Transcripts For BLOOMBERG Bloomberg Surveillance 20170808

Brexit could make it worse. Good morning. This is bloomberg surveillance and im Francine Lacqua in london. Lets get to your markets. European stocks are down a little bit, dragged down by basic resources. They seem to be cooling off after recent gains, but the single currency is edging higher. Oil is significant because opec and nonopec producers are meeting in abu dhabi, talking about compliance cuts. Government bonds are bixed with the dollar. Meanwhile come over in south africa we need to look at rand. There is a secret ballot vote on jacob zuma, the president. I think we have the results of that voting at 1 00 p. M. U. K. Time. Reporter chinas trade surplus widened for a fifth month in july. It keeps the spotlight on a trade gap President Trump aims to narrow. Japan has recorded a 36th consecutive surplus, beating economist estimates. That was supported by returns on overseas investments and a trade balance the return to positive territory. North korea condemned the latest round of u. N. Sanctions. It will not cease until america pulls back on the threats. They said it was necessary to avoid a u. S. Invasion, similar to those in afghanistan, iraq, and libya. South Africas Parliament will vote today on a motion of noconfidence in president jacob zuma. A secret vote increases the odds of him being ousted because members of the ruling party can but without risking their jobs. He was due to step down in december and as president in 2019. More than 180,000 police have been deployed across the country and when concerns they could be ote, whichf the 2007 v led to violence, fueled by ethnic divisions, which killed more than 1000 people. The u. K. Labor market is tightening and it is harder to recruit staff, according to the recruitment and employment confederation. The availability of workers has fallen sharply. That helped boost a measure of starting salaries to the highest in 20 months. The result show the importance of the u. K. Having easy access to labor from eu nations after brexit. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im taylor riggs. This is bloomberg. Francine thank you, taylor. As markets brace for fridays u. S. Inflation figures, the issue has been addressed by Federal Reserve officials overnight. Neel kashkari said the credibility of the central bank is on the line. Inflation has been coming up short, a little low relative to our 2 target. That actually matters. You think 1. 5 is not a big deal, but it matters that investors believe the fed can achieve its goals. Francine meanwhile, James Bullard says the time has arrived for a reduction of the Balance Sheet and he was confident it could be done without too much destruction in the market. Will be able to let going on this process. I think it will be slow, but i think it is the right thing to do and i would support getting going on this process. Francine meanwhile, justin done dunlack is getting worried about the markets. He said this is not the time period where you can purchase anything and not worry about the risk. The time to do that was about 18 months ago. Lets bring in luis costa and Richard Jeffrey, thank you both. Richard, when you look at the fed, there seems to be a message saying disruption will not happen in the market, but they are still struggling to raise inflation. So, why continue normalizing, or start normalizing . I think they are probably comfortable with inflation rates around where they are at the current time. I think when they look at , andption to the markets the withdrawal of quantitative easing, they are doing that with toes and fingers crossed. I think there will be a little bit of destruction but they are trying to manage the process very carefully. It is going to be a slow withdrawal process. I think with reasonable economic momentum, we should be able to get through this period without too much volatility. I think the qualifier there is what is going on with inflation at that time. With inflation below where the fed is comfortable with, about 2 . That takes pressure off of raising Interest Rates faster. They still have to continue that side of policy normalization as well, but it takes the pressure off. His inflation were to get to 2 and above, that would cause more market concern because that would put pressure on them to accelerate the Interest Rate aspect of policy normalization and that would be, i think, much my threatening to Financial Markets. Francine if they continue missing this inflation goal, does it hurt the feds credibility . Not at all. Investors, we have been forced to look into the market and the Monetary Policy from a different lens. It is not about how comfortable the fed is. The fact of the matter is we have a very distorted phillips curve out there. Francine is it broken, or distorted . According to some fed officials, it is very difficult. It could be a temporary this temporary dislodgm ent, but in general, thats the story. Dispite the inflation, weve got gaps. Mprovement in the economy is running fine. Why not take the opportunity now . I value of the Central Banks are trying to do now. The markets are getting the message and that is why they are not panicking. I think the fed is making sure it is telegraphing everything. Everything is highly telegraphed. I think that is why the risk of a selloff in europe is bigger than the one in the u. S. Because we dont know the parameters yet. Francine exactly. We will see if we have the same hawkishness we had in central. I have a question from a bloomberg customer. But i want to bring you to my terminal first. This is a simple way of looking at u. S. Breakevens. What needs to happen for inflation to go back up . D,ongst the ecb and the fe because the jobs market is tighter, it would automatically lead to which growth. What if they are wrong . That is a very interesting question. One of the conundrums is why a rapidly tightening labor market and this is not just what. S. Rapidly tightening labor markets are not leading to more inflation. The answer to that is slightly counterintuitive. If you have very low productivity growth, companies are very reluctant to raise wage rates. In the current situation, the bargaining process, the force in the bargaining process is corporate rather than organized labor. For that reason, we dont see this pick up in Wage Inflation. Having said that, Wage Inflation is gently rising in the u. S. I think that gentle increase will continue and in a year we will be slightly more concerned than we are at the moment. Francine if you are a bloomberg customer, a terminal user, just go to tv and submit questions. One says, can we ask mr. Costa if he sees a possible dollar rebounce . Thank you for the question. Look, i still think that we are stuck here in a weak dollar environment. An undereen appreciating of the contribution of the massive u. S. Politics in how the dollar is trading. Lets isolate the eurodollar from everything else. The last big jumps in the eurodollar, the last two or three, they were on the back of the political headlines coming out of the u. S. Theres the whole discussion about how late in the cycle we are. If you look at europe and the u. S. , both economies are running europe the rebound in seems to be a lot younger than the one in the u. S. Thats why. If you look at europe versu s u. S. , that look at need to drive the dollar higher. Andcine both luis costa Richard Jeffrey stay with us. Here is taylor riggs. Reporter in venezuela, all Foreign Workers have been pulled from the country in a political crisis. Chevron and total have removed a small number of employees. It does not comment on security or personnel issues, while total did not immediately return an email. A south korean prosecutor demand that jay y. Lee spent 12 years in prison. The recommendation by the special prosecutor marks the harshest criminal sentence ever thought against a major conglomerate leader. Lee has consistently denied all charges. Google has fired an employee who wrote an internal memo blasting the diversity policies. The engineer who wrote the no confirmed his dismissal, sankey had been fired for perpetuating gender stereotypes. He haddismissal, saying been fired for perpetuating gender stereotypes. They did not say if action was being taken against the employee. At 10 30 on bloomberg technology, Sheryl Sandberg joins emily chang for an exclusive interview to discuss company culture, leadership and the social Networks Global impact at the Company Headquarters in menlo park. Francine thank you, taylor riggs. Widened for a fifth month in july. Exports rose 7. 2 and imports rose 11 . The figures put the spotlight on the trading gap between china and the u. S. , which President Trump wants to narrow. We are joined by edna current from hong kong. What do the numbers tell us about the state of the chinese economy . Ofi think there is a hint caution in the numbers, a little bit of disappointment on the import side. That is coming against the backdrop of a strongyearold earn and a robust backdrop of a strong eurozone and a robust u. S. Recovery as well. The trade number canceling month to month. We will have to wait a little bit longer before we can call this a trend. One of the big backdrop stories in china has been the export story. It has helped regulators, given them the confidence to crack down. We are starting to see a slowdown on the trade side. That might mean regulators pullback from tackling risk. We are not there yet, of course. But there is some caution because of the numbers today. Francine and as the trade surplus with the us. S. Remains intact, what will the Trump Administration do . The trade Surplus China has with the u. S. Has not budged all year, despite the rhetoric, despite the tweets, despite the expectations of a trade war. It seems like that trade war might be pushed back a little bit further because of the Big Development we had over the weekend with the Security Council of the u. N. Agreeing on the sanctions against north korea. Those sanctions, and the fact that china is on board, this might mean donald trump lets china off the hook for a little while. He has been warning them about the intellectual Property Side of things. But there is a feeling now, given that tensions are escalating over north korea, donald trump might step back and see what takes place. The backdrop of the trade deficit means trade tensions have not gone away. It is a case of delaying the and of double for now. It has a risk that has not totally disappeared. Francine thank you, enda curr an. Still with us, luis costa and Richard Jeffrey. Luis, when you look at trade and possible trade concerns that we have had since the beginning of the year, since donald trump was made president , it seems a lot of the concerns have died down. Rightly so . Absolutely. It is pretty much at 0 now. Francine but it could flare back up, couldnt it . We could always see a renaissance of a revival of those fears. When it comes to mexico, we actually know we are getting to a new nafta agreement that is better for all the parts involved. We know the legislation was quite old and we needed some revamping. Unfortunately, trump utilized this in a more populist vein. Effectively, did that need a revision . Yes, and it will be good for mexico. The whole thing has died down. You are absolutely right. 0 . Re very close to we are trading under the influence of all the variables here. We know the discussion about china has to be seen within the context of how to pressurize the chinese into the north korean negotiations. Theres a whole diplomatic vein to that. That can actually come back. But when it comes to valuation, it is very interesting because as messy as the message out of the white house can be, we know that the white house, generally speaking, seems to like the goal. The chinese give some interesting statements recently talking about capital outflow. Dollar, good for both parts, at least for the moment. Francine is that your view as well, richard . Or should we be concerned about what happens after the peoples China Congress . I am not sure if it is my view are not. What i think is interesting we always look at this Economic Data and we get some deep meeting out of it. If we had looked at these numbers today and said, well, exports are doing ok, but it is import growth that seems to have undershot expectations, you might say, this could be significant. This could indicate that the recovery in chinese domestic demand is not happening in the way we thought it was, in the way it appeared to be coming through in earlier data. To the extent that both imports and exports undershot by many economists thought they were going to be is in the realm of erratic data. Both through weaker exports or weaker imports. Francine right, but we understand the Trump Administration is looking for an example of the intellectual property issue in china. Can the market just ignore things like that, that are peripheral noise . Those sorts of things always have the potential to escalate. These are political processes. The political processes in the u. S. Have a much bigger random element than ever we have seen in the past. I dont think we know at the moment at which the Trump Administration will suddenly start to focus on again and say, this is what we want to get people excited by over the next couple of months. And then they move on again, of course. Thatis one of the things is potentially quite destabilizing for markets. Francine thank you, Richard Jeffrey and luis costa. Jobext, as the u. K. s market booms, there are warnings about how companies will find workers after brexit. This is bloomberg. Francine this is bloomberg surveillance and im Francine Lacqua in london. Lets talk a little bit about brexit. U. K. Firms are struggling to fill posts. The number of permanent jobs in the country grew at the fastest ras, but theye availability of workers fell sharply. Resultsnizers said the show how important it is for the u. K. To have easy access to labor from eu nations after brexit. Still with us, luis costa and Richard Jeffrey. Richard, every time we talk about brexit, it is unclear to me exactly what the strategy of the government is, but also what reports the government should listen to. Does it really make that much of a difference . I dont think it makes much of a difference in the shortterm for the negotiating strategy. We are trying to see our way through an unnecessarily opaque process and we are responding to often throwaway comments. I think we have to be very careful about over interpreting that sort of information. In terms of the underlying economics, what is going on in the labor market is interesting. Yes, it will be the case that postbrexit, companies have less easy access to the european labor pool. They will not have zero access, but it will be less easier access. That could bring about one fundamental change in the u. K. Economy that we have wanted to see for some time. It will put pressure on companies to start undertaking productivity in house. They cannot get the labor input, so this will be a positive change in the uk. Economy. Francine what about wage growth . We have the base rate for the foe i for the boe in white ad then we have inflation. Boe has to be careful and mark carney said he is looking straight through it because he sees it as purely a brexit impact. Inflation is coming up because of the falling value of the pound. I think there is more to it than that. What we will see over the next year is stronger Wage Inflation and that reflects the tighter labor market. There is some evidence, i think, that has been published at the people who are in permanent employment, which inflation is beginning to pick up. That is indicative of slightly more heat in the labor market coming through. There is a great danger in just ignoring the inflation trend and not thinking about some of the current dynamics. Francine thank you, Richard Jeffrey and luis costa. Up next, south africas president faces a secret noconfidence vote. Jacob zuma has previously defeated the attempts to remove him, but will he prevail again . We go live to south africa. We look at the rand. We could see a little bit of the Market Movement if the vote does not go his way. I believe we have results at 1 30 p. M. U. K. Time. This is bloomberg. We check our phones 85 times a day. So it only made sense to create a network that keeps up. Introducing Xfinity Mobile. It combines americas largest, most reliable 4g lte with the most wifi hotspots nationwide. Saving you money wherever you check your phone. Yeah, even there. See how much you can save when you choose by the gig or unlimited. Call, or go to xfinitymobile. Com. Xfinity mobile. Its a new kind of network designed to save you money. Francine this is bloomberg surveillance. m Francine Laqua in london. The exports remain solid. Meanwhile, japan has recorded a 36th consecutive current account surplus that came in at 8. 44 billion in june beating economist estimates supported by returns from overseas investments and a trade balance that returned to positive territory. And north korea has condemned the latest round of u. N. Sanctions that reiterated it wont negotiate over its Nuclear Program until america seatses hostile policies. Kim jonguns regime said the u. S. Will pay dearly for a heinous crime against north korea and its people and insisted its Nuclear Program was necessary to avoid a u. S. Invasion similar to afghanistan, iraq and libya. The u. K. Market is tightening and players finding it harder to recruit staff according to the recruitment and employment confederation. Last month the number of permanent jobs grew the a the fastest rate in two years and the availability of workers fell sharply. The r. E. C. Said starting salaries have been the highest in 20 months. The organization said the months show the importance of the u. K. Having easy access from the labor of e. U. Nations after weatherity brexit. Global news powered by more than 2,700 journalists and analysts in more than 120 countries. This is bloomberg. Francine . Francine after a surprise decision by the National Assembly speaker yesterday, south Africas Parliament will vote by secret ballot on a vote of no confidence on jacob zuma. They were the best performer among 31 major peers. Lets get straight to our reporter in johannesburg. Great to have you on the program. Quite an important day for south africa. What can we expect as lawmakers vote this motion of no confidence on jacob zuma. Reporter very important day for the political arena in south africa and it is quite unlikely jacob zuma wont survive this motion of no confidence and we know he survived several other motions of no confidence but this is the first that will be done in secret. The Opposition Party will need to woo at least 50 lawmakers from the n. C. Caucus to vote with them so in motion of no confidence can pass. We know opposition parties as well as the a. N. C. Will have members marching on Parliament Saying theyll defend jacob zuma to the end. As to whether it will be his last day as president of south africa, well have to wait and see this afternoon. Francine whats the mood like on the ground ahead of that vote . Reporter as you mentioned the speaker of the National Assembly yesterday when she said that the vote will be done in secret, this of course an unprecedented move. Weve seen pockets of the country really showing some excitement, and as i said, some people will be protesting as is protesting in jube lance the vote will be in secret. We know theres been some protest action around the country as well as some people barricading the road in hopes of stopping people from going so everybody can focus their eyes on parliament so when that motion of no confidence is voted on later this afternoon. Francine all right. Thank you so much. From our johannesburg bureau. With us is a economist at citigroup and another one at capital management. You when you look at south africa is it impossible to see how the vote will go, how do you describe it. Its a low probability for this vote of no confidence to be successful, meaning ousting of zuma. Theres a strong theres still a very strong willingness to keep the Party Together that goes far beyond short Term Economic targets. And the major leaders, not only zuma but all the major leaders, e guys in the top six of the n. S. C. See the Main Objective to keep the party line together and we dont want a recall of the president that can actually call physical you are within the n. A. C. And will be counterproductive, lets stay the way we are. We do believe the most likely income is to have zuma still in power. Francine looking at yields, quickly, if president zuma does get ousted, what does it mean . Luis it means a massive rally. We bought dollar wrenns and put in place in case our view is wrong. Lets call it for the sake of discussion here, a 5 or 10 probability hes going to be austed but if that happens it probably means a 4 rally on the and on the rand on the spot. We like to trade and have this exposure. This chart is interesting. Francine looking at yields. Luis this is telling you something very important here that nominal yields in south africa are not performing in accordance to the inflation process. Weve seen a very strong inflation process that they started cutting rates and might cut 75 business points more over the next 912 months and theres more to come. Despite all that and actually investors bought a lot of bonds but despite all that were seeing the nominals versus the deinflation process and thus 10year rising yields. That tells you south africa is as a market, as an economy, still deals with massive structural issues. Francine what does, for example the volatility show us about appetite for risk in the markets . Is this immune to the rest of the world or only a South African story or can you bring it across a lot of the emerging markets . I think at the moment its probably only a South African story because the things were looking at are political and solely in south africa. My concern here would be is it the political scene change dramatically if president zuma loses the election. And we dont know the answer and the currency market seems to assume there will be a fundamental and positive change f he were to lose this vote. Lieu is this chart thats more interesting is it you block this against others trading down so the gap of rand laws versus the rest of the market is getting wider and wider. Francine first to luis, are you concerned the way the market is working when you look at volumes is dictated by very few players because of passive investment . Luis absolutely. Francine there it must change your Risk Appetite . Luis if there is a selloff down the road will probably make the markets a lot more vulnerable because these flows can get out very fast and weve seen a few dress rehearsals of that. The markets are becoming stronger in multiple Asset Classes. Richard were seeing low volatility across many Asset Classes, most Asset Classes at the moment but what were also seeing is that its quite minor and unpredictable events which of course is causing increasings in volatility and i think the great danger is that markets are overinterpreting news and making themselves vulnerable through that overinterpretation and actually not understanding what the longer term implications of that news may be. This low volatility background is quite a difficult thing to live with. Francine both stay with us. Stay with surveillance. Plenty coming up including will espn be a spoilsport for disney when it reveals earnings later. Well look ahead to that next. This is bloomberg. Francine this is bloomberg surveillance and Francine Lacqua. Heres mark. Mark the euro stock 50 were moving in the same direction earlier this year and not so now. Euro blue stocks 50 wide line, theyre diverging and the most in 15 months according to the 6 day correlation and risen 2 had the pain threshold in europe. Keep an eye on that chart. You showed the chart earlier and lets show it again in the wake of the no confidence vote in south africa. The secret ballot, the fact its secret could increase the chances of consumeas ouster. Expect the rand to go below 13 if zuma is ousted, which is the probability many are predicting today as you can see in overnight volumity, highest since march. In wake of comments but two fed officials wed show you the Balance Sheet breakdown. Two say soft inflation in the u. S. Is a problem as they play down the risk of market disruption when the central bank starts shrinking its Balance Sheet, talking about mes bullard and neil cashcari. They line up with expectations in the markets that officials will keep rates on hold when they meet next month and announce the start of the gradual process to trim their holdings of treasuries and securities in the wake of china, data trade surplus widening for the sixth month and export growth remaining solid and exports, 7. 2 up in u. S. Dollars and imports increasing 11 , francine. Both falling short of economist expectations. The surplus widening to 46. 7 billion. Wonderful job. Francine wonderful chart. Thank you. We get the latest earnings from disney later this evening and affiliate revenue are likely to be under pressure and espn is suffering now the playoffs are over. The sports have been a particular thorn as they pay more for tv rights and cable customers cut their subscriptions. Lets get with the media editor david cooms who joins us from tokyo. Tell us about the espn troubles at disney. David for many years espn was the ace in the hole for disney, this cause a Cable Network that would produce consistent profits as the top sports broadcaster in the u. S. And had a real prominent division and all the competitor comes in making it harder to secure the rights and had to pay up, as you mentioned the nba rights, had to pay up to 600 million to secure the nba broadcast rights. Thats equal to their Second Quarter profit for disneys entire film division. Theyre really having to pay up. You have Companies Like amazon coming in and bidding for nfl games. This was unheard of 10 years ago and this is something thats really going to affect them going ahead in the future. Analysts are looking at that and wondering if espn can continue to contribute the consistent profits they have in the past. Francine dave, talking about the wider disney businesses, talking movies and cartoons but of course theme parks. Dave that is the strength. It is a very broadbased entertainment business. They have these massive franchises that stretch across theme parks and movies as you mentioned, they work very well together. Its a very strong, bob iger has done well investing in theme parks and they opened one in shanghai doing very strong business and theyre breaking their own expectations there with the performance of that park. The Movie Division is not doing fantastic. In the last quarter the pirates of the caribbean movie, questionable performance there, didnt meet all its targets. But again, thats the movie business, its up, its down. They have really strong movie franchises and did really well with the star wars and we can expect more from that. Theyre also using the Star Wars Franchise to add new features to their theme park. Thats a very strong combination that bodes well for them. Thats the bull case for them as far as the Quarterly Earnings go. Francine dave, thanks so much. Up next the record rally continues in the u. S. But how much further can it run . This is bloomberg. Francine you can see some live pictures, a constituency in nairobi, kenya, where of course today a lot of people go and vote. We have a great bloomberg story called wooing angry millenials. We saw the Opposition Leader casting his vote and getting into the car, mr. Odinga. Definitely something a investor will be watching especially if theyre invested in kenya or some of these markets. First lets get to the Bloomberg Business flash with taylor rigs. Taylor francine, in venezuela, russell has pulled all Foreign Workers in the oil fields from the country in a deepening political crisis. According to people familiar with knowledge of the company, chevron has removed a small number of employees. At the same time norways stat oil removed its staff and it does not comment on security and personnel issues and didnt return an email seeking comment. A south korean prosecutor demanded samsung li spend 12 years in prison in a role of a bribery scandal that toppled the nations president. Its the harshest criminal sentence sought against a major conglomerate leader. Lee has consistently denied charges. Google fired a employee writing a internal memo blasting the policies. He confirmed his dismissal saying he had been fired for, quote, perpetuating gender stereotypes. Asked about the dismissal, a google representative referred to the email from the c. E. O. Which said portions of the memo violated the companys code of conduct but didnt say if action was being taken against the employee. And at 10 30 p. M. , u. K. Time tomorrow on bloomberg technology, facebook c. O. O. Discusses rg leadership and the Culture Network impact at its headquarters. And thats the Bloomberg Business flash. Francine . Francine thank so you much. U. S. Equity futures are pointing slightly lower after the speedwp and dow jones continued the record runs. How much further can the rally run given the turmoil in washington, lets ask luis kosta and Richard Jeffrey. Richard, whats your take on the Trump Administration so far . We have someone in the white house, the chief of staff, he seems to be getting things a little bit in order but its only week 2. Richard things to be getting things in order . Luis things to be getting things in order . Francine a little bit. Richard five minute of stability and we go right over it. Its one of the problems for anybody looking at the United States whether involved in Financial Markets or politics or just generally in the economy, trying to interpret whats going on there and what it might mean for them. And i think were still in that learning phase. I dont think were quite sure, the political process still seems quite random and were not seeing very many decisions coming out of it and i think thats the key thing at the moment. Actually, trump came in with lots of promises on things like tax reform and theyre not being delivered and markets have to take note of that. Francine does it start with looking at the white house, lets say they are able to control the tweeting and stop the leaks or at least control the leaks and have the president s ear . Does it mean theyre more likely to have congress support tax reform . Luis its great to have him there because hes trying to contain the noise. But you cannot disregard all the damage done in the past. The courts are blocking his measures. Hes losing support within his party, his own party, obviously. He would have zero support from the democratic side. Media, absolutely terrible relationship with the media generally speaking. So its going to be very difficult. Nd we are starting to see even disgruntled past sponsors of the Trump Campaign now becoming very critical. This is all over the newspapers and its been all over the newspapers for the past week or so. And i do think its a huge cloud. We know the russia link investigations are not done yet. This is actually evolving and actually getting bigger and obviously the markets dont have the transparency we wanted to have in how far this is getting. Its a huge gray cloud and i still believe this is massively influencing the assets generally speaking. Francine do you think its massively influencing equities in general because its unclear whats priced into this rally . Richard i dont think its dominating asset prices to be perfectly frank. I think there was a stage in which for instance the equity market seemed to be boosted by promise of tax cuts and other economic changes but that seems to have come out of the market now and nonetheless the american active market is doing quite well. I think behind the scenes its really what the fed is doing, has been doing in terms of Interest Rates and is going to do in terms of the withdrawal of quantitative easing. Its going to become much more important to underlying valuations of asset markets. I think the noise around that is going to come, if you like, from the political influences. But even the volatility levels of asset prices tell you actually the political noise has not been doing that much damage so far. Luis people dont know how to trade. Francine they have blinkers on. Luis people dont know how to trade it. If you go back to a political crisis in the u. S. , you have watergate and the clinton scandal. Its a very different concept. Richard it is sound and fury signifying nothing. Weve seen a lot of sound of fury out of the administration but in terms of whats happening its very little. Francine they dont know how to trade off the Central Banks, once they normalize it, theres a picture change. Luis going to our conversation here, this isnt bearing any economic agenda coming out of the Trump Administration. Theyve been unable to pass remember, our expectations the beginning of the year relative to now, right . And that it has to do with the political problems the white house is facing now. It has to do with it. So i continue to believe this is a massively underappreciated value, a variable year. Of course equity markets will continue to drive higher because monetary conditions, financial conditions are very loose, not only in the states. Francine we dont have a protectionist stance. Its almost like a plus and minus canceling itself out. Richard it is. In terms of the political scene in the United States, theres something that the most important thing to watch is the way that republicans are responding to trump and at the moment, most the republicans are saying well, well continue to give him 60 , 70 of our support because at least hes a quasi republican. If that diminishes and the republicans themselves begin to lose faith in him, that i think is a moment politics becomes much more aggressive influence on Financial Markets. Francine how do you look at kenya, this is a chart looking at its soaring external debt. Luis this is emblematic of the whole region. Theres a huge expansion outstanding especially on the dollar side, for you held by foreign investors. Political gyrations in africa which kind of have been forgotten in the recent past, they are coming back to the floor once again. Its very important to see whats going to happen in kenya. Francine thank you for joining us today. Luis kosta, emerging strategist at citigroup and Richard Jeffrey at capital management. Bloomberg surveillance continues and tom keene joins me out of new york and well talk to a Merrill Lynch expert and well of course talk about kenya and south africa. This is bloomberg. Is this a phone . Or a little internet machine . [ phone ringing ] hi mom. It makes you wonder. Shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. [ laughing ] so all you pay for is data. See how much you can save. Choose by the gig or unlimited. Call or go to xfinitymobile. Com introducing Xfinity Mobile. A new kind of network designed to save you money. Francine risk off. Says. Effrey gundlach it is time for investors to because just before it is too late. Markets react positively to the secret noconfidence ballot. We are live as members of parliament cast their votes this hour. And time to unwind. Fed officials pressed the case for reducing the Balance Sheet, despite the low inflation challenging the Central Banks credibility. This is bloomberg surveillance indid im Francine Lacqua london, reunited with tom king in new york. We have to talk extensively about the inflation figure out of the u. S. On friday. Tom the numbers are there and on we go. There is an august dullness to the market. Some of these trends are still in place against the political backdrop. Strength is aeuro significant because we are a month and a half away from the german elections. Lets get straight to the bloomberg first word news. Reporter President Trump plans to wait at least a week before going ahead with his investigation of china. According to an administration official, that is because china supported the u. N. Security sanctions on north korea. The white house is still concerned about possible chinese violations of intellectual property laws. The Trump Administration is preparing for sanctions against venezuela. The u. S. Would freeze assets of 10 to 20 people time to the government of nicolas maduro. Maduroe penalizing the regime for undermining democracy. The parliament votes today against jacob zuma in a vote of noconfidence. The South African main offices files the noconfidence motion after he fired the finance minister. In kenya, authorities are ready for violence, no matter who wins. More than 180,000 police have been deployed across the country. President kenyatta is up against former Prime Minister raila odinga. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im taylor riggs. This is bloomberg. Tom equities, bonds, currencies, commodities. We have some real subtleties here this morning. Futures are a little bit light. The curve is going nowhere. The euro is going nowhere, except against sterling. Brent crude, 52ish. We really have nothing to break dow. F 22118 on the there is eurosterling, which is much better than what i am. Michael pence gets my attention, francine. Francine we are talking about the fact that if you curb immigration too much after brexit, it will be harder to fill positions. Tom, you are right. It is a little bit of a lackluster trading session. Beopean stocks seem to trading sideways. Gold is climbing and oil is up, and that is significant because of the opec meeting in abu dhabi. Tom a lot of themes today. We will speak with the professor from dartmouth college. This is a chart for blanchflower. Here is the average labor share for a solid 30 plus years. Down we go, 9 and six standard deviations move off of a rocksolid trend. This is an extraordinary place for labor share to be as they percent of business revenue. All about routine and technology. This is the new american tension. Francine we will push that out on social media, as he will my chart, which is looking at u. S. Breakevens. Federal officials saying u. S. Inflation was a problem, but they played down the risk of disruption in the markets when the fed starts shrinking the Balance Sheet. I am looking at 30 year rates for the u. S. Breakeven. Undlach said he g has seen too much of a good thing and has expressed concern about how bullish the market has become. He tells bloomberg is not the time period when you can purchase anything and not worry about the risk. The time to do that was 18 months ago. We are now joined by gilles moec. Gilles, too much of a good thing . Welcome to the program. You will have a good thing for one hour here. The fundamentals are ok. The market is seeing something you are not in the real economy. The fundamentals are ok, but not stellar. At least in the u. S. Oururope, by mediocre standards, they were stellar, but they are becoming less so. Thinking that7 maybe the u. S. Economy could accelerate to a 3 plus growth rate. It is clear that is not happening. In europe we have had a positive surprise and a number of positive surprises since q4 of last year, which has triggered a lot of positivity, especially when we have a political rift. I understand why there is so much interest in european assets. The problem is, this triggers appreciation in our currency, and this will hurt. What we see within the german data is that we should not take the very strong dataflow flow at the beginning of the year as the benchmark. We say, ok, but i dont think we can maintain the growth rate we have had. Francine gilles, i want to bring you to the minneapolis fed president , neel kashkari. Inflation has been coming up short, a little low relative to our 2 target. That actually matters. You think 1. 5 is not a big deal if you want 2 . It matters that investors believe the fed can achieve its goals. Francine is this a credibility problem for the fed . It is a credibility problem for a lot of Central Banks. Im an absolute fundamentalist. I think Central Banks need to at least be seen as trying to e the settlement as trying to fulfill their manda te. Risk is that at some point, Central Banks tighten Monetary Policy before we get to the point where inflation is really established. You could argue that the risk is already there in the u. S. Case. Increasingly, it is something draghi might have to accept. The message you send from they mean centralbanks point of viw is, sorry, guys. I cannot continue for Financial Stability and put up the reasons to do what i should be doing. It is not a great situation to be in. Tom good morning. At some point, you are right. I guess you have a slowdown. One of the common themes we hear is recessions are required to really have ugly market outcomes. Review for us the Merrill Lynch recession watch. Is there any inkling of recession in any of the major developed geographies . No, i think that is a question we get from time to time. The market, in general, has issues dealing with mediocrity. The market loves binary outcomes and strong growth. Stuck at 2 , which is the u. S. Situation. That is something people have trouble trading. The problem we have seen for a long time recoveries do not die of old age. You need to see something happening for a recession to take shape. You need a big, fat policy mistake, or a disastrous shock. We have not seen that and we do not think we will see that. We are stuck in a fairly mediocre situation where growth is not very far from where potential is. Tom part of this is a trend. Bring up the chart. We will use this later, but i thought i would bring it up with our economist here as well. Bes is back 70 years and to kind, its a trend as well. From where you sit as an economist, how much are the markets linked to our economics . As an economist, i would say ultimately they have to vote with what macroeconomics tell us. We see over about 30 to 40 years, weve barely seen market returns exceed nominal growth rates. One of the potential reasons is there, byis definition, the companies that fail, that underperform. You should gradually see outperformance in real asset prices away from gdp growth. In the end, we should definitely continue to see some form of recoupling. Because of a very simple point. If my financial returns sorry, outperform if the Interest Rate is constantly mirroring what nominal gdp growth is, there is this propensity to invest. At some point, there needs to be a tom recoupling. Tom you get an august a . We will come back with mr. Moec and talk about the euro, and its affect on the united kingdom. Andng up today, david gura myself, and important conversation about automatic data processing. This is bloomberg. Reporter this is bloomberg surveillance and im taylor riggs. Bill ackman has taken the next step in his fight to shakeup the company, nominating three people to the outsourcing company, including himself. He says he will hold a public webcast next week to discuss ways of and locking value at adp. The rental car industry is getting worse. Avis has slashed the annual profit forecast. They have been hurt by the ride hailing companies. The valley of the cars they own depreciate. And google has fired the offer of a controversial memo on gender differences. An engineer wrote an internal note arguing that biological differences play a role in the shortage of women in tech and leadership positions, also saying that google silences political opinions. That is your Bloomberg Business flash. Francine south Africas Parliament will vote shortly on a motion of noconfidence on jacob zuma in a secret ballot. He has survived several previous noconfidence votes. The vote boosted overnight volatility in the rand. We are now joined from johannesburg. How much of a surprise was this . Do we have any idea of which with a confidence vote will go . Reporter it was a really big surprise. And an unprecedented move by the speaker,assembly announcing really, that the vote would be done in secret. We know the opposition parties have been lobbying lawmakers to vote for the motion of noconfidence to pass and for president jacob zuma to be removed from office. We are not sure how likely that 0s because they will made 4 lawmakers to vote in line to 2 01 out of 400 lawmakers to pass. We will have to wait until his afternoon. We do know that the anc caucus met this morning, possibly to make sure that the lawmakers really follow the party line of keeping president jacob zuma in power. Francine so, i know this is more to do with politics than the economy, but what happens if jacob zuma is ousted . Do we really think that the person who will replace and will focus on the economy and on reforms . Well, if president jacob zuma is ousted, it could have really great consequences for the South African economy, which has already seen sluggish growth. We have seen a technical recession in the Fourth Quarter of this year. Ratings agencies will be keeping an eye on this. We know the cabinet will be dissolved. They will have to resign. And a new leader will have to be elected by the African National congress within 30 days. In the meantime, the speaker of the National Assembly will have to be taking over the president ial duties. Tom the uproar here is about the gupta family and bribes, it is also a 75yearold gentleman who has been doing this for 25 years. Worn out his welcome, not only to opposition parties, but to his party as well . Reporter it seems that is exactly what happened. It seems this motion of noconfidence is preceded by two bids that came from within the party. That is the highest decisionmaking body with an the anc. This of course, coming after the countrys Credit Rating was downgraded by two ratings companies, following him firing pravin gordon. Francine thank you, amogelang mbatha, talking to us from johannesburg. Tom, looking at some of the Research Notes, the South African rand could surge if jacob zuma anis outsed. Tot was prizeced from 10 15 . Richard lapper joins us from chatham house. Richard, i want to bring you to my chart, overnight rand volatility chart. It charts volatility. How much of a surprise was list . We know if people are more likely to be party, or loyal to their economy . I think it was a big surprise. The idea of a secret ballot was a big surprise. That came by the national speaker. I think the uncertainty in that chart, in the volatility, reflects the fact is, it is very likely, despite this being unusual, it is very likely that jacob zuma will survive this vote. And i think you know, thats the likelihood. I would say there is a one in four chance of the no vote perhaps less than one in four. Francine what comes after him if he does get ousted . Immediately the speaker would take over for 30 days and then there would be indirect elections. Then, jacob zuma, he has until 2019. There will be elections in 2019. The likelihood than is that another anc candidate will succeed him. He will be out of the way at some point soon anyway. Francine i want to bring it over to mike rand volatility chart. Over to my rand volatility chart. This is also kind of a fed volatility chart. Im not an expert on the rand. But, yeah, i would say the problem the market has right now is when dealing with the hesitance with banks, we had a very hesitant bank of england. I think the narrative from the fed is getting increasingly hard to follow. And the ecb, which was sailing quite comfortably in the First Six Months of the year, is facing difficulties, including the depreciation in the currency. The spectrum for possibilities for what major Central Banks could do in the second half of the year is much wider than what we had at the beginning of the year. Any of them are potentially going to backtrack on some of their narratives. That makes everyone a little bit more nervous than six month ago. You, richardnk lapper and gilles moec. Coming up tomorrow, a conversation with James Bullard at 1 00 p. M. In new york. This is bloomberg. Francine this is bloomberg surveillance with tom and francine. Tom, lets go straight to china. The trade surplus widenend in july. The spotlight is kept on u. S. And china with President Donald Trump thing he wants to narrow that gap. Enda curran joins us from hong kong. On the data we had today, are we worried about the second half of the year . There was a little bit of caution in the numbers, francine. If thisa view that trend continues, china will see a softer second half. The better trade story has emboldened the regulators. Its early days yet, but if shipments continue to follow the way we just saw, we are in for a softer second half. Francine on this trade surplus with the u. S. , are we closer to a trade war because they have these common sanctions with north korea they are actually friends now . The trade surplus story has not changed since the beginning of the year, despite the unrest from washington and todays numbers will back that up. The game changer over the weekend has been the north koreans actions. The fact that china is on board, donald trump might step back now and see how they enforce the sanctions against north korea. The trade war story is still there, but i have a feeling we are on pause right now. Later today, as the earnings parade continues, on disney, their chairman bob iger in the 5 00 hour. Look for that, coming off the earnings to see how they did at the box office. To see if you spend enough in orlando or anaheim. Bob iger as well. From london, from new york, stay with us. This is bloomberg. Who knew that phones would start doing everything . Entertaining us, getting us back on track and finding us dates. Phones really have changed. So why hasnt the way we pay for them . Introducing Xfinity Mobile. You only pay for data and can easily switch between pay per gig and unlimited. No one else lets you do that. See how much you can save when you choose by the gig or unlimited. Call or go to xfinitymobile. Com. Xfinity mobile. Its a new kind of network, designed to save you money. Tom the joys of daylight savings time. Doesnt come up until 6 00 a. M. The Chrysler Building slipping off to the left. We will follow back at some time to go back to farmers hours. Not now and already daylight savings time adjusted america. I am tom keene and Francine Lacqua in a london. Here is taylor riggs. Republicans are discussing a compromise with overhauling the tax system, according to people familiar. Lawmakers are talking about mixing permanent with temporary revisions to change the tax code without adding to the federal deficit. The draft of a new government report finds Climate Changes had a dramatic impact on the u. S. According to the new york times, the average temperature 1980. Sen drastically by the report will not be released until the Trump Administration gives the ok. An ominous milestone for the american consumer. Just before the financial crisis, outstanding car loans went over 1 trillion in june. , iters have been competing is a lucrative business in a time of low Interest Rates. Citigroup has agreed to settle a case saying the bank rigged libor. Citi will pay 130 million and barclays settled a similar case two years ago. Other Banks Including Bank of america and jpmorgan remain in the case. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries, i am taylor riggs. This is bloomberg. Tom . Francine . Francine thank you. Be preparingaid to sanctions against the venezuela. Meanwhile, at least 11 latin american countries will discuss the venezuela with rewriting the constitution. We are back with gilles moec. He specializes in latin america. Richard, when you look at latin america, how worse can it get . Richard it cannot get a lot worse. You can have complete fragmentation. Last weeks vote for the new assembly that created obviously a shortterm step for the government that simply increased of the tensions as demonstrated of by this weekends military rebellion in valencia. Valencia is the third biggest city in venezuela and one of the venezuelas army most important barracks that has loaded tanks. It was quite a significant event. You now have the prospect of 10 campwith weaponry in the and this is what venezuela has been away from in the past, guerrilla violence. On the one hand and then on the other, the great possibility of greater economic turmoil and we saw on the currency markets last week, the trade very curious threelevel system that sank like a stone. It is now a fictitious currency. We are very near hyperinflation in venezuela. Venezuela it needs a sugar daddy if it is going to survive. The big question is geopolitical if the chinese or the russians will bail out maduro. Francine sugar daddy, i like the way you put that. What happens if more sanctions are put on venezuela . Richard lapper a huge chunk of the venezuelas exports go to the states. It would hit venezuela and they thosebe able to relocate exports elsewhere, there are oil exports. Probably have to take discounts from the price, it will hit the revenues. You have to bear in mind that ezuelas oil, the overall they have something massively since 2012 and devastated by the fall in the oil price. 90 million in revenue in 2012 is about 22 meal now and we are seeing 20 million now and we see an impact and the disorganization of low production. Despite the fact that has venezuela isrves, in trouble. Tom let me look at the currency. It is amazing. I have never done this chart on the bloomberg. The 10 to one ratio, that is a very odd chart. All you need to know is slow matters, it takes a hyperbolic out in a nice, straight line. Thats red line is where mr. Richard lapper, the vicinity of 15,000 to 1. It is a hyperbolic, if i can bring to the marker of, richard, it is hyperbolic. Richard, there is no system that could the supplies that, what is the catalyst for financial collapse in venezuela . Think, i would i say that there is no system that can survive this. Going back to my period in southern africa, zimbabwe when zimbabwe had far worse inflation and managed to solve it. The same political system and a dollarization mechanism. It is very difficult for venezuela to do for all kind of reasons. The least it would be a stick and their throats they would have to go. I think, there is a possible scrapon to this is a there if they scrapped their currency. Putinst is mr. Incentive to step in and help venezuela . ,ichard lapper to what extent maybe some sort of trade. I mean, i think, this is all very speculative. There are some signs that both the chinese and the russians are a little setup with a maduro who is not the smartest of tyrants, as it were. Compared to maduro, this is, he has made a terrible mess of this. Tom richard lapper, thank you. Thank you for coming by today on venezuela. We have a lot to talk about. Gilles moec will continue with us. Business week, what a great edition. Onet of articles not only millennials making more money than god but also china. Some of the economic dynamics we ran. D from enda cur look for Bloomberg Businessweek, a new edition. This is bloomberg. Tom good morning. This is bloomberg surveillance hasne of the great themes been a great surprise, forget parity, your row is doing better. The politics, etc. The euro is doing better. It is above the 116 level. Gilles moec knows all of this, he is with Merrill Lynch. Lets begin with basic 101, is it for real . Europe has gotten to a point of Economic Growth of lower unemployment that describes the velocity . Gilles moec i think we are close to that, yes because the labor market has really started to improve massively and actually across the board in most of the economies in at the eurozone, we have a normalizing and it is going to take time to absorb the capacities within the last few years. For me, there was sort of a progression that started with a recovery that was mainly a massive policy push. The ecb that it would ditch austerity two or three years ago. ,nd then, creating jobs Consumer Spending is going to be supported i that. Supported by that. Things are definitely look better. Again, my issue with the frost is potential growth in the eurozone remains fairly weak about 1 . In the Second Quarter, we grew. T about 2. 5 the message i have been trying to pass is things look better and reestablished the growth and at the same time, very hard to maintain the kind of momentum we have been having and we should not get used to the very strong figures we have had recently. Tom where is your role in terms of exports . So many exports are internal. Do you have an estimate where the euro gilles moec it is something i have been doing for 2 years and try to do a pain threshold and the point in which you would a majority in companies telling you they feel constrained. That varies across countries. For countries like france and italy, it is slightly south of 120 on it euro dollar. You saw pressure there will. For countries like germany, we would need to get to 135, 140. Pricesensitive countries, we are probably getting into the region. Francine do you expect the euro to climb against everything . We have guests say they have euro against everything. Is everything parity . Gilles moec i definitely hope not. If we do, a massive downward revision in our forecast. I think there is something that should be stabilizing which should be we have had lots of froth over the last 2 or 3 quarters. Almost aen fed by constant flow of positive data. The second half, i think we will get less redundant surprises and of the market we get less data surprises and they ecb will give us a softer phase of tapering. And it will take longer than what the market is pricing right now. I hope, it is a matter of sustainability for us and i really hope as we get into the end of the year, things could reverse a bit. Francine this is my other chart and look at the difference in forecasts between the u. S. And europe. Does it underpin everything we do and why the euro is moving . Gilles moec yes. I always, to the consensus come to the consensus that the u. S. Is doing very event very, very well. And the best tax reform and a major fiscal push. At the same time, the fed was clear that were going to normalize Monetary Policy at a fairly regular pace. Fastforward six or eight months and the u. S. Looks more mediocre and the fed is more hesitant and on the positive data surprises came from europe and the negative to happen did not. The french elections was very important. All of this is, i think, a little past now. As we get into the second half of the year, france is doing ok but we have to think about it italian locations next year and the spanish situation is complicated. They europe does not grow by itself. It is one of the most open regions in of the world. 30 of ourount for gdp as more than twice than the u. S. Tom tell me by Europe Investment right now. We talk about american economies , are the investing, no. Are you seeing European Companies invest . Gilles moec yes, but not necessarily in europe. That is something we were looking to end of the german case. Investment is still the missing link. We should see more investment but not really happening. It seems that german corporations are starting to invest but they create capacities not on german territory and that is the situation in the last 20 years or so. It is an interesting disconnect between equity and what we seeing in accounts. Focusity analyst markets on what companies do a ratio focuses on what happens in economies. In the german case, germany is investing but not on their initial territories. Tom are they going to Eastern Europe . It was the case it would be a tosperous Eastern Europe lessen the might of russia. Is that formula broken . Gilles moec no, it is interesting to see the first European Central bank that broke ranks was the check them czech central bank. You also see wages accelerating. I wouldnt need to look into the data harder but it is a possibility that you have those eastern European Companies doing quite well. A lack oflso facing labor supply because a lot of people have moved away. I think this relationship stays strong but isham look at what German Companies have been doing but it should look at what German Companies have been doing the last two years. Francine thank you so much. From bank of america stays with us. If you have any questions for gilles, logged on to bloomberg. You can ask the guess the question a you can stea and you can steal some of these charts and use them for yourself. This is bloomberg. Taylor this is bloomberg surveillance, lets get though Bloomberg Business flash. Jeffrey goldilocks says risky assets such as junk bonds and emergingmarket debt is overrated. He said he is reducing the positions they in their place, gundlach will invest in higherquality assets. The danish jewelry maker pandora plunged today. The earnings missed estimates. Pandoras management set of the retail environment in the u. S. , which is the main market, is an issue. Mortgage finance giant fannie mae and freddie mac could need up to 100 billion in bailout if there is another economic crisis according to the regulator. The result may be used by those that say they should be allowed to build a Bigger Capital buffer. Right now, they have to overturn all profits to the treasury. That is your Bloomberg Business flash. Francine thank you. The number of permanent roles grew at the frances rate in more than two years but availability debt grew at the fastest rate in more than two years but availability fell. Results show how important it is for the u. K. To have easy axis to labor from nations after brexit. Still with us is gilles moec. Only about possible labor shortages but Inflation Expectations and negotiations that are not going anywhere at all, what does it mean for boe . Gilles moec the bank of england last week kind of gave up. That is my main takeaway from the latest, gave up on the rate hike. It was always kind of surprise that you had up to three members of the mpc in favor of such a big move. There was maybe volatility when the rail side was doing well. Real side was doing well. Was going to soften and we have increasing signs it is happening. Finally, we have a sense from the bank of england that they absolutely believe it inflation chart is not going to feel, going to take any effects. The biggest take away from the Inflation Report is at the bank of england took down is wage forecast. Act at the same time, and very frothy labor market and tons of job creation but not generating increases. You would needed to see increases to turn into something more sinister. If you are the bank of england, you expect inflation to peak this year and a slowly, slowly edge back below the target by the middle of next year. Francine you are talking about this chart we are looking at, this is also something i will put on social media for radio listeners. The base rate for the bank of england and the inflation they have ignored high inflation for quite some time. This time, it was different because we hear mark carney have the hawkish stance. Why havent if you cannot raise . Why have it cannot raise . Gilles moec maybe carneys communication was not perfect and people took the speeches very hawkish, laying the ground for actual tough decisions. And my understanding was that what carney was doing was trying of the fact that everybody at the bank of england was looking at the same thing and the chances for second round inflation to materialize. Q3, we willt into see if enable materialize and they are not. As of they are not, we are moving back. We have a bank of england that is stuck. One of the key issues for the u. K. In the coming two years is not just negotiations, it is also that both wrenches of of branches are stuck. There is no room to maneuver and now much of the bank of england can do now. On our london a desk of this morning. Much more to talk about. So much on the politics of washington and at golf course in new jersey. In the7 00 hour, 7 00 hour, leon cooperman with the david gura and myself area this is bloomberg. Got you outnumbered. The dinosaurs extinction. Dont listen to them. Not appropriate. Now im mashing these potatoes with my stick of butter. Why dont you sit over here. Find your awesome with the Xfinity Stream app. Included with xfinity tv. More to stream to every screen. Tom this morning, amid a grateful market with a strong euro reality, cell in august and go away. Its all the rage. So dow up 6 since they said in may and go away. Ins rain and more golf an bedminster. Thats the reality for the president could he must consider harsh language from north korea and then there is china. Uncertainty, hedge funds go in search of august off of. August alpha. This is bloomberg surveillance. I am tom keene along with Francine Lacqua. A huge, challenging economic and political experiment. More interested in talking about south africa because this is a huge deal. President african facing the biggest threat to his presidency when the parliament votes on whether he gets ousted or not. Its a secret ballot and that is extremely significant. Tom lets get to the first word news right now. Here is taylor riggs. Taylor President Trump plans to wait a week before going ahead with the trade investigation of china. Official, that is because china supported those sanctions on north korea. The white house is still concerned about possible chinese violations of intellectual property laws. The Trump Administration is preparing to expand sanctions against venezuela. The u. S. Would freeze assets of 10 to 20 people tied to the government of president nicolas maduro. The sanctions may be delayed while the United States seeks an International Response for penalizing the regime for undermining democracy. Africa, the parliament votes today on the motion of noconfidence over the president. The ballot will be secret, a surprise decision that may increase the chances of his ouster. The main opposition filed the motion after he fired the finance minister. In kenya, authorities are braced for violence no matter who wins todays president ial election. 180,000 police have been deployed across the country. The president is up against the former Prime Minister. The former Prime Ministers coalition has accused the government of plotting to read the vote. Global news 24 hours a day powered by more than 27 journalists and analysts in 120 countries. Tom the euro is just front and center. For hiso gilles perspective in the last half hour. Onto the next screen and im looking at euro sterling as the only point of discussion. Point 91, near rounding up for some summer excitement. Francine it seems like its a little bit of a lackluster trading session, but im looking at oil as they are still meeting in abu dhabi. 50 can see crude oil below and then the rand over in south africa. That for me could be the Market Movement of the day if the president gets ousted in a secret ballot. Tom ive never done this before and the bloomberg. I really enjoy doing the Facebook Live thing as well. Hyperbolicged hype venezuelan currency. Of theod guest mentions last hour, there is the market function down here out to 10 to one. Thats a 60 depreciation in the last seven years from the blue circle. 60 depreciation. Here is the black market off the dollar today. You have almost a 99 hyperbolic collapse in venezuela and i will get this out on twitter as well. Thats an extraordinary chart, francine. Mine is also extraordinary and i followed you in emerging markets. Going back to the rand this is significant. Im looking at a lot of analyst notes and the rand could surge if zuma loses the secret nonconfidence ballot. A lot of analyst saying that gains wit would reverse. This is the rand overnight volatility. You can see the volatility spiking up quite significantly. Tom very good. This is a good time to catch up. This is in august tuesday so what do you do . Im not talking about alternative investments. The global head of risk, ive no idea what global head of risk is. What is a global head of risk . This is an prime brokerage and hedge funds. Mark we have a team that looks as the balances of alternative managers and they come to us to get leverage. They come to us in different assets. We get to look in view at where these positions are. Tom i love the idea that you will leverage like right away. Are we leverage late 1998 or 710 years ago 710 years ago . Mark the leverage is not as high as it was in 2007 right now. When we talk to clients, they feel like its more of a 20052006 environment. The average equity long short timesfund is an asset 3. 5 leverage that they were going into the crisis in 2008, closer to 1. 82. 5 on average. Tom who is creating alpha . We had the blowup of the y. Mmodities gu somebody made a bad trade due to lack of diversification. Who is winning right now and hedge funds . Mark clearly emerging markets. Tom that is true if you are along mutual funds as well. Mark we say alpha. Emerging markets the way the mathworks and math is not always tell the whole story, but that is about say 10 returns in the last 12 months from emerging markets. Alpha because the emerging markets are not benchmarking to the s p. They are creating their returns differently than the average mutual fund. Pension funds are like that until they dont. Look at your chart. Francine mark tom francine, this is funny. This is a hedge fund that made the wrong trade. [laughter] francine mark, let me ask you about hedge funds. Disproportionate do they have a disproportionate amount of spike news markets . This fear price in the markets that are concentrated, which could lead to huge distortion and huge corrections. Mark alternatives are not disproportionate in emerging markets. If you are leaving this way, have they exacerbated the margin and are they causing a bubble . No, the allocation of emerging markets is probably below where it was. Francine i was not talking about emerging markets. I was talking about all markets in general. Mark excuse me. The footprint and alternative remains about 3. 1 trillion. It has grown at a lower rate. It has grown at a lower rate than just the s p index. No, we are not worried about alternatives driving any kind of bubble here. There prudent. They are making money and tactical. Ist they are doing recently that they have leaned into europe oddly even though the growth is in the u. S. We think thats because the valuation. That shows a defensive tendency of alternatives to go after something on a valuation basis and not momentum. Francine mark, talk to me a the man saidwhat where this is not a time. Where i cannot buy risk and not do anything about it. Are you much more prudent on the markets . Mark when we look at the Balance Sheets that we have come , we are cautious of how much collateral we would need for each asset class. We are keenly aware of valuations are aware spreads are. Are we at a mature market . Yes. The last cycle was almost nine years ago. Whatjeff is saying is must risk managers and Asset Managers are playing. Tom you have to have volatile due to make alpha. These notes are prosophisticated that mr. Connors has generated for quarter through. In the death of your eightpage note on the lack of volatility, what was the thing that stuck out to you . Mark emerging markets trailing on volatility. Its 2. 8 percentage points. Goingou look at managers to emerging markets, the ball told you that they are generating in their returns is less than the s p. That is on its year. Tom thats historically like its never happened. Why . Is janet yellen the manager of that right now . Mark the Federal Reserve, the boe, the bank of japan, the ecb those are the Foreign Investment points driving everything tighter because of their accommodative policy. Tom mark connors is with us. Really sophisticated riskadjusted notes. Someone who knows about risk adjustment and rationalization, cooperman will drive the conversation in the 7 00 hour. Looking forward to that. Stay with us. From london to a gloomy new york, we need golf in bedminster. Golf gods, clear the clouds. This is bloomberg. Taylor this is bloomberg surveillance. Im taylor riggs. Lets get to the bloomberg is this flash. Phibill ackman has nominated three people to the board, including himself. He will hold a public webcast next week to discuss ways for unlocking value at adp. The slump in the rental car industry is getting worse. Avis has slashed its annual profit forecast. Revenue with the rental companies has been hurt by ride hailing firms such as it were and lift uber and lyft. The value of the cars they own depreciates more rapidly. Fired the author of a controversial memo on gender differences. He wrote an internal note saying leadbiological differences to the shortage of women and that google stifle conservative opinion. Thats your Bloomberg Business flash. Francine south Africas Parliament is due to vote shortly on a motion of no confidence in a secret ballot. It is to the highest since early may. That joins us now from johannesburg. Just how fragile is the most presidency right now . It seems very fragile as of late, particular since around early last year. Back tolly you can go 2015 in december when the president ousted them finance minister and then replaced him with one that only lasted four days. Then we had another finance minister in a short time is look at gordo as well. Gordon was ousted earlier this year. Theres the former minister of home affairs that does take office. It does mean the economy has not been stable in that sense. Stableas not been a sense of leadership and many are worried that this is a form of capturing the economy. That would mean that jacob zuma is inevitably trying to dilute the economy. A lot of weakness coming through on that front. Francine it is very clear that because the vote the secret that many more parliamentarians may vote against the has them because they dont fear as much losing a job. They are also committed to the anc. How likely is it that the president gets ousted today . Arabile there are many calculations going about. All you need is 201 members. The anc has 248 members in parliament as well. You need 50 of them to vote in the opposite direction. It is possible and likely. We have seen a few utterances from the party line saying that they will vote with their conscience rather as opposed to just towing the party line. It will be an interesting one. Whether that is the case is another matter. We will know in about an hour and 45 minutes. Tom what is the societal functions here. . Is this a generational issue . We have a bloomberg article that they may face until challenging future, but what is the distinctive future that you see in south African Society as we go to this critical vote . Arabile it certainly has been corruption. It has been the key element to zumas presidency. They say he does not lead because of the charges that he may face with regards to corruption as well. Andlinks between himself the family that seems to be getting government contracts at a much easier cost seems to determine who comes in to office as well in south africa. They are politically connected. That and a sense has really lead the conversation here in south africa. Tom what is the latest business shot in johannesburg . What outcome do they want . Arabile i think the message cannot be clearer. They all want jacob zuma to be taken out of office. Whether that will really happen is a story for another day. Perhaps later today we will find out if that really happened, but it does seem that they would prefer that jacob zuma is ousted. Lead of parliament would take reign as acting president until new president is elected. Tom very well done. With us frommuch south africa this morning. Back to mark connors with Credit Suisse. Is a politicals economy and geopolitics, which brings us back to mr. Soros. How is the world of george soros doing with the gaming of global macro risk, which you as a guy hate . Mark its definitely a factor. Tom is it winning right now . Mark its not winning from our terms standpoint. You dont bet on averages, but the majority of macro funds were flat in the year. That is because the trends have been mired in sort of a left to right transition here. 13 ough crude is up about is that about right . Tom since tuesday we will go with that. Mark over the past year, it has been rather flat. You not had a trend in crude. When it moved, funds were not there. Rate also happen sideways for a while. Isnt it that the 10year is a most flat almost flat from the time the fed for started hiking . Tom i want to draw down some of the realities that we have had. Not only this year but the last three or four years as they have been tough. Mark connors a from Credit Suisse here with alternative investments,. you you have your bloomberg terminal and you have a hedge fund in you to make alpha. This handsome mark connors with Credit Suisse. You can go over to the right side and clicked on the chart story. The golden cross and you can see that chart only on bloomberg tv. Tom a soggy august on the east coast gloomy in washington. A construction project off to the left of the capital as the white house is under construction coul. Kevin cirilli joins us now. To china and korea, but we really have to talk about the way that the president went after the senator from connecticut yesterday. Was this business as usual or was there Something Different in the invective . Kevin tom, he has done it before. His targeting of senator blumenthal was another iteration so to speak of everything we have seen the past couple of months. This democrat from connecticut really gets under his skin. This is someone who has pressed him consistently all the russia on the russia investigation th. The president going on a twitter attack and exposing him about his vietnam record, which is nonexistent. This is from years ago, and senator blumenthal apologized for it, but clearly the president using the bully pulpit to go after him. Tom what will be the plan of attack for the presidency on china, on north korea, particularly with the secretary of state in the philippines . Kevin secretary tillerson just a couple weeks ago has called china and russia economic enablers of north korea. Over the weekend we saw that you and the vassar for the United States was able to get russia Ambassador Nikki Haley was able to get russia and china on board. North korea is feeling emboldened. He keeps using these missile programs number one because he is crazy, but also because theres an economic incentive for him. He feels it would help grow the economy. There really is no reason for him to be doing this. What you are seeing the china is just how interlocked they are in terms of economic imports. Mcmaster and mr. Mr. Matus and this . I know that they are focused on afghanistan, but are there military options in north korea or is that media bluster . Administration has said consistently that military options would be something that they are not going to roll out. I think we are bit a ways away from there right now. The sanctions are only going to continue and that potentially notd be more should china continue to help the United States. Tom kevin cirilli, thank you so much. At the on the 15th hole bedminster, new jersey golf course. I really want to talk about hedge fund dynamics. Theres market drawdown and hurdle rates with mark connors. Withve leon Cooperman Bloomberg surveillance radio today. David gura will have that for you. How about a double cover . We have a smart article in here and a lot of other good articles as well. Theres an important article on a Chinese Company modestly associated with mr. Scaramucci. The Business People are offer thursday. I dont know what that is about. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. Francine this is bloomberg surveillance. Lets get straight to the bloomberg first word news. Heres taylor riggs in new york. On capitol hill, republicans are discussing a compromise when it comes to overhauling the tax system. According to people familiar with the matter, lawmakers are talking about mixing permanent revisions with temporary rate cuts for individuals and businesses. They are trying to change the tax code without adding to the federal deficit. A new government report finds that Climate Change has had a dramatic impact on the u. S. According to the new york times, report found the average temperature has risen roughly and drastically since 1980. It contradicts claims by mr. Trump and members of his cabinet. The report will not be released until the Trump Administration gives the ok. Its an ominous milestone for the american consumer. Credit card debt has now passed the record set just before the financial crisis in 2008. Outstanding card lens went over 1 trillion in june. Lenders have been competing with signing up cardholders to carry the balance, a lucrative business at the time of low interest groups. Citigroup has settled. They will pay 130 million. Barclays settled similar claims two years ago. Other banks, including j. P. Morgan, ubs, and bank of america, remain in the case. Global news 24 hours a day powered by more than 2700 journalists in more than 120 countries, im taylor riggs. This is bloomberg. Tom what is your rationalization to be in the market . Erik schatzker in our conversation with mr. Dunlop. He shows fear and trepidation. Others develop powerpoint and Research Notes saying have courage. At oppenheimerat and company for ages. He has been one of the great persistent bowls on the market and joins us from boston today. Congratulations on your courage to be in this market. How do you maintain courage on an august tuesday . John weve got to say that we have some tailwinds. Earnings are up for this quarter. It looks like it will close out as the fourth consecutive quarter. Of Earnings Growth for the s p 500. We have got an economy that is taking a long with a rate of around 2 two. 5 analyzed. 2. 5 annualized. We have to say fundamentals look good. On a valuation historically, the multiple looks a bit rich. A trailing multiple of around 21. 4 versus 16. 3, the historical 12 month average. The yield on the 10 year average back to 1965 is around 6. 4 on the 10 year versus 2. 25 today. Tom bring up the chart again. This is the s p back a million years. This is beyond elegant chart. Thank you to the late martys live. Heres that market premium up here in the upper right corner. Is there a linkage now between the fixed income market and equity market . John we have to think so. With theionship to us fed committed to normalization as well as Central Banks around the world considering normalization of Interest Rates, greater risk in bonds nearterm, less risk in equities as a slow growth environment gives central especially ours, gives us room to take time in the process of normalization as well as raises in small increments, which is much less disruptive and not disastrous for the bond market. Francine when are we going to corrections . John that is the big question. Theres no Expiration Date on a bull market that stands on the lid of it. We would have to say that we think a correction will come up whenever the market perceives a catalyst that justifies some profit taking. I think a lot of people are uncomfortable about taking profits at these levels because they feel there is more to come because of the improved fundamentals and not much in terms of animal spirits or irrational exuberance that we can see. Ifncine at the same time, youre looking at centralbank normalization and you are looking at an economy which is strong but maybe not strong as we were expecting, maybe it could all come to a head pretty quickly. John we dont think so. On may 1k back to 2013 or may 2 of that year, the 10year was around 1. 69 . Ben bernanke came out and said that the fed was considering taking or reducing the tapering. They were going to taper the monthly bond buying program. That immediately presumed that the fed was behind the curve. The 10year jumped to 3. 02 by the end of that year and everybody recognized that was not enough inflation to justify that yield. About 29 that yo year. Tom john is with us and mark connors in a more different world with hedge funds and risk at Credit Suisse as well. What is the correlation of johns world to the Hedge Fund World . Do hedge funds as a general statement one long only by side more traditional investors . Does that work . Mark theres a crossover at times. If theres trends going up, the Hedge Fund Community will have a net long. Theres a basic correlation, but see investors what that saved less than 25 . That is what we see. Tom how do you respond . Hes doing the Oppenheimer Company dance and has been successful at it. How do you and hedge funds respond to the canonization of a bill gross market . These are great people. Gundlach is the real deal, but the punditry of a tuesday morning, how do you respond to that . Mark as far as where you want to allocate money and who is worth it. Toinflection points, go back 2008 when the market was down on the order of 38 on the s p in the year. Hedge funds on average were down 1520 . They had less downside and they captured the upside. If we are at inflection point, you will want a manager with the left hand and the righthand to be playing of the long and short side. Offcamera we were talking about the coiled springs of compressed valuations. All stocks are now at 21 times. Everybody is up. We are seeing the currencies start to flameout. Those are Early Warning signs of a late market. Tom francine . Francine john, you are quite bullish on the markets. You suggest that equity markets can rally further. If there is some kind of correction, where would it come from . I dont know if you need to look at inflation or data points to show the canary in the coal mine. It would likely be some kind of mistake if the fed either as a need to hike rates in a larger increment that we ore seen, larger than 0. 25 , it can also be could come from a misperception by the bond market itself as to where the feds position, very much like 2013 when we had that runup in rates. The wonderful thing today is the nowe world is experienced based on what happened in 2008. Central banks have never been more prepared, i believe, to deal with crisis. I think that is one of the reasons they are committed to a normalization process while rates are still historically at low levels. Let me bring you over a quote from the st. Louis fed president. He said, the best policy for the moment is to leave rates where they are. Just a reminder that he is a nonvoting member this year. He says, im ready to get going in september. Dont know where my colleagues will come down on that. Is it unwinding too soon or leaving too late . John i think it would be unwinding too soon. I think right now as they begin to unwind with the debt on the Balance Sheet, at this point, i think they are going to the lid it out and the market appetite will see with institutions coming up like point fish in a Hotel Swimming Pool looking for the guests to feed them. Tom john, im tried to get past that. I stay at motel 6 and they do not have fish at pools tried to feed them. Help me with share buybacks. We were at the 21 multiple. My textbooks say that they should not be buying back shares, but they are, arent they . John they are, but the have slowed their appetite a little bit. Where onill at a point a global basis that one of the biggest risks for many managements across sectors is the global overcapacity. At least for the past nearly eight years, buybacks have not been a bad thing. It allows for improving the returns to shareholders. It also anticipate sometime down the road perhaps that will be a need for issuance of more shares. Tom john, thank you so much. Greatly appreciated. We will continue with mr. Connors and i really want to talk about market drawdown and the new hurdle rate given the absurdities of where Interest Rates are, some of the important nuances of hedge funds. Our Kathleen Hays in conversation with James Bullard. Stay with us. This is bloomberg. Taylor this is bloomberg surveillance. Im taylor riggs and lets get to the Bloomberg Business flash. Jeffrey download ceased to much of a good thing. This says junkbond emerging market that are overvalued. He tells bloomberg that he is reducing those positions. Will raisece, he rates. Jewelry maker pandora plunged today as earnings missed estimates. Management said the retail environment in the u. S. Remains a challenge. Pandora has become a target for hedge fund shorting stock. Mortgage finance giants fannie mae and freddie mac could need bailout money if theres another economic crisis. That is according to stress test results released by regular. Fannie and freddie should be allowed to build a Bigger Capital buffer. They would have to return all their profits over to the treasury. That is your Bloomberg Business flash. Francine disney is set to report results after the bell today and investors are watching very closely what espn subscription numbers tell us, theme park operations, and of course the movie business. Will be talking on with david westin will be talking with the ceo of disney, bob iger. , david westin now joins us. Im really looking forward to this interview. I know it will be later on, but how much will you ask of what he wants to do with yes pm how much of the focus will be on films . David you start with espn because it has been so big and successful so long. How badly is it stumbling and what is the downturn . It is still growing but not as fast as it was. , the espn over the top Amazon Effect for espn itself . As you suggest, can they make up some of the losses within parks, with movies and things like that . That is a big question for disney. Francine do we know if they want to go a little bit egg are in asia . I know they were looking at joint ventures in china. How much space can they still grow in the theme parks . David fops specifically has been working in asia for many years, going back to hong kong theme park before shanghai. Bob has said that they are interested in doing more, certainly expanding the shanghai park and expanded beyond that. It is not just the theme park, but it also helps them with licensing and other products throughout china. Awfully big market very important to bob hartle personally. Tom what is the sweat watch on the call as some people love the future with all their radar on espn and the soap opera . What is this what level for mr. Eiger to perform . David you know bob iger and he does not sweat. It is not matter whats going on. He is the most poised executive ive ever known. Tom there is a sweat level going on here. Theres a lot of critics. David he has got to be concerned whether he admits it on the call or not. He has this behemoth, arguably the most valuable media brand in the world at espn. Robust lowing very doubledigit numbers. That is a lot of growth replaced. To sweat, yount have to go to Martin Sorrell 101. What are you asking Martin Sorrell today . David to come back to disney for a second, about Martin Sorrell coming look at amazon and how its moving not just into retail but the acquisition of sports rights over the u. K. Is amazon replacing media to a large degree and could it replace wpp . I could go and put a product in and i dont have to look for an advertisement. Google advertises it to me. What is it due to his business and how do you cash in on that business . Appreciatewestin, it. Mark connors is with us. Before we talk about hedge fund dynamics, do you care about managers . Do you care about the ceo . Its like mr. Ackman with automatic data. I guess they care about ceos, but thats about it. Mark management has been the only alpha generating in the markets. You have flat growth and rates that have not moved. M a has picked up offline. It has dropped. Tom on general electric, does anyone want to play that game was that boring . Mark they dont play the transition in the moment. Us and weconnors with will continue really important conversation coming up on market drawdown and hurdle rates. Somebody can is about market drawdown, leon cooperman. Right or wrong, mr. Cooperman will deliver an opinion. He will do that in the 7 00 hour today. This is bloomberg. Francine this is bloomberg surveillance. This is aluminum climbing to the most on the chinese outlook. This is from an analyst. And this is supporting the alumina market. It is keeping it at the mercy of the chinese government. We will show tomatoes tomorrow. Ive never done this. This is regular aluminum after the stock exchange. Bring it up right now. The single best chart is alumina aluminum and we bounced up above the 20 year average. Im talking very british today. Right now not on britain, but on the be all the of hedge funds, mark connors of Credit Suisse. This beta to hedge funds and provide leverages and other services for them. Market drawdown is the nightmare. When we see some Big Hedge Fund guy saying im done, is the market drawdown has been so great is that they cannot get back to 2 plus 20 over the socalled hurdle rate. How much of your universe now is enjoying a market drawdown where they cannot get back above the hurdle rate . Mark the last 18 months has been where a lot of funds have gotten over that hurdle rate. They mentioned the high water mark. Two things have happened. Investors do not want to sell that fund because its free money for them. Tom they are not paying out to end 20 to the managers because the tank so that. Mark theyre not paying that incentive fee. The couple things happened in the last year. One is that funds have gotten better. And number two is consolidation. The funds that were having a tough time might have closed up shop and joined larger ones. Francine talk about momentum, mark. What momentum needs to happen to generate alpha . Mark i think you need dislocation catalysts such as potentially m a. Has done verytegy well in the last several years because of the calendar. That has fallen off a little bit in part because of concerns about regulatory or Political Landscape about whats going to happen on tax or regulation. Cycle he default thats going to be the biggest opportunity for alpha when we soer that next default cycle those two items. 2 come does missing into your forecast . Mark youre not sure youre going to find anything. I dont know that plane is going to land necessarily too soon. Tom you know, i look at all this and the bottom line is a huge body of hedge funds dont succeed. My mathematics years ago was 15 . Am i wrong . Am i being too generous or too harsh . Mark im going to have to follow your notes because i know how that number. Tom come on. Making people who is 482,000 on the long only by side and im going to start of hedge fund. How many of those people three or five years out can say im getting that done . Mark i think the fill rate is probably north of 50 . 35year in a period. Tom are we hedging more money than god or is the long short game now not a house of cards but not really a true hedge . Mark its really riding the wave. The answer is not really because if they were, the return to the been much higher than where they are. We do see people hedging. We read about some of the fallout from that shorts have absolutely hurt these funds coul. The shorts are high beta. Tom very quickly are they getting a good short ratio . Are they killing the numerator . Whene sharpe ratio you look at downside volatility, they are at 10 year highs. Tom did we do enough jargon there . We got 14 oh and sort you ino. It is outstanding. Mark connors, thank you so much. This has been great on hedge funds as well. Im going to do this on twitter. Im putting it out, which is a very serious measurement of standard deviation in investment performance. We are not going to do this tomorrow. Mark is never coming back. Theres the foreignexchange report. We continue with mark connors on radio. Play golf alix see you in september. Two fed hawks talked the green light for the Balance Sheet next month despite warning of low inflation. Be conscious now before its too late. Jeff denham lot joins the growing chorus of investors warning about risky assets. South african president zuma is facing the biggest threat to his presidency in a secret parliament vote. A warm welcome to bloomberg daybreak. Im alix steel alongside david westin. Jonathan ferro is off today. David welcome back. Alix it felt like a year. It is a sleepy summer tuesday. S p futures across the board up. A little bit of selling going into the 10 year yield bond market. We are having big auctions this week. You have yields up by one basis point and crude getting a nice at the highestum level since 2014. Talk about some china strength. David