Transcripts For BLOOMBERG Bloomberg Surveillance 20170815

Bloomberg. This is what im seeing across the board. Theres a little bit of sidewayson moving for these equity movements. They seem to be tracking gains across asia. Traditional assets, the Dollar Strengthening the crude oil will keep an eye on that at just below 48. What could straight to the bloomberg first word news. On for thisame north korea this after kim jongun threatened to do just that. Any military action would require his nations approval. The German Economy extended its growth to the Second Quarter. That is just below the estimates in the Bloomberg Survey. It will come as welcome news for Angela Merkel. Asked hownt trump has china handles intellectual property. Beijings ministry of commerce responded by saying any protection would damage economic relations and hurt the business interest of both countries. And bill dudley says it is reasonable to plan next month. He also said he supports another Interest Rate increase this year if the economy evolves at we continue to monitor growth trend which we think will push inflation over the mediumterm. Theresa may will visit japan later this month for the First Time Since visiting. As britain 4. 6gates has given way billion worth of microsoft stock. 64 millionk shows shares back in june. Global news, powered by more than 2700 journalists. Somere just getting chinese data. This is for the month of july. Financing pretty much in line. The estimate we had was for one billion. There is quite a lot going on with trump and china. Trump also calling for a review of how china handles intellectual property and that has prompted a Firm Response from beijing. You have the new monthly picture to look at china. Lets get on to politics. First of all, Donald Trumps troubles are deepening as the fallout from charlottesville is deepening. Dennis fraser was the first to walk out. Trump has come under heavy criticism for failing to quickly condemn white supremacist for deadly violence at a he said many sides were to blame before changing his tune. Racism is evil and those who cause violence in his name are criminals and thugs, including the kkk, neonazis, white supremacist and other hate groups that are of two everything we hold dear as americans. The hile, when we became aware there would be a gathering at airbnb in charlottesville, we took action to cancel the reservations and those users from the platform. We felt that was incompatible with our values and took a strong stance. We also dealing with the currency thank you as well. Why have we learned over the last couple of days . Donald trump could not get a message and no teams it is a. Ittle too late exactly. I think it was compounded by the fact that when he did speak out, he was reading from a teleprompter and seemed more scripted and heartfelt. I think one of the most notable events was how quickly he took to twitter. 54 minutes,t took but took them two days to call a white supremacist by name. What is the next step question mark does the or is it do anything too late . I think it is going to be hard. A lot of damage has been done from the getgo. I think on the ceo from come i wonder how many others i think the ceos are walking a fine line, one he to stay close to the Trump Administration so they can shape policy while at the same time having to worry might affect their customer base, employees and i think it is remarkable weve gotten to a point where a ceo where aon a sitting ceo sitting on a president ial Council Advisory board might there have been apparently more white supremacist protesting in the coming weeks and how he responds to that will be critical. Have is the gop react and how will they react Going Forward . You finally saw a round of criticisms from Senior Republican Party leaders urging trump to call this out for what they all denounced what happened on saturday and criticized trumps handling of it and i think is that is what prompted him to come out yesterday and issue a statement and i think it troubles his legislative agenda. It does look like hes losing his grip on the republican party. What does this mean for your world . I think the core story else. S like everything thing that this impacts directly is if he does impact the ability to change legislation. Relatively speaking, he does not radically shift thinking. Historically only truly impact the currency into circumstances. Until we get to that situation it seems like a pretty big deal if you have a president losing on a weekly basis because i mean he cant get tax reform through. From that perspective, if it , ans we take the tradeoff story we talked about in november and december of last year, the further that goes away, the less likely it is the there will be a federal hike in 2018. For when wehat mean Start Talking about tax reform . Weve had a difficult week because he reacted the way. Doesnt mean he refocuses and doubles down on tax reform are not . Ofi think that is what a lot advisers are telling him to do. Congress is aform huge feet under the best of circumstances and he is facing an appeal struggle not only from democrat to him about republicans in his own party. It is a very contentious issue. This goes back to the whole issue of the ceos. It is unclear how much he will actually get done. You wonder they are looking at it, what are they actually getting in return . Minds, are they getting real policy changes that are beneficial . Stay with surveillance. Plenty coming up. The election less than six weeks away. Plus, inflation is running above the target. At 9 30 a. M. This is bloomberg. Bosses bloomberg surveillance. What get straight to the Bloomberg Business flash. According to people familiar with the matter, the funds almost 400 million. Chinese is taking control of English Premier League club southampton. And, spacex has launched a rocket to the International Space station. It was followed by a successful landing at cape canaveral. 12 flight. X is that is the Bloomberg Business flash. Extendedrman economy by 0. 6 in april. That was below the estimate in a Bloomberg Survey of economists that will still come. Lets talk about the euro. We have the german election. This is a very big focus. All, is there any Political Risk or is it really a done deal . We spent a lot of time whether we were looking at the netherlands or france or italy or the german election. Aer the last few months, such clear lead for Angela Merkel, the most people it has radar. Ared off her risk i think in this particular circumstance, the alternative would still be proeurope, proeu so anything is generally think that is something the people would consider. Talk to me about the difference between u. S. Treasury yields and will be are seeing in the u. S. In thehing, the relics rise,half of this year to and i think that will continue. Issue is not about the rising yields, but the euro as a result of that. Is k at the euro that it does seem like that every currency analyst says i would buy euro against anything. At what point does it become overbought. It does seem for a while that the strength of the euro is really pegged to surprises and economic data, but actually, things are changing. Lets go back over the last four years very quickly and look at what the dominant story was for the euro. Actually, theres only one thing marked in the euro. Thes always been about expectations so no surprise that purchases comet of the euro remains incredibly well. What would it take to change that . That would take something to say i have no interest in doing that to radically shift and i would say one of the things the market is not draghis listening to mr. More than is a lot the markets giving it a poor. Of next, a negative narratives as the u. S. Growth cycle nears its end. This is bloomberg. This is bloomberg surveillance. Our negative Interest Rates of to come back into the spotlight. Already so low that Central Banks will need to be repaired to cut into negative territory in the downturn. Urgencyage is taking on that the u. S. Is near its current economic cycle. Thank you for sticking around. Do Interest Rates even work . We try them and then there was a backlash against them. Think certainly there were . Spain raised by the implementation and how you remember the g20. It is hard to stay in isolation because remember most cases, was at the negative . Was it generally possible to cut rates further . Theoretically, it is. About whenn comes you have an impact on the voting public and that i think create some restraint because the backlash from that to the idea you have a serious affliction of your savings, with the major issue for politicians; personal view is is it possible to cut further . Yes. Dramatically . No. Normalizing. Art when youre talking about normalizing for a couple of years, it has been pretty slow to come. Arguing about when the fed was going to stop making his moves. He rearmed 2017. Still saying we have not yet normalized rates. Been taking place for 45 years now and we struggle me we have for let go of the opportunity and the fact we move away from the and,and look at japan switzerland and denmark, you will get 20 four we see it kick end in that causes a problem because where we going to go question mark that is what investors would like to find out. Of next, we bring you the latest inflation data. Lso, we have exit inflation the name of the game from tokyo to london. We will focus on that. This is bloomberg. Got you outnumbered. The dinosaurs extinction. Dont listen to them. Not appropriate. Now im mashing these potatoes with my stick of butter. Why dont you sit over here. Find your awesome with the Xfinity Stream app. Included with xfinity tv. More to stream to every screen. Francine word. It would be game on or north korea fires missiles. Kim jong last week. South koreas president says it would require approval. They are trying to prevent or all cost. The German Economy extended its. Rowth spurt and for fourth term as chancellor. Bill gates is given away 4. 6 billion worth of microsoft saw stock. He gave the majority of his donation to his charity. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. Francine we are just getting some inflation figures out of the u. K. That is touch below estimates. Expecting cpi month to month at 0. 1 instead of flat. Im looking at retail prices. Rpi month on month is out of expect it overall. A lot of things seem to be in line with estimates apart from that cpi which is lower than expected. To wade through the report and see whether we have a break down of where inflation is and where its not. The case for a rate hike. I think that is the story. The market is probably up. Clearly, people are factoring that in. What is remarkable actually is the expectations about the bank of england are having any impact at all. Over the last 13 months, its been about the longerterm growth story. Thats been driven by politics and the moves we have seen over the past couple of weeks suggest it really was paramount. Will be morebank hawkish than we thought. These numbers will remove any doubt. Francine how would you describe the u. K. Economy . Simon i think thats probably a fair picture. Ground, i think the issue is not really about where we are right now, though clearly there are some warning signs in the Housing Market in the Housing Market has always been a driving force within the u. K. Economy. That rings a few alarm bells. It is really about the longerterm picture. It is about what frexit is going to look like. Frexit is going to look like. Weve got a lot of risk now the end of october. Francine i have a great chart i want to show you. Everything is about sterling. That gives us inflation and that drives boe. Its not really the brexit negotiations. Simon i think those concerns about those negotiations, if we andthrough the talks over he goes back to the European Council and says we havent done enough on the initial negotiations, we have to go further, we cant stop talking about rates, i think he would. Its about giving confidence to the Investment Community at the moment. Francine this is my favorite hound chart. This is euro pound red pound. I know in the early days, more pranks banks are joining it. Simon i think the drive toward parity there. Is how concerned the authorities are about the parity number. Its just the number of the end. If you think about the history of sterling, it is one of steady devaluation over time. But, the British Press does like headline. It does look like a headline about sterling. You can make the opposite case. That was a story against the dollar every single week. That could cause it degree of uncertainty and might the separable for the people at the bank of england. That could be another matter. I think we can see what the response will be. Francine what is your favorite call . I have heard everything from the yen you on. Something like the euro yen. I am in the short term concerned about the dollar. My favorite trait is going to be with the dollar. I think we are coming to the end of the cycle. I think the money that has flowed in their will come out relatively weakly. The the relative rally is a longterm trend. We are talking the longterm, i dont be why we cant get eurodollar back toward 130. It wont be a straight line. Francine there will be a lot more volatility . Simon i think there will be a lot more volatile elite over the several weeks. A hink its going to be tough nut to crack. Europe struggled to contain that. That is going to be the issue this time as well. Francine when will we find the about a replacement for janet yellen. Think dollar will impact the president thinking on who should be the next fed chair . Simon ok. Clearly, the president has historically proved sensitive to Dollar Strength. So his the fed. If you look at the last 10 or 15 years, i would argue we have hired progressively more dovish people in the fed. Weve increased sensitivity to Dollar Strength. This has shown itself to be true. Yellenst janet position, you might struggle to find anyone that was more insert about Dollar Strength and janet yellen. We dont know who comes in. It is hard to argue she has been somebody who has promoted Dollar Strength. Person that has proved as sensitive as he is. Francine you think that will change . Read o, i dont dont. The consistency of comments you had prior to the election from the president about currency clearly showed where his thoughts lied. They are concerned about currency strengthen overtime. To my mind, they would be mostly aligned on that topic. I dont see it changing. Francine thank you so much. Stay with surveillance coming up. Heres the regulations could spell the end for staples. That is up next. As bloomberg. Francine good morning, this is bloomberg surveillance area surveillance. Lets check in on the market are in a we are seeing gains in equities and the stoxx 600 is holding its rise of 1 yesterdays session. It is pretty flat overall. If we look at the index, it does . That selloff was just a blip. Global stocks are just a whisker below last weeks record high. The volatility is still coming down as well. The vix is below 12. If we take a look at dollaryen, which can be a fairly good gauge of risk appetite, we see the dollar higher against the yen for a second day. You might want to look at the cloud above the nineday conversion line on this chart. Thats a good technical gauge to keep an eye on. Looking at the bond market, we saw the different divergent. Yields moved higher on a core bonds. The same twoyear yields fell to a record low. It held their midsession. Bond, 10 year spanish that is still lower by 1. 5 basis points. It is not quite as low as the ecb rate yet. Finally, talking about credit and junk bonds in particular, a big discussion with tensions ramping up over north korea, the concerns over geoPolitical Risk. We saw corporate high yields blowout. It was a bigger move than we saw in the asian highyield spread. Should we interpret something into this . That is a question you want to ask. Its interesting to look at the divergence on the chart. Francine is the Morning Research note about to become a thing of the past western mark they are sent every day by investment anchors and brokers who used the notes to talk to potential clients. Firms must start charging for research, that may include these morning notes. He has written books on private equity and wall street. Its fun to have you on air. Thank you for coming on. Only five months remain for these notes to be sent out to how will it change the way people make money or charge their clients . Jason people are starting to figure this out in out. All of a sudden, it goes like in the past couple of weeks people are starting to think about it very the morning note is this element that captured the egos and personality of the banks. Makeee makers and analysts a name for themselves because they send out these notes and its not just about research, but there will be musings about the football match over the weekend or what is happening with brexit. There is one analysts who were ares the two it refers to it as the morning porridge. Under these new rules the come out, they may have to start charging or it. For it. As much as people enjoy them, not clear they will pay for them. Tom you have the start analyst at it out these funny research notes, what do you do . Is it a payasyougo system . Jason one of the good analogies i heard is its like cable tv in the United States. Third different packages. If you like sports, you can buy the sports package. That is one element, you could have these different packages. We also dont know yet how much people are willing to pay or how much the banks will charge. The figures of it all over the place. It is starting to leak out a little bit. Week it couldlast be a 10,000 package. Tom that is nothing compared to deutsche bank, which is 300,000. Jason its going to feel like there will be some violence to test out what people are willing to a. Francine if you dont want to be part of the rules, can you give up your license western mark license western mark jason yes and no. Thats it people are trying to figure out. ,f you look at the hedge funds they are changing their licenses here in europe to go to more of an alternative fund. Ai fmd. That gives them the ability to be monitored as an alternative asset manager rather than as a they trade bank area across this wide variety of asset classes. It feels like a risk to them. Francine there are a lot of questions about whether or not it is transparent or not. Areh are the ones that going to be the most disruptive . Jason the more traditional will be the most disrupted. They are more heavily regulated. Those of the ones that have more scrutiny. The hedge funds and private equity firms around the world, if you look across the last 10 years, they have been the beneficiaries oftentimes of the high regulations. They have not been subject to a lot of those rules. States,at the united you had the hedge funds emerge as winners there. Francine thank you so much for joining us. He will join tom keene a little bit later on. We are getting some breaking news. We know this is a crucial week for brexit negotiations. There are some papers for the commission to review. The says they will carefully study the papers on customs. A frictionless trade is not possible out by the single market. This is one of the main sticking points. You see him there. We will hear the u. K. Response when they come back from holiday. The Commission Says the exit papers are a positive step. Im not seen much impact on the pound. That is something to watch out or. Plan forwill airbnbs far east expansion see growth sore farther . We have an interview with the cofounder. This is bloomberg. Francine this is bloomberg surveillance in london. The company is significantly undervalued. Sharesivist fund owns worth 400 million or in representatives are denying comment. Chinese is this taken control of the southampton football club. Year he agreed to take an 80 stake in the club. Spacex has launched a rocket to the International Space station. Takeoff was followed a successful landing of the intersection back it hit canaveral. It was their 12th commercial launch to the space station. It will reach its destination tomorrow. That is the number business flash. Francine airbnb was born in 2008 founders were scrambling to pay the rent. Than, they are worth more 30 billion. Nathan spoke exclusively to bloomberg about its next big challenge, asia. Nathan its a big deal. We have been promoting in a number of countries where it we are very ubiquitous. Weve and investing a lot into china. Chinese travelers are going all around the world are in its the fastestgrowing segment, they are the number 100 and number one spenders right now. Usinge travelers are airbnb to travel the world. Airbnb one of these. Today there are listings and drawings. You been competing with more. Nathan there is more competition in china. 10, our strength has been international travel. We are marketing airbnb is a way for chinese travelers to explore the world. Though of the local competitors have that. Make sure we play to our strength and dont engage in any direct opposition. Are you adopting a different strategy in asia compared to u. S. And europe . It seems like you are lowkey. You are pretty aggressive elsewhere. Nathan in every part of the world, we are trying to partner with the government area new policies have to be passed to realize the full potential about home sharing. We do that government by government. Just passed a new law saying home sharing up to 180 days is legal. They have been our number one destination in asia for number of years. Its a matter of implementation. Singapore, they recently passed a law stating it is illegal to rent a place for less than six months. What is your taken the regulations of ross the order across the board . Come be in a more difficult marketplace western mark nathan this will play out over time. Andry to be as proactive the apartment to government as much as possible. Figuring out the right woman tatian will take time. Its not a one and done situation. Sense of how important the asian market will be in the future. Contributedee asia to your profitability . Nathan its huge. If the fastestgrowing region or us. This has been a story for three years. Its been our top region. It is the biggest opportunity on the planet, china specifically. If you look at half east asia, the numbers are incredibly promising. Francine that was the airbnb cofounder. We continue in the next hour as tom keene joins me. Tom there are any number of ways to go. I dont think we have the panic we had yesterday. I may be wrong on that. There is a fluid news flow. We saw substantial protest last night in manhattan. Kevin is outside trump tower. We will look at the economics of america. Francine im looking forward to that as well. Tom will be joining me in just a couple of minutes. We will get yields and inflation is onyx actively Holding Steady. Is bloomberg. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. Francine turning on trump. The latest leader to quit a white house advisory council. Slumps. Now, the vix u. S. Secretary jim mattis says it is game on if north korea files missiles fires missiles. The government gets ready to publish key position papers. This is bloomberg surveillance. Im Francine Lacqua in london. Tom keene in new york. We just have a comment from the commission that everything is fine, that they will look into them. We are seeing a little bit of a disruption because of pound and Inflation Holding steady. That definitely bolsters the argument about the boe moving. Tom not only the budget issues in the United States, but is brexit moves forward in september, i wonder where we will become thanksgiving. Francine who knows . Lets get straight to the bloomberg first word news. Korea may be signaling and wants to diffuse the deepening crisis with the u. S. Kim jong un was briefed on the plan to launch missiles near watchbut he said he would the foolish and stupid conduct of the yankees in little more before deciding whether or not to go ahead with the launch. The ceo of intel has quit the Business Council of the following this week. Earlier, the merck ceo resigned from the president s panel. The u. K. Wants a tarifffree bureaucracy trade union after brexit. The customs would be an interim move. It is likely to run into opposition from the eu. The richest person in the world has made his largest donation since the year 2000. Bill gates donated microsoft shares valued at 4. 6 billion about 5 ofhich is his fortune. Day. L news 24 hours per im taylor riggs, this is bloomberg. Tom thanks so much, taylor. Lets get to it with a risk on feel today. Some really wants is within the market. Dow futures lifting. Dollar strength this morning. On to the next screen. The vix really comes in. Up to 17, down to 13. Substantial. Two basisield by points. The color is wrong. That should be green with two basis points up. Yenyuan, that is my litmus paper for korea. That shows stronger south korean yuan versus the japanese yen. Bonds are down across europe, declining with treasuries across europe. The dollar extending a lot of their advances. I want to talk oil later. Tom retail sales in the United States, an important picture. Here is where it used to be. This is for 40 years the consumption of the United States of america. You get the gloom of the double the 1980s, the gloom of the 1990s. Fine. Then we got really gloomy. Consumption dropped like a rock. This is from 2007 as we look back over 10 years and you can see consumption is down. That is the bad news. The good news is that we have seen a reinvigorating consumption in america. We are not back to normal, but we are getting there. Maybe one day it will be transitory. Francine this is my chart and maybe one day this wont be transitory. This is europounds. Tom very good. Francine parity will be made according to the call. They are sticking to that. Morgan stanley saying it is bullish on euro. Very good. Long andeen gone too we welcome back Stephanie Baker a Bloomberg News and Bloomberg Businessweek. There has been nothing going on in washington to talk about. Where is stephanie . Where is stephanie . She is back today. Lets do an update of the news, which seems a day old. But i dont think it is. Merck tooved from under armour to intel. Do you assume more ceos will walk away from the president . Yes, that is a real question. I think it was surprising that not more ceos came out in the fourth of can fraser when he resigned and then was attacked so quickly by trump on twitter resignedazier when he and then was attacked so quickly by trump on twitter. A lot of ceos have been fearful notcking trump and facing aump twitter tirade from an attacking trump. It seems that the twitter tirade from trump is not having the impact that it once did. Im fascinated how charlottesville has played abroad, career, as well. How did it play abroad . How did it play in paris, london, singapore . Stephanie i think there is genuine shock and disbelief that in the 21st century we have supremacists white who feel so emboldened to march on the streets of a fairly major american city. I think there is surprised, shocked, and disbelief. Francine are these groups just embolden or have they gotten bigger in size in the u. S. . Stephanie i think the southern poverty law center, which has tracked these far right movements, has shown that they have grown in the past couple years, emboldened by trumps campaign. They do feel like they are borrowing slogans from the trump back. , take america they do feel like they have a potential covert to come out and protest. We see that they are planning further protests, both in virginia and texas. I know this plays into your world only at the margins, but does it not play a role in thes of you see divisions and hatred, it must have an Economic Impact further down the road. It could. For the markets right now, the focus really would be on does this have any implications with regard to the president s ability to pass legislation. , then thate the case may well impact peoples believe in growth and may impact peoples believe about what the beliefs about what the fed needs to do next year. The legislature has already been under question and the trump inflation threat has already been under question. I think this is only having an impact at the margins. Historically, when you talk thet politics, it is only that the currency starts to react at, otherwise, we need to focus on what the Monetary Policy impact potentially would be. Up themon, let me bring chart. Lovely to see you for a substantial amount of time. Here is dollar. This is the bloomberg dollar index. Can see the beautiful and elegant kisses on the moving average. We get dollar stability over the last couple days. Simon, is there a trump dollar policy . Amid the chaos of , allottesville and korea these marginal issues to the market, can you detect a trump dollar policy . Simon if we look before yoution and inauguration, might have thought that there would be. There was fairly consistent commentary in the early stages of the election. The strong dollar, the belief that others were manipulating currencies. One of the things that has become very clear is that since the inauguration, that kind of discussion has largely disappeared from the rhetoric. That if the president wants a weaker dollar, that is actually what hes got area whether that is a genuine policy or a case of benign the policyich is people often thought the Bush Administration followed, is never going to be answered. If he wants a weaker dollar and he said that before the election, hes got exactly what he wanted. Tom simon, thank you so much. Greatly appreciated. Stephanie baker, thank you so much. Look forward to seeing you often hear in the coming eventful days of washington and london. Up, looking at mr. Trump and his many allies. It is a Beautiful Day in london. It is in august day in london. The lines are too long. Im not coming there until november. Im kidding. From london, from new york, this is bloomberg. Taylor this is bloomberg. Lets get the business flash. An activist investor is targeting a french yogurt maker. Management has taken a stake corvix management has taken a stake in the company, danone. For now, they will not push for Management Changes or launch a proxy fight. The former uber ceo does not want to go to court. An attempt by benchmark to oust om the company should be heard in private arbitration. Would likely keep the details out of the public spotlight. Airbnb is ramping up investment in china. Tells bloomberg the home sharing company will quadruple its Engineering Team there over the next 12 months. The plaintiff focus on 400 million younger chinese who want to travel. They plan to focus on four hundred million younger chinese who plan to travel. Francine thank you so much, taylor. Yen has weekend as the prospect of war between the u. S. And north korea has receded. U. S. Defense secretary jim mattis says it would be game on north korea filed fired missiles that hit the u. S. Or a u. S. Territory. Rick, a great pleasure to have you here. It seems all the panic and the angst is receding. Can it come back just as quickly . Rick i think it can. It was a fewer risk off trade. Particularly in the thin august trading days, it could come back. Francine what needs to happen for it to be a significant selloff . Im not talking about nuclear war. Is it a psyche, a momentum that could see a trend reversal to the downside that is more sustained . Rick we all have different definitions of longterm. What is going to affect investors that want come back . These risk off trades can be an opportunity to rebalance. If it is going to cause economic damage, trade relations, some physical damage or other, then that wont come back and you would have to reset expectations about Economic Growth at the margin. I think that would affect values. These onoff trades, i think they are very shortterm. Been i want toas say a month, i will say two or three weeks, of massive geopolitical distractions. Lets get away from that, lets get back to what we do. How do corporate earnings look . How does Revenue Growth look . How do we look down the income statement . Rick if you look at the beats, they have done pretty much everywhere coming you have earnings beats, why have you got earnings beats that are in u. S. Large caps than u. S. Small caps . The International Story is Getting Better for large corporations. Europe seems to have withstood the worst of euro getting stronger. You have individual stories like china. This synchronized growth story is feeding through to a reasonably good earnings story. That is underpinning high valuation levels. North korea we identified is a real risk. We need to diversify to manage that risk through hedges. It is unavoidable in terms of shortterm spikes. Tom where are we on exuberance . We have been so distracted by korea, by charlottesville, frankly by brexit, i guess brexit has a lot more to do with what we do than the others, but where we are on the exuberance of institutional global wall street . Rick i think you can see exuberance and some of those high popping multiples, in some parts of the i. T. Sector, but it is not generalized the way that it was. Tom i agree. Rick youve got to discern the good from the bad still and the exceptions are exceptions and people still learn lessons when they see things like snap and they begin to draw conclusions about Corporate Governance issues. An era ofel we are in irrational exuberance, but it is certainly an exuberant feeling in some parts of the market. Francine yes, this is equity markets over. You are talking about tech valuation. Equity markets are high, they keep going high. There is a bet on the bond is nowhere inflation near what the fed is expecting it to do. It is almost a binary. One is right, the other is wrong. Rick you definitely have that unfortunate nexis, where is the inflation underlying basis is haveetting worse, and you an earnings problem, then you have the double win me. Equities are at an alltime high. So our earnings. I guess the question is, are they going to persist . To does not seem to be cost pressure at the moment. Tom i agree. Pricing power of corporations is really slipping into the dialogue here in the middle to late summer into autumn, as well. We will continue. In her next hour, 10 years on from 2007, an important conversation perspective from the Vice President of Credit Suisse. Kevin cirilli not in washington. Kevin cirilli is outside the trump tower in new york. Stay with us. This is bloomberg. Francine this is bloomberg surveillance, with francine and tom from london and new york. We welcome our global viewers and radio london listeners. Another interestrate increase this year if the economy involves as he expects, says bill deadly. We continue an to survey did moderate growth trend. We think inflation will get pushed over the medium term back to our rejection of 2 . Projection of 2 . Francine rick come when you look at what Central Banks are doing, what they could do, there are more investors saying that they may be looking at going further into negative rates because the cycle is turning and they dont have ammunition left. Is this the right time to start normalizing more aggressively . Rick listen, youve always got stray bits of data that are going to alarm you. Normalizing. Banking systems, even in europe, even in the south, look like they are getting manageable from a stability perspective. I think the tapering and the rewinding of balance sheets, i would not be in a hurry to do it at all, but i think it is time to have that discussion. Tom rick, what i find absolutely fundamental about this and it goes back to your work in operational research, do we have reaction functions for where bill deadly or james bullard, are we working with the mathematics we have always worked with . It is a cliche, but they are truly in uncharted territory. Rick you could be thinking the phillips curve. There is a 1970s fashion for optimal control. For a. Of activity for a hold swathe of activity. It can be like trying to control the shower in one of these hotels where the temperature is not very consistent. On the base case, that is quite hard. When you look at the phillips curve, it compounds the problem of Central Banks. They just need to focus on data may be a bit too shortterm to guide them and not think they can have this optimal control. Francine very quickly, doesnt mean that you ignore it for the moment . Rick there has got to be some damping in the system. I think you definitely ignore it when it comes to negative rates. Francine rick, thank you so much. He stays with us. Coming up, we will speak with the former u. K. Chancellor of the exchequer. We will talk about brexit negotiations. The eu was saying they received these working papers and then we expect negotiations to start on august 20. Inflation unexpectedly Holding Steady. The drop in pound has started unwinding. What does that mean for the boe . What does it mean for Governor Carney . We will discuss that next. This is bloomberg. Got you outnumbered. The dinosaurs extinction. Dont listen to them. Not appropriate. Now im mashing these potatoes with my stick of butter. Why dont you sit over here. Find your awesome with the Xfinity Stream app. Included with xfinity tv. More to stream to every screen. Tom the president ial visit to new york usually means the waldorf astoria. Where should a president s day . Maybe in his own bed. He is back at his abode, that would be the trump tower. Here is taylor riggs. Taylor u. S. Defense secretary jim mattis warns it could be game on. He says the situation could escalate to war very likely. Korea was briefed on his military plan. Kim says he will hold off for now a sign he may be willing to defuse the crisis. President trump is trying to counter the backlash from his initial remarks on charlottesville. President trump named the ku klux klan and neonazis as being repugnant to everything chinaans hold dear your is signaling it will retaliate if necessary after President Trumps call to handle intellectual property. We look into the practice, especially the technological knowhow. China warns it will take all proper messieurs to protect its rights. Helped study last month, Consumer Prices rose in annual rate of 2. 6 . The pound dropped after brexit has started to fade. Has england governor raise rates from a record low. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Francine the u. K. Government says it wants to maintain terror free trade for a period of time after brexit. This morning, a series of papers, fleshing out the u. K. s brexit plans. For more on all of this we are joined by norman lamont, former u. K. Chancellor of the exchequer. Ray, thank you so much for sticking around. What have we learned so far about what kind of exit negotiations we look at . I think what the paper is all about, it is about avoiding the socalled cliff edge as how as you deal with trading with europe. I think this is a much about administrative procedures, what businessman raised at the border as it has to do with terrorists, but it also has to do with the terms that goods are actually traded. Francine what is the first thing we need to do after she comes back from holiday . That, and a lot of people do say that, but actually i think the governments approach has begun to take more shape. It is a complex problem and i think the joint letter between liam fox and the chancellor helped, but i think you can see what the government is aiming at, troublefree implementation periods so there is not an abrupt change for industry. One thing to say about the governments paper, it covers trade in goods, but also importantly is trade in services. Tom there is a history of your service to the United Kingdom that involves making tough and often unpopular decisions, almost the equivalent of paul volcker in the nine states of america. May, is this a government that can make tough decisions . Coalesce and make decisions you and others made 30 years ago . Is a good questions, because difficult decisions will be made over the deficit, we have still not fully recovered from the financial crisis of 2008, the deficit is too high. I get the impression that the chancellor is focused on that and determined to act on the. You cannot get away from the awkward fact that the main purpose of this government, the main challenges until the next election is going to be actually than negotiation with the e. U. This is so complex and timeconsuming it dominates everything out. Tom how do you respond to what is percolating out there of a new trade for the United Kingdom, not a return of the empire, but the idea that with brexit the United Kingdom could trade globally versus a singular focus on europe. Is that a feasible goal . I think so, but it would be slightly naive to increase trade with u. S. , canada, new zealand, will somehow replace trade with the e. U. I think the government would be realistic in aiming at retaining trade with europe and trying to increase trade with the rest of the world on top of that. It is quite possible that our trade with europe is on the decline anyway. That has been the picture in a recent years, it probably will continue. So can tell . I dont think one is looking for the rest of the world to replace, but it is a question of diversifying trade as we need to do anyway. Francine we had some data earlier on, u. K. Inflation Holding Steady as the pound dropped is starting to unwind. Does this mean the bank of glenn has less of a case to hike rates . We thought so in the first half, there is also incredible pressure to put wages up here i am not sure that the pressure has gone away pretty evidentis that employment is at high levels, but i wouldnt say the measure on baking has gones come has gone completely, but clearly there is a cautious tone. They are probably right to be somewhat cautious. Francine let me bring out the chart of the day, hsbc calling for this back in august 2016. Morgan stanley is also bullish on the euro your are we going to parity . Europe ast depends on well. It is a cyclical recovery. Even in the south, things look like they are Getting Better. We have people looking at the banks in italy and were surprised how positive the tone was. I think europe recovery is as much the story as u. K. Recovery. Lord lamont, i think one more question if i can slip it in. What is the prescription of the labour party to get organized . As someone abroad, someone across the ocean, i have never seen a labour party with such an interesting daytoday calculus here to have his labor recapture a collusio cohesion . I think the labour party has been in a relatively strong position. You may not like it, i dont like it. I certainly dont like where the labour party is, but that did well during the last election. Aim is toeir main expose false claims. I think one of the things that went wrong in the election was that Jeremy Corbyn was allowed a free ride and he made a strong appeal to young people, particularly over things like student debt. I think the conservative party has a duty to expose that much of what Jeremy Corbyn said was thestic, inauthentic labour party if properly put under the microscope is difficult to see being elected, if it under the microscope. Francine why has Boris Johnson gone quiet over brexit . Norman he have been in australia. If you read the australian press, he seems to go down very well in australia. Francine what about his thoughts on the transition agreement . Less humor, more facts. Norman im not against humor. Eightouldnt he come in communicate in humor . I am sure he is in agreement, anognizing that it is implementation phase. I would be amazed if he didnt sign up to that, the fact that liam fox and him and have made the declaration, im sure that goes for the foreign secretary as well. Continue. Ll coming up this morning, and exceptionally important conversation on bloomberg radio. Admiral onk with the korea and his navy. Stay with us. This is bloomberg. Francine bloomberg surveillance with tom and francine, we say good morning to our viewers and our listeners. The bill was overwhelmingly approved for missile program. President begins his second term. Chamber of commerce still with is iranlook a a possible partner for trade . I think you will be overdoing it saying it is a great partner for trade. British trade is very low compared with germany, 15 times the level, italy 10 times the level. But it is an emerging market where britain needs to do much more. I think it is a criticism of britain. Partly it is because we dont sell capital goods that germany does for a market like that. Francine the u. S. Has a complicated relationship with iran to say the least, does it complicate the relationship the u. K. Can have . It does complicated, because european banks are terrified to have any banking relationships with iranian banks in case we get fined by american regulators. There are very few banks that dont have a american exposure. Inks have had massive fines recent years your i think we are at a very dangerous point in the relations between iran and the west. Iranians feel that the nuclear deal is not being honored by the particularly by the United States. If the United States clears up the nuclear agreement, that will be an open imitation for iran to restart its nuclear program. I think President Trump ought to be extremely careful before taking action. Is it best to have it or not have it . I think it is ridiculous to say it would be better not to have it. Look at what is happening with korea, do we want to create another situation like that . Lord lamont, there is a delicacy between the history of the United States in the region and the United Kingdom and the region, what can britain do about these saudi arabia and access . Orther religion, politics, oil, what can the night at kingdom do to provide a path forward their . Norman you have tension between saudi and iran and i think what neither United States nor britain should be doing is siding unilaterally with one. I think it is a tremendous error to side with saudi arabia. This is partly the sunni shiite divide. Is obviously also the National Interest of the two countries, but it is a tremendous mistake for the west to side with one. We ought to be encouraging them to talk to each other, not siding with one. I am critical with too many arms deals on one side of the gulf. Need to dooes he ran if there is a moderate government sat down by the religious conservatives, what is your prescription for iran to move the dialogue forward . Norman i think it has moved movedlee, enormously. He said in his inauguration speech when he was inaugurated as president last week, there is no country that iran is not allowed to talk to, hold out the hand of friendship. Perhaps lessento some of the alleged interference in other countries in the neighborhood, but i think above all, there needs to be an attempt to try to approve their relationship with saudi arabia. That has to come from the iranians as well as the saudis. Francine what does it all mean . View theseinvestors types of risks . Richard i think its just noise issues. Think people were talking about iran being a destination, but i think in relation to the middle east, unless they precipitate trade restrictions or physical blocks, they are often noise from a which humanitarian perspective are terrible, but may not tell us much about the investment viewpoint. Tom very good. Thank you so much. We are in london. , aspresident is in new york well in new york are the ways of every dime of pepperdine. Pacific coast time, east coast we knowaves of why you are awake. Stay with us. From london, new york. This is bloomberg. Francine this is bloomberg surveillance, i am taylor riggs. U. S. Oil drillers are keeping pressure on opec. Oil output is likely to set a record next month. The increase is being led by the order risk americas top Energy Regulator is promising to keep coal in the power mix. He has been named to head the Regulatory Commission your he says power plants are a crucial part of the countrys energy supply. The new owners of mcdonalds business in china plan to speed up expansions so they can catch up to kfc. The chairman of mcdonalds china is also the chairman of city capital. Connections in real estate, which will help mcdonalds get better store locations. That is your Bloomberg Business . Tom thank you so much. To global wallry street, except it is front and center to a future of Business Done in the city. Id, i dont know what it is, you dont know what it is. But everybody is adapting. Richard lacaille is with us. What will be the biggest change law only by side Asset Managers revolution in london . I think it could have big impact on how the buy side things about research. I think we will have to a value weight more carefully and think about how we are investing and using research. Tom there are a lot of parts to it, but i think you have hit directly on the key idea. Obviously we are biased, because we are trying to move bloomberg how will analysis be paid . Fee . It be paid by do you think it can be paid by the hour or syllable . Richard it is conceivable, but most people have a mixed model already. Investment managers are writing checks, not using soft commission or even bundle commission rates. I think the mixed model may continue. It was a point where people thought mifid could go global, it doesnt seem like it has caught on on the other side of the atlantic. Apart from the client level, and that is the interesting thing, what do asset owners think of their Asset Managers . Us are there toward a mythic type toward a mifid type world in the United States. Francine i spoke to someone who d may not live up to more clarity. Richard individual firms have to make their choices. I think there has been an effective accommodation of the fact that there has been a delay. What the landscape looks like, i dont think we will know for several years. On january 1 people make choices that are somewhat provisional. Francine what does that mean richard irning notes . Think the sell side will adapt. They are already adapting. They will need to be discerning about where they point to research and what is the most effective medium, just electronic, how much his people. Some investors dont need that, because they are more longterm in orientation. If we look at our own shop, we have quantity managers and are all different. Tom thank you to that briefing, very important. Coming up we look at International Relationships of the president. Withok at the president gideon rose. Fifth avenue shut down last night with protests. They were protesting President Trump. This is bloomberg. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. Koreanis morning the crisis simmers the second day, the yen continues weaker, gold ends. The president needs all the allies you can get on the deep this hour, gideon rose. Looking inside mark and intel, they walk away from access to trump. Ony walk away from anyone hatred and bigotry. Good morning everyone. This is bloomberg surveillance i am tom keene, with Francine Lacqua. Protest last night on fifth avenue, over to the whole foods store, they had an angrier tone than the usual protesting. Francine that is significant, because this has impacted the markets. Donald trump not having a great week, but i would also point to figures in the u. K. Inflation is not as strong as expected. Brexit heating up again within the discourse of this august. Right now to give you your update this morning, here is taylor riggs. , francine, north korea may be signaling it wants deepening divide with the u. S. He said he will consider the bullish actions of the yankees a little more before going ahead with the launch. Put briander to krzanich says he is quitting dividesious harm that on issues. He resigns from the president s panel. The u. K. Wants a terror free light trade union after breakfast. After brexit. The proposal is being cheered by business leaders, but is likely to find a position with the e. U. Bill gates donated microsoft shares valued at 4. 6 billion dollars, about 5 of his fortune. No word on who has received the gift. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Tom thank you so much. Lets do a data check, equities, bonds, currencies, commodities, lets mention home depot. Better than good to say the least. Better take coming off the news flow a little bit low for oil. The vix at 11. 77, much better than where we were on friday, yuan,am using japan stronger korean yuan against japanese yen. Home depot completely separate and the rest of retail, they really showed terrific same story sales and they boost their forecast. Ishout question, home depot separate in exclusive from american retail. Thatine yes, something may be pointing to what is going on in the Housing Market in the u. S. This is what i have, declining treasuries, as a prospect of war between u. S. And north korea seems to be receding, tom. Mention Home Depot Stores in guam, i think they normally would do that but certainly they pointed out this time as well. Bloomberg andhe so optimism on the american economy. Were looking back 10 years to the financial crisis right here. Back to eisen heisler, the good conception we have seen up until 2000 and then a new regime of financial crisis. That is the optimist case right here, as we heard from the unit in new york as we heard from the new york fed. Ncine this is riverbe reverberating as we hear from hsbc. By morgan are joined stanley, but are more bullish on euro then they see the pound weaker. Tom think is so much. Last night with protests, modest protests a cross midtown manhattan, the president chose to visit his, on fifth avenue, just down from bergdorf goodman. There is our kevin cirilli. Morning here to more ceos have resigned following the fallout from president Donald Trumps response to charlottesville. Yesterday the president announced the kkk as well as neonazi groups and other hate groups, and he announced that the department of justice would be investigating this. By just overnight, three more executives of intel, mark, and joining mr. Fraser in resigning from the president s ceo Manufacturing Council board. All of this of course as faces intense pressure not just from the business community, but also from politicians as well. Clearly it is going to be quite the day for when President Trump arrives that he is here at trump tower, but when he hosts a series of meetings, the first time he will be here since he has been sworn into office, clearly, he has shut down traffic so to speak. A busy day here in midtown. Tom thank you so much, kevin cirilli. It is a wonderful time of the month. Gideon rose has been very kind month after month to join us magazine affairs geared this is the single best under theids, anybody age of 30 who wants to get smarter about what is going on in our world. Gideon rose does it with a wonderful set of articles on the deep state and how we will relate to allies with the presidency of donald trump. Weave to ask you about what witness with korea and charlottesville, the last number of days. From where you sit, what does secretary tillerson have to do to prove value to this president . Think you have an interesting situation here, because what happened with korea as it winds down, first of all, there was no crisis. There was a korean problem, but the crisis part of this was jumped up by reckless comments that have no substance behind them. Now they are being walked back and i think this will be a lot like the transgender tweet. The world is not going to take the president s tweets seriously. Nobody really knows what american foreignpolicy or Public Policy looks like in the president of the United States is either a pariah or a laughingstock. Tom your council on Foreign Relations there are black and white photos on the wall of what i call foreignpolicy business as usual. Assertive a more tillerson or more assertive mattis . Gideon most people in the field of foreignpolicy, that deals see national security, tillerson, mattis, and mcmaster as people trying to rein in the president and stop him from causing too much trouble. As you see in the economy, things are going well. Markets are up, the world situation is not that crazy. The biggest source of instability in the world right now is the u. S. President. His staff is trying to make sure t doesnt are things al doesnt throw things off track. You see this with the charlottesville response. What is church hills great line, you can count on the United States for doing the right thing, but only after trying Everything Else first. Ultimately donald trump will make the statement that his staff for, but only after time and everybody else has the message that hes only doing it because his staff is telling him to. Francine . Will that change . Point, does the president say im losing too much political capital, i need to start listening to my staff . Questionhat is a great right now. Take this ceos yesterday, we have three more resigning. At one point at what point does the rest of them say we are at the Tipping Point . Not yet. Most of the people are refusing to criticize, but every day drip. Is a drip, drip, i wonder what foreigners are thinking about what they should understand and what they should know about u. S. Foreignpolicy. It is not sure who speaks for the United States. Tom we are going to touch on your magazine, but andrew base hishich the sacrificed nationalism it forroper nationalism conservatives in america, where is it . I think you have to distinguish between the president himself, the administration the president running the admin station, but also the administration, and then there is the trump base. A lot of people who supported with or were dissatisfied the status quo wanted Something Better and new and are disappointed in what they got with trump in practice. And then we have somebody like if you wanted to design foreignpolicy, what would it look like . These is piece is saying, not this crazy mess we are seeing in practice. Tom thank your for joining us. We have a lot more for you on surveillance. You someone from the fletcher school, the Interesting Affairs of our military. Kevin cirilli outside the trump terror, mr. President begins a working day in new york. Stay with us. This is bloomberg. Francine this is bloomberg surveillance taylor i am taylor riggs. Targeted, Hedge Fund Manager corbis management has becausestake in danone, it views the company as significantly undervalued. Ceo doesnt want to go to court. Kalenik says it should be heard in arbitration. Forcing the suit into arbitration would keep it out of the public spotlight. Airbnb is ramping up investment in china. Cofounder Nathan Latour isaac tells it will quadruple. It plans to focus on younger chinese who want to travel. That is your Bloomberg Business flash. Tom it is a great pleasure to welcome meals was of Credit Suisse. Neil of credit he is smarter than the average of economist, he joins us 10 years on from 2007. Nailed thesweeney disinflation story, not the feel of deflation. Tell me about the transitory inflation that has built dudley bill dudley and others he fondled. It is a puzzle. That is the point. As the economy approaches full employment, youre supposed to see price pressure. We are approaching full employment, but the price pressure is not detectable. That is not the same as deflation, but inflation is clearly much lower than what would have been expected, and that is not unique to the u. S. In europe andt japan for a long time indeed, even emerging markets that are traditionally good at having inflation. Tom i want to go from inflation to a part to employment. Bring up the chart. Here is a transitory inflation you had brilliant praise for Credit Suisse, hidden slack. This is gorgeous. What is hidden slack . That i think the notion is there are people at the margins of the economy who are not being brought back into the active dissipation. And it will take some more stimulus or something, and it is absolutely critical in my view that we achieve that. Toving them out gives rise discontents in society that was precisely the topic you were discussing a moment ago. Francine if we follow your argument, you dont believe when the fed says where going to see inflation pick up in the next couple of months because of wage growth, it is something deeper, right . Into the labor market . Very i think the market is skeptical broadly. I think Central Banks at the moment are being governed by their academic backgrounds to believe that there is a phillips curve, there is a reliable tradeoff between activity levels and inflation, that it is persistent, and that we are just accidentally running a little bit off at the moment, and that things will come back into a normal configuration. Structural change is very hard to measure in real time. Very hard to measure in realtime. Francine do believe then the way the bond market is positioned is the right way . Neal i think there is a longterm trend of change underway. And one of its effects is that inflation tends to run lower pastexpected based on empirical regularities. That implies that Interest Rates will be lower than you previously expected here to we are sitting here with 10 year notes in the u. S. And it has been years since people started the year and said Interest Rates are going up this year, lo and behold, they dont. Conversationtant later today, look for the Deputy Director of the International Monetary fund. From london, new york, this is bloomberg. Neil sauce with Credit Suisse and gideon rose to kick off the season. Trump and the allies, view from abroad. There is no better view than the election in germany, what does chancellor merkel need from President Trump to get her self reelected . It wont achieve anything from President Trump, but the question now is what is going to happen with this populist movement and antiestablishment surge. It seems like the tide has been turned and merkels prospects are looking better. Tom they are looking better. And you have a story, do they have a better economy . Is it just that simple . Gideon it is partly that, but also the domestic sources of the trump phenomena have lay themselves out here, they themselves out in brexit in britain. But it is different than campaigning and griping about problems. Populistsce the dont have the answers. They have not managed to achieve much and so, that is not exactly a good electoral record to run on. I think that is becoming clear and the wind is out of the sails of the challengers and coming back over time to the establishment. It depends, the more things screw up elsewhere, you have this disjunction between politics and economics right now. The economy seems normal, stable, going up. And the politics, us American American politics, certainly, seem discombobulated . How it plays out, where not sure. Francine gideon, what can other leaders learn from Angela Merkel . There is value in playing the United States seriously but respectfully. Merkel is very much the leader western alliance these days and is managing her country well enough that people are basically seriously more respectful of what she is doing than elsewhere. Tom very good. Gideon rose with us and we will continue with neal soss as well. Francine, we look at the french they become critical even with the history we have with france and other elections. Francine luckily i know when they are, we are fully prepared to them. They are on september 24. We have six weeks of campaigning. It is clear over the last couple of days there was a deliberate push from Angela Merkel to talk about diesel cars and what carmakers can do to avoid the scandal. Coming up, a conversation with danny meyer, a little later on, 2 30 p. M. In new york, 7 30 p. M. In london. We are seeing a little more risk across the board, look at yen, look at gold. Our guest in new york is where distortions are, thats what we need to get to the bottom of this august. This is bloomberg. Tom the news flow continues overnight. The ceo steps away from the president press Business Council. E will have more on that President Trump is at his residence in a new york on fifth avenue. I believe looking northward among the shopping of fifth avenue. In the middle of it, the trump tower with security trucks out front. Heavy security for the president s attendance in new york. Update with news first word news coming here is taylor riggs. Taylor u. S. Defense secretary james mattis warns it could be what he calls game on if north korea strikes guam. He says the situation could escalate total war very quickly. Kim jongun was briefed on his military plan. He says he will hold off for now , a sign he may be willing to diffuse the crisis. President trump is trying to counter the backlash to his initial remarks on the violence in charlottesville good the president called out white supremacists. He also named the ku klux klan and neonazis as being repugnant, everything President Trump called to investigate how china handled intellectual property. The president directed the u. S. Trade representative to look into chinas policies, especially the practice of forcing American Companies to transfer technological knowhow. China warns it will take all measures to protect its rights. Over in the u. K. , inflation unexpectedly held steady last month. Consumer prices rose to put 6 annually. The effect of the pounds a drop have started to fade. Waiting to raise Interest Rates from a record low. Global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. You so much. Nk the u. K. Government says it wants to maintain tarifffree trade after brexit. There were a series of papers. Britain will seek to negotiate a unspecified an amount of time after march 2019. We are with the u. K. Government reporter great to have you on the program. What we actually know about the negotiating position of the u. K. . We have some more clarity about where the cabinets stand. They have lost a lot of time squabbling amongst themselves as to what kind of brexit and what kind of roadmap we are going to get. Now at least there seems to be consensus that they will try and get a transition. So that you dont have the cliff edge, you dont have brexit and then businesses dont know what to do. Francine this is for trade. What happens to services . Is the answer. W, what we saw in the customs union, that is a proposal. Theres no guarantee the e. U. Is going to turn around and say that great because there is an element what the u. K. Is seeking is effectively as close as possible to the deal we have now, but with none of the obligations. Francine that would definitely and eatingour cake it as well. What is it mean that Doris Johnson hasnt really weighed in on this . What we know about his position on brexit generally is that he aligned himself with the more socalled hard brexit. We havent heard what he thinks about transition to appear periods, but he made bold remarks about not wanting to pay a divorce bill and britain will he just fine out of the e. U. He is biting his time because his biding his time because his popularity within the party plummeted. People saw him trying to get in as the next leader and i think that did not sit very well with voters. I think he is waiting and seeing how it all plays out. In the cabinet when they get back from holiday and also with europe tom what is the surprise in the next 6 weeks . I think what will the e. U. Say to it our bold demands because we heard people like chief exit negotiators say this is all great but progress has been slow and we got big issues to sort out like the divorce bill and until we do, we cannot even talk trade. He already suggested that talks about trade relationships will be delayed beyond october because the u. K. Hasnt really done its homework. Tom fascinating. Thank you so much. This really shows the time continuum from lord lamont who joined us in the last hour after the reality is a new slow to us today. Is withwith us neal us and gideon rose with the sleeper article of the month. The arch issue here in our International Relations whether it is brexit or the president is the speed of the network today, just overwhelming. Everybodys rules have changed. Absolutely and the question of how much that speed and the interconnectedness of the world will fundamentally change International Politics and economic economics is an interesting theoretical debate. Theres a number of people who have said everything will be different. Neal basically taking a step back and saying things will not change as dramatically as they might. Tom how does this go to your world where we got the silliness of soft data and hard data . The news flow that your team at Credit Suisse has been dealing with is overwhelming. Is it enhanced Economic Growth or diminished Economic Growth and critically, investment . In your earlier segment you were talking about mifid and the role of research in investment life and that has changed in our lesley. There was a time before bloomberg went economists knew the numbers, and the customers didnt. Tom and they rolled in with a card and the pdf stacked up and you would reach down for the neal soss a fivepage love note. Francine what is it mean for Credit Suisse in general and people like yourselves . Does it mean we need to look at a different set of numbers or with possible throwing out of the daily morning that life will be much more tough . Depthi think it means the of analysis matters more now because its almost all that is left to the instant information and the idea that we get a retail sales figures later this morning in the u. S. There was a time economists knew the headlines and the customers in the traders and the salespeople did not. Your first response, if you will, was intrinsically valued. Now Everybody Knows that. Its the analysis that counts now good tom this is critical and charlottesville is the same model that dr. Soss just described. The news flow this weekend makes for changed politics, the immediacy of the video. Neal maybe. It is turmoil in some areas of life like a lyrical and the lack of turmoil in other areas like economy and the markets. I cant see how this is ultimately completely sustainable, but it has happened before and theres a real disconnection. Depending on where you are looking in the United States, things are either turbulent or calm. Dr. Soss i think this is all hidden slack in the economy. The turbulence is where things are happening. Tom we will come back with dr. On onnd gideon rose later your International Relations on korea and northern asia. A new york city the mets just couldnt do it. Yankees win, mets lose. Is bloomberg surveillance, i am taylor riggs. U. S. Oil drillers are keeping pressure on opec. Oil output from shale drillers is likely to set a record next month. The increase is being led by the oil basin in texas and new mexico. The new owner of mcdonalds in china plan to speed up expansion so they can catch up to kfc. The chairman is also the chairman and ceo of civic capital. He tells bloomberg civic has local collections connections which will help mcdonalds get better store locations. Two hedge funds have tudor investment have dropped their market and Financial Instruments licenses and they have another form of license about the rules are not seen as strict. The new regulations cover everything from pain to research and document trade. That is your bloomberg is this flash. Tom thank you so much. It can be the doddfrank, the volcker rule, neal soss is the only one i know that read the document, or it can be something fid itsid mi how the market will move people ,ason, out of all of mifid whats the single thing that gets your attention . Jason i have to say the single thing that gets my attention is this idea that you were referencing before the break of the morning note. I love the visual of pdf the cart of pdfs rolling through greater this is the bread and butter of how we get to know wall street and wall street clients get to know what banks they want to do business with. Obviously there will be lots of different rules that will play in lots of different ways in terms of the logistics of trading and research. When we talk about the thos, thos, this is a big deal. Tom will it lead to concentration in new york or london or in other european geographies . Seems likeertainly there will be a marketshare battle and you have seen that with him of the pricing in tell has come out from our own reporting and others where you have jpmorgan coming out last week and saying they could have 10,000 for access to read only Equity Research and other banks say they will charge slightly more. It does feel like the big banks that have the ability to get some Pricing Power may grab some of that market share so there may be that concentration you are talking about. Concern is there a that if you price of the lower end you will get more attention from regulators . Jason it could be an one issue that seems to be playing out is david versus goliath that we always see on wall street is thing . Cyclical we saw in the wake of the financial crisis when boutique investment banks could come in while the big guys were on their heels. There is always a compensation war and a talent war to some extent. Bankers and analysts are always looked looking to get more francine can we assume that smaller operations will be at a disadvantage in this case . Jason it seems like that right now if pricing becomes the element. Keep in mind the smaller firms can be a little bit more nimble. To your earlier point, they can fall to the side and maybe do some things on the side that dont catch the attention of regulators. Tom lets get some important perspective. Ossl sauce remit neal s remembers when was done by ravens, they would fly around like game of thrones. We want brain power just as one day years ago at Credit Suisse mark flannery, i couldnt make a decision on petroleum without reading mark flannery. Are brainpower so we are going to pay for. How are we going to pay for them in the future . Dr. Soss i think the cream will ride to rise to the topic i to the top. Because base information is so readily available, it will have to be the analysis, the context, the understanding. Something that gives perspective and allows you to get beyond the very shortterm effect of the news that is going to be valued and how you go about it the precise compensation for that is obviously precisely what is being negotiated, if you will, and new modalities. Modalities,raid of francine, pick it up, please. Francine modalities are my forte. When you look at the modalities of how banks operate at how much they invest in possible disruptors of themselves, this is kind of like a new trend which is gathering pace and goldman is right at the forefront. Jason tom mentioned the idea of cycles and we have all seen these cycles work through. We saw banks big banks get into the private equity business in a big way before the financial crisis and one of the things we were seeing, there was a story on bloomberg is jpmorgan, goldman investing in including syntech, peertopeer lending to block chain and all sorts of more consumerrelated things and venture capitalists are seeing away from this little bit on the margin and big banks are going in. They are trying to outflank maybe smaller competitors and scoop them up because before they become a threat. Its interesting to see how much these big banks have been investing in technology for themselves very heavily and also to sort of scoop up this new form of investing. Tom jason, you are charming with year new york accent. Ats is what mr. Kelly looks i dont think gideon rose looks at this, tv. You get the live format. Critically, seriously, you can go over here and click on an old section and get that chart and in a transitory fashion, you can take that chart over to your bloomberg. This is bloomberg. Francine this is bloomberg tv worldwide on and good morning to all of our radio listeners in london. Coming up for bloomberg daybreak americas with david westin, alix steel, and jonathan ferro. Alix ed morse of citigroup will be joining us. We will talk about oil and we have seen recent strength and time spread. I want to see if that is sustainable good we will also talk about steel and aluminum and iron. What is the future going to hold in terms of production and the rhetoric coming from the white house . It should be an interesting conversation in light of the nafta talks and yesterday the investigation potentially underway. Thissingle best chart morning, lets go to the idea of korea. Radio andoining us on gideon rose and neal soss with us. This is a simple northern asia europe currency pair. We come up with the angst of strong yen and weak korean yuan. Are we clear in the discourse with north korea . I think so and i think we are going to be seeing some one love. I think this crisis on korea was an example of not quite fake news, but not reflective of the actual strategic tensions on the peninsula. Tom you blame that on the discourse of the president . Gideon yes and the confusion about what was actually going on because several this and Different Administration numbers membersent method had different messages. What will it mean for future times when there is a crisis because whether it is charlottesville, korea, transgender stuff, a whole bunch of things, is that the words of the president of the United States are not an accurate guide to things but we dont know what that means when there are real Economic Crises or real strategic crises. Why thereu wonder havent been resignations . Is there a point where adults just say we are not going to do this . Gideon you have to have appointments before you have resignations and they havent yet staffed their team so there cant that many people that resign. The people who are there who are asd probably see themselves saving the country in the world from the president and they dont want to talk about it like that, but thats a lot of the way people on the outside are looking at mcmasters and mattis es and tillersons of the world. Francine were back with neal soss of Credit Suisse and gideon was talking about how you manage geoPolitical Risk. How do you see the market reacting to geopolitics . In is it all happening currencies. Equities seem to be ignoring it completely. Gideon i think politics dr. Soss i think politics is the distraction from the point of view of financial life. Policy matters. So far, there hasnt been all has been policy that an active. Health care reform, tax reform, infrastructure and so forth and so on hasnt happened yet. The renegotiations of nafta begins this week. Nothing has happened. What we have had so far is the distraction of political discourse and rhetoric and so forth and so on. I think thats the first thing to keep in mind. The other thing to keep in mind is if you sort of analyze these events and think back to the first gulf war, what was the issue . The issue is we are going to have a war in kuwait or iraq. When you have analyzed it, its clear what the outcome is most likely to be and in the current and my view from the getgo, the probability that this thing would in some way simmer down rather than boil over is pretty high and i think markets have come to that judgment and came to it quite quickly when all was said and done. Every week that passes where you see distractions or whatever you want to call them with the president , are we closer or further away from policy including tax reform and the like . Could do that i could make more interesting bets. I think the situation we have seen over the past several months is unsustainable because its not like we have a functioning government in the u. S. And its not like the administration is putting forward an agenda and executing it. Anye isnt an significant policy apparatus that you are talking about. Its kind of as if the economy in the country and world of fear affairs are going on. Its as if the world is proceeding as it on its course and washington and the white house is proceeding on its course and they are disconnected good how that comes together, we dont know. Francine we hope to continue the conversation. Gideon rose and neal soss join us on radio. With on radio geopolitics. This is bloomberg. Got you outnumbered. The dinosaurs extinction. Dont listen to them. Not appropriate. Now im mashing these potatoes with my stick of butter. Why dont you sit over here. Find your awesome with the Xfinity Stream app. Included with xfinity tv. More to stream to every screen. Jonathan three more ceos quit the white house Business Council after the white house is criticized for not condemning racism quick enough. The new york fed head William Dudley signals another rate hike this year is on the cards and the German Economy extends its growth in the Second Quarter as Angela Merkel bids as a fourth term as chancellor. Good morning, this is bloomberg daybreak. Lets get you set up for the Market Action this Tuesday Morning and went through the assets for you. Futures are positive after the biggest weekly drop since march followed by the biggest oneday pop since april. The s p 500 showing resilience. Eurodollar softer at 117 1. 1749. The weaker story for treasuries continues. Too hot 2. 25 is your yield on the 10 year. My currency pair of the day, europound