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tv   Bloomberg Surveillance  Bloomberg  July 12, 2019 4:00am-7:00am EDT

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francine: sticking to the script. jay powell builds the case for cuts. markets saying he is sounding like central banker to the world. again. the outlook the fourth profit warning in just over a year. contenders to become the next prime minister. we get the take of the chancellor of the exchequer. ♪ good morning. good afternoon from asia. this is "bloomberg surveillance," i'm francine
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lacqua in london. lift to the stoxx 600, data from around whattivity jay powell is doing. dollar weakening for third day. crude oil 60.60. makesort saying surplus return despite opec cuts, whether that means they will come further is something we will watch for. as operators in the gulf of mexico are bracing for tropical storm barry, giving pressure on crude oil prices. u.s. 10 year yield at 2.12. coming up on "bloomberg surveillance," the all-star lineup today. we will talk about deals in the banking outlook. we will speak with philip hammond.
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this afternoon, we sit down with the ford chief executive. breaking news. arkey says it has received missile defense system from russia. u.s. threatened to punish turkey over the purchase. washington says the system is designed to shoot down nato aircraft. goldman sachs warning of u.s. intervention in the fx market. it says president trump's about otherplaints currencies is highlighting u.s. policy. now the u.s. could forcibly weaken the dollar. it has not taken the step since 2000. 5050 if the eu will strike a trade deal on goods with the u.s.. it could come this year. meeting, robert lighthizer telling reporters
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there is a mutual interest to avoid escalation. powerful weather system in the gulf of mexico may put 70% of lng exports at risk in the u.s. barry turning toward louisiana, threatening facilities housing energy. u.s. reportedly holding off on imposing sanctions against iran's foreign minister. it had been expected to sanction him. this follows tensions in the middle east. the latest incident, a standoff between the u.k. and iran over the passage of a bp tanker. .resident trump capitulating this follows defeat at the supreme court of the citizenship question on the census. he is now relying on a plan to
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use data. this is the same as the approach census bureau officials recommended. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. jay powell starting to sound like the world's central banker. he repeatedly laid out the case for easing monetary policy by citing slowing of the global growth. >> central banks around the world are seeing weakness everywhere and providing more accommodation. we have signaled we are open to doing that. you are seeing that in the curve. neutral interest rate is lower than we thought. the natural rate of unemployment is lower than we thought. monetary policy has not been as accommodative as we thought. negotiation has
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injected instability. some supply chains have been moved. they move them to mexico, then mexico might have been the target of tariffs. it must happen that congress raises the debt ceiling. the consequences of failing to do so would be highly unpredictable. francine: in an exclusive interview, the richmond fed president said the message has not changed since tuesday. >> he said the same thing yesterday he has been saying for the last month and in the last memo, which is we do not have forward guidance anymore in the memo. we are watching carefully what is happening in the data. we looking very much on upside and downside risk. at this point they are tilted downside. gordon, always great to have you, especially on the big week for treasuries and fed
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policy. it seems jay powell has boxed himself in a corner. they would be difficult to disappoint markets. >> that is right. certainly with july, it seems inconceivable they won't deliver a cut, 25 basis points, given the committee this week, but also where the economic data has moved, i would put a caution on this which is the market has always interpreted this will be the first of a number of cuts this year. threethat we have seen inflationary prints for june that suggest the collapse in u.s. inflation was not replicated in june. it started an inflection trend, the cuts being christ, we may see disappointments on that -- priced, weeing may see disappointments on that.
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it doesn't matter what i think. one thing you see is the historic data of starting a rate cut cycle is traditionally the fed starts to cut rates when the average jobs added over a six-month window, reaches just 85,000. we are running double that. look at unemployment. normallynize, it is eight to nine months after the unemployment rate has started to increase, you start to get a rate cut. if we get a july increase when both metrics are way more healthy than we normally get, i would not say it is unprecedented, but certainly early cycle for reduction. francine: our french chart looking at economic reports. globally, this has been
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disappointing. is he the central banker to the world? simon: slightly different. he is the central banker of the u.s. economy, increasingly dependent on worldwide conditions, which is a subtle way of describing this. are going to ecb certainly ease at their meeting, bank of japan perennial easing and the people's bank of china are doing stimulus, means that as a price taker, and this is surprising for the fed, certainly not a situation we would have imagined a decade ago, because it is a price take on international rate markets, it is almost left with no choice to retain competitiveness in the eyes of the white house. francine: very well put. question of the day. we are trying to get clarity on the blog. i urge everyone to go to the live blog and check it out.
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will an unexpected decline in earnings outlook outweigh the positive impact for equities of a fed rate cut? is the fed looking at profit warnings and thinking, that is my concern? because of global trade? simon: this is difficult for the federal reserve to analyze. the fomc and jay powell likes this but have literally no idea whether the trade spat taking place with china and potentially a bordering multilateral basis with europe, japan, the auto sector in frame, will it pivot as we run into election year and if so, will the concerns we are getting in terms of additional cost to supply chain, which will lead to equity markets under performance in terms of profit margins, will that be sustained? into the this is a pot market which is justified from
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economic growth standpoint but you may find with the transmission mechanism of monetary policy, it has quickly shifted the scenario on trade totally notfed is position for what is to come in terms of economic pivots? francine: what would the bigger my policy mistake -- bigger policy mistakes in the fed look like? cutting too much or not cutting enough? be,n: the concern would with inflation relatively benign, the bigger risk of course is you get structural deflationary bias starting to take hold of u.s. economy in a way it has not and europe and japan. in the near term, it is cutting too aggressively because, the interpretation from markets potentially they see data more corrosive. french stayson with us.
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exclusive interview with philip hammond coming up, we will talk brexit and boris johnson at 9:30 a.m. london time. this is bloomberg. ♪
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francine: this is "bloomberg surveillance," economics, finance and politics. i'm francine lacqua in london. invev struggling to price hong kong ipo. for the biggest ipo of the year. they are now considering
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relaunching the $9.8 billion offering at a later date. it was expected to start trading late next week. volkswagen investing in ford's self-driving partner, expanding the alliance they formed earlier this year. audi unit will fold autonomous driving unit into the company. to makeord are expected the announcement later. don't miss our announcement and interviews with both executives. cutting the outlook again. the fourth quarter warning in over a year, forecasting earnings to be below last year's level. they blamed a one billion euro rise and provisions related to a recall. the ecbocus on
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june meeting, marked by a dovish that with a consensus there was a preparation for easing. that followed toughening of language by mario draghi saying if the outlook does not improve, that would be enough to warrant action. some economists expect rate cuts as soon as this month. do we think christine lagarde changes anything? she is pushing for a different type of monetary policy? if she does, will they hear her out? simon: she doesn't change anything vis-a-vis the mario draghi era. if you are pricing in a more hawkish ecb, that was your baseline, they clearly did a dovish private against that.
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vot against that. mario draghi talks about the other policy leaders, fiscal reform, coming to the aid of the ecb. imf allowole at the her more traction and influence? that is an interesting subplot. have the european commission selected a candidate for the presidency of the ecb that has more gravitas to get the other leaders moving? francine: what makes you worry about eurozone? italian yields are up. we have had this conversation over a number of years. i worry about the incomplete nature of the structure. and it isrency was
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correct to go back to it. single currency was designed on the expectation fiscal policy would become more closely integrated. you would get a banking union, greater political unions, you would generate out of a suite of heterogeneous countries, a homogenous currency. we have not got there. there is little appetite to do it. that is what i worry about. the leaders are not coordinating the way monetary policy is. you have the single policy lever going on its own with little synchronized support from the other aspects. francine: brexit? the other worry. simon: anybody who knows what the next six weeks looks like, the next three months in the u.k., probably has an overinflated opinion of their own forecasting ability.
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investorsational looking at the u.k., the one potential silverlining to the difficult outlook is a pivot away from the hammond era, which has been austere, you see that shifting up to 4% off the back of a coordinated splurge of the public finance institute, to deliver tax cuts. that is the outlier. francine: thank you. the jp morgan em chief executive for a conversation on m&a. this is bloomberg. ♪
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francine: this is i'm -- this is "bloomberg surveillance," i'm francine lacqua in london. morgan's european ema chiefviswas, executive. under his leadership, the investment bank has ranked number one for the past five years. i have been waiting for this one for years. i am delighted. about theou seeing
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corporate appetite in general for deals? viswas: investors are craving certainty. they want a constructive outcome with the trade war's. everyone is waiting to see how brexit pans out. there is a cautious glance at tensions. n ease.e a you have a benign rate environment. when you talk to investors/clients, there is cautious optimism. structurally, there is one point here to stay. the declining wallet. we are down 20% this year. we have seen this gradual decline year on year. what is even more stark is when you look at the u.k., france and germany, the wallet is down 35%. a benign headwinds but
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rate environment. francine: are chief executives warningst profit and pushing back or are they saying i need to be more careful but i will still go ahead with the plan? viswas: i think it is the latter. investors are craving growth. you see activity emerging, it is becoming mainstream in europe, when you look at m&a activity this quarter, this year, has been remarkable. volume, the u.s. has led the charge. 50% is in u.s. europe has been about 20% or thereabouts. the pace ofvant is activity, the level of dialogue doesn't seem to be pausing. francine: is that because you are an american bank? viswas: no, you are seeing almost a proactive -- this
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proactive housekeeping happening. chief executives, boards, looking at spinoffs, looking to hive off unprofitable divisions. you see nestle with a skincare division. even the large ones are looking at it and the smaller ones are focused on it. what is remarkable is, the pool of money waiting to be put to work. francine: what is it waiting for? what will be the catalyst? viswas: private equity will be the biggest driver. $1.2te capital available, trillion. raising of a half $1 trillion every year. that is basically public companies waiting to be taken private. liquidity good mix of and a desire to see things happen.
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francine: i have a million other questions for you. we will get back to you. weeks up, less than two until the contest. we speak to the chancellor of the exchequer, philip hammond. that exclusive interview is coming up shortly. a lot going on. saying, there seems to be pricing in of the fed chair to the world. we will look at the chinese data, a little below expectations. imports could hint at extra stimulus from them . this is bloomberg. ♪ xfinity mobile is a wireless network
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best devices. best value. simple. easy. awesome. click, call or visit a store today. fed chair jay powell builds the case for a rate cut.
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markets say he is sounding like central bankers of the world. dw set to invest in ford's self driving car partner. daimler cuts its outlook again, issuing its fourth profit warning in just over a year. contenders to become the u.k. prime minister promised to cut taxes. we get it take from the chancellor of the exchequer. good morning. this is "bloomberg surveillance." i'm francine lacqua in london. let's check in on markets with dani burger. dani: we are seeing some pretty big losses from thomas cook today. down more than 39%. the rescue of 750 million pounds. the company has really been struggling to pay down a lot of their debt. the reason this is not helping shares and actually doing the opposite is that the plan dilutes shares for existing shareholders by quite a bit. that is why we are seeing them sell off.
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storebrand tumbling, there are earnings missing analyst estimates by about 5%. we heard from analysts saying these look soft and the number for solvency ratio also worsened. shares down by nearly 6%. finally, ab inbev of. we have been monitoring this all morning. they are struggling to price their ipo for their asia beer unit. they might even be considering delaying the ipo. shares weaker by about 1% for now. francine: dani burger with your main movers. the get straight to your first word news. >> the u.s. federal reserve has room to cut rates. that is what chairman jerome powell told the senate banking committee. he says the u.s. economy is still in a good place, but the central bank wants to use its tools to keep it there. >> central banks around the world are seeing weakness
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everywhere and they are providing more accommodation. we have signaled that we are open to doing that and you are seeing that in the curve. you are seeing that embedded in the united states interest rate curve. viviana: with low unemployment and consumer spending money, the richmond fed president said it is hard to make a case for a reduction, but he is concerned about winning business confidence. we spoke with him exclusively. ,> the first quarter was fine but the indicators for the second quarter are less strong. i don't see folks laying -- people laying folks off, but in the wayt leaning that they might in a strong economy. viviana: the front runner for facesk. prime minister widespread opposition to his plan. there is going to have to be
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a huge amount of effort with our friends in europe to see what can be done to avoid in no deal brexit. i think it would be a very bad outcome. viviana: indonesia's president vowing a rave -- wave of reforms to unleash the potential of southeast asia's biggest economy. lawsnts to overhaul labor and the rules on foreign ownership. globalist we four hours per day on air and at tictoc on twitter -- global news 24 hours per day and @tictoc on twitter. francine: it has been an eventful 2019 so far. brexit getting delayed. draghi getting set to announce more easing. what should investors be looking out for in the rest of the year?
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our guest is with us for an exclusive conversation. we were talking about pe. a lot of chief executives are going ahead to their plans and maybe rationalizing more. what do you think will be the catalyst for the spending you are talking about? something needs to happen on the markets. i don't know whether it is a correction or the confidence to get back in. >> i think they are spending already. the biggest buyers of the assets have been -- if you look at skincare, it was a pe purchase. same with unilever. they are deploying there currency to work in partaking in all of these spinoffs, etc. we talking about what companies are right for managing things better and they're casting their eye over the entire landscape of potential. francine: where do you want to
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grow jpmorgan? viswas: for us, organically some where maybetle gaps we can do better asset class by asset class. we placed a lot of emphasis on organic tweeps. as i said earlier, the market itself is in decline. had you grow your share of that wallet. the big theme is digitization. that is the future. pace.ring that we are very bullish and optimistic. how are you preparing clients in the next couple months when it comes to brexit? have been at the center for our planning. really all are brexit planning has been around continuity and
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that has been around clients and employees. we have been planning for adverse scenarios and more .enign we have stalled on giant employee moves. until we know what brexit looks like, maybe we wanted to take a call to see what brexit looks like before we do that. francine: are you prepared for a no deal brexit? viswas: absolutely. in terms of client continuity, we have to be prepared. francine: how many jobs have moved and how many jobs potentially move. when you look at the pace of the job moves, it is a function of how brexit manifests itself. in the early days, it was going to be hundreds of people, but depending on what it looks like
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-- how can we continue to navigate business? francine: every day on air, we say about the difference between european banks. are you getting more marketshare because of the decline of european banks? viswas: i would not say that. i would say competition is still alive and very strong. when you look at european banks, they are still very formidable. there are a lot of champions that we work with and work together with in pretty much every country. i would say european banks are still very strong and credible, but the question is really about the business model, what are they solving for? is it a domestic driven model? are they looking for global scale? when you take jpmorgan, our model is scale, best in class
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completeness, and being able to service our clients all over the world. within that model, you really have formidable competition in every asset class and every country where there are champions. francine: not really investment banks. viswas: even investment banks. you have formidable local champions who are our partners in a lot of ipo's, m&a deals, financing. francine: deutsche bank basically says banks that are less reliant on stock trading businesses to win ipo mandates than the used to be. does that make sense to you? viswas: when we look at how our usel works at jpmorgan, we all of the intelligence that we gain on the secondary side, investor sentiment, investor basicallyuse that to advise our primary clients. duty to theduciary
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client in the investor to provide liquidity, lost a market, etc. it depends on the model. relationshipshave and the question is what does the client want? how do clients want their bank to work for them? it really is a function of serving the clients. francine: you are not getting clients from deutsche bank because of what they are doing or could you be in the future? viswas: look, when you look at our clients, we share a lot of clients. when you look at markets, something like blackrock trades with most of the street, so our clients are common in that sense. this is something you care about deeply. is this something for the banks in the payment system? technology can be an
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enabler, it is here to stay. the pace is staggering. even in banking, and on the markets are you have seen it, equities 95%-plus digitized. even in banking, which is more advice, human relationships, and the like, you are seeing the stuff being automated , but what it comes down to is , it is putting the client at the center of jpmorgan and every aspect can be digitized. when you send a pdf as an attachment, you can download the numbers, you can annotate it. it is about a multinational.
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they can perfectly tell when my new five-year is going to price at. , youy much every aspect can have a cfo, a treasurer, a ceo look at the cops. who is buying? who is selling? the transformation and the ability to service the client is going to be phenomenal. francine: thank you so much. you have to come back soon. than two, with less weeks until the results of the conservative leadership contest, we speak exclusively to the u.k. chancellor of the exchequer, philip hammond. that interview was next. ♪
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this is bloomberg surveillance. i'm francine lacqua in london. let's get straight to the bloomberg business flash. asiana: ab inbev's unit is struggling to price its hong kong ipo. this is a considerable snack for the potential biggest ipo of the year. budweiser brewing is considering relaunching the offering at a later date. it was expected to price earlier and start trading late next week. daimler has cut its outlook again. that is its fourth profit warning in just over a year. it is forecasting earnings to be significantly below last year's level. the world's biggest luxury carmaker blamed a one billion euro rise in provisions related to a recall. 737chief of boeing's program is retiring about a year at the post. heading the largest source of profit. that single price -- line will be run by facing the challenge
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to return the max to flight. more than 500 planes are currently stored around the world. 150 have yet to be delivered. airbus delivery delays pushing iag delays -- to buy from boeing. he said it was a factor in his decision to place it before billion dollar order for the grounded 737 max. he said he does not want to be solely dependent on one company for his entire narrowbody fleet. francine: let's get back to our top story. fed chair jay powell has been making the case for easing monetary policy to slow global growth. the biggest risk to the economy right now -- >> i think the markets are factoring in a continuation of supportive monetary policy, potentially some help for fiscal
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policy and a solid outcome from some of the uncertainties around trade talks and brexit. there is an expectation that things will work out. if that were to change, that would be a big reaction. >> there are such a big reaction for monetary policy to drive growth. monetary policy suddenly cannot be an engine of growth. >> people have been saying that for some time and get it continues to be accommodating. inflation does not seem to be a major threat at the moment. anticipate the accommodating stance will continue. you can look around the world and say that unemployment is aod, growth is good, trade is little bit uncertain because of geopolitical things, but the amount of investment that is required around the world to meet the challenges of climate change and so on should create the environment for a very positive economic backdrop. fed chairman jerome powell
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has suggested a rate cut is coming. 50%, 25%, what is your take on it? what is realistic? >> i don't think the market would be surprised with 25 basis points. i think 50 basis points with surprise some people. we will wait and see what happens. like all bankers, he will take into account the signals that come from monetary conditions, market conditions, and economic forecasts. this is a data-driven world. there is no shortage of data to inform these decisions. francine: that was the standard life aberdeen chairman douglas flint speaking in an exclusive interview. let's bring you another exclusive interview. less than two weeks from now, the u.k. will have a new prime minister. despite fears of an economic slow patch, the two contenders have been making plenty of expensive promises. let's head straight to luxembourg and the annual meetings.
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joining us for an exclusive conversation is philip hammond, the u.k. chancellor of the exchequer. thank you for giving me a little bit of your time. the markets seem to be pricing no dealof a chance of a brexit more than they were three weeks ago. what has happened and do you think a no deal is still on the table? well, ofr hammond: course, it is the leadership competition and the focus that that has put on the question about eu exit that is interesting the market. both candidates say they want to do a deal. the important thing is that parliament has not changed. the arithmetic in parliament remains the same. parliament is dead set against no deal. the european union has not changed. the position of the european union remains exactly the same. the challenge for the new prime minister is to try to work with the same cards that the previous prime minister had, but to play them in a different way that hopefully gets to an agreed deal
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and the u.k. to leave smoothly from the european union in an orderly brexit that allows us to work very closely with our european neighbors. francine: would you be prepared to vote down to prevent a no deal brexit? i havelor hammond: always said that i think a no deal exit would be a very bad outcome for the u.k. it is an outcome that parliament has made clear it will not agree to. we are parliamentary democracy and we have to find a solution that parliament can agree. but that means what? if there is a no-confidence motion that was the last option to stop a no deal, would you second that? look, thathammond: is a hypothetical question at the moment. it depends on the circumstances at the time. i take comfort from the fact
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that both candidates are saying they will seek to negotiate a deal so that we can have a smooth and orderly exit from the u.k. that is in the best interest of workers, businesses, and the entire society in the u.k. and i to doo everything i can everything that we can do. leaving was no deal will be very expensive for our economy and potentially very damaging to the united kingdom. francine: will be more damaging? a conservative prime minister forcing through a no deal brexit oregon -- jeremy corbyn as prime minister? chancellor hammond: we don't have to make that choice. the best thing for the u.k. economy would be a conservative prime minister, a conservative government negotiating a good deal with the european union and delivering that in an orderly way, so that the u.k. economy
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can get motoring again. there is a wall of investment that has been held up waiting to see what the outcome of brexit is and once business and consumers are comfortable about our future relationship with europe, that we will be able to continue trading effectively with our biggest trading partner, than that investment is going to pour into the u.k. economy and will provide a very strong background for economic growth over the next few years. the markets listen to you, they have believed do in the past. what is the actual probability about a no deal brexit? is it 10% were much higher? -- or much higher? chancellor hammond: i can't put a percentage figure on it. it is not negligible because of course something could go wrong, there could be a miscalculation, or it could be the case that it some point our european union partners decide enough is
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enough, that they will not extend the article 50 process to allow negotiations between the u.k. and the eu to take place, but i've always thought that the most likely outcome is that we will get a negotiated deal and a smooth exit. i still think that is the most likely outcome and i will do everything i can, both inside parliament and outside it, to make sure we get to that outcome. francine: would you join john major in seeking a judicial review of than -- if the next prime minister chooses to delay parliament? chancellor hammond: yes, that is a different question. we can have a debate about the best way to exit the european union, we can have a debate about no deal brexit, but we have to have that debate in parliament, because the u.k. is a parliamentary democracy, and if anybody were to attempt to shut down parliament in order to carry out a course of action which parliament is known to
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oppose, that would be very serious indeed, that would provoke a constitutional crisis. and if we are not able to prevent that course of action through parliament, then certainly there will be resorts to the courts and i sit propped -- support the position sir john major has taken. francine: talk to me a little bit about the next bank of england governor. are you happy with the range of candidates? we understand the selection of some of the interviews have started taking place. chancellor hammond: there is a process underway. before we the autumn are ready to announce the next governor of the bank of england. it will fall to the next government to make that announcement. we have had a broad range of candidates applying. the process for the public appointment is underway. that is a properly regulated process led by a panel of
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officials who are sifting through the candidates now. francine: are you worried about what a change of chancellor might do to that process? chancellor hammond: we have a very rigorous process for appointments to public positions. candidates have been screened. a long list is now taking place. the time my successor is appointed, there will be a short list from which he can take the process forward. do you think theresa may should appoint a new abbasid are to washington as her legacy before she leaves office? -- should appoint a new ambassador to washington as her
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legacy before she leaves office? chancellor hammond: it is probably the most important diplomatic relationship we have and it is important that we don't leave the position unfilled. we have excellent candidates in the diplomatic service and i very much hope that through the wasal processes -- i foreign secretary for two years -- that the normal process that takes place when an ambassador retires or resigns -- to replace him or her with a new ambassador from within our excellent diplomatic service and a very much hope that will happen in the case of washington. hammond, asilip always, think of forgiving bloomberg it little bit of your time. that is the chancellor of the exchequer joining us from luxembourg. the ipo pipeline may be growing at the fastest pace in four years, but firms still face a fragile market environment. >> it has been the biggest year for ipo's since 2014 in terms of dollar size, but there are a lot of roadblocks ahead. when we look at the largest ipo
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market, it is asia with $.9 billion, an issue when you think about the trade talks -- $29 billion, an issue when you think about the trade talks. we are seeing companies price at the lower end. six of the 10 have priced at the lower end of the range, including budweiser. also, 80% of companies below zero eps. francine: plenty more throughout the day from dani burger on this very important story on ipo's. thank you. "surveillance" continues in the next hour. tom keene will talk about some of the tieups in the car industry. this is bloomberg. ♪ bloomberg. ♪
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francine: sticking to the script, fed chair jay powell
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said the case for rate cuts with strong inflation readings. markets say he is sounding like central banks of the world. investing in self driving cars. daimler cut its outlook again, issuing its fourth profit warning in a year. as contenders to become the next u.k. prime minister to cut taxes and raise spending, we get the take of the chancellor of the exchequer. good morning, everyone. good afternoon if you're watching from asia. i'm francine lacqua in london. tom keene in new york. a lot of focus on jay powell. a lot of focus on treasury. i just had an interview with philip hammond. it was very nuanced. he was quite balanced. if no deal is being priced into the markets. would backally, he john major in trying to stop the next prime minister pro roping parliament --postponing parliament. tom: it sounds like something out of the 17th century. let me ask the dumb question.
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can he be part of prime minister johnson's government? francine: he can of johnson wants them to. it depends if he has already promised to some of the main cabinet. who knows. names tend to come back, these things are fluid. we are getting some data and that is for industrial production. let's also look at that. tom: it is a good number. francine: it will have an impact on how mario draghi is looking at it. tom: very good. there is a lot going on today. our first word news in new york. viviana: president donald trump is warning facebook over its plan to create a digital currency. on twitter, the president said if facebook and other companies want to become banks, they must get a banking charter. he also expressed skepticism of digital currencies in general. u.s. federal reserve chairman
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jay powell is suggesting the central bank has room to cut interest rates. he wrapped up two days of testimony on capitol hill. he said the economy is in a very good place and the fed wants to use tools to keep it there. turkey may be one step closer to u.s. sanctions. the first shipment of a russian missile defense system has arrived. the u.s. warning turkey it would face economic sanctions if it goes ahead with the purchase of the system. it also says turkey won't be allowed to take part in the program to build the s35 fighter jet. two of the world's largest automakers are teaming up on self driving cars. bloomberg's learning volkswagen will invest in ford's autonomous car partner argo at a valuation of about $7 billion. vw will hold its audi division self driving unit into arg that positions are goo. as a challenger -- that positions argo as a challenger.
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global news 24 hours per day powered by our journalists in more than 100 companies. tom: thanks so much. equities, bonds, currencies, commodities. what a week! the volatility, extraordinary. what you need to know. a steeper yield curve. i will talk about euro resiliency. a little bit weaker dollar. next move on to the screen. i feel ancient this morning. there is the three-month 10 year yield. closing the gap on strong inversion back to near zero. francine: that is a good one to look at. we will delve into that a little deeper. this is what i'm looking at. stocks in europe climbing. i think investors are clinging
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to this cautious optimism. i'm still trying to figure out exactly what cautious optimism looks like, but whatever. dipping -- they are dipping their toes back. we have a bit of news when it comes to crude oil. tom: let's look at the market. i want to look at the fact. doubt 27,000. -- dow 27,000. the lehman low of 2009. i better go to cash. i better go to cash. a little bit i better go to cash. good to cash. i better go to cash. for the end of 2018, i better go to cash. francine, we continue to recover. sell in may and go away. buy in july and you better stay. francine: tom on a tear on a friday. we going to cash? i like that.
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our main question of the day. we can call our show "let's go to cash." jay powell and congressional testimony repeatedly laid out the case for easier u.s. monetary policy by citing slower global growth. saidichmond fed president powell's president on rate cuts have not changed since the june meeting. >> he said the same thing yesterday he has been saying for the last few months and we said in our last memo. we don't have forward guidance anymore on the memo. we are watching very carefully what is happening in the data and we are looking very much on upside risk and downside risk. at this point, they are a little more tilted to the downside, which is why we are looking at it. francine: for more on rates and may be going to cash, james our other guests are with us. are you expecting the price when
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it comes to the dollar? >> it is interesting to look at the market. with respect to the fed, we have had some better data recently. it is very likely they will cut interest rates into july, but what then? are they going to cut again this year? look at the payrolls data. a little bit further. there is the possibility that maybe the market has priced in a little bit too much for this year. certainly next year, we do think is pricing it in, but we think the fed could really slow .own for the dollar, that could mean perhaps that the dollar could strengthen a little bit of ground, particularly if mario draghi in these remaining few months remains on the dovish side. you agree tott, do that? does the fed feel boxed in? if you look at the labor numbers , maybe they should not be
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cutting? >> this is a committee that wants to cut rates. i would say 65% chance that they cut. then some odd small chance they don't do anything. it is a committee. the committee may bring him back to 25. at the end of the day, it is about the quantum of easing going forward. deliver 100 basis points, that is quite a lot. that this has to be the base case. you withlled to have us today. scott, i need to regroup. what a week it has been on yields. what a week it has been on price. you are the strategist. why don't i just lock in my bond market gains and take the rest of the summer off? scott: if you look at the information set we are presented
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, we are looking at a concern of geopolitical risk and they are taking a decisive move. it is a pretty positive environment for yields. the economic cycles being extended by easier policy. you should be clipping coupon in this environment and that is basically our view. you will does the next couple months. tom: jane foley, i've got to clip a coupon and i have to do it with currency awareness as well. what is the rebel bank arch call on the dollar? jane: again, i think our view has been a little different for the past year and a bit. is obviously related to interest rate differentials.
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i think a large part of the answer for the dollar in the medium-term is related to sentiment in emerging markets. yields market chasing voids the expectation of fed easing. but what if we do get an escalation in the tensions between the u.s. and china on trade? we do think that that is quite possible. what if geopolitical risk begins to get worse. it is a possibility looking at the yen. we are perhaps three months and beyond really quite wary about emerging markets. if money starts to flow out of em come of the dollar will remain well supported. yes, you might have the fed cutting interest rates, but you might have the ecb cutting interest rates. net what we think is that the dollar could be better supported than what the market thinks. even on a 12-month view, even though we are expecting the fed
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to accelerate cutting in that environment, we think euro dollar could go back below the market consensus. francine: jane, thank you. we will get back to both. later on the program, contenders to become the u.k. prime -- raise taxes and cut spending. we get the view. the chancellor of the exchequer said suspending the parliament could trigger legal action that he would support. this is lumber. ♪ -- this is bloomberg. ♪
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viviana: this is "bloomberg surveillance." are cities ben's parent daimler issued its fourth profit warning in just over a year.
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parentedes-benz's daimler issued its fourth profit warning in just over a year. it has higher expenses stemming from the diesel emissions scandal. asian unit struggling to price its hong kong ipo. one may -- option may be to relaunch the offering at a later date. capital agreeing to buy 60% of the wgp market research unit. the business is valued at $4 billion. that is the bloomberg business flash. tom: thanks so much. scott thiel is with us and jane foley is with us.
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i want to go to the president. maybe it was in the rose garden, maybe it was somewhere else, but very decidedly the president talked about dollar resilient. the sovereign institutional keel for the system. great. is america a currency manipulator when the president says he wants a weak dollar? is that manipulation? jane: i would say that that is currency intervention in the purest sense. and really that is really quite interesting because i think currency wars have come back as a debate over the last couple months. governmentsther g10 don't really talk about the currency, we have had mario draghi playing a clever hand. at least twice this year, he has surprised the market with his dovish tone. he got a reaction in the currency market.
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he has forced the euro down twice by his comments. by becoming more dovish than expected this year, mario draghi has been pushing back on trump's reactions. trump however does have the central bank in the u.s., they have heightened between late 2015 in late 2018. it is quite easy to explain why the dollar is overvalued. tom: let's look at a long-term chart. scott, this is something you've got to pay attention to in fixed income, structural dollar weakness over 60 years. the plaza accord on the west. then the louvre accord. then the rubin dollar. the recent surge as well. how does currency dynamics fall into fixed income total return? do you have to hedge like crazy right now? scott: there are a couple of things. in this period where we would
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anticipate the fed to be relatively easy and the euro -- the ecb to be relatively easy, this strikes us as a good time to be investing in emerging markets, local emerging markets. allows emvishness central banks to be ever more dovish. it is a favorable environment. there you would be un-hedge. you would on the currency and on the local rates. it is a way of diversifying. the real rates are relatively favorable in a number of countries that have nothing to do with china as well. francine: this would be as long as the dollar does not stay too strong. scott: correct. dollar strength is not a good time generally to be investing in emerging markets. easingunt of fed policy is something we can do, but the fed is more dovish than it has been and the ecb is more dovish and that strikes me as a good environment for things like
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globally emerging markets. francine: thank you both. jane foley, scott thiel both stay with us. moderating a panel on digital infrastructure at the aiib annual meeting in luxembourg. that is douglas flint, amongst other panelists. we will have plenty more from luxembourg throughout the day. this is bloomberg. ♪
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tom: world leaders at every moment love a bottle of champagne. the french are looking at a 9 billion euro submarine. all the usual is being said about the need to be international, to control their part of the seas. what is so important is we are seeing it also in britain after the strait of hormuz and mr. hunt reaffirming the need for a strong british navy. francine, all of this costs money, doesn't it? francine: it certainly does. --t also gives you more, more capabilities to defend yourself in the event of something ugly happening. this is the first barracuda.
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i know you follow these things quite closely. this is the first barracuda class nuclear submarine. hat: i would suggest t francine pronounces it better than i do -- i would suggest that one time i was in the united kingdom and everything was in an uproar over the trident submarine debate. these things are important for world leaders and we see it this morning with mr. mccrone as well. let's migrate back to finance. we can do it with the oddities of the european system. scott thiel and jane foley with us. scott, on negative interest rates, what are you going to write about into august? what is the new of the growing sense of negative interest rates in europe? scott: i think there are a couple of things to observe. one is that if you look at the yield changes year to date of the bond market and the treasury market in 10-years, they are actually about the same. 2.75 andstarted at
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bonds started around 40 basis points. treasuries as a tool for resilience to offset other risks works really for the bond market even though yields are negative in the treasury market will years -- where yields are positive. specifically as it relates to europe, the ecb is likely to deliver what they said they are going to deliver at the central meeting. in fact, even maybe more. soundf as odd as it might , in the near term we favor bonds over treasury because we believe the ecb is more likely to deliver the full amount of priced in monetary policy easing as opposed to the u.s., where there is this debate raging around 25 or 50. tom: right, right. scott: so tactically. tom: that is the keyword. i've got to tactically get to july 31 and then i've got to tactically get to august without seeing my portfolio blowup.
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where will euro be at the end of the year or 12 months out to assist me in salvaging capital? what is the euro dynamic right now? jane: once again, we do think the ecb will cut interest rates in september and the ecb remain on this very dovish stance. that is going to take the wind out of the sails as far as market consensus. we do think there is a risk that euro-dollar could come back down as the market represses expectations. the ecb will retain a dovish stance. francine: what do other negative yields mean for your mandate? scott: for u.s. dollar investors, because of this -- steepness of the european yield curve and the differential working for you, european bonds are attractive. for european investors, slightly different dynamic. is very steep,
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although negative yielding. so, the carry on european rates, although negative yielding, is still relatively positive. francine: if you look at italian yields compared to emerging markets -- scott: obviously, kind of the concern over italy has faded away in particular heading into the ecb shift in stance. we have seen a massive rally in italian bonds. they looked cheap to us, especially when looking at the rating, looking at the dynamics of the country, than looking at other alternatives like portugal, for example. in many respects, it is the ecb that triggered that gigantic rally. it makes them look also more in line with some of the peripheral markets. francine: on ecb, what are we expecting? i've heard both issues, that mario draghi could lock in president lagarde when she takes over, or give her a helping hand. what would it be?
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jane: if you listen to some of the comments over the last few years, she seems to be very important -- supportive of draghi's view. i think this team lagarde is probably going to take the baton from draghi and carry on this easy policy stance. what is going to be quite interesting from her, as a former french fry minister, is whether she puts more pressure on the -- as a former french finance minister, is whether she puts more pressure on the fiscal side. francine: later today, we get more details on vw with an interview from the company chief executive. this is bloomberg. ♪ s is bloomberg. ♪
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♪ clouds in washington and london, showing the polling of different parties. president trump doing better in the polling so i would call it a
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casual cloud on a casual friday in washington. what you see? -- what you see? question the brexit reopens the question about united ireland and the backstop. we had an interview with philip hammond and i tried to ask him about whether he would vote against his own government, the conservatives, if it means the new prime minister were to put no deal on the table. he did not want to say that or go there, but he would support john major if the new prime minister tried to suspend parliament, so there will be a fight on our hands. tom: let's get to the first word news. viviana: production cuts by opec and allies did not prevent the return of an oil sir place.
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global stockpiles surprisingly increased the first half of the year. the iaea says consumption was weaker than expected and supply exceeded demand by 900,000 barrels a day. germany says there is a 50% chance the e.u. and u.s. can reach a trade deal on industrial goods this year. withrade minister meeting u.s. trade representative robert lighthizer in washington. thes have been stalled by u.s. trying to include dutch -- include farm products. the president announced a face-saving plan to estimate the number of noncitizens in the country. it appears no different from what the census bureau already does. philip hammond has put boris johnson on notice and said he
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will fight any attempt to leave the e.u. without a deal and will not back a proposal to suspend parliament to get a no deal brexit. toif anybody were to attempt shut down parliament to carry out a course of action which parliament is known to oppose, that would be very serious and a constitutional crisis. viviana: john major says he would launch a legal battle of parliament where shut down. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. francine: president donald trump has issued a warning to facebook over its plans to create a digital currency. "haved that libra will little standing or stability." fed chair jay powell raised his own concerns during his hearing
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wednesday. >> while the project sponsors hold out the possibility of public and effect, libra -- benefit, libra raises many questions. these are concerns that should be thoroughly and publicly addressed before proceeding. francine: joining us now is alastair march. jane foley and scott thiel are still with us. president trump was rallying against these cryptocurrencies but called out bitcoin and libra. what does that mean? alastair: there is a sense it is not surprising he has come out because every politician has come out and expressed some kind of skepticism or criticism about libra. the bitcoin community was quite pleased, saying at last we are
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in the spotlight. it up the ante. and trumpay powell saying this is something we need to consider seriously. the ball is in facebook's court. francine: two regulators understand what they are dealing with? alastair: facebook has not laid out fully what libra will be. it is laid out the basic framework, but there are lots of questions unanswered. this is an education process. that is why you have been able bitcointe -- dismiss and you had some of that commentary from trump yesterday. if it mark carney says takes off at will be systemic. therefore you have to take it seriously, educate yourself and work out this blockchain thing. it is an education process and
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we are only at the beginning of that. tom: i think you are brilliant on facebook. they have made a big splash. today have adults helping them drive this project forward? helpingey have adults them drive this project forward? alastair: facebook has structured this in a way that it cannot be called a facebook project but a venture. the libra association, you have visa, mastercard, some grown-up companies. they are trying to increase the number of partners from 28 to 100. there have been talks of banks, big players in the room, and facebook david marcus has said they are talking to central bankers and regulators, not trying to do something outside of the current legal regulatory framework. tom: i love what you say they are trying to play with the big
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boys and do everything right. why are we having this debate? if they -- have they developed any sort of strategic plan yet? i have not seen it. alastair: it is very early, too early to have this discussion. all they have is white paper. tom: this is serious stuff. you are dealing with government worldwide off of white paper? alastair: that was rock current -- mark carney's comments yesterday, this is got to be rock solid getting off the ground. francine: white paper, for europeans, especially for people in the u.k., it is a government report written on white paper. it is a formal proposal. i am just saying. tom: i have white paper to get through the weekend. i have developed a white paper to get through the weekend. francine: i will give you one to
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get through the holiday season as well. how do you look at the president weighing in on things like that? jane: there are a couple different ways to look at it. from the u.s. point of view particularly, particularly trump administration because more than any other has used the dollar payment system as a tool. if you think about when the u.s. pulled out of the new clear -- nuclear trade pact. it made others pull out of their investments in iran and if not, they will not have access to the dollar payment system. politicalve been dutch weaponized by the trump administration. you have something like libra and the government does not have that control. from the central bank's point of view, there is an inevitability
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that something like this will happen. riksbank,k at the they are looking at e-krona's. this is not bitcoin or libra, but the blockchain system, developing that into something new. something is going to happen. it won't be bitcoin but it will be something. tom: jane foley, thank you so much. scott thiel listening on carefully and alastair march -- marsh, let us know when he read through the white paper. alastair: it is about 20 pages, not that many. that is why there are so many questions. tom: something good for finance 302 in your junior year. is in luxembourg driving forward a conversation
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on these linkages of europe, the united states, and singapore. this is bloomberg. ♪
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♪ francine: bloomberg "surveillance," tom and francine from london and new york. philip hammond says parliament is dead set against a no deal split from the european union, and supports john major's threat to take legal action against the government of parliament were suspended. philip hammond spoke this morning. >> the arithmetic and parliament remains the same.
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parliament is dead set against no deal and the european union has not changed. the challenge for the new prime minister is to try to work with the same cards the previous prime minister had, but to play them in a different way that hopefully gets to an agreed deal and the u.k. to leave smoothly from the european union in an orderly brexit that allows us to continue to work closely with our european neighbors. francine: would you be prepared to vote down, bring the government down to prevent a no deal brexit? >> i have always said i think a no deal exit would be a bad outcome for the u.k., and ed is an outcome that parliament has made clear -- it is an outcome parliament has made clear it will not agree to. we are a parliamentary democracy and we have to find a solution parliament can agree.
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francine: if there was a no-confidence motion to stop a no deal, would you second that? >> that is a hypothetical question at the moment. there is no such motion. it depends on the circumstances. i take comfort from the fact that both candidates say they will seek to negotiate a deal so we can have a smooth and orderly exit from the u.k. that is in the best interest of workers, businesses, and the entire society in the u.k. i will do everything i can to ensure that is the outcome we get. leaving with no deal in a disruptive and disorderly way will be expensive for our economy, potentially damaging to the united kingdom. francine: what would be more expensive to the economy, a conservative prime minister forcing through a no deal brexit
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, or jeremy corbyn as prime minister? >> we don't have to make that choice. the best thing for the u.k. economy will be a conservative prime minister, conservative government, negotiating a good deal with the european union and delivering that in an orderly way so the u.k. economy can get motoring again. there is a wall of investment that has been holding off, waiting to see the outcome of brexit. comfortablers are about our future relationship with europe, that we will begin trading with our biggest trading partner, investment will pour into the u.k. economy and provide a strong background for economic growth over the next few years. francine: that was philip hammond, the chancellor of the exchequer. boris johnson threatened to suspend parliament to force through a no deal brexit.
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he is committed to taking the e.u. -- the u.k. out of the european union went there without a deal. this makes a problem for someone who does not usually get involved in politics, the queen. we have this story saying at the end of the day, if boris johnson were to make no deal government policy and try to suspend government, it would be up to the queen to say yes or no. rob: ed is not the prime minister's power to suspend parliament. does whathe monarch the prime minister asks the monarch to do, but when you talk to constitutional experts about this situation, it is tricky because effectively, the prime minister will be asking the queen to do this because the prime minister was worried parliament was about to vote the
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prime minister out. on that basis, of course, the prime minister no longer has the support of parliament, so the --is on which the parliament the prime minister gets to advise the monarch disappears. the big issue is that what buckingham palace and the civil service are committed to is keeping the queen out of politics. when you talk to civil servants about that, there is a look in there i of terror, we must not let the queen get involved. there is a civil service drive the queen should never have to make a difficult decision like this. if the prime minister were to say -- sorry . francine: what does a constitutional crisis look like? if the new prime minister tries to put a no deal through, when
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was the last time we had a constitutional crisis in the u.k., a real one? level, somebody who used to work in the royal the queenused to say can remember the abdication the 1930's and had quite a big effect on her life. it is why she is queen. that is the kind of level of crisis where a prime minister is trying to do something and parliament is saying now. where the prime -- parliament is saying no. , that ist is that bad why the constitutional experts i it iseen talking to say hard to keep the queen out of it because if she were to agree, then suddenly you have got mp's
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trying to sit on the prime minister saying, you can't meet so they try to meet somewhere else. that is proper, hard-core parliamentary crisis of the site we have not seen in at least 100 years in britain. ministereld her prime and she would say to him, you have the support of parliament? the answer is definitely no. come back when you have got the support. i am not saying no, but not today. once you game it out, you realize the short answer for the prime minister, the prime minister will never ask this question because they will be told in a way not to ask it. somebody said to me this morning, if he goes to ask her
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and they have a conversation and at the end of it he decides he is not going to ask her and she agrees with the. it is a very british way of solving a british problem because we do not have a written constitution, or the stuff is just floating. tom: rob hutton, thank you so much. we will go into next week, into august, what will be forward for the banks, not deutsche bank but the american banks. some good work by bloomberg intelligence. this is bloomberg. ♪
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♪ this as bloomberg "surveillance," tom and francine from london and new york. let's go back to james -- jane foley and scott thiel. we have been talking about a no deal brexit. orit too optimistic pessimistic about a no deal
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possibility? scott: if you look at the euro-sterling, that is the best way to look at it. euroe up at 90 pence per which is towards the top end of the range for quite some time. the market is moving more towards being anxious about brexit. lagged. gilt market has the other risk-free rates in the rally. it has got about two thirds of the rally. at the end of the day, the currency markets still think that october, halloween is not the actual date. if you look at volatility, it is not that pronounced as you have had in other deadline dates. extension as the base case scenario, but the concern about brexit has gone up. francine: more volatility to come for pound.
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jane: scott is exactly right. moved to the has 90's, a psychological level that is difficult for the market to take out. this has culminated in theresa may's resignation and boris johnson as prime minister. if you look at the market consensus, most of the year the consensus was there would be a deal, and that protected sterling from falling further. now that the probability of no deal has risen, starling has fallen further. has fallen if we go what happens to a general election? then what happens to gilt? scott: there you have to question about the tax plan of the incoming government, the fiscal plan, and how monetary
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policy works in that framework. that would be a big change in the framework. it is hard to call that without knowing, but you would have to look at the spending and tax rates as an important part of where the pound goes and tax rates go. you -- sterling as a brexit toric, what do the pros need watch as we go through this never-ending ballet? jane: 90's is a psychological level, the market makes it hard to hold. on the table, we go well above the 90's. earlier this week, we were at two-year aloes. ,elow we saw earlier this week
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but if we are looking at a no deal brexit we have seen at least 1.15 and below. there are so many permutations and combinations that there is a risk of a general election. what happens then? do we get a corbyn led government? the party would not get a majority but there would be a corbyn led government. tom: we have got to leave it there, but i am glad you brought up labour. scott thiel, thank you so much as well. willem buiter is next. this is bloomberg. ♪
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♪ tom: this morning, it is an accommodative fed that comes
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with new bond market volatility and record share prices. in this hour, willem buiter from citigroup. is america a currency manipulator? the president demands a weak dollar. you say libra, i say libor. crypto,ibor, bitcoin, let's call the whole thing off. we have proven once again i cannot sing. york, francine lacqua patient in london. the next chancellor will have to deal with all of this libra libor stuff. francine: the bank of england governor, the next oven or will have to deal with that. he was saying they need to look into it a little deeper, and you are a much better singer than i am. chancellor hammond would not say whether he would vote against a
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conservative government if they were to try to pass a no deal through, but things seem to be putting up onto the currency market. tom: thrilled professor willem buiter could join us. with our first word news, here is viviana hurtado. viviana: donald trump's warning facebook over its plan to create a digital currency, tweeting -- a facebook and other companies want to become banks, they must get a banking charter. he expressed criticism of digital currencies. jerome powell suggesting the central bank has room to cut interest rates, wrapping up two days of testimony. he says the economy is in a good place in the fed wants to use tools to keep it there. turkey may be one step closer to u.s. sanctions. the u.s. has warned turkey it
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would face economic sanctions if it goes ahead with the purchase of a russian weapon system. turkey will not be allowed to take part in the program to build the f-35 fighter jet. philip hammond putting boris johnson on notice, saying he will fight any attempt by the next prime minister to leave the e.u. without a deal. he will not back a proposal to suspend parliament to get a no deal brexit. >> if anybody were to attempt to shut down parliament in order to carry out a course of action which parliament is known to oppose, that would be very serious indeed. that would provoke a constitutional crisis. viviana: former prime minister john major said he would launch a legal battle of parliament would shut -- were shut down. ♪ global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700
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journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. tom: nice summary of francine's discussion with the chancellor, equities, bonds, currencies, commodities. dow futures up 95. oil with a lift. the vix, 12.65. there is the close. i feel old. willem buiter and i knew the dollar when it was 400. curve inversion really comes in and i put way too up because that is a story. francine: we do not call it feeling old, we call it feeling a certain vintage. i am looking at government bonds extending their decline. the 10 year treasury yields are steady. 60.44 and there is still
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too much oil on the market. tom: this has been an extraordinary week within this extraordinary month, culminating within the central banker of the world holding a press conference july 31. we need to regroup into weekend getting-- reading and ready with the bond market at negative rates and the dow at 27,000. no one better to speak to then willem buiter. what we are living right now, was it in your textbooks at cambridge a few years ago? is any of this text books of tobin and old? willem: nothing like this. another world where after years of residing at the effective lower bound, the u.s. has managed to lift itself 250 basis points from it and now it excepts to get more acquainted
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with lower bound with a likely series of rate cuts. this is the land of make-believe. tom: this lower bound that we are in, and professor krugman has been so good at to finding the international ramifications of a liquidity tap, which means central bankers can advantage society. this is a surveillance mosquito coming out. buiter did not bring this with him. got it. we killed it. trap, what are the ramifications of the 2020 liquidity trap. trap? willem: central bankers will find themselves short of ammunition very soon. theurope and japan, shortage is a cute already because there is very little room for cutting -- acute
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already because there is very little room for cutting. monetarycountries, the policy space is extremely limited. fiscal policies will have to be part of the package. francine: when you look at ecb,e, if we focus on the for years at every press conference mario draghi told leaders they need to focus on fiscal policy and no one has been listening. why would it be different? willem: i don't think it will be different. it should be different because the central banks are close to being out of ammunition. yes, they can resume asset purchases and cut by another 10 basis on the deposit rate. margin,l working at the
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so we are in a unique situation that the monetary policy authority is serving half naked. inneeds fiscal support so combination with the larger stimulus, fiscal policy can lift the economy out of slowdown. francine: without fiscal policy, what happens to the world economy? willem: it is sliding into at least a growth slowdown, growth recession, and possibly a recession. we need the fiscal tools to safeguard ourselves against a possible slide into a global recession. tom: i want to undress an important insight. thatf our guests adamant in austere europe is the product of the netherlands, not germany. explain the netherlands domestic politics where they are so
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conservative they do not want to see any form of fiscal expansion or assistance to peripheral countries. is it still about the netherlands or is it a dramatic manicnction -- ger distinction? willem: the countries that include the netherlands, ireland, some scandinavian countries, the baltics, austria. germany does not formally follow this leak. -- league. opposition to fiscal stimulus and germany remains great. the black zero is something they are still loath to cross. the netherlands are guilty as charged. tom: i will have to rip up the script. league,hens the attic siatic league, is it
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because of this new political nature? willem: i think they will support. leyen?. von der willem: yes. there is opposition but it is not related. francine: thank you so much. we will get back to willem buiter of citi. more on our conversation with philip hammond, chancellor of the exchequer, talking about legally challenging any prime minister who wants to suspend parliament to get a no deal through. this is bloomberg. ♪
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♪ parliament is dead set against no deal and the european union has not changed. the position of the european union remains the same, so the challenge for the new prime minister is to try to work with the same cards that the previous prime minister had, but to play them in a different way that hopefully gets to when a great deal. we have excellent candidates in the diplomatic service and i hope through the normal processes -- i was foreign secretary for two years -- a normal process that takes place one and ambassador retires or resigns, to employ -- replace within our diplomatic
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service, and i hope that will happen in the case of washington. francine: that was philip hammond, chancellor of the exchequer. willem buiter is still with us. adon't know if brexit is fundamental question for the e.u. or if they have moved on. extension. an willem: i don't think it moves on. if there were to be a hard, no deal brexit it would be a considerable blow, not just to ireland but other e.u. member states. that theymething haven't put aside and moved on from. they are waiting for the next prime minister to bring a deal to the table that hopefully they can agree on. francine: what kind of deal
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could they both agree on? both parties? willem: this is the problem. this is the same parliament that could not agree on any of the last time. a different later but the same parliament. the risks of no deal brexit are material. dilemma way out of that would be to have new general elections to change the constitution of parliament and maybe get support for some deal that is acceptable to the europeans as well. thosehard to get parliament to agree on a deal they have not agreed to over the past three years. tom: i have a thought of you lagarde onresident hinn zeehan they are ready. what do you think of madame
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lagarde running the european central bank? willem: absolutely, she has years of experience in international finance, including as an observer of the scene in every major region of the world. she is an incredibly fast worker -- learner and she is politically astute and well plugged in. it is a lucky coincidence that someone with her political standing gets to this position. do they manage the left tail of risk, given these negative interest rates and these new greater interest rates we have? it is an original challenge. willem: that would be the case no matter who was in that position. they are going to have to stimulate by only having epsilon
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room on the industry side. talking greek leaders -- letters. off the right end of the equation, a greek letter called epsilon. define epsilon now in the system, the systemic risks that are out there. likehey 2006 like or 1998 or is the epsilon something different? willem: it is something different because they have never been in a world where interest rates were effectively at the zero rate or zero bound. they have only the balance sheet inimusy with and de m ability to cut rates further. this is a new world. --ncine: well him boot or
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willem buiter stays with us. alliance of the chief executive officers, both on bloomberg to talk a in driverless car's. this is bloomberg. ♪
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♪ viviana: this is bloomberg "surveillance." two of the world's largest automakers are teaming up for
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our taunus cars. will team up with argo asat issues competition to general motors. daimler issuing its fourth profit warning in just over a year. it says earnings will be significantly below last year's level. cost fromaiming the an airbag recall. to priceis struggling its hong kong ipo. budweiser brewing company aipac is weighing options and one may be to relaunch the options at another date. bain capital agreed to by 60% of
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cantor, valued at $4 billion. wpps taught -- part of ceo's attempt to decrease debt. francine: tropical storm barry barreling down toward louisiana and could hit the coastline by the weekend. are at a seven-week high. joining us is alice longley. -- alex longley. if you a great function hurr, you can track the hurricanes hitting the coastline . 70% of lng capacity is at risk. alex: lng is one side of it. we have seen 50% of the gulf of mexico production shut.
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50% of oil production is shut in as well and a soft commodities element. overs as it winds its way the south coast of the u.s. will be hit, and this will be an impact. offshore impact is now in the next is the cost of refining over the gulf of mexico. things --when it hits alex: tomorrow we will see it hit the coastline and that is when we will see the impact on refining. we have already heard of some refineries starting to evacuate and undergo emergency evacuations. tom: i understand the rivers are to senator we talked rounds yesterday of south dakota and the miserable weather.
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i don't want to make light of it and there will be some danger. this is not bogart and but call l in keyargo -- bacal largo. what will we do when there is a storm? alex: brian sullivan has said three things make a storm important. the wind speed, this is not the hefty used storm you will see. the other issues, rainfall and storm surge is where this becomes a problem. it will dump a heck of a lot of rain on the southern u.s.. , as it movesodity further into the u.s., not so much the wind speed this time. tom: are we at a point with your team's briefing that we will have at some point a larger
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midwestern emergency, because all of these things are related? alex: clearly, it depends on how the storm evolves. this tropical storm very much appeared from the middle of nowhere over the last few days. these things can evolve quickly and at the moment it is being ripped apart by windshear. onto land, they sprawled out in the rainfall tends to dissipate. for the time being, it is hard to say if we will see mountains and mountains of rain. francine: how often has this happened? there was one last year. are they ready for something that could turn big? alex: the oil companies have plans for this. they evacuate platforms on the gulf of mexico and implement plans in the refineries. the frequency has been in
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writing in recent years. the last major gulf of mexico storm was hurricane harvey and that roiled oil and gas markets. oil flows overhauled because of that. it depends on the kind of rain we see over the next few days as to whether we see that again, but personnel safety, that has come a long way. francine: thank you for the update. we will have a look at some of the banks. 2.2%che bank getting some after falling quite significantly this week. ♪
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where you need it most. that's xfi advantage. make your xfi even better. upgrade today. call, click or visit a store. ♪ bloomberg "surveillance," francine lacqua in london, tom keene in new york. from citigroup is
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with us. a chart, five-year five-year forward inflation estimates. here is the united kingdom, which has not seen a disinflationary trend. the united states, set way above europe. descent ofsis, this disinflation is extraordinary. can the central banks coordinate a message and plan, or is it every banker for themselves? willem: i think central banks really are challenge by this expression of disbelief in the markets and their ability to achieve the inflation target over a five to 10 year horizon. there is a sober warning of lack of credibility. tom: is it because we did not clear markets, did not get rid
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problems, did not do it like we used to do it when we cleared crisis? willem: i don't think we have ever had crisis of the magnitude we saw in 2008 and 2010. the fact that we may not have a totally effective cleanup is true, but it is also not surprising because of the unique nature of this. the fact that the markets are clearly expressing strong disbelief about the ability of the central bank to ease that's target is very sobering. francine: whether inflation is right mandate for central banks, or completely rethink about how we measure it? willem: always there are problems about measuring inflation correctly.
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correctn is one of the metrics of the central bank. i am a mandate guy myself. -- dual mandate guy myself. there is nothing wrong with having an inflation target. it is problematic if you have an inflation target in the market is expressing disbelief that you will achieve it, and they clearly are in europe. president lagarde can mandate a dual mandate. viviana: production cuts by opec did not prevent a surplus of oil. stockpiles increase the first half of the year. saying consumption was far weaker than expected and supply exceeded demand by more than 900,000 barrels a day.
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germany says there is a 50% chance the european union and u.s. can reach a deal on goods. stalled by u.s. demands to include farm products in a deal. the frontrunner to be the next prime minister of the u.k. is threatening to suspend parliament to force through a no deal brexit, but boris johnson faces widespread opposition to that plan. there is going to have to be a huge amount of effort within our friends in europe to say what can we bid -- what can be done to avoid a no deal brexit. viviana: donald trump backing down on his fight to add a citizenship question on the u.s. census and implemented a face-saving plan that appears no different than an approach the
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census bureau recommended. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. tom: that was very good. it is going to be an interesting weekend and i don't know where we will be monday morning. we need a dose of washington madness with matt warman. matt gorman was rapid response director for bush the younger. does that mean at a texas rangers baseball game you had to get the hotdogs and beer? matt: you have got to move quick, a little bit of everything. tom: what i find absolutely fascinating is you being a republican, how republicans will respond to the democratic party chaos we see.
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we had the relative calm of the clinton years, the obama era, and now we are back to madness. how should republicans respond to the democratic party challenges? matt: they need to sit back and wait and look at a couple of fronts. democrats are racing to the left. things like single-payer health care are becoming standard fare, and among the voters are not that popular. , alexandria ocasio-cortez and nancy pelosi in a spot -- spat. there is a thing called the freedom caucus, 20 or 30 republicans that controlled the entire process on the floor because they would withhold votes and kill legislation. democrats only need 18 votes to alexandria, so with
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ocasio-cortez leading the far left in congress, this will make a difference. flat or president is even better in the polls. is he bringing back disaffected republicans into his core group, or is there something else going on? matt: the biggest thing is can he work with swing state voters in michigan, virginia, wisconsin, and arizona. he is at the 43% mark for the general, but can he do like you did with hillary clinton make this into a choice and make the democratic more unpopular? francine: what does that mean how the president actually looks at the fight with china? if he is focusing on the economy , does that mean he will want a deal or does it make him look good with his base that he is
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fighting china? matt: it is never unpopular to pick a fight with china. i was working with mitt romney when he was criticized for taking too strong of a stance. in the short term, trump wants to make a deal and in the long term, he needs the economy to stay strong. if the economy goes weak, that is a big problem for him and republicans across the country running. francine: talk to us about immigration. this is one of the next pillars to decide who will become the next u.s. president. matt: this is a race to the far ends of their party. you see with the wall and some of the policies of the president and his administration are on the far right, appealing to his base. with this possible ice raid this weekend, democrats lurched left.
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that could be a problem for them. there are not many people in the middle is where most of the country is. tom: vice president pence has to have a plan forward. how is he doing? matt: vice president pence has done an interesting job of being a loyal soldier and effective surrogate, however there are reports of how he is starting to carve his own political path a little bit. i worked with the administration to possibly veto a judgeship for one of his folks in indiana. i think vice president pence is trying to do the best he can about being a surrogate but carve out his own identity. tom: sounds like he needs some rapid response. a little bit of the zeitgeist wrapped around president trump.
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as alex brilliantly said a minute ago, it is about the physical nature of the water, and if you have ever been in a legit hurricane, the water moves. hurricane go is a really interesting function we have, gas, lng. forward,y creeping tropical storm and pushing forward against that path is the water from the mississippi where the -- mississippi river. francine: the gulf storm puts some of this newly minted lng at risk. ♪
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bloomberg "surveillance," on a friday in summer. francine lacqua with the conversation with the chancellor of the exchequer. joining us, willem buiter. marcus ashworth has been wonderful over the last few months. something professor willem buiter has leaned on the entire time. downn rates with a slope and the crushing down in the 10 year and two year. what are the correlations of european rates to the rest of the noise? marcus: just when we were getting use having the markets areates super lower, there more crazy things you look at
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every day, whether it is the fact that it has spread into the smaller countries of europe, negative yield for such small countries. it is a crazy world. as far as the comments we got yesterday from cora was fascinating, that they are blaming the expectations on a drop in the yield premium. the reality is, they will cut rates despite the great numbers today. questionse got eight and i have time for one. i cannot keep count of the number of quantitative easing's we have had. qed --e any efficacy iia qe4,5, or lagarde? willem: it becomes less effective but it is mostly what
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the exchange rate. on the market, it would help banks. qe have a benefit to society? it lacks'sthe extent monetary policy, it has some impact other than through wealth, which affects only small performers dutch proportions of people. what you have at your disposal, there is no choice but to make use of the instruments we do have, qe in this case. francine: do you agree? is a moment of currency weakness and that is what the ecb is concerned about. if the euro rises back to 1.25 against the dollar, they are in
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for a world of pain. works more of qe .han the actual mario draghi will do literally whatever it takes, cutting ever more to make people feel better in the short term. francine: we are in a currency war? willem: basically predicting the possibility that trump by himself may get weighed in and start selling the dollar. cuts from the ecb could cause a trump reaction. tom: this is a race to the bottom. i need to get you in trouble with the general counsel of citigroup today. race toa currency war, the bottom? willem: certainly from the
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perspective of the u.s. president it is. he has criticized mario draghi for talking down the euro and has criticized powell for not down the dollar. xm: every president does that months before an election. are we manipulating the dollar? willem: there is a hope and expectation expressed that the dollar will be weekend by the forthcoming cuts. monetary policy, conventional and unconventional, works in part through the exchange rate and you cannot get away from that. francine: willem buiter and marcus ashworth. we put the focus back on banks, deutsche bank trading a touch higher after taking a beating this week. of u.s.pth analysis
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bank earnings, we will discuss that next. this is bloomberg. ♪
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viviana: this is bloomberg "surveillance." a change of the boeing 737 lindblad isc retiring after only a year on the job. his replacement will be mark jenks who has been in charge with developing a proposed mid range at. nike will go ahead with the factory in arizona despite the flak caused by the so-called betsy ross you. it will generate more than 500 jobs. the arizona governor moved to -- resend --lion rescind $1 million over the backlash. on a friday to
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speak to the two most exhausted employees of bloomberg tv. of all, on behalf of all of us, congratulations on helping us this week and getting us through all of this. what will you write for monday morning? >> monday morning will probably be looking at citigroup and it will be first about the near term trend but what our competitors thinking about this big announcement, how are they thinking about the competitive opportunity? see,and all the banks we that does redound on deutsche bank, doesn't it? that is for sure, especially because the u.s. banks are in the biggest position of strength. we are not expecting a great week from the banks next week. this gives them the opportunity
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to steal share here and there. tom: taylor riggs was doing a book study yesterday and we forget the values. banks? the value of ch. hammond: price to buck -- ,lison: price-to-book metric you see someone like j.p. morgan way out front. deutsche bank, we frequently discuss they are trading at a significant discount to buck. part of that is that they are not profitable. the banks will trade at a discount to buck when people think there is a hole in the balance sheet, when they have to raise equity, or they are not earning their cost of capital, and this bank has not been profitable for seven years -- several years. francine: is j.p. morgan still best in class? alison: they are best in class,
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especially looking at this global investment banking business. i have a leading share across a number of categories. one thing we have talked about with their improvement in cash equity. they are top three now. for all the u.s. banks, the focus is about net interest margins, given the dramatically worsening market we have seen. estimates have come down into earnings. is that enough? we will get some negative surprises. for the large global banks, the potential for market share opportunity in capital banks, that business in itself this quarter and if we are going to be in iia period of global monetary convergence -- that can be an offset. francine: when you look at the
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earnings next week in the u.s., will they give an idea of what the u.s. economy is doing in terms of lending? >> we expect everyone to comment on that, and if everyone will be borrowing as well. whether it will outpace the slowdown in lending overall, or the revenue they are getting from it. there is a big differentiation. you were talking about j.p. morgan and saying it is best in class, but if you look at analyst sentiment, morgan stanley has the most positive and i am wondering if that is because of the growth and wealth management and everyone else has doubled down. and i have doubled down am as guilty. this is wells fargo, the famed description screen and all you need to know is this word, interim.
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they cannot find management. how do they move forward into room? alison: that is the number one question, who will lead this bank? tom: there are some resumes from deutsche bank that would be available. sonali: there is a huge scoop out on the terminal. they are narrowing down the list, and kathy besant of bank of america is on the short list, and gordon smith is off. tom: is that a west coast heritage thing with kathy besant? she perceived as west coast or would she go wherever they are located? sonali: regardless of both, she is a woman which is a big thing. tom: she has serious chops. this is important optics, an important thing. it would be a big deal. sonali: she is not an investment
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banker. you are asking if she is a cultural fit and the answer is yes. alison: not being an investment banker would be a cultural fit. tom: can we have this conversation again next week? sonali: i think we well -- alison: i think we will. francine: i will be off. a tropical storm heading toward louisiana. if you are a bloomberg customer, .an look at hurr causing close to $1 billion in damage. hey! i'm bill slowsky jr.,
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i live on my own now! i've got xfinity, because i like to live life in the fast lane. unlike my parents. you rambling about xfinity again? you're so cute when you get excited... anyways... i've got their app right here, i can troubleshoot. i can schedule a time for them to call me back, it's great! you have our number programmed in? ya i don't even know your phone anymore... excuse me?! what? i don't know your phone number. aw well. he doesn't know our phone number! you have our fax number, obviously... today's xfinity service. simple. easy. awesome. i'll pass. ♪ david: trade war casualties. china exports and imports
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decline over last year as the trade war bites. president trump complains china is reneging on a commitment to buy more farm product. central banker to the world. hisr powell completes testimony to congress. bond yields creep up. earnings report card. what does an easing fed mean for u.s. banks? we will find out next week as banks report their earnings. grasecktanley's betsy is here to report. "elcome to "bloomberg daybreak 12, hereriday, june with lisa abramowicz. alix steel is out today. we see now tropical


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