Transcripts For BLOOMBERG Bloomberg Surveillance 20160916

With tom keene in new york. Deutsche bank is down 7 . M the idea of a cash call being had. I can maybe make a guess. What are they waiting for . They have to go out and recharge. It has been years and years and years. Maybe this 14 billion love note is another catalyst to get them there. Francine they say they dont want to pay 14 billion. May they will get a better deal. The analysts guessed 5 billion. Im not sure how how they got it so wrong. Lets get to the news. Angela merkel is promising to do everything she can to hold the European Union together. They are meeting in bratislava brexit plot their post course. British Opposition Leader Jeremy Corbyn says his labor party is looking to norway when it comes to the brexit. Norway has exit to the e. U. Single market but is not in the e. U. Itself. Maybe we can learn a great deal from norway. After all it has a successful economy. It is based on oil. It is a much smaller society strongrs but they have a social democratic tradition. They have a huge welfare state and health service. The model of their socially based economy is that different from what what we in the labor party talk about. Corbyn is working to keep his position as head over the labor party. The ceasefire appears to be holding. N. Ready to roll with they are stopping from pulling back on a major road in the city. The typhoon battered the province. More rain is expected. The typhoon is the strongest storm in the world this year. Global leaders attending the in venezuela will be greeted by Anti Government protesters. They are vowing to take to the streets again throughout the country. They are demanding a timeline to old a recall referendum. This is bloomberg. Tom thanks so much. On a friday, lets get to the data now. Equities, commodities, futures some weight to them. Negative seven. Euro has done nothing since time began. Crude oil is a back story this week. 4338 on american crude and there is brent that 98. It is not so much a big deal but if trend continues, that is big deal. Here is the trend, dollarmexico, 19. 31. Really gets my attention as a proxy for e. M. Combined with the american election. Francine tom, this is my data board. I have to look at the banks. Down 1. 4 . Deutsche bank down 6. 6 after the dodge asked for 14 billion the d. O. J. Asked for 14 billion. This is a claim they say they will not pay for. They do have to raise capital if they pay somewhere near that mount. Very quickly some of the main movers. Tom nice second chart from francine. Is that in euros . Rancine it is in euros. 21 euro cents a share. Tom not centimes . Trey the old french franc, tom. Tom i learned something today from francine. Very, very cool. Lets help you with the many faces of inflation. The white line c. P. I. The yellow sideline core. Oil is rolled over. There we are. The red line is a 2 level that everybody blathers on about and then those three circles over there are only a few of the many inflations from the top. Service sector inflation. Well over 3 , francine, what is in our mailbox . Maybe that is the rent in london. The green one is my favorite. Cleveland c. P. I. , a little above core and the red one, which is what the fed looks at is the top line deflator. It is an odd picture of which inflation the fed should look at now. Francine . Francine this is Deutsche Bank. Instead of looking at the share price, this is cocos. Remember there was a controversy cocos. February about this is when the controversy started. A leg lower from these Deutsche Bank cocos. Already in a little bit of a mess on what the d. O. J. Will do next week and what the fed will do next week an all of this uncertainty about european banks. The d. O. J. May do something. The fed wont do anything. Were at a point where whatever Central Banks do, that bit of a jam jar with the spoon scraping around the bottom and then there will just be enough jam to put some on your last crumpet but there is no meal down there. Francine what does that mean for the markets and participants . It means solving all of these problems, there is not much inflation. There is not much wage growth. Horrible numbers out of france this morning. There is not much the Central Banks can do to liven it up. It means a journey on lets all o and hunt and yield and carry wherever we can in the summer. Tom showed the mexican peso which is in limelight for two reasons at the same time. Bond yields cant go any lower because they cant get any help from Central Banks. We take a pause. Tom lets come back to mexican peso in a minute. Sterling is maybe a proxy for everybody like you waiting around for something to happen. I love your Research Note the morning on how deadly it is and youre looking for a surprise to get my pulse up. E have the hsbc call to 110 on sterling. A lot of people, that yellow circle to 120. Where is consensus on sterling now as you look at it . I think consensus is slowly coming up. People overdid their bearishness. It is not going to be moving much. The story on the u. K. And sterling is the story about the longterm Economic Impact and the uncertainty about how the u. K. Divorce itself from europe and we are no further forward on that today than we were. Tom what is the catalyst kit to umpstart weaker sterling . Garagal slow realization that hirings will be postponed and the growth of the economy is going to continue to slow and lag and the bouncing around over the Economic Data at the moment doesnt change any of that. As growth slows to a 0 to 1 range instead of 2 to 3 that we have been in, rates probably get cut further and asset purchases probably increase again at some point and then i think we get another i wouldnt look for a huge move. I would look for 5 . Francine thank you so much for now. Coming up, well have plenty more on banks. This is what the Deutsche Bank is doing at the moment. A lot of pressure from what we heard from the d. O. J. Yesterday. Slumping after a 14 billion claim in the u. S. Justice department. Withmay mean they struggle profitability. Francine this is bloomberg surveillance. Im Francine Lacqua. Tom skeen in new york. The new iphone 7 went onsale today. Many may walk away empty handed because apple hasnt made enough phones for demand. Apple has decided to break with tradition and not announce the first weekend sales figures. U. S. Safety regulators have made it official. Samsung will recall the galaxy note 7 smart phone after dozens of the phones caught fire or exploded. They are recalling them because of a battery flaw. Francine thank you so much. Deutsche bank shares falling ome 7 in frankfurt. The 14 billion claim is to settle investigation into the sale of mortgagebacked securities. Figures are triple what some analysts had estimated. The company suspects the amount will go lower. James, a significant lower amount. It cant really be that significantly lower, can it . Well, there is a history of european banks getting slapped with big fines because of the securities issues. During the precrisis period and then getting their governments to go in to bat for them to try to get the fine mitigated to some extent. The fines have been very, very substantial indeed. The trouble with the european banks is they are not Strong Enough to pay them yet. Francine does that mean we will see Deutsche Bank raising capital . Personally speaking i think it is fairly inevitable that a bank like Deutsche Bank which has always argued that it is extremely high leverage was ok because it was mitigated by the fact that its assets were very low risk. The market used to believe that and give Deutsche Bank the benefit of the douth. Now it is not. Therefore that leverage just stands out. Tom james, thrilled to have you on. I love your recent work on lloyds bank. Help me with john and the size over the cash claw he will need and the effects to shareholders. Obviously the really big problem that all banks have with cash calls and Capital Raising is that you can only do it when you dont need to do it. Once you need to do it when your share price is under intense pressure like deutsches, it becomes really critical. Banks have to buy themselves time, to do it through retained earnings. I think there will have to be a cash call of some description. Deutsche is being assaulted on all sides. This is incredibly unhelpful for deutsche. The fact is they cant realistically raise enough in the shortterm. Thats why i think the authorities in europe will push for a delay. Tom lets go to the chart on Deutsche Bank. You have a 10year level with the blue line. We migrate below 10 to to be the catalyst. Do you think there is enough breakdown for that share price to go below 10 euros . This is an intense debate and were getting quite close to the theres the share price hit. This is the level at which the share price has to decide whether it is going to break or hold in there. One thing, you could make all sides happy. If you think about how long it has been since the infringements occurred and when the fine arrived, all could be happy behind closed zpoors deutsche agrees to fay fine but is given five to 10 years to do it in. It is not necessarily an urgent problem. All sides could be made happy and good as long as you buy time. The problem with that, as always, with resolution from banking crisis, when youre buying the banks time during that period, they are not in the business of helping the the economy or making new loans. Francine this go goes back to what you were saying about the impact that the Banking Industry can have on the european economy. Banks today, they say are not bulletproof. Regulator consist strain leverage and curb riskier activities. Shareholders continue to suffer. James, this is on the back of a larryby harvard academics summers. They chose the anniversary to put out this paper. This is before we knew about Deutsche Bank. Real real problem the problem for europe yan banks, Deutsche Bank is hitting the news today. They have too many bad loans still hidden away in the cupboards in their offices. If you look at loan growth at the banks. A lot of people look at it and think all is ok. That is mainly do to things like q. E. , etc. Loan growth is running about 0. 4 nominal. The u. S. Is 8 nominal. It has been for two years now. There is a large difference between the state of u. S. Banks which are largely fixed and european banks which look sickly indeed. Well talking a little bit about b. O. J. And currencies in general. This is the state of the markets. Quite a lot of pressure on Deutsche Bank. European markets fluctuating. Look out for the italian banks. This is bloomberg. Tom oh, the yankees. They have made a dash. They are less dashing this friday morning. They are up at the fenways losing. Oh, the yankees. Francine lacqua in london. Im tom keene. Francine it is tonch yen. You have the wrong yen. Yankees. Tom well do that later. Right now Michael Mckee with us. There i was yesterday. Me, mr. Trump on an economic plan. Did you hear a plan within his speech . Not much of one, not one you could evaluate with anything serious. Lets take a look at the one thing he got right. He talked about how growth in the United States has ratcheted down. He got that right. Post world war ii, at 2,000. 1999, 2,000, there is the break you can see. The we have averaged about 2 . There is yet a problem. He doesnt offer a lot to fix that. The center species his tax cuts. He goes to three tax brackets. That couldnt change a whole lot. He cuts Corporate Taxes to 15 and give it is everybody tax curts. Hat would be a 4. 4 trillion pra program. Total revenue loss is 2. 6 trillion. How do you make that up . This is where it gets very tricky. They talk about renegotiating trade deals deals, cutting regulation and reducing spending and youll love this. The return to have rosy scenario from the reagan years. The tax cuts will pay for themselves through additional Economic Growth. You can see what happened in the reagan years when they said the tax cuts would pay for themselves. Francine away from economics, is he going to win voters with this plan . Here is the problem, francine. When you look at the plan, there is no plan. He doesnt say how he would renegotiate the tax deals. He loses every economist on that podium there. As Bloomberg Politics pointed out, the only thing americans are going to hear is donald trump says he will cut your tax. They are not going to go into the details. He may win some voters who say wow, he is going to cut my taxes. Doesnt add up. Doesnt necessarily make sense. We dont know enough to really judge it. Politically it may work. Francine berlusconi, we have drawn parallels between him and trump in past. This was his policy and he won every time on promising tax cuts. It is hard to say what americans think about cutting taxs. We saw it after jorning w. Bush cut taxes. Growth picked up a little bit but then we had a couple of recessions including the great recession. Tom francine has a good question about the marginal voter. I heard harkening back to William Jennings bryant. The difference was Jennings Bryant losing three elections. Was a kid from illinois, went to nebraska and was part of that fabric and soul away from new york. Trump is not like that. He is a new yorker. Is that a distinction to you in this process were going through . It is certainly a di tunks to people who are distinction to people who are i dont want to be too negative here. People who are educated and know donald trump. Average american who supports him seems to be grabbing on to his message which is filled with distortions. He claimed 94 Million People were sitting on the sidelines over the u. S. Economy. That is absurd. Tom im not sure he knew who he was talking to yesterday. Governor pence came out and gave a Real Campaign speech. People were like why are we listening to this . This is the elite of new york. You were there. Did anybody applaud . Tom yeah, there was tepid applause among the moverbs the Economic Club. Full disclosure. Im a member. This is great. Michael mckee. With all due respect 5 00 p. M. Tonight. Tom tim cook is a failure. Apple is a failure. I guess the stock prices i really vant looked a at this. This is the acclaimed fifth avenue store of apple computer. The glazz box with the apple. They are beginning to line up for the latest toy. Apple is a failure prm good morning, everyone. Im tom keene in new york. Francine lacqua is in london. Right now he is not a failure. Lets get to our first word news. Snowden. House said caused tremendous damage to u. S. Security. They will eventually spend billions to repair the damage he caused about spying operations. He is now a fugitive in russia. A movie sympathetic to him opens this weekend. Trump believes the president was born in the u. S. The Trump Campaign believes the socalled birth issue has hurt his efforts to win support from black voters. Hillary clinton has resumed campaigning after taking three days off to recover from pneumonia. She hit the swing state of North Carolina and the congressional hispanic conference. Japan and china may be on a collision course in the south china sea. Japans new defense minister said the country will step up its ativity in the disputed region. It comes a week after ping urged japan to exercise caution in the aters. Francine . Francine thank you so much. Next week, not one but two to have worlds major bank release the major policy decisions, the b. O. J. And then followed by the fed about nine hours later. When you look at the traders and i want to focus on the currency traders because they seem to be paralyzed. We have a great bloomberg article. They seem to think this is a guessing game. En you look at b. O. J. , is it communication from the governor wrong or do we think what they are doing is just not working . What they have done is not working. I think that seems at least not working anymore. I think it is also that there is disgrem about what to do next. The back story to some degree is bad uary they made a policy move without full support that surprised the market and failed spectacularly. Since then, they have given the impression of being people in a funk of what do we do now . They didnt work. I have three bullets left. I have just blown one. I shot one in any foot. Im not feeling confident. They are in unknown territory. I would go next week and cut rates. Francine you would but will they . Japan is almost the epicenter of this global last month. Correct. They would like to have steeper yield curves so the banks get some relief. That is a theme close to your heart. Francine ive been there before. They are not trying to push it down forever an forever but they need to do something to stop their currency from appreciating. I think if they do it in a quieter calmer market, their chance of success stronger. I think there is a chance they do it. Put me against the wall, i dont really think they will. I hope they do. Tom this follows on from Michael Mckees great chart on mr. Trump moments ago. Im going to introduce this in the 6 00 hour. It is remarkable in a fouryear move moving average of 1. 9 , real u. S. G. D. P. , how chronic, how chronic the lack of Economic Growth is. Can government policy relate in to create growth or do they just re flateto create inflation . You can. You dont do it by whacking global trade really hard, which is an observation on the side. Global trade growth is bad enough. The u. S. Captures it. There has been a lock of investment in the u. S. There has been a collapse of productivity growth in the u. S. In recent years. Same thing in the u. K. For what it is worth. Aggressive spending by overnment for longterm programs to boost productivity. The u. S. Is at 2 . It could work, sure. Tom help our global wall street audience. What i heard yesterday from mr. Trump was a consistent zero sum message which is almost a neo mercantilism. Is that what youre hearing . Im hearing Wishful Thinking that hurts trade and Global Growth and doesnt have the investment for the longterm productivity that the u. S. Needs. Tom this is a zureo sum idea going back to the Atlantic Charter in world war ii 3. Are you hearing an america or a part of america that wants a zero sum calculus . Yes, thats what im hearing but equally, i heard a lot of things in the Brexit Debate near the u. K. Im coming out of that debate, we dont know what they are going to do or how they the real world problems. I think you have a bit of the same of that. Down near the real world, this zero sum game does not work. Francine i like the fact that mark carney is being quizzed by school kids here if the u. K. This is part of the bbc school report. Asking if why they still have pennies if they cant buy nything with them. How does mark carney field these this is an existential question which mario draghi has to deal with. The situation in the u. K. Is a little bit different. It is a little bit different because we have this other elephant side ways in the room coming through, but otherwise, how do negative Interest Rates boost Economic Activity . Who did they help . A part of me says in in an economy like to u. K. , this is an economy with a shortage of savings. With, you know, which means it has a lot of borrowers by nature. Make their lives cheaper at the expense of the savers. In germany, they have a lot of savors. These are serious questions. If i didnt borrow when rates were 1 , when they are zero or minus one, really . Francine what do you do . This is problem. If negative rates dont work, then do you pull back . Altogether as a central bank . You go and walk in the general direction of your government and you say we need fiscal help at this point. If i can borrow longterm money for longterm infrastructure prucks at this kind of money before this covers money goes away, can we please reboot the architecture of my country to boost . Lets build some universities. Lets do stuff that is going to help in the long run. Tom i want to squeeze this in. It has been the quiet story of the week. The erosion of oil. There is a con sun us is of stability in oil or a consensus of snablet oil or lift in oil. What do you see at sock general . You had our guru on this on a show last week who i thought was really good on it. We have not yet balanced the market. Inventories are still building. Supply is still ahead of demand but supply is not increasing at the same pace of demand. Were in this difficult period where i can see that demand will catch up with supply in x months down the road, but right now, i can get these little air bubbles, little troughs and drafts down in the price that scare me every time they happen. Tom 4342 on west texas tying trying to find a bid this morning. Our next hour, one of our most popular guests who has been dd on on tepid Economic Growth. He didnt get the recession he called for but he got something equivalent to it. In the next hour. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua in london. Tom keene is in new york. Youre going to que after surveillance. The new iphone goes on sale. We saw them already in japan. We saw them in hong kong. We saw a lot of customers line up across the world. Joining us now is neil, he is the head of global c. M. T. Research for Northern Trust and kit jukes of is sock general. Will people be disappointed . We understand some buyers will be let down because supply is trailing demand. If you look at the details to have specifications, there are certain models, the jet black model is in high demand and sold out until november. There is still plenty of availability especially on the 7 relative to the 7plus. Francine can you pit apple against samsung now . In the western markets. That is an issue for samsung. The recall itself that sold 1 Million Units at the time, they are likely to we estimate take a charge over 1 billion on the recall. Clearly they had a two week lead against apple on the launch date and they have lost that momentum because of this issue. There is an issue with this in term turnovers regulators from the airlines are saying you shouldnt use these phones on airplanes. Francine were seeing some of the pictures there of you know, a samsung note. I think this is one of the phones actually that blew up. I dont know if it blows up. It catches fire,. It is bad enough. We dont need it to blow upper. Catching fire, doesnt sound like a safety at all. Neil, talk to me about when we go back to happenle. Analysts are split in the middle. Either this is the end of apple or another Wishful Thinking from analysts but apple will get back from this and come wake up a new product that everybody will really want to bifmente where do you stand . Today we have been standing on the side of this is the end of their innovation curve to be onest. There are a couple of dynamics in the marketplace that are supportive of apple. These product are still 600 to 900. When the product itself is evolutionary and not revolutionary, it is a tough ask for the consumers to pay for that. It is the carriers who are wearing that in terms of we estimate that a lot of the carriers are losing up to 300 per iphone that is sold at the moment. Thats why youre seeing headline grabbing stats from t mobile and sprint. Tom neil, you covered your short this week on apple. Does that imply that you go long . For us, we dont go long. We just take off on some of the splice including skyworks. There may be opportunities in the supply chain where you have very low expectations and if the build is correct, youre moving rom 80 million to 100 million. Tom is your tepid view on apple down the income statement, at the gross margin line . Is it a revenue question . You mentioned innovation. Are you suggesting they are not doing it with the a10 chip within the iphone 7 . I think you raised some excellent questions there. On the innovation side, there is anevolutionary process. Hen we get the next phone, the a10 chip is a powerful processor. We are concerned on the gross margin side. Tom where do you see that evidence . Im fascinated by this call. Where do you see the evidence of gross margin erosion after what we heard from the telephone vendors this week on preorders . I dont suspect we see the gross margin erosion in this quarter but i think Going Forward there is a risk of the pushback in terms of no one yet has obviously talked about what happens to the biggest Growth Market that china has had historically. If you look at the stats that come out from the supply chain, they continue to get momentum. If we are moving to a serviceled industry in technology, which i think we are, if you a hardware vendor, you have to have a Solid Service offering. Apple has some severe setbacks in that in china. There are some drawbacks. They are trying to push down pricing cuts to the suppliers. I think it is unsustainable for apple. Tom neil, nicely explained. Thank you so much. That was quite good. Head of Technology Research with Northern Trust Capital Markets of chicago and london. Coming up on bloomberg surveillance radio, we continue our discussion with james of the Foreign Policy of the two president ial candidates. Actually i dont know what it is yet. Well find out. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua in london. Tom keene is in new york. Lets get to bratislava. Europes leaders are gathering for an historic meeting, the first in more than four decades without the u. K. Caroline, this is the first time in ho years that 27 member countries, that the European Union meets without the u. K. Will they talk about the u. K. And brexit . It is not on the formal agenda. Behind me they meet in this castle, francine. The idea is not to put out points how they will negotiate with the u. K. They have said again and again we have to wait for article 50 to be trigger. What will be discussed is how to show a united front. 27 members. Talking about security, defense and how to fight terrorism. And offer Growth Opportunities to nose that remain within the e. U. Merkel said those that remain in the u. K. Merkel said this is a matter of war and peace. Francine this is an Inflection Point. Well find out whether we Stay Together or whether the e. U. Falls apart. I think certainly many economists are feeling this is a pivotal moment. We need to see some sort of a strong agenda. In fact, what barclays are calling about is they need to show ambition. Lack thereof slows down confidence and the economy. There is little shared vision and that is key concern for the Investor Base as well as indeed for the fligs politicians and it is an Inflection Point because they need to show that the rest of the e. U. Can remain as one. Two key battle lines, whether the brexit, you see more integration or less. Trey all i know is Francine Lacqua is in strasburg, france. Im going to pougpoug. Poughkeepsie. What is being accomplished here sides suits and tice and chanel and st. John dresses for the meet and greet, what is getting done . What needs to be done is to show some sort of common path. We need a bratislava plan but actually were not going to get any seismic change. What they are going to come away with is probably plans for more plans. Plans for more meetings but they are likely to be putting out the focus, the priority on security and the economy. Tom thank you so much. Really valuable. Francine, help me here. Is an ugly american with how europe will coalesce. I understand that has been an ageold issue. From where you sit with your experience, what will be the catalyst for them to coalesce into an opinion or view to address Prime Minister may . Francine we dont know. This is the problem. This is what i heard in strasburg. The problem is at the moment, these nations dont have a common purpose. Now this could be because of populism although we dont know what it means anymore. Everyone is throwing what they think populism should be in this basket. To toms point, we dont really know what the European Union will look like in 12 months from now. It might take longer than that. That is why they are there. They need to reach a common position on movement and labor. Within europe and from the outside, you cannot have the position of lets have anybody come in or push refugees back off the coast. Neither of them put fences up. Neither of those positions work. They need to fast track fiscal union, banking union. Some of the nuts and bolts they have been slow on. They need a plan for Economic Growth. Kind of old fashioned. Around that, and admitting you want to save this thing, then you can say how do we if we can fix our major internal issues, how do we look out at these people who have decided to go away. Francine is there any downtown in your mind from a pure economics model point of view, it is better for the e. U. To Stay Together than splitting . Oh, way, way, way better. You can argue it wasnt an optimal currency area, the way it was done, without getting everything joined up was a mistake in some ways. Doesnt matter. Breaking this up would be a this ophic mistake at point in time. Tom i have noticed immense euro stable. Which way will it break . If it doesnt break weaker in the next 12 months, there will be more japanese in its makeup. An inablingte ability to drive real Interest Rates lower, it will end up getting stronger again and that will give a whole new set of problems. Europes problem with its currency is japanification. You end up with a currency that reflects your position. You have high real Interest Rates. Tom in that scope, what is your euro strength targets . If you get japanification, is it 120 . We get up to the 130s. That is not a forecast. That is what you need to avoid. Europe doesnt need that. Tom really important. Very valuable. I want to make sure it is not a forecast. Coming up on bloomberg surveillance, he has been brilliant. Well get an update on what we see from the Economic Cycles. Francine lacqua in london. Im tom keene in new york getting your weekend ready for weekend readings. This is bloomberg. Tom before next wednesdays fed meeting, this morning, an important Inflation Report amid tepid growth. Will janet yellen delay into 2017 . Deutsche Bank Shares Drop like a 14 billion stone as markets reprice the cash call. There are no barriers to entry no barriersre are to entry, the crushing economics of luxury fashion. Good morning. We are live from bloomberg world headquarters. Im tom keene, in new york. Francine lacqua in london. I guess we have to talk about the surprise of Deutsche Bank. How big a surprise was it . Francine it was a huge surprise. We knew it was coming. Analysts had put the figure around 3 billion to 4 billion. 14 billion. Conspiracy theories say this may be linked to a certain apple story. I have not read any research on that. You have to look at global banks in the context of brexit, because we know some banks have been pushing the u. S. To put pressure on the eu. Tom laxman Lakshman Achuthan with us. He has some stunning views. Bloomberg first word news. Germanys chancellor Angela Merkel is promising to do everything she can to hold the European Union together. Merkel and other european leaders are meeting in bratislava to plot their postbrexit course. She wants to take on issues such as defense and protecting the eus borders. Sweden has upheld its attention order for julian assange. Assange is wanted by prosecutors in a rape prosecution. Assange has confirmed if he goes to sweden, he will be turned over to the u. S. For publishing diplomatic cables. China, a typhoon has killed at least seven people and left nine people missing. The typhoon battered a province with strong winds and torrential rain. More rain is expected. The typhoon was the strongest storm in the world this year. The ceasefire in syria appears to be holding, but the United Nations is blaming the city the government for preventing aid from reaching aleppo. Syrian Government Troops have now started pulling back from a major road in the city. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 150 countries. Tom quickly to the data. Equities, bonds, futures, commodities. They grow turn the euro churn. Texas. 43. 35 on west the mexican peso weaker. 19. 36. Really and ugly week for dollarbased really an ugly week for dollarpeso. Francine Deutsche Bank is down some 7. 7 . The vicks index, vix index, up a touch. We are about a month away from the algiers meeting. This bank has been halted. They had lost their chairman. Credit suisse is down from 5. 2 . Of regulation, we have various stories out on the bloomberg. There is concern amongst investors about Capital Raising in europe. Tom we dont have the 11 handle yet on Deutsche Bank, but we are getting near there. Lets go to the bloomberg inflation study. The white line is cpi. Below the yellow line, core cpi oiling less oil with the price down. There are three other inflation numbers, the mini inflation of america. Blue one is Service Sector inflation. Thats what you feel in the mailbox, 3. 1 . The green circle is my fave, cleveland cpi. A little elevated. What the fed look said is the red circle, way below the 2 barrier, that is the pce deflator, nowhere near the inflation that many of us are feeling. It makes for an oddity, a conundrum of inflation statistics. Francine conundrum, one of my favorite words. Im looking at the cocoas. This could be a proxy. Tom i agree. Francine something investors are looking at. Remember back in the end of january, beginning of february, there was a lot of concern about cocos. These are what we call pier 1 notes tier one notes. They were introduced after the financial crisis to meet new es, meaning that the shift they were meant to shift the burden of Bank Failures from taxpayers to investors. You can see them going down in the wake of what we heard just last night, tom. Tom very good. As no other guest, laxman Lakshman Achuthan no other achuthan hasan been out in front on gdp. What did happen, as noted by senator sanders, growth is terrible. , congratulations on your call. What does mr. Trump see in economic gdp . Lakshman we have the fundamentals, which far are a cyclical downturn that has been going on since early 2015 in growth. , but at a recession vector of growth. You have both gdp and payroll jobs growth yearoveryear falling since early 2015. Thats a long time. Tom are you here today to reaffirm a new recession call . Lakshman there is no recession imminent. Into 2017,e too far but there is nothing imminent in terms of a recession. But first, before we get to that, the downturn in growth is undeniable. That is part of the reason why the fed has they will probably try to get one in this year if they can. Just for a minimal amount of credibility. But the slowdown in gdp you have it at a 36month low. Job growth at a 26month low, yearoveryear. Qen if gdp comes in at 3 in below 1. 5 are still yearoveryear. They have a problem because they have stagflation light. Forwardlooking future inflation gauge has turned up. You go back to your inflation chart. We see inflation rising. Francine the problem data dependent. We also tried it out here. The problem, if you are data dependent, is that it cant go to the markets. You are seeing a fed which is, i guess, a little bit more distorted. You have external members who can express their views. Is that it. Confusing for participants in the markets in the u. S. . Lakshman absolutely. Look, jackson hole was all about their framework. How are they going about doing what they are trying to do, which may or may not be a good thing . Toimally, if you are going be doing something with Monetary Policy, which acts with long and variable legs, you should try to look at forwardlooking data. Thats what we are trying to do with our cycle work. We are never going to nail it and say it is going to be 3. 2 . The precision that these models sometimes suggest is laughable, but you can get a sense for if there is a directional change. And what we have on inflation is a directional change. It bottomed and is rising. No matter what measure youre looking at, it has risen noticeably. I think the conundrum that we were seeing in the earlier chart is attributable to differences between things Like Services inflation and tradable goods, tangible inflation. So, when you look globally, tradable goods you have deflation. And thats, perhaps, attributable to a lot of this Monetary Policy, when you have really low rates francine what do Central Banks need to do to fix inflation . Fixed deflation . They tried it for quite a long time. Lakshman you have to stop digging. Every time what a central bank can do, at the end of the day, its pull a little bit of demand forward from the next quarter or two. After youve done that for five or six or seven years, there is nothing left for the future. They cant fix structural things. Francine who can fix it . Lakshman in theory, policy, longerterm policy. Basically, when you get to what this is notnomies, cyclical. This is structural. What ails the economies is based in the fundamentals of growth. How many people do you have who are working . How fast is productivity growth increasing . And if you look on those scores, developed countries are in a lot of trouble. Thats why europe is hurting, japan is hurting, the United States is hurting. Those basic Building Blocks of bywth cannot be impacted Monetary Policy. How do you make someone more morective for our productive per hour based on Monetary Policy . Francine if you are in the markets and you have these central bank questions being thrown at you, how do you trade . Lakshman the markets are being kicked around by the Central Banks. We are still in that regime. It may or may not be ending. Every once in a while, you say, this is it. They cant do anymore. And then they do more. Im not saying we are all japan, but theyve done a lot of this was spending, for example. Thats the new idea. After the election is over, where someone is going to come and do a lot of fiscal spending, that still doesnt move the dial on those fundamental issues. Tom it doesnt move the dial, but im not even sure you are going to get the fiscal spending. Lets bring up another look at inflation. The white line is cpi. Ok, fine. Those other two lines are what we are looking at on friday morning. The yellow line is health inflation. The redline is rent. Does janet yellen want to overshoot to jumpstart inflation . Lakshman you want some inflation, but they still they are in the threeoret the theoretical world. They want to get the overall basket moving up. The problem is that bottom line is related to tangible goods, tradable goods. Tom i get that. Lakshman the capacity to produce that stuff is huge compared to the demand. In no one is going to invest further capacity, which might improve our productivity growth, with that kind of pricing. Tom i just cant convey enough how you and summers are onto something, when i get mail from our viewers and listeners. They agree with you. They agree with secretary summers that we are in a secular stagnation. They are seeing that redline and that yellow line. Shmanman hackathon lak achuthan, we will come back. Lls,ly looking forward to fe on the state of the global economy. Francine lacqua in london. Tom keene in new york. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua, in london. Tom keene is in new york. Before we talk about banks, lets get to the other businesses we follow. The new iphone 7 went on sale today. Many of those who show up to apple stores may walk away emptyhanded. Thats because apple hasnt made enough phones to meet demand. Customers who preorder iphone 7 plus will not be able to buy them today. Honest company, the company cofounded by actress jessica alba. They are discussing a deal in the 1 billion range, substantially less than the 1. 7 billion valuation in a round of funding last year. Deutsche bank is not backing down. The german lender says it will not pay the 14 billion that prosecutors want to settle claims. Deutsche bank says negotiations are just beginning. A materially lower amount. Shares of Deutsche Bank are lower today. Thats the Bloomberg Business flash. Francine lets bring in michael moore. He leads are financed team for rloomberg news he leads ou finance team for bloomberg news. Lakshman achuthan is also with us. Its a big day for european banks, Deutsche Bank, down 7 , after the drg slammed them with jhis huge 14 billion the do slammed them with this huge 14 billion bill. It is a huge gap from what analysts had said was a reasonable amount, which was 2 billion to 3 billion that Deutsche Bank could handle. Thats a big gap. Obviously Deutsche Bank wants it closer to that 2 billion to 3 billion. We dont often see the initial negotiating strategy out in the public sphere, so that changes the dynamic somewhat. Tom also relate francine also related to brexit, some of the officials from germany and france pushing back against regulators. Is there one thing that is certain, that regulation will go away or that banks will have to raise more capital . Fight rightts the now. We are supposed to have some sort of answer by the end of the year. They say this is just finetuning the basel iii rules. Some of the banks have started iv. Ing this basel i think the european officials that are pushing back one is to remain just a back want this to remain just a tweaking of the basel iii rules that will need more capital for the banks. Francine is this a turning point . Folks were saying banks are doing really badly, look at the share price. Now it seems that the burden is more on policy makers because of negative rates and on regulators. Could we see a, quote, fast turnaround . Michael i dont think it will be fast. We have been talking about it for two to three years. We are starting to see a turn, at least in some of the sentiment from politicians and policymakers in europe, on the way they talk about this, the way they talk about banks needing to get back to the core business of lending to the economy and be done with some of the regulatory issues. But, you know, on the other hand, that continues, and the fines are going to be done for at least another couple years. Tom michael moore, help me here. There is 0. 27 book on the bloomberg. Maybe it is. 30. A, is the banks solvent . When do they do a cash call . Michael well, a lot of that will depend on what this number comes in. You have j. P. Morgan analysts yesterday saying anything about 4 billion on this settlement would need more legal provisions, would need some cash from somewhere tom but then, in your reporting, can they all go out and get cash this morning as the dominant bank of Continental Europe . Michael i think they could get cash. It would be highly dilutive at. 3 book. It is not something they want to do. They have assets they can sell. They have come out and said that Asset Management is a core part of the business, and they dont want to sell that. Tom at some point, there has to be an adult in the room. Wheres the adult in the european banking room . Michael well, i mean, i think you are seeing the lack of that baselhe fighting in this committee. The fighting between the european officials. There seems to be two camps. One is that we need to continue to make these banks hold more capital and avoid anything like the lehman that we saw eight years ago. The other side saying, we had eight years of this, we need to move on. Francine michael moore, thank you so much. He heads our banks coverage for the u. K. We will get back to lax and axes to lax and active on to Lakshman Achuthan. Paschi was halted because it fell more than 7 . Toing up on monday, we speak a Chicago Business professor. We will be looking at italian banks with him. This is bloomberg. Tom bloomberg surveillance on a friday. Lakshman achuthan with us. Let me bring up the chart quickly. This goes to your language of American Real gdp. Mr. Trump clearly addressing this yesterday. We are back the years back 60 years. Movinga 1. 9 fouryear average of Economic Growth. Fromred box is the leg 2007. You suggest we will go lower . Lakshman on the trend growth, by all means. Simple math. Your demographics have growth. The cbo is looking out, 0. 38 . Productivity growth has been 0. 5 . If you add the two together, you are under 1 . Nobody wants to say it. Its not pc. Tom whats the policy prescription for that . Lakshman stop digging. The idea that a recession is the end of the world is a poor idea in a free market economy. That is actually there is a lot of Collateral Damage that can occur, and i dont dismiss that, but its cathartic to have a recession from time to time. When you are in a free market economy. Ere, in the wake of the Global Financial crisis, recessions are forbidden. And we will do almost anything, which youve seen from the monetary side, to try to avoid deeperd that gets you and deeper in the hole. Low Interest Rates means there which meanscity, there is a Global Deflation in goods. You cant invest in productivityenhancing stuff because there is too much capacity. Tom channeling from 1945. Also geoffrey moore, who founded Economic Cycle research. Its the state of washington. Here is a data check with the mexican peso weaker. This is number. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua, in london. Tom keene is in new york. This is the picture for the banks. Our biggest corporate story is Deutsche Bank, but there are a lot of banking stories brewing. The italian banks. The ongoing saga for monte paschi. They dont have a ceo. There is read trading. Theres this concern for the need for a lot of banks raising capital. That has been spurred by the Deutsche Bank the claim by the doj that they want 14 billion. Tom im watching Deutsche Bank in euros now. You may get an 11 handle on Deutsche Bank. We are not there now, but we are getting there quickly. Francine lets go to bloombergs first word news. A new report says the u. S. Government will eventually spend billions to repair the damage that snowden caused in leaking information about spying operations. Japan and china may be on course for a collision in the south china sea. Japans new defense minister says the country will step up its activity in the disputed region. Those comments come less than two weeks after chinas leader she jinping xi jinping urged caution in those waters. Trumps Campaign Says that he believes president obama was born in the u. S. Hillary clinton has resumed campaigning after taking three days off to recover from pneumonia. The democratic president ial candidate hit the swing state of North Carolina. Clinton agreed that her campaign should have been quicker to release information about her illness. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. You have more on politics now. Tom first, the politics of the kremlin and mr. Putin. They lower the central bank rate. Im not sure how independent the Russian Central Bank is, but there you go. Down to under 10 even. Really one indicator of where we are on this friday in terms of weaker gdp. Trumpble away from donald as he spoke yesterday at the Economic Club of new york, megan murphy. Speech. Give me the scorecard from a friend. How did he do . Well. I thought he did he was in an audience where he felt comfortable. He started very soundly stumbling because he was off prompter. He was definitely struggling. One of the reasons that was an hourlong speech. It was quite detailed. Many people in the room were surprised how detailed he was on taxes and regulation. Tom i was taken aback, by it was a campaign speech, and Economic Club of new york there were, like, 40 people going nuts i get was tulsa. Did he deliver the speech to this group that you expected . It was a campaign speech, right . his running mate, mike pence, was even more over a campaign speech. The thing that got the most applause were lower taxes and easing regulation. He made an interesting point. When i go out and talk to people about taking our keynote Corporate Tax rate down to 15 , when i talk about lowering it from 35 , that doesnt generate near as much excitement as stripping back regulations. Some of the things he is saying about freezing regulations, freezing clean power, really taking a look at doddfrank, looking at how we are regulating the financial sector, seeing if we can easily burn for small banks and can ease the burden for small banks and small businesses, that plays very well to that audience. Francine is he going to win votes on the back of that speech . Megan i think what we are seeing in the race is a real pivot moment. It reflects concern about Hillary Clinton, concern about her inability to generate this enthusiasm and get her message across. She had a rough stretch last week. One thing that is interesting, since Kellyanne Conway and on the trump has made and donald trump has made some shifts in his campaign, still, late last night, we have this wacky statement with the birther issue about obama that goes back to the trump of old, that actually he has done a huge service to americans in bringing this to light and how Hillary Clinton and obama covered this up. That, i felt, was really strange and sort of a piece out of the old trunk campaign. Just as he is gaining the old Trump Campaign. Just as he is gaining momentum, he takes this further issue and puts it front and center again. Francine does it mean he cant help himself . Does that help to win votes . Is he going after votes, or is it unscripted . Megan i think tom saw it yesterday as well. He just talks sometimes. There is no question he just goes offthecuff, speaks, and sometimes it works. Sometimes, frankly, many times, it is really offensive. Ther further issue bir issue is a bad move. Tom what is the news of the week on rising median incomes . Lets bring up my morning mustering. Paul krugman definitely not agreeing with mr. Trump. But, lastd good news, year, it turns out the economy putt party like it was 1999. Much of the stimulus involved expanding the social safety net, not just to protect the vulnerable, but to increase purchasing power and sustain demand. What i saw yesterday was popular than personified was populism personified. Is this the reincarnation of williams Jennings Bryant William Jennings bryan . Megan the economic divide that is generating this trump surge how much is real and how much is pretend . Obama and that column would argue, 5. 2 of the median income, a decline in people who lack insurance. People have done better than it is widely thought. Is that true . Tom come out here and sedate Lakshman Achuthan. He is going nuts over this. Help me with the polling we saw, the seachange. Omg, this state, mr. Trump, omg, this state, ms. Clinton. Megan i think its evidently ohio for her. Definitely ohio for her. Takes ohio and florida, he still needs virginia or colorado or new hampshire. He needs a state that is not trending toward him right now. Tom one more question, are you having fun . It seems like it got fun about two days ago. Megan we dont want to make light of some of the issues that have gone on. This is everything we have worked for. This is really going to be tight. We will have to see what happens september 26 in hofstra. Francine what should be Hillary Clintons next move . Megan she has to refocus on the positive, get out of the negative. I was surprised how hard she hit on him. She has a better plan. Tom he said that in his speech. Where is your plan . Early in his speech, i believe he was really pushing that. Megan where is her message . Akshman, what are your thoughts on this . Lakshman i think a lot of this misses the mark, but i think a lot of thats a lot of people suspect that anyway. The policy prescriptions flying all over the place dont do anything for the Building Blocks of growth. And the income stuff we have a completely different view on. Tom thank you. Lakshman achuthan with us. Megan murphy, the update on an important moment yesterday in new york. On monday, we will go from new york to london. My conversation with the mayor of london, saudi, sadiq khan. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua, in london. Tom keene is in new york. Lets get some business news. The japanese air bag maker in defense of the industry plans to have a plan. They hope to shortlist two or three candidates. Witha has been negotiating carmakers on costs linked to the faulty bags. Fiat chrysler is recalling about 1. 9 million trucks and cars in north america. Some of the models being recalled include the compass suv avenger. Odge there have been three deaths and five injuries possibly related to the problem. A london asset merger. Person according to a with knowledge of the matter. The company is said to have offered ikea about 1. 1 billion for the properties. About almost half are in germany. Tom new York Fashion Week means visit from robert burke. We are thrilled he is here today. Part of this is the struggle of luxury. We saw that in the news this week from hermes, a small store on madison avenue that depletes the bank account rapidly. We sowed show the video of where i get many of my bowties. Here is one right here. Beautifully made and depletes the checkbook. Robert burke is with us. We are thrilled to bring you the most dangerous magazine in the world. Mr. Fallon, ive never seen a fashion industry like this. What the level of panic within wwd . James no panic within wwd. We are always very calm. The industry is definitely hitting amber alert, lets say. It wasnt just hermes. Didnything, hermes relatively well in the first half. Richemont did badly. The outlook is not great for the second half. The sense is they are really not seeing any upturn. Tom robert burke, i walked back from the waldorf yesterday to my house. There was this thing, caps. Everything this year is caps. Dolce gabbana. What is the state of selling to women right now . In that regard, what is the panic . Robert i think the panic is that the retailers are seeing very weak business. The only thing that the customer is responding to is really unique products. If that means they take the form of the cat, then they will go for it. But we are really are seeing them only motivated to spend money right now on unique fashion. Francine i love that. I havent seen any cats, tom. We might be going through different stores. Im seeing stars. The problem when you look at luxury spending across the world is that its going down. Is that because of the asian demand . Is that because people feel poorer . What is a symptom of what we are seeing right now, which is worse than expected figures from richemont and worse than expected forecasts from hermes . James its not the people are feeling poorer, certainly not the 1 . If the asian demand, china particularly, instability in the middle east its the asia demand, china particularly, instability in the middle east. Perhaps people have as many hermes bowties as they need, and they are beginning to spend on experiences rather than products. Francine too many bowties. Away from the bowties, the problem is that the companies and the Luxury Companies that do it really well, for example, gucci this was a revival. They are doing really well. If you get a product people want then it works. You can make a lot of money in the industry. James absolutely. 100 . Even though hermes was cautious about the second half, hermes is still doing very well. Chanel is doing well. Gucci is doing well. Ifgoes to roberts point, you have a unique product, the consumer will go out and buy it. The problem is, there is so much that is available, they dont know what to pay. Tom you are legendary for being one to solve problems. Whats your advice to luxury in terms of solving problems . No, youve got to do this. The robert burke this right now . Robert there are a lot of issues to address for luxury houses. Staying incredibly focused. Making sure they go narrow. Go very specific. The last thing the Consumer Needs is just more product. To everything that they need put out has to have a message. I think social media means more today than ever. We are seeing it even with the fashion shows. Its more of an experience. Tom we saw that with Rebecca Minkoff this week. Robert we saw it with Rebecca Minkoff, tommy hilfiger, ralph lauren building a whole structure and closing down madison avenue. We havent seen these types of reductions in many years. Francine whats more exciting, London Fashion week, new York Fashion Week . Tom come on. Its milan, isnt it . James i think that new york and paris really set the bar and have years. London is fantastic. Weve seen a lot of growth. I think people take a lot of the lead from new york first, and then paris tom Rebecca Minkoff wandering down. Shes great. I love what shes doing within an entrepreneurial vision. Take what she is doing and bring it over to ferragamo. I adore the shoes, but they are incomplete turmoil, arent they . They are bringing in all new people. James i wouldnt say they are in turmoil. They had management change. Ferragamos shoes and belts do very well, etc. It perhaps became too much of a, brand, and took its eye off the accessories that drove the business. They are focusing in, as is tod ds. A fashiond to become brand. Now they are going to focus on core accessories. I think thats what the consumer will be wanting. Ferragamo has brought in a new designer. Francine what did burberry teach us . Tom great question. Francine like a lot of the fashion houses, the way the catwalks work, to be much more in line with fast fashion, because we buy things differently. We dont have seasons like we used to, or at least we dont shop that way. And the ceo and creative director just doesnt work . You need a Business Brain and a creative . Certainly the latter. It will be interesting to see, now that Christopher Bailey is focused strictly on the creative, what happens. Show isrberry the monday in london. It is senile by now. It is by far the biggest brand the second biggest brand after ralph. Tom in the minute we have left with both of you, i call them the girl magazines. Wwd is the industry magazine. Whats the future of the magazines . They are big in september. Are they going to sustain through the next five years . You are seeing more online magazines, even the print magazines are really pushing their online tom in my house, they have to get their hands on this. I think for the millennial customer, they are less likely to have to get their hands on it. They are more likely to be on their ipad and looking at the different bloggers, looking at social media, looking at the online magazines today. Tom great, thank you so much. Robert burke, james fallon. New York Fashion Week an interesting luxury business right now. Let me do a data check. Moving on a friday, dolce gabbana. The cats. Help me. 45. 81 on brent crude. Im going to feel like mexican pesos this weekend. From new york, Robert Burkes manhattan. This is bloomberg. One of the most interesting fridays. Francine the plot in london, Francine Lacqua, in london. Deutsche bank attempting to find a bid. The Foreign Exchange with the euro stasis. Kit juckes, really interesting earlier this morning, on a stronger euro due to surpluses of trade. Mexican peso, 19. 38. That gets my attention. Francine coming up shortly, it with davidg westin, jonathan ferro, and alix steel. Alix we will be following this riskoff theme we are seeing in the markets, definitely hitting Deutsche Bank hard as well, really looking at those coco bonds, the lowest since charlie early july. We will discuss all about with rick rieder over at black rock and get his take into the doj, into the fed next week, and what does that rising yield curve mean. Is it technical . Is it fundamental . Tom, you will be online at the apple in line at the apple store to buy your iphone . Tom i did it in april. What did you learn about oil this week . Alix you have Goldman Sachs saying lower for longer. Oil is recalibrating the investment potential. 50 others are saying we are going to see higher oil because it is a tighter investment now. Tom bloomberg coming up. Final thoughts with Lakshman Achuthan. I want to talk about the clear and present paycheck, which, i guess, is pretty good for america. Lakshman there was a story earlier that wages have really bounced back. Absolutely true. But because the deflator used to calculate that went to zero when oil plunged and you had a firming and Economic Growth, which is now behind us. Since early 15, we have been slowing again. Thats after that income data. The income issue is, with little fits and starts, not going to change dramatically. Thats the fundamental problem. And thats all part of the slower and Slower Growth that we are having. The tiny bit of good news is that, in the forwardlooking data, very distinct from wages and sales and gdp and jobs the forwardlooking data is a little bit of an uptick. It may turn into something better. Its too early to tell. We have to really watch that. In the meantime, youve got the inflation cycle still firming on the back of services inflation. Francine when will we be able to tell . Lakshman when . Francine give it three months . Lakshman in three months, i would think we would know either if we are seeing the growth rate cycle downturn come to an end or if it is slipping down and downshifting again. Of course, its already at a very low level. I think in a couple months, two or three months, we will be able to know one way or another. Tom thank you so much. Francine, you travel to new york next week. Joining me, the mayor of london. I will speak to him sunday. We will talk on monday. Tell us about the london mayor. Francine the london mayor for the moment is very popular. Mayorthe first muslim that london has had. As we were speaking, i brought a chart up. Germanys benchmark bond, rising, erasing a weekly decline and pushing the 10 year yield back below zero. I know we can be on yield watch next week. Tom i agree with you. Thats been interesting this morning as well. Joining me in new york next week, Francine Lacqua. With lakshmanue achuthan on bloomberg radio. There is an autumn new york. Deutsche bank plunges after receiving a 14 billion claim from the u. S. Justice department. The bank says it isnt willing to pay. Lucky number seven. Apple hopes its new iphone 7 will stem at twoquarter decline in sales as customers lined up to buy the new model around the world. Alix back to risk off. Falling below zero ahead of a Central Bank Decision week. Ferro,n im jonathan alongside david westin and alix steel. David 14 billion will get your attention. The chief executive chief litigation officer. Alix we are seeing the Market Reaction really reflected in the contingent convertible bonds, d own to . 37 on the dollar, the weakest since july. Jonathan the question is, do they need to raise more money