Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

Welcome to bloomberg surveillance. I am anna edwards in the city of london. Lets start with a check on the markets. This is how we are doing on the stoxx 600. We did either side of the flat line trading and we are losing around. 1 . A little of performance coming through in the london market as you might expect when you have Oil Prices Going higher by 2. 2 because of the tensions between the u. K. And around in the strait of hormuz. That is the focus for oil traders and they are pushing out some of the oil related businesses listed in london. S p futures point higher. We are a little range bound on these Global Equity markets looking for guidance, looking for the continuation of the equity story. That will come later on this week. Earnings reports from the baking sector. Going to be a lot to talk about. We will be looking for the ecb and the Interest Rate decisions have to make. A little bit later on, mervyn king is going to be joining the bloomberg team. Dont miss that conversation. A lot to talk about in terms of u. K. Politics and the brexit conversation very live. We are going to hear about who is the new leader of the conservative party. Lets get the bloomberg first word news. Here is viviana hurtado. Viviana these words from philip if the chancellor johnson becomes a next leader. Very important that the Prime Minister is able to have a chance in terms of policy. I tend to resign to theresa may before she gets the palace to attend to her own resignation. Areana results of the tori expected to be announced tomorrow. Late sundayolent could Police Firing tear gas as demonstrators targeted chinas main headquarters in the city. Carrie lam says violence is not a solution. She wants to find the root cause. Chinas new nasdaq file tech market shanghais star is chinas latest attempt to avoid losing the next alibaba or tencent to exchange his in new york. Shinzo abe claiming victory in yesterdays upper house elections. To the countrys pacifist constitution. He is on the path to be the countrys longest serving Prime Minister in november. Lotta maple and ski dominating ukraines election he plans to crackdown. According to results, his servant of the people party one 42 of the vote. It is named after the Television Show that propelled the former comedian defame. Game toppled avatar at the top according to Box Office Mojo end game only ranks 15th after inflation. Top spot is still held by gone with the wind. Global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Anna . Anna serious consequences. That is what the u. K. Has warned iran will face over the seizure of a british tanker. London is demanding the release of the vessel. It is advising u. K. Shipping of the increased threat in the persian gulf. Theresa may will lead a meeting of the governments emergency committee, cobra. That is set to happen in the morning. Lets get to our government reporter in dubai who has been tracking these latest tensions. Why did iran sees this tanker . They have been threatening retaliatory action. What they have said, the revolutionary guard said is that ship was entering the strait of hormuz from the wrong direction and wasnt paying heed to signals that had been given to it and had collided with other ships. This is what they have been saying. Ife have been seeing you look back to a few weeks ago , there was a ship that had been seized by the u. K. Was transporting iranian oil. Violatingn seized on sanctions against syria and transporting oil to syria which iran has ejected rejected. Iran had said that movement would not go unanswered. They had qualified that is an act of piracy by the u. K. Saying we were transporting oil. It was not going to syria. And even if it were, the u. K. Usually doesnt apply these sanctions to other countries. Iran was saying we dont understand why they went after our oil and seized that ship. In light of all of this that had been happening, perhaps we should see an attitude toward the act and a reaction to the u. K. s own action. Anna we heard from the u. K. Side, the warnings of what is to come. Also an urge to deescalate the situation. Remind us of the broader context. U. K. Is one of the European Countries working to save the nuclear deal with iran. That complicates the relationship, because at the same time the u. K. Is with the eu and save the deal but it is a big outlier of the United States. Absolutely. I think this is why iran has been so integrated because the way they are seeing this is the u. K. Aligning the policy of the Trump Administration which is put maximum pressure on iran. We know the u. S. Is targeting irans oil export. In that perspective, iran is seeing the u. K. Towing the line of the u. S. The difficulty is that at the same time you have new european nations trying to save the nuclear deal that has been endangered after the u. S. Left it about a year ago. U. K. Is in a very tense position between reacting to what happened but at the same time trying to stay united with the efforts the eu are pursuing in trying to save that deal and let iran remain in that nuclear deal. Anna led dana dairy, our report on the ground. Joining us now, Richard Mallinson and onset with us, sarah hewin. The macro economics implications of what is going on. Richard, lets come to you first. Give us your thoughts on how much we are going to see oil reacting to this list belt of tension. Richard i think what we are seeing and what will continue is a pretty muted reaction. Clearly there has been an escalation over several months and this is one of the shipping lanes of the oil industry. We are not seeing act seeing prices strongly react because of this microeconomic act drop in the concern about the market has. This competing tension we saw last year of the market looking for any speculation that may be there is eight the taunt emerging between the u. S. And around. I think the markets really concerned with Something Like that could undermined the tightness in supply caused by sanctions. Anna that is interesting that you mentioned the supply and demand factors. It does seem as if some of the geopolitical tensions are affecting the way the markets are positioning around this. That has been rising with middle east tensions. I have w net longs. Wti net longs. You think the chinese data is more important to what happens to oil prices . Richard what we are saying seeing in the bci. Youve got a positive story. The global picture is dominated concerns. When we look at demand from all across the world, it is weak no doubt. Theres too much internal fear about what the next six to 12 months hold for the global economy. For many people to really go along with conviction in oil. Anna richard, stay with us. Sarah hewin from Standard Chartered, good morning. Your expectation for oil. It is caught between these supply concerns, geopolitical and geopolitical tensions supply can demand concerns. Serco we have seen prices move higher given the concerns and the strait of hormuz looking very uncertain at the moment. The global backdrop we have had for some time, weak production from venezuela. There are these broader supply worries which we think ought to be raising prices. If we look at the shortfall between supply and demand, that suggested, we should be seeing prices move up to more than 70 a barrel level. It is a case of what the market thinks is happening on the supply side. Particularly the china demand story being cautious about the way the large economy is expected to resolve over the next couple of months. Anna in your notes you talk about if the u. K. Were to pull out the iran nuclear accord, of course it has already been injured by the u. S. Pulling out, but if the u. K. Were to side with the u. S. And pull out and be on the others from germany and france, that would escalate tensions further, risk some upside to the oil prices. Position k. Sarah , the u. K. Position is not to escalate the situation. They can step back and think about the impact on economies from Higher Oil Prices than it is europe that stands to lose. Low oil prices are positive. In the Current Situation where we do see activity, that is the last thing policymakers would want to see. Anna richard, coming back to you. When you look at shipping activity in the gulf, what is it that can be done geopolitically to stop it having an impact on oil prices . Theyre talking about escorted convoy and that is the way oil is shipped through the straight at this point. With that lessen the impact that this is having on oil prices would that lessen the impact that this is having on oil prices . Richard we are heading in the direction. The u. K. Doesnt have the impact to sustain that on its own. That would provide some reassurance for shipowners, but it is quite an unprecedented requirement. You will see that reflected higher insurance premiums. They could stay high or even move higher if we are in a situation where you have to have naval escorts. I think you will have some shipowners who dont want to go down that route. All that will transfer into the price of oil, not in a huge way. Both through the insurance costs and the buyers will start to think where they can go. Maybe they dont want to be exposed to any risks from the gulf. Redistribution of some of those trade flows could happen. All of that will push prices higher. As sarah said, demand story is still the bigger one looming over the markets. If that starts to take a turn for the better, that will have much more of an impact on oil prices than the supply factors. Anna richard, thank you very much. Several human stays with sarah human stays with us. Unrest continues in hong kong as Police Fire Tear gas around the China Liaison Office. We are live on the ground next. This is bloomberg. Anna this is bloomberg. Economics, finance, politics. I am anna edwards. Carrie lam has decried a night of violence in the city as police clashed. She says the government wants to find that route the root cause. The police fired tear gas to clear the streets around the China Liaison Office. Our china government reporter, karen lee joins us. She has been tracking this story. Carrie lam spoke within the last hour and a half but what did she have to say about another night of violence. In some cases, a different form of violence. Karen she came out very strongly as throughout weeks of this protests condemning these condemning this violence. What she didnt do is withdraw the expedition bill. It is the root cause of the unrest. Protesters have been very loud about what is causing that unrest and why they are angry. What their demands are. Those demands have extended to her resignation. Wellknown. S are this is most likely not going to do very much to tamp down the anger that people are feeling. To tamp down the resentment against her and the police force. Anna she talks about wanting to get to the root cause but as you say some of the areas of concession, the reasons of the protest welldocumented. It has been more than a month since we have seen these protests start. The extent of the disruption this is causing to Hong Kong Daily life. What have economics been like . Signs we are seeing some this is starting to affect hong kong in the retail sector. What it is starting to do is come out further and parts of the city center were shut down on sunday. Yesterday it went all the way down to the China Liaison Office which is in a different part of the city near the chinese border. You have groups of massed men coming after protesters in a train station. Protesters saying they were unable to reach police for back up. What you are seeing is a wider expansion of this movement that has brought part of the city to a standstill. It is starting to make people here nervous. Anna thank you very much, karen. The latest on the weekends develop its. A focus on the fed. We talk about the right path ahead. Month the rest of the for the fomc. More the fed next. More on the fed next. This is bloomberg. Anna welcome back to bloomberg surveillance. Jay powell and his colleagues are set to cut rates by quarter percentage and what would be the first rate cut in more than a decade from the u. S. Central bank. Sarah hewin is still with us. Seeing images of Jerome Powell speaking in paris just last week. What is your expectation from the fed . It seems as the market has dabbled in now has come back to settle around 25. Sarah had this flurry of excitement last week. Indicating they might need to go further than 25 basis points. We are seeing 25. The question is what is the message at this meeting at the end of the month. There has been a clear pivot from doing inflation is transitory to really looking upon it as a much larger concern. I think if we get that focus on their inflation, that raises questions about what the fed does over the next 12 months. Or is it going to be a case of a couple of cuts . And echo maybe one or two moves. Do you think the fomc what is the Central Division about whether this is sensible to be cutting rates at this point with stocks as high as they are . The u. S. Economy ok, declining from its recent bouts of momentum but not falling off a cliff. Sarah you have to have a vision clearly in the economy is doing pretty well. Wages are rising. Easing. L conditions are some policymakers are worried that if you start to reignite financial stresses then you bring rates down lower at this point. There seem there seems to have been a shift across all Central Banks the way they look upon inflation in the current cycle and the risks from falling Inflation Expectations in the market. Anna sarah hewin stays with us here on the program coming up, it is a big week for britain and they are set to get a new Prime Minister this week. We will discuss what it means for rockets. That is coming up next. This is bloomberg. Hey im bill slowsky jr. , i live on my own now ive got xfinity, because i like to live life in the fast lane. Unlike my parents. You rambling about xfinity again . Youre so cute when you get excited. Anyways. Ive got their app right here, i can troubleshoot. I can schedule a time for them to call me back, its great you have our number programmed in . Ya i dont even know your phone anymore. Excuse me . what . I dont know your phone number. Aw well. He doesnt know our phone number you have our fax number, obviously. Todays xfinity service. Simple. Easy. Awesome. Ill pass. Anna dire straits. Oil gains as the u. K. Looks to distillate tensions with iran after the is lahm republic seizes a tanker. A night of protests and violence , the sagas warnings yet from the Chinese Government. Decries the ceo pain of negative rates after the slowest inflows in seven years. We had some outflows and if i had that back we were within the targeted range of 4 to 6 . If i look at margins and revenue compared to the second half of last year, we have substantially recovered. Anna welcome back. I am anna edwards. Lets check in on the moving parts of the market. Lets get to Annmarie Hordern who has that check. Phillips has been leading the stoxx 600 this morning, up more than 3. 5 . There sales growth top their range. The ceo speaking earlier saying they are still seeing these concerns between the u. S. And china and that is going to be one of their biggest concerns weighing into the second half. That is clearly helping them out. Upside. Ittal to the specifically for this company and thes top court is possibly putting on hold their purchase of steel. India is worth some 6 billion. That down 3. 5 alongside itb as well. Morgan stanley outlooks cutting these stocks seeing the decline of Linear Television viewing. Anna and marie joining us with the movers. Lets get the bloomberg first word news with viviana hurtado. Viviana serious consequences. That is with the u. K. Warns iran will face over the seizure of a british tanker in the strait of hormuz. London is demanding the release of the vessel. It is advising u. K. Shipping of the increased risk in the persian gulf. Theresa may will lead a meeting of the government emergency committee, cobra. Over to hong kong where protests continue as a peaceful mass rally turned violent late sunday. Police firing tear gas as demonstrators targeted chinas main headquarters in the city. Carrie lam says she wants to find the root cause of public anger. We absolutely do not condone that sort of violent act. Let me make this clear again, violence is not a solution to any problem. Violence will only breed more violence. At the end of the day, the whole of hong kong and the people will lossr as a result of the of law order and hong kong. Viviana there are signs of fragility in indias acting system according to reserve think of india governor. Speaking in an interview he says the central bank is monitoring 50 market lenders and shadow banks to prevent contagion from the collapse last year of a nonbank lender. China is opening its Financial Sector to more foreign investment. International holders can control Wealth Management units, pension fund managers, this is the government targets measures to cope with the rising risks facing its finance industry. We end with the avengers and game toppling avatar as the highest grossing film of all time. It has raked in an estimated 2. 79 billion worldwide but according to Box Office Mojo, it only ranks 16th if you factor in inflation. The top stop still held by 1939s gone with the wind. Global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Anna thank you. Gone with the wind. You have ended that with a film that i have seen. Two new leaders into days, a big week ahead u. K. Politics. The antibrexit liberal democrat will announce the results of their leadership election. The conservatives confirm whether Boris Johnson or jeremy hunt has one there election. Philip hammond says he will quit if johnson wins the premiership. Lets talk about this with David Merrick and sarah hewin still with us to give us the perspective on the u. K. Economy. As we dive into this conversation, alan duncan, a minister in the Foreign Office appointed minister of state back in 2016. He has quit. He was a big fan of jeremy hunt and he accused Boris Johnson former u. K. Ambassador to the u. S. We already knew what he thought of orson johnson. Maybe not a great surprise Boris Johnson. Maybe not a great surprise. Seed we are going to everything being turned upside down. We are going to hear the announcement tomorrow morning. Everyone is pretty certain it is going to be mr. Johnson. It is focused on who is going to be mr. Johnsons team. Extraordinary moment yesterday with the sitting chancellor telling the world he is going to resign but he is going to get in wefirst four johnson are going to get a new chancellor. I expect mr. Johnson to take the broom to all of the cabinet. A softose people brexit are going to be jumping ship before he has a chance to push the button. Anna resigning from bench position, that is not the same of same as leaving your party. Boris johnson, if he is going to be later, he doesnt have a majority at all but even with the dup, it is not much. David math is really important. You have to work majority with three including the dup. Six conservative lawmakers are considering defecting. That wipes out mr. Johnsons majority before he has started. Out for thereaks summer on thursday. We could see a situation as soon as parliament is back in september. Anna sarah, lets get your thoughts on u. K. Assets. It is a point of tension within the conservative party and elsewhere is whether Boris Johnson will take the country to a no deal. He will do that if a no deal presents itself by the end of october. What would your assessment be . Forh a no deal is negative the u. K. Economy, u. K. Assets. We have seen markets, sterling doing well when looks like no deal is off the table. I contrast, doing badly looks like theres a high risk of no deal. For u. K. Investors more broadly is it is not just a case of brexit. We also have the looming prospect of a general election. Even if we assume we can somehow get through the brexit deadline still intact, then there is a high chance we have Political Uncertainty in the new election early next year. And echo where do you see that dictate the data starting anna way d. C. The data deteriorating because lots of people on the brexit side argue that these warnings about dire impact on the care economy is just fear. With unemployment rates staying low, it doesnt feel like there is some sort of economic crisis. Sarah the mb the big impact has been on investment. Areain paris with the euro but other indicators assume indicators have held up well. The impact will be first picked up in survey data, sentiment data. At the new order we have seen some softness and also the push from management sharing the broader slowdown in manufacturing. The risk is the interruption to supply chains. Stockpiling supporting activities initially and then the stocking meaning you get this crunch afterwards. Anna i remember talking to the saying thatleader businesses were so angry about all the stock money at the end of the month that some were intending not. David, remind us of the theatrics we are going to see, the way the events are going to unfold. Viviana tomorrow morning, that would be the announcement. Wednesday, misses may will hold her final premise of questions. We expect her to go out with a four step. She will take the symbolic journey to Buckingham Palace to formally tendered her resignation to the queen. She will recommend to the queen and that person will be the person who has won the torrey vote. And we expectback his first big speech. He will deliver his vision for his premiership. We can expect his widely known jokes, his compelling speeches. We can look forward to that. Looking in that speech precludes how is he going to deliver on these promises he has made. Against all the parliamentary and obstacles. That was that is what we will be listening to. Anna what can you tell us about how they will get this done. David, thank you for joining us. Sarah hewin stays with us. Coming up, in the context of this u. K. Conversation, we should tell you that bloomberg be speaking to mervyn king. Do not miss that conversation after 4 30 p. M. London time. This is bloomberg. Anna thousands of protesters are expected to march to Congress Today for the philippine president delivers his fourth state of the nation address in manila and these are life pictures of manila and the protests against the president of the philippines. We will people keep on top of that story. Lets get the Bloomberg Business flash with viviana hurtado. Viviana Bridgewater Associates losing 4. 9 in the first half of the year. That is according to the financial times. It is one of the funds worst performances into decades. As global stocks and bond markets rebounded on hopes of looser monetary policy, investors were hurt. Phillips is reporting Second Quarter profits that Beat Estimates after the Dutch Company introduced a slew of new products. This to rekindle growth edits Consumer Health division. Chief executive is betting investment and innovation will see phillips through any economic slowdown that he is concerned about the trade war. These trade wars that are divisive in the world is a strong believer is what globalization has brought to the peoplei hope we can see coming closer to each other and that will be good for the world economy. Viviana shares falling the most in eight years after the drink maker unveiled an 11 billion deal today ab inbev australian operation. It gives a major inroads into ,he country but the stock investors are concerned. The company is paying top dollar. That is the Bloomberg Business flash. Has reportedbaer the slowest inflows in seven years. Net money grew the most. Missing mediumterm growth goals for growth. Manus cranny has been speaking to the ceo. I am happy with the set of numbers we produce here. It is a substantial recovery from the second half of 2018 and with 391 million net profit, one of the best results. Net inflows are quite from the core Wealth Management for business particular from asia and from the middle east. We had some outflows and if i had that back, we are within the target range of 4 to 6 . If i look at margins and revenues, compared to the second half last year, they have substantially recovered. We fully benefited from the better markets and what is program iss the cost nicely on contract. Manus do you think the new man will have to do more aggressive cost cuts . We did quite an aggressive cost cut at the beginning of this year. You will see the benefits and the second half of 2019. Certainly in 2020. I feel comfortable enough that with these cost measures, we will get back into the 68 cost income ratio. It is always dependent on the markets. There is good chance we get back. Risk werehey they reaching for risks . Were they reaching for cash . The client i talked to, they are still pretty cautious. We see a lot of clients are heavy in liquidity. I think it is also positive. We dont see a real bubble that would burst tomorrow, i think client staying on the sidelines still. Certainly more activity in the second half. Manus is this in better shape as you go to exit the door, is this bank in better shape . I think it is in better shape. I am very proud if i look back and recreate together the manager, but i am proud of our three things. One is we gave the firm a Clear Strategy direction after two years. We got the focus, the market coverage. Secondly, we discussed it last time, the focus on feebased income. We have started quite the boost in terms of technology and digital transformation. Anna that was the ceo of julius baer speaking to manus cranny. Lets speak to manus now who is joining us live from zurich. Lets talk about these numbers. Weve got the share price. Is it out the gates this morning . It seems the market taking a little bit of time to work out what it makes of this business. All of this management change, the inflows story still something that dominates the story the conversation. Manus you hit the nail on the head. The revolving door of management. Hadhat extent, you have three ceos in the space of three years. Extent, part of the longterm Succession Plan to study this ship. What does the next ceo do to restart the growth story within julius baer . Were sayingbernard profits were good in terms of net profit with some records made last year. He was hiring wealth managers. As he goes out the door, it is about trying to reassure the market that this is about continuity and building on the strategy that he has put in place. I am not a caretaker was his repot to me. Was more than a caretaker. When we measure it up against others in this pretty crowded space, is this a Growth Business . Is this a Mature Company . What is the story that julius baer is telling . Manus this depends on which characteristic the next ceo rings to the table. Brings to the table. Buyinground the world small pockets of Wealth Management. One of the spoilers in the story is the italian Wealth Management, what happens next is about 9 billion euros in assets under management. That is not huge, maybe 2 to 2. 5 . Well where will the growth come from . Interesting, that is where the driver was in their growth story. The new ceo goes again for growth in the julius baer story. No bubbles. Clients are the sidelines. Give the nextto ceo a helping hand and a transition and will move sideways. Cranny with the latest from julius baer live from zurich. Staying in switzerland to cover some of these other banking stories. Up next, easing out of the job. Mario drager enters his mario draghi enters his last three months. We will discuss that next with sarah hewin who is still with us. This is bloomberg. Anna this is bloomberg surveillance. 9 54 here in london. Mario draghi is entering his final three months of the ecb presidency with a plan that will see his influence linger. He will lead a policy meeting that is expected to set the stage for september Interest Rate cuts and a possible resumption of quantitative easing. Lets talk to stan lets talk to sarah hewin. Your expectation . Several echo he is going to prepare the sarah he is going to prepare the ground for a rate cut in september. The hostility of restarting qe the possibility of restarting qe. The u. S. Imposing tariffs on eu auto. Looking for 10 basis point cuts on the deposit rate in september and another one in september december. Anna the fed looks like 25 and not 50. The size of the movement is possible for the ecb much smaller than that. Is that going to be an issue . Sarah they will take these steps. We are already at 1. 4. There will be a huge step for them to go. Some people say they could do 20 basis points within one go. How bad is the situation. We have seen draghi changes tune at the conference talking about easing policy unless the economy improves and it hasnt improved but it hasnt deteriorated. Anna the Services Data holding up relatively well. Sarah we are seeing a split between the trade impact from the manufacturing sector. The domestic Economy Services sector which is Still Holding up well, Consumer Confidence moving sideways. The jobs market so strong. Anna sarah, thank you very much. Hewin, chief economist for the americans and europe for Standard Chartered bank. Bloomberg surveillance continues in the next hour with tom keene and nejra cehic. Coming up we will be speaking to mervyn king. A big week for u. K. Assets as we find out who becomes the new Prime Minister. This is bloomberg. Tom this morning, it is Prime Minister may. By the end of the week Prime Minister johnson is likely. The irish question is still the heart of the brexit matter. We consider no deal from dublin. Markets are quiet. Earnings and revenue season in full force. Exhausting heat from paris to peoria. This is bloomberg surveillance i am tom keene new york. Nejra cehic in london. Francine is off. A nation focused on a new Prime Minister. It is not assured it will be Prime Minister johnson. Nejra no, but the betting market seems sure. It would be a huge surprise that was not but nothing is ever sure. The question is what would happen with the new cabinet. You were asking what the future the cabinet would be. He has already said he cannot support a no deal brexit. If Boris Johnson comes in, who could replace Philip Hammond. Tom interesting questions as that saga continues. Right now, our first word news in new york is viviana hurtado. Viviana the uks dialing down the rhetoric after irans dramatic seizure of an oil tanker in the straits of warming is. The government demanded the Immediate Release of the ship but the defense minister telling sky news we need to try to deescalate this. Today theresa may will lead a meeting of the government emergency committee. Also in the u. K. , the chancellor of the exchequer Philip Hammond saying he will quit wednesday if Boris Johnson becomes the next Prime Minister. Johnson is favorite to succeed theresa may. He insisted members of his government supported no deal brexit if necessary and is speaking to the bbc. I cannot accept the idea of leaving with no deal on october 31. Candidates have said they want to get a deal and i will support them if they are generally pursuing a deal. Johnson said he wants a deal with the eu but he is prepared to leave without one. China coming out with the strongest warnings yet about protests in hong kong. Thousands of protesters surrounding chinas Liaison Office in the city. Beijings representative says that seriously challenges the central governments authority. Police fired tear grass at demonstrators. In japan, shinzo abe claiming victory in upper house elections but he fell short of a supermajority that would allow him to push through the first revisions to the countrys pacifist constitution. This fall, abe does plan with an increase in the sales tax. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Hurtado. Ana this is bloomberg. Tom thanks so much. When was last time i did futures up, curve flatter, youre aware it has been. American oil, 56. 79. Sterling 1. 2464. Nejra it is a quiet week in the markets as we are looking ahead to the fed but no comment this week. In europe the focus is on the ecb. 10 year yield edges lower. Curve flattening on the 210. A big week in the u. K. Next find out who the Prime Minister is an importantly the cabinet and the chancellor. This is where all of the action is in oil in concerns around the persian gulf with that seizure of the british tanker by iran. Tom something has changed. That changes in my chart of the year from last year. I stumbled upon this last week. The twin deficit, the fiscal deficit, the trade deficit, the gdp, the reagan years, and 8 trade deficit, and then down we go with the gloom of the great recession. This recent rollover gets my attention. Down 6. 8 , all of that coming from the fiscal deterioration. Nejra and the conversations we had last week, that is an amazing chart. Apparently markets are not focused on it. What we are focusing on this week is earnings. While we might be in a Holding Pattern with equities, we felt friday, we are up on futures today. The s p 500 forward priceearnings showing a downward bias. How much strength can we see in this rally . Off the radar and with a huge heat, 106, 108 degrees in paris. Huge heat across the eastern seaboard this week. Maybe we have ignored hong kong. We cannot ignore hong kong. The protests are tangible over the weekend. Karen lee joins us from hong kong. Lets start with geography. The previous protests were in an area we know, down by the central district. What is the significance of this new geography for these protests . Areas there were two new over the last day. There was the China Liaison Office, which is close to central and also out by the mainland border where we saw unidentified groups of men taking batons and beating protesters aggressively with them. This is something that has worried people here. This is a new element we have not seen before and protesters are saying the Police Presence was light, almost nonexistent, they were having trouble getting through to the Police Officer when they were having emergency calls and this will hire more pressure on the police force which is already come under fire for their tactics and on carrie lam as well. Tom lets look at the symbol. We all know it from decades of communist party of authority. Of the the symbolism tarring of the red shield with the gold letters . What is the significance of that . Karen this is something china takes very seriously. Rebuke from china since the president s began. China saying that attacking this office undermines their sovereignty in hong kong. This is something that has brought china out in a way we have not seen in recent weeks. Nejra what signs are we seeing that this is starting to take a toll on the economy . Karen we are seeing a few signs. Retail is being hit. And all important industry in hong kong. People telling bloomberg over the past week that people are starting to want to move their money out. You have to remember that the extradition bill that spark these protests is something that spooked business from the getgo. People worried this will continue the political chaos and gridlock will go on for months, showing no signs of abating. Continuing through the summer and is that a sign hong kong is not the stable place it once was . People are starting to look at their investments in a way that maybe they would not have if they had not seen this protest movement maintain the momentum it had and if they had seem clashes like what we saw last night. Thanks so much to karen leigh in hong kong. We welcome our guests. Great to have you. A quiet day in the market. Pockets of activity. The geopolitical risk in the middle east front and center as well and will be talking about brexit later. Be focuseds seem to on is we are lower for longer, the dovish tilt, waiting for the ecb in the fed. How would you position for the portfolio . Michael i think we are in a. Of peak uncertainty. From here, one of does go things happen. Either things keep getting worse , and that tends to be bad news for the economy, or we get about. Also Consumer Confidence being at elevated levels, rolling over. Rfid rate cuts going to lead to Consumer Confidence going back rollover, which would be a concerning sign about where we are in the economy . I think uncertainty, even without the political backdrop, is elevated, much more than it has been in recent years and we are pretty neutral when it comes to risk at the moment. Allocationet overweight or underweight to risk assets. That janet, you point out the difficult question is if we see a trade deal where the markets will get disappointed at the prospect of fewer rate cuts from the fed. With that be the reaction function from the fed if we get a trade deal . They could beally more relaxed about the global uncertainty. We know a potential trade deal may not be that persistent in nature because of negotiations throughout the u. S. China trade tensions we see there are termsps back and forth in of the deal, and a deal may not be a resolution to all of the global trade uncertainty. They willally still have concern and so will the fed. Tom i want to talk about the fed. , do you buy the numbers of 6. 2 or 6 gdp or is there more tension than what we see . Data i think the chinese is subject to downward pressure. The pmis are in contraction and the new order does not look great. The Employment Index of the pmi are also weak. There are still a lot of domestic issues from china which we need to be cautious of. I think the recent data do suggest some sort of stabilization in the chinese economy. We will stay cautious. Tom how important is the consumer to china . We have protests day after day and we talk about investment in the currency. How important is the consumer . Janet the Chinese Consumer is extremely important because china is in a transition from an economy,t taste industrialbased economy, to consumerbased. The rising middle class will come more into this spending. I think it is very important. That is why the Chinese Government is trying to support them. For example, they are trying to have tax cuts for the lower income groups in china and also if they want to stimulate the economy, they would offer. Iscounts on the auto tax they realize it is extremely important to support the chinese economy, especially in the global uncertainty. Nejra you talk about the china tech board, china wanting to be more selfreliant on technology and saying that longterm that will improve the appeal of china shares. Great to have you both with us. Mike bell and janet mui stay with us. Coming up, a big week for britain. We will discuss what the new Prime Minister means for markets and brexit, next. This is bloomberg. Nejra im nejra cehic in london with tom keene in new york. The u. K. Chancellor of the at resignr said he plans to wednesday if Boris Johnson becomes the Prime Minister, citing his opposition to the possibility of no deal brexit. He told Us Parliament strongly opposes leaving without a deal. Still it does is mike bell and janet mui. Grapple market has to with is whether the risk of no deal is increasing or decreasing. If we get Prime Minister johnson and a reshuffling of the cabinet, how is the risk of no deal stand to you . Mike it is not the cabinet that is relevant. It is whether or not we change parliament. What you can say with certainty is on the assumption that Boris Johnson is next Prime Minister, he will try to renegotiate the deal and the europeans will be unwilling to give him what he wants. They will not take the backstop out. We will probably enter a scenario where approaching october it looks like we will have no deal and then parliament blocks it. It is highly uncertain what happens beyond that. The risk of election goes up and that is where becomes impossible to call. Given how tight the polling is between several different parties and the potential for different coalitions, it is difficult to say if we go to an election scenario whether you , liberalth a labor democrat, s p coalition or no brexit at all, or perhaps an outcome where the conservative party, perhaps with the brexit party gets together and tries to push for a no deal. I do not think it is about what happens in the cabinet over the next couple months. It is are we going to end up with an election scenario. The risk of that has increased. Nejra are we going to end up an election scenario . Meanwhile, with all of the global risk are you avoiding the region altogether or are you taking select opportunities . Janet we are reducing our u. K. Exposure. The end game is binary. We do not like the region. We think there is more Downside Risk in the u. K. In the sector composition of the u. K. Is not attractive, either. Taken some we have of our position out of the u. K. Equities. Tom does the city just roll along . It is an unfair question. I know youre not running for mayor. Does the city just roll along with all of this . Weve gone from stage one to stage two to stage whatever. There is going to be of brexit in three months, in six months. Does the city just keep rolling along . Deal,unless you get no then everything continues as it is. In a new deal scenario, the outcome for the u. K. Economy is a significant negative. I think it would be enough to cause a recession in the u. K. And the implications for Financial Services in the scenario of a no deal brexit could be negative in terms of financial job moves. As long as we get this continuing uncertainty, that is one thing. If the uncertainty is resolved by ending up with a no deal, i think the outcome for sterling are weak and the outcome for the u. K. Economy would be weak. Tom what u. K. Investors do . Do they go international . Mike what i would suggest is not taking big bets, either at the sector or the size level. What i fear amongst a lot of clients is they have significant overweights on smallcap stocks in the u. K. And theyre playing the view that a no deal brexit is unlikely. While that may turn out to be right, in a scenario where that is not the case or in a scenario for Economic Growth weakens, not because of brexit but because of a broader slow down in the global economy, i think overweights in smallcap stocks would be vulnerable in those scenarios. The best thing to do is not be overweight. The average u. K. Fund is Something Like 30 overweight and smallcap stocks. We think it makes sense to get closer to the benchmark. Tom good briefing on a monday. Mike bell and janet mui. Much more to talk about. In the weekend with the blackout in new york city late last night in the boroughs. You can see the clear skies, the heatwave breaking last night with a bit of rain across the eastern seaboard. Certainly not as bad as what we have seen in the last three days. Europe, different story. This is bloomberg. Viviana this is bloomberg yacht this is bloomberg surveillance. The opening of the countrys new nasdaq style stock exchange. The first 25 Companies Rising an average of 1. 48 . The star market is chinas attempt to avoid moving the next alibaba to exchanges in new york or hong kong. A Dutch Company is reporting secondquarter profits that Beat Estimates. Phillips also updated its hospital equipment with smart tech. That is the Bloomberg Business flash. Tom thank you so much. It is europe, it is a real stew of gdp and evergrowing negative Interest Rates. I will show a chart on that in a moment. Mike bell with is of jpmorgan Asset Management and janet mui. Europe. Our take on are they in recession or headed to a recession . Janet i do not think europe is having a recession right now but in terms of the sector, the industrial sector is particularly weak. Pmis and contraction and factory orders in order are the weakest since the financial crisis. It is sector specific. In terms of the consumer sector, is doing ok. Unemployment is still falling. So far there is not a been is spillover of the weak industrial sector. I would say the euro zone economy is growing modestly and is still up about 1 growth. We are not in a recession but it depends [indiscernible] i want to go to this chart. It is highly unusual. I will not going to the mathematics, but ever greater tenure negative Interest Rates in germany, the nicest bounce back we have all enjoyed. Mike bell, just giving it away with a slight concave feel. , newature of they give up negative Interest Rates, ever greater negative Interest Rates is extraordinary, isnt it . Mike it is. It highlights the difficulty that investors in europe have when they are looking to derisk. The yield on safe haven assets like government bonds is so low. We find a lot of clients in europe are looking to alternatives, where you have a slightly more attractive yield available. Things like core infrastructure. Seconds,net, about 20 how are you wanting to trade inflation linked bonds in your . Janet we see this as an opportunity because of what is priced in the eurozone is 1 inflation, and we think that was oil price rising, the week euro and the fact that the ecb we think this is an opportunity they are too cheaply priced. Tom thank you so much. Please stay with us on oil. There is a bid out there. This is bloomberg. Nejra i am nejra cehic in london with tom keene in new york. The u. K. Has warned that iran will face serious consequences over seizure of her british tanker in the strait of hormuz. London has ordered its Immediate Release and also warned u. K. Shipping of the threat in the persian gulf. Theresa may will lead a mission of the governments emergency committee. Our reporter joins us from iran. The u. K. Chancellor Philip Hammond said there are limited ways in which the u. K. Can react to iran based on this latest escalation. What option does the u. K. Have . Is obviously an important question and we have to see what comes out of the cobra meeting. It is about to take place any minute. Tolip hammond said according one of the sunday papers in the u. K. That they are interested in what they could do, and that could suggest that britain is trying to dial down the rhetoric , maybe lessen the escalation, maybe tone down some of the language used immediately on friday. Hasnow the United States exhausted every possible subject of sanctions in iran. There are more things the u. K. Could possibly sanction but at this stage it is difficult to decipher what those could be. Obviously the u. K. As part of the e3, those Big European Union countries that are the main shareholders in the financial channels. The u. K. Is simultaneously trying to support to sustain the nuclear deal. That is interesting to see what theresa may says after the meeting this morning. Nejra oil extending gains. Rbc saying the move up in Oil Following irans seizure of the oil tanker does not reflect the severity of the prices. They say crude prices have become a broken barometer for gauging rising political tensions in the strait of hormuz. How much are we underestimating the escalation of this conflict . Golnar from a market point of view, as you pointed out, we had other analysts say in the past week that the moves are not reflection of the huge amount of concern related to this. How the oile exporting countries in the region are going to interpret those. Irans own oil exports have declined dramatically as a result of u. S. Sanctions. Perhaps some of that is coming in to this. [no audio] tom how much of the people of iran how much have the people of iran attached the story . Is it on the streets and front and center, or is it distant . Golnar it is a big talking point at dinner tables from what i can gather from the conversations i have been having over the past few days. People are talking about this for sure. It is a huge story. It is the biggest story, like it is elsewhere. One thing that is striking to me is that a lot of people i have been speaking to, middleclass people, well educated people, people who are not necessarily closely aligned with the hardline elements of the regime, people who are proreform, i would say liberal parts of the population, have said they support what iran has done in seizing this tanker. I have poured a number of people say that the british deserved for this to happen because they are generally puzzled by the british seizure of the iranian tanker in the straits of gibraltar earlier this month. They see it as a reasonable and rational titfortat measure because they cannot understand why the u. K. Would seize and iranian tanker, and at the same time it says it is trying to save the nuclear deal and keep the financial channels for iran alive. There has been full support for this move by the irgc across the political spectrum in iran. Tom thank you so much. Right now in new york city, with our first word news is viviana hurtado. Viviana congress and the white house are closing in on a debt ceiling and budget deal. This week the u. S. House leaves for its summer break. Both sides may have to resort to a shortterm fix so the government does not have to run out of borrowing authority. As part of a permanent deal, the Trump Administration once 150 billion in spending cuts. State media in china since facetoface trade talks with the u. S. Could happen soon. There were a number of goodwill gestures by beijing. Chinese companies asking u. S. Exporters about buying foreign products. They also applied for exemptions from chinas tariffs on the goods. President donald trump resuming his attacks on four Progressive Democratic congresswoman. He tweeted he did not believe they were capable of loving the u. S. He demanded they apologize for what he called their hateful comments. The president s comments about the group have been called racist. Where theerto rico, governor is attempting to placate thousands of angry demonstrators. He says next year he will not seek reelection. On the other hand, he will not resign. The u. S. Commonwealth has been struggling with bankruptcy and hurricane damage, massive protests breaking out after the release of sexist Text Messages between the governor and his inner circle. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im viviana hurtado. This is bloomberg. Much. Thank you so still it is mike bell of jpmorgan Asset Management. We are getting into earnings season in full swing in europe and the u. S. What key metrics are you looking for in terms of the sort of sectors you would be attracted to at this point . Is it those that are high cash flow, quality growth, what are you looking for . Mike we want good quality stocks, strong balance sheets, high cash flow generative, and value. If you look at that in the u. S. , a lot of financials check the boxes that they have strong balance sheets, they now have double the a had relative to 2007. They are generating cash flow that is long them to buy back the qualityey tick box and they are also cheap. We think financials check those boxes. Also large caps. Large cap over small caps at the moment given the risk to the economy. In europe, we are broadly sector neutral at the moment. Some small underway its to some of the industrial stocks, tech stocks, a slightly more defensive by in the european portfolios. Broadly speaking, value and quality is what we are looking for. In terms of the japanification of europe, i had an interesting conversation that talked about the zombification of companies in europe. Do you think that is overdone when it comes to the corporate space . Describes afication credit crunch that lasted through a decade. Credit96 to 2006 you had contracting every single year. To compare europe to japan is unfair. Today you have Pretty Healthy credit growth in places like germany and france. Where i think it is a fair comparison is for some of the economies like italy, where credit growth has been much weaker. They have the same demographic drags in japan. Japan has already experienced aging, that is something europe will face. I think it is about credit. In europe it is just italy and spain where the credit growth is weak. Tom i was thunderstruck by not the gloomy town, but just the quiet of estimates of what equities will do from here forward. Color the wall of worry. To me it is remarkable that tendency towards caution. Mike i think if you look at the world at the moment, what everyone is struggling with is the fact that the business surveys are pretty weak. Particularly in the manufacturing sector. They are at a point where they could pick up. If you look at the u. S. , the philly fed survey bounced strongly. For the optimists, that is giving them hope you will start to see a turnaround in the business cycle. When the business surveys pick up from these weak levels, then it tends to be positive risk assets. I think that is a positive scenario. The negative scenario is they do not pick up and the data continues to deteriorate. If that happens, from this level of weakness we are at at the moment with the manufacturing survey, that tends to presage a negative outlook for the economy. It creates an environment where it is difficult to take big overweight or underweight positions given that fundamental uncertainty. Tom did you change your view on banking with the earnings coming out . I notice an appropriate to comment on Jpmorgan Earnings or individual stocks, but is there a new mike bell view on the financials lift . Mike we have been quite positive on u. S. Financials for a wild now on the view that they have a strong balance sheets, they are generating lots of cash flow which theyre using to buy back stocks and their relatively cheap. 12 times relative to the 17 times pe for the s p 500. We have like u. S. Financials for a while in the earnings number you saw from the sector last week showed a reasonably positive picture. It would be wrong to look at the Bank Earnings you saw last week and extrapolate that to the rest of the market for the coming weeks. You will see in some sectors tech coming in weaker than you saw for the financials. Tom mike bell from jpmorgan Asset Management, thank you so much for a monday morning briefing. For ourr briefing military and finance. Is bloomberg. Stay with us. Viviana this is bloomberg surveillance. Lets get the business flash. U. S. Regulators are on the verge of approving the merger between sprint and tmobile. Therding to fox business, deal could get the goahead wednesday or thursday. The deal could really to the creation of another wireless network. Nissan is taking a contrarian bet on the humble sedan. The japanese automaker is coming to refresh its core models. That comes at a time when suv sales are moving but nissan contends the sudan might attract of new generation of ecologically conscious drivers. The lion king delivering a boost to the north american box office. The remake opening with 185 billion. The lion king as to disneys remarkable domination this year. It headed into the weekend with a 35 share of the u. S. Market because of marvel comicsbased films and toy story 4. It is not every single day tom keene serenades a bit. Im guessing this is one of your favorite films. Nejra, how about you . Nejra i cannot show a preference for films, but why not. Certainly the soundtrack. Tom part of my Retirement Program into the westside movie theater. It was not 100 degrees. I can report with full certitude the movie is better than the trailer. That is what we got out of it. Viviana you heard it right here. Tom your surveillance movie review, better than the trailer. With us is mike bell of jpmorgan in london. I want to go back to first principles. I know you do not talk individual securities, but the idea of hedge funds piling into industrials. Is it a time for value or a time for growth that we justifies value . Mike i think it is a time for quality value and i think you need both. Tom help me with that. Mike we are trying to construct portfolios that are cheaper than the index but also Higher Quality because some stocks are cheap for a reason. There is higher risk in the economic scenarios deteriorate from here. Likewise, that they of structural impediments. There are also quality stocks which look expensive. The way we are looking at it is trying to buy stocks cheaper than the index but that also have good balance sheets, generate lots of cash flow, but in the event the sector deteriorates they should hold up better. Tom are we simply valuing Revenue Growth . Lets begin with the basic statement it is a crazy market. Find. Are we just valuing Revenue Growth . Mike at the moment, the markets have been reacting to expectations for stimulus from the fed. What you have seen as the market rerated on the expectation of fed stimulus. The question from here is not so much around the Revenue Growth, though it is obviously late, but are we going to get that earnings growth. Earnings are expected to come in 25 higher than q1 of 2019 earnings. That is a dramatic acceleration in earnings being baked into the numbers. That is what has driven equity markets higher, the assumption that earnings will be delivered in a positive way and you will get a rebound in growth. The critical question is that going to happen. The philly fed survey suggests there is signs of hope the data will turn up, but it is early to have full confidence. Tom mike bell, thank you so much for the briefing. Over the weekend i was taken aback by the caution and defensiveness of so many street and on street reports. We will continue. An interesting week, particularly in britain. This is bloomberg. Tom good morning, everyone. Nejra cehic in london, in for francine. I am tom keene in new york. We are focused on britain but also on japan. Shinzo abes election, not a supermajority but nonetheless good for mr. Abe. A briefing from Robert Feldman of Morgan Stanley, the arch watcher of japan within the englishspeaking world. We are thrilled to have you with us today. I want to go back to your 2001 book, i will butcher the japanese. Over is this a chance for shinzo abe to start over . Robert i think it is. What has happened in the last year and a half is that politics have overwhelmed the policy agenda. Year by year policy reports had less and less reform in them. From around april or may, there has been a real acceleration of discussion in the background about important policy initiatives on pensions, on medical spending, and agriculture. Those are the things we have been waiting for. Now that the election is out of the way, it is time for shinzo abe to refocus on those. If he does, investors will respond positively. Tom what is the split between urban and rural japan . Is it a new story . Robert it is a new story and an old story. The old story is the diet remains heavily skewed in favor of regional areas. There are vested interest in agriculture, etc. , blocking or opposed to reforms in the Agricultural Sector. There are also new technologies. I have been around the country and noticed there are a number of firms. Is nearly 70. E drones help form the land because the older folks cannot do it. There is new technology in the Agricultural Sector given a promissory hope that agricultural incomes can grow with this new technology. A new story but also an old story. Nejra great to speak with you this morning. What does that mean in terms of what japan and japans companies have to offer longterm global stock investors . Robert the key issue is can japanese firms do better corporate governance, raise the return on capital, address these issues with labor shortage by deepening their use of capital, more capital and better capital. The ones that are successful will do well, as some of them have already. What we are seeing is the agility of companies coming into question. Can the board of directors of directors move fast enough to take advantage of foreign talent, better networking, a better connection with foreign markets to raise their returns . The corporate boardrooms are beginning to understand this. They have more external opinions coming in. I think there is a good deal of hope. We are seeing a lot of visits, particularly from Foreign Investors interested in that. Japan is not so much a macro story as it is a micro story about whether corporate boardrooms are responding to the Technology Changes happening now. Nejra should investors still have that somewhat negative tag of japanification in their mind when they are looking at japan . Robert i do not think so. Japan is a different country today than a few years ago. Can meanjapanification Different Things to different people. The theme for every country is how quickly we can diffuse all of the wonderful new technologies out there. Some japanese automakers have been leaders in the electrification of automobiles. Some have been leaders in their fields and batteries, but their other competitors. Who will win that . That is not an issue of japanification in the 1990s or early 2000 cents. Is an issue of who can deploy the new technology the fastest or most effectively to raise returns. Tom Robert Feldman, thank you so much. Greatly appreciated. Chief economist and Senior Advisor at Morgan Stanley in japan. Much more coming up. A reset for the end of july. Fed meeting on july 31 and then into august. What do we see this morning . Lower Interest Rates and a new curve flattening. Oil with a little bit of elevation off of uranium stories. Please stay with us. Stay cool. This is bloomberg. Tom this morning, it is Prime Minister may. By the end of the week, likely Prime Minister johnson. Stay the same the irish question is still the heart of the brexit matter. No deal for dublin. Markets are quiet. Earnings and revenue season in full force. Hire in exhausting heat and a new hire in exhausting heat. How about the heat . Is it a brutal summer in london . I wish. I definitely would not describe it as a heat wave. People may be getting hot under the collar at the prospect of a new Prime Minister and what that will mean for brexit, but it is barely peeking out of the clouds, isnt it . It is extraordinary overseeing a power outage in new york city overnight in the boroughs of queens and in particular, brooklyn. Right now, first word news with viviana hurtado. Viviana the u. K. Is dialing down after irans the government demanded the Immediate Release of the defense sky news, weing need to try to deescalate this. Today Prime Minister theresa may will lead a meeting of the governments emergency committee. Theing in the u. K. , chairman of the exchequer says he will quit if johnson becomes the Prime Minister. Succeed theresa may. Has come out with the strongest warnings yet about protests in hong kong. Thousands of protesters surrounded the tiein as a Liaison Office in the city. They represented says that seriously challenge the central governments authority. Police fired tear gas at demonstrators. Ing groups of men a text attacked testers. Prime ministers shinzo abe claimed victory in elections but fell short of a super majority that would allow him to push the first revisions of the countrys constitution. This fall he plants a that he plans to move ahead with the sales tax. Global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in over i am vivianas, hurtado. This is bloomberg. Tom thanks so much. One data screen, that is how quiet they markets are. We get a lift with the curve flattening, euro comes in 112 point 100s have 1. 1217. Quite it is nejra it is quiet in europe as well. The 10year yield move slower by a basis point. Steady onre fairly the 10year yield. Cable weaker, the dollar Holding Strength from friday, and of course we will have a new Prime Minister in the u. K. This week. We will discuss more on that this hour. Start ais good to monday with the political soup. We go down to the swamp where it was over 100 degrees this weekend with temperature breaks in washington. Joining us, martin shanker, who our marching to shop washington shop for a good amount of time. What is your observation about a president who wants to walk away from the raging debates that we see right now, and three hours later he wants to dive back into it. Ontin co. I think as we say this story this morning, there will come a moment of truth to this president when he goes in thoseof a rally and people in that audience start chanting, and it will happen. What does donald trump do . And i think the eyes will be on how he handles that situation. Tom we have talked about the Democratic Party, the fractious nature. Nicholas kristof with a liberal bent in the new york times, writing on the gop. I thought we would switch gears and look at mr. Trump with that party. This is the party of lincoln and theodore roosevelt. It is the part of that tilt interstate highways, open relations with china, confronted the soviet union, and managed the collapse of communism. Todays Republican Party is not the steadying force of the past but rather is a blood and Soil Movement that stands for nothing larger than one bombastic hothead. He is playing to the core audience. I see no indication that he can expand it, yet that is exactly what he did on the first tuesday of november in 2016. Martin and the question is, will he be able to do it again . I have felt for some time that donald trump has redefined what the gop is and there are many moderate gop voters who do not identify with the party any longer, and it is those voters that the democrats are counting on to take donald trump out of the white house. So it is up to the democrats to nominate someone that those gop voters can support. Democrats,on the marty, great to have you on the show. Joe biden leading in the democratic pull, facing an enthusiasm gap, that is bloombergs takeaway. What will be see in the Democratic Party . Martin i think there is a moment of truth for the democrats as well. Joe biden is in the lead, but there are 20 candidates out there and the enthusiasm is sort of distributed among that large group. As we winnow down the number of people running for the democratic nomination, i think you can you will see a redistribution of that enthusiasm, and once they candidate, i one think that will be the real test. Nejra could that candidate, whoever he or she may be, pose a real threat to President Trump . Martin of course. I think all the pulling shows all the pulling all the polling shows at least three democrats can beat donald trump headtohead. But there is plenty of time before the election. A lot depends on where we are on the markets and the economy, and that will play to Donald Trumps strength. Tom you will be with us on iran and defense as well. How miffed are the generals in the white house . There were three at one point . There are no zero. There are now zero. Martin it is really interesting how Donald Trumps retaliation for the drone downing within 10 minutes of an attack, he putback. Even though the people around him were pushing for an attack. I think donald trump has always been his own defense secretary, and so he was not listening to those people before, and i dont know whether or not tom this just popped into my head. It is almost a Different Administration now. Martin from what it was at the beginning. A second terme now. Martin it is like a second term within the first term. Donald trump now has the people around him he is quite comfortable with, and they have bought into this president. And that is who he is going to go to battle with. Are we going to have a debt deficit debate, a debt ceiling . Martin no one wants a government shutdown. You have heard that before, right . Tom marty schenker, i think i am better after that. Asa couple minutes, content well. Speaking of generals, and most interesting general one with a real financial background and knowledge as well as a prodigious ability and military. He is the former assistant secretary of state. With david westin and the 7 00 hour, this is bloomberg. This is bloomberg surveillance. Lets get the Bloomberg Business flash in china, gripping the opening of the country plus new nasdaq style stucco change per the first one he five comes that made their debuts rising an average 148 . The socalled star market is chinas attempt to avoid using the next alibaba exchanges alibaba exchanges in new york or hong kong. Newtch company introduced products to rekindle growth at its Consumer Health division. It also upgraded hospital equipment with smart technology. The private Bank Julius Baer Group Reported the lowest inflows in seven years. To the outgoing ceo with plenty to fix it he spoke with bloomberg. This longterm Succession Planning was very much involved with the longterm Succession Planning and the board has nominated a strong candidate to take over for me. I last i worked the last 14 i am sure he will handle julius barr in great shape. Hodler helps clean up julius baer with a scandal. Tom brian levitt joins us. As we try to reconnoiter around all the opinions out there on being in the market. He is an investor of global anket strategist he is investor Global Market strategist with america. Is there a new allocation we need to know about . I think the overarching story in these markets continue. This is a slow growth, benign inflation world where policy is accommodated in most parts of the world. Federal reserve is likely to be accommodated for the for seeable future. That continues to be a bad drought that favors risk assets and continues to favor the growth of parts in the market. Nothing meaningful has changed. Tom one of the things you do with charts, it is an important physical exercise, the physical analysis the physical the physicality of data analysis. If i put my hand right there in the december low, or imagine if i my hand over right here with all the doom and gloom of the end of may, almost to a correction, nowhere near a bear market, and then we just leg up there and once again on pullbacks, if you buy it, you are a genius. When does the game change . Ryan the game changes when policymakers ryan brian if you think of the cycle of markets having wanted to go up because it is an expanding Global Environment without much need for policymakers to make significant changes, every time we have seen volatility in the United States, it is when policymakers have tempted fate. You can go back to 2015 and 2016 with the for the first fed Interest Rate hike. You can go to 2018 with the stimulus and multiple Interest Rate hikes, and concerns around the trade war. Our message to policymakers is dont do any harm in this type of environment. 2 growth, 2 inflation might not get you reelected, but it is good for the equity market and it is starting to become better for workers. I hope policymakers continue to allow this to play out. If they do, i think the cycle goes on for longer than most people suspect. Nejra good to see you, brian. In this environment, where the makes mostlicy ties votes but not all, how do you identify the true Growth Companies . Brian you have to be looking for companies that are growing companies that have sustainable competitive advantages, that have moats around their businesses. The markets have done a good job of identifying the big growers. They have out performed this cycle. They outperformed even when everyone thought stimulus was going to take the u. S. To a higher level of growth. They have outperformed since the trade war intensified. Done are the market has a good job of identifying them. It is more the deeper value stuff that investors have been waiting for a long time to begin to outperform. Those types of names need a catalyst, and it is going to be difficult to find a catalyst in an average growth world there that catalyst probably comes in the depths of the next recession. Tom we can talk to brian levitt about our breaking news. This is an italian bank of 86,000 employees, and it is extraordinary to see unicredit, planned,sands of jobs all of this around a new view of organic Revenue Growth, and the operative line now i want to be careful here, because i am on the edges of speculation. But 10 divided by 86, were looking at a 10 job cut, will be a real restructuring of the bank as well. Appropriate it be for you to comment that it would be inappropriate for you to comment on any single bank. Or regional banks as well. But within all the sectors of the s p, is there room there to cut costs now, or are they to the bone . Brian there is room for businesses to cut costs. Ist you are seeing overseas what they hope has been for some time, that a lot of these banks need to go for restructuring. Putting say maybe even further stimulus in europe, which would certainly be helpful. In europe, they have slogged through this, where they really need restructuring of the financial system, and they need policymakers beyond the european Central Banks support growth. In the United States, businesses have done a they have higher a significant amount of workers. We have seen the cycle. Businesses are generally flush with cash. We have had a good longterm earning cycle. Corporate america is still in good shape. More of theseng headlines from unicredit it of jobto plan thousands cuts come as many as 10,000 in a december plan. That is what we are getting from unicredit. Part ofating costs are its strategic plan. This is bloomberg reporting, to people who are familiar. You said that companies are sitting on a lot of cash. When you look across the board markets, are you satisfied with the amount that b is spending that is being bent on capex . Brian the capex trend has not been as robust as some might have expected in the aftermath of Corporate Tax cuts. If you look at capex as a percentage of total economic output in this country, the trajectory has been trending higher since we had the since we had the sharp decline in oil prices in 2015 and 2016. The cycle is reasonably healthy. Somenk we are may have disappointment is that the u. S. 3. 5 gdpet to that 3 , level and sustain it quarter over quarter. That was going to be difficult because we have already hired a lot of workers. Businesses have invested a lot in this cycle. We were not going to get there. What we need to get back to is, we are going back to 2 growth. That,sses will support businesses will buy back shares and pay dividends, this is not going to be a lights out growth environment on the back of business investment. 19 year to date. Mr. Levitt, we will continue. He is with invesco. Coming up, a conversation with former bank of england governor dr. King. He has been out front on the in hisof deal or no deal united kingdom. Mervyn king in the Eleven Oclock hour. This is bloomberg. Nejra i am there a chain pitch and london, with tom keene in new york i am nejra cehic in london. With tom keene in new york. Police clashed with protesters. She says the government wants to find the root cause of the the root cause of the public anger. Surrounded the building and deface the National Emblem at the building entrance. The actions were denounced at a briefing. [speaking native language] our china government reporter joins us from hong kong. Great to speak to you. What is different about the protest this time . Took a darker turn. We saw groups of unidentified masked men beating protesters in an area right near the mainland chinese border, and we also saw protesters take a bold step in trying china i. Him faced the and him the emblem and it drew the strongest protest we have seen. China saying it undermine their sovereignty in hong kong. This is really a turn of events over the last day that has fueled concerns that the two sides are digging in, and that there will possibly be menu a morere come be violent confrontation in the weeks to come. Nejra talk about what we might expect in the weeks after this escalation. There is pushback from to 150 rounds of teargas volleyed. People keep coming out in these huge numbers and now it is having a big impact on the economics. People looking at the need to grapple with what this could mean for the economy going forward, especially for retail, for luxury, for tourism, that are starting to see a taper already. Expeditionbout the the extradition bill that sparked the protest, people are looking ahead at whether the political chaos will have an impact on their business here, whether this will still be a haven for business that it has been in the past. Tom is it just an assumption that triad is a representative of the government in beijing . You know, it is speculation that these were the triad. The police say that it had no links to them and this is something that people have not been able to confirm. In theas involved protest into any 14, so people have been jumping to that conclusion. What you saw was really something different. It had a more sinister vibe. You had people trying to escape and they were being severely beaten. Some of the images we saw were pretty shocking for those of us who have been following this for a while. Whether this nude invention is something that opens a new and whether this new dimension is something that opens a new prospect people were very upset about the Police Presence yesterday. They did not feel like the police defended them, so that will continue to raise their ire against the police force. Nejra thank you so much. Great have you with us. Coming up on bloomberg, nelson 7 30 am in new york, 12 30 p. M. In london. This is bloomberg. Were the slowskys. We like drip coffee, layovers and waiting on hold. What we dont like is relying on fancy technology for help. Snail mail we were invited to a y2k party. Uh, didnt that happen, like, 20 years ago . Oh, look, karolyn, weve got a mathematician on our hands check it out now you can schedule a callback or reschedule an appointment, even on nights and weekends. Todays xfinity service. Simple. Easy. Awesome. Id rather not. Good morning, everyone. We say welcome to all of you on economics, investment, and finance. Nejra cehic in london, i am tom keene in new york. Joining us from rome, ross larson joins us on the breaking news of unicredit. It is remarkable to me how we have waited for this restructuring. Simply, was it a surprise . Ross certainly these numbers are surprised are a surprise. We have been preparing for a new plan for some months. We are guessing that we are getting to the tail end of the first restructuring, which was a ee year plan that the ceo we have already seen a huge amount of job cuts. We have seen getting rid of bad loans, we have seen a lot of structural changes at the management level, so this is mark to of the plan. We have noticed coming in december, but we have these numbers mean as many as 10,000 jobs and this is new to us. Tom i agree. Which showsa chart these troubled banks in europe really from a normalized point of 2007. Down we go together, and then there is a Deutsche Bank superiority over the challenges of italy in the latter part of the decade, and then they have really collapsed down here to great difficulty. I dont think people understand the challenges of equity reduction at these two banks. Nejra what is interesting, if you look at the share price today, i love that you have the long term there, tom. But right now unicredit is barely moving at all. Ross, does this tell you that investors have heard enough with costcutting and they need to see Revenue Growth . Ross i think that is true. Certainly the implication has been that the new plan is a move toward growth and toward repositioning in some ways. Because the first three years have all been about cutting, readjusting, cleaning up, very costly endeavors. The ceo has been considered very successful with it. He has tied up a lot of loose ends in the last months before getting to a new plan in december. Nejra the ecb meeting is the big backdrop. How could italian banks be positioned on that front after this week . Roscoe in the case of eunuch ross in the case of unicredit, it is a retail bank, and there is still this big problem across the board of making money on ordinary banking with Interest Rates so low. So until we see a big change on that front, their is a fundamental. You can do a lot of a lot with costcutting and moving around, but your profit from just doing banking is not good and it looks like it will not be good for a long time going forward. Thank you so much, ross larsen joining us from rome. Brian levitt joins us as well. Unicredit and Deutsche Bank and others are living it, arent they . Brian this is going to continue to be an ongoing struggle for banks. The negative rate environment is it is hopefully supportive of economic activity. The problem in europe is an inability to get out of their own way with regards to the restructuring of the Banking System and to have additional stimulus to support growth. Each step along the way, they have taken a step back. Tom what do you do . You are an international shop. Do you bet finance or do you stand claire stand clear until we have worked our way out of a negative rate model. Brian i think you continue to focus on true Growth Companies around the world. Typically these financials, more valueoriented parts of the market, will do better with an increase in growth, increase in inflation expectation, a steeper yield curve. Maybe in the United States you get a bit of that with fed easing, but we will continue to revert back in this cycle to weak growth, flat yield curve, and that is not a great environment for banks. Nejra which stock market in the world has the most to gain from this dovish tilt with Central Banks . Hasn we have seen what happened in largecap u. S. Equities, so that has certainly been helpful. There is a hope that the emerging economies will benefit from this as well. They have to some extent. The challenge has been for the last number of years, as tighter policy in the United States, link the capital flight from the emerging market. Now that we are on the flipside of that, some easing in u. S. Rates, will we see capital flow back to the emerging market . You probably should, given how cheap valuations are in the emerging economies and where the currencies are. The big risk and all that is this ongoing trade war. China continues to work to stabilize growth. The fed easing all of that should stable the weaker dollar. The big risk there any possibility that we get some sort of resolution where the market takes positively enough to then be worried that Central Banks globally are going to back away from this easing . Brian i dont think that is the big risk. The bigger risk is that another tweet comes out or the Trump Administration makes another statement that unnerves the market. We have seen that in multiple steps throughout this year. They will float something out there and slowly walk it back. I think ultimately we will not see some major trade resolution. Coming into an election year, you will see some agreement to continue to speed some framework idea so the Trump Administration can go into november of next year with a reasonably good economy, a Stable Currency market up. I think the bigger risk is markets will be unnerved. But even if we get a trade, even if we get some semblance of an agreement on trade, we are still in an environment where Inflation Expectations in the United States are pretty weak. The dollar is generally strong. The fed is still worried about price stability on the downside, so i dont think i dont suspect they will make another abrupt change in policy. Nejra before we move on to brexit, there are some investors to worry about the simultaneous gain of stock and bond markets and say it is telling a different story. To me, stock and bond markets are telling the same story to an extent. Would you agree . Brian last year was about strong growth and bad policy. Year for markets, so we had a bad environment where investors could not do well in Long Duration bonds and they could not do well in the equity markets. What the bond market is telling you now is that we are going back to a 2 growth model, and that is the flat yield curve environment, the 10year at 2 . The markets love that. It is paradoxical, ironic that better growth was not as good for the market because the market read through that it was not sustainable and recognized how problematic multiple Interest Rate hikes were. This year is about weaker growth and better policy that is driving rates down, and the equity market is applauding that. Nejra brian levitt from invesco stays with us. Lets turn to the u. K. Philip hammond says he intends to resign his post wednesday if Boris Johnson becomes the next Prime Minister, citing his opposition to the possibility of a no deal brexit. Earlier this month he told bloomberg that parliament strongly opposed his leaving without the deal. Parliament is dead set against no deal. The European Union has not changed. The position of the European Union next remains exactly the same. The challenge for the new Prime Minister is to try to work with the same cast that the previous Prime Minister had, to play them in a different way that hopefully gets to an agreed deal. Nejra joining us is emme ross thomas. Great to have you with us. Our guest from jp morgan said the market is less a concern than the cabinet. Said, welip hammond will have the same cards the e. U. Is offering a few things around the edges, but nothing significant. Nextament it is a ordinary situation. We have a new Prime Minister coming in, and prominent members of his party are standing up and saying they disagree with his policy. We have already had another resignation this morning from another minister, and more expected to follow. In, thereson coming is a swelling group of rebels, if you like, vowing to block his , which isit survives to leave the European Union with or without a deal. That is extraordinary that we are going in, the last government did not have a majority to start with, relies on the votes of the Northern Irish party. Maybe johnson will be able to support because he is ruling things out on the backstop and the rest of it. Within camp johnson, they have been wargaming the general election. It is a massive debt. A massive bet. The brexit party, led by nigel farage, might not eat their lunch. Nejra how risk how high a risk is this deal . Parliament has said clearly it does not want no deal. There was a move last week to butk it sounds crazy, the Prime Minister suspending parliament there the reason that is important is because it is the only way, the easiest way you can think of, to pursue parliament with no dissent, to have lawmakers go home. It does not mean that no deal is off the table, but certainly the risk has been reduced. You could have general elections and then no deal. If Prime Minister johnson has to make a couple symbolic junkets, at the beginning of his government, how will he be greeted in Northern Ireland . Brian that is emma that is an interesting question. It depends on which part of Northern Ireland youre talking about. Orest johnson has vowed to get rid of the backstop, so the unionists are openminded to what he will come up with. They are also willing they have one redline, the Democratic Party has one redline. We are also inspecting him to go to some other European Capital before he goes to brussels in autumn. Tom the idea that brussels in autumn as well is that new is that europe will negotiate. I dont see anyone other than chancellor miracle chancellor merkel, that anybody wants to give way. Am i wrong . What is being reported is that there are indeed some ideas kicking around. Could you write another one of these letters that says perhaps technology will come to the rescue in the end . It is all bits around the edges. You might remember earlier this year there were letters and there was a strasburg agreement. These were addenda to the deals. They are prepared to add a bit to it and to strengthen the political declaration on future ties. The problem is that Boris Johnson has said that is not good enough. Boris johnson wants a wholesale overhaul of the structure of the talk. This is an agreement way back in the beginning that you pay the money and then you do the future trade. What johnson is proposing is to rip up even the structure, which was laid out in article 50, that the e. U. Treaty in how to leave the rulebook says this is how you do it, and johnson is saying no. Nejra lets take a check on sterling. We are weaker on the declines of last year last week. We had a twoyear low on wednesday. This is bloomberg. Tom bloomberg surveillance. We say good morning to nejra cehic in london. I am tom keene in new york. The heatwave monday with brian levitt. You have to go, interesting to say the least. Ow about euroswissie that giant moment in 2015 where they appreciated the swiss franc, and then they turn on, and then bryant limit brian europe, a quiet log roll over here. It is rolling over stronger swiss. It is about flow of money, isnt it . Brian it is. Every time we get these flights to quality years,rmany, in two within 5000 of a record low. Brian it is unbelievable to think that is still going on some 10 years after the financial crisis. In ant speaks to is, environment where the europeans have made some steps to try to supportasset prices and growth, but tend to get in their own way. 2011, not that long ago, European Central bank was raising rates in this environment. Then we had all of this austerity in the periphery. Europe is facing structural challenges like demographics, like competitiveness. But really do need support, they are still sitting there at low rates because the expectation is very weak asked very weak inflation and weak growth throughout the economy weak growth throughout the continent. Nejra is europe one place that you would look for that in credit . Brian there are opportunities in credit. It will be difficult to generate any type of real income in sovereign bonds in europe, and that probably persists for some time. There are opportunities in credit. If you want to think about where attractive real yields are, they still exist in the emerging economies after a prolonged poeeriod in which the currencies got beaten up. That is where the real deal is. Some of it is in european credit. There is still some opportunity in u. S. Credit, although most of an ability to get carrier to generate income. Tom thank you so much. I want to go to the break with this euroswiss chart. Brian levitt strengthening the swiss flank the swiss franc singlehandedly. We have the swiss franc coming in, and then adjust pops right down. A have to do some math on 100degree monday, or whatever it is. Noon, andin, 12 00 jason furman. This is bloomberg. Nejra viviana this is bloomberg surveillance. Big job cuts may be on the way at unicredit. It may cut up to 10,000 jobs as part of its new strategic plan. The bank is considering reducing other operating expenses by as much as 10 . U. S. Regulators reportedly are on the verge of a merger between sprint ant of approving a merger between sprint and tmobile soon. An agreement could include terms of an investiture that could relieve that could lead to the creation of another wireless network. That is your Bloomberg Business flash. Tom it is a joy always to have eli lake join us here he has a wonderfully twisted view of our National Security, of our defense, and also our extension of a new and different foreign policy. He writes for bloomberg opinion, always interesting on pakistan come on iran. And recently on the president on his isolationism. As have liz cheney out there the arch individual to try to stanch the president s isolationism. Lets start with the character of his isolationist tendencies. What is it . Isolationist is sort of a word in the world war ii era. Certainly the president was willing to use force in syria after twice twice after they used chemical weapons. Escalation avoid an that would require him to commit troops in some way, or, for that matter, he is looking for any way to exit troops from afghanistan and the wider middle east. He has not done that in terms of 5000 troops in iraq. There are still some in syria. , he can beginstan the withdrawal of troops there. Tom does he have isolationist advisors . Advisorhink an informal term theverse term isolationist to take that view i think he does occasionally talk to fox news, who is warning him against that his National Security advisor in that respect, you could say that he listens to that, but most of his cabinet are pretty strongly conventional republican types. Nejra i would like to ask you about the latest escalation in the persian gulf in terms of the seizure of the british tanker by iran. There is talk about an ill planned operation in a vital onpping lane and a gamble Washington Post response. Is this a mistake and gamble of washingtons response with the persian gulf escalation . Eli i would say the interesting thing here is that we saw last an iranian drone was shot down. So far there is an unspoken redline on both sides, and that is that no iranian or american blood has been shed, and at this point it looks like the iranian i have reported that the iranians understand what the redline is. Trump is sort of i where that is sort of aware of where the iranians are. Tom eli lake, thank you so much. Writing for bloomberg opinion. Nejra, we got through the entire show, i dont think we mentioned Central Banks, which is remarkable when you think about it. We are coming up song we are coming up on some serious centralbank news, arent we . Nejra we have talked about the affair a little bit, but through the prism of markets, yes, we are looking ahead to the ecb and we found interesting discussions on the potential japanification in europe, and the low rate environment for banks in europe and of course right here for the fed, what does it mean for u. S. Equities . We talked about a lot on this quiet market day. Tom this morning, we are watching the german twoyear carefully. It is beautiful in washington. Hey im bill slowsky jr. , i live on my own now ive got xfinity, because i like to live life in the fast lane. Unlike my parents. You rambling about xfinity again . Youre so cute when you get excited. Anyways. Ive got their app right here, i can troubleshoot. I can schedule a time for them to call me back, its great you have our number programmed in . Ya i dont even know your phone anymore. Excuse me . what . I dont know your phone number. Aw well. He doesnt know our phone number you have our fax number, obviously. Todays xfinity service. Simple. Easy. Awesome. Ill pass. Tinderbox in the middle east, officials try to deescalate while analysts warn of consequences to retire markkanen either. Nd goodwill and sincerity. China buying more Agricultural Products to talk about resuming sales to huawei. And unicredits new plan. The bank considers 10,000 job cuts as it focuses on simpler business. Welcome to bloomberg daybreak. Im david westin with alix steel. Hong kong is back in the news. We have a violence, unbelievable pretty fast. Videos and pictures between the clash between pretty fasters and police is staggering