Transcripts For BLOOMBERG Bloomberg Surveillance 20160908

Meetings. It . Ael can you believe he will miss the ecb meeting. I am hearing a lot of interesting comments, saying that the ecb has to do something, but if they do something that just pushes up valuations, and maybe it is a bubble. The market can decide if its a good move for bad. Francine he really needs to make sure the markets understand how he can maximize qe, and its unclear at the moment. We will have more shortly, but first, lets get straight to the first word news with taylor riggs. Taylor the president , mario draghi, may have no choice but to extend his bond buying plan. He held a press conference he will hold a press conference. Most economists surveyed by bloomberg predict the ecb will have to extend quantitative easing. Hillary clinton and donald trump made backtoback appearances at a form of military last night. It was sponsored by nbc news and a veterans group. It was held on an Aircraft Carrier in new york. Clinton was asked about her plan to defeat the islamic state. We are not putting Ground Troops into iraq ever again, and youre not planning Ground Troops into syria. We are going to defeat isis witho committingut. American Ground Troops. Taylor trump was asked what he would be like as commander in chief. I would be very, very cautious. I think i would be a lot show her. She has a happy trigger and it is a tremendous burden. There is no greater burden. Day, heearlier in the proposed adding more trips to the army and increasing the number of navy ships. Iran says this month is too early to discuss freezing oil output. Official from the staterun oil company said capping production wont be on the table until oil reaches the level it was before International Sanctions were imposed. A freeze is likely to be discussed at an opec meeting in algiers this month. And japans economy grew more in the Second Quarter than the government first reported. Gd rose at an annual rate of 7 10 of a percent, private. Global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Francine . Mike . Michael lets get you set up on the markets as we await mario draghi. If you look at equities around the world, not much going on as we wait for the ecb decision. The same is true in the bond market; little movement. That will all be about Interest Rate differentials. The euro base case gets a little bit weaker as the European Central bank possibly does some more easing, and heres interesting oil. Its inventory day, pushed back because of the holiday in the u. S. On monday. Private numbers suggest inventories have plunged, and we are seeing west texas intermediate up big. Taking a look at the other boards, the twoyear yield unchanged. Thats the one where we watch to see what the fed does. Not much going on. We will see how it develops. Unchanged. Australian dollar is the biggest mover against the u. S. Dollar, because of improved trade numbers from china in gold. China is probably my top story. I want to show you the yuan. This is the big picture overall, its my chart of the hour. We were looking at hibor, the cost of borrowing money in hong kong, surging to a sevenmonth high on speculation that the pboc will intervene to discourage bearish bets. Stocks in europe are little bit flat, and the vix is down someone pointed percent. This is a rather different ecb meeting because markets have been so flat. Were really trying to test the credibility of mario draghi, to see if he can show the markets he means business, and he has tools left to extend kiwi. Extend qe. Michael my chart is Mario Draghis future, perhaps, taking a look at what happened to the bank of japan. The cancer has always been by more government bonds, but look what has happened. Andbanks still the bonds, the bank of japan is not the older. Y bloomberg estimates that by the end of 2017 banks will have sold so many of their gigi bs they wont have enough to meet their capital requirement. The bank of japan has to stop buying. That is a problem that may be in draghis future. Francine i love those sharks. The boj i love those charts. The boj was saying that the European Union should avoid the mistakes they have done in the past. This is what i am looking at. Its not a plain vanilla, but i am looking at hibor. Yuan in hong kong, but this chart tells you that there is a little bit of uneasiness from authorities in china after the g20. We heard from saying pboc may have tightened liquidity, which is the blue line at the bottom. This is because there is speculation that it would allow the won to depreciate. Wants toee that pboc support the economy to make sure everything is smooth, and its 6. 7 per dollar. Lets bring it back to the ecb, everything is interconnected, feel forecasted changes. Just under half surveyed by bloomberg expect to see some sort of action, is likely from prolonging qe. Caroline hyde joins us now from the ecb in frankfurt. Caroline, the problem is distortion. He needs to navigate, telling people he wants to extend the program without distorting the markets further. Caroline and just look at the distortion today, francine. Spanish borrowing costs at a record low yield. We are seeing borrowing costs from sovereign tried ever lower, and that is part of the problem. Its a struggle to buy the 80 billion euros per month that they need to in live with the quantitive easing they set themselves, because the negative yields on german bonds, 2 3 are below the current deposit rate, below. 04 . Thats a selfimposed rule may have on themselves. The the question today is what are the distortions of the market . This week alone, selling negative yield bonds. Are corporates getting paid by the overall Investor Base to sell debt . Significant distortions, the question is whether or not we evidence today that 80 of economists think it will happen at some point this year. Michael with the markets think . Our investors on board with the idea the same way economists are . Caroline i think the lack of volatility has been one to look at. I think one part the data says go, and the market says no. Market volatility is that real lows, and fi you look in the bond market we havent seen these record low trading wages since 1991. Only 10an bund moving basis points over the last few weeks that is unheard of. But the data starts to signal that there could be some stimulus. Eurozone numbers out on monday, lowest growth in 19 month. Inflation at. 02 . The lumbar can mario draghi do . You can extend the bond buying, but of course he can also cut himself some slack in terms of the ease of buying bonds, buying below the deposit rate, or more than 1 3 of each issue. Francine thank you so much. Caroline hyde in frankfurt. Mike, im looking forward to listening to mario draghi dance around the idea that he is distorting the market. We havent heard from him all summer. Lets see how he answers on brexit. To find out more on how he would answer if you are in charge, lets get to the ceo and founder of investment, which manages 4 billion. Thank you so much. Youre mario draghi, trying to tell the markets everything is fine. Were distorting the markets but we still have tools left. How do you explain that to a market that is jittery, that focus is on the wrong thing, and is sometimes very binary . I think the key issue for mario draghi is the economy and inflation. Thats what matters to politicians and voters. The key is that 70 of lending in the eurozone is done by banks, but most importantly, 100 of lending to s es are done by banks. The fact that he is buying government bonds and is bringing the cost of large traded bonds has no effect on 85 of european jobs. I think francine inflation is going nowhere. Exactly. We have no inflation unless you have aggregate. Francine rate. So focus on growth to get inflation up. And the only way you can stimulate that is you need to put more resources into the sector. Those account for 85 of the jobs, and at a time where either you hire Government Employees more, which everyone has seen doesnt help, or you stimulate the private sector and thats how you get s e job growth. It might be that the problem is a reverse combination. On the one side the ecb is bringing Interest Rates zero, negative, so banks feel weak. But the most pervasive element is that on the regulatory side, the ecb at the same time caps on hiking. Its like having a car, where one side is pushing the auxiliary and the other is putting the handbrake. Mario draghi as head of the ecb is pushing forward on the accelerator and people want more bonds, of the regulatory side keeps saying more stress tests, more capital. The car is bidding and going nowhere. Most importantly to the parliament, the European Parliament michael the way mario draghi does this is going to be important. Our guest the other day warned that if they take rates too far negative, the rates you are talking about will be squeezed, and you could have a negative feedback affect. How much room does the ecb actually have to move at this point . Today, we published a piece. I think we are about to see a regime shift. States,ity is in these because 70 of economists qe had the very important effect of lowering. The cost of borrowing in europe we also need to have the banks. You will not be able to get European Growth back to. So far, negative deposit rates you have seen this. The earnings have been more or less stable, but investors are extremely scared that a continuation of negative Interest Rates will, longterm, cause a loss of impact. And with the Banking Sector has a valuation which keeps on collapsing, the bank stop lending. Cash, are a discount to they will recover their own valuation to cash. What happens is you create negative growth rates. So now the ecb, on one side, is saying, if you have cash, you lend it to me, you will lose 20 to 30 points. But if you make new laws, im going to pay you up to 40. The ecb is taking away money from banks and giving it back. Francine i see your point. Is a tricky situation. We will have more. Well also bring you the ecb decision at 12 45 p. M. U. K. Time, followed by Mario Draghis News Conference. This is bloomberg. Francine live pictures from vietnam. This is the last News Conference of barack obama before he departs laos. The room is full and he is due to speak in the next couple minutes i wonder whether he will address the Foreign Policy of the u. S. , which is largely regarded as fairly inconsiderate to asia. London. Ncine lacqua in Michael Mckee is in new york. Lets get more with asia and focus on china. The cost of borrowing won has risen amid speculation that the bank is going to intercede. Have our chief asia economics correspondent in hong kong. Our guest is still with us. Lets kick it off with you aboutses hibor tell u pboc policy and how the markets are reacting . Good morning. We saw something of a slump in the risk for currency traders and you noted that the would usens they that opportunity to let the currency weekend. Money markets made it much more , in otherto borrow words telling traders to take us on. ,efore they had some success but by all accounts the big message from today is that china is signaling is doesnt want to let the won weakn. They are about to go into that imf basket of currencies. Is this related to that . They dont want to let the currency dive too much and jeopardize the way people look at the yuan . Entirely right. Its all about best behavior, about optics. It wouldnt be the smart move by china to let the yuan fall and at ahard into the basket time when the\against globalization at a time of backlash against globalization. Once we go beyond that, it becomes maybe more of a picture of what china will do. Theres certainly enough market pressure to push it down. Francine enda, thank you so much. China on the best behavior. When you look at china, we havent had any volatility of the crazy markets we saw last year. But what have we learned about the appetite of chinese authorities to transition the economy . First of all, we were in our view would have been able to manage it. You have to look at the fundamentals. Second, remember, its a closed camp in a way. You cant exchanging currency and as a result, they have more tools than others. There was a huge expectation in capital outflow that hasnt happened. The reason is, if you look at a return on capital today, they can still make a hard return on capital. Thats why there has not been a glut. The key issue in my view has been the changing leadership, view, taken our power. Before you had 20, 30 people. View, taken theres now something thats free to fall. You have a buffer net. You can grow sustainably at 5 , 6 , 7 . But growth never really slows down. Michael stay with us. Coming up, we pivot back to europe. Megan greene, the chief economist, joins us. We will talk about the ecb and the brexit fallout. This is bloomberg. Michael good morning. President Obama Holding a news laos just before he leaves. He is on his last trip to asia this presidency, saying that the nations critical to the future, touting his visit to asia. He said he had a memorable trip. We will bring you headlines as he makes them. Francine we certainly will. We talk to about the ecb, a little bit about china. We havent talked about brexit. I took something from the financial times, and the financial editor says brexit denial is the order of the day. The brexiteers trumpeting a bright, independent future see as a departure in event departure as an event. Our guest is still here. We also know that the Prime Minister, theresa may, is leading donald tusk. Tusk was the process to be sped up. This is the last thing the u. K. Wants, but they dont have a plan yet. Is that fair . What is the best possible outcome . Brexitink the reality is we will know in 34 months what it means, because brexit means you are about to learn all your about to lose all your trade agreements. They have 24 months to set them up. Michael does that mean they have already said we are at the end of the queue. This is a country at the and of the cuba we will keep the trade agreements. Far, you have uncertainty in the economy, but we will know in 24 months. As a result, any conclusion today is hilarious. Put the so do you just u. K. And u. K. Investments on hold for that period . I think you will see two different behaviors. You will see like japan, which is very clear, where we are extremely concerned over the car being made in the u k and exported to europe. If you are not going to be in the Single Market, the cars we make in the u. K. To sell into europe, they wont be able to sell. That means they have to cut production and plans. Banks like ubs, the market has already said we will move up the tax. For finance, we will be in the Single Market or not . This is a huge, huge decision. So far it is business as usual. Nothing has changed from a legal point of view. Time, thinksths will change. I think the u. K. Will muddle through. If there is a shock, i think lots of businesses will hit it hard. Francine we will talk about the application on specific banks. This is bloomberg. Ecb and banks next. Michael good morning from new york and from london. Im Michael Mckee with Francine Lacqua. Louse,nt obama isnt tha in the his last in laos. He expressed concern about south koreas missile launch, and then pivoted back to u. S. Politics. He asked if he was humiliated, as donald trump combined. He says as far as he can tell, everybody likes in asia. We will continue to monitor the News Conference and bring you headlines. Lets get to bloombergs first word news with taylor rates. Taylor we will stick with u. S. Politics. Hillary clinton and donald trump appeared on the same stage last night but i different times, making separate appearances at a forum on the military hosted by nbc news and a veterans group. Trump says he would ask the military leadership for a plan to defeat the islamic state. When i do come up with a plan agreeslike and that with my or maybe doesnt ill you have your own plan . I have a plan, but i have a very substantial chance of winning. We will make America Great again. I have a substantial chance of winning. Taylor clinton indicated she would be cautious in committing u. S. Troops to action. We will make America Great again. I view force as a last resort, not a first choice. I will do everything in my power to make sure that our men and women in the military are fully thatred for any challenge they may have to face on our behalf. Taylor they will be together on the same stage it on september 26. And on capitol hill, the stage may be set for congress as nato override of the obama administration. They will vote on a bill that would allow families of 9 11 victims to president obama is opposed, saying that diplomats abroad would be threatened as a principle of sovereign immunity. Congress may have enough votes to override his veto. And aides are urging france will holland to sit france will to getcois holland another term. Polls show he is the most unpopular leader in french history. Former president Nicolas Sarkozy has already announced he is running. And in tennis, andy murrays big sunny has big summer has come to an abrupt end. The lost in five sets. Wimbledon and won took home the men single of the olympics. Global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. This is bloomberg. Mike, francine . Francine thank you so much. Andy murray, the only tennis player that is really politicized when you look at brexit, scottish independent, weighed in on the sexist remarks we saw in rio. Two hours away from the ecb decision with the market expecting a 2016 stimulus extension. Lets stick with thomas mayer, former Deutsche Bank chief economist, joining us from colonggne. Right to have you. Will have to do today . He will have to field questions on brexit, market distortion. And at the end of the day he has to convince the market that the that he has tools to deal with anything coming his way. Absolutely. I think his biggest problem is that he has promised to raise target,n towards the which is close to but a little bit below 2 , and for that purpose he has fired off an enormous program of asset purchases, and still inflation is hanging a little above the zero line. He has to convince the market that the ecb will achieve their goal. Francine are negative rights path . Ates the right there are more and more Market Participants saying we have come down the run route. I agree. Is to havement lowered Interest Rates almost across the entire majority spectrum, to very low levels here in germany, up to 10 years to negative rates. This should have, if the theory was right, happened by now. But it hasnt. The side effects have been more serious than what they intended to do. Is that the very low Interest Rates are pressuring Profit Margins on banks, raising pension liabilities of companies, making it difficult for people to save and to make provisions for old age. The side effects are more serious than the intended effects they wanted to achieve. Michael we had a point where the ecb might want to consider just getting out of the stimulus business, dialing back. He said he has to convince the markets. How are we going to know if he doesnt convince markets that just want more stimulus, because it props of asset prices . Right. I think they have backed themselves into a corner. I dont think they are able, at this stage, to get out of line. They will just increase the size of the purchases by extending the time, during which the program runs. Right now it is scheduled to expire in march, 2017. A may have some point also increase the spectrum of assets, maybe even and this is perhaps not immediate maybe even extending asset classes. Michael had to continue buying more if they start running up against the limits on what they can buy . Will we see them abandon the capital . Well, that is the big political issue. You are absolutely right; theyre running up against a limited supply. They cannot buy bonds with yields that are below their official rates, 0. 4 . As i said, in germany, 10 year yields are below zero. Limited, andis they have to buy a lot of bunds, by changing the t is a highly political issue. The ecb is not supposed to treat countries preferentially, so buying a lot of italian bonds, which they could do, would immediately raise suspicion that they are monetizing government finances. They will have to find something peoplend interestingly, are now talking about the possibility that they might follow the boj, and perhaps even consider buying stocks. Francine our guest has a question for you. I was thinking what about actually buying senior bank bonds for those bags which have been checked by the ssm, andd as a result, the ecb has a strong view . They can follow capital keys within bank bonds, and as a result, suddenly the available paper will expand, and the ecb wouldnt be in a corner. Even more so, that would lower the cost of funding for banks, and actually provides real stimulus. What is your view . Yes, there is the possibility of doing this, but when you consider that the ecb also has taken over as a single supervisor of banks, and is supposed to take a critical look at the banks, it could there could be a conflict of interest. On the one side, the policy Department Buys bank bonds according to a preset key. On the other hand, there is the supervisory department, which looks at the banks specifically. I think there is a difficulty in this. That is why i believe that they probably cant do that. Michael one of the bottom line questions in terms of how they expand their purchases is how close can they come to the line of monetizing debt . Buy, the closer they get to that. Indeed. And as we have now discussed, i think we are beginning to see the limits of that. Indeed. Andthey could either back out of their asset purchases, but i think they are too committed, or possibly extend their asset class. Is a possibility. They arent ready at this point, but i think it could come into play. Francine thomas mayer, thank you. Former chief economist for Deutsche Bank. This goes back to one of your earlier points. They need to grow, make sure that the banks are healthy. What do you make of his suggestion that they could buy stocks . This would be not only overstepping the boundary, but it would really distort the market. I think the reality is in europe, we have set ourselves up for a disaster. Why . Solvency is prohibiting longterm pensions and savings inside banks. They cannot buy stocks unless they are liquid. As i said before, 85 of jobs in europe which are not working for companies, they cannot have access. So how can you grow when 85 of your jobs dont have access to liquidity . Plan, longterm pension you have Life Insurance over the next 20 years, less than 4 of your savings are invested. So what happens to 85 of the jobs . Here, the key issue is companies which are not listed, which have access to capital, both longterm for growth and financing. In my view, what you need is a double policy. On one side, the ecb should hit banks senior debt, because it nomore liquid, bigger, and government has run a stress test. Banks are run for stress tests. Toa way, its more senior treasure. This is the global methodology plaguing the bank of england and the fed. Its something they can do on an evening dinner. At the same time, they should loose of the regulatory side. Kill it once and for all. Its a travesty. They francine a lot of the bankers they keep hiring because it makes a bureaucracy, but the americans dont implemented, its not a demented across asia. I think the parliament will eventually kill it once and for all. Francine thank you so much. Davide serra. I am sure mario draghi will be up about the banks. This is bloomberg. Michael im Michael Mckee in new york Francine Lacqua in london. President obama continues his News Conference in laos before he departs his asian trip. The latest headlines he was asked about north korea and their missile launches. He says he is urging the chinese to impose, to prolong the sanctions. They are disturbed by whats happening in north korea, he says, and it may not work but it has to be done. He also waited back into u. S. Politics, saying donald is not qualified to the u. S. President. Iswarns against what he says grading on a curve in the u. S. Election. Just because you dont like Hillary Clinton doesnt mean you should like donald trump. Well continue to monitor the hid headlines as he makes them. Francine that was a very long question. Time for todays morning news. We are looking at italian banks. This auld consider i penny stock, but it is gaining some 5 after reports in one of the italian papers that the capital hike may be postponed. You can see they are gaining 0. 8 . Credit suisse in switzerland gaining as well. We were talking about banks and how the ecb can try not to hurt banks as much as it has. When you look at the italian banks, there was so much concerted couple weeks ago that they were frail, that they will do a huge restructuring. That market panic has now gone away a touch. Was it right to start . Are you arguing that the markets, the International Investors werent understanding what they were looking at . I would go back to the number. 10 ,talian gdp is post2008. Arrived, therenzi country has created 600,000 jobs. What happens, there has been a massive job reform. Today, i can higher in fire young people in the u. K. Equal to italy. Five years rolling, if this continues in the future, we will have the same job market in the u. K. Secondly, you look at the l, the largest investor in italy npl basically what happens is you have stock of npl, the provisions of cash put aside, so the problem against this 80 collateral, that i can tell you this friday there is the largest npl conference, 500 people in venice. Last year we were told there was 80 billion of capital ready to come in. My view is not panic. There is a concentrated panic, which had too much concentration, and as a result, that is a system issue. They michael is is a longerterm workout, davide . This gets tied up in the italian referendum and there is concern that if something happens to one of the banks, it effects lorenzis abilities to get to the referendum. Business continue to stretch on under the radar or does it come back again . Issue, the ecby is asking 5 million of capital. First of all it wont be resolved. The worst case is that debt gets converted, and germany has already said they are happy to pay back. I think what will happen is there is about 2 billion to 3 billion of institutional hybrid that will be converted to equity. They will be able to raise in the market. At that point you will have a bank that is 100 clean. We are one of the largest hybrid investors in the world, together with pimco, and i think holding that hybrid debt if you dont understand you will be converted to equity, you cant do your job. As a result, there is nothing wrong for hybrid debt. Tier one has not been paying for eight years. Tier two, you look at the stress test. If you are my grandmother, 60,000 euros in savings, you dont know the difference between a bank and insurance, you might be oversold. Michael well we hope your grandmothers investments are safe. She will have to decide how to vote. We will talk about that referendum, coming up in the next hour. We will also talk about the United Statess outlook. Michelle meyer, bank of America Merrill lynch, head of u. S. Economics. This is bloomberg. Michael good morning. All eyes on the ecb today. Im Michael Mckee in new york; Francine Lacqua is in london. Lets get to the Bloomberg Business flash with taylor riggs. Rising star of chrysler is at the center of the u. S. Criminal and regulatory investigation. Hes ahead of u. S. Sales and ceo of Fiat Chrysler canada. According to people familiar with the matter, investigators want to know if Fiat Chrysler fraudulently hiked its sales figures. Documents or uncovered containing disputed numbers. No one is commenting. Investors arent as excited about the new iphone as the ceo is. Apple shares rose less than 1 after he unveiled the iphone seven. He called it the best iphone yet with a faster processor and longer battery life, plus it will use wireless headphones. Iphone sales are forecasted to decline this year. Liberty media has agreed to buy forcompany Liberty Media 1. 4 billion in cash. S isformula one parent owned by cvc capital. They like formula one because it draws growing audiences. And that is your Bloomberg Business flash. Francine thank you so much. Next month, italy will vote on Prime Minister Matteo Renzis reform package. Renzi says he will step down if it does not pass. We still have the ceo with us is unclear at this moment whether matteo renzi will step down or if he is backtracking. You have advised him for many years. The referendum for a global audience, why do we care . First, the referendum is important because it is a change abroad. Italy inherited a constitution of the Second World War after the fascist era, but that has massive check and balances. Check and balances work because people have corporate. The country doesnt go forward. At the time of globalization, you need a legal system and a parliamentary system that is faster. It matters because it will change the possibility to speed up the decision process. Francine which italy needs. Which italy needs. Second, matteo renzi made a mistake in personalizing the referendum. This is not about him. Thats an election. But matteoules renzi made very clear, if the referendum is not, i will not go anywhere. He made very clear and repeated it. He said clearly, if the referendum were to be a no, nothing changes. We are back to the italy we have known for the last 20 years. Michael 30 seconds left. Some people compare this to brexit in terms of its impact on the eu. Is that an overblown comparison . Its crazy. I dont know who can compare brexit that changes the Legal Framework for the last 40 years, and a total unknown in the next two. If the referendum was a no, nothing changes. Italy will stay where it has been. Comparing the italian referendum to brexit, from a legal point of view, they are absolutely wrong. Francine to be fair, this is because people are associating matteo renzi leaving, and another party coming into play, which would be antieuro. That is a political issue. Francine just to make it clear. Like if lafarge was Prime Minister. Michael thanks very much for joining us this morning. Coming up, megan greene. Shes the chief economist. This is bloomberg. A with theb president market expecting a 2016 extension. His hands may be forced today. The european stock settles near a fivemonth high. The s p 500 hovers near an alltime record. And, in the market, the cost of borrowing in Hong Kong Hits a sevenyear high. We talked china. This is bloomberg surveillance live from london. With michael in for tom keene. It is all about the ecb and yet there is so much more going on with intervention. Mike do you ever get the impression that there are only three people that matter . Janet yellen and today mario dragi . Francine that is fair but you need to put into context, they have done a much of the heavy lift that they are the ones that could take us out of this mess. We will defend Central Banks shortly. Lets get to first word news. A new poll shows donald trump reading Hillary Clinton among white voters with less than a high school education. Trump is backed by 55 of whites with no more than high school diplomas. Compared to 33 for clinton. Among all likely voters, clinton leads trump 4742 in the twoway contents. Hollande isancois speaking in paris about democracy and terrorism. The Prime Minister says he needs to set up his course and explain why another five years as president makes sense. Former president Nicolas Sarkozy has announced he is running. Global news 24 hours away a day, i am taylor riggs. You set up ont the markets as we await the ecb. T is a 10th of a percent thats lower yields for the 10 year note, that will be an Interest Rate differential and the euro is the base case for all trading, a little bit weaker into the decision. We get inventories for oils today. From a private source, inventories plunged last month. Two year yields are our fed watch indicator and we are not going to be seeing anything happen in the u. S. Australian dollar, that is the strongest performer against the dollar. Good trade numbers out of china and australia and followup. Erfect affects francine the believe that they eased or that they encouraged the market is mentioned. It is all about expectations. They can talk their way out of this or maybe they cant. This is a picture for what we are seeing overall. You are arriving at a two week ecb willee what the see about their qe program and i want to show you the offshore one. This is after chinese data failed to quell concerns over the health of the chinese economy. We are 90 minutes away from that ecb decision with the market expecting a 2016 stimulus extension. Mario draghis hand may be forced today. Marilyn green is here from boston. We needed somebody to represent the red sox. He spent many years covering europe. You lived in london for a long time. This has become all about the Central Banks. Yesterday, mark carney in england and today, mario draghi. There doesnt seem to be any influence. Central banks are carrying everything and that is not going to change anytime soon. It is interesting you mention who was calling the shots and pvr see doesnt get to look. If he extends, how does he do that . Run out ofwill assets to buy. He is going to have to expand it as well and that will all happen. There is a that he will expand it. There are options for doing that , he can scrap the limits of how much the ecb can hold. He can scrap the rules or tweak and on what the ecb can buy all of that will be tweaking things along the margins. That wont help a whole lot. There is a lot of talk about scrapping the g which says the ecb can only buy things up according to the size of the economy. People are underestimating how much opposition there will be to that in germany, and from america even though the ecb is meant to be independent. She has a lot of sway. What should he do . Are we going to see the ecb slowly try to convince germany they can go out and buy stocks or should we worry about inflation and the fact that they have changed their mandate . They need to make sure they tackle growth. Is about the currency. It is not officially, but behind the scenes that is what the ecb is looking to target to stoke. Rowth indirectly im surprised they havent bought equities already. The bank of japan is already doing that and i think the ecb is following in the bank of japans footsteps, taking a page book. The doj bojs how do you how should we view centralbank action while it is distorting the markets if Central Banks around the world are trying to increase pressure on politicians to do something fiscally . That is the endless conundrum, enduring so they take off all of the pressure from policymakers. In europe you are seeing less fiscal austerity which is not the same as a stimulus but it is better than what we had before. Lift not enough to list it out of its growth zone. Francine megan, thank you so much. We will bring you the ecb decision at 12 45 p. M. Following Mario Draghis News Conference 45 minutes later, this is bloomberg. Francine it is bloomberg surveillance. I am Francine Lacqua in london. Michael mckee and is in new york. Bloombergs guy johnson joins us, joined by kim clark. Thank you francine. We have the ecb debating what is happening with the european economy. Everybody is thinking what is happening with the fed right now. Tim clark has as good an idea as anybody else. Is it tough . It is getting a little tougher. The Global Economy is patchy. We see often, gdp developing in africa so we have to deal with that. That is not to say people are not still traveling in airplanes but they are paying less. We just have to tough out the times. Activity terrorism that dampened demand for a traditional eastwest movement, they tended to go northsouth. Global super connectors, we are having to deal with the economy. A dollar that can be affected by the fed, what are your calculations . Because we are a dollarbased company, the stronger the dollar, the worst it becomes for us because our income generation is in other currency. Moretronger he gets the difficult it is to get the value out of the currencies. It is a doubleedged sword with regards to the price of oil. 100 dollars, we have a saturated oil market and yet it should be not a 50. The paradox is at the oil price fell the Industries Associated the hydrocarbon, their demand fell and they lead in our corporate segments the highest yielding, the most political. The corporate structure, they tended to elevate our yield. The yield sunk as a result. With the Global Economy here, the dollar is kind of as strong as it should get. I struggle with all of this and every comment when i hear the word volatility used, it is an excuse. You have to be a very smart person to do the job. At the moment there is a high lack off uncertainty, a Consumer Confidence globally for all the reasons we have talked about. As soon as you get confidence back, things will start to move. At the moment you can lower Interest Rates. It can take the horse to water but in the end unless you create demand through confidence we have to deal with that. People are blaming brexit. In london you have to be careful what you say. Go back to the restoration in the london bubble you have to be sure. Brexit is one of the many things that has happened in the economy. There has been a lot of attention paid to brexit and perhaps an emotional point of view where in terms of the Global Economy it is not going to change much. Ishink the british economy Strong Enough to move ahead with its european partners. I am fairly sanguine about that. In terms of us as a global operation. Before i let you go, i have to ask, what is your stance of where we are our with the 380 . You are also analyzing the 350 right now. Experience with what he is going through . We have a line that takes us to december 18. That is the last of the 117 first orders. , isline has been shrunken production will meet our requirements, obviously we have a concern that it might disappear and obviously we have a group of people thinking, what would happen if that did happen . Atwill continue with the 777 and the 380 has long legs anyway. Huge if that happened simply because, slot constraints are the Biggest Issue affecting all of the airline businesses, essentially a growth industry it needs access. That is the case, up gauge. Get bigger aircraft. View, at the moments, with the Global Economy on a flat line, it may not seem a justifiable case. There will be a case for it. Even if you do, it will take continues to do that. Faces, it isse huge. Doing nothing about it will scale up, as far as the 87 and 350 is concerned we are looking at that. Demand. The thank you very much. That was tim clark, the president. Coming up, we will turn our attention from frankfurt to washington. Michelle meyer, bank of America Merrill lynch head of u. S. Economics. This is bloomberg. This is bloomberg surveillance. I am Francine Lacqua. Lets go to china it is one of our top stories today. This is away from the ecb. I feel bad telling mario draghi that this is the most important but he is also looking at this because everything blends into one. This is what we found out. In hong kong, it surged to a sevenmonth high. The blue line is the offshore and the white line is the overnight. It is like glide board but in hong kong. We will keep an eye on the pboc because they may move. As you mentioned on the ecb and mario draghi and its relationship to what happened in the United States, janet yellen suggesting we are closer to a fed move. Larry summers is opining on that in the washington post. Read, therning must problem. Credibility he says i wonder what credibility said Forward Guidance is likely to have even the utter disconnect between fed and market views regarding future rates and track records f the fed being wrong. We are joined by Michelle Meyer, head of u. S. Economics. Cheeks got a summit of here chiefs here. Does the fed have a credibility problem . Stanley fischer saying me might get two. The market and the data suggesting this is not going to happen. I dont know if it is a credibility problem but it is a communication challenge. Is because just like participants and forecasters, they are responding to the flow of the data. Withinve their forecasts their best Case Scenario and as the data comes in they have to tweak their assumptions as they look at the evolution of financial conditions. They change their trajectory for Interest Rate projections. Part of the issue is their communication. They have the dots, they dont showing theare not risk profile, which is closer to what the market is saying. The article is focused on the idea that we are going to see a recession in the next couple of years and the fed cannot address at. What do they do . According to this new paper, at the fed, they will have Interest Rates at 3 and that will be enough to cut. Summer says we may not be at 1 . I think summer raises an important point, which is that if the fed goes to quickly they might have an ammunition problem in the future. It is much more prudent for the fed to go slow, have a shallow extend thery to Business Cycle that ultimately you can have Interest Rates higher where you have more ammunition for the next cycle. To allowthat you want the economy to overheat to the extent that that is possible and not rush. For folks like fisher, where they are looking at their progress towards full employment, the policy ifscription is the hike but you take into account all of the risks associated with this cycle and potential difficulties, then you want to take a slower approach. The counterargument is that if you dont normalize soon, something happens with china or in the world economy, that means they have to delay and delay yet again hiking. Which means we could possibly see defaults being pushed back the cousin of these low rates. I think that is the balance. If the fed has the objective and intention to normalize the highest they need to get started. You dont want to make a mistake when you derail the recovery. It is better to go slowly, maybe allow for some overheating and some inflation to pick up even outside of asset price inflation. Yes, there is the risk of just time and you could have another normalnd if the fed has eyes they are stuck with a low environment. I think the idea is that there is a more risky scenario which is that they hike to weekly and end up the stabilizing the economy. Francine how should they view Dollar Strength . Strength isar acceptable and warranted and they would anticipate that. Thatnk the challenge is what happened when they first started talking about Interest Rate hikes in early 2014 when you had an abrupt move in the dollar, that was a shock. I think most research has shown the transmission is a little bit more notable. Makesnger dollar, it sense. Mike michelle said the fed could run hot, but can they generate inflation . With Oil Prices Rising we will see inflation towards the end of the year but purely for statistical year on year effects, not because of structural effect. I dont think that will be sustained, so any hawks using that as an excuse shouldnt. Mike thank you. Coming up, we are going to speak s ceo. Mpari mike good morning. I am Michael Mckee in new york. Francine lacqua in london. Lets get to first word news. The president dragged back into american politics. President obama has not changed his mind on donald trump his ideas were contradictory and out right wacky. I have offered my opinion. I dont think he is qualified to be president. Speaks, thate he opinion is confirmed. Trump calledeekend his policy towards china week and said the president was humiliated their. President Francois Hollande says he will seek a second term. The countrys Prime Minister says he needs to explain why another five years as president would make sense. Him as the most unpopular leader in french history. Former president Nicolas Sarkozy has already announced he is running. Wasennis, the british star losing to k. He won at wimbledon. Global news 24 hours a day powered by more than 2600 analysts in more than 120 countries, i am taylor riggs. This is bloomberg. Francine it is thursday. We are waiting how will that affect european businesses . , he joins uso bob from new york. Also, Michelle Meyer and megan green. Great to have you on the program. Lets take a step back. You need growth so that people go to bars or by your drinks, pushing consumption overall. Unless mario draghi doesnt do his job. If we are looking at consumption, europe is pretty flat. Emerging market consumption is coming down in the United States and north america is tracking a nice rate overall. Having said that, i keep telling are people we need to take market share in there is opportunity to grow. Francine but if you dont have growth from europe, if you are not an economy growing, if people dont feel confident about their future then automatically they are going to spend less. That, oursaid business is quite skewed to europe. Including italy. Francine how is your funding . Ofh this crazy world negative rates, i know you are listed but does it make your life harder . Being on a list of companies in europe . It makes it interesting on the m a front. Inquisitive. It clearly taste multiples in terms of the eva. Francine do you worry about effects . You have been growing, you have had some great ads out there, you are trying to cater for a new market with cocktails and all, but you also have to deal with the dollar going up and down and that has huge translation affect. Effects. Towe are mostly exposed translation as opposed to transaction. The only transaction is the Australian Dollar to japanese yen and russian ruble. Funding costs are helping acquisitions but have Central Banks discordant distorted your Business Strategy . Our strategy has remained unchanged. We generate half of our growth by acquisitions. We have been delivering. Mike does the Global Economy support the examining organic side . The Global Economy is not helping. Despite that there is plenty of market share to be taken from other people. Ago, there were cities in the northeast of italy and now you have the orange way it. Francine just for the record i knew since i was about 12. Meyer,et me ask michelle we always look at retail sales reports, coming up next week in the u. S. And when you look at food and drinking, that is one of the most optional things for people to buy. It is discretionary. Are americans spending on discretionary stuff . Are they interested . Think people are interested in spending on experiences so you see relative strengths in areas like leisure, lodging, restaurants so they have done quite well. Where you see relative weakness. S Department Store sales deeper than that, clothing and apparel have weakened. Bob, what is the one thing that you think will change . Company, you see a lot more consolidation amongst the brewers and beer makers. Are you worried you will overpay . We are very well known for being disciplined. Our aim is to generate what is acquisition. 10 if you think about it, the median multiple in our industry is about 18 times and we have never gone above 14 and mostly between seven and 14 so we are quite disciplined. The interesting thing when you compare our industry to the brewers. Rue mike in terms of business outlook, are you trying to build a brand with different kinds of liquors or does it matter . What would you look for . Geography. Critical mass makes a difference. It is a Critical Mass in specific markets, not on a global level so we look at buying assets in our own market. Great iconic after brands which are dusty. We buy them and relaunch them. Two months ago and the acquisition gone on in. That, butnt ask you european consumption, michelle said were looking at experiences and that has helped the liquor business. In europe it is the same when things are chugging along. When you going to outright recession, people stopped going out but they started going and buying bottles of stuff and drinking at home. It just shifts where the sources but sales did pretty well. Two people drink your products at home or in restaurants . Fromat is enormously market to market very. Varied. If you look at germany, a large market, 90 is consumed at home. Telling him recessions impact on drinking, there is one phenomenon in italy where people go to a bar and you gain access to a food buffet. People spend three or four hours having cocktails. Keene. E we found tom mike Michelle Meyer of bank in megan green of asset management, we will talk about graseck and the impact of that on consumers and their businesses. We are looking at the markets and not seeing a lot of movement. The us trillion dollar the biggest mover of the day. Gold is up. This is bloomberg. Mike i am Michael Mckee and in new york. Francine lacqua is in london still trying to get over brexit. The vote was supposed to have a major impact on the u. K. Economy. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. So far, we are still watching. Green, chief economist. He is with us as well. I want to start with you, megan. This is the citigroup European Economic surprise index. But surprise has been that it keeps going up. We are seeing better than expected numbers with everybody forecasting the you ok the u. K. Was falling off a cliff. It is probably because nothing has changed. They chose to leave the eu but actually havent done it yet. Just thought the economy would fall immediately and it obviously hasnt. A lot of the data has looked good. The one exception is property prices in london and i think that is particularly worrisome. You can stop an economy for ,ears to boost Household Wealth but you see Property Companies start to fail and thats it sparked the crisis. That is something worth watching. The impact of brexit is still yet to be felt. Do we see anything coming back to the United States . Do we see property prices go up . That was one of the speculations after brexit that you have this exodus out of the u. K. In terms of real estate but with new businesses, people moved to other major cities. It is not necessarily evident yet so you have to wait and see how things evolve. At the way that the brits are drinking, and the way that consumption is drinking, do you have a plan b . Think it will impact your business in the u. K. . We are growing at a very sustained pace in the u. K. And it is really Cocktail Culture driving that. Cocktail culture is actually moving some volumes from beer into spirits. Trend. The underlying especially when you have drinks like sprints which is low alcohol and refreshing and thirst quenching. So far we havent had any impact from brexit and we continue to build our brands. Thecine you have been in business a long time, we have talked in the past about how the stille consume and we are trying to figure out what the elusive chinese consumers what have you learned about the markets . , the trends born in the u. S. Over time, filter into the other markets. Spirits renaissance started in the u. S. Bourbon, cocktails, they moved into london and everywhere else. Coming up, theresa may has to start the negotiations. She hasnt done that. What is the delay . What are the chances that since the economy is ok they just let things slide for a long time . I think theresa may hasnt begun to think about triggering because the u. K. Doesnt have the specialists it requires to negotiate. That was all taken care of by the eu. Because they do have the expertise in london, expertise is really the hold up. I dont expect her to trigger that until the second half of next year. It seems they dont have the skills. The idea of pushing it off forever is impossible. I dont think the people of britain would put up. I dont think there is any weaseling out of this. Mike there is talk that they might put things to a vote of parliament but that might end up reversing the decision. Have said they wont put it to parliament and the idea that you might have to is a legal challenge. If it is unclear and i think they will just determined that they dont have to go to parliament. They are he voted and they will argue that was sufficient. Mike the numbers have been good. The forecast is she doesnt trigger until 2017 so what happens in the interim. Do we see it fall . We dont know what is going on. It will be a mix. If you look at sentiment, Consumer Sentiment is pretty high off the back of a nice summer. Sentiment is falling. A number of anecdotes are out there about companies that have decided not to invest. I dont know why anyone would invest now. Those who have already invested might wait and see. I think investment will follow cliff put a weaker pound should help a little bit to offset the investment strength. Go by atwill all london and sit at pubs outside. Megan greene is with us, Michelle Meyer of bank of coming up, apple announced the latest iphone. The latest iwatch and new accessories. We will speak with gene munster and Piper Jeffries. This is bloomberg. Mike i am Michael Mckee in new york. Francine lacqua in london. Time for a report about the euro. It is weaker going into this mornings ecb decision. AndAustralian Dollar moves, the ecb giving it a boost. Weakening, when there are some offshore concerns about their radar. I threw in the South African rand. Gold is up. News yesterday for everybody who loves technology and toys, the new iphone seven investors not very excited. Tim cook is. Apple shares rose less than 1 . He called it the best iphone yet with a faster processor, longer battery life and he ditched the headphone jack. You will have to buy some wireless headphones. Iphone Sales Forecast to decline this year and just a few moments ago, wells fargo downgraded the stock. Gene munster is Piper Jeffries analyst. Everyone is talking about the headphone aspect of this. What is your thought on this move by apple and is it going to work or is apple going to be on hold until the 10th anniversary phone next year . They are giving you an adapter so they can use your old headphones. Usually they would charge 30 for that so that is a shift. To change people over to a wireless format to make it easier to pair those headphones. The people have had difficulty getting your bluetooth to connect or new methodology, but the bottom line at the end of the day, i would disagree with other analysts that are more negative. They have delivered enough upgrades to get this massive base of people to continue to upgrade. Year we are forecast to see sales decline for the first time worldwide. Do you think this reverses that . It is going to be down about 8 and we think it is going to return to 11 during the iphone seven cycle so i think if you just look forward you should see a nice inflection higher for the ice iphone growth. Francine what did the ceo miscalculate . Was it a miscalculation or a small blip . Think that is just a small blip and ultimately, people are going to come back. We want to thank gene munster from Piper Jeffries. He is going to stay with fran and i on bloomberg radio. We will continue the conversation. Back to the ecb in new york. The show meyer, megan greene, chief economist. Michelle, the ecb extends maybe today . Any impact on the u. S. . Unlikely. They think most investors are expecting something along those lines which could be a somewhat muted action. If ecb doesnt deliver we have a risk of moving the Market Action to the u. S. Tighter financial conditions and maybe that further push out. This point, september pricing is 25 probability. It looks like december is the most likely outcome. What would you be asking mario draghi . I would ask how he feels about helicopter money. That is the only thing the ecb has. The doj will start it and the ecb will follow. Inflation expectations in europe just keep on falling and i think the only way to stimulate demand would be helicopter money. It is less dangerous than negative rates. He wants to extend, is he going to get anywhere close to 2 inflation by the end of this . No. I dont think you will get close to 2 unless he does something really drastic and that would be helicopter money and then we would get closer. Greene, you will join us on bloomberg surveillance on the radio as we watch for the ecb. Our thanks to Michelle Meyer from bank of america. Coming up next, bloomberg on television. Bloomberg surveillance continues on radio. Francine lacqua and i, 7 45 a. M. New york time, followed by Mario Draghis News Conference. This is bloomberg. Good morning new york. Draghi afford to delay . The market expecting a similar extension. Changes the way you should listen to music on the new iphone. We have details on the new product release. The cost of borrowing in Hong Kong Hit a sevenyear high and speculate in speculation. Were live from new york city. The ecb decision for a much and focus. Draghisident druggie 30 minutes away. David yesterday they had super mario now jonathan they are excited about it. David it was up 18 . Jonathan who wouldve thought. For the ecb, we expect another inflation forecast cut. The question is, do they extend qe . David