Leaving investors waiting for increased payouts. Good morning, everyone it is thursday lets take a quick look at the stock 600 index. We are still lower extending yesterdays losses we are down by roughly 0. 25 yesterday the dax and the cac losing all between the escalation of the u. S. And north korea lets have a look at the markets one by one what youll see is that were still deeply in the red across most of them the ftse 100 losing 2 3 of 1 . This is in part to we have a lot of the names in the trading index. And ae cac off by 40 points. This is the picture. Utilities and health care doing a little bit better. Were still waiting for credential numbers theyll be out in half an hours time basic resources down by 1 and glencore is a factor here. Well get to that story in a bit. Lets get back to our top story. Trump adviser says the u. S. Is willing to, quote, use any appropriate measures against the north korean regime. The warning comes after pyongyang said it could be ready to announce a missile strike against the pacific territory of guam within a matter of days terry, its quite unusual to be given that many details. Yes and that very factor is what seems to be concerns a lot of investors, and also surprises a lot of north korean experts. But i have to tell you, we have had north korea making similar threats back in 2013 and since after. Yeah, so were talking about the same place as well were talking about north korea making similar kind of threats to preemptively strike north korea as well as hawaii back in 2013 but this kind of detail. So let me just go through some of the details here. North korea says staterun media reporting this morning following up on the threat that it made yesterday saying four rockets will land 30 to 40 kilometers away from guam and we have a timeline here by midaugust and north korea saying its going to be ready to go ahead with the strike now and wait for the leader kim jonguns strike to go ahead or not i think this kind of detail certainly is unprecedented but im going to have to tell you that im still getting this consensus from a lot of north korea watchers and experts who watched this situation for many, many years saying that fundamentally there is no change when it comes to north koreas story. Its just that whats different this time around is we have a different leader in washington and certainly threats of fire and fury coming out of washington from the u. S. President himself is certainly something that the world has not seen before. So certainly on the surface many experts say yes, it does look like its a different level of tensions and rhetoric. But at the end of the day, this is what north korea wants and wants to deal with the United States and directly bypassing all of these other relevant countries. And at this point it certainly looks like its throwing out all these rhetorics out there. But leaving room for some kind of breakthrough at this point. And youre in the midst of the bustling city called seoul thats only roughly 50 miles from the north korean border i know that South Koreans are used to the aggressions coming from the north, yet does it feel like this time around there is a little bit more nervousness within the city, within the country . Not really. Its a little strange to be telling you this, our viewers, for so many years that South Koreans are just business as usual no matter north korea says back in 2013 we thought things were really heated up between north korea and the u. S. , but back then i also talked about how South Koreans are just keeping things as normal and its the same thing. Its the same way this week as well and i was actually speaking to some of the people who work here, who the driver who drove us here. I think there is this strange level of conviction in south korea among Many South Koreans that things will not get to that level where north korea strikes militarily or any of the relevant parties will go to war. I think they understand or they believe, i should say, that north korea and south korea cannot go to war or do some kind of go for some kind of military option without consulting first, so to speak, with china and the u. S so i think thats whats sort of keeping things calm at this point. But certainly theyll be watching the news and stay tuned to whats going on between the leaders of north korea and the u. S. Because this kind of rhetoric, this verbal threat is something that we have not seen before thank you so much for that update and it certainly looks like it is business as usual in the megacity of seoul. Lets have a look at how this story impacted the market zone impact was very much palpable against global Asset Classes but also the vix so far this week it has risen some 12 still historically depressed levels at 11. 6 when it comes to the safe havens, thats the swiss against the dollar it has made similar gains. The yen also gaining 0. 7 against the dollar and gold this week up by 1. 7 . Peter head of Investment Strategy europe vanguard management joining me now. Is it too late to go into safe havens to protect yourself against this kind of geoPolitical Risk . I think its very difficult to time this Political Risk at the moment especially because theres so much Political Risk out there at the moment investors over the last couple of years have been bombarded by a range of different political events brexit, trump, now north korea and being able to predict them in advance is difficult enough but even after the event knowing which way its going to jump as a result has proved very difficult. So im very wary of investors dealing with the problems. Is there a case for always having some proportion of your assets invested in gold and yen in the swiss and also equally in cash because you never know what might come up. Im not a great fan of having that sort of big safe element of the portfolio. We think that for longer term investors, having a diversified portfolio, that well have a market share cap but we think trying to second guess the market in that way is not a particularly smart strategy so how would you protect yourself, your clients against any sort of volatility at this point . We know volatility has been absent for much of this year yet it will come back time and time again especially when volumes are so low it might come back and bite you. This is what some traders feel like this week theyre on holiday and think, wow, i wish i would have had some protection. Can you stay in equities and still be protected against this kind of event . The alternative is to move into the bond market in a big way. And, you know, ive had conversations about this about what do we move out of bonds. Claiming were at a point in the bond market where the market could turn for us even though it sounds boring, were big believers of keeping that balance of bond and equities obviously more bonds, the more risk averse you want to be the more equities for longer term horizon so yeah. We dont like the sort of tactical switching in and out as political events come along. We think its too difficult. So you are dont necessarily agree with the likes of jamie dimon who told us a couple days ago he wouldnt buy a Government Bond anywhere in the world at this point . No. You still want to be invested yeah. I think youve got to remember why you hold bonds in your portfolio in the first place theyre there to provide a bit more stability relative to equities and a counterweight to equities. We know when equities plummet, bonds give you some counterweight. And thats still true. Yeah. Were in, you know, a phase of tightening Monetary Policy not just from the fed but also increasingly from the ecb. It will come at some point from the bue. It doesnt seem to be that much appetite for bonds no. And im not trying to pretend that weve got to remember investors over the last ten years, maybe more than that, have had a fantastic ride with bonds. Theyve been outperforming equities for long periods. And looking forward, the return on bonds is going to be disappointing. Partly because of the incredible accommodation by policy makers partly because real returns allow for all the reasons people have been talking about. Low growth and activity and so on yeah, bonds are going to give lower returns than they have for many years but remember when real Interest Rates are low, that affects all assets i think its better to think about a low return environment in general not just bonds themselves. Wheres the best place to invest right now what are you telling your clients . I know it depends on their risk profile and stage of life theyre in, but wheres a good place to hide . I dont think there is a good place to hide. I think as much as anything, we try to warn clients away from moving up the risk return spectrum in a way that sometimes gives clients the false impression that theyre getting that extra return thats been lost in the lowreturn environment. We think thats a bit of a fools errand. Because you can only get those extra returns by taking more risk thats a perfectly respectable Investment Strategy, but people have to realize theyre taking more risk. As the Interest Rates return, some of those people may be looking exposed. The life strategy 60 and 40, those are the most popular funds within what youre offering. Why do you see so much interest for that what exactly is it that investors are looking for . So they are most successful balanced multiasset funds very much consistent with the philosophy that ive just been talking about. Theyre very simple. They reflect a view that diversified strategy, capitalizization is a very good strategy to follow and relative to many of the competitors who are using allocations trying to move in and out, most of the time this strategy outperformed. All right peter, youre going to stick around far little bit longer Peter Westaway from Vanguard Asset Management in the meantime, theres an update on other news this morning. French authorities have arrested a man suspected of driving into a group of soldiers in a paris suburb injuring six yesterday. He was shot while attempting to evade Police Investigators are looking into whether he has ties to terrorist groups and the u. S. Has imposed new sanctions on eight venezuelan officials. The new penalties do not target the countrys oil industry but reuters reports that washington is considering sanctions on Venezuelas Energy sector. Of course you can always follow us on twitter or tweet me directly love reading your tweets in the morning. Coming up on the show, which company is the latest to bat its lashes at americas Charter Communications find out after this short break. All right. Adecco is trading after Second Quarter earnings missed expectations on the top and bottom lines take a look at the shares off by 5. 5 however, ai decos response and a falling quarter of the brazilian steel mill the conglomerate saw a net profit fall from 120 Million Euros down from the Previous Year net profit also missed analyst estimates. Though revenues came in about expectations henkel is trading sharply lower to the tune of 2. 5 after disappointing Second Quarter organic sales with 2. 2 growth only earnings rose to 839 Million Euros missing forecasts. Growth added adhesive business was slower and the beauty care sector was flat. This was the big story from overnight. Altice is exploring a takeover of Charter Communications and what could be a 200 billion deal the french Telecoms Group has made no secrets of its plans to extend stateside but it could face stiff competition from softbank which has also been working on a bid al tees shares agreed on a buyout offer from remaining fsr shares heres more on the potential move for charter you can add altice to the list trying to buy Charter Communications they are working on a deal to buy Charter Communications but have not yet brought a proposal to charter there is no guarantee that altice will engage, though the prospects do seem likely altice and its founder had longterm decisions to expand in the u. S. And drahi has decided to see if he can compete altice has bankers and lawyers working to devise a bid for charter. But it faces critical hurdles to meet on price while not being complete with the stock of the acquiring company which would be the smaller altice usa as i reported a couple of weeks ago, softbank has been working on charter that effort continues. Though its far from clear either can come up with offers that meet the price objectives and structure of charters management or its largest and most influential shareholder liberty media. Both softbank and altice are hobbled by an inability to craft deals with a large enough amount of cash. Drahi are taking on massive amounts of fuel to invest. But its not clear if they have interest in accepting a deal in which much of the value they give up a traded for stock in a new company laden with debt and relying on the chart tore pay down the debt. Altice has shown a unique ability to cut costs and generate higher ebida margins. Still liberty, im tolding with is wary of taking altice in the belief it is too early to tell whether those gains are sustainable. Lets get back to et pPeter Westaway and obviously altice is a company thats usually highly leveraged. They depend on the rate cycle. Where are we in the u. S. Rate cycle . Do you think well get a third one this year . I think we will i think that the fed are uncomfortable with a huge amount of accommodation thats still in the system you know, you just if you landed on a spaceship in the u. S. And looked at where we were, theres no spare capacity. Unemployment is very low inflation is pretty much up at the top level. So why on earth would there still be so much accommodation i think theyre itching to get that accommodation removed the problem, of course, is that inflation is picking up the way you normally expect it too the core pce inflater which is something that the fed looks at closely is only 1. 4 in the month of june. And thats simply too low. On the one hand given that theyve got this mandate they have to raise rates on the other hand, they cant justify it. They seem to have been in this spot for a long time yeah, and i think the underlying inflation pressures is a little stronger in the u. S. I think theres temporary factors holding inflation down what do you think it is i think theres a more general phenomenon across other countries. Were seeing the same thing in europe in ecb where the movement in normal circumstances would cause Wage Inflation to pick up. Its just not happening. Whether its the new globalized labor market, all of these factors that people have talked about, it just means that inflation is just a bit more of a sluggish animal to get moving again. Maybe we should disregard inflation at this point. Maybe that shouldnt be the key mandate for Central Banks anymore. At least maybe not that 2 target maybe that should be lower to 1. 5 in this new labor market. No, i dont think thats the way to go. Because i think as soon as policy makers start accepting what inflation is in the market, well have to follow that. You then have a system where the anchor is just slipping all over the place. Ultimately Central Banks are responsible for the rate and eventually this phillips curve will kick in its just taking longer than in the past hopefully its been broken many years now. When we look at the dollar this year, thats been one of the key underperformers contrary to everyones expectations. There are so many out there at the start of the year. When does that turn . Does it turn this year, you think . I think if we see the tightening of the policy coming through in the u. S. Ahead of expectations relative to the ecb, then i think we could but at the moment, theres a pricing in that ecb will also withdraw that stimulus thats going to be supported for the euro too i dont think its a done deal how do you feel about your exposure to european exwe quiti . Some are more wary than others where do you fall . I think weve been optimistic about europe weve called the fact that European Growth has been pretty strong and i think theres still more to come lets not forget that european equities have lagged others for a long time. This wariness you say because of the legacy of the debt crisis. I think thats gradually being dispelled as the Political Risks obviously its not sorted out but Political Risk in europe is not nearly as great as it was peter, well have to wrap it up here. Thank you so much for your time. Peter westaway, head of strategy at europe Vanguard Asset Management and glen core has raised its full year expectations the minor increase is 2017 guidance by 100 million glencore has said it wants to create longterm value for shareholders underpinned by its tier one commodities adjusted ebida came in and dong energy has beaten ebida estimates. Adding it would have capacity within the next two years. Will enable it to increase payments in a disciplined manner omv doubled its operating profit to 662 Million Euros. The result was driven by its move to lower cost production in countries like russia. Speaking earlier, the ceo pointed out that the uncertainty in the oil price was one of the main risks he still sees for the year one would talk about the risk of the remaining year, i think as everybody doesnt know what the price is going to do, we do have the Oil Price Uncertainty the the market i think geopolitics are really determining more and more of the business still coming up on the show, will prudential follow its peers to a break well have the earnings next stick around honey, reme