Transcripts For BLOOMBERG Bloomberg Go 20160929

Struggle overall in the market. Opec finally cut production, this has been two years coming. Why does that matter . Inflation expectations. On redeker laying it out and Morgan Stanley today saying you get more shale investment in the u. S. And that is why this decision matters. David particularly if the deal holds. If they actually do it. Alix if optimism moves the prices that will move Inflation Expectations. My interview with james morgan, Morgan Stanleys ceo ways in on the trouble at Deutsche Bank. We will be discussing geopolitical problems potentially weighing on the market. We have an interview with jack lew. Jonathan is standing by. We see a monster rally in Energy Stocks but futures are negative. Jonathan it is a strong bid for european equities. The ftse 100 up by one percentage point. The dax pushing higher by 7 10 of 1 . The risk on feel in the fx market with a weaker japanese trade. 1 is how we this commodity market is absolutely fascinating. A market, yes. A collision, a cynicism at the moment. And opec deal, some are saying saudi arabia ands have capitulated and others are saying i will believe it when i see it. The brent contract at 48. 31. What we have got is a recalibration on the margin of Inflation Expectations on the back of this. The 30 day yield on treasuries ,p three basis points, 2. 19 curve steepening from the long and. Alix we will check in with our bloomberg team. Michael mckee and dublin on his interview with patrick harker. We have Deutsche Bank making headlines, lets shift the focus to commerzbank. Onathan we have the news now lets bring in all of her suze. Liver suze. I think it developed over the past few days. People are looking for Something Like 2000 to 3000 job cuts and sooner or later it became clear that this is not going to be a job cut or rebound program that we have seen and the past which was kind of addressing small steps. It is commerzbank trying to bring an end to restructuring and make one great move to finish it up. Jonathan yesterday president draghi stroke spoke and said if a bank has a problem it is the problem of that bank. Address the Business Model seems to be the message. Whatou walk me through kind of business will exist commerzbank in the years to come . Oliver clearly we see they are really focusing on their areas of strength which is kind of helping, focusing and working with mediumsized to even larger corporates in banking. Iny kind of are we treating retreating in areas such as Investment Banking and i think they realized that Private Banking and Consumer Banking is a tough market to be in. , thankn Oliver Sousse you for being with us. Alix my top story of the day is opec. Yousef gamal eldin joins us. Implemented you can see a 7 to 10 increase in the price of oil. It has to go right for that forecast to happen . Is if the keyword here it is implemented. As much as you had a dramatic finale to the discussions of opec in algiers late into the evening yesterday, the reality is the finer details still need to be hashed out. They are targeting a Production Cut to 33 Million Barrels per day. What this is going to depend on is how that Production Cut is going to be allocated among different members of opec. Also what we need to understand is the timeframe, how long is this frees going to last and is there going to bake whopper a with nonopec countries resiliencying to be with nonopec countries. They are trying to gain the relevance again in terms of their potency to the Global Energy market, and they are making the point they can hash things out and the are a force to be reckoned with. Alix thank you so much. The markets are not so sure how much they can affect the front fundamental production. David the market is trying to sort through what this all means , is it real . Now we want to turn to the fed. Patrick harker sent down with bloomberg and weighed in on the Federal Reserves next move. Patrick i have been in the camp of normalizing sooner rather than later but i would not say there is great dissent, other than the speed at which we move accommodation. Nobody thinks we should do that quickly. It will be a shallow path. Michael mckee traveled all the way to dublin to sit down with president harker. He is an engineer by training. Which we take away from what he had to say . Michael what is interesting is that he is going to be a voter on the fomc next year and he is strongly supportive of the idea that rates need to go up. Knowr told me he will not how shallow the path until we see the impact of a december rate move. He does think the fed is at risk of falling behind the curve on inflation. He is not a voters so he did not join the dissent camp but that was the view of a number of people who voted in favor of a rate rise at the last meeting. I asked if this is a divided fed and he said it is more of a question of the pace rather than disagreement over what they should do. He added the fed is not playing politics, that nobody is talking about the president ial race when they are making their decisions. In his speech today to the global and her defendant sample center, he off old offered a trade. David Michael Mckee coming all the way from dublin. Alix emma chandra is here with first word news. Terrorista attacked camps in pakistan overnight and says it inflicted heavy casualties on militants who had been assembled to infiltrate india. India says no more are planned. For aas retaliation Deadly Strike on the indian army earlier this month where 18 soldiers were killed. Pakistan denies the indians had a raid at all. The turkish president says a 12 month state of emergency might not be enough and his government is still struggling in the wake of the failed coup. They are trying to wave the impact of a muslim cleric who lives in pennsylvania. Congress has passed a spending bill to divert a u. S. Government shutdown through december 9, including money to fight the zika virus and pay for flood damage in several states. Thecrats agreed to vote for measure after there was an agreement to deal with flint, michigans water crisis in a separate bill. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. I am emma chandra. Up, crudecoming retracing some of the moves to the upside after opec decides to reduce production in eight years. From new york, this is bloomberg. Alix this is bloomberg , i am alix steel. Futures relatively flat, oil prices weaker, but the opec optimism raining high. We had that monster 6 rally yesterday in wti and brent. If you get Higher Oil Prices they will move in tandem and will be able to sell their production for more money down the road. It has the potential to make more projects viable as their costs come down in the oil price continues to climb. Energy stocks boosting, all of the indices help leading higher. Cut to underweight at pacific crest, 11 downside. Their flagship holiday product, dacey inventory backing up because that product is off to a slow start. , beato is the latest earnings by about eight cents and boosting its forecast by seven cents. The real leaders word the north american gains, beverages up 3 . Optimism for pepsi. David they also have nice gains in a lot of developing market like china and mexico, but they were up for earnings per share and they took the estimate up to 10 yearoveryear. Alix their fullyear earnings forecast coming in at almost five dollars. David good news for pepsico. Alix the real story story in the market is oil. Jonathan opec will cut production for the first time in eight years. He oil minister expressed his content. Excellent agreement. I am very happy after two and a half years. A very constructive argument in opec means that opec can overcome a difficult situation. Jonathan of course he is a happy man, crude jumped more than 5 . Joining us is michael and. I cannot remember a day like joining us is Michael Cohen. I cannot remember a day like this. Where do you sit . Michael i think i said more on the sidelines of lets wait and see until november because this is essentially an agreement to agree at some point later on in that month when they meet again. There is a lot that remains unclear. First of all, the baseline assumptions, where they are producing and where they are going to go will effectively mean how much is being cut. Re is a halfmillion day half a million barrel a day band and that makes a difference as to how much stocks can draw in 2017, so that effectively will mean this is constructive or just basically status quo. Effectively as we come into the winter, we have this normal uptick in demand. What essentially this agreement has done is that it keeps those shorts on the sidelines until we get to the next peak man season. Alix you do not get shorts but to me here is a chart that tells the whole story. You are looking at the call on opec crude for 2017 and the next proposed cut is the next call. Nigeria,n libya and they are exempt and all of a sudden you are looking at an oversupply yet again for opec. Do you see this playing out . Michael i think from opecs perspective, this is the approach they have taken for the past two years is they have been in a wait and see mode. They continue to be in a wait and see mode so in november their hope is we do not have incremental supply from libya or nigeria and that may preclude them from having to make any difficult decisions. If there is a situation where nigerian or libyan production is libya that will mean they will have to make some difficult decisions. Jonathan the last 24 hours, there is russia . Why havent we heard from them . Alix they are producing a record. Jonathan it was all about russia plus opec and now i am just hearing about opec. Yousef bloomberg wrote an alix Michael Bloomberg wrote an article but a lot of that was coming off maintenance. They are basically back up at the level of roughly 11 Million Barrels a day they are producing. Every single year people underestimate how much russia can provide, including opec members. Essentially what needs to happen, and the reason saudi arabia was more amenable to a deal was they want russia to be involved. Russias position for a long time has been the same. They want to see opec come to some kind of agreement and then they will play ball as well. Isentially what could happen that russia may just kind of keep its output level at the end of december and not change from their. Thought, schools of the short will come out and that provides a floor. Then you have Goldman Sachs who says they could add seven seven dollars to 10 to their oil price. Michael we see Oil Prices Moving into the low 50s for the Fourth Quarter but we see prices averaging next year in roughly the mid 50s range for the year as a whole. We are not changing our price forecast and we believe the market is broadly adjusting to an environment where nonopec supply is not growing, demand is growing, and opec supply irrespective of what happens with this meeting, is basically flat on a year on year basis. We do not see that much extra wiggle room from iran or saudi arabia. There could be 100,000 barrels or 200,000 barrels a day from iraq but for the most part the opec supply is flat and the nonopec supply is flat or not growing. It is not just about the extra five dollars to 10 a barrel we could get in the extra maybe 150,000 to 200,000 barrels we could get from u. S. Title suppliers. It is a broadening market that is continuing to adjust to a low oil price environment. Opec says they welcome that limited amount of shale because they are not able to increase anymore. Jonathan Michael Cohen of barclays, great to have you with us. An agreement of an agreement we may or may not get. Alix a difference from at least 24 hours ago, at least there is something on the table. Treasuries falling for a second day as the opec agreement raises Inflation Expectations. Andy chorlton will join us next. This is bloomberg. This is bloomberg. Coming up, jack lew joins us in an exclusive interview. Ceo headsls fargos back to d. C. Today on the heels of Federal Reserve chairman yellen vowing to probe bank misconduct. It is one of the largest banks and we are undertaking a look not only in the consumer generally,mpliance because there have been a very disturbing pattern of violations that occurred in the mortgage area and Foreign Exchange trading in many different areas. Has agreed tompf give back 41 million in pay as the Investigation Continues but lawmakers are not satisfied. We go to Elizabeth Dexheimer. Oining us from washington a lot has happened since the stage as mr. Stumpf goes before the house committee. Elizabeth he is in for another long day on capital bill capitol hill. The House Finance committee has tendency to get into Difficult Conversations with witnesses, so in addition to tough questions around the details of the investigation and what, we arenew going to hear some questions wealth andfs antiwall street rhetoric. There has been a lot of news returningabout stump his pay and the board conducting an internal investigation, that is something that will be acknowledged but it is not necessarily going to be something that satisfies a lot of lawmakers who say that it is too little too late. They want to see more actions taken against the bank or are looking at this from other lenses that are completely irrelevant to pay. David we have the state of california saying they are not going to do business with wells fargo and the insistence of mr. Stumpf perhaps giving up his chairman title, while others are calling for him to resign out right. What other options are there . Elizabeth today the House Financial Services committee, this is the beginning of their investigation into wells fargo. What is interesting is the role that the regulators are playing, that is going to be something we hear quite a bit. Republicans will be using this as an opportunity to look at whether the regulators should have acted sooner whereas the democrats will be looking that looking at this as an opportunity of how much more oversight is needed. There are going to be more investigations, more executives will be coming to capitol hill, and this is something that lawmakers think could be extended for many months. David that is Elizabeth Dexheimer joining us from washington. Wells fargo ceo john stumpf testifies before the House Finance Oversight Committee at 10 00 a. M. Eastern. We will be carrying that live. Jonathan the intent impact of Deutsche Banks downfall, alix steel spoke with Morgan Stanley ceo. A strong bid for european equities, a crude rally from yesterday. Opec agreeing to agree on something in a couple months time. Futures flat. Alix this is bloomberg , im alix steel. Street,30 a. M. On wall 12 30 p. M. In london. Plans to cut more than 9000 jobs and reduce dividends. They have been hurt by volatile markets and negative Interest Rates. Wells fargos ceo faces lawmakers on capitol hill after saying he will give up 41 million. He will fight to keep his job amidst a scandal. European confidence unexpectedly rose. Eurocb president saying areas economy is showing signs in themodest recovery. Markets, the big story is opec. Opec optimism fueling markets in europe. Jonathan yesterday we had the Oil Exploration stocks higher. Points in the dax up by 78. The story from the commodity market, check out crude, wti down by 1 10 of 1 . Yields up just a little bit on the margin by 1. 59 on the 10 year but the real story in the commodity market is the cynicism saying opec deal really . And this optimism saying, really , saudi capitulated. Since 2008, that is how long we have had to wait for opec to reach an agreement. The bulls are saying opec back together, i have missed you. Alix todays morning mustread is a must watch. Deutsche banks woes continue after we saw their shares slumping to a record low. Spoke about the troubles that Deutsche Banks troubles mean for Morgan Stanley. James we will support them as best we can is the whole financial ecosystem depends on institutions trading counterparties honorably and helping them through. I am not going to talk about thatche banks strategy obviously they have Strategic Issues they are working through and the market is impatient. Alix we have already seen a couple german borrowers pulled the deal for two Straight Days meaning there is some kind of trickle through when it comes to market reaction, the ability to lend, and a potential feed down to growth. Do you hear clients wanting to retreat from the markets . I do not think so, i am not seeing quite the drama. This is an institution that is facing some important Strategic Decisions as we did years ago, and others have in between. Let them sort it out. And that was james gorman what it seems is that Morgan Stanley is trying to give Deutsche Bank time to sort it out so they are not decreasing what they pay for their counterparty risk, they are not changing that. David bank solidarity . Jonathan these guys have been together. Will draw some parallels last year we had glencore in the news and the stock down, and the only way to get through that was to try to instill confidence. When banks get in this position it takes a long time to get the confidence back. We had this conversation yesterday about the multiples on the bank. It takes a long time to get Investor Confidence back. David it is not up to mr. Gorman to save Deutsche Bank but he does not want to make it worse. Alix and it raised their book value. Parallelsve to draw on too big to fail in 2008 and two thousand nine and how the u. S. Tried to recapitalize the Banking System. We saw buffet step into jpmorgan. Do we see that transmit itself in europe . Jonathan i think a lot of people are sitting here saying the euphoria around the Deutsche Bank the last couple of weeks have has gotten a little excessive. David i never thought of 31 edent goethe one being like warren buffett. Does that risk go beyond equities and Deutsche Bank to markets more broadly . Or investments being compensated enough . We are joined by Andy Chorlton at schroders. Andy, answer the question for us. What about the Deutsche Bank risk . Does it expand more broadly and our people being compensated . Yes, some of the European Investment banks have been impacted but the impact on border credit markets has been relatively be nine. More broadly the nine. Enign more broadly, or gets are complacent and risks are increasing in our view. Brexit is still a big unknown. China still potentially slowing markets haveit been pretty much on fire the last couple of months. Are they being compensated for the right level of risk, we do not think so. David as a fixed income investor, what does that cause you to do . Andy we have started reducing risk that right now we are at our lowest level of risk from a credit position in about seven years. That leaves us with a bit of a challenge, what do you do with the money . Treasuries are not cheap, cash yields nothing. The only Silver Lining we have is with the money market reform we are seeing an increase in libel. It is not going to make anybody excessively rich. Jonathan let me pick out a couple things and begin with Deutsche Bank. Explain the channel where you think some risk should spread, where does that come from . Andy if you look at corporate capital,eads in cbs or you should see a little bit of winding to reflect the fact that Deutsche Bank is a major market participant. It makes other questions about other banks. You are seeing further Regulatory Impact and scrutiny on banks around the world. You should be paid a little more for the risk. Saying anything is necessarily terminal in either as thee cases, but probability of risk increasing increases, you should be paid. Low negative rates have distorted the problem beyond the down the line is people chase yield without taking into account the amount of risk the are taking to get that yield. As a Value Investor that is not right. Alix when you look at the high are almost and bbs into negative territory, what will be the trigger to cause yields to unwind and you see the high yield investors get washed out . Andy i think a change in sentiment is always going to be the trigger. Alix is it for the worse or for the better . Andy that is another good point, if you get Inflation Expectations picking up and treasury yields paying more wide you have to go down in credit quality to get that yield . One of the things we think is interesting in the u. S. Market has been supported by overseas investors coming into the u. S. And getting i washing yields in and relatively reasonable credit but theyre hedging costs are changing. We are ahead of last years issuance. We had a record month in august and nothing really changed. Billion of112 Corporate Bonds you have soaked up 112 billion for potential demand in the future. , it is not inflows going to keep going forever. Jonathan there is a price incentive to buy. Andy there is. I think the challenge is and this is a big question is the wane, of qe beginning to has it reached its limits . Are we going to see conversation moved to a different response to get this pretty dismal growth back on track . I think maybe the bank of japan and their slight tweak and policy last week was the beginning of that. In the u. S. , both candidates are talking about spending more, funding it in different ways but spending more. Is qe what people hoped . I would question that. David turning to another story in credit, saudi arabia. In the last 24 hours there was an override of a veto allowing victims of 9 11 to sue saudi arabia and that will keep them from going into the bond market. Is that sound right . Up mighthink oil going help limit their need for cash immediately. I think certainly those sorts of issues on sovereigns can impact the pricing but not the execution of the deal. Given argentina issued a bonanza deal when their Credit Rating was selected default, if the price is right it will be a buyer. Jonathan the reports that this would happen, are you thinking this would not happen . Got to comey have to market, is that a reason they will not think of dumping their treasuries . Andy their holdings of says treasuries, a are not the only sovereign selling treasuries. Arguably they need to find the money because they are not making as much from the drilling as they were. What they do in treasuries worse is the new issue needs to be separate because people will be patriotic about what they are doing with treasuries that if the price is right, they might forget that. David Andy Chorlton from schroders. Help lower from longer may asset values but it poses a problem for Pension Plans. Placest guest says three are the new puerto rico. Jonathan this is bloomberg go, i am Jonathan Ferro. An exclusive interview with u. S. Treasury secretary jack lew coming up. Emma here is your Bloomberg Business flash. The head of the volkswagen brand expect sales to rise in 2017 it still sees many tough years ahead. He spoke to bloomberg at the paris auto show with a unveiled a new electric car. He says they want to become the Global Leader in that economy as they try to recover from the diesel emissions scandal which is costing billions. Forecastaised its after sales in the u. S. Outweighed weakness overseas. Pepsi sales fell on us to percent in the third quarter. Credit suisse and barclays are in talks for settlement for toxic mortgages. It is possible the talks could drag out, sending the case to a civil trial. Deutsche bank is also in talks. Online brokerage scott trade working with an advisor for a sale. Scott trade has drawn attention from rivals including td ameritrade. Could value it at about 2 billion. I am emma chandra. Longer may help some asset values but poses a big problem for pensions, especially public pensions. The problem may be spreading beyond puerto rico. A man with deep experience with this is Joe Milstein Jim milstein. Jim served as the chief restructuring officer of the u. S. Give us a sense of how big this problem is and how widespread. Jim various estimates put the trillioning between to dollars and 3 trillion. If you think about the extraordinary monetary easing policy that has been going on by Central Banks everywhere, what they have done to try to stimulate Economic Activity is drive down Interest Rates, borrowing costs, the effect on Pension Plans is that it drives down their return. Most Pension Plans have been using return assumptions of how assets grow 7 to 8 . What they are assuming their assets will grow at over time, they are earning on their assets at seven and a half percent to 0 to 2 over the past couple of years. As that gap widens, you have an increase in the unfunded liability. David where do we have yellow or amber lights flashing right now . Connecticut, is connecticut the problem . Jim if you look across the industrial midwest as well is the eastern seaboard and the west coast, anywhere we have large municipal and state governments with unionized pension workforces, the deal is maybe you work in a get a lower wage in exchange for better benefits. Those pension systems are all under stress because of really the slow growth in the United States. If the economy were growing and tax revenues were growing, there would be more surplus in these budgets to make contributions to their plans but one of the first things that municipalities and states do when they get into trouble is they stop making contributions to the plan. You lose therefore the magic of compounding. We all learned that as we were out of college. The same thing is true for the states and municipalities. If you miss an early contribution you are missing the earnings on those assets over time. States and localities have been missing contributions to provide essential services. David you have been very involved with puerto rico. Are there lessons to be learned that we can apply to places like connecticut and chicago and dallas . Jim debt is not a substitute for growth. You cannot run your operating budget with Debt Financing because it is a recipe for disaster. Puerto rico, when it went into a tailspin in 2006 when certain federal subsidies were withdrawn, that economy has been in a recession since 2006, made worse by the financial crisis. To substitute for tax revenues they borrowed money and they borrowed money for 10 years, so the debt increased from 20 billion to 70 billion over 16 years, substituting Debt Financing for tax revenue. One lesson, you cannot is a government substitute Debt Financing for basic operating expenses. Usually in workouts everybody has to take a bit of a haircut. Is there any way out of this without the pensioners taking a reduction . Jim puerto rico has the benefit of a federal law that has created an Oversight Board as was created for new york in the 1970s, d. C. In the 1990s. The board is charged with getting the fiscal situation of puerto rico in balance. They can share revenues and expenses match. The question is how much is left for deck contribution and Pension Services . Frameworkow a legal to effectuate that. David in the end it comes down to as you say matching revenues with expenses, but in order to do that you need to grow the economy and we have not seen a lot of growth. How do we get that growth going . Firm and i have taken a good look at the sort of, what ise in cause of the mala the American Economy and what is the key factors is we have stopped investing in public works. You heard some of the candidates talk about this on the campaign trail. Americas airports, roads, bridges, Water Systems have really been underinvested in for 100 years. Most particularly in the last 20 years, the stalemate at the federal level on Budget Priorities and the sort of mal aise and ambivalence that the Republican Party in particular has had with Debt Financing, has made it impossible to really invest in our Public Infrastructure in the way this country needs to do. The American Society of Civil Engineers estimates we have a 1. 4 trillion gap. Hillary has talked about a 275 billion increase in infrastructure spending. That is a good start. Donald said, i will double that. That is better. We need almost true trillion dollars over 10 years 2 trillion over 10 years and that is why politicians do not like them because it does not get done within the election cycle. We need new public works spending and a framework in which to do it so we do not get porkbarrel politics problems building bridges to nowhere. David thanks very much. That is jim milstein. May have an oil freeze on production. Will there be a ceiling in oil produced in the middle east . This is bloomberg. Alix this is bloomberg. I am alix steel. Opec is going to cut production but this is why it may not matter to prices, three charts. This is the call on opec crude for 2017. This is a proposed cut, the market range we are looking at. That looks good, however if you take a look at adding nigeria and libya, which commerzbank thinks could be as much as one billion barrels of oil a day you are up to 34 billion barrels, more than demand needs. The other big part of it has to do with opec not being able to effect prices like it used to. This brings us to a Pivotal Point which is the cost curve. 2009white line shows in you had about 10,000 barrels of oil could only put could only be produced for under 80 a barrel. In 2014 you can produce as much as 25,000 barrels a day for under 80 a barrel. In 2016 you can produce as much as 35,000 barrels a day for under 80. Shale had lowered the cost curve that opec may not be able to affect the cut price curve like it used to. Arabia mightdi have to keep on pumping production, get any kind of volume they can. That is what Goldman Sachs thinks. The deeper part of that comes from costcutting. You have the drilling cost coming down but overall you have industry standardization. To have a common manufacturing technique that lowers the cost curve all across the board. Generic deepwater costs down 25 . North sea down 37 30 . This is sustainable. That means you do not need those higher prices and that means lower for longer. Have thebia might not power it did before to control the cost curve at all and that is a huge outcome for opec. Jonathan coming up, an exclusive interview with the u. S. Treasury direct secretary jack lew. Germanys secondlargest bank feels the pain. Commerzbank ceo says they are cutting jobs. Ceo headswells fargo back to capitol hill today, a day after the fed of california says it is spent says it is suspending business. Cut and the opec deal to but Goldman Sachs says this could raise prices up to 10 a barrel. David welcome. Jonathand westin waste ferro and alix steel. Banks are in the news today. Jonathan brutal. Mario draghi has a message for banks and may be a message for banks beyond europe if you have david a problem, its youre doing. I think john stumpf may get that message today. Alix that will be pivotal to watch and we will bring it to you live. This is it, opec finally cutting production. The market didnt think we would see this. Why do we care . Idea is that we are seeing an interest in breakevens in the u. S. And that his pivotal. David if. Alix if it just for races the creates limited Downside Potential it can have a longlasting effect. We will be digging into this in the next two hours. We have great interviews with you including simon smiles. We will discuss geopolitical concerns weighing on the treasury market. Plus, an exclusive interview with jack lew. Not to be missed. Theyou are looking at markets and futures are relatively flat . A bit of a risk on rally helped by oil . Jonathan a strong bid for European Union equities. A rally on the dax in frankfurt as well. In the fx market, capturing the risk on the story. The dollaryen, a weaker handle. The story is in commodities. Goldman sachs saying despite yesterday, we may change the forecast for next year. There is cynicism out there. Crude is that a 47 handle. What you are seeing as Inflation Expectations start to recalibrate, the expectations that crude could start to increase. And the long end of the curve starts to selloff a little bit. You are seeing that in the treasury and in the long end of the group market. David breaking news. Of the andcompany cbs has done what people thought they might do send a message to the board saying, we think you should talk to each other and think about getting together. Is up. Ck of both he has been very coy so far and it is clear that it would be critical to leaving these two companies if it were to happen. Alix both stocks are moving higher in the premarket. Lets go around the world for indepth coverage. The banks and Elizabeth Dexheimer and yousef gamal eldin lets start in europe. Our, 9600 jobsf with dividend suspended. This sounds brutal, was it expected . All over yes, it was expected. There were already a few costcutting programs in place and i guess one of them really helped to put an end of it and now, the new ceo seems to be trying to go for the final restructuring. Jonathan what is the strategy here . Cut and become smaller to become what . Oliver cutting costs and it boils down to personnel. So it is the easiest thing to expect. And i guess you should expect they will focus on what they are good at. As beingare seen really good at helping medium sized and larger side corporate clients in germany, doing business. So i guess that will be the area where they will focus the strengths, going forward. Suess, inoliver munich. John wells fargo ceo stumpf is back on capitol hill today after janet yellen told congress she would be doing her own investigation into the misconduct. Have undertaken and are undertaking a look, comprehensively, not only in the consumer area but compliance, generally. Because there have been disturbing patterns of. Iolations they occurred in the mortgage area, the Foreign Exchange trading, many different areas. David wells fargo has already taken back 41 million of john stumpfs pay. Elizabethwe go to dexheimer in washington. She covers financial regulation. So what are we expecting . House is not expected to be any easier than they were last week. He is expected to get tough questions from both sides of the aisle. A lot of what we saw last week was what he knew and when and why the allegedlys conduct took place or so long, unchecked. Questions about whether he misled investors, and we know that he is now foregoing 41 million but that will not be enough to satisfy lawmakers who want to see him fired or resign. Be a will definitely heated and likely personal exchange. Bloombergswas Elizabeth Dexheimer reporting from washington. And we will bring you john stumpfs testimony live. Alix this top story of the day is the opec cut. Yousef gamal eldin joins us now. As toare a lot of ifs whether this deal will make a fundamental difference in the market leading up to the official november meeting. Lay it out for us. Situationll, the might be set with the background. Gorgeous clear skies could this be a new beginning for opec . This is more than just raining in the oversupply. This is about aligning them as a force in the supply market. They knew that people had stopped listening and they wanted to make a point. But the challenges are far from over. They need to figure out how they will distribute the Production Cuts. Theyre targeting a range of 32. 5 Million Barrels per day up to 33 Million Barrels a day. Just shortmping now of 33. 7 Million Barrels a day. It is still unlikely to make a major difference, but what analysts are telling us is that we need to see what they say about the timeline. How long will the freeze last. And these is going to extend to nonopec . Will they bring russia back on the table . To try to support the oil market . ,arclays has come out and said look. This is nothing more than kicking the can down the road. We will have to sit down and figure out details to really maintain the credibility. The question is, will they actually adhere to that and how do you enforce that . Thank you so much yousef gamal eldin. Lets get an update on the headlines outside the business world. Emma russia is signaling it wont hold its offensive. The Deputy Foreign minister has said the kremlin is willing to suspend bombing for 48 hours at a time to allow humanitarian aid to be delivered. Ton kerry has threatened break off contact with moscow over syria. Its the biggest military confrontation between india and pakistan since 1999. India says it has attacked terrorist camps in pakistan overnight. Heavy casualties were inflicted on militants preparing to infiltrate india. 18 indians were killed. Pakistan denies that there was even an indian raid. Fired across the border. Congress has passed a spending bill to divert a shutdown. The zika includes virus payment and flood damage in several states. Democrats agree to the measure after there was an agreement to pay for flint, michigans water crisis in a separate bill. Global news, 24 hours a day. Powered by our more than 2600 journalists and analysts, in more than 120 countries. Jonathan coming up, we look at what ubs says is the rising stake of investments. This is bloomberg. Jonathan from new york, this is bloomberg. The federal is keeping Interest Rate unchanged. That decision was in contrast to the Philadelphia Fed president , who spoke to bloomberg in an interview about the decision and said rates should be raised sooner rather than later. I tend to be in the camp of normalizing sooner rather than later. But i wouldnt say there is great dissent, other than the speed at which we move accommodation. But nobody thinks we should do that quickly. It will be a shallow path. Isathan joining us now simon smiles. Read you have you here on the program. I wonder why we continue to make a big deal of the fed when pretty much everyone on the fed is a dove. And will make a difference as to 25 basis points now or in a few months or never . At the last meeting, we saw the First Time Since 1990 that we had three dissenters and i goes back to the early days of the greenspan era. Ofhave had many years incredibly accommodating Monetary Policy, zero effective rates. So the continuation of the turning point, a second rise, i can see why there is quite a fixation of it. That being said, the likely rate path from here is likely to be modest, something that will not a real financial assets. Jonathan it is making people nervous, despite whether its her door shouldnt matter. The bottom line is cash. Cash is king, in your words. Why do you think that is . Simon in europe, cash, if you hold enough of it, it is at a negative yields. Cash is clearly king in this environment. And we are looking at the markets on a sixmonth horizon and we think there is enough growth in an economic and earnings level to support. Also, overweight in emergingmarket equities and we are long the norwegian krone versus the euro. So we do see interesting Investment Opportunities out there. Far better than sitting on cash and losing money. China, fed and u. S. Mind is the top in fed. What about you . When you look at your risk profile, what is the biggest immediate risk for markets . Have i think the three been highlighted there. But that being said, the u. S. Election typically isnt a massive derailer for markets. We know the president ial candidates tend to campaign in ,ne way, and extreme fashion but move towards the center when they come into power. As a you have a Congress Check and balance. So i dont see the u. S. President ial election as a major derailer for markets. The u. S. Fed putting up interest again,asis points i think it is something markets will be able to manage given the backdrop of the improving economy. It is actually Political Risks and the wide variety of Political Risks, in europe, that are presenting the most focus for risk for us. David picking up on that, i noticed mr. Gorman did not list brexit among his three risks. For your high profilers, do they see brexit as a risk . Simon four bridges domiciles, clients who have a large amount of assets in other countries, it wasnt necessarily an issue. The clients i talked to have businesses in the United Kingdom and they are surprised that brexit hasnt had a greater impact with respect to retail demand and real estate prices. The key impact of brexit has been a greater availability of high quality real estate which was previously hard to get ones hands on. The Political Risk though, the guys i talked to focus more in europe on any one of the range of elections coming up in the next year. He still have a government in spain. We have a referendum coming up and next years german election. Jonathan can you talk about the risk in safety and high net they clients are usually ultraconservative . Are you warning them of the risk of the traditionally conservative way of investing . Can you walk me through that . Simon i think it is quite diverse in terms of geography, how clients typically invest money. I wouldnt say as a whole that the clients i talked to our riskaverse. They run a large amount of risk in their core businesses. To theiromes investment portfolios, that does tend to be, in general, a less risky proportionate of their overall wealth, and given the continuation of operating businesses. But the way that manifests, and bondsonds and highgrade or safe defensive highyield equities, is very different depending on the geography. There is a large cash balance among many of the clients i speak to with investment portfolios, and it is hard now, when they look at market hes with yields on highgrade bonds, with a whole wrath of uncertainty, you to start deploying cash in a largescale way into listed and public financial markets. Clientscaveat is that continue to be interested in investing money into private markets. And when there are differentiated Hedge Fund Solutions or access, there we continue to see strong demand. Jonathan simon smiles, great to have you with us. You are sticking with us. What coming up, we look at investors are looking to do now with the prospect of Higher Oil Prices on the horizon. This is bloomberg. David this is bloomberg. Can now of 9 11 victims sue saudi arabia for the september 11 attack. For the first time ever, congress overrode president obamas veto and he spoke out strongly against the move in a town hall meeting yesterday. This could disrupt saudi arabias plan to sell bonds next month. ,racy alloway joins us now welcome back from the middle east. Give us a sense of what the possible ramifications of what this legislation could be . Tracy alloway setting aside the domestic allegations, this is the first time that congress has residentn a veto from barack obama, setting that aside, the International Dimensions of this opens up a can of worms on the International Relations front. To finance and markets, it starts to get interesting because as you know, saudi arabia has a budget hole that he needs to fill. And what is interesting now is that because of low oil prices and the stress on the Banking System, they are dependent on the international market. Way back when, regional banks used to be the predominant buyers of saudi arabia and debt that they cant do that anymore. They are cashstrapped and they have liquidity problems so saudi arabia is respondent on the international markets. David so what are the options available to saudi arabia . They could go into the bond market and they have a lot of treasuries. Tracy this is where the game theory comes in. Saudi arabia has been threatening to sell off its treasuries if this happened. Will that actually happened . Be asts say that would worse outcome for saudi arabia, itself. Sale, we are expecting them to raise Something Like 10 billion that might be delayed because of this veto issue. But it is really a matter of when, not if. Like i said, saudi arabia has budget issues so the question will be, whether they have to pay up for the free glitch pay up for the privilege. Alix simon smiles, still with us. Do they wind up selling other u. S. Assets and causing a fallout, there . Simon its always a potential. Once has to keep in mind the huge fx reserves and the huge Proven Oil Reserves. There is market speculation over a private partial as a nation of aramco. So clearly, while the congressional and senate veto of the ruling of president obama is an uncertainty, we are a long ways from saudi arabia being in true financial strife. Alix does that wind up meeting that at any price, they can be able to sell debt, it just depends on what the price is . Yes. everything has a price. To be fair, does the price change, over the last 24 hours, in theory . Simon the overserved the uncertainty in saudi arabia has certainly increased but what hasnt changed is the Proven Oil Reserves and the huge fx reserves that they have. So i caution against putting too large of a risk premium or expecting too large of a risk premium into saudi debt. To a i will take you different geoPolitical Risk. We welcome to news of an indian action with military against pakistan. What is that doing to the markets . Clearly, this has been a hit to indian assets. Again, uncertainty is never good to financial assets. But more broadly, the political and military actions, while clearly having profound ramifications for the countries involved and at times the regions of the countries, generally, for Global Financial assets, they tend to have relatively muted effect. They have low yielding developed market currencies. One of them is the indian rupee. , we have had time a sharp drop in oil prices. Alix with david brings up is an excellent point how do you wind up hedging the risk . Whether it is saudi arabias relationship with the u. S. Or india and pakistan and the relationship there, what is the offset . Simon there are two ways to answer this. For the vast majority of science, the best hedge is the discrete but numerous events popping up is a diversified portfolio. Importantly, a globally diverse portfolio. One thing our clients to do have is a large home i us. We try to reduce the home by is for this reason. It could be started over concerns of china or the events now, there will always be events. Alix simon smiles, great to see you. And bloombergs Tracy Alloway was on set with us, great to see you as well. Up, do theoming saudis want to awaken a Sleeping Giant . That is the big question that Stephen Schork is asking. This is bloomberg. Jonathan this is bloomberg. Thechers are fat on session in the u. S. But we are down 36 points on the dow. Negative five on the s p 500. The ftse in europe is up. 9 . There is potentially an agreement from opec, the first one in eight years. To get the output cut. We are waiting for Economic Data to come through in the u. S. Alix this is the third read on secondquarter gdp coming and better than estimated at 1. 4 . Is 1. 4 percent. However, this is a relatively weaker first half of the year. Abouthalf growth averaged 1. 1 , that means the back half of the year growth has to be at least 2. 5 to meet the fed target. That seems like a tough call but nonetheless, better than estimated at 1. 4 . Initial jobless claims for last week rising slightly to two into 54,000 jobs but nonetheless, still in this range down area signaling a better job market. Core pce, that is what we look at in terms of inflation. , quarter on quarter, in line with estimates. Inventories month on month for august is dropping,. 1 . Drawdown, you dont have enough. At some point, factories and of have to make more and we are waiting for that turn on potential input to gdp but not much reaction in the markets. Jonathan no, it was expected to be revise a little bit higher. Maybe a smaller drag on business spending them the first or second reading but the story remains the same. Business spending, it remains subdued. We caught up with the fed president earlier and his message was clear, we need people to take risks. But consumers dont have the confidence to take risks. David they are not confident there will be a demand for the product if they invest or produce it. Alix which means you dont want prices to go higher and that could limit going higher which brings the back to ipaq back to opec. [laughter] opec cutting a surprise deal. Cutting production for the first time in eight years. But the question is, what does that wind up doing for positioning . The positions were added into the meeting and they did decrease slightly. Floor underput a the short positions and help oil stabilize . Joining us now is Stephen Schork from philadelphia. Do they stabilize oil prices here even if they cant provide a pop . Stephen actually, oil for the most part has been stable between 40 50, and around 35 for the better part of the year. So i dont know what opec means when they say stabilize. Its a euphemism for them saying they want oil prices higher. So looking back at yesterdays statement, what do we get from the statement that opec has agreed to decrease Oil Production around 700,000 barrels lets focus on the advert and definitive. How do you actually quantify around . That is fewer barrels taken off the market than the u. S. Has taken off the market in the last year so it really is a drop in the bucket. November go back in we still have two more months before opec will actually make an agreement. They have to decide who will be pulling barrels off the market. Two more months. Before they sit down for a hard negotiation. It is extremely polluted area at this point. This is coming around seasonal demand, demand here in the United States is going to drop by one Million Barrels a day over the next few weeks as we go into a turnaround season. So to answer question, can they put a floor in . There is a lot of scared money out there. News, doeson this that make sense to you . Because we will not see a repercussion to cut back four months hence. So why is oil in the stock market rallying . There will be a lot of speculation and the bears have to be careful. Term, wein the short could see lower prices as opec comes online now in preparation for a cut. In the longer term, does it make the taste for lower for longer you get a cut, a rally, investment in production . Stephen an excellent point. What we have done now what are we seeing only get oil to this level . We see u. S. And canadian producers come back online. So what opec has done is awaken a Sleeping Giant. There is a lot of misconception out there that opecs decision to years ago was to try to destroy north american production. Only succeeded in making the north american production stronger. The industry is more efficient and productive with greater margins at lower prices. So you will start to see not only the introduction of russian barrels into the market and other nonopec barrels on the market but you have given a lifeline back to beleaguered north american producers. So yes, lower for longer. Oil in the 40 50 range is a stable area for the next two years. Jonathan lets talk about the potential downside. The bears get nervous and the shorts get fleshed out. What if we dont get the agreement of the agreement . Stephen oh absolutely. Get this agreement of this agreement to this point, we look at what the iaea have been the biggest cheerleader over the last year. They finally came out and said production is stickier than we thought, demand is not there and this glut in oil globally will persist well into 2017. So to your point, if we do not , opec open toent the taps. Then we do not get the pullback and the glut consists the glut persists. Then it turns downward and i expect is the oil well below 40 a barrel in the Fourth Quarter if we dont get a meaningful pullback in local oil supply. Stephen schork, great to see you from philadelphia. No doubt, your question will be one that will be reverberating. Jonathan in the meantime, it is just nervousness. To the morning meeting now where we look at what banks are looking at. The head ofow is asian credit. Eeraj seth the flashpoint in asia was troops attacking pakistani camps. How big is this story to you in the weeks to come . J there have been multiple efforts in the last few decades. In 1999ave the conflict and the Parliament Attack in 2001. And we had the attack 10 years ago. And you have to look at the reaction function of the markets and how they create the function. Byfirst, markets were down 7 or 8 , respectively. Terrorist attack 10 years ago, i would say the markets did not even react much to it. Am i too worried about it . Really not. Because i dont think this will inspire a lot of control here. The bigger point to make is when you think about india here, it is a story built on different it is a combination of the political stability and reform thedment of the government, macro stabilization that has come a long way and the Demographic Dividend the country is benefiting from. When you put it together, it is still a very solid story in a current low growth environment that we are focused on. In my view, if you get a selloff jonathan i wonder if Something Else is happening, a couple of moving parts. In the last couple of months, r. B. I. Government is a nationalistic tone starting to emerge around the prime ministers government. Is that what we are seeing more of now . Is it another sign of this . We keep seeing these flashpoints of nationalism emerging. How much of a distraction will that be . I dont think there is that much of nationalism other than the headlines. Now the changeover was unfortunate for the country, to it ishe doctor but extremely solid. It is an institution with a clear play mark a clear framework. I dont think that, itself, was a big issue. I think i will still focus on the bigger issue of where the country is going in terms of the growth. Years,r the next 510 and how significant it is. I wonder how much you are spending time looking at the european credit, there have been flashpoints there as well. I think we have already equaled last years tally in terms of issuance, is that anything for you to be focusing on . Neeraj absolutely. You think the key is if i look at asia today, i dont see a lot of risk factors coming out of asia. I see headlines around china and i hear about the geopolitics of the china sea that i dont expect to see a lot of noise coming out of asia, itself. But from the market standpoint, you have to look at the global onkets to see what is going and what is happening in europe right now is important. It is what you see is that the further widening for the spreads in european banks spills over into parts of asia. So already there is a correlation in the market perspective and we are looking at it. I dont expect to see this getting out of control, but it is a risk we are focused on. Seth, great toj have you with us on the program. David coming up on bloomberg , we look at the fallout from Deutsche Banks trouble. This is bloomberg. David this is bloomberg. Im in the hewlettpackard enterprise greenroom. Coming up, an exclusive interview with jack lew. Emma here is your Bloomberg Business flash. Texaco is raising the annual forecast after sales of drinks and snacks outweighed weakness overseas. The strong dollar didnt help. Sales fell almost 2 in the third quarter. Barclays are and in talks to settle a u. S. Investigation into toxic mortgage bonds. A Credit Suisse deal could be announced within weeks. The talks could still fallout or fall apart and that would send the case to a civil trial. Deutsche bank is also working to resolve the mortgage pro. Fighter jets to allies in the persian gulf, knowing and Lockheed Martin will be able to send jets to kuwait according to people familiar with the deals. The deals are valued at as much as 20 billion. That is your Bloomberg Business flash. David . David it isnt just Deutsche Bank that is under rusher. Said they are also cutting costs. Questions after the Financial Health in berlin yesterday, mario draghi says the problems the banks face shouldnt be blamed on the ecb Monetary Policy. Mario draghi i dont share this view. Represents a systemic threat to the euro zone, it cannot be because of low Interest Rates. It has to do with other reasons. David joining us now is troy gayeski. Lets talk about the Deutsche Bank risks. Howrly do they broadly do they extend . Troy they took too long to recapitalize after coming out of the crisis. And what you see now is issues hanging over europe. So we dont expect massive Systemic Risk like 2008, but until the Banking System cleans up, it is hard to see european assets, particularly assets, getting a bid at all. Would investors come back until the Deutsche Bank issues are cleared up . David you invest in credit and how does this affect your investments . Aoy complex fixedincome is little more cautious about dealing with Deutsche Bank. David is their reluctance . Of the financing issues. You want to be cautious with those who have weaker capital positions, particularly those who have had 80 declines in stock prices at the beginning of january. Most of our positions right now are hedge so it does turn into a bigger issue. Highyield spreads widen and that will hedge our long position. Jonathan i want to talk about the narrative of emerging markets. At the start of the year it was china. Now weve moved on and it is Deutsche Bank and we havent spent that much time talking about Deutsche Bank. Lift the lid on Deutsche Bank and tell me what you think is the problem, at the moment, about why it has gone to a Eurozone Bank with a bit of an issue to a Eurozone Bank that they hate. What is it . Troy they came out of the stress test worse than most. They have been trying to raise capital by selling riskweighted assets. Look at thatr, you and the franchises under pressure and the business is shrinking. It will be tough for them to raise equity capital. So you put all those things together, combined with continued weakness in europe, and investors are cautious about stepping up and taking a long position. Elerian has a piece out today talking about Deutsche Bank, saying that one of the risks was credit risk of people they loaned money to. If that were true, that might have been beyond Deutsche Bank. Do you see that sort of rampup in the credit risk . Commerzbankluded to news today. And also to the capital which is going maybe well, maybe not. Economy suffers another recession, or have him for bed, the u. S. Economy suffers another recession, there will be a whole new pile of nonperforming loans that will endanger capital. No one expects it but it is a great risk to highlight to the Banking System in general. The european banks are more exposed. Jonathan there is a narrative out there that someone will step in and they wont allow something to happen before the way it did. You cant guess what will or will not happen with funding costs, what is the proxy to understand the tension of what is happening . Troy go back to the share price. You look at a company that lost 80 of its value in a short amount of time while the Global Economy is expanding. While qb is going on. Because the franchise is shrinking and you have the potential liquidity or Capital Raising issues. So that, to us, if you look at the stress, that captures it clearly. Obviously there are technical issues. The last point, no one expects it to fail. Everyone expects them to make it. That being said, hedge funds look at that as a potential hedge in case there is a banking accident. David bring that back to the United States election. Ucb credit markets reacting to the election. We see the peso is down to use the a reaction at all . Troy the biggest reaction is the Federal Reserve. The Federal Reserve, potentially monetizing debt, going lower for longer. Do we do an extension of fiscal policy it depends on who gets elected. That could potentially steepen the yield curve that i think youre right. If youre looking at markets to react, the treasury market will not have a violent reaction. David thank you so much for being here. That was troy gayeski. Coming up, we take a look at the opec situation for alix steel. Oil productions so high it is at the point of no return . This is bloomberg. Jonathan this is bloomberg. Time for battle of the charts. Alix steel versus lisa abramowicz. Alix i am talking about the opec potential cut. This is one potential chart that shows you it doesnt mean anything at all. This is seasonal production for saudi arabia. This is where they are now, record highs. Averages is where the for this time of year for production and this is where we were last year. So the reason why this is important. If we focus on the end of november, seasonally due to a slowdown in demand, normal production changes in saudi arabia and production usually falls around 360,000 barrels a day, if you take into account last years production timeline. If you go into the average, you could see production fall by as much as 900,000 barrels a day. Why is that important . We throw the numbers out there and due to seasonal factors, they were going to cut anyway. So it isnt necessarily a sign of the tightening market but normal adjustments due to demand. This tells the whole story of why the markets may not wind up oring any kind of saudi cut opec cut because they were going to do it anyway. It is all about the spin. Alix 100 . David lisa . A when piece of chalk up when people talk about the bond market, it is how you spin it as well. Howard marks came on bloomberg yesterday and had an interesting thing to say. The biggest risk in the world is the belief that there is no risk. Right now, people are still worried about the generation. If you look at the spread, this is the yield they demand over benchmark trade. It reached an alltime low that before the credit crisis, right . Really low back down here. Then it reached an area that is much lower at 10 Percentage Points among benchmark treasuries. So even with the ecb buying so thembonds and even with joining in on the Corporate Bond pricing train, people are being cautious. People are talking about bond bubbles to a greater degree. Aboute more they talk bond bubbles, the less risk there is. For some people, it is what they believe in. Jonathan it is a bubble in a bubble. I have to say. It teases into the markets beautifully. To my reason, the vote goes lisa abramowicz. David my vote goes to the chart about opec. We need a tiebreaker. Lisa wins it, well done. Jonathan coming up, jack lew. Futures we trade are soft or. Down 25 points on the dow. In london, up 1 on the back of an agreement for an agreement in opec. This is the crude market. A big pop yesterday but steady today. This is bloomberg. Alix we are 30 minutes away from the opening bell in new york. Here withsteele Jonathan Ferro and david weston. Oil is slightly flat but yesterday that monster rally on a potential opec cut. David it was a big day. Weve got a lot of things to decipher. Alix we cant figure out what opec said. The important application is doing Inflation Expectations care . Jon yes they do. The big rally we have had in the equity market, the commerzbank has distribute risk. Then we see how things play out. Alix you know those guys are second, be hedging the at 66 a barrel. Will bring you an exclusive conversation with u. S. Reasury secretary jack lew he will be weighing in on the override of the president s veto of the lawsuit will. Jon in the markets, about 29 openes away from the catch , equities well bid in europe. For an agreement from opec. You saw what happened in the United States but carried to excess is a weaker japanese yen. Cross, thearyen moment in the commodity markets, what a skeptical bunch everyone seems to be. Can they even seal the deal . Today, we traced some of the votes from yesterday. At 4843. In the bonds market, when we see that rally we typically get that recalibration of Inflation Expectations along the market and you see that in todays session. You see it a little bit in guilt and treasury. That is why we care. We see those expectations moving higher. Within u. S. Equities, we are modestly lower by about 1 10 of 1 . Apple is hitting some morning lows. Taking it off with top stock kicks. These are the morning lows. We are up little bit higher but rolling over as well. We do have some earnings trickling out. Pepsi is one of them, beating earnings by 80 . North america really leading those higher. Now, sales growth will be anywhere from five to 8 . Story, a different missing act met estimate could be complete by the end of the year. That stock sidestepping on that and moving higher in the premarket. Areas of thether market, Abigail Doolittle is at the nasdaq. I mentioned apple weighing in on markets after barclays report. We do have apple trading lower in the premarket but berkeley did remove apple as a top picks stark. Stock. It did shoot up more than 10 in recent weeks. He thinks iphone 7 fails sales to be less robust so he has taken it away. On deutscheare up bank to buy from hold. Growth is poised to react tolerate, proposed to accelerate. That theny did report study for a sick is a friend had drug failed. Schizophrenia drug failed. Many analysts seem to be defending these shares, down more than 60 . Jon u. S. Treasury secretary jack lew is in mexico. David gura in an exclusive interview. David . Thanks so much. Welcome on Bloomberg Radio and bloomberg television. I want to talk to you a lot about this but let me ask you about saudi arabia. The white house has weighed in on the politics of it and the diplomatic ramifications of it. I am interested in the economic ramifications. We have saudi arabia warning that they might sell off their treasury if Something Like this happened. Let me start by saying i understand the empathy that people have for the survivors and families of the victims of 9 11. Watched the towers fall i understand but this is very bad legislation. It is bad for u. S. Interests, it is bad for u. S. Representatives and others. I certainly hope that Congress Takes another look. Is that of concern to you . Confident that our treasury market is the most lucrative in the world. We welcome Foreign Investment and we will continue to do so. Saudi arabia will have to make its own decisions and i am confident about the u. S. Treasury. The throughline has been commodity. Lets talk about commodities. We had an opec announcement yesterday. Are you cheered by that news . That the thing about Commodity Prices is they go up and they go down. Economies have to be able to weather the fluctuation in commodities. If you look at economies in around the world, the economies the are well managed our economies where fiscal and monetary policies are welldesigned and Structural Reforms keep growing. They can benefit when things are going well and be resilient when they are not. I am quite confident about the u. S. Economy. And the future of energy development. It is really a question of when resources are developed and not whether they are developed. I think we are seeing sustained growth in the United States and our explanation is that is going to continue. Looking at some of the countries you listed, argentina, brazil, colombia, how successfully have they whether this downturn . Downturn . This i think in mexico the government had sound policy. Revenues. Ed their oil they had a cushion for a couple of years of low prices. In colombia, it is not just the price. The volumes have gone down. With or without a change in price and they had a budget built on an expectation that revenues from oil would be declining. There is no question that it has , wherect on the economy Oil Development and export is a major part of the economy. But if you look in this region, you have seen Government Economic policies stabilize the ability of the economy to be resilient. It doesnt mean there isnt a negative drag but it is a good example of good fiscal policy. You are set to deliver a speech in just a little while on the usmexico relationship on campaign season. It is hard to cleave politics from that relationship itself. I will bet someone in the audience is going to ask you about the risk of financial contagion depending on what happens in the election. We see it rise and fall with what is going on. What is your answer to those worried about that . This is not my first trip as treasury secretary. There is a reason for that. The usmexico relationship is very important. It is important as a security relationship. As i will be speaking about, in the region, the u. S. Relationship of the western hemisphere has been central to and ourrity interests economic interests. I think we have deep relationships here and we have a lot of emphasis on deepening and developing and i am here to speak about that. That theno question u. S. And mexican economies are very much interconnected. Look at the number of people who go back and forth. We sell a lot to mexico as well. It is important for both of our countries to do well. I would imagine you are more interested in Monetary Policy than masonry and fiscal policy than fencing but there will be questions about your speech being about openness. I think that there is a lot of anxiety in the world today that technology and globalization is having on the new lives of the people and not just United States or mexico. We see it in europe and around the world. The answer cannot be to shut ourselves off and say that we can do better with lower growth. We arewer cannot be that going to separate our interests from those of our neighbors and not cooperate. We have to look at why that anxiety is there. It is not hard for me to understand. We have had policy proposals over the years. Some have been enacted and others are pending. We know that there are a lot of people that are going to benefit from economic growth. People will say, what does it mean for me . We have infrastructure that needs to be modernized. It creates good jobs and also helps. Nobody enjoys being stuck in traffic. We know that people are worried about will their kids have an opportunity that they have . Primary education and technical education, we can help people. Childcare is a burden that most working families struggle with. We have had proposals to deal with all of that with some success and we have to do more. The message of governments should be that we are determined to have overall growth touch her life. We could get back to a place where there is a broader understanding that there is benefit from interconnectedness. We last spoke in china ahead of the Eu Referendum in the u. K. Andimportant is it to you the administration that the city of london remains a Financial Hub that it has been . The United States and the u. K. Have a deep relationship well beyond the economic y are anship and the strong, likeminded partner. Work and europe can work out their relationship. The sorting out of where banking will be done will happen over time. There is a lot of interest in the world and having it settle down but we also have to be patient because this is going to be a long process in terms of , after theso far boat i wouldnt be up to say it. After the vote i wouldnt be able to say it. The question is how the eu responds and how we continue all parties to be focused on europe and the u. K. And the global interests and maximum integration and finding a pathway to achieve that. At what point does it become worrisome how long it lasts . I will tell you. I think there is going to be a lot of time. If it is an environment of amicable engagement where it is not parties trying to show that they made a mistake or that they are proving that they are the better or superior party, if it is about finding a pathway towards maximum integration in a world that has changed, i think there will be patients patience. Thought it was hard to imagine a quick solution. It is going to take time for the policies to settle on both sides. I think it is in a state a mistake to think this will get resolved in weeks or even a couple of months. I think the character of the engagement will have a lot to do with the confidence in a place that is constructive. Europeandown with the competition commissioner last week and she said there was a class of understanding when it comes to these issues between the commission and the treasury department. Do you agree with that and the yoution have more confidence that she is not targeting u. S. Companies in particular . I have met with the commissioner plenty of times. We agree that it is wrong for companies to be able to do their tax planning to make large amounts of income statements and not subject to tax. So we dont disagree with that. We have a solution in the United States. Tax code and our make it less attractive for companies to leave. Shouldntur allies have competitively low tax rates and that is government policy that we need to take action on. I disagree on is this idea that you can rewrite tax law retroactively, take a national tax agreement with the company and break new rules and shift the tax burden from being a u. S. Tax burden to being a european tax burden. Where the difference comes in is she doesnt believe it is a tax policy and that it is in a policy and the rules of state aid make the appropriate. In the world of tax policy i am not alone in thinking this looks very much like a retroactive tax and action that shifts the address. We have a lot of work in the United States but we dont think it is right for that to be preempted by another sovereign entity. I also think it is not going to contribute to an environment where u. S. Businesses and businesses from other countries will have as much confidence that they understand what the terms are because when you do that kind of retroactive policy, it creates uncertainty. , wealue the relationship continue to Work Together in a very close working relationship with the commissioner but we we veryree on this and much hope it is taken into account. Yesterday the colombian finance minister was talking about private sector investments in his region. What could be done to encourage that in emerging markets . The Peace Agreement in columbia was a big step. We were talking about uncertainty a minute ago. When you have a decadelong war in a country it creates a lot of uncertainty. That doesnt get resolved the day the agreement is signed. There needs to be confidence that it is durable. But i think if this is implemented and that sense of durable stability becomes more a lot accepted, there is of pluses in the colombian economy. They are respected around the world for having done so under difficult circumstances. They have a Credit Rating that has given them access on favorable terms to international markets. There is an issue in columbia where the expectations of the thingsmatic event like will change tomorrow. Things do start to change and this could be the beginning of a new and more prosperous. In terms of columbia being an attractive place to track Foreign Investments. Morality talk of multinational nations involved. What is the u. S. Prepared to do when it comes to it . We work closely with the imf. There are needs. What columbia was talking about internallyal with displaced people and a lot of internally displaced people because of the long war. Egypt is a different situation. Egypt has a deep economic challenge. They have put significant reforms in place. The fact that they work with the imf on reaching preliminary agreement on what reforms will be required to get support is a very important change. Whatever happens on the strategic side, if you dont have economic bases sound, the challenge is only get worse. Egypt needs to have a sound base financially and economically. We have been working at it andaboratively at the imf we have, in the past, provided assistance and i think we will leave it at that. My last question is about growth. We had another stopgap spending measure last night. Washington is fractured, china is dealing with overcapacity and with death debt. Isdoesnt seem to me there one locomotion driving the economy as of yet. We have this underlying of locomotives for the economy. We have spent a lot of time thinking about this and working with my counterparts around the world on it and we have a good, stable, growing u. S. Economy. Around the world, there is a great deal of respect for the resilience of the american people. How do you bounce back when we are struggling . We are going to do everything we can to do better but around the world, how do you bounce back . Been clear with my colleagues for a long time that they have policy tools they need to use and they need to use them in different ways for Different Countries depending on what the circumstances are. Some countries have more physical space than others to grow their economies. Countries have had more stable monetary policies than others. You need to have a Monetary Policy that is both sound and addresses the needs of the moment. Structural reforms are important. A lot of countries wonder why people arent being hired but then they look at the business deals in terms of what it takes to hire people and they dont address any of the concerns that make it so difficult. The United States had a serious problem with a broken financial system. Went from causing a Global Financial crisis to being seen as one that is now the safest and soundest in the world. The Structural Reforms take time. You have to stick with them and show that it is not just a speech but there are actions. With the right combination of policies, government can make a difference in almost every country in the world. I see people willing to use the fiscal year rules fiscal china to canada to south korea to japan. Even in europe, you are seeing not large amounts of fiscal stimulus and the kind of counter you are easing up on targets so that countries dont have to choose between paying for their settlement and paying for their bills. In germany, the center of the Austerity Movement you are talking about a tax cut in a year or two. Butnt think we can go back have more balanced policies been put in place after the Great Recession . I think the Global Economy would have been doing better. Out. Ight policies are laid they are going to have to implement them and follow through. There is more that we can do to help. That is why we meet as often as we do. Thank you very much. Alex, back over to you. Alix thank you very much david. Jpmorgans now is the Asset Management director. We want to highlight what jackson said about the economy. The rumor is the biggest sale is 700 billion worth of treasury. Legitimate . Ll that is most likely not very not a very credible statement because if you look at the amount of u. S. Treasuries in the polls and maybe someone can even bring that up, right now the figure is around 96 billion and the highest was 125 billion worth of u. S. Treasury. What is 96 million . That is a couple of treasury auctions. I am telling you look at that. If we did wind up selling something, do you still have that investor waiting ready to pounce at any time of higher yields . Government securities in general are still being supported predominantly by banks and Central Banks will not. Emain economically effective that will continue. It may cause a glint in the yields but the number is not big. Of anhave the Agreement Agreement from opec yesterday and i wonder what that means for the saudis. We have this massive portfolio effect at the beginning. If that starts reversing in another way, that is going to happen. We saw in the credit markets yesterday, right near ent stocks, we certainly saw some spread tightening. That is definitely a positive because when you look at overall landscape, the opportunity landscape is tremendously limited and one of the few places where you can still get yields. Before, energy will continue to go through struggles. There are questions as to whether they can actually move forward with this agreement. But ultimately when you look at the default standpoint and what , you arematerializing basically getting paid a decent amount in a world that is starved for yields. We are going to look at energy later on in the hour but as john points out, when you have oilproducing companies and countries not reinvesting but having to sell, with some kind of opec deal does that stop it . Do we get back into quantitative growth . That is a challenging question. Perhaps not. Glut is still a tremendous on Oil Worldwide but we are seeing more of it every year. There will come a point where that comes in balance irrespective of what immediate decisionmaking is but we are not quite there jon . Great to have you with us. Much more coming up as we count you down to the cash open right here on number go. Bloomberg go. The s p 500 in 83. In europe we are still well bid on the ftse. Oil and Gas Producers doing well today. Big pop to the upside yesterday. 47. 24 and yields higher on the 10 year by two basic points. The open four minutes away. Hey hows it going, hotcakes . Hotcakes. This place has hotcakes. So why arent they selling like hotcakes . With comcast Business Internet and wifi pro, they could be. Just add a customized message to your wifi pro splash page and youll reach your customers where their eyes are already on their devices. Order up. Its more than just wifi, it can help grow your business. You dont see that every day. Introducing wifi pro, wifi that helps grow your business. Comcast business. Built for business. From new york, this is bloomberg go. Moments away from the opening bell, this is how we trade globally. Down about 14 points on the dow, negative on the s p 500. Oil and gas stocks on the stoxx 600, the recent benchmark by over four full Percentage Points. Switch of the board. A broad bid, dollar bid in the g 10 space. More pronounced on the dollaryen cross. Now we trade up 9 10 of 1 . Points on the 10 year yield. We trade that a little bit stronger again now at 47. Agreement for an agreement. Will we get an agreement . Alix stocks really ignoring the global rally. The fact that we had a better gdp revision for the second quarter. Stocks moving slightly lower, the nasdaq off by over 1 10 of 1 . Apple removed from the top picks list. Keep in mind, this is the second to last day of the quarter so gyrations repositioning should be expected. Of individual market movers, pepsi on the upside, earnings better by eight cents. Pepsico. On the downside, the cbs and viacom are also up, making a former formal merger proposal. Getting hit hard is fitbit. Its flagship holiday product is the charge two and it is off to a slow start. Opec, one of our top stories, oil prices inching higher and chartto me, is a great that shows why any opec cut might not matter. Is where we were back in 2009. Youve got 10,000 barrels of oil for 80 a barrel. You really need Higher Oil Prices to make more oil. 2014, you hado 25,000 25,000 barrels for 80. In 16, you could produce 35,000 barrels a day for 80 or less. Shale has lowered the cost curve so much that opec and saudi arabia might not be able to actually influence prices. Say that they can go up the cost curve and that winds up weighing on prices at the backend and that is a medium to longerterm risk when you take a look at any opec cut production. I can tell you about iran and a very happy oil minister in iran. Listen. I am very happy. Two and a half years, we have had a very constructive at clement in opec. Difficulto the many situations. Jon of course he is happy. Isning us now from denver he supplies saudi arabia and alaska on their energy initiatives. What is the potential we actually get . These guys managed to create some kind of quota ticket that range they had outlined. That is a question for me . Jon that is for you, sir. Dicey. Ink it is very but this is conditioning the market. Was conditioning the market to expected to fall apart. That created the ideal backdrop to catch the short comers. This will give the maneuver and room for the discussions coming up over the next two months. As you think about how long this can last going into 2017, it is pretty clear russia wants to increase production and probably has the capability to do it on the old fields they are actively redeveloping. The cold war conditions between iran and saudi arabia have not but they have a shared objective to try to make something work. Will it work for a while and can we get into the 50s and maybe for a. In the 60s . Perhaps. But i do think we will get that supply response that alex talks about that will be an incentive for those who can bring on new production. I think it is a backandforth proposition. U. S. , you have continental up 11 and pioneer up 6 . Talk to me about their hedging strategy right now. Are they hedging at 50 or 60 oil . Isi dont think it compelling at these prices but if you get into the high 50s the lower or middle 60s, it would become very compelling. Alix does that mean any kind of increase for shale can actually offset any kind of cut we do see . I think the leadtimes involved are a little longer then maybe anticipated in some of these projections. We have undone basically a billion a million that day back and we are going to bring a million back at the same time we lost it. If there is one other element here and nobody has talked about the embedded decline set into the global producing base, given the capital starvation we have had for two years running. Now, Capital Spending is still on that order of magnitude. So i really suspect that we will get into a. 2007 where the embedded declines will offset. That is just like an increase in demand beyond what you are hearing now. Chevron and you are you are not saying great, they want to be a price stabilizer and we can increase investments. Is that not happening . Especially not in that case because the challenge the Big Companies have is their portfolio is not one where they get a response in less than 35 years. So they get a lot of risk in that kind of portfolio. That is why you see more of the market interests in the onshore shale players where it is much adjustanular and able to to circumstances that may unfold in 18, 19, 20. Jon if you are looking at credit, do you see this as an opportunity to face that . One thing i wanted to add was another factory that doesnt get a lot of attention is depletion. If you look at the world oilfields, some are 40 years old. So depletion happens all the time but is not evident all the time. It is having an impact. What is happening to prices and the you consider the fact that it is nonexistent potentially a little bit longer than that . This may come in fast and furious all of a sudden. From a credit market perspective, yes we have seen some contraction and spreads. Energy will continue to struggle. In the next energy basis, you are getting Something Like 6 . The lack ofn just alternatives in terms of generating income instruments in the world, we are going to see a Technical Support continue to build their. Build thre it is still negative in terms of outflows on a oneyear basis. Looking at thef fundamentals not being as pristine as they were, they are not terrible. The technical will continue to carry. Will people want to loan more money now . Perhaps to certain operators, not all operators. The issue of hedging has to be examined closely. It is not going to be indiscriminate. The pivotaltering redetermination season where banks we determine how much they are going to loan oil companies. With us change the perspective . We have worked through a lot of the bankruptcies. Some could occur but it will take a meaningful downside test to pick that up. I think the banks are going to be very focused on redeterminations but probably with a view that the sum of size that could occur may count on some of that for cushioning. Jon thank you very much for giving us your time. Owner of j. P. Morgan Asset Management will be staying we talk about diversifying a portfolio and white indexing is a bad idea. York, marginally softer 10 minutes into the session. Down eight points on the dow. This is bloomberg. David david this is bloomberg go. I am david westin. Coming up later today, dan yergin, vice chairman on opecs Oil Production freeze. Jon this is bloomberg. I am Jonathan Ferro. 15 minutes into the session, this is how we train on the majors. Down about 1 10 of 1 on the dow. A similar move on the nasdaq. Helping to explain that modestly lower open here for the nasdaq, apple isnt the biggest drag on the nasdaq, as sparks as its top apple i. T. Hardware pick replacing it with western digital. The iphone sales may not be as robust as some think. He thinks he sees in improving dynamic storage server dynamic. , plunging big loser his intercellular therapy. Actuallyit was succeeded. Thisanalysts are defending , absolutely plunging on the open. , institutions will have a hard time getting the returns they need. Howard marks gave his affectations yesterday at Bloomberg Markets most influential summit. Asfive and a half strikes me the most reasonable expectation. For the longterm. That is a big problem for this country. Is of somewith us off. Seven and a half, maybe 8 , getting to five. How much is that. Part of the book of the market that he is in, i am not sure that is a feasible target for someone dealing and liquidity. No pension fund would be comfortable putting their assets into that. Issue and i think what happened over the last several years, and in several decades is strong performance. Which is what the systems has relied on for decades. Of entering the conversation on how do we identify the strategy that will be successful, we are hearing more and more about indexing and the costs associated with not working and he should take a lowcost approach. That may have a place in the portfolio but when you talk about the market that is potentially about to go into an , lets startint with that. We are not talking about stocks that could keep going. So when you talk about that boundary in the market is as close as it has ever been, i dont think blindly following it with an index is what you want to be doing. The you go through commercials and you hear, get your income or your dts. Messy is that . Messages in this debate is the most efficient way is to do it through etf. Have some of the largest Institutional Investors now transacting through the etf markets. You have thrift bearing funds making significant use of it and they move really fast and furious. Look at earlier this month. Anticipating,was you saw significant hostilities. I think a lot of it is reallocating because as the market moves down, they have to sell down their positions. And their size has potentially made them challenged to rely precisely on the Market Dynamics they relied on in the past. As they are selling down their bond portfolios they have to also south sell down there stocks. What is the difference . What is the margin between active and passive investing in terms of yields . I think you have to be able to Pay Attention to not just what is talking to you but what is the possibility of staying flexible to avoid these risks. What it is depends on what your goals are and what your income orientation is and how much liquidity you are willing to give up. In re taking something something relatively liquid and putting it into the stock market. David she is fixed income strategist at j. P. Morgan Asset Management. At the top of the next hour is Bloomberg Markets with nejra cehic and vonnie quinn. It is going to be a great one. A lot of the first hour is taken up with wells fargo ceo john testimony in front of the House Financial Services committee. We are taking that live in the show so we will keep a close eye. Not expecting anything different from the testimony last week but he is foregoing his stock and salary so it will be extremely interesting to watch. In the second hour we are playing my interview with ceo luke ellis. He is the ceo of the world against publicly traded hedge fund manager. Thell see him ahead of influential event in london. We covered a lot of ground, about the difficulties facing the Hedge Fund Industry at the moment. Covered. At was i am a going to give too much away but also investing in a low rate environment, you are going to hear about it. Alex . Alix we have a train accident in hoboken according to the ap. A commuter train crashing into new jersey rail station went through the barriers and into the reception area. There is no word on any damages or potential injuries to individuals. That Train Service is suspended in and out of hoboken. Crashing intoin new jersey rail. You are looking at pictures now. We will be right back. David this is bloomberg go. Wells fargo ceo john stumpf is back on capitol hill today. He has some explaining to do. Janet yellen told congress she would be doing her own in the investigation. She is raising questions about wells fargo. Andt is the largest banks we have undertaken and we are undertaking a look, comprehensively not only in the consumer area but compliance generally because there has been a disturbing pattern of violations that occurred in the Foreign Exchange trading. In many different areas. I didnt know anything about this a month ago. T else dont i know about what else is happening that none of us know about . Hat is what is alarming this could have been going on for four or five years and it wasnt on peoples radars. Look at what doddfrank has done. U. S. Banks have doubled the amount of a have. They have more than doubled the amount of liquidity they have so on the frontend the banks are much healthier than they were. We are not asking for more regulation now because we are dealing with something sufficiently strong and stable because we dont need it. David wells fargo has taken back his pay but lawmakers are far from satisfied. Laura keller has been covering wells fargo. Number one, what do we know about what he is likely to say today . It going to have to be more of the same. There are a lot of things that have happened since last weeks hearing. Fallbacks, there has also been clawbacks for executives involves. The leader who has been heading up these banking operations there are many questions that even the senate from last week could not have answered. The democratic senator has asked for 58 questions and answers from wells fargo. They really believe this is going to be unpleasant, contentious and quite a lengthy hearing. In the state of california, they are going to suspend dealing with wells fargo for a year. I wonder the extent to which this is going to spill over to other banks. This could affect things like whether doddfrank has changed or breaking up the banks is going to do that. Have this political football now with wells fargo starting it off. Fpb,ave it with the stb and that is between the republicans and the Senate Democrats for quite some time. Democrat, this is the reason we need to have the cfpb. Maybe it shows this is too big to manage. On the other side we have republicans who say this is fine, just one issue. Where there ise more than just this little issue. David that is laura keller reporting from california. We are waiting for john stumpf who will be testifying before congress. We will be taken out live at 10 00. Gorman was saying this is going to be an easier doddfrank environment going forward. Jon this is in regulation. This is circumventing rules. David its breaking the law. As will keep you from breaking them. Issue, is a reputation not just a regulatory one. Lets get you up to speed and wrap this up. Lower, down eight points on the dow, s p 500s negative. Of the that of an agreement for an agreement, from new york city this is bloomberg go. Bloomberg markets is next. To bloomberge markets. We are covering john stumpfs testimony today on capitol hill over that scandal where weller spago opened up 2 million accounts without customer consent. He was grilled by a Senate Committee last week. Im vonnie quinn. You are watching Bloomberg Markets. Nejra im nejra cehic. Fromll bring you remarks john stumpf when they begin. He also says he will more forgo 40 million of stock and celery as the board investigates. He is expected to address the development in his Opening Statement coming up shortly. You can also follow along on the bloomberg using tliv go. Julie hyman has some Economic Data. Pending home sales up with the month of august, an unexpected decline of 2. 4