Basis points. The front end of the curve is moving quite substantially. We will talk about that in a few moments. A couple of thoughts on the move poster earnings. Snacks are because making a comeback, offsetting weakness and cereals. Western digital up 6 . Ceo digitals guy european stocks going nowhere. We are seeing a bit of a drag. The pound is down and the bank of england will not factor in a no deal brexit. They are going to wait for the government to do that. The german tenyear, yields continue to fall. The amount of negative yielding debt just continues to pileup, and up, and up. England is bank of keeping rates on hold, saying it is less confident than usual. The Federal Reserve yesterday also making its rate cuts. We want to get to Jerome Schneider, our guest the talk about all of the central banking moves. Jerome, thank you for joining. Lets get to the Federal Reserve rate cut first. Were you surprised by the Market Reaction . Jerome the market was surprised by future rate cuts. The market has not done a great job of doing is accepting there is more optionality in fed and Monetary Policy for the near term. As a result, the market has been pricing in aggressively a series of rate cuts that powell had dissolved yesterday from that perspective, we have to be reconciling whether we think this is a prolonged cycle, along cycle of rate cuts, along cycle of easing into define that, or if this is continue to be an insurance policy . It should not come as a surprise because he optionality we have been seeing involuntary policy seeing and Monetary Policy will continue. From a market point of view, we have to be poised to see the reaction function of the three main things the fed is focused on. Trimming the tales of downside growth risk, focusing on economic strength, and inflation metrics. Those three variables will give them the way to maneuver Monetary Policy easier. The key is if they see fit going forward. My now, they created the variable of optionality right now, they created the barrel of optionality in the market did not react favorably yesterday. Vonnie sounds like you are saying the fed chair said nothing more and nothing else nothing less. Where are we in the cycle . Twome it is the tale of elements of the market. Consumption, and the second element is more pressured by the trait tension has to do with manufacturing. Ef you are a ceo or cfo, if you are a cfo or ceo, will you make those expenditures giving given trait tensions . See a downward trend coming forward which may help propel the fed to cut another time over the course of 2019. Between theliation strong consumer, the manufacturing sector, has to play out. It will play out with a slow process that will put us midcycle. That is what we saw yesterday. There is a big difference between that and a prolonged easing cycle, which the market was priced into well into 2020. That is ultimately going to have to be reconciled over the next year or so. Guy good morning. It is guy in london. Cannot go back to vonnies first question . Can i go back to vonnies first question . What does this tell me about where the market is going . Jerome you had a situation where the fed will continue to ease when they see that weakness persist. That is probably a good thing for a credit good thing from a credit perspective. We have seen the metric play out over 2019. Different from the Fourth Quarter of 2018. At the same time, what we are seeing is the easing of the probability of future fed teens future fed eases is not seen over the past 24 hours is a recalibration over those expectations. But we have to think about is what comes out of this vet discussion . What we see is the optionality discussion. The fed was clearly wanting to limit Downside Risk in terms of that growth dynamic. As investors, we have to be poised to except the fact that the fed will react to the Downside Risk, and it may not be as prolonged as one might suggest. Is there a reason for them to articulate that now . No. There really isnt. We have to be adept and poised to manage liquidity more proactively and from an investment point of view, be poised to adapt to the changing economic positions like the fed is. It should not come as a surprise that we did not get a hard steadfast concrete reaction function from the fed yesterday that everybody was expecting. Guy looks like the fed will rotate out of agencies into treasuries. If that is the case, how mispriced are agencies . Jerome you have to look at the incremental demand. That it offers a great amount of diversification in terms of portfolio construction. When you think about being late in the economic cycle, we have been trimming our Corporate Credit exposure in for folios since early 2018. In our portfolios since early 2018. This might provide a good balance to portfolio construction. If there is further weakness, that is something will add to it. Vonnie may saw the three month rise we saw the three month rise after yesterdays news conference. Below 15 basis points. Is that the end of that move . Jerome you have to think about how many rate cuts are in the cycle. The trouble with the prognosis is what we have seen as a total of five rate cuts, four now in 2090 2019. From that perspective, front end rates offer a lot of good income. We are continuing to be more defensive in our portfolios. Floating rate notes offer good current income based on front end rates are above 2. 5 . They offer a good amount of income compared to the flatness of the yield curve. The only reason you would take and own a longer duration instrument at this point is you few put in a high probability of recession over the cyclical horizon. In that case, you can make a justification why you should own a long bond. But if you are simply wanting to great optionality in your portfolio, being in that front or segment of the curve front end fixed income curve offers a lot of offers at this point eric vonnie Jerome Schneider is pimcos head of portfolio management. Lets check in with kailey leinz. Kailey first time filings were u. S. Unemployment benefits rose last week. It increase to 215,000. That backed what fed chair Jerome Powell set about the economy staying strong. Chinas foreign minister is stressing them forms of cooperation with the u. S. After meeting secretary of state mike pompeo. The two spoke at a regional form in bangkok. They say beijing supports talks ond new talks denuclearization. Last week, china qs the u. S. Of undermining global security. Candidates try to take down joe biden and last nights debate. It withstro got into biden on immigration. We need politicians that have some guts on this issue. [applause] mr. Vice president , please respond . Mr. Former Vice President , please respond . Was questioned about if he was ready to face President Trump next year. According to the kremlin, Vladimir Putin added russia has put a fleet of planes together to battle. Vladimir putin said they can restore relations between the two countries. Global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im kailey leinz. This is bloomberg. Guy thank you. A windfall prices to expand its return program to investors. We will hear from the companys the ceo later in this hour. This is bloomberg. Live from new york, im vonnie quinn. Guy and from london, im guy. This is bloomberg markets. Here are the details of the market. Emma after three days in the red, we are in the green for u. S. Equities. Jones. R the dow wehave not regained losses saw yesterday when the market gave its verdict on j. Powells hawkish cut. We are trading below 3000 for the s p 500. Closed below 3000 yesterday for the first time in six days. A mixed picture in europe, looking at the ftse 500. Looking at nonaction with the bank of england standing pat. I wanted to do take a look at the Bigger Picture when it comes to the s p 500. We should be able to show you how we may still have further to fall despite the rally we are seeing s p 500. The s p is the white line and the pink line is the 20 day moving average. We have fallen below that. Another asset class below a key level as the pound versus the dollar, falling before one spot. Setting a new 2. 5 year low. Markets continue to price and the possibility to price in the possibility of a no deal. We are in the middle of earnings season with the number of companies reporting. Five serve general reporting. Not so for shell falling around 5 . In the u. S. , General Motors up 2 . Vonnie emma, thank you. We are back with Jerome Schneider. Yesterday, the fed chair talked about mobile developments and inflation pressures, but he put emphasis on Global Developments and trade risks. Was that what he was talking about . Possible for the global slowdown, or talking about Something Else . Jerome he is focusing on china, but there other trade aspects to be attuned to. We have to deal with the euro zone and other tariffs and other trade negotiations, so there is a trifecta of trade tensions they need to be resolved over the next few months. That is one aspect. The second aspect is the deterioration of growth in the euro zone. We see a more dovish posture coming from mario draghi and the ecb. They want to set the table to enabling lagarde to be more dovish. Clearly, the weakness in Growth Numbers were seeing from germany and the rest of the euro zone is weighing on Monetary Policy. What powell is pointing to they want to make sure that weakness in growth were seeing abroad doesnt materialize, and supporting the inflation metrics, avoiding deflation at the same time. The cut we saw yesterday was more insurance oriented to both of those aspects. Not exactly clarifying his equation on which one carried more weight. Vonnie when you see mark carney saying there are limits to what , thennk of england can do you have the fed chair talking about this is an insurance cut, partially because of obstructions that may come down the pipe, what do you tell your clients . The boe is maintaining their insurance policies and their ammunition so if they get a hard brexit, they can react. Todays announcements were perceived a little hawkish because they did not do anything in anticipation of a hard exit. This is a long game. We will not see immediate reconciliation of trade policies. We have the election to deal with in the u. S. Brexit is inane other few months away, if at all. We have a longer time structural issues in the euro zone to deal with. Monetary policy captains are going to be measured, but deliberate in terms of savings or ammunition. Acting at full force in an immediate sense is not what they will be focusing on. What do we tell clients . We main takeaways yesterday, will tell clients to maintain high degrees of liquidity. The Risk Portfolios deRisk Portfolios. To be active in terms of how you are thinking about managing your portfolio risk. In our portfolios portfolios, we have been reducing risk and maintaining high amounts of liquidity, focusing on the front end of the curve, that can produce a high amount of current income. 3 ewhere between 2. 5 and and a road of decreasing interest rates. And gives you the optionality to pivot whether we get a risk on or a left tail event. Given this uncertainty were seeing with Monetary Policy, simply reacting to the uncertainty with growth estimates means we have to be creating more optionality and our portfolio constructions as well. Fixed income is a great place to do that and we see the front end of that curve providing a good balance between risk and reward. Guy jerome, a quick question. At the senior level, germany and the u. S. Are 268 basis points apart. Will this become a problem for the fed . Jerome ultimately, it can become a problem for the fed. We have to keep in mind, and we saw it last year and early this year is the trajectory and the value of that spread. If we see a pronounced cut in dovish rate cuts from the ecb, accompanied with Balance Sheet expansion in that regard, you can see further Dollar Strength, which ultimately will be weighing on the political side in the u. S. Vonnie what is pimcos view . Jerome we have done extensive work in terms of thinking about how proactive the government, meaning the treasury, and policies can be taken. We think the low probability of it between 5 and slightly higher than that, but given all the rhetoric we out of d. C. , and an introduction of a bill in the last 24 hours, it is not likely. It becomes much more pronounced as a possibility. Not a probability, but a possibility. We have to consider the strength of the dollar and how that can affect policy. Vonnie thank you to Jerome Schneider. This is bloomberg. London, im guy johnson. Vonnie im vonnie quinn in london in new york. This is bloomberg markets. Not provideson did meaningful to the markets. Here is our equities strategist. Going into theng earnings season, momentum has been the workforce. Expectations for a stronger earnings season relative to expectations as well as a combination from the fomc. What we are saying is on the backend are challenges to the ford outlook. If you look at price reaction during earnings season, companies that beat expectations posted relatively positive results will a tip to the market. Relative to the market. This runs counter to performance because momentum tends to work an improvingre is fundamental environment. Guy to the fomc change anything yesterday . Absolutely. In terms of the forward outlook, the fomc introduced uncertainty into the markets, i think. Goldsaid, comment that the outlook is an a place where they cannot accommodate. What you are saying over the last week is performance has shifted. I would call it a defensive factor. The defense of factors are positioned to outperform and carry markets as we enter this period of greater uncertainty. Vonnie did you notice a shift during earnings season, and where did it occur . A lot of companies in, lower thane expected for a few companies. Momentum performs best when there is an improving fundamental outlook. When that fundamental outlook is challenged and they underperform , it really is a major headwind to momentum. Chuie our thanks to peter ng. Guy . Discussionahead, a with rio tintos Jeansebastien Jacques. We will talk about trade. That conversation is coming up next. The dollar was up earlier there the dollar is now tripping on the manufacturing myths coming out miss coming out of the u. S. That conversation coming up. This is bloomberg. Im all about my bed. This mattress is dangerously comfortable. When i get in, i literally say ah. Experience deeper rest with the awardwinning leesa mattress. This bed hugs my body. Im now a morning person. The leesa mattress is designed for every body. Providing strong support, pressure relief and optimized airflow to keep you cool. Hello bed of my dreams. Order online, well build it, box it and ship it to your door so you can try the leesa mattress at home. Love it, or get a full refund. And rest assured, returns are free and easy. I love my leesa. Today is gonna be great. Find out why so many people love the leesa mattress, then try it in your own home. Order now to get big savings but only for a limited time. Just go to leesa. Com today. You need this bed. Live from new york, im vonnie quinn. Guy and from london, im guy johnson. This is bloomberg markets. Lets get an update with kailey leinz. President as slamming u. S. Sanctions by the trump administration. Describing the move as childish and imperative and a barrier to diplomacy. Comes at a it time of escalating tensions between the countries. Afghanistans military remains shorthanded. Any report found the Army Air Force and National Police are almost 80,000 people short of their target. Bloomberg daybreak, through region agreement with mckinseyean union bezos is amazons second largest shareholder. 20 million shares are registered to her. 4 stake is worth 37 billion, making it the worlds most expensive divorce. Global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im kailey leinz. This is bloomberg. Guy thank you. Rio tintos shares are taking a hit earlier today despite the company returning strong first half results, and announcing a 1 billion dividend. Earlier, i spoke to Jeansebastien Jacques as to whether the Company Policy numbers are sustainable, given iron ores inflated price . Jeansebastien lets step back with the results today. Capital along with free cash flow. Combining this, we have strengthened the Balance Sheets and have returned 12 billion of cash. Look at the last 3. 5 years, we have been able to return more than 32 billion. Guy yes. I give ago jeansebastien no, no, no. If you look at the last three we had of cash flow which 32 billion were from purchases. Ok . Million. Turned 28 if you look at the last three years, we used it to reviews reduce our net debt. Is s why your question looking foward. [indiscernible] and return cash to the shareholders. Is aa machine, which lot of cash day in and day out. Testimony of it. Chinay market for us as and the outlook is good. As expected, the chinese economies are falling down. No doubt in my mind they will put this in place. The demand for steel and iron ore, we have continued to be very strong. The first time this year, it was up in china during up in china. Guy use your you are saying it is sustainable . Jeansebastien were wellpositioned. Guy you talked about china. Jeansebastien there were not surprised about the economy in the u. S. Is slowing down. We are the largest supplier of aluminum to the u. S. Aluminum. One third of we are below supplier of copper in the u. S. The fuel responsible. We could see the softness in the market, and we could see the softness in the Construction Market for some period of time. We could see the economy slowing down. We were not surprised by the feds response. In terms of quantum, i dont know if it will be sufficient or not. Guy it looks like the trade story is going to drag on, possibly until after the 2020 election. How does that change your view of the markets that you are exposed to . You already talked about china and the united states. How does that change the trajectory of that drugs on . Jeansebastien we look at the mattress, the blame of normal credit when you look at the metrics, the value of normal credit. Let me step back. [indiscernible] we are looking at trade in a very careful manner. Trade is high this year. I am not concerned today about my about trade today . No i am not. All of our models are showing it would take a long situation to have a meaningful backlog. Am i overly concerned . Not today. Guy that was the ceo of rio tinto, Jeansebastien Jacques. Vonnie that is a wrap. Candidateatic continue on night two, especially towards former Vice President joe biden. You cannot have it both ways. Cannot do it when it is convenient and then dodge. I have been very straightforward. Trumpnnot beat president with donald trump on this planet. Inaccurate for what you are describing. We need a politician with the guts on this issue. [applause] the have guts enough to say plan does not make sense. If you want to be the president , you should answer the tough questions. If you are debating donald trump, he will not let you off the hook. Vonnie Kevin Cirilli is in detroit. It does seem like the objective was to use joe biden to gain the top tier of candidates. Consensus is the former Vice President delivered a better performance than he did in miami. In terms of who benefited, that will come out in the next several days of polling. Castro was able to draw contrasts between himself and the other candidates on the issue of immigration. I think you saw senator cory booker, the democrat from new and senator, harris struggled to really defend herself on her medicare plan. She says the plate is medicare for all. Talking with staffers, im sorry, talking to elizabeth warrens campaign, they disagree with that in feels her plight is more centric than their plan. And former Vice President joe biden told, harris to check her maps. Devices thatlot of have emerged. The 20 plus candidates running for president. The next debate, december 12 in houston, texas. It will be more difficult for some of these candidates to qualify and that is what i have my eye on. Those poles start to matter because pull factors into whether you are qualified for that threshold. Any matters in terms of funding as well. Questionn, the big last night was, whether or not, by did is robust enough to face trump . Did he answer that question . Kevin yes. Supporters, i think he was able to successfully be able to say that he is more polished and more reserved and ready invested off some of the cobwebs that plagued him in miami. Feel are other folks who there is an opening in the centrist lane. Take a listen to what i discussed with senator michael bennet. I think the Democratic Party will not be in favor of medicaid for all. How was that . Kevin there you have it. He is essentially saying medicare for all will be a clear dividing issue in this process. Seem likevin, it does there will have to be clarification on the policies. There was a lot of talk about the confusing policies when it came to health care. If the democrats dont get this right, do they have any chance in the election . Kevin in the last 20 minutes, president tweeting out iran and other hostile actors to the u. S. Cast ofoling over the Democratic Candidates running for president. The president clearly watching last night, and i can tell you i spoke with one Senior Advisor to the Republican NationalCommittee Last evening, who also said they feel competent that if the election is about the economy, they go competent they will be able to make that case. They feel on immigration particularly, benefits to illegal immigrants, they will make the case to moderate swing voters in detroit, michigan on nafta, and if they ratify 2. 0, this will move on. From here, it only gets more intense. Vonnie kevin in detroit. Thank you. Signals certain stocks of the hour. This is bloomberg. From london, im guy johnson. Vonnie and from new york, im vonnie quinn. This is bloomberg markets. Tobacco ish american our stock of the hour. At the highs of the session, shares rise in the most in more of a decade after they beat analysts estimates. Emma chandra is here with more. But it is not about cigarettes. Emma you are right. It is the best performer on the ftse 100 on a points basis. Focus for investors, and when we are talking about alternatives, we are looking at tobacco, vaping, and those are big growth areas for British American tobacco and the other traditional Tobacco Companies going forward. That is when we saw big Revenue Growth in that segment as a whole, rising by 27 . The outside Revenue Growth coming from heated tobacco as well. Vonnie the company is facing heavy competition and alternatives. Facing serious competition, especially when you look at heated tobacco. If you look at the Global Market share, Phillip Morris is leading the way. They are the orange bar in that chart. British american is the white bar. It is really struggling to catch up with them. Phillip morris, a winning approval for its iq os tobacco device from the food and Drug Administration in the u. S. Juulit comes to vaping, has been extremely popular, especially with younger people in terms of as a vaping product. Area is really difficult for them because we see the other two Companies Make the big moves when you look at the alternative side of things for British American tobacco. The other big headwind for them is regulation. That can really impact them. The fda in the u. S. Is really getting involved. The main focus is the concern about younger people taking up vaping. What they are mostly focused on our the products that we are seeing from juul. Less so from the Traditional Companies from British American tobacco and Phillip Morris. Guy thank you. It is time for the Bloomberg Business flash. Lets kick things off with barclays, outperforming their rivals in the Second Quarter. Banking fees fell less than expected. The ceo has taken on added responsibility of leading the securitys business. Securitys Business Securities business. Car sales outpaced rivals in the first half of the year, but bmws earnings were helped out by legal provisions, aggressive pricing, and spending on new technology. The company is expected to roll out electric vehicles and that is what is hitting those costs. That is your Bloomberg Business flash. Vonnie . Vonnie the Second Quarter for shelled missed analysts estimates, and a weakening macroenvironment. We hear from the ceo. This is bloomberg. Guy from london, im guy johnson. Vonnie and in new york, im vonnie quinn. This is bloomberg markets. In theot caught earnings trap falling well short of expectations. The ceo discussed the reserves early on bloomberg the result earlier on bloomberg. We had a lower quarter compared to the same time last year. 26 lawyer lower. Have seen very macroeconomic headwinds in weakening refining margins, especially a much weaker trading environment for petrochemicals. In we have seen headwinds north american gas, and lower prices. That has had a significant bearing on the results. And then, if you look at integrated gas results, which gas priceswer, the in the quarter are priced four months earlier. Some of the weakness of last year in brent you are seeing come through in the integrated gas business, but that doesnt explain everything. We had accounting voices quarter that is quieted a bit about half a billion of issues to deal with provisions with writeoffs. Predominately, that means earnings have come down. On the cash side, this is what matters most for a company like us. Hadas a good quarter and we 11 billion of cash from operations. Tim. 5 is a good quarter, and we expect in the quarter, also we started up two strong generating aspects in new mexico with a project, as well as the offshore plant in california. They are predicting a big Oil Oversupply last year next year, and we are seeing signs of a slowing global economy. Will those two things converge in a much Lower Oil Price next year . I dont do predictions on oil prices. That is too difficult to get right. There is a numbers of factors at play here. I do not think at this point in time it is a long time fundamental longterm fundamental in terms of the oil price. It is much more sentiment and shorterterm aspects of fundamentals. What we are seeing at the moment is, yes, a weakening of the macroenvironment, a slowdown, all of these defects have a direct effect on the growth of oil demand and on the sentiment around it. Of course, we also see at the same time, still, tremendous has anof potency that effect on sentiment. And we have opec discipline on the others. I believe the negative sentiments are winning out at this point in time. s ceohat was shell talking to matt. Time for futures and focus. Lets go to chicago. The shell ceo, he is worried about the macro picture. It is a 25 basis cut point through. The market has responded. The fed decides when to raise rates in the market decides when they should be cut. The market is done that an oil is a good example. It is not enough. They lost control have a lost control of the yield curve . A fullwe went from flatten or to a fair flatter enclosed the day of 14 basis points, and the market is saying policy Response Error or something along those lines because when you cut rates, that should rekindle reflation. Awaken animal spirits for growth and it did nothing like that. By 14urred flattening basis points is very telling. From now until the next meeting, it will be about what the fed futures imply for the next cut because the market is definitely expecting it. Guy larry, what about the dollar . It is going up and that cant really be what the fed or the president is looking for. Mary that is not what the president larry that is not with the president is looking for, but i think you will see Dollar Strength because it is all relative. If the fed had 50 basis points of cuts yesterday, the dollar would not react as it did today. Global growth is not picking up. The side and the latest round of european pmis. It is all relative in the dollar will still have strength, especially against the commodity currencies. Guy we just saw the iff manufacturing and that was a miss. It is coming down pretty hard. Is that giving them an idea that the fed needs to take action . Rio tintos cl said that as well. Larry i thought the fed was going to do more. I lost money and it still hurts, but i live to fight another day. Going forward, it will be more datadependent. Matters a report little bit. Im fully expecting to see a way for them to steepen trade. Guy thank you, larry, for joining us. Note, alixrogramming steel is on the road today for bloombergs commoditys edge. She will be discussing this on thursday at 1 00 p. M. , chris, up next turner. This is bloomberg. Ner. This is bloomberg. Guy 30 minutes left in the european trading day. I am guy johnson. Vonnie and i am vonnie quinn. This is the european close. Guy and idea of what is going on. Up by 4 10 of 1 now. The pound is back to flat. We are continuing to see the german yield curve become more and more negative. 46 now. Vonnie in the u. S. , markets still digesting the impact of the 25 basis point cut and the federal chairs words yesterday. It is not just that, it is the manufacturing data as well and Construction Spending as well which was negative by more than