Transcripts For BLOOMBERG Bloomberg Surveillance 20170814

This is my market talk. What were seeing across the globe is a little less worry emanating from the tensions between the u. S. And north korea. That seems to be showing signs of easing. Shares in europe following asia higher. Climbingk futures also , treasuries down, and yen up. Lets get straight to the bloomberg first word news. Heres Sebastian Salek. Sebastian donald trump has faced more criticism after failing to personally denounced the White Nationalists and neonazis who held a rally in virginia. The white house released a statement saying the president condemns all forms of violence, ty, and hatred. Vice president mike pence made similar remarks in columbia. Groups thatremist need to be pushed out of the public debate entirely and discredited for the hate groups and dangerous Fringe Groups they are. Has refused toe rule out military action to resolve the crisis in venezuela, but he said the u. S. Would prefer a peaceable solution. He and the colombian president said they are looking for measures that can be taken against venezuela. Japans economy grew for a sixth straight quarter, as gdp increased by an annualized 4 in the three months from the end of june. Chinas economy should further signs of entering a slowdown as output, sales, and investment all slowed. Property and industrial overcapacity began to bite. The kenyan Opposition Leader has told his supporters not to report for work today to protest the disputed election. He says he will make an announcement tomorrow about his next move. Police have denied the oppositions claim that 100 people were killed in post vote violence. The u. K. Will try to regain momentum in the brexit talks by publishing outlines of its negotiating positions. The next round of talks are scheduled to start august 28. Chancellor Philip Hammond and trade secretary liam fox publicly ended their disagreement by publishing a joint statement on the issue. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Salek and this is bloomberg. Francine thank you so much. Worry surrounding escalation of tensions between the u. S. And north korea is showing signs of easing. National trumps security adviser and the director of the cia made tv appearances to talk things down. Ive heard folks talk about being on the cost of nuclear war. Seeing no intelligence that we are in that place today. Francine trumps threat of fire and fear he, along with him saying north korea should be very afraid, rattled markets, with volatility surging and equity markets selling off. Today, haven assets are actually weakening. Joining is now, Julian Chillingworth and Peter Schaffrik. Thank you both for joining us this monday morning. Julian, markets seem to be a little less nervous than they were last week. Can it flare up again or is volatility going to be the name of the game . Julian the combination of the Korean Leader and donald trump, you could have a flareup very quickly indeed. It is evident that the chinese have been putting some pressure on the trump regime and i think theres been a big effort to calm things down. Hopefully we can have a more sensible dialogue. Francine how difficult is it, peter, to change your forecast, not in the event of nuclear war, im by no means trying to trivialize it, but how do you change forecasts depending on the mood that the world feels with Something Like this . Peter very simply, we dont. If i may use that as an opportunity to put perspective on this, what we do is look at the fundamentals, which way we are going there, and what is forecastable. What were seeing is the u. S. Is doing well, europe is recovering, most industrialized economies are recovering well, and theres no direct inflationary pressure. On the other hand, we are seeing geopolitical tensions. If something really escalated, that has a material impact. Currently, theres nothing really to suggest this will actually happen very imminently, and i think the best course of action is, go with what we can that the risks are increasing, and make decisions as we get better forecastable events. Francine does Something Like this have an impact on Central Banks . Is there a linkage in your world . Julian the linkage that could potentially happen is if we get more of what we had over the last couple of days, the risky assets selling off hard because the market is very scared, that might increase financial, or might make financial conditions much worse and impact the economy. I think we are far away from that. Francine when you look at what happened over the last 10 days or so, it seems the currency markets were rocked the most. If you take it back 10 years, we havent seen that much of an impact. Is that the right way for markets to function . Julian currencies will always react on the very short term. The other reaction is lack of confidence possibly in the trump regime as well. That is why weve seen a sell down in the dollar as well. Overall, i think they will be the first barometer. The other will be commodity, the fear gauge, and likewise, you well,ee others, oil as more volatile. These are all likely to be shortterm. Francine do you worry about distortions in the markets, either because of the players out there for the liquidity provided . Julian the wider point is that currently the vix is indicating that theres quite a lot of complacency out there. One worries that an event such as this, which is a truly left field event, could star sentiment up and make people more riskaverse, and consequently you are always factoring that into your thinking. Francine peter, do these type of events have a different impact on the market . If we have 25 basis points in terms of a hike, or 50, would it look very different . Peter im not sure. As julian said, this is a truly left field event that has the potential to change a lot of things very rapidly. Whether we are in a state where Central Banks are where we are currently, or 25 basis points higher, that doesnt change the impact. If i may go back to the question earlier, what does that mean for the forecasting, for the forecasting of single things areaas u. K. Gdp or euro Central Banks, i think that is very hard. For portfolio context, what we see is, in the event of brexit, trump, north korea, some of these risks that are very hard to forecast have gone up. In the portfolio context, it makes sense to make room for that. Francine ok. Thank you so much. Peter schaffrik and Julian Chillingworth, stay with us. Plenty coming up. Why japan is a world leader after the longest growth streak in more than a decade. We are live in tokyo. And, a divided america. Criticized for his handling of the charlottesville violence. This is bloomberg. Francine this is bloomberg surveillance. Lets get straight to the Bloomberg Business flash. Sebastian toshibas talks to sell its chip business has hit an impasse. According to people familiar with the matter, the group wants to make Cash Payments after toshiba resolves a legal dispute with Western Digital, while toshiba wants the money earlier. Toshiba didnt return calls seeking comment. Chancellor Angela Merkel and Martin Schulz have taken aim at germanys carmakers. As potential political damage looms over the diesel cheating scandal, the two leading candidates placed the blame squarely on executives of auto giants. The comments come as they begin six weeks of campaigning for septembers elections. Romeo entertainment is planning an initial public offering. The move could value the maker of the angry birds games and movie at about 2 billion. Ovio could raise about 400 million from a local market listing. That is the Bloomberg Business flash. Francine japans economy grew for a sixth straight quarter. Gdp grew at an annualized rate of 4. 0 in the Second Quarter, beating all forecasts. Strong pickup in domestic demand content dated compensated for softer numbers. Good morning. Can we take this as a sign that abenomics is actually working . Arguecertainly is hard to with a number like 4 . That is the strongest growth weve seen in japan for a long time. It is also the strongest growth in the g7. At this stage of the Second Quarter, that is where we are. I would caution that it is a preliminary number. It is open to potential revision. That said, it is good for japan to see domestic Growth Driving the gdp picture. Until now, weve seen a lot of expansion through exports, but this time things have reversed. That is quite a big change. When we look forward, the question is, what will the Prime Minister do with that fiscal number . Will he use it as a pretext to coast along with the economy, or double down on reforms . That is the question a lot of people will be asking. Economy,omes to the there are a lot of questions about the labor market. People are looking for some change. Weve got a very rigid permanent labor market and a very loose parttime and nonpermanent labor market where we need a lot of reform to help in terms of wage growth. Numbersoday, the gdp really are very good. Japan is top of the table in the g7 right now. Francine thank you so much. Still with us, Julian Chillingworth and Peter Schaffrik. Peter, if you look at what japan has gone through, they are seeing light. Does it mean governor kuroda could step down because hes closer to the goal he set out . Peter hes closer, but hes not close. When you look at the Main Objective of most Central Banks, it is ultimately to generate inflation. Were not there yet. Every now and again, when we have a growth spurt and ultimately it peter doubt, im not saying it will happen this time around, but im convinced that all the Central Banks will be waiting until they see not only a little confirmation, but a lot of confirmation, that everything is selfsustaining. Francine do you agree with that, julian, or do you think it is in a much better place . Julian i think theres two issues for investors. Firstly is an ongoing pressure to bring reform to the country at so many Different Levels of employment, and more generally within the Financial Services industry. Out and, toshiba drops has a devastating effect on the second tier index. Theyve got to sort that out as well. Likewise, the continued push for better governance, and we are seeing examples where perhaps that is taking longer than one would hope. Julian when do you cry victory, when inflation is 2 . 7 when inflation is 2 , but when more is done this is ongoing. We appreciate this may take longer in japan, but weve got to see momentum continuing. Weve been longterm supporters of japanese equity markets, but we want continued momentum. Francine we will have plenty more from Julian Chillingworth and Peter Schaffrik. Up next, as racial tensions rise in america, the white house defends donald trumpsresponse. Where is the crisis heading and where will it leave the president and his plans . This is bloomberg. Francine this is bloomberg surveillance. Donald trump is under fire again, this time for failing to denounce the White Nationalist and neonazis who held a rally in virginia that ended up with a deadly car ramming attack. The president said there was blame on many sides. We condemn in the strongest possible terms this egregious display of hatred, bigotry, and violence on many sides, on many sides. Francine that caused outrage, and following uproar from all sides, the white house released a statement saying the president condemns all forms of violence, bigotry, and hatred, and of course that includes White Supremacists. That is the political story. In terms of the american economy, we have the latest inflation reading on friday afternoon. Cpi came in at 1. 7 year on year. That is still short of the federal reservestarget. Bloomberg intelligence thinks the figure cast further doubt on whether the weakness can be attributed to a oneoff factor or the number will weigh on expectations for future Monetary Policy. Still with us, Julian Chillingworth and Peter Schaffrik. Peter, as you look at more and more blunders from President Trump, he has congress with him less and less. Every time he loses Political Capital, it means he can do less good to the economy. Is that a fair statement . Peter i think it is. What we had when he came in, even though a lot of people were appalled by his social values that he has been portraying, most people suggested that if he follows through on some of the economic stuff, is going to be good for the u. S. Economy. A lot of that stuff has evaporated. A, we have seen that congress is not with him, but also, because of all the other stuff, his administration;s attention is focused elsewhere. Therefore, the market has been scaling back these positive positions. Francine does that impact on dollar . I have a great chart here, dollar speculators. Speculative dollar positions. Peter if i made elaborate, i think that is a good part of the story. On the other hand, we have to recognize a currency, theres always two sides of the coin, and the recovery of the euro area, the strength of the euro, has a part to play. As your chart suggests, there is a lot of positioning that went into the end of the year that has been reversing. Francine which is kind of this spike here and the reversal. Julian, does this underpin your Investment Decisions . Isian obviously the dollar always going to be a big driver in how we look at the world and what lens we look through. Reflecting dollar is a lack of confidence in delivery from the trump regime. I think that what is required now is for them to get some legislation on the table that they may get through congress and the senate, concentrating more around tax, which is something they can draw sides together on. Because of the controversy this weekend, it really sparked outrage. He felt criticized. Some very far right hate groups. How much Political Capital does he lose . Julian it is very difficult to quantify. I think what he really requires to do is to stop trying to be perhaps a political outsider, and work with the republicans and democrats in congress to deliver something meaningful that will at least mean his tenure is worth something. Francine does this hurt your forecast for the u. S. , or is it something we need to watch out, but it is always at the margins . Peter i would go back to what i said earlier about the north korean conflict. We look at the things that we feel confident that we can forecast. We have been doing that all year, which produced a 2 growth number for the u. S. With the new administration coming in, the risks around those forecasts are larger, and will take the appropriate adjustments. Question that we have to ask ourselves, is, is that even putting downward pressure on the u. S. Economy . For the time being, we are chugging along smoothly, but theres no positive trump effect that the market was anticipating. Francine Peter Schaffrik and Julian Chillingworth, stay with us. Schulz take aim at germanys carmakers. Were live in berlin, next. Is bloomberg surveillance. Lets get straight to the bloomberg first word news. Sebastian donald trump has faced criticism after failing to denounce the White Nationalists and neonazis who held a rally in virginia that ended in a deadly car ramming attack. The white house released a statement saying the president condemns all forms of bigotry and hatred and of course that includes White Supremacists. Vice president mike pence made similar remarks at a press conference in columbia. These extremist groups that need to be pushed out of the public debate entirely and discredited for the hate groups and dangerous Fringe Groups they are. Sebastian pence has refused to rule out military action to resolve the crisis in venezuela, but he said the u. S. Would prefer a feasible solution. He and the colombian president said they are looking at extra measures that could be taken against venezuela, including economic sanctions. Japans economy grew for a sixth straight quarter, extending the longest expansion in more than a decade. Gdp increased by 4 . Chinas economy showed signs of entering a second half slow down as output, sales, and investment slowed. Curbs on property, borrowing, and industrial overcapacity began to bite. The kenyan Opposition Leader has told his supporters not to report for work today to protest the disputed election. He says he will make an announcement tomorrow about his next move. Police have denied the claims that 100 people were killed in postvote violence. The u. K. Will try to regain momentum in the brexit talks this week. That is ahead of the next round of talks scheduled to start on august 28. Chance of a Philip Hammond and trade secretary liam fox publicly ended their disagreement by publishing a joint statement on the issue. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im Sebastian Salek and this is bloomberg. Francine thank you so much. Angela merkel has kicked off her Reelection Campaign with a stinging attack on germanys car industry. The chancellor went after those in charge at firms caught up in the emissions scandal. Large parts of the Automotive Industry have lost an incredible amount of trust, trust that only the Automotive Industry can now restore. When i say industry, im thinking first of all of the corporate leadership. Francine her main challenger, Martin Schulz, also went on the attack, taking a swipe at what he called irresponsible managers. All this comes with less than six weeks until germanys special election. Lets get more with our germany editor. Tony, how damaging might this be for Angela Merkel . Reminder of, is a now that we are getting into the hot phase, the final six weeks of the german election campaign, a reminder of the kinds of issues that merkels opponents will be raising, and that present these kind of residual maybe that is being too nice, but risks to her campaign, which is a defensive end incumbentbased campaign, which is basically, ive been in charge, and here i am if you want more of the stability and the good economy youve had for the last couple of years. The problem is, merkel has been in charge and these issues have happened on her watch. That is the risk factor. Seemsne merkels bloc to maintain a lead of 38 supporting her. This is according to the latest poll. Is that leave going to change . Im sure all the Campaign Managers are looking at that and parsing the numbers. Election is, the really is hers to lose, and you are going to see a real campaign. Much canion is, how the social democrats of Martin Schulz, her main opponent, instead of her, how much can they regain . Berating autoke , turning failings their sites on donald trump, and also with another issue which has been bubbling in the background, which is that merkel has pledged to uphold the nato defense spending goal that the social democrats say they will definitely not uphold, and they are saying, this is because youve succumbed to the militaristic logic of the Trump Administration. We will see how far that carries. The town do you expect to change . Will it get uglier as we approach september 24 . That is always possible. Veryn schulz has run this gentlemanly campaign so far. He sort of committed himself to this. Others in his party, other social democrats including former chancellor gerhard schroeder, are now weighing in and sort of taking aim at merkel , and that is a factor that bears watching going forward. Francine thank you, tony, our germany government editor. This is surveillance. We are back with Julian Chillingworth and Peter Schaffrik. Peter, when you look at the german elections, it seems that it is a little bit of a snooze fest. We know that elections can change quickly. Why is germany different . Peter i would suggest that merkel is different. She has demonstrated that she is a very solid, even sometimes boring campaigner, and she has proven that she can win elections. For me the question is not whether or not shes going to stay chancellor, just with whom shes going to govern. The question is whether the grand coalition will remain in power or whether she will be able to govern with the liberal democrats, which are their traditional allies. That might have some nuances in store when it comes to policymaking. Francine are german equities overvalued . Julian theres been a lot of money going into german equities and putting the election to one side i think weve seen a big push into european equities by Retail Investors through the etf markets. I would say that some of the probablyrman companies are looking more expensive now. I would be cautious. Francine let me show you the onemonth implied volatility on bund futures. This replicates what weve seen for treasuries, which is basically that volatility has been limited. The value of call options for balloons has jumped. Are they well priced at the moment . Julian i think the thing that is going to cause the most volatility will be around politics. At the moment, it is a bit of a snooze fest. Merkel looks as though she is home. Francine then theres the ecb. We dont know when they start tapering. Say if volatility is too low, i think that is quite possible. However, that does not mean we need to see a significant rise in bund yields. We might get volatility that brings treasury yields up. I dont think we will get the european driven volatility. Are you concerned about a possible policy mistake . Peter not really. If you look at what draghi has been saying, they seem to be all on the same page. Draghis words were, patience, persistence, and prudence. I dont think theyre going to really wheel something massive out. I think that is very unlikely. Francine stay with us. Julian chillingworth from rathbones and Peter Schaffrik. Stay with surveillance. Theresa may tries to grasp the reins as negotiating points are set to be published next week. This is bloomberg. This is bloomberg surveillance. Lets get straight to your markets. Heres nejra cehic. Nejra risk is back on in many parts of the markets. We are seeing european equities rebound after their worst week in nine months. Gaining 100 and the dax the most in more than a week. This is the msci europe index. Hsbc saying european equities could be due a correction. There hasnt been a drop of more than 10 from a peak for at least 13 months. That is the longest stretch since this bull market began in 2009. Bigess that is the question. At the moment, were seeing equities move higher. Volatility coming down as well on the vix. This chart showing equity at the moment, were seeing equities move higher. Volatility as measured by the vix against treasury volatility. Treasury volatility has been more contained. We saw that big jump in stock volatility. That has come right down as those geopolitical tensions, or the perception of them, has been subsiding. Dollar, inok at the the spirit of this risk appetite, seeing treasury yields move higher. The dollar rebounding against the yen for the first time in at least five sessions. Were seeing the dollar index higher. Thee funds still bearish on dollar. The most in four and a half years if we are looking at total speculative bets. 12 king on gold, it is up so far in 2017. This is where weve had it approach 1300 in the past. Back in april, geopolitical tensions. In june, the u. K. Election was approaching. That 1300 approaching mark, we are not there yet. Reach 1360we could in three months, and even 1400 after that. Francine thank you. The u. K. Will try to regain momentum in the brexit talks by publishing outlines of its negotiating positions. Over the weekend, chancellor Philip Hammond and trade secretary liam fox publicly ended their disagreement by publishing a joint statement on the issue. Still with us, Julian Chillingworth from rathbones and Peter Schaffrik from rbc. Is this going to get easier . People have things to say. Do we know where the government wants to go . Julian i dont think any of this is going to be easy. I think one of the things i believe is going to be published very soon is the proposed relationship between Northern Ireland and the republic of ireland, which i think is going to be quite a long process. That is the first of many hurdles to climb over. I think were going to see investors worry in waves about brexit. Francine more volatility . Julian and again, weve been talking about currencies quite a lot. The pound will be the barometer of that volatility. Francine peter, same . Where does the pound go from here . Peter on what julian was saying, even though they might publish papers, it doesnt mean the two sides might be getting anywhere closer together. Of whatsort of a sense to the u. K. Government wants. Francine do we . Peter i think we do. Roughly speaking, we know where we want to end up. We know what the europeans want. What we dont know is how to bridge that. I dont think that is going to be any easier. As regards to the pound, we see more downside to the pound. We see more downside to the u. K. Economy, the pound, and it is very difficult without any changing in the dynamics of bridging that gulf. Francine when you look at expectations for the future, is it more hurtful if you have a disunited cabinet or infighting, or does it make no difference . Do people care about the uncertainty, or do they just care if we get an agreement with the e. U. . Peter it makes a difference, because if you dont have a united stance, that is uncertainty in its own right. If you have a disunited stance and a big golf, it is difficult to see how you get from one place to the other. I think that plays out in the markets already in the pound, but also in that the market does not believe the bank of england can hike Interest Rates. Francine this is poundu. S. Dollar weekly range. It is kind of broken off in the last couple of weeks. It has brought it back to where we were 2014. Is it going to be much more volatile or more of the same . Probably a bit more volatile, but what weve always seen in the pound, weve seen a downward trend. Not only against the dollar. Also against the euro. We might not see a great deal of volatility at the moment, but weve seen a fairly steady trend in one direction. Julian, what does this mean for boe . It was confusing that the governor was at pains making sure the markets new they could hike, but if you look at the numbers, it is difficult to argue that should happen this year. Julian we not looking for a hike this year. As much as all Central Banks would like to normalize their policies, it is going to take some time. Are in a globally better position than theyve been. They cannot francine thank you both for being with us today. Julian chillingworth and Peter Schaffrik. Up next, how the maker of the angry birds game and movie could have a 2 billion nest egg. This is bloomberg. Francine this is bloomberg surveillance. Lets get straight to the bloomberg first word business flash. Talks to toshibas sell its chips business have hit an impasse. According to people familiar with the matter, the bain group wants to make Cash Payments after toshiba resolves a dispute with Western Digital while toshiba once the money earlier. Toshiba didnt return calls seeking comment. Chancellor Angela Merkel and Martin Schulz have taken aim at germanys carmakers. Potential political damage looms over the diesel cheating scandal. The two leading candidates placed the blame on executive s of auto giants. They begin six weeks of campaigning before septembers election. Asking canadas pension Plan Investment board to help fund a potential bid to buy charter communications. Considerations are at an early stage and it isnt clear how much of an equity commitment. They declined to comment. That is the Bloomberg Business flash. Francine thank you so much. You could say it is a nice little nest egg. That is how the Company Behind the angry birds game and movie is said to be planning an ipo. The move could value reveal entertainment at 2 billion. Lets get more with manuel. Great to have you on the program. When you look at this deal, what are the chances of a successful ipo . That is a great point. This company has been around for a while. They had tremendous success at the beginning and they faced a lot of challenges. They have tried to sell the company before. Investors are going to be watching for growth at the company, how the company is going to diversify from its main successful videogame, and that remains to be seen. Weve seen a very weak year in terms of ipo. Interesting that the company had tried in the past to sell itself and they didnt find a buyer. Francine what is the difference now . Theyve tried to sell off in the past, never managed to. Why should this time be different . The company tried to restructure itself. They sold a few assets. They are now on that to grow again. They released the film last year. Their hope is to raise funds to produce the followup film. Ipochances of a successful will be mostly based on how the company is able to generate growth going forward. We have seen a lot of consolidation in this space. Weve seen a lot of deals driven by chinese investors willing to snatch up those video games in europe. But with all the concerns going on in china, that seems to be brought to a halt at the moment. It seems the ipo could be a good path down the road. Francine what is the difference is this Company Media or is it a Gaming Company . That is a good point as well. It is quite hard to figure that out. It is a little bit in between technology, a little bit of media, a little bit of entertainment. Most people still regard rovio as a technology company. Francine thank you so much. Our deals team reporter. Bloomberg surveillance continues in the next hour. Tom keene joins me out of new york. We will be talking to reinhard cluse and ian stealey. These are your markets. We will try to delve deeper about what this Korean Peninsula possible tensions means, but it seems the risk off mood, that is what weve seen not today, it is what we saw last week. Shares in europe falling. American stocks futures advancing. We are not seeing a prospect of a war between the u. S. And north korea. Havens and the yen falling. Im looking at currency moves. We have the publication of a lot of papers on brexit. This is ahead of negotiations with the e. U. On august 28. This is bloomberg. 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 korea calm after being rattled by last week. Markets begin to settle. Equities gain and havens weaken. America divided as racial tensions rise. President trump phrases heat over his initial response to the charlottesville riots. Good morning, everyone. This is bloomberg surveillance. Im Francine Lacqua in london. Tom keene is in new york. It is almost the 15th of july. August. We have a little bit of data and those papers published for brexit negotiations. Tom hopefully, it will be a little bit more relaxed than what we witnessed in the United States of america over the weekend. That will be one of our teams across bloomberg surveillance this morning. Francine that will depend on whether donald trump will have enough Political Capital to push through reform or not. Lets get straight to the first word news. President trump faces criticism for failing to personally denounce White Nationalist after the deadly rally in virginia. That led the white house to release a statement that the president condemns all forms of violence and hatred and that includes White Supremacists and neonazis. One person died as a crowd was hit by a car. Camping down fears of an Imminent Nuclear War with korea. Camping down fears of an Imminent Nuclear War with north korea. Generals meet with south koreas president today. Administration will go ahead with plans to investigate china in a growing trade dispute. The u. S. Has accused china of violating rules on international intellectual property. The u. K. Will try to regain momentum in the brexit negotiations this week. Prime minister theresa mays government will publish the first outline of its position, they include proposals for the border with ireland, continuity on the availability of goods, and access to official documents after brexit. Global news powered by more than 2700 journalists and analysts. This is bloomberg. Tom thanks so much. Calmerher market market. As francine mentioned. Dow futures up a good 91 point and that improves. The euro is stable. Next screen, if you would. The vix signaling where we were friday. That was a 17 handle at the worst angst. A quieter market. There are just two indicators. I know you look at yen, francine. Yuan there. Francine very similar to my data point. Equities higher. American stock futures advancing. The prospect of a war and north korea with the u. S. And north korea seems to be receding, but we will keep an eye on it. Tom one of our retrospectives looking back 10 years at this financial crisis. These are the equity markets. The crisis august 2007 in europe. The challenges here, which we forget about, and then down to the Lehman Brothers low on the s p 500. Two moving averages. Just to show how elegant this longterm trend is, these kiss beautifully out there in 2016. The bull market no one predicted. Francine we have some production out of europe. It is a little bit disappointing. 0. 6 . N month, it is that brings us nicely to my chart. On bunda one month futures. Volatility has been limited in german boones bunds. The value for bunds has moved up. Tom it has been an extraordinary weekend in the United States of america. For our global audience, we will touch repeatedly on charlottesville today. We will try to do it with a treatment of thought and conversation. We begin with our chief washington correspondent, kevin cirilli. I want to know what president is doing this morning. What is the president doing today after his disastrous weekend. Kevin according to the white house schedule released last President Trump saying that there would be a press conference, the development over the past weekend have nearly sent a signal to the white house because there is no press conference on the president s daily guidance issued last night. This comes as he was criticized heavily for not strongly denouncing White Supremacists and neonazis. I dont even know what year it is. Tom exactly. Kevin Vice President mike pence actually denouncing them headon last night, a sharper contrast from the president s own statements. The white house releasing a Statement Last night saying that the president did denounce White Supremacy, but we have not heard this directly coming from the president himself. Tom nicely summarized. Mike allen last night talked about general mcmaster and the use of alcohol, these are tawdry rumors. Of the the position nationalists within the white house . Can mr. Bannon survived the week . Kevin i spoke with several senior aides all throughout the weekend. As well as folks at the rnc. I can tell you that there is a deep frustration, they dont understand why this moment was botched and there is a really strong consensus right now that this president missed an opportunity to unify the country the same way that he sat on the campaign trail. Senior republican senator orrin hatch to senator marco rubio, across the ideological republican spectrum, calling on this president to act on this, get out ahead of this and issue a stronger Statement Read dust statement. Tom it puts us in perspective. Senator hatch, his brother was killed in world war ii. Those are the kind of crosscurrents we have had over the last three days. Francine kevin, what does it mean that the Republican Party can actually do . President trump has been criticized by his party for failing to denounce the roots hate groups. What can they do to remedy this . Kevin it is a culpable frustration. The New York Times tweeting out an Editorial Board by the New York Post that is somewhat favorable to President Trump and they have ripped him for his lack of apparent denouncing of these hate groups. This is the type of situation, we are looking at these images, people waking up and watching this this morning across the pond are looking at this and saying, what year is it . This is really, really gripping the american zeitgeist all throughout the weekend and into today. Francine but who can fix this . The problem kevin the president , francine, the president himself. Hes got to get ahead of this. When you have the Vice President on an International Trip trying to do with the issue of venezuela, this dictator maduro of evil growing tension with north korea, now you have this situation of rachel tension maduro, when you have growing tension with north korea, now you have this situation of racial tension. Francine thank you, kevin. Thank you for joining us. When you look at the horrific weekend that the u. S. Has gone through, does this make it more or less likely that trump will focus on taxes . Think it makes it more likely. We have seen you wants to get everything done, and he has been very unsuccessful so far. Really, he needs something that is going to be big, something to galvanize the u. S. Population behind him. That looks like it is going to be taxes. Congress will be behind him or are these distractions to get down to the business of fixing the u. S. Economy . Word is to come to more constructive policies. I would assume that if there are constructive ideas on tax reform, there will be support. Tom i look at all of this. I look at a backdrop of gdp. I know were going to talk about japan and the real gdp statistics. Where do you guys frame u. S. And european gdp now . Or is it inendancy stasis . In europe, we think that the peak of the Business Cycle dynamics are with us right now. Quarter onn 0. 6 quarter growth over the past three quarters in your on your terms, we are now on 2. 3 . We do enjoy this. We see that there is actually a fair amount of support, particularly in consumption going forward. We are still reasonably constructive for the next couple months. We are also aware that for an economy like the eurozone, with a growth rate of 1. 2 currently growing well above 2 that we should not anticipate that this kind of growth momentum can last forever. We expect that over the second half of this year and into next year that we would see a general deceleration in growth. We do see a deceleration. Next year, that would be a fairly decent rate. If the u. S. Were at 2. 2 for this year and next year, so more steady for now. Tom very good. , how do you make an opportunity of the volatility of the last korean week . Vixt an opportunity on the or are we still in the august doldrums . Iain i think there has been some opportunity created in some of the markets, when we look at the fixed income standpoint and what has happened over the early part of the summer, we are seeing credit spreads tighten dramatically. Spreads are roundabout 40 basis points wider. You could argue that the current u. S. Environment probably warrants that spread. Very good. A good way to begin the hour. Our guests with us. Coming up, this is very important within the busy schedule today. On charlottesville and on our foreign policy. Ambassador burns joins us in our 8 00 hour. This is bloomberg. Tom peace is at hand. We have never shown this before. Guam, 1200 miles east of manila. It is distant from hawaii. 3800 miles. North korea is closer. To be blunt. Onm on this early evening this late monday morning in new york and london. Here is jessica summers. Jessica in china, the economy shows further signs of slowing down. Industrial output rose less than expected, 6. 4 . Retail salesinas and investment also missed estimates. In japan, toshibas talks to sell its chip business have hit a snag. The problem is over the type of payment for the business and governance issues. Toshibap has offered 19 billion. Hit a record. N that is the Bloomberg Business flash. Tom, francine. Francine think is a much, jessica. Japans economy has posted its sixth straight quarter of growth. Gdp increased by an annualized 4 . The data comes as Prime Minister abe has been looking to call back support after this months cabinet reshuffle. Lets get back to iain and reinhard. This this actually mean that abenomics is starting to take shape and work . Saidard well, i mean, you it earlier, annualized growth rate of 4 , that is very good. Growth has been a lot slower recently. Still, we see a lot of support for Monetary Policy in japan. I think that was probably the key. Fiscal policy is still very helpful. , think compared with these two structural reform lag has been relatively slow. Francine what does this mean . When you look at equities, i have a great chart that shows japan growth to value. The stronger the gdp, the more iain exactly. I think what you have seen is a real pickup in the japanese economy. From the bank of japan standpoint, they continue to focus on the inflation level. Core inflation remains anchored around zero. As a fixed income investor, gdp has rallied. Would you expect that anywhere else run the world . Tom lets go existential this morning. I take real issue with the 4 gdp in japan. Nominal gdp was 1. 6 . They outright fail that inflation with the negative deflator. Should we care about multinominal jeep moldy nominal gdp in japan . Reinhard we have an economy that has debt to gdp ratio of 220 . The Public Finance situation is certainly characterized by a very high level of debt in this regard. Norman all nominal gdp matters, but real gdp matters, as well. Economists in gdp japan raised their gdp forecast which is very good news. Tom i mean, that is very good news on the real gdp to see it from 1. 6 to 1. 9 . The mix is interesting given the bank of japan. Is this abenomics . Are we seeing successful abenomics . Reinhard i think the key is that Household Consumption has been very strong, so the labor market is strong. The income situation is strong. Might have also been a play. This is the key. Abenomics might have played a role. Tom very good. We will continue on japan. A lot more to talk about with our guests. , doug kass long on twitter, short on the markets. It is a beautiful london. It is a tapestry of beauty in london. This is bloomberg. Francine this is bloomberg surveillance. Tom and francine from london and new york. Lets focus on inflation. We had disappointing figures out of the u. S. On friday. Lets focus on oil. Output and exports decline from among portg tensions workers. Opec shows cuts. Hedge funds net long positions remain little changed. Scatbacks lets get back to our guests. When you look at opec and the price of our oil, it seems this is not the main concern for inflation. Just at the correlation between unemployment and inflation is broken in western democracies. What figures do you look at . Iain i think that is completely right. Opec and oil prices seem to be struck stuck in a range around 50 per barrel. I think people are fixated on wage growth and the lack of it around the world. We have been getting this good job growth. Not getting wage growth. A lot of people are perplexed by that at the moment. Francine is this a blip or a trend . Iain it does feel like it is becoming more of a trend than a blip. At the moment, it does feel it we are coming into the slower wage growth trajectory than we have had the three previous cycles. Tom reinhard, do you see any inflation out there . I mean this in the broader sense of the struggle Governor Carney had a few weeks ago, the struggle we will see from chair yellen, is there any inflation out there . Reinhard i mean certainly true and this was set already said already, inflation and core inflation have been subdued for quite some time, it is a global phenomenon and we need more patients for inflation to recover. Headline inflation was at 1. 3 . Core inflation was at 1. 2 in july. We think we will be around 1. 5 in the second half of this year and next year, as well, in the u. S. , inflation has also been lower than desired. I think Central Banks globally, the fed, ecb, the boj, will continue to do Monetary Policy in a cautious way. In the u. S. And in europe, normalization of Monetary Policy is going to be gradual. Tom how do i trade this . Jpmorgan are with asset management. Which asset class do i select after the jumble of the summer and maybe the distraction of our politics . What have you done within your Asset Allocation given this backdrop of tepid inflation . Iain from a fixed income standpoint, the things we are focusing on our the emerging economies and credit. If you look at the emerging economies, you have things that you dont get, which are a positive real yield and an improving economic backdrop, and this improving global backdrop should be good for corporations. The credit markets still look good. I understand we are still late in the cycle, but as we heard, that cycle is going to go on for a lot longer. Francine what if the bond market was right and Central Banks were wrong . Who is right . Iain i think you could argue that both sides are right to some extent, we are just in an environment with limited wage pressure, limited inflation, growth looks ok, it does not look fantastic, it is trading slightly above trend. You actually get paid to take credit risks. , japan, wely discussed it earlier. We are looking similar to how japan looked a couple decades ago. Francine thank you so much. Reiill be back with nhard. We are looking at stocks bouncing back. We are seeing the risk off move that is now showing signs of ev easing. , it to our global audience is new york. The yankees with an ugly series against the dreaded boston red sox. Two games slip away. Far more, a nation in shock over charlottesville and that must include new york city. Right now, here is jessica summers. Jessica the fbi has launched a civil rights investigation following the deadly rally by White Nationalists in charlottesville, virginia. One person was killed and more than a dozen were injured when a car slammed into a crowd of counter protesters. The white house reacted to criticism of President Trump for not personally denouncing those who held the rally. It says he condemns neonaziism and White Supremacists. A south korean minister is trumpsing president threats against north korea saying they are very worrisome. Top u. S. Officials a nuclear war with north korea is not imminent. Economists say that President Trump will get his tax cuts, they just dont think the reductions will do much for the economy next year. Surveyed 38 economists expect a tax bill by next years elections. In kenya, the Opposition Leader is telling supporters to reject the results of last weeks election. Protest thecall to reelection of the current president. They say the election of the was rigged. Global news 24 hours per day. Im jessica summers, this is bloomberg. Tom, francine. Francine thank you so much. On to germany. Carmakers were the first target as campaigning heats up in germanys election. Chancellor Angela Merkel went after those in charge at firms caught up in the emissions scandal. Large parts of the Automotive Industry have lost an incredible amount of trust. Trust that only the Automotive Industry can now restore. And when i say industry, im thinking first of all of the corporate leadership. Francine in an effort to close the 14 point gap, the chancellors main rival is rolling out the big guns. They are criticizing the handling of the Diesel Scandal and have accused chancellor standing up to President Trump. Lets speak to our European Team leader. How close is the race . It seems that Angela Merkel is so far ahead at this is a done deal for her. Welcome the you could be forgiven for thinking so. Show that the polls elite of anything from 12 12 points to 17 points. But it is a coalition form of government in germany, so it is unclear what kind of government may be formed at the end of this sixweek campaign. Francine what are the big figures that are likely to go after . Martin schulz is hitting out. It has not really dented her popularity that much. Is that right . Yes, not at all. , he is going out of his way not to be too critical of merkel on certain issues. At the weekend, he was very critical of the u. S. President , donald, over north korea and his statements in relation to domestic politics there, but he was saying that this is not merkels issue, that we have to speak as one in germany. ,ven with the Auto Industry link to not a huge differentiate them. What we saw were some of these s doing the attacking for Martin Schulz. Tom you have a definitive book out about the chancellor and the chancellorship. Your chapters within Angela Merkel take on almost a biblical tone. We have had a hellacious weekend in america over some of the ghosts of a germany past. Does Angela Merkel have the same challenges in her germany . Need to worry about White Supremacy, white nationalism, or the other challenges of 60 years ago . Easy to say no. Germany has been extremely efficient in dealing with the ghosts of its past, which are all too apparent. For the past decade, it has been drumming the holocaust guilt and wartime into decades of schoolchildren. German leadership are very clear about germanys guilt. That said, we saw with the refugee crisis there was something of a rise of the far right nationalist antiimmigration sentiment in germany. Seere almost certain to immigration antiimmigration parties certainly to the right of anything else. Disappeared,ctly but it is a different debate than in the u. S. At the moment. Francine thank you so much. That is Alan Crawford and he was joining us from berlin. Our guests. Ck to hard, when you look at germany today, are we jumping at shadows or are we underestimating the fact that this could be turned on its head . , do weela merkel to lose still need to be careful about what comes after her . Reinhard according to the latest polls, her party is at 38 . What sort of Coalition Partner does she choose . Is it the free democrats, the liberal party in germany, which has about 78 . That would still leave her somewhat short of her majority. Does she tried to broaden toward the green party, which might expose the green party to severe frictions . Or if all of that does not work out, do we continue to see a grand coalition between the christian democrats and the social democrats . How follows from that is does she go about the european initiatives in particular . So, how about more technical issues like the common deposit insurance fund, the role of the regardinglso issues broader fiscal flexibility . Big appointments are also coming up. All of that will depend on how the exact nature of the coalition will ship out shape out. Francine what does it mean for bunds . It goes back to your wheelhouse, nhard, the strength of the economy in germany and whether that is well reflected in fundamentals. Reinhard from a fundamental point of view, are fixed income strategists believe that bond yields are going higher. 70 basis points, 100 basis points over the nearterm. The broader Economic Policy and normalization implies that higher yields of the medium or long term are justified. From an historical perspective, they will remain quite moderate. In the social media space today, we are talking about negative Interest Rates as a new recession tool. Idea. S not a new but he underscores that we have a new tool to use the next time we slow down. Do you agree that negative rates can be proactive or prescriptive. Reinhard moving toward negative rates passes some steps. That happened in 2014, so what was perhaps an important tool to bring the yield curve down. It was also important to drive the euro weaker against the dollar and other currencies. Everyone, also the central bankers, are aware of the distortions that this creates against the financial sector, but also the broader macroeconomy. I think it is certainly part of we are very much aware of the consequences of negative rates. In the future, if we assume we normalize over the next couple years, i think going back to negative rates is certainly possible, but people are aware of the negative consequences perhaps more than they were when we went negative the first time. Tom do you assume financial repression will dampen real the future . Ope into is it just that financial repression reigns . Kind of the that is world we live in at the moment. Low growth, low inflation environment. I would agree with what was said. I dont think the central bankers would like to go back into negative rates. They may well have to during the next recession. Tom very good. Thank you so much. We will continue here with our guests. It is a good day to catch up with someone who has managed the diversity of the United States navy. He is the former chairman of the joint chiefs of staff. On korea. On charlottesville. Francine this is bloomberg surveillance. Francine and tom from london and new york. At least it is not raining for now. The weather is not too bad. It does look like there are quite a lot of clouds. I hope it is not so for brexit. To gain will seek momentum in brexit by publishing talks ahead of negotiations. The chancellor of the exchequer and the trade secretary yesterday published a joint statement saying a transitional period following brexit is not a way for britain to stay in the European Union through the back door. Iain stealyck to and reinhard. Reinhard, let me kick off with you on brexit. , weave the brexit secretary also had Philip Hammond making this joint declaration, does this feel like the houses are little bit more in order . Reinhard yes, probably. Many different important policy areas are involved here. In the past, it might have seemed a bit disjointed here and there. Meanine what does this for actually pounds traders and gilt traders . Iain i think this is still a lot of uncertainty. We still dont know what brexit means. It will be interesting to see what is released this week. I still think we need to look at the data, without the economy does, with whether we do start to have this tail off in investment and slowdown. ,pi is interesting this week expected to rise back up. Tom review that. How is the economy of the United Kingdom . About eight mixed signals here. Give us clarity on what the uks doing. If you want clarity come unfortunately, that is not something we can provide so easily. There is a huge cloud of uncertainty over the u. K. Economy given all of the policy direction with regard to brexit. Last year, the u. K. Economy grew about 2. 2 . For this year, we were more in the cautious camp at ubs, we expect about 1. 4 . Next year, we expect even less than 1 growth. We are somewhat more cautious here than the consensus. We believe that the uncertainty that the Brexit Process involves will have real economic consequences and that will ultimately have consequences for the bank of england, which we think will stay in a neutral stance for quite some time. Tom how can they afford to stay in a neutral stance . I get the mixture in that it is a different cocktail, if you will, than what we are seeing in the United States, but how do they stay on the sidelines . Reinhard if we think back, the bank of england turned a lot more hawkish earlier in the year , when up to 3 people voted for rate hikes. We think that the slowdown in the economy implies that the sharp rise in inflation on the back of a weaker sterling we are now with inflation a 2. 7 or so we think this rise is eventually temporary, so that over time, given the weakness of the economy, inflation will slow down again and that would be the key for the bank of england to stay in neutral stance. Francine let me bring you over to my chart. It is basically looking at pound. This is another way of looking at volatility. You can see it has kind of broken out of that range for the First Time Since june 2014. This does not tell you the level of the pound, just volatility. How much more volatility will we get on the pound as we go into negotiations and once the u. K. Seems to have a better position, it still needs to negotiate with the eu. Iain it does. The pound has done reasonably well over recent times and maybe that volatility is stepping down as people focus on other markets. We have spoken about the euro, the yen, everything that has gone on the last week. The likelihood is that volatility will pick back up as we get closer to brexit and what it means. How hard is it going to be . How soft is it going to be . What is your base case scenario. Nationals living here from the eu. Does it mean it will be smoother . Iain we saw that going back a couple of months . You saw the pound do well on the back of that. Would like torket see that. There is going to be no backdoor to stay in the European Union. They would like to see them come to some form of agreement so investment can be sustained, so we can keep Financial Services over here. That would be good for the u. K. And for sterling. It is a case of wait and see, unfortunately, and we dont know what is going to happen. Francine thank you so much. Both their guests are staying with us. In the meantime, if you are looking to ask our guests some questions on a look at tv and look at some of the very cool data checks tom has been putting out and some of the data looking at quadratic equations. You can also ask the guests stions by putting a video question underneath of the video screen. This is bloomberg. Francine this is bloomberg surveillance. Francine and tom from london and new york. Thats get straight to the Bloomberg Business flash. Jessica the maker of angry birds is planning an ipo that could value the company at about 2 billion. According to people familiar with the matter, they could go public as early as next month. They reported Revenue Growth of 34 last year. May ask two funds to help with a takeover of charter communications. They are considering asking them for help. sth are investors in altice u. S. Unit. Cathay pacific may start focusing on the back of the plane. The Hong Kong Airline is expected to report another loss this week. Now wooingly travelers to fly on the airline. That is the Bloomberg Business flash. Tom lets dive into something we dont spend too much time on, it is more of a jon ferro kind of thing. That is high yields. I used to be 7 or 8 . It is a good time to have a conversation on high yields. How do you respond to the reality of record tight . That is a great piece of jargon. Down. Ield has come right are we at record tights for high yields . Iain we are approaching them a couple of weeks back. We got to around 350 basis points on the spread. That is the difference between the highyield field and the yields. That is different than any types tights we saw. We have it traced back to 400 basis points. Yellenw does janet affect your world . How does she affect highyield . I think janet yellen and the fed are doing a fantastic job this morning. They learned lessons from the taper tantrum. Y have been very explicit theyre going to normalize policy. We have seen that they have managed to raise rates three times this year, treasury yields are slightly lower . We will have to see if that does continue. We will see if they get more hikes then the market is pricing in over the next 1218 months. Francine are we at risk of a policy mistake . Reinhard for what it is worth again, our colleagues at ubs expect that in september we will get a decision on the Balance Sheets rollback of the u. S. Fed. Then we get a decision on the next rate hike. However, they stress that the decision on the next rate hike will be very much interdependent. If inflation continues to disappoint, this rate hike might not happen. Therefore, i think the policymakers at the fed are very much aware of the risk of committing a policy mistake if they tighten too quickly, which means they might not do that then. Francine but if they dont do it now and if the inflation model is broken, one with a ever tighten . Reinhard i think they will acknowledge the uncertainty and will play it by datadependent, hence they will act and decide is the data come in. Iain what is interesting is the financial conditions, we talked about it for the eurozone earlier and for the u. S. , it has come down with the weakness we have seen in the dollar this year and build ugly has been vocal bill dudley has been vocal about what they are focusing on. We do think they will focus on the Balance Sheets and that they will raise rates in december. I think we need to see some form of stability moving back up. Ive we dont we dont think it needs to be dramatic. They do want to normalize rates. Tom i would say that is true, as well. Thank you so much. Thoughts on good the german election that is coming soon. Much toext hour, too talk about, including charlottesville and korea. Markets, as at rate well. It is a beautiful summer day in new york city. Yankeesmets tonight at new york in new york. That is a good and wonderful thing. Tom this morning, global markets, modestly risk on. Gold modestly retreats. Trump quiets on north korea as the generals managed the president ial message. A disunited United Kingdom. Conservatives attempt a united front as they threatened to release discussion papers that will be discussed. , a white house messages manysided message, as the president fails to rise to the occasion, the reverberations of charlottesville ring from sea to shining sea. I can honestly say, francine, this weekend in these United States of america was absolutely original. Francine original is an interesting choice of words. It is certainly something that thes to be feeling through markets as people try to figure out exactly what the republican they will do and what president can do if he loses Political Capital on the tax reform front. Tom certainly come in midtown manhattan last night, a lot of police out for peaceful protests in midtown manhattan. We wonder if we will see more today and this evening. Right now, here is jessica summers. President trump faces criticism for failing to personally denounce White Nationalists after that deadly rally in virginia that led the white house to release a statement saying the president condemns all forms of violence and hatred and that includes White Supremacists and neonazis. One person died at the protest when a car ran into a crowd of counter protesters. National Security Officials are camping down fears of an Imminent Nuclear War with north korea. They say there is no indication that war will break out with kim jong uns regime. Americas top general meets with the south korean president today. The Trump Administration will go ahead with plans to investigate china in a growing trade dispute. They have accused china of violating rules and intellectual property. One big complaint is that they force u. S. Companies to transfer technological knowhow. The u. K. Will try to regain momentum in the brexit negotiations this week. Proposals for the border with ireland, continuity on availability of goods, and access to official documents about brexit. Global news 24 hours per day. Im jessica summers. This is bloomberg. Tom thanks so much, jessica. Field. T a better risk on futures up 13. Dell futures up 87. Next screen, if you would. The vix down to 13. 30. Down with foreign exchange, the yen weaker, but still under a 1. 10. It shows i cant get the word out, francine ambiguous. That is it, ambiguous. Market. I butchered that, francine. Francine you did very well for a monday morning in august, tom. Wordsing to choose my very clearly. I would suggest that the risk , it isd of last week showing signs of easing. Tom well said. Francine american stock futures advancing as the prospect of a war between the u. S. And north korea is receding. Tom in the next hours of bloomberg surveillance on television and on radio, as well, we are going to cover the markets. But what an extraordinary weekend in these United States. We had charlottesville. The adapting and adjusting of a debate on korea. Kevin cirilli has been talking to people in washington about this. What is the message you heard from Administration Officials sent about 6 00 p. M. Last night . Kevin good morning, tom. Ive spoken with several congressional officials and rnc officials and they feel that the president botched an opportunity to unify the country. Of course, by not calling this racism and bigotry and intolerance for what it is. Ask of neonaziism and White Supremacy. Vice president mike pence speaking last night during his ,rip to south america speaking saying that this was an act of White Supremacy and neonaziism , denouncing it in the harshest terms coming from the administration. President trump himself has yet to say that. They have put forward a news statement by a spokesperson who uses those terms, but he is facing intense criticism, not just from republicans, because it is a story that is bigger than politics, but throughout the country. Tom of the many voices, the washington post. Mr. Hatch was elegant, to say the least. My brother did not give his life fighting hitlers to give up challenges at home. He goes on to say orrin hatch i thought led the charge this weekend. Tell us about that. Kevin senator orrin hatch, a republican from utah, and folks like senator marco rubio, House Speaker paul ryan, the list goes on, basically virtually every republican, the Senate Banking Committee Chairman mike crapo, even the House Freedom caucus putting out statement after statement denouncing these heinous, heinous, awful, terrible acts of racism and intolerance and antisemitism. Look at these images. People are waking up in America Today and saying, what year is it . That we are quoting people from the kkk like david duke. This is a moment that the president really have an opportunity to unify the country the way he said he would on the campaign trail and he missed the mark. Francine for our global audience, who can fix it . Kevin if what is growing stronger . Francine the far right. Kevin i dont think you can say that the kkk is a far right group. They are a hate there is no place in american politics, let alone republican politics for a hate group. When you talk about far right groups like the House Freedom caucus, there is in no way, shape, or perform any type of situation that we can say that a hate group and a Domestic Terrorist Group is even in any way remotely welcomed in any type of american ideological thought vein. Tom we are going to go to a true expert on this later in the hour. Me ask the question that so many of all persuasions are asking this morning. When do people start resigning . Kevin well, look, there have been several turnovers within the president s administration. Look, there is the growing threat of north korea. That risk seems to be receding in terms of a war. You also have venezuela and the situation that the president saying boots on the ground are not off the table. The Vice President issuing new comments on venezuela last night. Look, President Trump said he was going to have a press conference today. It is not on the daily schedule. Tom kevin cirilli, thank you so much for your reporting this weekend. ,e wanted to find somebody lets call it fair, balanced, maybe intelligent. Perfect tolloran is speak to as a professor of political science. ,es, her expertise maybe trade her expertise maybe regulation, but her expertise is really the tapestry of america. Your thoughts. So, i think i have to agree with much of what has been said, that trump is very much worried about alienating his dwindling base, and we have seen a lot of Public Opinion polls coming out showing that he is losing support. I think that is very worrisome to him. Actions,avowing the but he is not disavowing the actors. Tom a key question and we will talk about this with professor rothman, is this a turmoil of race and hatred and all the rest in a new america or is this the same conversation this weekend that we had in 1960s, the 1920s, maybe pick the know nothings a decade ago . This is not the 1960s, this is really back to the Old Fashioned racist segregationist type of hate. Tom you wouldnt parse it back to the 1920s. Francine, please. Francine professor, what does this mean for President Trumps Political Capital with congress . What doesdistraction that mean that Congress Says enough is enough, lets please get down to tax . This makes it very difficult for the moderate republicans to sign on to a lot of his own political agenda. It makes it very difficult for them to continue to ignore his rhetoric. I think that he is becoming increasingly, increasingly a liability. Francine what does that mean for the Republican Party . How do you get out front . The ability to pass his agenda, the tax reforms, even the reforms on the north American Free trade agreement that he is looking at, the additional budget come all of that is becoming problematic. Tom we will continue here, we have a great team of guests lined up all around the events lined up in charlottesville and korea. For those of you just waking up, a calmer morning on the korean front. We will continue. Coming up later, the former ambassador to greece. Stay with us worldwide. This is bloomberg. Francine this is bloomberg surveillance. On tv and london radio. Im Francine Lacqua in london. Tom keene is in new york. Lets get straight to the Bloomberg Business flash. Jessica in china, the economy showed further signs of slowing down. Industrial output rose less than expected, 6. 4 . Chinas retail sales and investment also missed estimates. We will be live in hong kong shortly. In japan, toshibas talks to sell its chip business to a consortium has hit a snag over the timing of payments for the business and governance issues. The group led by bain capital has offered toshiba 19 billion. Shares of japanese game maker nexon hit a record. Quarterly earnings beat estimates. Sales were driven by older games, a number of which just got updated. That is the Bloomberg Business flash. Tom, francine. Francine japans economy has posted its sixth straight quarter of growth. The longest expansion in more than a decade. Next to improved private consumption. The data comes as Prime Minister abe has been looking to claw back support after the cabinet reshuffle. In china, the economy hit a midyear speedbump. Our bloomberg chief asia correspondent joins us. It is often on its working in japan . Enda it is a very positive number, no but doubt about it. Gdp growth is looking quite healthy. Japan is growing at the fastest rate of any of the g7 members. If you look at the domestic demand side of things, it bodes well for the economy in the future. A timely shot in the arm for abenomics and for abe himself, given the wider political pressure is under. Francine what does it mean for inflation and that target that governor kuroda has set up . Enda i think we are still a long way from the 2 target. There is not really any side of of inflation in japan any sign of inflation in japan. I think this might start precipitating some conversation about when the boj might start exiting its stimulus in the way that the fed is now and ecb might at some point. If japans economy continues to perform the way it is on these numbers, then the case for reducing stimulus micro even louder. Tom it is my ugliest chart. Ive said that for years and years. Japan real gdp. Japan nominal. To plan japan deflator. You can see deflation, deflation, tons of deflation over the last 1520 years and this is the miracle of abenomics. Up we go with abenomics. There has been this real rollover to deflation, as well. What is abe going to do two reversehis trend to this trend in deflation . Enda the view out there that they have been a little bit unlucky over the price of oil, that had Energy Prices not slumped when ill been coming onto the scene, they might have hit the inflation target as little easier. The push is for the kind of reforms in the labor market to get wages higher. There is a view that they might start getting prices up and Getting Place in inflation again. It is about what can be done in japans labor market. Tom enda, thank you so much. In our new york , george goncalves. Is deflation back in japan . George it has been haunting global markets. It is great to see this chart. As your chart goes up and down, it is a volatile series. A report like to see before we think the boj is going to slow down its easing. Tom is it a fiscal prescription or is it the hope and prayer of jawboning and the politics of mr. Abe . George we think there is very little margin of improvement here. Keep chipping away at it slowly, which seems to be the only way to do it. Francine george, what does it mean if abenomics does not work . Are we there yet . George im not sure we can give up yet on abenomics or any sort of deflationary policies. If things were to get worse and deflation were to rear its ugly head, there are for the policy prescriptions, as tom was alluding to. It is interesting to watch and we are not really worried around this persistence. Francine what does it mean for governor kuroda . I imagine, when you look at inflation, the yield targets, when you look at boj, it all depends on whether governor goes for another term. Does this change your view on that . George not necessarily. We do think the broader economy will continue these policies going forward. The targeting of rates has been very effective, it has allowed them to do less quantitative easing and more qualitative easing. If we actually think about the , oil has been a big driver of keeping disinflation globally. We have Sharon Ohalloran with us from Columbia University on trade. I dont know if anybody went after the mexicans this weekend. I dont think they went after the japanese. I cant remember who was hating who. Tell me about japan. Remember how we hated the japanese 30 and 40 years ago . Prof. Ohalloran thats right. The focus previously was a level trading plan. For everybody to have access to the markets. The key was to use trade remedies such as unilateral trade procedures tom what are we doing now with japan . Prof. Ohalloran we are not doing anything with japan. We have access to those markets. There was the tpp that was actually going to be the way to open up and have those free trade and actually expand the markets to have economies of scale that were necessary for asia and the United States. I really think that was going to be a key factor in expanding trade. That is what we saw. That has obviously gone away with the Trump Administration. And in mexico, we are back to where we were in the rhetoric. For we aret know building walls this weekend. Maybe they will build a wall around charlottesville. Radio, ifon bloomberg you are cautious, he is, too. Douglas kass on the markets. Douglas kass on yankees relief pitching. We are seeing a bond moment. We are behind the curve to some extent. The cyclical trade may be getting a little bit longer. This is bloomberg surveillance on radio and tv. Lets talk about Bond Investors. Not all Bond Investors will run for the hills should the ecb announced a tapering timeline for its Government Debt purchase program. Llianz is looking to buy lets get back to george goncalves. Bunds, simple question on , are they completely underestimating the value . Is there something wrong . One of the biggest distortions you are seeing in europe at the moment. George bunds have been lower on a scarcity premium come on the backs of the ecb program, initially earlier on with concerns around the eurozone, we do think that there was further. Asing of that we do think that bunds should be closer to 65 over the course of the next year. We understand why there has been this view in the paper. Francine let me bring you over to how bunds are behaving. It is implied volatility on bund futures. Asshows that there has been much volatility as there has been on treasury, so the positioning mirrors what we are seeing in the u. S. Is that a fair comment . George look, there was some excitement last week. Obviously, the headlines were worrisome. They got volatility moving higher. Even looking at your chart, it is still very low relative to history. Even though there has been a commensurate move with with thes and bunds, ecb likely to taper at some point in the autumn and the fed about to embark on its Balance Sheet unwind, they are the most liquid, biggest Balance Sheets in the world. We do think that there should be commensurate rises. Francine right. George, think is so much. George goncalves of nomura stays with us. This is the picture cross equity assets. You can see equities following higher. Havens are down. 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. Vonnie there is a vonniejonathan tom there is always a a monday morning tweet from the president. Much work to do focused on trade and military. Then make America Great again. Were expecting Something Different from the president different. I would have anticipated a more unifying statement. Tom maybe we will see that later. The concerns. D tom we will lead with that. Kevin cirilli will digested as well. We say good morning to all of you worldwide on radio and television. Our first word news. Here is jessica summers. The fbi has launched a civil rights investigation following that deadly rally i was nationalist in charlottesville, that rally by White Nationalists in charlottesville, virginia. Criticizing President Trump for not criticizing the rally. President ialn adviser is criticizing President Trumps threats against north korea. He says the threats of fire and. Where why are and. Were worrisome. Trumpists say president will get his tax cuts and they just dont think they will do much for the economy next year. They said the cuts will add only 0. 2 to nine steers gdp growth. Gdp growth. Years following for a general strike today to test the general election in kenya. The Opposition Leader saying the election was hacked. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am jessica summers. This is bloomberg. Francine thank you so much. The u. K. Will seek to regain momentum in brexit talks by publishing three papers ahead of the next round of negotiations. Will hammond and the trade published a statement yesterday saying the transition forowing brexit isnt a way britain to stay in the European Union through the back door. Adam cole now joins us. Does the u. K. Now have a strategy . If it doesnt for dealing with brexit, will it in the next couple of weeks . I think things are likely to remain fairly quiet. We will likely get some preliminary discussion on the terms, but politics returns when parliament returns from recess in early september. We will see the government passed domestic brexit legislation. Theresa mays leadership is likely to be called into question. That becomes a risk the market has largely priced out recently. For the remainder of this, politics remains quiet in the u. K. For us, the risks are overwhelmingly to the downside for sterling. Francine to what kind of levels . Let me bring you to my chart. I am charting volatility, the pounddollar weekly range. How much volatility are you expecting on the pound . We think we have had a long standing target below 1. 20 for the ultimate rate for cable. Im confident in that for later this year. Ultimately, eurosterling is a better way to play it. Eurosterling can have another leg higher on the back of a weak pound. Tom where are you on the idea of negative wage growth in the United Kingdom . That seems to be a distinguishing feature of this late summer. Will others follow the United Kingdom to negative real wage growth . I think that is the danger and the real story in the u. K. , the pickup in headline inflation itself is mostly a technical pass through of the rising import prices. The real inflation indicator that matters is wage growth. We see no evidence wage growth is following price growth higher. Real wages are being squeezed. Growth is slowing as a result of that. Higher inflation in the u. K. When looked at under Price Inflation is a negative story rather than a positive story resulting in this real wage squeeze that will hurt activity. Tom what will be the impact on exports in the United Kingdom . Xportsget your 1. 20, do e pop . I dont buy it. I dont either. It is good for exporters marg ins. Export prices have risen sharply. Markets have expanded. That is great news for u. K. Equities. Markets have barely budged at all. That is a similar story we have seen and other countries, japan went through a similar experience after the election of the abe government. Canada has gone through a similar experience lately. I think the story in the u. K. Will be similar a year or so now after the big downgrading of sterling where we are not seeing anything about it export volumes. That will continue to be the case. Pound movingwe see on the back of every brexit negotiation blip . Or do they wait for boe . We will see it starting to weigh on sterling again. It is an unpredictable story. It is hard to say exactly where the next growth sterling comes from . I think politics will be a story for sterling going forward. Economics is negative if we look at your own growth expectations. Economists are expectationsheir as growth expectations seem to overshoot on the downside. I think the economics on the background is negative, and the rate hikes the market priced in an material risks of a rate hike this year look optimistic to us given the wage growth background. Cole, head of global fx strategy. Much to talk about entree, from columbia on trade from Columbia University. Is the United Kingdom normal trade, or is this something unique to it . The question is to what extent is there a disruption as forward, and the you have a substitution effect as Companies Move out of u. K. Back into Continental Europe or elsewhere. I have not seen the data of the flows on that. There is definitely movement, Labor Movement in service industries. Do you buy the idea that weaker sterling works normally within the fixed income markets, or is that a distortion within the United Kingdom . I think your intuition is right that it will be hard to generate inflation. The initial shock got things going last year. I think fixed income markets outside of the brexit story has been held back for other horses. Until they start to kind of move aside and leave these other secondary factors, brexit is still in the market size. Tom thank you for your comments. Andessor george got cast professor sharyn ohalloran. Coming up, all you witnessed this weekend in america. Chairmanullen, the f of the joint chiefs of this is Bloomberg Markets on Bloomberg Radio and tv. Lets get straight to the Bloomberg Business flash. Takeover of cable broadcaster charter mitigations. According to people familiar with the matter, altice is planning to ask investors for help. In saudi arabia, the Second Quarter budget deficit got smaller. The budget ran 12. 4 million in the red. Nonoil sources fell. Start pacific may focusing on the back of the plane. They are asias top carrier for premium flyers. They are now likely to start wooing some of the millions of chinese flyers who fly on state owned airlines. Tom thank you so much. He is the one person i wanted to speak to about what we saw this weekend. He took his phd at the university of virginia years ago. He is now pastor of history at the university of alabama. Ouras the courage to be experts on hatred in the south. How is today different from what you have written of from the 1920s or the know nothings of the 19th century . It is both different and not different, as is often the case when you see things that resonate with American History or any history. History doesnt repeat itself, but it rhymes. Personally, i find what happened over the last couple of days very upsetting. I went to virginia. I love charlottesville. I take it very personally to see events like this play out in the town i love. I think that it what you see on display in charlottesville is in some ways a continuation of a long history of bigotry, white nationalism, the belief that the United States at its core belongs to one group of people. At the same time, what you see that is a little different is the willingness of people who explicitly identify themselves out and proudly expressed that they are and try to integrate that idea as something that is deeply american. Go ahead. Tom i want to go to your atlantic article of a few months ago. This was december last year. This was in another time and place. For our global audience, a little history of charlottesville. On august 8, 1925, more than 50,000 members of the kkk paraded through the nations capital. Advocated the restoration of true americanims. Americanism. Was fortunate to have president s who saw the plan for what it was. What do you need to see from President Trump this morning . I dont think he will give us what we need in this particular case. I think the opportunity was given for him to do that, and he passed. Saw a story in the news this morning that said there were people in the white house that said he needed to come down hard on this. He decided he didnt want to. You need from the present someone who is willing to take a stand and say this is not something that is american. This is intolerable. This is something i will put the power of my Office Behind to stop. That is something a president ,ho is truly a leader would say a president who is not sympathetic to these groups. Im not confident that is our president is. Right groups,far he groups, whatever you want to call them growing stronger . And if so, why . At all clear to me that they are growing stronger. My sense from what i read of groups that dedicate themselves to studying these things is that they are getting stronger, certainly bolder. I think that i think there is a combination of reasons that it happens, but certainly i think it starts at the top. When you have a political culture and political actors who are willing to let this stuff drag on and encourage their support. You have been willing to make themselves more public. Francine who can stop this or diffuse this if not the white house defuse this if not the white house . That is a good question. Ultimately, i dont think there is any force in the u. S. More powerful than people like the fbi and justice department. These are ultimately, to some degree or another, terrorist organizations. Outway you take terrorist organizations is you have powers of infiltration, prosecution, investigation. I dont think that ultimately stops the ideology, but at least it takes on the people that act on that. Tom what are you going to tell your students in class today . You have a bunch of kids who have seen something that we havent seen in decades. What are you going to tell your students . I find it challenging to confront my students on current events. And they dontn, try to impose my particular politics on them. I dont think it is entirely appropriate. I dont think it works. When i tried to demonstrate my students is that these are forces and events that are not entirely new in our history. They are not entirely foreign. In some ways they are deeply embedded in our history. The sooner we come to grips with the fact that this is not entirely a departure from the norm, the sooner we can deal with it. Tom thank you so much for joining us in the early alabama hours. Is at therothman university of alabama. Always onge live trading desks worldwide. Come over here, you can grab a chart. You can take that with you. Good morning. Francine this is bloomberg surveillance. With tomcine lacqua keene. We are on Bloomberg Radio and tv worldwide. Daybreak. Is Bloomberg David joins us now. What do you have for us today . David good morning. We have at roll mike mullen among other things admiral mike mullen. He is former chief of the joint chiefs of staff. Both sides on north korea have really reduced the options available. One thing i want to ask him about his Henry Kissingers oped in the wall street journal over the weekend saying we have to be united with china. Tom david westin, thank you so much. Let me get to the single best chart right now. George, this is a chart you have tattooed on your left arm. It is the nominal 10year yield. The main difference is people a straightcareful in line down to zero, which is what would happen in japans case. Even in japan, there was a reprieve. We think we are entering that reprieve where rates will at least stop going lower and move higher in a range. That will start to challenge this downward trend. Tom 3 , is that in your forecast . It would require everything lining up perfectly. Francine tom needs to leave for radio. Good luck with that. Are they facing a make or break moment . I think we are looking at a couple more weeks of as long as we dont have any more tensions rising, waiting for jackson hole, the fed minutes this week, which is is important to see their outlook. They are heading for a Balance Sheet unwind in september. We think the markets are complacent. We think premiums are too low, credit spreads are two types. Too tight. A lot of issues in d. C. Have to get resolved. There is a quantitative tightening process that has never been done before. We are forming a low here. Let me bring you to my chart. This is a sum of chart looking at the 10year yield in the u. S. You have breakevens. Inflation is tricky. What do you look at to tell you what comes next . Breakevens have been stabilizing. That is becoming an early read for the market aching that by early q1, we will have a bounce back from these concerns holding back inflation. Cpi last week was not as great as we wanted to see. We will have higher inflation next year. It will not be running away from us either. We think breakevens will be getting it right, but they wont be too out of control. The rising rates will have to come from the real rates side. Im sorry, you got cut off. [no audio] absolutely. Beyond that, we think we need to look at tomorrows retail sales. We think there is a pickup in productivity. We dont think we have gotten to a level obviously, moving forward raise rates. Thank you. 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. Jonathan u. S. Officials say a war with korea is not learning. To have risk begins diminish from the market. The white house has yet to announce was premises. Chinese retail sales, investment, and factor out what outputxpectations misses expectations. Lets get you up to speed on the Market Reaction this morning. The biggest weekly drop on the s p 500 last year, we are back a little bit. Eurodollar a little softer. That treasury bid that remains throughout last week comes back a little bit. Great to have you back. You missed a big week last week