs friday and the dollaryanis front and center. The dollar is opera six the yen which is the longest streak in a while. Caroline so much focus on that number. I want to see where the Asset Classes are. In august, we have seen the selloff in bonds but the yields have been driving down over the course of the past few months. This is the u. S. Yield crashed below 4 in the course of late june and early july after the brexit a vote. It suddenly is diving lower than the yield we saw on the s p 500 in terms of did it dividend. Searchs moving into the for dividends on stocks rather than perhaps looking for yield from the 30 year debt. Is that still the way we should progress . Where do we go in the hunt for yield . Do you stick with bonser equities . Do you stick with bonds or equities . Wind up correlating together. They are forced to sell and that brings more selling pressure on both Asset Classes. We are still so close to the record high in the s p 500. Will we managed to get it today . Joining us now is jonathan gliona, based on his latest note, he says hes not buying that chart. You say overall that low yields in bonds does not matter, we should get into stocks. The last time i was here, we talked about a lack of good fundamental drivers. Fundamental drivers are things like expanding Profit Margins. The counterargument we get is that Interest Rates are low and low Interest Rates on their own justify stock prices. There are a few lines of reasoning with that argument. The first one is what i would call a dividend discount where people say the stock market is really a stream of future dividends. When he reduced the discount rate would lowest rates, that string the future dividends is worth more on a present value basis. Thats pretty straightforward but the second line of reasoning is there is no alternative. Is when fl bond prices when bond prices and bond yields are lower, investorsee bonds and go into stocks and that causes stock prices to go higher. What we wanted to do is look at these arguments and decide whether they are valid and whether they should cause us to be more bullish on the equity market. The answer is no, where do you see the s p 500 going . We were simply not convinced. The arguments failed to make us more optimistic on the s p 500. The dividend discount argument and Interest Rates are lower but what we think is happening is investors are failing to take down the growth expectations in line with what low Interest Rates are really telling us. Over the last 70 years, dividends for the s p 500 have compounded at a rate of about 6 per year. If you take her and expectations for inflation and real Economic Growth to my think you can make a strong argument that future Dividend Growth is only potentially around 3. 5 . You have seen a big reduction in the potential for growth. 30 is a lot of talk about companies and how they add value and boost their dividend but Dividend Growth can be primarily explained by inflation. Inflation seen, expectations have come down a lot so that should cause or Dividend Growth expectation to be significantly lower. When you reduce that expectation, the dividend discount model does not work. 3. 5 growthok at over the next five years which is different than the other models. Have just charted the dividend etf versus the s p 500. Right now, we have started to see the dividend stocks underperform the s p 500 which is the right line. The s p 500 is the blue line. Growth,e a six and 5 what is the downside selloff to equities . We think its reasonably limited. Bet we argued is you should expecting low returns from equities. When you think about dividend paying stocks, we have seen those roll over but after a tremendous rally in the first part of this year and evaluation levels that had gotten expensive. Think about where money goes as Interest Rates go down, i think you can make an argument that money rotates out of certain sectors like financials into dividend paying stocks like utilities when Interest Rates go lower. Find in ailed to research is any evidence that money flows out of bonds into equities when Interest Rates go lower. Instead, what seems to happen is money chases returns. Bond funds go down, have higher returns and the money continues to chase it. As opposed to rates are low so now we want to go into equities. We often think about this at the momentum effect. It works well because money chases returns. We are not convinced by the argument that money will leave bonds and go into equities because rates are low. In terms of sector tech in terms of sectors like banks they may get lower dividend returns. One thing is to look for sectors that can generate Dividend Growth. We have been talking about the Consumer Discretionary sector. Have high ands expanding Profit Margins which is something we think is crucial when you are late in the Business Cycle like today. They also have high and increasing dividends which we think will become a bigger and bigger theme in a low Dividend Growth environment. That is a sector we would highlight. Its not your traditional late cycle pick but we think there are different forces right now going on that make you want to find these sectors that can generate their own Dividend Growth in their own stories. Caroline does money come out of the u. S. Entirely and where does ago . Have really been focused exclusively on where we see the u. S. Market going. We are keeping this neutral view. One thing that has helped you us is u. S. Equities to us are sort of the lower volatility , more staples like equity market from a global comparison. Over the course of this year come as investors have sought the safety in lability stocks, we think that has benefited the u. S. Market in relation to international comparisons. The conversation back to low Interest Rates, i think International Equity markets are a great example of low Interest Rates doing nothing to help stock prices. Japan is the absolute best example. Interest rates have been low and declining for 30 years in japan is belowhe nikkei where it was 25 years ago. You had an instance per low Interest Rates failed to generate growth you could make an argument that perhaps in the u. S. , you have a similar dynamic. When you think about Interest Rates from the perspective of equities, they are neutral. What i mean is they are neutral in they are generating and moderate amount of inflation and its really inflation that matters for equities. To be 3 rates needed to generate inflation than that is neutral, too. We dont look at Interest Rates as being a low but neutral. Alix a counterintuitive perspective. Great to see you and thank you very much. Coming up, the eu crackdown on Corporate Tax avoidance after apple, what companies will regulators be looking at next . This is bloomberg. Alix this is bloomberg. Janus up later today, Capital Growth management bill gross on his monthly investment letter. We are just into the open and we are lower on the u. S. We are tentatively near the record high of the s p 500, down 2 10 of 1 . Energy and oil is tugging down the s p 500. Of dow jones is off by 2 10 1 . Lets get into some of the movers. Abigail doolittle is in new york. Lots of biotech this morning starting with geo therapeutic sales down. The firm is skeptical of their treatments due to limited data sets and the potential for a competition from antibodies. Btig sees more of a 20 downside for juno therapeutics. Clovis oncology has amended a Licensing Agreement with pfizer allowing it to the roof it to do for milestone payments once it allowsves close to save cash but get paid more later on but with the stock higher, it appears investors like this and the shares were beaten down this year, more than 30 but recently, the stock crossed of back above the 200 moving day average. This could be a son of a turnaround for them. Caroline thank you very much. Sending courts are strong signals that they will not tolerate u. S. Companies slicing tax bills in europe. They have been ordered to pay 14 billion in back taxes in ireland. We got to our bloomberg executive editor and thank you very much. Usually you have thought the u. S. Is against ireland luring u. S. Business but now perhaps, they are uncomfortable bedfellows. Its an interesting combination. You would think ireland would want to collect the money come of putting billion dollars, but instead, it must be business friendly. Apple and the other big antinationals that have been island have fueled their economy. The most important thing is keeping the economy going and the u. S. Got the ball rolling. There were hearings in washington complaining about the sweeter deals that apple had cut and he rested not too much but europe set up intact and and took notice and is trying to go after that money. Its an unusual moment. The u. S. Says it does not want to collect an island does not want to collect and the eu says they better do it. Caroline does the u. S. Want to lure back the Tech Companies to collect the tax revenues . Tim cook says its overreach by the eu to go after this money but part of whats going on is the u. S. Is saying that is almost 2 trillion in money offshore from u. S. Companies that have done it deliberately to keep their profits. They are thinking now if the collect some of that money, their main up a much to go around. Its putting on the pressure for the u. S. To address its Corporate Tax system. Is aof that might be repatriation holiday were companies can bring some of the money back to the u. S. At a low tax rate. Caroline something potentially for the next political front runner to analyze, thank you very much. When you put it in perspective, . 5illion euros, 14 billion, maybe 6 of their cash . Two it would be about dollars earnings per share. This issue of repatriation is front and center in politics in the u. S. Donald trump is proposing a big stack cut for Companies Like apple which could see its tax rate cut by 200 billion that it keeps overseas. Riskine so much political that goes into europe overall. Tolooks like ireland wants stand by the 12. 5 Corporate Tax rate. Would notean nations be too upset if ireland had to rethink that and move it higher . To another tech company, salesforce will report earnings after the battle. Here is a preview. The reason why we care about salesforce is it is a Cloud Company in the stock is up 46 so far this year. This is where the action is in Technology Companies . One of the concerns was was if we brexit would see a slowdown in spending. We have not seeing that so far. You can say sales for should have a good quarter from good cloud numbers. Alix the brexit concerns could going Economic Data forward so how important is the u. K. And europe to salesforce versus areas of the world . Its a growth driver in the u. K. And europe by itself. Portion of the u. S. Is adopting Cloud Computing compared to the rest of the world so europe is important. The dilution may be here in the u. S. Where they make more money but there is Growth Potential there. How do they compare with their competitors . Upthey are starting to catch just on cloud applications. None of them are as big a salesforce when it comes to total absolute dollars and the growth rates. Sap and oracle are fighting to get some share of the cloud application. Watch thosel numbers when they cross after the bell, thank you very much. Was in microsoft supposed to buy salesforce . Caroline the desperation to get on top of Cloud Computing, thank you very much. Hour, top of the next mark barton and vonnie quinn . There is a conference that was taking place the last couple isdays and Valerie Pecresse desperate to attract talented people from london postbrexit. She is willing to bear to to do so. Stephen gallagher has a new report on what a Trump Presidency means for the market and the economy. Donald trump is going to mexico with a big immigration speech. At future growth is one of our top stories. Its africas biggest private fixed income money manager and they have suspended their new state entities with proper oversight. The rand is the biggest fall are on the major currencies. That was mark barton so stay tuned. You have to listen to that story. Alix we have a mover in early trading in the u. S. And thats twitter, up by over 4 . Its spiking at session highs around the open. I want to find the headline for why this is happening but we will keep you updated. Twitter is up 4 in premarket and we are 21 minutes into the last day of trading in august. This is bloomberg. Caroline bloomberg this is bloomberg. In a few minutes the Brazilian Senate will start its final session in determining the fate of suspended president Dilma Rousseff. We have more from brazil. What is on the line here and what do you expect to come out . This is the final vote after nine months of impeachment proceedings. We are largely expecting Dilma Rousseff to be impeached. This should be the longest session. Will happen the next 24 hours of the impeachment goes through . Dilma rousseff is expected to speak to those press after the senate vote. President is expected to be sworn in today and do a Cabinet Meeting and go to china for the g20 meeting by the end of the day. Caroline this is not a question of just today. It becomes a question of policy Going Forward and how difficult is that . Still very difficult because brazil has a fragmented political system with 30 parties that the Vice President will have to negotiate with and he is expected do it faster and putting up tougher negotiations than he is done in the past two or three months. Caroline you have been across it for nine straight months, thank you so much. We hope you manage to come to the combination finally. Real up 13 the against the dollar as the impeachment trial starts to percolate. Are 25 minutes into the last trading session of august and the s p 500 is down slightly along with the dow in an as what and the nasdaq. U. S. Equities are falling. Ahead of jobs friday and thats when the action is. And potentially looking at the weakest month for the yen in five months. 1. 5 ield is stuck between and 1. 6 . Caroline i love the technical term mushy. Thats it for bloomberg. Vonnie 10 00 and new york, three 00 in london, 10 00 p. M. In hong kong. I am vonnie quinn. Mark i am mark barton. This is bloomberg markets. Vonnie we are going to take you from San Francisco to mexico city and cover stories from new york and france in the next hour. John cryan making waves about bank consolidation. He says europe needs more consolidation, arguing german things lacked their peers. German banks. South africas biggest debt lender will stop lending money to large of six of the largest state companies. We will hear it lucidly from the on himself, andrew canter why he pulled the plug