Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

Markets, where we see a fourth week of gains. U. S. Futures point to a third day of losses, and that is what we are seeing in u. S. Equities. It, butear dipped below safe havens are clearly big, the yen, treasuries, gold on a tear. Markets areof these being reflected across assets. The dollar is steady after a few days of losses. Coming up, we will speak to the hsbc ceo exclusively, one of a range of top interviews from our emerging and Frontier Forum today. Lets get the first word news. President donald trump imposing sanctions on irans Supreme Leader, the ayatollah, who says the penalties would deny him access to financial control resources. Trump claiming that the Supreme Leader is ultimately responsible for the hostile conduct of the regime. Tehran says this means the diplomatic path is closed forever. The president has held the door open to real negotiations, to completely and verifiably eliminate irans new your weapons program, its pursuit of Ballistic Missile delivery systems, its support for international terrorism, and its behavior worldwide. All that iran needs to do is to walk through that open door. Bloomberg learning the premium for a tanker and oil cargo on the gulf can now cross upwards of 500,000. Earlier this year, the same insurance would have cost less than 1 10 of that, as Tensions Mount about a third of all seabourn petroleum. The dallas fed president wording cautions about Interest Rates. He says easing policy could add to economic and market imbalances. These could be painful to manage. He says his base case is for solid Economic Growth this year, but Downside Risk to the outlook has increased. A bloomberg scoop, President Donald Trump privately musing about ending a longstanding defense treaty with japan. We have been told he thinks the deal treats the u. S. Unfairly. The pact was signed more than 60 years ago, forming the basis of the relationship between the two powers after world war ii. Japan says there has been no talk of reviewing the alliance. Global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im viviana hurtado. This is bloomberg. Thank you. U. S. And chinese officials are discussing arrangements for the highly anticipated meeting between president s trump and xi at the g20 in osaka. Trump says must return to concessions it made earlier talks, but that the aim would be compromised on both sides. Joining me on set to discuss is julian schillings worth. Great to have you with us. Equities are pricing a 20 chance of a deal at the g20. Let equity markets are pricing in your mind . 20 might be a bit high. The best outcome in reality is and they sit down together agreementreach an where no further tariffs are imposed on china. Quite a lot that could go wrong between now and the g20. Obviously theres a demonstration in hong kong on wednesday. If donald trump made the wrong sort of tweet, the president may not be prepared to meet him at all. I think markets havent fully factored that in, and we need to take that on board. Ok. If the bond markets took that on board, where could we go on the 10 year yield . The consensus seems to be lower yields moving lower. It takes something great to go against that. In the very short term, you are right. Obviously, longerterm, if there were further tariffs, i think the argument could rightly be put that it would be longterm inflationary for the state, and perhaps that as much as donald trump keeps hectoring Jerome Powell about his policy, he could reverse it and think about putting inflation up due to increased tariffs. And that also might hurt gold. I was talking at the top about what a tear gold has been on. Is this something you would want to put in a portfolio right now, given not just he 20 but the geopolitical risk around the middle east and other risks . We have been adding to our gold exposure. It is always quite a small part but yes. And in the last couple months we have been looking on good buying opportunities, and although im not a Technical Analyst at all, technically gold has in the shortterm broke now from its previous range. I think a lot of Technical Analysts who follow gold will be pushing that point. So perhaps a bullish signal in terms of the technicals for gold. Absolutely. Looking at the euro zone as well, if we are going to talk about technicals, i have a great chart that shows it rising above the 200 day and week moving averages. It is not of the data because we had some disappointing data. It seems to be a bet that if we get a fed rate cut, its the narrowing of the Interest Rate differential. Do you think euro strength has further to go from here . I think its a very shortterm play. I think most money has been made. But the dollar side, then, if we are getting this geopolitical risk, you could argue that means dollar strength. But the fed on the other side, weaker dollar. I think the fed the market factored in the rate cuts in july. Obviously we have some pc numbers and if that gives more of an inflationary part then perhaps we will get nervous but it does not look likely. A lot of commentators are talking about a further cut in september, possibly october. I think we currently feel that theres always one cuts this year, not two or three, but we should have to see how quickly the u. S. Economy slows, and obviously donald trump the reason hes badgering Jerome Powells hes worried he could slow into 2020. At rath folk stays with us. Of are looking at pictures the bloomberg emerging markets forum. Michael bloomberg, Majority Shareholder at bloomberg lp, opening the emerging Frontier Markets forum. The flagship event will convene heads of state, ministers, central bank governors, and top executives, to share their insight into opportunities, risk, and growth potential. We will give you our exclusive conversation with john flint, the hsbc ceo, at the form shortly. This is bloomberg. This is bloomberg surveillance. London will always be open as the Brexit Debate rebels on, thats the message from the mayor. He hosted londons firstever summit for leaders of european cities. The mayors of berlin, warsaw, dublin, and others are getting together to discuss tackling global challenges, including Climate Change in the rise of the far right. Live from joins me city hall. Great to have you on the program. How are your eu counterparts responding to you saying that london is open . What have you been hearing in your conversations . Well, i think they are pleased and reassured to hear that message from me. It is really important that we remind our friends in europe that even if we do leave the European Union, if brexit does happen, we will still very much be part of europe. We are proud to be european. But it is also important to realize that as cities across work closer together to address the challenges we face, from climate tonge to air quality countering violent extremism, and it is good to have friends and they are friends from all the major cities in europe. Of Financial Services companies right now saying to you about their futures in the u. K. . They are really worried about the possibility of october 31, of us leaving the European Union with no deal whatsoever. They are very concerned about the possibility of us falling off the cliff edge. What they are hoping is that the new Prime Minister, whoever he is, realizes the consequence of a no deal situation and that, or heads prevail. More is the them capacity of a no deal brexit. On the new Prime Minister, at the moment, Boris Johnson is the frontrunner, and he has pledged to take the u. K. Out of the eu on october 31, even as members of his party are trying to prevent him from doing that without a deal. You succeeded Boris Johnson as london mayor. For their areas of his style of working a legacy that give an indication to you of what he might be like as Prime Minister . Predictnly thing i can nobody can. Whats important is for him to be challenged on some of the assertions he made and he has been hiding from scrutiny. The question he has to answer is how he will persuade the eu to change their mind over the course of a few weeks and offer a better deal than theresa may. How will he persuade not just his cabinet and his party but parliament to accept any new deal . One of the consequences of us leaving the eu without any deal and with the question of what to do with the border between Northern Ireland and Southern Island Big Questions he cant answer which is why he has been ducking scrutiny. Ok. So answer me, then, what is the labour partys position on brexit . Is it time to stop sitting on the fence . My view is very simple. We are in a bad situation with the deal being offered that is a million miles away as promised during the referendum. The British Public for the first time should be given an option do they accept the deal negotiated, with the option of remaining in the European Union. I am pleased that my party is moving closer towards my position it is important with the right clarity i think it is important for the party to have further clarity as well. We are looking ahead to the g20 as well, where markets are bracing for a meeting on the sidelines between President Trump and xi jinping. President trump before had not been totally complementary about you. I dont want to go back over old ground. But do you think the danger that the disagreements between the two of you because lasting harm to the relationship between london and the u. S. . Not at all. Loveke many londoners, americans. We have so much in common and we commemorated the 71st anniversary of dday as a reminder that in times of adversity we stand shoulder to shoulder with one another. One of the things about that relationship the expectations of one another are different than expectations of a friend or acquaintance, and that includes having a relationship where you can call each other out to say i disagree with you about these issues but lets get on the work for the other issues. I do disagree with the president and his policies, as do many londoners. Thing that the president has criticized is crime in london, and hes not the only one that has done so. Would you say it is still out of control . There is an issue of increasing Violent Crime across cities across the world over the last four or five years. We are one of the safest Global Cities in the world. What i dont want to do is point fingers at american cities, which are more dangerous. What i would rather do is work in collaboration with other city leaders to see how we can learn lessons from each other. The good news is over the last year in london weve seen a 20 reduction in knife injuries of those under 25 and a 30 reduction in homicides. I am happy to work with other leaders of our cities and other countries and commissioners, to work to see how we can fight this challenge. Not just across the country but over the world. Are seeingws is we progress made to bring it down. Finally, if we do get a no deal brexit, will you be having more summits of the kind you have been having over the past when he four hours with your eu counterparts, or do you think you will be having fewer . Thats a good question. One thing i am keen to get across is not withstanding brexit, we need to make sure we remind our friends in europe and across the world that we will carry on being an openminded and forwardlooking place. I dont want the impression to be created that we will become inwardlooking and insular. I think the time for protectionism and insular behavior is gone. It is important whether you are the president of the u. S. , the Prime Minister of the u. K. , or the mayor of london, berlin, amsterdam, dublin, you Work Together to find solutions for common challenges, and we also trade together, stay together, uphold each others cities and countries to make sure we get to know each other and not be strangers. Sadiq khan, mayor of london, great to have you with us on the program today. Lets get back to the emerging and Frontier Forum, where Francine Lacqua has an exclusive conversation with the hsbc ceo, john flint. We are being organized to serve the east. You can pick out anecdotal soybeans the flow of china consumes an enormous but i soybeans think that i mentioned that often gets overlooked is the impact that the trade friction is having on investment. You can definitely see a postponement in Investment Decisions because of the uncertainty created by this dispute. Longer this tension continues without a resolution and certainty, the greater the potential that the investment will accelerate. Is that worldwide . The postponement . Or is it particularly in the u. S. And china . I think its a worldwide thing. We already have europe experiencing reasonably soft Economic Conditions theres a different reason for postponing investment in the u. K. The u. S. China trade tension is the dominant economic thing. I think its affecting sentiment everywhere. Is this about trade or is this something bigger . Is it about who will rule the world . I think we have learned it is definitely about something bigger. Trade is the first chapter in this particular story. But when we get past trade, i think it is clear that there is a broader desire to see china contained in some way. I think we will move into a chapter that covers technology and may be a bifurcation of technology standards. Mike in his opening remarks referenced how much good has been done, from a human perspective, over the last 50 or 60 years. Chinas economic story taking 500 million people, 800 million people, whichever number you choose to prefer whatever that number is, its an amazing story. And its remarkable for many reasons, but it gives western its amocracies deeply socialist system and it has been a convenient narrative to point to socialist systems that fail, and heres one that has delivered an extraordinary economic transformation. I think it does go beyond trade. Its a new geopolitical front that we will all have to navigate. We are hanging on this meeting between President Trump and president xi. What can it achieve . I really dont know. And i think the personalities involved its difficult. I dont know what either of them are going in with. I think what we try and construct that view, i think it is probably helpful to try and look back from next years president ial elections. I think President Trump needs to engineer a Strong Economy to really bolster his chances of being elected, and i think he will be sitting with his strategist and trying to figure out how to do that, and im sure i would imagine there is a desired outcome i have no idea what it would be. We were speculating upstairs, maybe another impasse would be celebrated by the markets because they will extrapolate that the fed will immediately rescue the markets i cutting although i hope thats not what happens. I really dont know. Im waiting for the tweets. Are emerging markets to dependent on fed policy . They certainly are dependent. , the bus at the time was are we about to enter a new emergingmarket crisis . Argentina was looking vulnerable, there were questions about some other countries, and that was all driven by the fact that there was still very much a tightening mode. I think it is helpful for emerging markets, particularly those with foreign currencies, that the fed is paused and looks like it might be entering a meeting cycle. It is definitely helping. Course there are two sides to that story theres lower demand from the west, which is consistent with the fact that the Central Banks feel there might be easing. It means that will be the heart of the emerging markets. You are a great scholar of china. What do investors misunderstand about the chinese economy or chinese politics . In my role, i have the privilege of spending a lot of time in london and a lot of time in hong kong. We have a great history there, and im really privileged to have that access. There is definitely a bias in the west. Theres a bias that i think comes from a lack of understanding, a lack of knowledge, a lack of experience navigating that system. Its a very different system. It is one that works commercially. We built a great business there is a foreign bank. I think success in china is about being patient, taking time to understand fundamentally different governments. It is one that it is serving its people well for now. Should we worry about debt . Chinas debt . Yes. I think theres always a concern. There should always be a concern that there will be pockets of debt in the system which are not great, that will definitely have been some resource misallocation. Its worth or mentoring that china post Global Financial crisis was one of the reasons the western economies recovered so well. China through the coordination of the g20 played a huge part in helping stabilize the Global Economy at the time. Careful aboutry the segment and sectors that we bank in china, debt performance is good for now but the thing to remember with china is that crisis only becomes a problem if there isnt a lender of last resort or there arent resources to make the debt good. If there are pockets of weakness in the domestic system they have the resources to deal with it. And they have lots of fiscal room, too. They employed a big fiscal expansion, most of which has towards thed private sector, the more productive sectors of the economy. There will always be a concern. It is something you need to monitor. But china has the capacity to self heal. Wearable will big banks grow in the next decade . For us, i think the macro themes are still pulling to the earnings potential out of asia. I think asia will outstrip all other parts of the world. Curiously, is a resilient region theres a reason every year to be worried about the politics and thats the case again now, but the middle east continues to produce good growth opportunities. Europe looks to be stuck in the low growth and has structural issues to get through. The u. K. Could go either way, and it could go either way and quite an extreme way. And the americas are hostage to the president ial election cycle. The u. S. Economy right now is in great shape but the labor market is still tight although the economy is resilient and flexible. Optimistic generally about the u. S. Market but asia is where the growth will come from. About the third of all managed asset in the world, 31 trillion dollars of capital now has some sort of green, sustainable, or esg label attached. How is that reshaping and influencing hsbc and other banks . A big issue for us, one of a few global banks left, so we work on the basis that we have a global stewardship responsibility for this transition to a low Carbon Economy. We have tried and we continue to try to demonstrate a leadership position, we are the number one arranger of gss bonds, 100 billion dollars Sustainable Finance commitment. We have an Energy Policy which is progressive. It is something we are leaning into in a significant way. Its complex. When i can tell you, my first year and a half of being chief executive, if you try to solve a global problem across lots of local and National Constituents it is difficult to do that and not offend people. Weve learned a lot in the last 18 months but we havent learned enough to not perceive this. The one thought i would leave is ie in the room with dont think we should believe that this issue, the transition to a low Carbon Economy and business, is yet mainstream. People will tell you that it is and all Asset Managers have teams devoted to these issues. But i can tell you that in all of the investment teams ive done since ive been the ceo at hsbc, 70 or 80 meetings, it hasnt been raised once by the portfolio managers, by the investors, by people making the decisions as to whether to be long or short. Is still the case that growing is important, we have a big problem. Not quite yet at the heart of real decisionmaking. How do you define it . This is one of the major concerns, right . That everyone seems to have a different definition of green or sustainable. What guidelines do you think are helpful for any investor that wants to make a Sustainable Investment . This brings us directly into the whole disclosure area. I think the green debt markets established that both markets are growing nicely, maybe 1 toward Capital Markets that get captured under the green banner, and we can see that growing to 5 or 10 of the total. The key for us, in the way well think about this, is not to try to solve it i growing on its own, we need all of these Capital Markets to get into , the amountmarket of disclosure designed to make things more transparent. Disclosureshese earlier this year, quite blunt disclosures, not very detailed, but designed to reveal the next layer for us. That was the percentage of our loan that was exposed to carbon intensive sectors. We had no engagement. We had numbers and we waited for the echo to come back, the questions to come it has not caught the mainstream activity in the way it should. There is a great debate as to whether it will need to become mandated. It looks like it will have to become mandated. Absence of that being an agreed standard, that should not slow anyone down. Francine do you think there will be a generational shift . Without a doubt. We establish a leadership position and you feel good about it for three months and something happens that shifts the psychology. We have a lot of press coverage and we had david and borough talk about it. People choose not to believe much of what our politicians say, but when David Attenborough talks about it, we believe him. There was a shift in the consciousness that was real and the generational divide is critical. There is anger, welldeserved, wellplaced. Our generation has let this slide. We have to catch up. That is a source for optimism. We have to listen to it. Francine you are not painting and optimistic picture. Has your advice to clients changed . Where do you see the conversation going . Partner with our clients. There are examples of partnering providingig clients, walmart preferential pricing if they meet certain credentials. Pilots like that, great. Clear is to be partners and to help them through it. I am optimistic, but we are behind where we need to be. Francine thank you so much. Exclusive conversation formjohn flint at the happening here in london. Lots discussed with francine and john flint. I want to pick up on his comments around china. He talks about asia is where the growth is going to come from. China can sell feel. How do you structure a portfolio . Term, there are a number of issues which will see the chinese economy slow into 2020. Not the least, around tariffs. As we discussed earlier, there may be a pause in the tariff war, but it is unlikely a will be sold by one meeting in japan. There is more to do their. Be debt situation needs to worked through. They have to make a change to more modern Growth Industries and targets towards consumer growth within china. Nejra would you want to buy or proximities for your portfolios . Have taken money out with more on a view of the macro and the slowdown of local growth and advising clients they should be more defensive over the next 12 to 18 months as we see a slowdown in Global Growth. They need to increase their holding in high quality bonds. Risk in gold as well. Nejra you talk about highquality bond, what is that mean for equities . We take a little money out of developing. Less out of china, and we have makeup ofng at the our portfolios, looking to move to more defensive areas. Done, lookingve at how sectors perform through slowdowns, those defensive , butrs may be highly rated they have held up well relative to the cyclical consumer intake, where you may see pressure on margins and sales. Does that mean you would buy quality credit or focus on sovereign bonds . Julian a bit of both. Aa and above and a bit of sovereign bonds. Keeping direction fairly short. Nejra great to have you with us. We have more to discuss. Plenty coming up, including concerns the Dallas Federal Reserve president sounds a note of caution about rate cuts. Can emergingmarket investors look beyond the worries of the present . This is bloomberg. Nejra lets get the bloomberg first word news. Viviana china is considering adding fedex to a list of unreliable entities. Chinese authorities have almost completed preparations to blacklist fedex. This would escalate tensions before the g20 summit. The u. S. Is playing down expectations for that meeting. Officials insist the u. S. Is not willing to compromise on its demand for economic reform in china. Xi are setresident to meet on the sidelines. A threeyear loan deal that expires this month. It is hoped the move will help the country remain an attractive market for foreign investors. We spoke to a foreign minister and he tells us his timeline for the deal. This have to Reach Agreement by october. Before. Hopefully by october, we get it done. Viviana appeal against donald tariffs fail to get a hearing at the supreme court. Viol arguedup it violated the constitution. Spacex launching its falcon heavy rocket. Elon musk called it the most difficult ever. At 2 30. Ed globaglobal 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. Nejra thank you. Concerns over cuts. Robert kaplan says a possible rate cut could add imbalances. He sees Downside Risk increasing. For half aoking percentage point drop. The fuelinge of imbalance, it hit a record last week. Defenses have been outperforming , rates lower for longer being the expectation. Julian be careful when you look into defenses. Done,k the work we have looking back through other slowdowns in the u. S. Economy, looking at u. S. Defensive names, that they have added value over most slowdowns since the 1930s. Them is a long history of outperforming. Francine if you look at growth versus value, that is another area where growth has been outperforming. Is that another trade that has further to run . Something people want to be investing in. There will be opportunities, if we see a bit of a slowdown, we see some of the cyclical names get cheap. It is a shorterterm opportunity. Growth names and we will continue to do so. Of stocks canups send crisis era signals on the economy. It is the small caps and transportation shares. Proceededns have Broader Market selloffs. Does this tell us how concerned investors are about growth below the surface of the s p 500 . Julian we have talked about the bond market. The comment that do Bond Investors know something Equity Investors should be worried about . That is a number of expense investors are asking that question. The bond market is concerned about a slowdown, it has been pushing for rate cuts, and consequently, the transportation index, the Smaller Companies sector saying something about a slowdown coming to the states and perhaps Equity Investors should take that on board. Thea what is important is message sent about whether these are preemptive cuts or whether it is the start of an easing cycle because they are concerned about Global Growth. Which way do you think the fed is going to lean . Julian i think they will portray the insurance camp. The economy is slowing. A small cutin place to make sure we can guide the path through and maintain the u. S. Economy above a normal level of growth or at a normal level of growth. Nejra what will that cut look like . Markets affecting 25. In the last week, people have been talking 50. I think 25 is likely. Everything Jerome Powell has said is about being cautious and i would be surprised, and the market might take 50 basis points the wrong way. It becomes less of an insurance theand more the fed behind curve, which is what the bond market worries about. Start of the past, the easing cycles, it was a 50 basis point cut that started that. Julian if we get the right cut, steepening is likely. The european economies are probably in the best shape than they were six or nine months ago. The concern is the European Central bank has few levers to pull. Other things investors will succeedout is who will going. It depends on which nations went out. That could affect policy for some time. A more hawkish president could be bad news for european economies. Julian chillingworth stays with us. We have Boris Johnson, contender to be the next u. K. Prime minister, speaking in an interview, saying the brexit deal is basically dead. The situation parliament has changed since march 31 and he is saying, reiterating his plan to keep some parts of the brexit deal. He is reiterating the plan to leave by october 31. Coming up, trade disputes, the possibility of a trade recession and political uncertainty. Can we look past the worries if there is a dovish fed . That is up next. This is bloomberg. This is bloomberg surveillance. Lets get the Bloomberg Business flash. Occidental is seeking a buyer. It is set to they want to half of the stake in the company and wants 45 of western best traded publicly. Naming Aaron Sarnoff the first woman to lead warner bros. She has more than 30 years of business and media experience. She will become one of the highest ranking female executives in hollywood and will oversee the second largest film studio. Fine. Mm facing an eu brussels may impose the penalty as soon month. This would make it the last u. S. Technology firm to get a large thetrust penalty from commissioner. There is news of a tech tie up in france. The combination will result in a group with 17 billion euros in revenue and more than 250,000 employees. Premium. Is a 22 in london, we have Boris Johnson speaking. U. K. A candidate to the Prime Minister. Mutuality between the u. K. And trade. It will be bizarre if the u. S. If the eu decided to impose tariffs. Donesaid checks can be away from the irish border, but he has said brexit is basically dead. The backdrop of the dollar we have had the past few days. With trade disputes and the possibility of a recession, the backdrop for emerging and Frontier Markets has rarely seen less settled. The fed can save them all. I have had people say a dovish fed, said rate cuts will be good. If i draw your attention to a historic chart, it shows in previous fed rate cutting cycles, we have seen the spreads widening out. Have taken money off the table in developing markets and also out of the emerging debt market. What we should not forget is the fed is cutting, growth is slowing. Fors not good news developing markets. We have the whole issue with china tariffs and the effect that will have on the chinese economy. We need to be slightly cautious. Nejra cautious on the asian region. Are there other spaces that might be attractive . The answer is no. We have money into eastern in latin america, we view latin america as a trading counter. Currently, we have a rally that is slightly underground. We have discussed everything this hour, g20, said, borisheadlines from johnson, what is your key idea going into the second half . Positioningre portfolios going into defensive, slower Economic Growth into 2020 ,nd defensive sectors highquality bonds, we keep our. Aiting we will maintain a position in japan where there is still opportunity to be had. The largecap is fine. Thea great to have you on show. Lets get to some headlines from the news, saying iran is to be discussed by nato ministers, also expressing concern about persian gulf tensions. Stoltenbergng at expressing concern about persian gulf tensions. Bloomberg surveillance continues in the next hour. Tom keene joins me out of new york. Plenty more coverage here in london. This is bloomberg. At comcast, we didnt build the nations largest gigspeed network just to make businesses run faster. We built it to help them go beyond. Because beyond risk. Welcome to the neighborhood, guys. There is reward. Beyond work and life. Who else could he be . There is the moment. Beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. Take your business beyond. Tom new and personal sanctions. Iran response. The yen strengthens. Gold surges. Why should you have courage to own equities right now in an evergrowing negative Interest Rate . In this hour, stephen king of hsbc. What is francine doing this morning . Anra she is having exclusive interview with john flint. It was an interesting conversation, some of the comments around china and the fed. They discussed, even though credit is a risk in china, china has the means to heal itself. I thought that was a lovely comment. The fed overshadowing everything in terms of the emerging market. Tom we are looking at live images, made more important by the g20 meetings later this week. In new york city, with first word news, here is viviana hurtado. Rejecting theis news of u. S. Sanctions. Actiony Donald Trumps shut off a path to Diplomatic Solutions between the countries forever. John bolton says the next move is up to iran. The president has held the door open to real negotiations, to eliminate the Nuclear Weapons program, the pursuit of Ballistic Missile delivery systems, the support for international terror. Needs to do is open that o. A. T. Is to walk through that open door. The u. S. Is downplaying expectations for this weeks meeting between trump and xi. They insist the administration is not willing to compromise on demand. The meeting is raising hopes the leaders can put trade talks back on track. Bloomberg learning china may blacklist fedex. That is certain to escalate tensions with the u. S. List got on their bad after they say documents were diverted to the u. S. The Trump Administration has imposed restrictions on huawei. Bloomberg learning trump recently spoke about the longstanding defense treaty with the japanese. He reportedly thinks it treats the u. S. Unfairly. Over to the u. K. , Boris Johnson says he will he believes parliament would support a no deal brexit. Bbc abouto the leaving the European Union without an agreement. If he tries, senior figures warned they have the numbers to stop him. 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. Tom futures a little late to the take. Desk steepening kuwait curve steepening curve steepening. We had a 2. 0 zero on the 10 year yield. Up and going it stronger, correlating with some of the angst out there. Recentf to new highs. Lower. Equities will we see a weaker gain ahead of the euro . How much further does the rate differential bet on fed cuts have to go . Emergingmarket equities say risk off. Gold. His is a jump in two standard deviations out past the standard deviation move in gold, jumping up outside the recent range. For had to give a reason this, dollar weakness, gold higher. Above its euro, risen 200 day and week moving averages. Is it based on rate differentials if you are betting on fed rate cuts . People are divided if that would lead to a weaker dollar. Basedump we have seen not on euro zone data. Educating also about everyone on the culture clash of religion, culture, and finance in iran. Mideastmberg managing editor joins us. Betweenthe divide religion and politics. We are going after with sanctions, but what are we really doing and who are we going after . Theory, the religious establishment sits on top in normas wealth. In practice, whether these are within the reach of u. S. Sanctions is an open question. That is why a lot of people said it is a symbolic and provocative gesture to go after the Supreme Leader. It is not going to get much in real terms. It provoked iran to a strong response. No, forever. , forever is a long time. You can guess how long they were you can guess how angry they were. What is the linkage of the people with their religious leader . The highest state authority. He stands above everybody. He is seen as the figure who stands above everyone and has the final say of state matters. That is why the u. S. Went after him, because he is the head of the regime. Reason we had such a strong answer from iran. Nejra where does this go next . Alaa we have had both sides talking strongly, past each other, we have had back channels opening. Or iran areu. S. Saying no channels. The u. S. As we have the door open. The iranians are saying not. There is precedent for them talking, most recently with the nuclear deal, through switzerland, that is one option. The other option is, the continuing the lowlevel , lowlevel attacks, u. S. Retaliation, it does not put us into a war scenario, but its us into a no peace scenario and keeps everyone on edge. Have seen oil spike. What is your interpretation on why we are not moving much today . , pricing, the geopolitical risk, take a step back and look at the trade war and other it depends on what day of the week it is. When the tanker attacks happens, when the drone was shot down, and when the u. S. Said we were this close in launching airstrikes in iran. When trump pulled back, seriouss. Ok, he is when he says i dont want war. A platform ofs on no more middle east entanglement because his base will not like that. That would my guest. Tom thank you for the perspective. He should be in london 24 7. Conferenceing on our in london. Coming up, speaking of the conference and the adjacencies to china, an important discussion with the finance minister of indonesia. A great pleasure to speak to her. Never more so, then the g20 meetings in osaka. We continue to monitor our meetings in london. This is bloomberg. We want to resist the urge to take the bloomberglets get business flash. Falconlaunching its heavy rocket. The rocket blasted off from the Kennedy Space center and florida. They carried 24 satellites for the space agency, the pentagon, and other partners. Elon musk calling it the most difficult launch ever. It failed to land on a drone ship in the atlanta, in the atlantic, but its side boosters were recovered. Nissan shareholders voting to give renault more say over its future. Renault owns 43 of nissan. It is getting more representatives on board committees. The tide is turning for asset management. H2o asset for management. Clients are withdrawing money over concerns about a liquid holding. H2o had been defying with surging assets and stellar returns. Nejra u. S. And chinese officials are discussing arrangements for the meeting between trump and president she. President xi. The vice commerce minister says the aim would be compromised on both sides. Joining us now is stephen king and author of a brave new world. How brave is the world going to look after the meeting this weekend . Stephen we can hope some kind of deal comes through. It is important to recognize the trade issue is not the only issue that separates the u. S. From china. Is thatrlying problem china is a rising superpower. There is a sense of tension between them. The americans felt 20 years ago that maybe there was a reasonable chance you would end a with china shifting towards democratic system of government alongside the economic success they have had. They have not made that shift towards democracy. That means the u. S. Feels uncomfortable with the relationship than previously. This is not specifically a donald trump issue. One thing that unites congress is an antichina rhetoric. This is a difficult issue that has a long way to run beyond this weekend. Nejra john flint made interesting comments about china. It was in the context of concerns around credit. He says china has the capacity to self heal. He pointed to the strength of the chinese economy. How big is chinas capacity to offset Downside Risk from an escalation in the trade war . Stephen the trade war is unwelcome for all sides. Fora has opportunities continued growth. The storyget china is of different regional experiences. If you are in the coastal regions, you have done well. If you are inland, you are disconnected from the world, you have not succeeded in the same way. There is an income inequality in those regions. It is important in the way of connecting inland china with eastern coastal parts of china. If that connection could be made, the infrastructure improves and the inland areas become a corridor to the rest of asia and you can see china carrying on and growing quite quickly. Grave new world was important to were three years ago. The bad news, it is more important now, because stephen king addresses technology. How does your dark side of technology overlay with this trade war . The whole issue of cyber, and general issues about technology. The other issue, more for the west, the sense that technology through social media has taken from the underlying truth. They have tried to explore the underlying truth, but when you are on social media, you reinforce each others biases. If you cannot agree on the underlying truth, what else can you agree on . Our your leaders spoken conference in london. What is the underlying bias of the chinese . What is the hsbc view of what the underlying bias is into these g20 meetings of president xi and communist leadership . Stephen they are a superpower. If the americans tell them this makest we want, it demands the chinese feel they cannot meet domestically. The second thing is if the u. S. Walks away from its Global Leadership role, china is hoping it can establish a leadership role itself. ,hink about the organizations each of those is an organization run by the chinese, which is an extension or rival to the institutions created after world war ii. Nejra great to have you with us. Stephen king stays with us. Andrew bailey speaking at a Treasury Committee evidence session in london. He has been speaking alongside chairman charles randle. This is bloomberg. An important panel. That is what happens when finance ministers show up, including the finance minister of indonesia. She will join us. This is our emerging markets forum. It has become way more interesting, given news flow in the g20 meetings coming up in osaka. We are monitoring this for headlines in our london offices. Nejra fascinating time for this forum. Of the g20 and with the aggressive prices ahead of the fed rate cut. Boris johnson speaking on the radio, let me sum up what he was saying. The brexit deal is dead. Saying it would be bizarre if the eu decided to impose tariffs and saying jeremy hunt will delay brexit. Our Bloomberg Business editor is with us. Stephen king is also still with us. Did we learn anything new from Boris Johnson . Guarantee o write immediately. When he talks about the dead deal, that is vaguely new and shows the liberal centrist progressive Boris Johnson we remember from the mayor of london days. In recent days, he has been stepping back from his no deal rhetoric. Nosays he does not want deal. The other thing we had on the radio this morning was he acknowledged what he said before about no deal and how it would be fine and there was this arcane International Trade law that would make it all right, article 24. He acknowledged what he said was wrong, but instead of a plan, he is offering hope, saying there is a hopeful prospect the eu would agree not to impose tariffs in the event of no deal. The eu has said they are not going to do many deals. No deal is no deal. He did reiterate the u. K. Is going to leave october 31, but he only wants to keep some parts of the brexit deal. You wonder how that is going to square up. How does this square up for sterling . Stephen it has not had a great run recently. Worried investors are about the possibility of a no deal brexit. Currency strategists would think 1. 10,ng plunges, drops to one point 15 against the dollar. There is another issue, whatever boris says, the issue, whether you can get a no deal through parliament. Some conservatives might choose to force a vote of noconfidence. There it is not clear the promise of a no deal can be pushed through. The eu knows this. He wants to say this is a credible way of thinking about it, the chances of getting through parliament are low. Tom it is a slamdunk Boris Johnson is going to be picked. Why cant those against him coalesce together to oppose him . I dont understand why labour, libdem, and the other flavors against johnson cannot coalesce into a combined opposition. I would not necessarily say it is a slamdunk he will be Prime Minister. There is a month of campaigning still. Crazier things have happened. It is likely, and it what he has broadd to do is create a coalition of conservatives willing to back him because they think he is a winner. As to the opposition, where there is a majority against boris is when Boris Johnson, were he to pursue a no deal exit, you would see a majority against that outcome. The conservative members of his party looking at ways to bring down the government to stop no deal. Nejra thank you so much. Stephen king stays with us. We will talk about the feds and kaplans concerns. This is bloomberg. Tom good morning, everyone. Nara j it in for francine. Markets moving today, old higher. The yen gives way to a stronger yen and weaker dollar. That was missing over the last few days. New u. S. Iran calls sanctions against thats Supreme Leader futile and warns they have closed the path to a diplomatic future. They denied him access to financial resources. John bolton says the president opened the door to talks if iran wants to end its Nuclear Weapons talk dutch program. Dutch program. Socalled war risk premiums for cargo in the persian gulf can moreupwards of 500,000, than 10 times what it was earlier this year. Six oil and fuel tankers have been attacked in the region. Over to the west bank where palestinians demonstrated over the plan to raise tens of billions of dollars, calling it so they will give up their hope of an independent nation. The white house is rejecting a congressional request for a president ial advisor Kellyanne Conway to testify. Week, they urged should be fired for violating the hatch act, conducting politics business while acting in a position. The white house says no. 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. Nejra a host of newsmakers are in london for bloombergs emerging forum, bringing together heads of state, central bank governors, and to share the opportunities and risk potential of these economies. Us, with a unique on the ground footprint and several ad Frontier Markets and serves on the board of the brooklyn net. Thank you for joining us. We are not talking about a Homogenous Group of markets but in a broad sense, has the feds dovish pivot and promise of cuts, is that good for emerging markets . It is good for emerging Capital Markets. There seemed to be a pushed upward in the rates and the window for Capital Markets was closing down. We had a worry 2019 would be difficult, but with the pressure of the trade war and the pressure President Trump has put on the fed to maintain or ease the rates, that has brought back the Capital Markets aggressively. We have been able to price europe, at the end of last year we thought it was no longer possible so it is exciting. Nejra if you look at debt Capital Markets, in previous fed rate cutting cycles the em spreads have widened. Where they different this time . Christophe that is what makes them attractive. When the rates in the developed markets start to get lower, as we experienced in the last few years, investors look for yields somewhere. That is when the frontier emerging markets, less liquid names and sovereigns become more attractive so you can get into the high single digit returns. Risk than, much less those returns would necessarily deserve. Nejra where are the best opportunities in emerging markets . Christophe it is different if you think at the equity or debt Capital Markets. We are quite constructive on russia and cis eurobonds on the sovereign side. We are eagerly looking at the political changes across africa and helping those translate into real opportunities in the market. We are cautiously bullish. Tom good morning. I am fascinated by the media we see when mr. Putin gets together with mr. Xi. A pacificssing is Renaissance Capital. How difficult is it to be an investor in shanghai or shen do . For chairman of Renaissance Capital, we spread our areas of concentration are russia, the middle east, and africa. We do cover emerging and frontier asian and latin america sell side but not on the Investment Banking side. This year and next year, we will develop our presence. I am on the board of the Brooklyn Nets. Next october they will play the l. A. Lakers in hang hi shanghai and shenzhen and i will be using that opportunity to develop relations with investment banks. Thelly important with Institutional Investors in asia and other emerging markets, because our russian and african clients are asking us more and more about asian investors in their interests. Tom give us a window into the delicacies of how you do that in terms of selecting geography. Renaissance capital has been very shrewd about the geography about frontier economies. Do you place the china exposure in a protest laden hong kong this is a surveillance fly flying around do you place your geography in hong kong or do you have to look to beijing or shanghai . Christophe there is several opportunities. I would put singapore on that list. What is important for us is to make sure we are close to where the pools of capital are. If i were to tell to you we will be coming an active investment that woulde not be credible. It is important to develop relationships with Institutional Investors so when african or russian or middle Eastern Countries are doing ipos we know who to target. That will be our first step in developing that. It could be hong kong or shanghai. Tom i just got an email from rich in long island. We dont care about china. What is he going to do about best practices to mimic the Toronto Raptors . What are the nets going to do to do out of 512 basketball to the excellence the Toronto Raptors have seen this year . Christophe that is a great question, and they were good with african players and african coach, so i hope that Renaissance Capital experience and my experience will rub off on the Brooklyn Nets. Trades asians starts the trade season starts in the next couple of days. Tom we would like a heads up. Christophe i would say the rumors you are hearing are , oured and hopefully general manager and ownership will be able to deliver on one or two of the names you are hearing about. Tom let me translate that for you. What he just said is get out the checkbook. Nejra i will leave the Brooklyn Nets chat to you. I want to come back to the surveillance fly and whether we are looking ahead to the g20, how much of a potential fly in the ointment in the long term are these trade wars with china . Christophe the trade war in china is obviously a big issue, the single most important geopolitical issue at the moment. It is much broader than trade, it is a new realignment of world power. The u. S. Has benefited from the disappearance of the soviet union for two decades. China has been increasing in power and there has been a balance established between the two countries across all geographies. We are seeing that in africa, in the middle east, and i think increasingly we will see it in asia and latin america. It is broader than trade. It affects trade flows, Investment Decisions, investments in Capital Markets decisions across the world. It is the single most important thing happening and we are spending a lot of time trying to figure out how that affects our clients in africa, the middle east, and other emerging markets. Nejra great to have you on the show. Dr. Sultan alo jabbar has just finished speaking. A has comeharlie from that forum in london. This is bloomberg. Trade, ie get past think it is clear there is a broader desire to see china contained in some way. I think we will move into a chapter that covers technology and may be a modification of technology and technology standards. China has still got plenty of resources, so that if there are pockets of weakness and their domestic system, they have the resources to deal with that and they have a lot of physical room. They deployed a fiscal expansion this year, most of which has been directed towards the private sector, so the more productive sectors of the economy. Debt will always be a concern, something to murder monitor, but china has the ability to self heal. Earlier thist morning at our summit in new jersey. We are thrilled to have with us Gina Martin Adams on the desk. As i have said before, more than anyone on wall street she has not to say go to cash, the easy way out. Screen, bring up on the the single greatest equity call in recent years . It was benjamin laid lirc at hsbc in the absolute gloom of december, gina aggressively predicting a doubledigit or 20 return for markets this year. It was the call of the year. How do we sustain his doubledigit returns . Gina i think you do it two ways. The first is think about where we were in december, less than two percent of stocks on the s p 500 or trading on their above their moving day average. Your average returns are 25 over 12 months, so the technicals by themselves suggest they are prone to recovery as long as we are not falling into recession, which leads me to my second point, what sustains the rally is a combination of the model through Economic Growth throughn muddle Economic Growth situation along with the easing of monetary policy. The technical side suggested december was one of those amazing opportunities to get back into the equity market after they were running away in fear in 2018. Tom the call is extraordinary, link it to steve majors call. As it equity left, bond price up, . Stephen they have ended up significantly lower than people expected six months or years more year ago. Recession has been avoided so that is encouraging. The profit shares in gdp in the u. S. And elsewhere have been high and are still rising so even though growth is lackluster , the profit story is doing better than the growth story. Nejra the market in terms of the bond pricing in the fed seems to have gotten ahead of hsbcs call. Are we and the right place on the Market Pricing the fed . Stephen we are expecting two more rate cuts in the second half of this year which is broadly in line with consensus. Part of the reason is inflation has been persistently lower than people expected. The fed rhetoric has shifted to inflation being too low and whether they should go for a more symmetrical inflation target. It is not good enough to get back to 2 at some occasions below or above 2 . The fed might have become a little more dovish than was the case previously. Nejra we were talking earlier about how much of these gains in equity leads have to do with a hunt for yield. Below the surface of just the s p 500 a near record, are you seeing signs of concerns . Gina you see it in the sectors and factor rotation. There has been a flight to quality, more defensive sectors. If youthe spectrum decompose the s p 500 into its most defensive versus cyclical, they are paying a premium for the defensive sector. Investors are only adopting this recent change in rhetoric of the fed to the extent it supports stocks. It supports yield oriented stocks more than any. If you look at the percentage of companies on the s p 500 aching highs, it was mostly defensive stuff making highs, it was mostly defensive stuff. No companies in the Energy Sector were making highs. The Energy Sector is adopting its get ashley and ed is about yield. Nejra you have been asking about whether there is a bubble in defensive. Gina martin adams and stephen king stay with us. Speaking at a Treasury Committee evidence session in london, speaking alongside chairman charles randall. This is bloomberg. Day july 4 is independence in the colonies, 8 00 p. M. Eastern time on bloomberg. A celebration in the northern climes of boston. Across the neck to roxbury, i think the boston pops from Dorchester Heights has a certain glow to it. Nejra looks gorgeous. When will i get to see them . Surveillance, are enough but it might be good to see the boston pops up close. Tom right now, Gina Martin Adams with us, stephen king of hsbc. Said, he mr. King just alluded to the levels of profit. Almost back to profits being the capital foundation. Are we misjudging, the stock of profits, bathtub full of water profits, the sustainability of profits as we worry about earnings and revenues . Gina i dont think so. Analysts have been cautious for the prospects of Profit Growth this year. We saw that occur at the peak in 2018. Margin market expectation started plummeting in the latter part of 2018 and analysts model lost a lot of faith in s p 500 companies to produce margin growth. This is a lot of the last quarter earnings season. Companies are producing Profit Growth. The margin expectation started to hook a little higher but there is no indication analysts are exuberant over that or profit as a whole. Profits of shared a gdpr at alltime highs and probably will remain as long as Interest Rates are low. Investments are still very slow. Businesses are very low to part with their capital loathe to part with their capital. Those conditions are keeping cost of capital robust. Tom it is a grave new world and that optimism must prevail. Where is the king optimism this morning . Things one of the technology is doing is changing the bargaining position of capital versus labor. If you whole if you think of the whole situation of the gig economy where Companies Find it easier to hire workers by the hour or the task, and the consequence is what has been great news for companies for profits has been not such good news for the wages of workers for issues of income and wealth inequality not just in the u. S. People feel they have been left behind even as companies have done well. That has given birth or populism,the whole that seems toand threaten. Nejra you mentioned s p 500 companies that sell into europe at a discount who sell to china. Gina that is a strong contrast to the last time we had a period of earnings weakness in the s p 500. Contraction in 2016 and 2017 was for multinationals. Were in noweriod is nowhere is sweet. 2015, 2016, the multiples for european exposed Companies Held up better than the multiples for chinese exposed companies. You would think considering all of the trade risk in the news and the worries around china, that the chinese exposed companies would be trading at a tremendous discount, but it is the opposite. Companies areed trading at a discount to chinese exposed companies and it tells a tale of investors worried about International Risk and worried about europe. The pmis are still quite low. There is not a lot of growth and it is getting reflected in multiples. Tom Gina Martin Adams, dr. King, thank you. Cannot say enough about grave new world. Coming up, Tobias Levkovich of citigroup. This is bloomberg. Tom this morning, trump and acts personal sanctions, the markets respond. Finally, the yen strengthens to weigh 106 handle and gold surges. Why should you have courage stone equities . Tobias levkovich of citigroup. On negative evergrowing negative Interest Rates, is this any way to run an economy . This is bloomberg surveillance, live from headquarters in new york, nejra cehic in for francine. John bolton is scheduled to speak in jerusalem at this hour, an important set of comments. Nejra absolutely, especially in terms of the response from iran that talks could be suspended forever. Those tensions in the middle east are reflected in the oil prices. That has come off a little bit of a pause. Tom the president indirectly going after the stridency of mr. Bolton. With our first word news, here is viviana hurtado. Viviana tehran is rejecting the new u. S. Sanctions against the that actions say shut off the path to a diplomatic solution forever. John bolton says the next move is up to iran. The president has held the ,oor open to real negotiations to completely and verifiably eliminate a runs nuclear irans Nuclear Weapons program, at support for terrorism, and other malign behavior worldwide. All iran needs to do is walk through that open door. Viviana bolton says their silence and response to the offer for talks has been deafening. China may blacklist fedex, a move certain to escalate tensions. Wei said documents documents were diverted to the u. S. It is a move that would rock the relationship between the u. S. Bloomberg learning President Donald Trump recently spoke to confidantes about withdrawing from the longstanding defense treaty reportedlyse, thinking at treats the u. S. Unfairly. Officials say pulling out is highly unlikely. Over to the u. K. Where Boris Johnson says he believes parliament would support a no deal brexit. Bbc abouto the leaving the European Union without an agreement, if he tried, senior figures and his party warned they have the numbers to stop him. 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 equities, bonds, currencies, commodities. Futures with some weight to them, curve steepening, hero part of the story. The vix at 15 handle. The two year yield a little calmer. A 106. 80big story with handle early this morning and gold futures keep moving up as well, up a good 1 . Nejra we are in a bed of a Holding Pattern in european equities, coming off a three month high. Gold on a tear. Fxrgingmarket equities and not catching a bid from the weaker dollar we have seen. Tom it is time to do a bloomberg. I think im going to do gold. We see weigh over two standard deviation move on the weekly gold chart, 3. 4 standard deviations, a leap on dollar weakness. Euro, we chart on the went above some key technicals, above the 200 day and week moving average. Is this a shortterm trade . If it is based on bets around Interest Rate differentials, how much longer can it last . Tom widely anticipated, let us get to a discussion, Tobias Levkovich of citigroup. Tosomeone the street listens and in his detailed notes, they look for single sentences of wisdom and there is one on june 21. We are stretched as we were in 2000. How 1999 are we . Tobias we are not talking about the Broader Market and we talked about that line. Tom it is good for tv. Tobias true. I appreciate that. We were specifically focused on the price to value book differential in Technology Stocks versus financial stocks. In 2008, 2009, you had the lack of belief that equity in the banks was healthy and they needed to dilute that with capital raises, and now we are back to the relative valuations. Maybe people will spend too much money for momentum, quality, Technology Names and forgetting the value in financials. Profit is judge misjudge profits or lack thereof in that period. Are the stocks now better than good . Tobias yes. In 1999, 2000, a lot of Speculative Companies were coming public. That is thet more, differential back then. Today you have some as unicorns are coming to market, but most of the speculative is in the private Venture Capital world. Are running a banner talking about crisis era signals on the economy. Let me take you to my chart which shows the premium of defensive stocks on the s p 500 over cyclical, how that has endured. Are we in a bubble . Tobias some investors believe that. The most recent phenomenon as we have had these highs occur but at the same time we are not seeing signs of euphoria or anything like that enthusiasm in the equity market. We are seeing investors uncomfortable about paying the expensive defensives. They are also uncomfortable chasing technology and blowing value encyclicals because they think that is not at the end but near the end of the cycle. I kind of refer to one of my favorite canadian singers, they say when it comes to diet encyclicals, call me maybe. Nejra [laughter] it is hard to keep up with. The other thing investors ask you is your panic euphoria model. What is that telling you about whether and when we hit another record high in the s p 500 . Tobias you are referring to hit panic almost 10, 11 days ago despite the market being off highs. It moved slightly out of that territory this past friday. We update weekly. Territory, atrry the lower end of the neutral ratings, but we were near euphoria at the end of april. It has been a pretty good signal, we were in euphoria for the major selloff so we will probably trade even higher. Tom what do i do with new money now . You are taking new money and putting it to work. Tobias as long as you recognize that his trade, because we think late third, early Fourth Quarter we will see repercussions of the change that we saw in tightening of credit conditions. Thesenior loan officer on federal resort bar federal deserve board should have some effect on Capital Spending and to late summer and fall and that will mean the market pulls back. Tom what do yields do . Here is a tension tobias yields look like they ase pulled back too far fixed income strategist think that citi. Reasongive the fed more if you have sluggishness in september to pursue a rate cut cycle. Nejra Gina Martin Adams was telling us with yields at this level a lot of money going into equities has to do with the hunt for yield so maybe not so bad. Tobias levkovich will be staying with us for the our. Coming up, the finance minister of indonesia will speak live at at 6 30mberg em forum a. M. In new york. This is bloomberg. This is bloomberg surveillance. Earlier today a falcon heavy rocket for the u. S. Military. Lasted off from Kennedy Space center in florida, carrying 24 satellites. Spacex founder elon musk called it the companys most difficult launch ever. The rockets centre court failed to land poor failed to land nissan is putting focus on renng its alliance with ault, to give the company more say over its future. It is getting more representatives on key committees. The tides turning for h2o asset natixis,t, backed by seeing assets fall more than 3. 4 billion. Clients are withdrawing moneys money over concern about a liquid h2o was surging assets and seller stellar returns. Tom thank you so much. John bolton is in jerusalem and scheduled to speak. This will be exceptionally important. Not only will we be watching, but the president of the United States no doubt will be watching. They have gone back and forth on the forces that should be applied against iran. We get an update from Kevin Cirilli, and also joining us, mark champion. Kevin cirilli, john bolton is the son of a baltimore file men. Firemen. Hisleeds yale blue and first internship was spiro t agnew. How threatened is his position . Kevin what President Trump, his position is not threatened and if you look at the interview he gave to chuck todd over the weekend, the president laid out in clear terms that he likes having ideological diversity and various options for him to draw comesrticularly when it to a range of Foreign Policy avenues. We have seen this same type of thinking play out on trade policy, whether you have more globalist versus the Stephen Bannon weighing. Sticking with a ron, secretary of state iran, secretary of state mont Pompeo Mike Pompeo is traveling to the middle east at the time when they are and sanctions against the supreme onder and communicating social media that he wants the International Community to come together and pay more in protecting International Waters that were targeted in the straight of hormuz. Tom what is the ideological diversity of iran . Tell us how the people of iran will relax react to these sanctions. Mark i think there are a couple of things to separate. The sanctions already are extremely powerful and the economy is in freefall as much as it was in 2012, before the iranians were brought back to the table to negotiate the 2015 deal, so they are already suffering heavily. The mood is a little different because back then, we were at reign, andthis people were upset with the regime itself about the economy, and they blamed the regime. Now, they are at the end of a moderate regime. Next year, you will have elections. Rouhani and his government are likely to go and people are aware of that. They dont really see a way forward, a way out. They is there is a resignation that there will not be a quick exit. Iran john bolton has said has to walk through the door for talks with the u. S. How likely is that . Marc they have made it pretty clear it has slammed shut. I think they have made it clear, rouhani accused the u. S. Of simply lying and said, if you are going to sanction our chief diplomat, you clearly dont want to talk. Nejra let me ask you, is President Trump aware that in doing what he has done, he slammed the door shut . Kevin when i talked to sources at the state department, they are trying to isolate iran so much so that these sanctions would force tehrans hand and bring them to the negotiation. The bringing down of the unmanned drone and the attacks on the ships as a temper tantrum. Critics of the administration argue the actions of iran are evidence that the president s decision to withdraw from the jcpoa have not worked. It is an open debate, but everyone agrees in washington, and i am hardpressed to find one lawmaker who disagrees that iran cannot have Nuclear Weapons. Tom a fabulous onehour documentary on iran and in that, he talks about israel is a 51st state. As the perception from tehran that israel is the 51st state of the United States, where does that stand in 2019 . Where does the relationship of israel and the u. S. Stand . Kevin i dont have an economics degree but i do not think Israeli Citizens pay u. S. Taxes so i do not think iran would say that. There is widespread understanding of how crucial israel is to be an ally of the united domestically with Speaker Pelosi behind the scenes and somewhat publicly squashing some of the antiisraeli rhetoric within her party that has unfortunately run a little bit rampant. From a broader scope, iran has continued with their nuclear ambitions, and democrats we are watching john bolton come out so i will wrap up my remarks. The 27th National Security advisor of the United States, john bolton, begins introductory comments in jerusalem. Sanctions announced yesterday by the president , and the distinction here is in all the conversations we have had, it is very questionable how these personal sanctions will affect the dialogue of iran. What is the next step for the president if he wants to become more strident . He isgoing kevin going to have to see the effects has sanctions take and whether there is appetite in the International Community to bolster, from the chinese for example, whether they would provide additional funding in the straight of hormuz strait of hormuz. They would argue that is evidence iranians can have an impact on the International Energy market and from a broader how if President Trump gets a second term, how will this impact u. S. Energy . The europeans have somewhat tried to still go about the iran nuclear involvement deal without nuclear without u. S. Involvement, but will the United Nations play a role if at all, especially as iran tries to readjust and recalibrate their economy, their crippled economy in the Energy Sector . We will pick up on this conversation in just a moment. We are waiting to hear from john bolton. He spoke yesterday about the ukrainian conflict. Recognizingu. S. As it as part of russia or whether Bashar Alassad is the legitimate leader. Nucleara was one of the weapon states under the treaty. Ar proliferation we think russia should have an equivalent concern to ours against the threats of nuclear proliferation, and in the case of iran although russia was one of the countries that signed the nuclear deal we see continuing evidence, growing evidence of irans violations of not just the nuclear deal but the nonproliferation treaty itself. The iaea has found iran to be in violation of the nuclear deal theuse of its exceeding limits on sophisticated centrifuges, the device used to enrich uranium. Iran has threatened to blow through some of the key limits in the nuclear deal, the limits on stored reactor grade enriched uranium, heavy water storage, and enrichment of reactor grade to 35 isotope isotope, the threats of a nuclear iran are real as well terrorism and of other malign activities in the middle east. From that perspective, we talked to the russians talk to the russians each time we meet about iran as an issue, and we will continue to do it as long as the threat remains. Thank you, mr. Ambassador. Your counterpart mentioned syria has the right to allow foreign into their country. How does that correlate with the u. S. Interest . Goalu achieve your deterring Foreign Forces inside syria or threatening israel. Syria is one of the subjects we discussed today and the United States would very much like to get rid of Foreign Forces from syria. We have no burning longtime desire to stay there. The real issue is the iranian forces. They are a problem in iraq bolton look in on john in jerusalem, National Security advisor, Kevin Cirilli monitoring this. How many friends does john bolton have in washington . Yesterday, the president making indirect comments. Who has john boltons back . Kevin there is a whole network of folks who back john bolton, and there has been that and that has predated his ascent into the administration. He has allies on capitol hill. You are hearing that from members of the house, more hawkish members in the Republican Party, and i also think that this is common in u. S. Politics to hear this type of Foreign Policy debate. I was speaking with an aide to senator rand paul of the state of kentucky who has been urging the president to back off some of the more aggressive military rhetoric against iran, but this is a debate happening in the Republican Party and the democratic debate stage tomorrow. Tom an open question that goes months and months on the campaign trail with canada trump, is donald trump candidate trump, as donald trump and isolationist . Kevin he ran as an isolationist someone who did not want to get involved in military conflicts that did not pertain to the u. S. He argued he would have been against going into iraq. Whether you are covering a democrat or republican in the white house, you know that ultimately the white house being commanderinchief changes people. The president ran as an isolationist but also as an ally to israel. Tom the president working up a campaign, we saw that in a tweet yesterday. Kevin cirilli, thank you so much. Basson or bolton continues to speak in jerusalem ambassador bolton continues to speak in jerusalem. The candidates of the Democratic Party will start to debate on wednesday. Were the slowskys. We like drip coffee, layovers and waiting on hold. What we dont like is relying on fancy technology for help. Snail mail we were invited to a y2k party. Uh, didnt that happen, like, 20 years ago . Oh, look, karolyn, weve got a mathematician on our hands check it out now you can schedule a callback or reschedule an appointment, even on nights and weekends. Todays xfinity service. Simple. Easy. Awesome. Id rather not. Tom bloomberg surveillance, nejra cehic in for francine. Tobias levkovich of citigroup joins us. I want to get right to the issue of the moment, the persistency of Revenue Growth combined with the persistency of Earnings Growth. Are you as gloomy as the gloom i am hearing every gloomy day . Tobias i am not gloomy. The bond market has potential weakness, or is that a reflection of negative yields . The equity markets suggesting the market is not falling off a cliff. You have to look at moderate Earnings Growth. Last year helped along by tax cuts, it is a little rougher road. Parts of the market and economy have slowed meaningfully, but that has occurred in the last year plus, so it did not slow again. That is where interestrate sensitive sectors might be stronger. Tom black and white and i would suggest a single digit Earnings Growth revenue mix, sector to sector, can i use the word normal . I think the word normal is fine, except we live in an extreme world. Tom we are addicted to 20 tax cut earnings. To as we are addicted i meanut that is what by the nuances. Nejra do you see a weaker dollar ahead . Tobias we do, for a slightly different reason than most argue. The idea of relative growth rates for gdp in the u. S. Has been significantly better than the rest of the world. Interest rates are higher here than many places around the world. That differential is viewed as narrowing and the dollar will weaken. That is a fair argument. If we look at budget deficits or surpluses as percentage of gdp, when we see deficits worsen with the twoyear lag, we see the tradeweighted dollar start to weaken. We know the budget deficit has gotten worse so hence we should see continued weakness in the dollar. I get interesting pushback from investors because they see the u. S. Interest rates higher and they are attracting money into the u. S. If you look at foreign buying of u. S. , they have been sellers. Tom we have two stores before we get the news. Jerusalem, in sanctions and other pressure will bring iran to the table. The wallyou see from street journal, a large transaction of 60 billion coming out. Nejra very important its of news. Interesting that boltons comments sanctions will bring them to the table because iran says the diplomatic channels are closed forever. Tom new pharmaceuticals in biochemistry with a flight for scale, if you are a fear of scale. This is a 60 billion transaction with a huge pop in allergan. Viviana we stay with the middle as the cost of middle east Oil Shipments is skyrocketing. Premiums will cost upwards of 500,000, more than 10 times what it was this year. Six oil and fuel tankers have been attacked in the region. Iran calling new u. S. Sanctions against at Supreme Leader futile and warned they have closed a path to a diplomatic solution. Donald trump putting sanctions on the ayatollah, denying him access to financial resources. National security advisor john bolton in jerusalem says sanctions and pressure will bring a run to the table. He said the president opened the doors to talks if iran wants to end its nuclear program. In the west bank, palestinians demonstrated against the trump plan to raise tens of billions of dollars for their economy, calling it a snow job to get them to give up their hope of an independent nation. 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. Tom thank you so much. It has been an important and timely form in our london offices at Queen Victoria street , the bloomberg emerging and Frontier Forum. There has been no more important voice than the finance minister of indonesia. Sri Mulyani Indrawati is much more than another finance minister. Her 10 year speaks of a globalist and international view. E welcome you to bloomberg tell me of the adjacencies of china to the rest of the peru pacific rim. What does this tension mean . Tension we look at the f. M. Indrawati if we look at the tension and forms of a risk that is not materialized, the risks are awakening and the global trade is weakening. Business creating more global risks for our country including indonesia, but for specifically u. S. China relations on trade, these tariffs are creating an as thenity for asean relocation of industry to avoid these tariffs, and that is a new opportunity for many countries including indonesia. Indonesia is focusing on how to improve our Investment Climate for us to become a place for the production and supply chain, and also take the benefit of the situation. Tom is President Trump with his mercantilism giving you a new opportunity . We understand the adjacencies of china to lowwage vietnam. Can you be benefited by the transferring of processes to indonesia as we see in vietnam . F. M. Indrawati we definitely can. We have the necessary conditions for the Investments Capital to keep flowing into indonesia. Simplification, ease of doing business has been improved. We have a big market in itself, so we have an attractiveness inform of our economy in the form of our economy, stability, macro stability, as well as prudential policy constant me being implemented constantly being implemented, as well as a doingwe simplified business in indonesia. The reelection of the president will be a good moment for us. Nejra he talked about the impact of the trade war on Global Growth and indonesias growth. What will be the impact this year . F. M. Indrawati we are still aiming for 5. 3 . The First Quarter we were growing at 5. 07 , a combination of seasonality as well as close to the election in april. We see the implications of the trade war and weakening Global Economy in the form of export, which is now going into so we have a contraction on the exports in the First Quarter. That creates a dynamic with the imports which are going down, and the commodity prices. These are the Downside Risks indonesia will face talking about the projection of growth. What is our projection of growth this year . To 5. 2 . Nejra the bank of indonesia has held off from lowering rates the way other Central Banks have done. When we see a pause from the fed and a dovish pivot, should the central bank start cutting rates . F. M. Indrawati we always find the right balance the Central Banks always find the right balance for them to be able to maintain stability that is their , whetherrtant mandate that is inflation, it also Central Banks recognize they have an Important Role in supporting growth. That is why what they did last minimumlowering the reserve for this bank, that is creating support for growth. The central bank will find the right timing for the interest betweencause the parity indonesia with other emerging countries as well as the United States, is going to be one of the indicators whether the room for the rate cuts is there. Low at 3 soion is is there so theres room for this adjustment. Nejra should they do the adjustment in terms of timing sooner rather than later to support growth . F. M. Indrawati the growth rate we see that investment can be accelerated, but we also see that confidence on the business and consumer has strengthened entering the Second Quarter this year. It is not really a problem of confidence. That is why we see the government of indonesia will try to support this close to our policy, both physical as well as structural. Indonesia will find the balance in striking between maintaining the confidence while at the same time supporting growth. Maneuverlot of room to within the second half of this year. Tom finance minister, what does President Trump get most wrong about trade of merchant, of capitalism, of the pacific rim . F. M. Indrawati i think we are all agreed that Global Growth and trade have created tremendous benefits for many countries, especially emerging markets. Nations, thatoss country did it mainly because of globalization and that is why the question about whether you want to see the Global Economy moving, prosper, and becoming more prosperous in a much more even way, or it is going to be driven by only a few countries, that is a choice for the United States also. The United States is the largest economy in the world and also needs to work and live with the other countries. Countries prosperity is not a threat for the United States. It is a market for the united trade andanding growth. It will be good for the United States. Nejra are you bracing for a weaker dollar . F. M. Indrawati dollar strengthening is a threat for many emerging and developing countries who are exposed with foreign debt. Indonesia has been prudent in but of courseebt, the weakening dollar will have a much more favorable situation for importing countries, as well as any open economy. It is creating a better environment for us to maneuver in promoting growth and stability. ,ejra sri Mulyani Indrawati finance minister of indonesia, thank you so much. Tom thank you so much. It is the most interesting transaction. Allergan, to be polite has been a train wreck over the last couple of years, struggling with a move from 300 down. They get much of it back today, up 172. This is abbott labs and the pharmaceuticals, take out allergan, a large transaction. This is bloomberg. Tom good morning, everyone, bloomberg surveillance. We are more than advantaged to have the chief scale strategist from citigroup with us, Tobias Levkovich, as we look at allergan, a takeover by abbott labs. Boring abbottal labs, a fancy pharmaceutical, abbott labs really doing well. Well. , not so lets bring up the chart to show cell. I want by hold i know we will not get it. We go down to the circles of 188 a share and write at the top of the press release, they have the quote that provides immediate scale. Would you define for the people who own allergan what scale means . Tobias i will define for broader investors to avoid any Company Specific issues. Theustries Healthcare Industry is facing pressure in terms of the cost of health care. We have had nonpercent inflation 9 inflation in drug prices for the past 10 years. We will see the baby boomers start to wage and a lot of countrys health care systems, so you need scale because the industry knows pricing pressures are coming, and cost is one of the benefits of scale. You dont need to back off because you dont need these clerks. For people who are against buybacks and think we should legislate them away, if i cannot buy my own stock, i will buy somebody elses and i will cut people out for the consolidation and you will lose jobs. Who for c class officers have huge compensation off equity performance, you see the allergan chart. This is the acquisition of a train wreck. I am not a securities expert, but this aint a pretty chart. Any chance of compensation . Tobias i dont know their specific pipelines, but that is an important element. Big companies have outsourced r d to smaller Biotech Companies and when they have some interesting products, they buy them. The industry in general is how i is trying to figure out how do you get growth in an environment where there is a difficult path . Tom Tobias Levkovich, thank you so much. He did work in the death star years ago as a securities analyst, so he is in good like marioh somebody cavalli who worked in the inner sanctum. Coming up on bloomberg markets, tim scott from South Carolina in the 11 00 hour. This is bloomberg. Please stay with us. When we get past trade, i think it is clear there is a broader desire to see china contained in some way. I think we will move into a chapter that covers technology and may be a bifurcation of technology and technology standards. Flint,that was john chief executive of hsbc speaking at the bloomberg emerging and Frontier Forum happening today in london. Happening now, anna Edwards Panel in moderating a our headquarters. Sam of us now is bloomberg intelligence. We got some news a few moments that abbvie will buy allergan. A 45 premium to allergans Closing Price on monday. Does this deal makes sense . Sure, it is be actually said that that is happening . Nejra yes, they have. Sam has it been announced or is it proposed . Nejra it is confirmed by bloomberg. Sam in terms of the combination of the two companies, it is difficult to see the overlaps that we normally look for, for synergy. You know what . That could be one of the reasons only yesterday we were watching the share price of bristolmyers fall 7 because they had to divest an asset they are buying through celgene, and the ftc determined there is too much overlap. Maybe this is what theyre thinking is, go for a company with almost no overlap. Itm a synergy perspective, makes very little sense. Nejra that is interesting in terms of what the rationale might be behind the scenes. Will this kindle any growth . Depending on how the financing is and i have not seen announcement we assume they finance with allcash, which is a lot of money, which will require a significant term debt issue. They can get some strong eps 30 , 40 en assuming a premium for the share price. From a financial perspective, if they do this as an allcash deal that makes a little sense. The more equity they pay, the lower the uplift to the eps will be. Just forecast if they pay up to 60 in cash they can get a 10 eps uplift without cash savings. I cannot see where the cost savings will come from. Nejra how do you think investors will likely respond . E trading lower, allergan jumping significantly. Sam at the end of the day, you cannot put an obvious sense to this in terms of a merger within the pharmaceutical industry, two Companies Getting together to do cost savings, and i dont think anyone likes those deals. We always talk about deals like this having made money in the and maybe this is our first blush at it. If we put our heads down and look at details, we will find some obvious synergy. Synergies,otential but they are very tenuous. Really cannot quite figure it out. Allergan has a female Health Business and that is something has just got going in, but that business with allergan is very busy small. Nejra thank you so much. 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Com today. Alix shutting the door to talks. Iran says a diplomatic solution with the u. S. Is off the table. And a rush into safety. Treasuries falling around 2 . Gold surging to a sixyear high. Where you go when defenses get expensive. In the reallife game of thrones. Deutsche bank fight for survival under higher costs and poor performance. David welcome to bloomberg daybreak on this tuesday, june 25. Most people fleeing to safety, but not so much in pharmaceuticals. 45 premiumllion, a. Abbvie buying allegan. David all they say they are going to be although th