Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20240714

Forecasts dont take into account that nodeal possibility. This is a key thing that mark carney is going to have to navigate. Heres been a big divergence a lot slowing rate and of people expect rate cuts. How do they forecast this . Do they make separate forecasts based on a nodeal scenario . What will it mean for the pound . Weve hit the lowest since 2017 in todays session and if mark carney does come out with a little bit more of a dovish statement in any way and that puts further pressure on the pound, that of course then could feed into inflation. So hes talked recently about the fact that he really does need to try to illustrate these market activities. Thats what the focus will be. Also of course on new growth and inflation forecasts. The key thing they said is that the uncertainty means a wide range of parts for the economy. There could be volatility during that News Conference. Lisa as we see the pound weaken, weve seen Inflation Expectations pick up. Lets throw up a chart here showing 3. 3 inflation rate over the next five years. Its being priced into the market. You see its creeping higher. This would indicate that perhaps the bank of england has room to keep its rate where it is. Or even tighten, not necessarily cut rates. Right . Reporter yeah. Thats a really good point. Not only are those Inflation Expectations rising as you pointed to but also if you look at wage growth in the u. K. , that is a positive, real wage growth. Its been increasing. The consumer is in a god place but Business Investment has been slowing and it looks like g. D. P. Is going to slow as well. Many different factors the bank of england has to take into account. The problem is that it all is predicated on what happens with brexit. The bank of england has been basing its forecast on the fact that theres going to be a smooth brexit but in a nodeal scenario, a lot of people, and this includes some b. O. E. Officials, have been coming out and saying that maybe the best thing would not be to raise rates. But as you say, if they were to cut rates, or come out with a dovish signal, that could put put further pressure on the pound which fuels further inflation. If we get a nodeal outcome, the bank of england is going to have to cut the pound will fall, it will fuel inflation and then it will have to hike and then its credibility comes into question. David the big question is over at number 10 downing street. Thank you so much. Were going to come back for mark carneys News Conference in 27 minutes from now. Good to have you here. Lets talk about the dilemma that they really have at the bank of england. On the one hand, we have inflation moving up in england which would mean you should hike rates. On the other hand, the economy is not doing that great. Ill put up manufacturing p. M. I. s in the u. K. Which have been going down. What do you do, you make a mistake either way . You wait for the resolution of this massive bit of uncertainty. The nature of the brexit deal that ultimately crawl out. Since nobody has any idea really as to when and how the decision will be made, the bank of england will stay pat and not raise rates or lower rates. Lisa i wonder how refreshing it is for you to hear the bank of england come out and just say, we dont know. Isnt it basically kind of what the fed was doing but cloaked in a lot more language yesterday . Given the fact that they dont know and nobody knows what the outcome of brexits going to be . They use words like pervasive uncertainty. Not we dont know but i think thats right. If uncertain city what is hold you uncertainty is what is holding you back, it can make you clear. Because [inaudible] get results in the end that your actions are more predictable than it otherwise had been. David how much of it is uncertainty and how much is incapacity . Central banks cant do everything. There are some problems in the world that even a central bank cant figure. The problem with brexit is thats fix. The problem with brexit is thats something the bank of england can address and fix or the u. K. . The bank of institution is the institution most important the aling with the consequences of a Nodeal Brexit. They need to be ready to stand, ready to intervene, possibly making use of external support from the feds and the e. C. B. , they have to be ready to act. Thats the most much more important than the particular. Ate move they make theyre readiness to stabilize the economy should there be a nasty brexit. Lisa heres what im struggling to understand. There seems to be a race to the botwhm it comes to currencies bottom when it comes to currencies and valuation. Everybody wants a weaker currency. President trump has been talking down the greenback. We have the british pound receding. At what point is this a positive or the u. K. Economy . A weaker currency makes you more competitive and that helps. But if the driver of this weakness is uncertainty about its ture of the economy, pretty shabby. I think theyd rather have less and a nty about brexit stronger sterling than weaker sterling and massive uncertainty about the nature of brexit. David and theres one with respect where the u. K. Economy seems to parallel the United States which is the consumer. If you get a weaker and weaker pound, what does that do to the consumer . It drives up prices presumably as import prices go up. [inaudible] doesnt help there. I dont think were there yet. As long as employment and [inaudible] keep up as they are in the u. K. , in the u. S. As well, i dont think theres much to worry about in consumerland yet. Lisa lets walk through the potential possibilities. Theres say there is a hard brexit in the near term with Boris Johnson saying, forget it, were done. Lets just be lets were on this platform. What will be the economic bleedout in the u. K. Economy . How much would the bank of england have to cut rates to offset that . If you get a Nodeal Brexit on the 31st of october, that would immediately lead to pretty chaotic scenes in every port and shipment point in the u. K. It would be strong, negative for half a year, a year at least. And the bank of england would have to intervene and cut rates to support Economic Activity and stabilize markets. Lisa would that be effective if they cut rates by 25 basis points, does that do anything . Its standing ready to intervene and stabilize the markets, the rate cut per se. The hit from a Nodeal Brexit would be much fiercer than what. An be offset it has great powers of Financial Stability. It does have great powers of sustaining Economic Activity. David you describe a fairly chaotic situation, very, very bad for the u. K. Economy. Isnt the chance of that significantly higher today than it was three months ago . Boris johnson, if we take him at his word, really means to crash out of the european union. Well, one should never take people too literally. But theres no doubt that the willingness to contemplate a Nodeal Brexit is significantly compared to may. That is a fact and therefore the odds on those yields must have increased. Lisa willem, you can sticking with us. Were going to be talking more about the dilemma we face here in the United States as well. Lets get you a readthrough of markets. Kind of quiet as traders try to digest what we saw from fed chair poul yesterday. Nasdaq powell yesterday. Nasdaq yields up. Twoyear yields climbing a bit but not much that not thatch. The dollar at its strongest of the year and crude off about 1. 25 . David and remember, to tune in later today for commodities edge on the road. Alex steele will be live on b. P. s natural gas Trading Floor in houston, texas, talking to various executives, including the companys c. F. O. And its chairman and president for b. P. America. Thats going to be at 1 00 this afternoon, new york time. Coming up here, the fed cuts but says its not necessarily the start of a long easing cycle. U. S. Equity futures edge higher as the dust settles. Well discuss that next. Bloomberg. This is bloomberg. The outlook for the u. S. Economy remains favorable. And this action is designed to to support that outlook. David the fed cut rates as expected yesterday. But the real action was in chair powells News Conference. Which the markets found just a bit confusing. Its not the beginning of a long series of rate cuts. Again, were thinking of it in the nature of a midcycle adjustment to policy. I didnt say its just one or anything like that. What i said is when you think about rate cutting cycles, they go on for a long time. Many Central Banks around the world are increasing policy accommodation or contemplating doing so. The outlook for the u. S. Economy remains favorable. And this action is designed to support that outlook. Youre assuming we would never raise rates again once weve cut these rates, they can never go up again as a matter of principle, i dont think thats right. David willem, you can understand the markets being a little confused about that. It was a little unclear about what comes next, are we going to cut again or not. He sort of said both. The markets are looking for late cycle support but what they got was a midcycle adjustment. Hey were disappointed. There is fundamental uncertainty about how strong the u. S. Economy is. If it continues the way it looks now, then we dont need another cut. Not even one more. Then is weak as some fear, one or two more cuts would be a done deal. So there is fundamental lack of clarity. Domestically driven bitz of the economy doing well. The external independent bits not doing so well. The uncertainty is a reflection of the objective uncertainty that surrounds the u. S. Economy. Lisa fed chair powell disappointed markets. You did see expectations for rate cuts through year end move from 2. 5 rate cuts to less than 1 1 2 rate cut currently. My question is, isnt this a victory for fed chair powell because if this is the worst that a market surprise looks, its really tame. Not that much happened yesterday. The markets did respond in an expected direction but it was pretty small. Yes. Lisa it wasnt that big of a deal, right . No, objectively that is indeed correct. David we put up charts to though to show how all the markets reacted while he was talking. We see what the s p 500 did, what the dollar did. It went up. Is it possible, is it conceivable that this may have been part of the intention . That in fact the chairman was concerned that the markets were ahead of where they should be and need to take another look at it . I cant read minds but it certainsy certainly is consistent with [inaudible] made this earlier correction of a misinterpretation of one of his speeches. Some education of the markets may have been part of the design, yes. Lisa and someone spoke to this saying market and mitt cal expectations have run political expectations have run well ahead what have the fed was looking to do and what banks are willing to deliver. Acquiescing to more pressure which doesnt offer an attract waive out. How would you grade fed chair powells move . How would you grade his press conference yesterday . And say the move was right as expected by us. The press conference, bminus. Which is a passing grade. Lisa not one id be proud of. David not one we aspire to. But it is a passing grade. Has the chair made it more complicated . Now as we look at what the feds going to do, we thought we knew what it was. It was jobs and inflation. Now theres an increasing perception that hes paying attention to the markets and even the president of the United States, we had President Trump tweet right away lisa not right away. He waited three hours. Which is incredible restraint. David once again disappointed in [talking simultaneously] external developments very closely. Trade policy developments. So, yes, a lot more potential drivers of rate moves have been put firmly on the table, yes. Lisa right now im looking at the rate cut expectations going into the end of 2020. Currently 2. 7 rate cuts being expected. Thats down from about 4. 5. Four. Im wondering, do you think this is more realistic, that were going to get nearly three rate cuts by 2020, or do you think the market [inaudible] still . We were going to get even before yesterdays meeting, we were going to get two cuts and no more most likely. So following the press conference, i think that the markets are still somewhat possibly aggressively priced. If our view of how strong the u. S. Underlying commea is is economy is is indeed solid. David are they fairly safe in saying lets make sure we err on the side of being lenient . Because there doesnt seem to be a threat of inflation. Theres no threat of inflation. At the same time, were not in the area of japan either where were barely scraping the 1 and not anywhere near the [inaudible] 1. 5, 1. Of, but its close to target. So the u. S. , unlike its mainly counterparts in advanced economy, is an economy thats, a, growing at a rate above potential and, b, has some upside even on that. There is down side, the uncertainty is pervasive. That had to be brought out and put on the table. If theres no uncertainty and they make a cut, that doesnt make sense. Lisa do you think the u. S. Economy is stronger than market is pricing in currently, if the fed reserve does deliver the rate cuts, that the market is expecting, what is the risk of the economy overheating . I dont think the fed bill delivers more than the market is expecting simply because theyve made it very clear what they are looking at and what they are responding to. So i think clearly if the fed started cutting [inaudible] there would be risk of overheating. At the moment i think that risk is negligentable. Lisa willem, youre staying with us. Coming up, extended weak innocence europe. Manufacturing in the euro area shrinking for a sixth month. Does this mean big stimulus from the e. C. B. In the second half of the year and how effect woove that be anyway . Thats coming up effective would that be anyway . Thats coming up next. From new york. This is bloomberg. Lisa the u. S. May be strong but there are more signs of a growth slowdown in europe. Euro area manufacturing shrank for a sixth month, drogged down by germany which saw its worst slurp in slump in seven years. Lets talk about this. A lot of people pinned the slowdown in manufacturing in europe on the slowdown in china. How much of what were seeing in europe is a direct bleedthrough from the trade tensions versus some inherent structural issue with europe . Clearly both the actual trade tensions and the fear of further trade conflict, especially between the u. S. And europe, car, car parts and all that, are a drag and have been a serious drag on Economic Activity in the euro area. But there is also now, this is clear from this latest p. M. I. Data, domestically generated weakness as well. Country is aggressively countering this, fiscal policy [inaudible] is at the end of its rope. So we have a dont know that is in continent that is in a mentally poor shape without the tools to do something about it. David lets talk about mr. Draghi. We talked about b. O. E. And the fed. Lets talk about what draghi has to do in september. We had an interesting quote from the c. E. O. Of i. N. G. Overnight in which he said the issue we have in europe is the absence of confidence on the production side as a result of geopolitical tensions, as well as the trade tensions. I dont they q. E. Is a recipe to support an uncertain environment. So is there anything draghi can do and e. C. B. Come september to fix this problem . Small things. But not enough to make a massive difference to the level of activity. It might have some infor instance on Exchange Rates or asset prices if they cut 10 basis points, do some tiering, go more aggressive on the [inaudible] and start q. E. Again. All these things will undoubtedly have asset market impacts. But to get from the asset markets, Financial Markets, to output, employment and nflation, there are many types [inaudible] lisa do negative rates hurt the prospects for inflation more than they help it . I think that they actually do help. If you could have more aggressive negative rates policy, it would help real activity. But we cant because were at the zero lower balance. Lisa what evidence are seeing to support that . Lending hasnt been picking up recently. Youre seeing distress ongoing and inflation still is weak in the eurozone. We have little evidence because until this crisis came along, wed never been in negative Interest Rate lines when the series extends. So i do think that Central Banks are not out of [inaudible] completely. But in terms of ability, instance, as et markets have considerably more instance than to get the transmission from the asset market to the economy. Thats where the weakness is. David this is not a financial ormondtary problem, its a political problem. At some point, draggy, err News Conference he says draghi, every News Conference he says, we need fiscal reform and it doesnt come. You can take germany at the beginning. Europe needs some combination of domestic demand stimulus to fiscal means and some external support from [inaudible] and china. Youre getting a little bit of that. Lisa how optimistic are you that were going to get a turnaround or is this slowdown only going to deepen and broaden in europe . It will continue to deepen and broaden, yes. Fiscal stimulus is not forthcoming to anything like the extent that will be needed and the Monetary Policy side, we are not quite naked but half naked. David ok. Thank you so much. Always great to have you with us. Coming up, moments away now from b. O. E. Governor mark carneys new conference. The central bank kept rates on hold and said brexit uncertainty skews the forecast. It isnt really projecting out whats going to happen to brexit, not yet, because it doesnt know. Thats coming up next. The News Conference of mark carney. This is bloomberg. This is bloomberg. Lisa this is bloomberg day break. Alec steele is on assignment alex stile steele is on assignment steele is on assignment. Were seeing a positive lift ahead of the u. S. Open here from both the s p, dow and nasdaq. Stocks in europe also up. The dax also up about the same. If you look at whats going on across assets, you are seeing yield bleed a little bit higher in the u. S. The point at the pound at the weakest versus the dollar since january, 2017, ahead of this press conference where we are going to be hearing from mark carney, bank of england governor. Meanwhile, mark carney currently walking into the room. He faces a pretty questionable forecast. Basically saying, we dont know what brexit is going to look like. Lets listen in to what he has to say as he delivers his address. Thank you very much, mike. Good afternoon, everyone. Since may, global trade tensions have intensified, global activity has remained soft and the perceived likelihood of a Nodeal Brexit has increased significantly. These developments have led to a substantial decline in market Interest Rates and a marked depreciation of sterling. U. K. Financial conditions have loosened materially as a result and they can be expected to remain volatile as the prospects for brexit and therefore the u. K. Economy develop. The u. K. Economic outlook will continue to hinge on the nature of e. U. Withdrawal and the appropriate path for Monetary Policy will depend on the balance of its effects ondemand, supply and the Exchange Rate. As a consequence, the Monetary Policy responds to brexit will not be automatic, it could be in either direction. The committee will always act to achieve the 2 inflation target in a sustainable manner. Starting with developments in the global outlook, with the ink barely dry on our may inflation report, the u. S. China trade dispute deepened. The rationale for protectionism have broadened, increasing the risk that can could prove more pervasive, persistent and damaging than previously expected. There are already signs that trade actions are having larger effects than previously anticipated on Global Business confidence and investment spending. For example, the Global Manufacturing p. M. I. Fell to its lowest level since october, 2012. The latest indications and indicators suggest that Global Growth is Holding Steady rather than picking up as the m. P. C. Had expected three months ago. The quality of that growth is also deteriorated with the growth rate of Business Investment in the g7 cut almost in half since its peak in late 2017. Global price pressures remain subdued with headline and core inflation below target in all major advanced economies. In response to the soft yourt looks for Global Demand and inflation, the expected path of policy Interest Rates in advanced economies have shifted sharply lower. Expectations of easier Monetary Policy are supporting Global Financial conditions in turn, u. S. Tenure yields are near twoyear lows, tenured guilt yields are at their lowest in three years and german 10year yields are their lowest ever. Around 14 trillion of Global Investment grade debt is now trading at negative yields. In the m. P. C. s latest projections, these more accommodative financial conditions offset the drags from trade headwinds, although Global Growth is expected to return to potential rates more slowly than in may. U. K. Financial conditions have also loosened since may in response to both Global Developments and the growing weight Financial Market participants are placing on the possibility of no deal. Sterlings now 6 lower than at the time of the may report. U. K. Focused equity prices have fallen by about 5 . And guilt yields have dropped by around half a percentage point. The market yield curve underlying the m. P. C. s latest projections falls to and ends the forecast period at not. 6 or around 40 basis points lower than in the may forecast. Turning to the u. K. Outlook, as well as their impact on Financial Markets, Brexit Developments are making u. K. s g. D. P. Growth more volatile than usual, owing to stock building and auto plant shutdowns. Looking through these temporary factors, the underlying pace of growth has slowed to below potential rates as a result of a weaker Global Demand and more entrenched uncertainty about brexit amongst u. K. Companies. Only one in six respondents to the banks Decision Maker panel now expects the future relationship with the e. U. To be resolved this year, down from almost half in january. 1 3 of our agents business contacts report being more uncertainty about the Economic Outlook now than they were ahead of the extension of article 50 in april, while only one in 10 have become more certain. These developments have already led to marked weakness in u. K. Business investments since the referendum. Investment intentions point to further contractions in the Second Quarter and Third Quarter of this year and the m. P. C. Now expects Business Investment to pick up more slowly over the course of the next year. By contrast, the labor market remains tight. With employment at record highs and unemployment at 44year lows, and pay growth strengthening as a result. Household confidence in their personal financial conditions is holding up, with spending rising broadly in line with real income. To be clear, u. K. Households are acting prudently. This is no debtfueled consumption move. And households concern about the general Economic Situation continue to restrain Housing Market activity. Overall, the m. P. C. Expects underlying g. D. P. Growth to remain subdued over the course of the coming year, with brexitrelated uncertainties and softer external environment both weighing on spending. As a consequence, a margin of excess supply persists over the next year. U. K. Inflation is currently bang on our 2 target. Domestic inflationary pressures have strengthened. As wage growth has picked up. With growth in unit labor costs currently around target consistent rates, although Core Services inflation remains somewhat subdued due to temporary factors. Headline inflation will probably dip around half a percentage point below target in coming months, owing to cuts into energy bills, the core inflation should remain relatively stable at rates only a little below 2 . Looking forward, increased uncertainty about the outlook suggests that the u. K. Economy could follow a wide range of paths over coming years, depending most importantly, of course, on the nature of the e. U. Withdrawal. Consider as Financial Markets increasingly have the prospects for no deal. The bank has been working since the referendum to ensure that the Financial System is ready for brexit, whatever form it takes. In order to continue to serve their customers whatever happens, u. K. Banks are now both exceptionally well capitalized and highly liquid. Our Contingency Planning with domestic and e. U. Authorities is mitigating possible risks to disruption of crossborder financial services. And most fundamentally, our constitutional framework is row institutional framework is robust. The bank has clear objectives, we have operational independence, all the neels, and the needed resolve to all the necessary tools, and the needed resolve. But Financial Stability is not the same as market stability. In the event of no deal, no transition brexit, certainly would likely fall. The risk premiums on u. K. Assets would rise and volatility would spike higher. Similarly, preparations by governments and businesses for no deal are vital to redouse the potentially damaging transition redeuce the reduce the potentially damaging transition rom e. U. In the event of no deal, its probable that c. P. I. Inflation would rise and g. D. P. Growth would slow. For example, our agents survey of businesses finds that most companies now report that theyre largely ready for no deal. However, just a fifth describe themselves as fully ready, 3 4 responded that they were as ready as they can be, and despite greater preparedness, businesses still expect their output, employment and investment to fall by about 1 to 3 over the next year in the event of no deal. When setting policy in the event of no deal, the committees Interest Rate decision would need to balance the upward pressure on inflation, the likely from the likely fall in sterling, and any reduction in supply capacity with the downward pressure on inflation from any reduction in demand. Its, of course, the governments intention to achieve an agreement with the e. U. Therefore, as in previous reports, and consist went our general approach to condition forecasts on government policy, the m. P. C. Continues to assume a smooth transition to the average of a range of possible outcomes for the u. K. s event trading relationship with e. U. Eventual trading relationship with the e. U. In our latest projections, as details of the u. K. s future trade relationships graudualy emerge, Business Investment recovers, and Household Spending picks up. Broadly in line withrow bust real income growth. Owing to much easier financial conditions, the acceleration in growth is stronger than we had projected in may. With potential supply growth expected to remain sub died subdued, the pickup in g. D. P. Growth results in sharply rising excess demands which reaches 1. 75 of growth higher than in may. This pushes up c. P. I. Inflation such that its well above target and still rising at the end of the forecast period. The m. P. C. s projections are materially affected by the inconsistency between the asset prices on which they are conditioned, those asset prices take into account the full range of brexit outcomes, including the substantial weight, Market Participants are placing on the possibility of no deal. And thats inconsistent with the committees assumption of a smooth transition to a brexit deal. Which by definition does not take into account the possibility of no deal. If as assumed brexit proceeds smoothly to some form of deal, market Interest Rates would probably rise and sterling would probably appreciate. Consistent with the stylized sensitivities that weve outlined in a box in todays report, the Committee Judges that gradual and limited Interest Rate increases would be appropriate to return inflation sustainably to the 2 target in the case of a transition to a brexit deal and some recovery in Global Growth. At this meeting, the m. P. C. Judged that the current stance of Monetary Policy remains appropriate. To conclude, profound uncertainties over the future of the Global Trading system and the forum that brexit will take are weighing on u. K. Economic performance. Until those uncertainties are resolved, shifting perceptions of them will drive volatility and market Interest Rates, inequity prices and in currency values. Monetary policy cannot offset the real effects of these fundamental drivers of jobs, growth and prosperity. The Monetary Policy can help smooth the adjustment of the economy to these shocks. And to that end, the people of the United Kingdom can be confident that the m. P. C. Will take all appropriate measures to support jobs and activity consistent with achieving the 2 inflation target during these exceptional times. And with that, dave, ben and i will be pleased to take your questions. Ok. Your name and organization when you ask a question. Wait for the mic to reach you nd please, one question. Reporter the bank of england assumes brexit will be smooth, the markets are increasingly betting it will be anything but. Michael gove assumes no deal will happen. Johnson says the chances of no deal are a million to one. In the interests of transparency, governor, and for the people of the u. K. , what is the committees view . How likely is no deal at the end of october . Well, first thing is, government policy to pursue a deal, i think the Prime Ministers been absolutely clear about that. What mr. Gove was referring to was the assumption of no deal for the purpose of brexit Contingency Planning, absolutely necessary. Assumption of no deal has the consequence of some of the announcements weve seen today, of additional spending or at least the provision of moneys for additional spending that appear to be necessary to prepare for no deal. Look, the Financial Policy Committee of the bank of england has assumed the possibility of no deal since the day after the referendum. Which is why weve been preparing the Financial Sector to be ready for no deal. And thats the core of the Financial Sector is ready for no deal. But thats different, preparing for a contingency, and the country has to be prepared for that contingency, Financial Sector is prepared for that contingency, a contingency is different than whats most likely and you will i can do is quote the Prime Minister speaking earlier this week when he said, were not aiming for no deal, we dont think thats where well end up. And the decisions on whether or not there is a deal are decisions for government in negotiations with their european partners. Reporter thats the Prime Ministers view, but whats yours . We can come back. Eve got time. Reporter cnbc. It seems to me that youre still guiding toward rate hikes. Indeed today you have your inflation c. P. I. Over the forecast rising 2. 4 . Youve er your changes, still got 2. 1 . Youre still implying rate hikes. What is the value of providing that Forward Guidance in an environment where the market is pricing rate demuts 2020 and placing a higher value on the Political Risk than you are . Essentially, youre guiding the markets towards an outcome that the markets dont necessarily believe in, the assumptions that youre relying on. Yeah. Well, what the market is doing, as the market always will, is taking into account all possible outcomes. Its relatively unusual, its not totally unusual, but its relatively unusual to be in a situation where you have quite buynary outcomes such as the country faces between the possibility of a deal and a smooth transition to some form of deep trading relationship with the european union, to no deal and an instant adjustment to a w. T. O. Trading relationship, which is a very different thing. The market is, as you know, waiting to cross all those outcomes and increasingly has been putting greater weight on the latter, on the no deal possibility. Not the majority weight. But greater weight on that. We look at whats most likely. We look at government policy. We also speak to the people in the country and theres two messages. There is a clean, clear message around, in the event of moving toward a deal we think that the way the economy will perform, consistent with some modest adjustment upwards in Interest Rates over that period of time. Its important to households and businesses understand that and theres reporting in this report of something called the n. M. G. Survey, survey of thousands of people across the country, thats what they expect. It is more complicated in the event of no deal. And its more complicated in the event of no deal because it is not as simple as saying that in the event of no deal, theres just one path that Monetary Policy could take because no deal would very unusually for an economic shock be an instantaneous shock not just to demand which is what everybody is used to seeing, but a shock to supply. There will be supply capacity in this economy that will become uneconomic. Now the degree to which that happens will partly be influenced by no deal preparations, but not totally eliminated, as i just said, by those nodeal preparation preparations, but the fundamental economic trading relationship has changed and it will take some time for this economy, which is one of the most flexible economies in the world, even this economy will take some time for it to adjustment its supply capacity which was oriented in export terms largely towards europe to be oriented in different directions. That is why its not as simple as just saying, rates go one way in the event of a deal and they go another way in the veven no in the event of no deal. Thats why policy response is not automatic. So the value of giving the guidance on the still most likely scenario, its become less dominant than previous, but the still most likely scenario is so households and businesses know where its going and market knows where its going and if you strip out their nodeal probability waiting, its basically where they expect it to. Hanks. Reporter its your last set of major forecasts ahead of that october deadline. A lot of people will be looking toward you and the bank to get some sense of what to expect, how to prepare for a possible Nodeal Brexit. Whats your advice to the person on the street . How do they prepare, what should they expect, what might this feel like from your perspective . Let me reiterate that, again, we obviously dont speak for the government but we listen to the government in terms of their stated policies and still the stated aim of the government to have a deal. First point. But in terms of preparations, it is important to reinforce to people on the street, hopefully people also have homes to go to, but people on the street that the Financial System is ready for it. We have been preparing for this for years. Both in terms what have we can do but also the institutions themselves. But a nodeal situation, broad brush, is one in which sterile something likely to be lower. In which inflation is likely to be higher for a period of time. And the economys likely to slow. The degrees to which all of those happen vary on many things, including by the way what nodeal actually means because one of the uncertainties in all of this is different people mean Different Things when they talk about nodeal. When we do our Contingency Planning at the bank of england, nodeal means no deal. Nodeal means theres no side arrangements, nodeal means the trading relationship instantly es to w. T. O. Tariffs and product sttstds. And that it has the associated standards. And that it has the associated economic effects. Household businesses, u. K. Households are acting prudently, theyre not borrowing a lot, theyre spending out of their real income. They do have a very strong labor market going into this. Unemployment at a 44year low. Real wages are growing the fastest since before the crisis, since 2008. And inflations bang on target. So real incomes are growing. But households are not becoming overextended and thats probably he right approach to take. Reporter bbc. Just to clarify some of your answers to previous questions. If there are people in downing street who think that if theres a Nodeal Brexit this institution will deploy a massive monetary stimulus, are they wrong . It depends. It absolutely depends on the impact. First, what does nodeal actually mean . Is it, as i just described to ed , absolute overnight jump to w. T. O. With no mitigating actors . Thats the first question. Secondly, it depends on the impact, the degree of preparedness of border infrastructure, other infrastructure in the country. So how in this country and in europe, obviously, because its all interconnected. We could have a good day of imports into this country and putting stuff on ships, ferries to go across the channel, but if they dont come back, then or they get held up there, then it will have [inaudible] it depends on the preparations and the nature. It also depends on how quickly the supply capacity of the economy adjusts. Because there is trade disruption in no deal. Problems at ports. And then there is supply destruction and that is activities that used to be economic as part of the single market, that no longer are economic. And then those resources need to be redeployed. And we will have to take a judgment in that event about whether on balance the inflationary pressures, and there will be inflationary pressures in nodeal, because of the Exchange Rate, because of some of the tariffs that come in, because of some loss of supply, whether those inflationary pressures, whether we can look through those, extend the horizon, and provide support for the economy as it adjusts. Now, what we have said, and ive reiterated in my opening remarks, is we will do what we can in those circumstances to support jobs and activity. But there are limits. To what we can do. Ultimately this is about our best contribution is returning inflation sustainably to that 2 target and it is an unusual circumstance to have a major supply shock and that was not the case after the referendum. It was only a perspective supply shock. Not an actual one. In nodeal, it will be an actual one. Reporter the times. Gary cohen was on the radio saying he believes that nodeal would be preferable economically to prolonged uncertainty. Because economies are more resilient than we tend to think they are. Gary cohen. Never heard of him. [laughter] reporter is he right . Is he right . You can pass that on to deparry that ive never heard pass that on to gary that ive never heard of him. Reporter is he right that no deal is prefer to be endless prolonged sun earn uncertain think . No, hes wrong. The nodeal as a crystallization of a bad economic outcome is not preferable to the possibility of a better economic outcome. Since following the referendum, whatever outcome the country chooses, it is always preferable to have a transition to it. And i think that, again, that is consistent with the preference of this government and consistent with the aims of businesses up and down the country. Again, this country is, if not the most flexible, one of the most flexible economies in the world, and its supported by one of the strongest Financial Sectors in the world. But it is very difficult to change things david we have been listening to mark carney. You can follow his News Conference on live go on your bloomberg. More reaction to the fed decision from yesterday coming up here. Well talk about the fed, the b. O. E. And so much more. Live from new york. This is bloomberg. David powell let us down. So says President Trump after the fed cuts, but chair powell gives mixed signals about whats around the corner. Bank of england braces for brexit. Governor carney says range of possibilities is greater than ever and warns of consequences of increasingly more likely Nodeal Brexit. And earnings from 2 3 of the s p Show Companies clearing a lowered bar thanks in part to buybacks. G. M. s earnings right about now and weve talked with g. M. s c. F. O. Later in the hour. Welcome to bloomberg daybreak now. Im david here with lisa. Alex steele is on assignment in houston. We do have g. M. Out right now. Their earnings per share was 1. 64. They had a narrow beat on revenues. 36 36. 1 billion. Basically what the story is there, they did very well in north america. Particularly with their new rollout of their pickup trucks. Also well on s. U. V. s. Had some pricing discipline and cost discipline. On the other hand, china is soft which is not a big surprise but they are not surprising the upside in china. Theyre going to have a tough year as everyone seems to be having in china with automotive. They are maintaining their fullyear guidance. You can see their stock is up in the premarket about 2 . Lisa its interesting to see the contrast between General Motors and ford given the fact that ford disappointed and their shares plunged 7. 5 . So interesting to see perhaps General Motors gaining some share. Right now lets get you caught up on the Market Action ahead of the u. S. Open. Nasdaq up, futures up slightly. Not a ton of action there. The pound, the weakest versus the dollar since january, 2017. Twoyear yields creeping higher and the dollar, the stronger of the strongest level of 2019 despite the fact that President Trump keeps jawboning it lower, trying to anyway. But failing to. As people see the less dovish fed as a sign to tensionly buy the greenback to potentially buy the greenback. David we expected the fed could cut rates yesterday and it did. What we wanted to know was whether this was a oneoff or the beginning of a series of cuts. In his News Conference, chair powell sort of said all of the above. Its not the beginning of a long series of rate cuts. Were thinking of it as essentially in the nature of a midcycle adjustment to policy. I didnt say its just one or anything like that. What i said is when you think about rate cutting cycles, they go on for a long time. Many Central Banks around the world are increasing policy accommodation or contemplating doing so. The outlook for the u. S. Economy remains favorable. And this action is designed to support that outlook. Youre assuming we would never raise rates again once weve cut these rate, they can never go back up again. Just as a matter of principle, i dont think thats right. David we welcome now peter fisher. Dartmouth tuck school, clinical professor and former blackrock head of fixed Income Portfolio management and held senior positions at the United States treasury. Thank you for joining us. Youve heard the reaction to what jay powell said yesterday. Theres been criticism of him saying he was indecisive, all over map. Other people said he had a hard job and did the best he could. Which was right . Well, i think he did a pretty good job with a bad brief and the bad brief is because they havent walked away from Forward Guidance. Go back to this last december. I dont think it was a mistake to raise rates a little bit last december. The mistake was trying to tell us all that they knew what would happen to rates this year. That rates would keep going up. Theyve been unwinding that. They cant see the future that clearly anymore. And Forward Guidance, which is now baked into market expectations, is the feds promise to us theyll tell us whats going to happen for the next six or 12 months. He cant do that. Theyre too uncertain. I think he was trying to back away from that, but they should have backed away from it a long time ago. Lisa im struck by the Market Reaction to what fed chair powell said. Or maybe the lack of reaction. We did see a dip in u. S. Equities, we did see bond yields rise a bit, but it wasnt a huge move given the fact that we did see traders reprise their expectations for federate cuts, from about 2. 5 for the remainder of this year to less than 1. 5. What do you take away from this . Is it that perhaps an additional rate hike here or there wont effect market valuations all that much . One reason for the muted reaction is the fed leaked this 10, 15 days ago. So they bled out into the market. It wouldnt be 50, it would be 25. The market cant see that in the data. The market just looks for the forward leaks that the feds made where they foreshadow what theyve done. So the only news yesterday was the Forward Guidance, was, well, what does this mean . So you see markets reacting to that. He was trying to take back the expectation that the fed knows whats going to happen for the next six months. The fed doesnt know. In fact, the feds hoping the economy picks up speed. The little part of Powells Press Conference where he said, rates might go up again, that must be the feds hope and we should all be hoping for that. We should all be hoping that a little adjustment to rates gets the economy growing more strongly. Shouldnt we . David youve observed this process and have been part of this process for years now. Theres a perception that perhaps the fed and even jay powell is more sensitive to the markets and what theyre doing than in the past. Theres a piece on bloomberg right now warning about this. He says in parts, market and political expectations have run well ahead of what Central Banks are able and willing to deliver, yet simply acquiescing to more pressure, both of which are increasingly likely, doesnt offer an attractive way out. Have we encouraged and has powell in specific encouraged markets to think they have something to say about all of this . I think hes continued a trend that ber nanky and yellen began ber nanky and Yellen Bernanke and yellen began, us thinking its the sun and mooned and stars of what equity markets are doing. Clearly it matters to the fed but the question is, does it matter the most . Thats the awkward part. I think whats missing is the fed telling us which piece of data or which two or three pieces of data we should focus on. That was the most awkward part of his press conference yesterday. Where he was trying to explain why this move is the right thing for what ails the u. S. Economy. Im sympathetic to the weakness in Global Growth. Global trade floes, this should worry us all. Its more than china. Its global synchronized slowdown in global trade. That should worry us all. Its just not clear that lowering rates even a little bit or a little more than they have is going to address that. Lisa lets bring in another voice here, joining us now from houston is mark, highland capital cofounder. Peter, stick with us as well. Mark, lets get your impression of fed chair powells News Conference yesterday. Did anything in his words indicate to you that you should change your investment philosophy or buy something or sell anything . I think the pivot to cutting rates and stopping the Balance Sheet runoff really means a lot in the credit markets. When you think about the setup globally, where our central bank has been tightening and everybody else has been easing. So i think this pivot really does kind of change your outset, your mindset when you think about a market that we dont dealing with a market we dont like. Spreads are tight, theyve gotten very tight. The duration sort of aspect across credit will continue to be a very strong one. Carney said it this morning. I think everybodys looking at the fact that we got 14 trillion of negative yielding on debt across the globe and its growing. Bank of japan leaked today that theyre ok with their 10year falling more. Lisa youre buying risk. Youre buying the riskiest credit . I think what im doing is looking for more of this Interest Rate dynamic to be supportive of the markets in the near term. In the long term, all this does is it continues to put pressure on this bubble that it continues to inflate across the globe in the credit markets. At some point when we need to start raising rates, etc. , etc. , which is not now, obviously, this just makes it much more difficult. So right now im actually strangely fairly positive across the credit markets. Equities im a little bit more a little confused about where were going from here. I think if we continue this negative rate dynamic and continue to cut rates in the u. S. , its very hard on our banks. We did a study where we looked at european financials versus european markets and theres about a 50 difference between those stocks, since they started it. The same sort of negative dynamic happens with the japanese index. So its nod good for your not good for your banks to have a flat or negative curve or low rates in general. Its going to be hard for the equity market to really kind of break out of this ceiling its had at 3,000 without the financials participating. David peter, to come back to you for a moment. One of the reasons we look at what the fed has to say and chairman is to tell us what markets should do. Another reason is to get a read on the economy. Did we learn much about the United States economy from what we heard and saw yesterday . Because on the one hand we have a lot of positive things on the consumer and growth and on the other hand maybe theres concern about Global Growth. Did we learn about the u. S. Economy from what we sneard no, i dont think we learned very much. He told us its in good shape and weve seen a lot of data that tells us that. And most of the anxieties are about global trade. And inflation not quite as high as theyd like. Although i think thats an inside baseball measurement problem. Thats small poe pay toes. I think the most potatoes. I think the most interesting thing that confused me the most in powells remarks was his assertion that he hoped the rate cut would lead to more business fixed investment and help manufacturing. But he also told us that the business sector is highly levered and is a flashing red light in their Financial Stability report. So which is it . He then said a few words about how well its not a threat to the Banking System because these levered loans arent in the Banking System, theyre in the shadow banks. I didnt take much of comfort from that. And i think he glossed over the fact that the business sector being highly levered, his words, not mine, might be a source of weakness for aggregate demand in the economy and the overall strength of the economy going forward. Particularly if they have to shift gears and go back and raise rates again. So i think its on a very shortterm good for credit markets but with a bigger question mark. I think thats healthy. I think we should have higher implied volatility and rates trading sideways for a while. And that might be a good lesson for the markets. Lisa peter fisher of dartmouth. Mark, both of you are sticking with us. We want to do bring you some numbers out of kellogg. Reporting Second Quarter numbers. The beat estimate certainly on the earnings per share side, oming in at. 99 cents versus the estimate of. 92 cents. Also net sales coming in better than expected. 3. 46 billion versus the estimate of 3. 41 billion. You can see the shares rising off earlier highs. Kellogg shares are lagging behind the broader s p, up about 4 for the year. So its a question of whether or not they are going to improve their earnings or whether its not as bad as people think. We will keep you post. Coming up, the bank of england keeps rates on hold. Governor carney warning a Nodeal Brexit would mean Economic Growth would slow. More on that next. From new york, this is bloomberg. Lisa the bank of england keeping rates on hold saying its less confident than usual about the outlook of the economy because of brexit. Mark carney at his News Conference. Take a listen. Since may, global trade tensions have intensified. Global activity has remained soft and the perceived likelihood of a Nodeal Brexit has increased significantly. Lisa still with us, mark and peter. Peter, after the bank of england decided to stay on hold, what do you think the next move will be for the central bank . Will it be a rate cut or hike . I dont think he knows. I dont think we know. I think that will depend. My simplified view is simply on what happens to the Exchange Rate. Weve seen sterling weaken a lot. If it continues to weaken, maybe a lot more than the bank wants, then that reduces the likelihood of easing because theyre getting it through the exchange channel. Increases a little bit. The odds of tightening. But i dont think those are very high. I think tightening is a ways off. If only if the currency really completely fell out of bed and they had an Exchange Rate crisis. I remind us that when sterling fell out of the Exchange Rate mechanism in the early 1990s, we all thought it would be a calamity for the u. K. Economy. But it wasnt. Im not saying brexit wont be a calamity for the u. K. Economy. It might be, we dont know. My point was, theres a lot of uncertainty. If we look back at the last similar episode, the closest i can think of, the u. K. Economy really did pretty well. Mostly because of the weakness that came through the pound and how that stimulated their manufacturing sector. It would have to be a pretty big weakness in steriling to offset the negative impacts of brexit. David mark, we heard mr. Carney say baseky we dont know whats going to happen so we cant plan it out too much. How are investors in fixed income position, how do they take that into account when it comes to the possibility of a Nodeal Brexit as it its as its called . I think this is a very difficult dynamic to handicap as far as what youre doing with your fixed Income Portfolio. The big picture of what were seeing in the numbers out of the u. K. Looks inflationary to me. You have slowing growth, you have a bit of inflation, youve got a situation where your Prime Minister is kind of stuck on the zip line and waving his hands in the air around this brexit situation. So its going to be a very tricky execution going forward. I think it makes sense for them to keep their powder dry. But as far as the rate dynamic across this, i would say that i think the market is betting that theyre going to cut. I think from that standpoint, if youre looking at duration in a fixed Income Portfolio, thats why youve seen continued flows into that. People are trying to get longer the rate dynamic because the worlds going to get more negative and lowering rates. That pivot certainly seems to be the driving force across fixed income. Lisa certainly we were talking with willem of citi earlier. He seems to agree with you. If you look at the manufacturing data coming out of the eurozone, youve sued it steadily deteriorate. This raises a question for me. At what point is this sort of the beginning of a protracted recession that frankly the e. C. B. Cannot counter . In other words, where are we headed . Whats the base, whats the trough to this down turn that were seeing in europe . I dont know, thats clearly what has draghi worried as hes getting ready to exit himself. I think why hes trying to get ahead of this, because brexit, Nodeal Brexits not going to be good for europe either. It may be worse for the United Kingdom but its not going to do much more german exports, for example. So i think hes very worried about that and should be so. But their powder is dry. I dont think negative rates have been working in europe. I think theyre a complete distraction. Theyve been harming the Banking System, so the credit channel is more impaired today than it was five or six years ago. So Monetary Policy has lost its punch in europe and im not sure theres much draghi can do about it. Hes going to try to pull some rabbit out of a hat for his last show. I dont think hes got one. David what about it, mark . We heard from peter that negative rates dont work in europe. We have a chart that shows were up 14 trillion in negative rates. A lot of it in europe. Are they having an affect and is it positives that they are . Do we know . I go back to my comments ive always said about. This i think negative rates are simply negative. You dont got get the transition mechanism through your Banking System. European bank stocks are down 33 since they started this whole process. The european stock market is up i think 60 or something. The differential is massive when you look at this as far as the dynamic. However, i think the next thing that they do, and the e. C. B. Is much more i guess cope set wick this dynamic, is theyre going to enup their Balance Sheet and start stepping into the private markets more. I think they buy corporate debt, thats why youve seen a tightening across spreads in that theater. I think that the markets trying to front run that a little bit. To the point, right, does this actually work . When you talk to companies and theyre looking at their future, theres not access to debt. Everybody can borrow as much money as they want. Its the fact they dont know whats happening with the trade picture. David that says it all. Mark and peter will be staying with us. Coming up, mixed signals on dollar policy. Comments by President Trump and his Economic Team confuse investors. More on that next. This is bloomberg. David the federate cut yesterday ordinarily would have weak beed weakened the dollar but it did the opposite. Thats not what President Trump wants, despite the u. S. Policy favoring a strong dollar. Peter and mark. Peter, you were at the treasury, a senior position, with a strong dollar policy. Every country around the world wanted a weak currency since time immemorial for competitive reasons. Weve avoided that because we dont want currency wars. Has something changed . We have a president who is very focused on trade flows. And we all understand that. The dollar obviously influences that. One of the problems we face is that our external sector is smaller than most other chris. So the fed isnt going to win a race to the bottom on Interest Rates to try to manage the currency because its too small a share of our economy. As much as the president wants to focus on it. So i think this is a dilemma the fed faces. We also face the dilemma we dont really have a robust model of Exchange Rate determination. Especially being the dollar. Capital flows can overwhelm trade flows all the time. So im afraid theres a reason the administrations policies seemed muddled lisa mark, the dollar has been one call that investors have gotten wrong again and again and again. How much conviction do you have about your dollar call and what is it . The dollar call for me has always been about relative growth in the economy. As opposed to rates. So and were at this inflexion point to see whether our economy starts to participate to the negative across this trade dynamic. So i think its getting to be very difficult to call the dollar here. But it has been strengthening, especially after the press conference. And i think that thats a problem per se. It really does its a problem for equities and potentially a problem for the economy. Well see what happens. I dont have a strong answer for you on where it goes. Its a very difficult thing to call. David is there a different reason we should be concerned about strong dollar, whether we do something about it or not, and thats the effect it has around the world, particularly in emerging markets. You spent a lot of time in asia, you know that well. It can have negative effects on emerging market, cant it . Yes, obviously theyve if theyve borrowed in dollars and their debt levels go up when the dollar appreciates, so thats a dynamic were used to with emerging market corporates in particular. And sovereigns. Yes, it is a challenge. I think really the strong dollar policy of the last several administrations was more in word than in deed. Say were not going to mess with the dollar. Were not going to try to pinpoint what level of trade a trades at. Were going to let Interest Rate flows and capital flows and trade flows determine the outcome. But as i said, our president s got a different agenda when it comes to the external sector. Lisa mark, given the fact that a weaker dollar is typically good for emerging markets, how are you say were not going to mess positioned in e. Mt now . Well, weve been rticipating in the rebound across e. M. Since this very, very hard pullback in the fourth quarter. That being said, i think that you have a mixed bag across e. M. Theres brazil seems to be doing ok. Youve got argentina which is facing some uncertainty. So its a mixed bag when it comes to emerging markets and i think its more of a Trading Market and lisa than it is a big mac row market. Peter and mark, both of you are sticking with us. Coming up, weekly u. S. Jobs, well look at the strength of the labor market ahead of tomorrows july jobs report from new york, this is bloomberg. Nurle nurle when you rest on a leesa hybrid mattress, bedtime is no longer simply the time you go to sleep. Its time to switch off and catch up. Enjoy me time, and we time. 40 winks or 8 hours solid. 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Right now we are getting breaking news on initial jobless claims. David very dramatic. Lisa sarcasm in your comment. A5,000 jobs cut based on survey of 214,000. Not that the deal. Not a big deal. The prior week was revised upwards also. This is showing a steady rate of job loss each week. Three much in lies with expectations. David still does our marco, and peter fisher are mark okada and peter fisher. How important are the job numbers at this point . How important in terms of the data on which the fed is depending . I think the job numbers will still be important even though jay powell did put his finger on that. We will look at the intersection of jobs and Earnings Data to see what is happening to wages, and then we will have to link that back to the Earnings Report we were talking about, whether corporate margins start to narrow. It is still going to be very important, but powell has given up a mystery he is hoping inflation accelerates. Maybe we get strong numbers tomorrow. This is the problem. They have not told us what they are looking for in the data. They have just been leaking their announcements in advance. Lisa we have seen wages pick up ready steadily, although at a lopez. If you take at a lopez. At a low pace. You have seen it steadily going up throughout the year, which hammers home the strength of the consumer. You aredering how much looking to take advantage of the strong u. S. Consumer betting on particular assets that are leveraged to that strength continuing . Wagesis a good point that have a lot of tail wind. The last numbers we saw were about a 4 real growth in wages. A very powerful dynamic. Translate, not into buying consumer led stocks, but more about the profitability dynamic across u. S. Companies. Righte point, peter is you are going to get pressure on margins across. Anyway you put it, you have to domestic dynamic across companies. A much more consistent game across portfolios, International Exposure looks to be a net negative. With a lower profitability dynamic would certainly mean you have to be higher quality. You have to be looking at Stronger Companies in general. This is not a time to be racing to the bottom as far as credit quality. David i want to take advantage of your expertise in china. We got pmi numbers out that said a little bit of an uptick in manufacturing pmi in china, but still below 50. How is china doing to manage its economy and have that 6 growth despite trade and other uncertainties . Peter they are muddling through as they usually do. The outlook is foggy for them. The big problem for them is that in addition to the cyclical slowdown in global trade and manufacturing, they know structurally they have to be shifting consumption and depending less on heavy industries. Er, the it is the lat cyclical shift, that gives him the headache. They can manage with the central bank trying to ease their Balance Sheet, but the trend is difficult for the chinese. They are muddling through, which is why they want to keep playing roberto with the u. S. Playing ropeadope with the u. S. On the trade talks. Trying not to give too much. Lisa given where we are with the trade talks, im struck by what citibank said, which is we do not have a sense of whether the u. S. Economy is doing well or starting to weaken. I would love to get your view, especially in light of the fact that you said what jay powell is hoping for is weak this and so far we are not seeing it. Peter i think the u. S. Economy is doing pretty well and let me point to something that may seem counterintuitive. The personal savings rate is up 8 . The personal savings rate being this high is one reason why the recovery has been so slow for the last 10 years. We got down to a 2 savings rate. The Great Recession drove it back up. Now we have drifted 28. Now we have drifted now we have drifted to eight. There is plenty of room for that savings rate to come down, which would be a powerful driver for the economy. Whether what the fed is doing would give people a conference to bring the rate down remains to be seen. That has not been working for 10 years. That is one of the most powerful engines Monetary Policy has. The jury is still out, but i think the u. S. Economy is doing well. The question is how much do we get affected by the global slowdown in trade. Jay powell pointed us to that but cannot explain what he would be looking at in the u. S. Economy does he of the Foreign Sector was slowing us down. It happening it happening yet. David mark okada and peter fisher, thank you both for being with us. Now lets get an update on what is making headlines outside the Business World with Viviana Hurtado and first word news. Viviana donald trump offering Vladimir Putin help to fight crimean wildfires. According to the kremlin, Vladimir Putin said thanks but he had already assembled planes to battle the praise. Vladimir putin said the call was a signal that was possible to restore relations between the countries. One of the sons of Osama Bin Laden has reportedly been killed. He was seen as an air to lead the terrorist organization. View details, but we are told the u. S. Played a role in the operation that killed him. Democratic president ial candidates trying to take down joe biden in last nights president ial debate. Biden taking shots on a wide number of issues. Julian castro getting in with it on immigration. Have to have some dots on this issue. Onhave to have some guys this issue. The plan does not make sense. 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. Im Viviana Hurtado. This is bloomberg. David thanks so much. I stood up and watched a fair amount of the debate. Im not sure whether joe biden is happy because everyone is paying attention to or not so happy because everyone is being up on him. They really went after him. Lisa i think it is interesting the question of how closely he links himself to former president obama, invoking him again and again, saying he had the confidence of the president. Some of his rivals trying to cut him down and say you cannot do this when it is convenient. When asked about deportation, he said i was only the vice president. Lisa there is also the question of guts, how far left you go versus the middle. An interesting fine line being walked. David will be interesting to see someone on the stage with President Trump. Coming up, we will see how the maker of frosted flakes is dealing with north americas shrinking serial market. That is next on the bottom line and this is bloomberg. Lisa viviana this is bloomberg daybreak. Coming up later on balance of power, former import export bank chairman. Heres your Bloomberg Business flash. Verizon beating evidence beating estimates for subscriber growth. That should ease investor concern over the costly process of launching 5g wireless services. Verizon taking the early lead in 5g technology. Yum posting sales that beat estimates. Samestore sales growing 5 . Yum also posted profits betterthanexpected. Patty the meet gets a rollout in burger king. It is on the menu in about 10,000 restaurants in north america and asia. Earlier this year they reported intimate did supply problems. ,avid time for the bottom line where we take a look at three Companies Worth watching. I am watching nordstrom. You can see their stock is up. That is on the wall street journal report that family members are trying to buy up shares to increase their ownership in the company. They tried to buy the whole thing last year, but not a high enough price. Maybe trying to buy it at a premium. Lisa those shares are up but what im looking at is down. I am looking at shell. Here is what this he you oh exclusive interview with bloomberg. Is aat you are seeing weakening of the macro environment, a slowdown, a trade war, all of these have a direct effect on the growth of oil demands. Porter ands a week you are seeing the shares it was a week quarter and you are seeing the shares lower. There was a call saying secondquarter chemical earnings were hurt by industrial action, and the cash flow in the second half of the year will be higher than the first half. This was an allaround miss. The gas emission down 25 . You can tune into alix steels special onehour edition of commodities edge later today. She will be at bps Trading Floor in houston talking with the president of the be america. That is today starting at 1 00 new york time, 6 00 in london. David for our Third Company we will take a look at kelloggs. Joining us is rock sutherland. Joining us is brooke sutherland. Brooke frosted legs are still out of labor with the commute out of favor with the community. Kelloggs realizing demand is not what it was, it has been investing in its snack brand. Zits,pringles chee pringles, pop tarts. I went back and checked. That is the highest since the middle of 2016. They had a decent stretch of sales being down, drag down by serial demand. Me . you know what strikes the myth of the consumer becoming healthy in america is a myth. We saw pepsi reporting betterthanexpected earnings and now betterthanexpected earnings on snacks that are not altogether healthy. Is that what we are learning . Brooke i think it was an epiphany for the Food Companies were they went too far on the healthy end. ,onsumers want healthier food but then there are these splurge moments we have and these old favorites we go back to. We want them to stay the same. We do not want the natural preservative free cheezits. We want the cheez its we grew up eating. David if youre kelloggs, what you do next . Other more acquisitions available . Quarter. T is just one they did just divest their cookies. Brands like keebler. Theyve been trying to buy upstart bands that appeal to people with healthier taste. Hey bought rx bar i think youll see acquisitions like that. The tricky thing is those brands are expensive because every food Company Wants to get the hot new thing. You have to be careful with how you play that game. Lisa do you have cereal in the morning . Brooke i do still eat cereal. I had cheerios this morning. David very personal. Lisa do you still eat cereal . David about 4 30 in the morning. Lisa i grew up on lucky charms. Im not saying im healthy. Brooke every now and then you want to have your lucky charms. Lisa indeed. David brooke sutherland, thank you so much for being here today. , we speak with the gm cfo. Lisa meanwhile, if youre heading into your car, tune into a Bloomberg Radio across the serious xm channel 119 and on the bloomberg is this a bp. On the Bloomberg Business app. This is bloomberg. Lisa this is bloomberg daybreak. I am lisa abramowicz. Alix steel is on assignment. Not getting much action ahead of the u. S. Open. S p basically flat, dow basically flat. Europe is up. You can see you have yields unchanged. The dollar at the highest level, the strongest of the year. You have the euro, and you have the pound the weakest since 2017. Lets head over to you for a special interview. David General Motors announced its secondquarter earnings about an hour ago. Reporting on adjusting earningspershare that beat estimates. We welcome devious are out of our we welcome dhivya suryadevara. A nice beat on earnings per share. What is driving it . Dhivya thanks. A solid secondquarter in line with our expectations. What you are starting to see is the earnings power of our truck franchise. We are in the early days of our rollout and starting to see positive reception to the silverado, the sierra, and as we roll out the rest of the truck line, we are very confident. We have been very disciplined in this environment and are taking cost actions. Youre starting to see the effects of that rolling through and we are navigating through the headwinds to produce what you see today. David what does that do to margins . Typically make more money off of the truck than some other passenger vehicle. What is a duty or margins and product mix . Dhivya this quarter we deliver 10. 7 margins, very strong. A lot of that was delivered by the strength of the truck franchise and what you are seeing in the mix of our high content crew cabs we delivered during the quarter and strong average transaction prices we are seeing. Across the board, positive from trucks as well as our crossovers. Of 17 from a crossover perspective and our new launches are doing well. Overall, a very good story in north america. Beyond north america to china, because gm distinguished itself by having a substantial operation in china. China is having trouble. How is gm doing in china . Dhivya we did face some headwinds this quarter. We expected the environment to be volatile, as you know. The secondk about quarter, there was the economic slowdown, the industry was down on the back of that. There were significant pricing pressure. There were the change in emission pressures that drove some of the pricing. As you think about this backdrop we are executing within that, we are being more disciplined on inventory, we cut inventory by 10 . Importantly, we are getting ready for the significant launches later this year. That will be in the heart of the growth segments, where two thirds of our launches will be suvs. Longerterm, we had strong brands and strong partners. David how long is longerterm when it comes to china . Will the second half of the year be better than the first half, in line, what do you expect . Dhivya the macro is difficult to predict but from our own plans, despite the headwinds, we are expecting earnings to be in line second half versus first half. Roughly flat. David more generally with General Motors, where are you are your earningspershare guidance . Between 6. 50 and seven dollars earningspershare. Where are you now . Dhivya we are reiterating our guidance. We are on track to achieve that. The second half will be meaningfully stronger than the first half because of the launches i talked about as the absence of downtime, a significant downtime we took it in the first half of the year and the cost of efficiencies will continue. If you think about what the team is achieving, there will be headwinds and volatility, but what we are focused on is a defined strategy and a deliberate strategy. David im interested in how the gm situation fits into the larger picture we are seeing across the country. We had the fed cut rates by 25 basis points. It is ambiguous whether they will cut further. To the low Interest Rates and the sense of accommodation, is that helping your business . Dhivya i would say our outlook for the Auto Industry overall is north of 17 million. A very healthy level to begin with. On the margin, cuts will help the consumer overall and it will help auto loan payments to the extent our vehicles are financed it will be a tailwind from that perspective. We remain constructive on the industry at 17 million or higher. David consumers in the United States have done well. What you see in the consumers . Do you see delinquency in payments on loans, you see a resistance to putting the prices up . I know General Motors has tried to avoid sales. Dhivya our financing arm continues to do well. Across the metrics, all of them remain online, which points to a Strong Customer confidence as well as an overall trend in the business. All of our metrics are on track and we are feeling good about that. David thank you so very much for being with us. , generalryadevara motors chief Financial Officer coming to us from detroit. General motors a bright spot in the auto spectrum. Lisa it has been a tale of two cities when it comes to gm and ford. It will be in just in how ford tries to come back. David of course there is a global issue with automobiles and they are investing in electric vehicles as well. A lot of money going out the door and that is certainly true for gm. Lisa definitely a time for investment and a time when there is this weakening cycle, it poses a conundrum for all of these automakers. David thank you so much for being with us today, lisa. Lori calvasina and bob michele of jpmorgan asset management. Live from new york, this is bloomberg. Im all about my bed. 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Chair powell delivering a messy News Conference, driving the yield curve flatter. Investors reconsidering the rate cuts for next year, capping the dollars biggest monthly gain, leaving the president disappointed. With 30 minutes to the opening bell, good morning. No bounce back this thursday morning. Futures unchanged. Eurodollar 1. 1030. Treasuries coming in another basis point. Your yield on the 10 year maturity, 2. 01 . We begin with the big issue. Chairman piles messy Community Chairman powells messy communication effort. Part of the job is giving a clear message. He could have had greater clarity. Jay powell did not communicate