Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20171012

Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20171012

To clarify its independence. We are live in madrid. Manus and bmw is said to be working on a deal with manufacturing the iconic many in japan for the first time the iconic mini in japan for the first time. Anna a very warm welcome, this is bloomberg daybreak europe. Here in the city of london, im anna edwards. Manus we have some great guess for you, weve got Jim Mccaughan , he joins us for the next hour. Anna and Paul Venables will be here for his first interview up the day, talking to us after the Recruitment Company publishes its firstquarter results. Always excitement in the world of hiring and staffing. Manus in the meantime, the fed might be desperately seeking inflation as opposed to watching the movie, but the markets are desperately wondering what happens next. We put together a huge index, nobel you cannot see, the economist tadeo says the market is napping. Asiant back to 1997, the financial crisis, the dotcom bubble. The moving average of the skewed index, and that measures black swan events, for lack of better words. Were just off the 120 Day Moving Average, just off that level. So the markets are trying their best to gain the possibility that the shoe might just drop. And whether the highs were seen in the u. S. Equity market or something to worry about or not. The fed doesnt seem to be worried. They didnt express much worry in terms of the stock market. Very little expression of worry around asset prices in general, despite what we previously heard particularly from janet yellen. The msci asiapacific in line with what you might expect from a more dovish tone from the fed. Cases, even some though the best case for markets is the chance of a rate hike here it markets in asia going higher. The same story, the caution expressed, slightly more dovish minutes coming through from the fed. Manus its hard to buy the dollar even if the fed normalizes. The yields are just a little bit lower, thats coming through hitting the treasury market, 2. 34 . Anna probably were saying that the dollar weakness is part of the euro strength story. What we did here at the beginning of this week in terms of emphatically declaring independence. More to come on that story. Theres another deadline monday and will talk more about that with our reporter in madrid. Lets get to the first word news with Juliette Saly. Trump saysresident he plans to simplify the tax code and save money for millions of american businesses and families. Begin in pennsylvania, he addressed criticism that his scheme would benefit only the rich. Trump are going to fight and get those republicans and maybe a few of those democrats to raise their hands, and youre going to have so much money to spend in this wonderful country and this great economy. That is why we have proposed tax progrowth,re projob, profamily, and proamerican. Meanwhile, donald trump has said he is announced why he will whether he will to recertify tebow ons compliance with the landmark agreement which he once again called a badly negotiated deal. In brussels, the six round of brexit negotiations close today. And the has been stand european side is stepping back from concessions it was said to be considering last month. More getting assurances that britain will pay its do i would just 18 months to go, the focus in london is now turning to contingency planning. Prime minister has given the catalano administration five days to clarify whether they have declared independence. They have until 10 00 a. M. Monday local time. If is down to have violated the law, there may be legal procedures to force him from office. Election is in 10 days time, according to kyoto abouthes likely to win 289 seats. The coalitionhat partner would win 30 seat. Also predicting the coalition would win about 300 seats. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. You can find more stories on the. Loomberg at top asian stock Still Holding on to those decade decade highs. Multiyear highs from a number of indices. The nikkei holding at its highest level since of member 1990. The taiex at 827 year high and the cost the closing in on a kospi higher by about. 3 . Gone across the asian equity markets, following the record high coming through on wall street. Codebase deal has been one weve been focusing on, reiterating a the ceo apologizing for the falsification scandal but saying more may surface in the future. Analysts expecting brokerages could get an earnings boost in the third quarter. Cathay pacific in hong kong in focus after Goldman Sachs added it to its prediction list. It says we should have some Good Movement coming through from Cathay Pacific in the next order. Manus thank you very much, Juliette Saly there in hong kong. Rising concern about slow inflation in the United States. Among those concerns, the Federal Reserve. Charles evans is cautious on raising Interest Rates. I had an exclusive conversation with him. Take a listen. Say,es its too early to i do think the inflation data has been disappointing. I understand, ive read the arguments, ive heard that its likely due to transitory factors. There certainly have been a number of those in the u. S. Low inflation is a Global Environment, so the whole world is dealing with transitory effects. Im sure some of that is true. Im nervous that Inflation Expectations are low. They have been low for quite some time. To october to we 14, we have been regularly calling out the Market Measures of Inflation Expectations, they continue to be low, even though they bounced a little bit after the election. I think the survey measures are a weaker than sometimes we talk about. Manus expectations are incredibly important. Im glad were on the same page. How does the fed push those expectations . What more should or could you do to push the expectations up . Question,his is a big it comes down to really, how are we talking about meeting our policy objectives . I think we need to be basing our decisions on outcome based monetary policy. We need to be very clear and telling everybody we are supposed to be supporting full employment and price stability. The Unemployment Rate is quite low at 4. 2 . I think wage growth could be stronger. Stronger wage growth would reinforce the idea better. Getting inflation up to 2 is very important. Moving expectations up, were willing to go above 2 if that actually happens because we have a symmetric inflation objective. I think we should be willing to push inflation above 2 . Just like weve spent a lot of time below 2 . Manus can i push a little harder on that . Hot chicagoing style . Is it the ability to let it run, let it breathe . Charles i dont think we should fear 2. 5 inflation. If we get to 2. 5 , its not inconsistent with a symmetric 2 inflation objective. We should spend time above 2 just like we have been spending time below that. Anna that was the Federal Reserve rank of chicago president speaking with manus in that exclusive interview. ,oining us is Jim Mccaughan great to see you. Weve had many conversations about the role of technology and inflation. The day after the fed minutes, it seems the Amazon Effect and other ways were seeing technology is very much what the fed is grappling with at the moment. Great interview, manus. That was very interesting and illuminating to hear about the fed inking. I do think mr. Evans is actually wrong about inflation, because technology is an extremely strong deflationary influence. Things are getting cheaper. Extraction of commodities is getting more effective. People shopping at amazon instead of conventional stores. That is not reflected in the inflation data. It is explicitly left out of it. Inflation underlying is probably even less than the recorded number. Anna its structurally different when you lower the inflation target. Jim i dont think in the next year are to youre going to get 2 . That does not stop me believing that the fed should be raising rates in december. I think they will and they should. In zero Interest Rates, a positive cost of capital in the economy leads to better allocation of capital. To me, that is the key issue. Manus if thats the basis of your thesis, this prevarication by the market, they cannot raise rates four times over the next 12 or 13 months. Is it a policy error not to thee rates in tandem with consensus of the market . Jim thats an interesting longterm weston. Its very hard to tell, but i would think and hope they will. Aise rates my feeling would be 25 basis woints in december and maybe t rate rises next year. We did 40 minutes of conversation and then that 10 minute interview. He didnt use the word broken, but im going to paraphrase. He suggests that Inflation Expectations are waning, they are under pressure. To me that would suggest policy folly to go with more hike. More hikes got, ashink if youve the recovery in the economy gets more tour, and assuming you have 2 3 growth next year in the u. S. Economy, if thats the case, then modest rises and shortterm rates and a flattening of the yield curve is the right answer. The really interesting number here is the 10 year yield. That is the cost of longerterm capital. Thats what drives valuation of almost everything else. I question about the market level in equities, its actually a question about the 10 year bond yield because thats how the Interest Rate structure is anchored. Even the shortterm rates rising, the 10 year bond yield is it is at about the right rebel. Say 2. 26 is a decent trading range. Obviously things can change that but a flattening yield curve has to be the right answer. Anna we understand that trump is perhaps going to meet with john taylor in his fed search. Who plays best for your portfolio and the way your position . Definition, narrow it would probably be chair yellen. I think its about a if the50 i think its about a 5050 chance. Of quantitative easing has been quite well handled the fed. Theres been a lot of noise around it and you heard that with the debate on inflation, but i do think the fed, in terms of its actions, has been white good for the u. S. Economy, has been quite good for the u. S. Economy. I think if its someone else, they will have to be evidence and rulebased anyway. The only thing is, would President Trump go for a super dove who would just keep rates at zero . I think that would be bad longerterm for the economy. Hiss evans talked about time under greenspan when he was there. He talked about the change under bernanke and yellen, and very interesting offcamera comments about what goes on. Room and in the green you said ive got a rate chart here. 120 day average, near a record. This is the market getting skittish but nervous. Yourhave you done to sate inner angst . Tailthere is a negative risk. This is a really good chart, i like it. It shows the probability of a negative tail event going up. Swan, its a low probability. , the creeps up to 10 15 increase exactly what you would expect. ,ts the rhetoric around korea maybe the continuing standoff between saudi arabia and qatar, it may be issues around European Bank solvency. There are several things like that which could cause this negative event that is very serious. Im basically positive, but i see this negative tail risk. The only thing you can do about that is to diversify. Anna well talk about the European Banking story in the next part of the program. Stay with us. Manus coming up, bracing for the worst as they wrap up round five of brexit negotiations. We will break down whats at stake if britain gets no trade deals. And the cattle on president has been given five days to clarify his independent position. What happens after that . This is bloomberg. Live shot in singapore. The msci asiapacific is at a 10 year high, rising for the fifth day in a row. ,tanley fischer of the fed anna the talks are due to wrap up in brussels. Youll get the big results when wall street opens. Anna donald trump tentatively scheduled to give a speech on u. S. Policy toward iraq. Manus Juliette Saly is standing by. Working on as deal that would bring manufacturing out of the iconic mini rant to china. The company is discussing outsourcing production of the vehicle. And the possible export of mini brand cars to china. The company will issue a formal statement later. Representatives did not immediately respond to an email seeking comment. Morgan stanley said to be ready to charge two point 2500 an hour for private analysis next year. Evil knowledge of the plan said it would be on top of the annual , and the charge is on most twice the rate of top commercial rates. Japans i calling iconic bullet train, according to the railway, aluminum component failed japanese industry standards, although they did not hold any safety risk. [indiscernible] thats your Bloomberg Business flash. The brexit negotiations come to a close today. Just 18 months to go until the u. K. Leaves the e. U. And the focus has turned to contingency planning. Jim mccaughan is the ceo of Principal Global Investors and he still with us. This is round i come and were. Alking about the brexit talks it looks as if the probability of trade discussion seems to be slipping and doesnt look like we will get there next week. , that she might be able to expand the transition , its as if were moving backwards, the trade deal slipping. It really is rather hard brexit kind of feel. Jim i think thats right. I think theres a very bad situation in the debate. I wouldnt even call it negotiation yet between the u. K. Government and the e. U. The u. K. Government does want some sort of trade deal so that jobs remain in the economy doesnt go into a bit of a recession. They dont want the hard exit and they shouldnt want it. However, the europeans have lost interest in the discussion. 27, written is not the Biggest Issue that got at the moment. Catalonia probably is. And looming on the horizon is all the uncertainty of the italian election. Hes are very important topics for the e. U. 27. They are going to be distracted. U. K. Situation where the wants to deal and the e. U. Is distracted, thats bad news for the negotiations. Anna i was at a conference anderday with lloyds Bank Treasures in that kind of audience where they think the pound is going to be in the years time. And the range of expectations is that. What are your expectations about how this all plays out in the currency market . Jim is very dependent on how the negotiations go. If they go as badly as i expect, i would go for the lower end of that range. If britain doesnt get a trade ,eal or a helpful trade deal looking postbrexit, then i think they are going to need weakness in sterling to stay competitive. If tariffs on british car exports to europe, thats bad news for jobs. Manufacturing is now again imported in the u. K. Economy. If the tariffs come in, youre going to see substitution in europe. They wont buy land rovers, they will buy mercedes suvs. That would be very bad for u. K. Jobs, so that got to fight that. Manus the other factor is the what happens next with the bank of england. Under george osborne, to raise rates would have been a sign of a stronger economy. Carney is dammed if he does and dammed if he doesnt. Do you think you should raise rates to go after the Inflation Numbers we are seeing . I think the problem with raising rates for the u. K. Right now is, its fighting and inflation that is really generated by the currency cross. The weakness in sterling which is deliberately there to improve compensatory, is exactly what is causing inflation. You want weak sterling if youve got a bad brexit. All youre doing is importing and going to the shops to buy food. Will pick up the conversation in the next part of the program. Inus up next, we are live spain with more on the catalonian crisis. This is bloomberg. Anna this is bloomberg daybreak europe. Here in london, 2 30 over in tokyo. A bit of weakness coming through in the dollar, holding on to its losses. Dovish versus expectations. Some caution around the timing of inflation coming into the market. Lets get a broader look at whats moving around in these markets. The msci asiapacific index with a fresh tenure high. The nikkei trading at its highest since 1996. A lot of charts and technical around that. To 25 all the nikkei the way back to the 1980s. The nikkei 225. It would need to rally another 6 to hit the peak it was in since the 1980s. It has a long way to run from that bubble back in the 1980s. Its trading at its highest since 1996. We talked about dollar weakness, the bloomberg dollar index and the dollar index both weaker for eight days. Its drop below its 50 Day Moving Average so a technical re on thatatch thei dollar index. We did see a little bit drop in the 10 year treasury yield as well and some curve flattening following the fed minutes. Week,ro has risen 1 this a little bit of relief coming through on the prospects for spain and catalonia. A threemonth risk reversal, the market in its most bullish positioning here in almost eight years. Manus thank you very much. Prime minister rajoy has given cattle on five days to decide if it declares independence from spain or not. After that, he made trickle trigger legal procedures to force him from office. Whats the next move from the Catalan Government going to be now . That got a deadline. Basically they have two options, either they double down on the push for independence and confirm that yes, they are declaring independence, that will almost certainly trigger the heavy artillery former dread with constitutional measures to suspend their powers. Or, they need to back down, which will risk a backlash from the grassroots who were very, night withon tuesday. He ambiguous statement manus so what are the possible outcomes . You have this interim time when you think theyre going to be talks, but there are lots of rumors on rajoy and what he might do. What are the options . I dont think there are goi

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