Transcripts For BLOOMBERG Bloomberg Surveillance 20240714

Some of the optimism when it trade, s pe tone on futures back down after the cash trade yesterday. Markets are optimistic about the situation in italy, you can see bid, nowian btps are down to 1. 21, less than 200 basis points above boones. The dollarer against as the greenback falls. Italy thatews out of the Fivestar Party has halted Coalition Talks unless the democrats agreed to keep Giuseppe Conte on as Prime Minister. They previously pushed back against that, especially the leader of the Democratic Party, for hisis supporters Parliamentary Group had any say, they will have to concede, because they will want to say. We will continue to cover the story in italy. Coming up, we will speak to nigel wilson, the ceo. You can catch that interview at 11 30 a. M. London time. Lets get to the bloomberg first word news with Viviana Hurtado standing by in new york. Talking, but only if the u. S. Lift sanctions first. Thats according to hassan rouhani, following President Trump signaling he would be open to meetings with the Islamic Republics leader. It echoes the initial outreach to north korea, resulting in three meetings with kim jongun but no breakthrough deals. Not considering tariffs on japanese autos, according to President Trump at the g7, but he left the door open to slapping livvys later on the 50 billion sector. Washington and tokyo have reached an outlying deal in late september. I deal to end a feud over frances plan to tax tech giants. Yesterday Emmanuel Macron announced that they reached an agreement. The french finance minister says tariffs are definitely up and President Trump didnt confirm the deal. And there is no need for chinese troops to tackle the unrest in hong kong, according to the city leader. She says her government can handle the ongoing demonstrations but still wants to hold talks with protesters despite a recent flareup and violence but she wont resign. A responsible chief executive at this point in time should continue to hold the fort and do the utmost to restore law and order in hong kong. Myouldnt say that government has control. We are not only supporting my name we are also acting responsibly. To after a slump in exports. Its wants to blame germanys economic malaise and trades subtracting 0. 5 from total output. The bundesbank thinks it could decline again in the third quarter. It is putting pressure on berlin to provide stimulus. Global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Thank you very much. Viviana hurtado new york. Lets continue to focus on whats going on in italy, the Fivestar Party has halted Coalition Talks with the democrats unless the democrat , or togrees to continue keep Giuseppe Conte as Prime Minister. We do see yields coming up a little bit from where they were 122, stillare at relatively low. The bonds are being bid. Equities are still up half a percent on the day when European Equity indices are down. Is possible investors expect the democrats to come back and concede that he will stay on as Prime Minister. Lets get to the top trade story today. European stocks declining outside of italy, along with futures,ty index investors showing skepticism over the everchanging china trade narrative, despite yesterdays softer tone. When you say maybe they want to end maybe they dont i think they want to make a deal, im not sure they have a choice. Im not saying it as a threat. Meantime the United States which has never collected . 10 from china will in a fairly short period of time be over 100 billion in tariffs. I think they want to make a deal. Very badly. Our senior on this, editor joins us from singapore. He certainly has struck conciliatory tones you dont hear President Trump speaking like this too often, and i thought all weekend that the g7, he didnt complain about zarif being flown in cash he said that he agreed that macron could bring him or that he allowed him to bring him to summit. He has made conciliatory olive branch iran marks, and the chinese have listened. I think they will want to make a deal is that why the markets were up, and why are they continuing to gain question i think thats exactly right. I think theres a certain amount of whiplash that has been going on if you look at fridays giant selloff and add for games that resulted afterwards, there was some amount of position taking coming back in. You is one of the dangers get to in terms of trading on sentiment, because President Trump did show a lot of good behavior. A lot of total shifts with what we might call happy talks, but the threats for additional china tariffs are still in place. One of the things i am paying attention to is the chinese response, because the chinese are acting a little bewildered by what President Trump is talking about. Chinese officials came out and said for the second time that they are not sure what talks the president is referring to, and it seems like theres some dissonance between the white house in china in terms of exactly what has been offered by the chinese side, and i think there is some amount of hesitance until we see some of these concrete threats pull off. And im thinking about september 1, october 1, december 15. Thanks very much. Singapore,in striking the trade tone, which is what influenced markets it seems that the lack of optimism is showing stop joining us for the hour is the Global Market strategist at j. P. Morgan Asset Management. Donald you think about trumps more conciliatory tone that he struck all weekend at the g7, and he now seems to want to make a deal doesnt matter . I think it matters hugely. What the Global Economy really kneels is for the trade war concerns to go away. The problem is there is a nonlinear development in terms of as the trade war escalates, it has a problematic impact on the Global Economy. Whether or not these latest comments will come to anything is anyones guess. But clearly what the Global Economy needs is for the trade war to dampen down and to take a step backwards. It is a most impossible to trade that because one moment it looks like things are Getting Better and the next moment it looks like things are escalating again. As a result of that, a more iftral tone matters because trade tensions were to escalate further it risks tipping the balance of the Global Economy to where the risk of an economic downturn would rise quite significant. Is trade right now more important than Central Bank Monetary policy . Is the trade story more important than the fed . I think so. Unfortunately we are in a world where Central Banks can react to the deterioration in Global Growth that is taking place largely as a result of the ongoing uncertainty impacting businesses and to an extent consumers because of the ongoing trade war. But if trade escalates further, if we get to a world where you have 25 tariffs on all of chinas exports to the u. S. , unfortunately at that level of trade it would be very difficult for the Central Banks to offset that. Moment the market at the is assuming that the central bank will ride in and save the day. Unfortunately if the trade war gets worse from here, it is unlikely that Central Banks will be able to fail the equity market out. Does donald trump have to come in before the 2020 election . Our bloomberg anchor in the u. S. , joe weisenthal, between to the other day that typically politicians are accused of trying to juice the economy during an Election Year at the expense of longterm sustainability, trump is taking the opposite approach, risking growth and the stock market and the surface of a structural goal. Do you think trump stays the course or does he fold on the way into election 2020 . I think it is almost impossible to say stop they make trading markets so difficult, which is why we are taking a more neutral approach. From an economic standpoint, clearly it makes sense not to be Going Forward and escalating trade concerns heading into an election but a political standpoint you could argue that with the core base that support the president that perhaps they want him to be tough on china. The economics and the politics perhaps pull in Different Directions which makes it difficult to predict how this will play out. From that j. P. Morgan Asset Management guest host for the hour. Coming up, italys fivestar movement stops discussions with the democrats on the Coalition Government. Will he stay on as Prime Minister . That is what fivestar wants and what the democrats are kicking back against, but still, bonds are bid in the equity markets rise further. We are live in rome next. This is bloomberg. Economics, finance, politics, this is bloomberg surveillance. Im matt miller, in for francine lacqua. Lets get over to italy, where the antiestablishment fivestar movement says it will not hold any more meetings with the centerleft Democratic Party unless the democrats agree that Giuseppe Conte remains on as Prime Minister. Joining us now is our rome bureau chief. This is been a Sticking Point i think throughout the night of the democrats do have to come back and concede . The markets are still bidding looksonds and stock, it like markets think it is a done deal. Probably not a done deal, but they can probably force the democrats hand to come out publicly and say they agree on the government. This has been a Sticking Point through the night. For now they say they wont hold anymore talks that were supposed therepen, but for now will be no talks until the democrats come out and officially support the Prime Minister. We will see how it goes, but as the bond market says, probably it will happen eventually. I was just speaking with an thereist who says that are risks if this coalition comes into power that italy gets a downgrade on its debt. Why doesnt the market seem to be concerned about that . Leak hadbecause the been founded very aggressive and very aggressive toward italys european partners. Elections,e new people wont have the budget ready in time. There will behind confrontation if thisope and even government has fivestar support rather seek compromise with the european union. The bond markets seem to be bullish about the perspective of not having elections this year. Usthanks so much for joining , very busy in the rome office covering these ongoing negotiations. He will continue to bring you breaking headlines. Still with us is mike bell from j. P. Morgan Asset Management what is your take on the italy situation, still at 200 basis points over boones, a pretty decent return. On the positive side, with the ecb likely to restart qe, they can probably provide some support for telling Government Bond yields. You reallyside, are getting compensated for the growth risk facing the euro zone . That doesnt emanate just from italy but from places like germany as well. Whether it will also over in the next 18 months, whether italian bond spreads will be contained by ecb action or whether spreads will widen. Today,ad confirmation the final reading of gdp out of germany of the contraction in europes biggest economy. Are you concerned that berlin isnt paying enough attention or isnt willing to support the to . Omy sooner than it needs rightl, i think you are the Manufacturing Sector looks like it is struggling, the future business components of the recent german pmi survey suggests thats not getting much better. The german Manufacturing Sector looks pretty weak but the Service Sector is holding off relatively well. Was a lowwhy it Unemployment Rate and the German Government perhaps didnt feel like now is the time to be delivering too much stimulus, given the Unemployment Rate is at lower levels and capacity is relatively constrained. To get the German Economy lifted out, they do need some stimulus. If we get fiscal stimulus it will be pretty key to see whether we can extend the cycle from here or whether the Manufacturing Sector weakness builds across into the Service Sector and elevates the risk to the economics. All right. We will talk more about germany, incredibly important story, slightly under covered due to the focus on italy, trump, and the situation in general. Guest will stick with us. Surveillance, we talk about the highlights from the g7, from trade to Climate Change to brexit. We dive into the details from a headline filled and dramatic summit. This is bloomberg. Economics, finance, politics. I am matt miller in berlin. A Global Market strategist at j. P. Morgan Asset Management. I wanted to ask you about the valuation in u. S. Stocks as weve seen the drop over the past couple days and as weve seen the yield on the 10 year fall. Yield is s p dividend far higher now than the 10 year treasury, and if you look at the earnings yield, 3. 8 Percentage Points higher than treasuries. Do you think u. S. Stocks are undervalued . If you look at the market as a whole, the s p 500 above sincelightly the early 1990s. Certainly not stretched too much, nowhere near the overvaluation you saw during the dotcom bubble. But its not extremely cheap either. If you look back to 2009, it is not supercheap. A very difficult play over the past couple weeks. About, thiso talk is bloomberg. Matt trading on tone, markets soothingadjust trumps words on china. Italys antiestablishment Fivestar Party holds talks with the Democratic Party, unless conte can stay on. Be open to talks with the u. S. But only if sanctions are lifted now. You are watching bloomberg surveillance. Lets check in on your biggest stock movers. Dani ferguson industrials falling to their lowest levels after a month. They put a price target of 50 quid. At 58, it has some way to go. Analysts saying there is limited upside, valuations do not look great, and they do not see upside. Today,airport rallying first half earnings beating analyst estimates. Analysts areas rbc capital says they have reached a turning point on capital. Is splittingnip into two. They are breaking off engineering and construction, spinning it off. Saying valuearly loss. Matt now what the bloomberg first word news, Viviana Hurtado. Viviana donald trump may have left the g7 summit with a softer assertsard china, but he is not abandoning his tough tactics to force ideal. In recent weeks, little talks has been made and any advances perceived by the president many have to do with his mood. Autos heapanese left the doors slapping levees later. Washington and tokyo have reached an outline deal on trade and hope to formalize it. A deal to end the feud over paris and washington reached the agreement. Tariffs are definitely off. Confirmt trump did not the deal. Chinese troops do not need to tackle the unrest in hong kong, according to the citys leader. Violence,flareup in carrie lam wants to hold talks but will not resign. That is one of their key demands. A responsible chief executive at this point in time should continue to hold the fort and do her utmost to restore order in hong kong. I would not say my government has lost control. Day in and day out, we are not only supporting Law Enforcement bodies. We are acting responsibly to deal with other issues that have arisen. Viviana 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. I am Viviana Hurtado. This is bloomberg. Matt donald trump could be about to change his position dramatically on a run. Iran. He has made his most expensive offer yet to meet with the president and would do so if the circumstances were correct. This echoes has offers to north korea, as well as the response. Iran wants sanctions lifted. Dubai, thefrom likelihood of the u. S. Lifting sanctions before talks is very slim, so will this happen . Golnar that is a redline for iran, the idea that the u. S. Has to make a massive shift in its policy and approach towards the Islamic Republic, is what iran requires to even consider talks. That is what rouhani said this morning. He made it clear that if donald op, theen wants a photo only thing he has for now is photoshop. Those were pretty much has precise words, the u. S. Can use photoshop if they want a photo with rouhani unless they make a massive shift in their policy towards iran, which includes lifting all of their sanctions. The Islamic Republic matt clearly, that will not happen. Borisds a lot like johnson said he was not going to talk to europe about a deal unless they removed the backstop. Obviously they are not going to do that, and he is talking to the europeans. Is this a breakthrough . Will we see a breaking of the deadlock, or is it just going to remain the way it is Going Forward . Golnar it will be interesting to see whether the iranians can really break the deadlock when it comes to their relationship with the europeans. The parties are remaining within the nuclear deal, at looks unlikely given who trumps advisers are, but we also dont know precisely what trump and macron discussed yesterday. There have been some reports of the possibility of trump approving a credit note for iran. That is quite significant. Minister saideign talks with the United States are unimaginable, and his focus seems to be completely on the europeans. He said yesterday in an interview that what iran wants to see is that the europeans abide to their obligations in the iran nuclear deal, that is the focus tehran wants. Rouhani will not give the Trump Administration the optics it is looking for on this story, and it is unlikely at this stage that the u. S. Administration will agree to lifting of sanctions. Matt very similar to the situation we saw with north wantedjim kim jongun sanctions lifted before talks and it did not happen, but how different is iran . Thank you very much. This affect volatility and risk sentiment . Still with us is my cabal. Mike bell. Fold unlessgoing to sanctions are lifted. It does not seem likely the u. S. Would lift sanctions, although maybe they would offer and olive branch in some sort of lowering of sanctions. How does this affect your trading . Think the iran story is background noise at the moment. The market is much more focused on what is going on in terms of trade tensions between the u. S. And china, and the potential for but to spill over perhaps two trade tariffs being imposed on the euro zone. The iran story is taking a backseat in terms of the way the market is viewing risk sentiment. I would not hold my breath that the tariffs will be removed on iran. That is pretty unlikely. I would expect there to be an ongoing concern around iran and a deal is unlikely in the near term. War the u. S. China trade has real economy implications, but Donald Trumps talks with kim jongun and now his taunting and conciliatory tone towards iran seems to be just noise. Do you try and block that out when you are looking at markets . Can you . Mike that is exactly right. A lot of Political Developments or background noise and the majority of time when we speak to clients, we talk about trying to block that noise out and focus on the fundamentals. Where that differs is when you get Political Developments that actually feed through and have a Significant Impact on Business Sentiment and potentially consumer sentiment. Between theriffs u. S. And china fall into that category, so whereas concerns about a run have not had a Significant Impact on the economy globally, the trade tensions between the u. S. And china have led to a slowdown in Business Investment. You can see it spilling over into weaker data for the consumer, and we will be interested how the Consumer Confidence measure comes out. If you focus on the economic fundamentals, you can see to what extent politics spilling over into the survey data. Matt what do you think about the risk of a u. S. E. U. Trade war . Meleard from viviana that ania likes french wine, but who doesnt . I am sure that would not stop real tariffs. Is it a concern when you look at your portfolio . Mike whether or not it will happen, i dont know and i dont think anyone does so it makes it hard to trade. If you were to get tariffs imposed on euro zone exports to the u. S. , even just on the auto sector, from where the economy is in europe at the moment it would pose a Downside Risk because Business Investment in tensions across the euro zone are already in very weak contractionary territory, indicating that capex could decline from here. A further shock to sentiment coming from tariffs, risks tipping the euro zone economy into a negative spiral. Matt what do you think about the auto sector . It has had a tough time, down 17 this year, and a lot of that had to do with trade concerns, especially Companies Like daimler and bmw who make vehicles in the u. S. To ship to china. His undervalued is it undervalued and do a bounce back due a bounce back . Mike all of these questions come down to does it get worse . The market has priced in a fair amount of the bad news we have seen so far, so it is not news at the equity markets that the german auto sector has been very weak. Been thatably has probably been reflected in price. What has not been reflected as if things get worse here. We have not seen a sign of ngs turning up, so before i would want to see a pickup in Business Investment in tensions, consumer intentions, matt thank you for joining us, like bell stays mike bell stays with us. Boris johnson says he is marginally more optimistic after bonding with leaders the g7 conference, and are investors convinced a new deal departure can be avoided . This is bloomberg. Matt you are watching bloomberg surveillance. Lets get to the Bloomberg Business flash in new york. Viviana aggressive growth, that is the phrase Deutsche Banks operations are going through. Phase Deutsche Bank operations are going through. They are set to higher around 140 people. Hasindia head of clients been assured capital will not be a concern. A judge ordered Johnson Johnson to pay far less over a trial on opioids. They created ag temporary public nuisance and has to pay around 570 million to the state of oklahoma. Papa johns will look to appoint a new ceo, tapping arbys president rob lynch for the role. Yet. The biggest shakeup papa johns has been seeing slowing sales. The man who drove volkswagen to become one of the top carmakers has died. He was the grandson of another audit no dutch auto pioneer auto pioneer. Under his watch, the automaker raised its build quality and brought portia into its widerangingits brands. He was 82. Matt thank you very much. A u. K. Prime minister, Boris Johnson, as marginally more optimistic about a new brexit deal but it depends on the european union, and admitted there is wide dispute but e. U. Leaders want the split to happen. Emmanuel macron does not want a no deal brexit and says it is not too late for the u. K. To withdraw article 50. Of jpwith us, mike bell asset j. P. Morgan asset and its meant. Is this management. Is this as difficult to forecast as the u. S. China trade issue . Mike i am afraid so. It really matters for the economy. China trade concerns and brexit concerns really matter for the economy, for the year k u. K. And europe. We have have High Conviction under theresa mays government that we would not see a no deal brexit and essentially parliament would block no deal. Under Boris Johnson, it is less clear that parliament definitely gets that opportunity. I think under his current configuration if parliament gets the chance to vote, it will block a no deal brexit, but it is not 100 clear it gets that opportunity. I think the bigger risk is that of parliament blocks a no deal brexit, the likelihood we end up with an election has risen significantly. , it we go into an election becomes extraordinarily hard to call what the outlook would be and the outlook would be for the brexit outlook. Matt do you have a view on u. K. Assets either way . For example, domestic facing last week . We saw that is a company that will continue to do business in pounds. He is not concerned about the internal situation when it comes to selling beer. Are there other assets like that you still like . Mike there are some stocks we still like in the u. K. And some we dont. What we are trying to do is take small, overweight positions in the stocks we like and underweight positions in the stocks we dont like, and trying to net that out that on a sector basis, we are neutral to the benchmark while taking active risk at a stock level. The size point is very important. The average fund in the u. K. Runs a 50 exposure to mid and small caps. Given how late we are in the Economic Cycle and the potential down risks, if there was a no deal brexit or if there is not, just as the Economic Cycle ages, being significantly overweight and smallcap stocks this late is a significant risk. That is what the majority of funds in the u. K. Marketplace do, so we are trying to roll it back and be neutral in size relative to the benchmark. Marketske bell a global strategist at j. P. Morgan. Wozniak, theteve cofounder of apple, as the company navigates the twists and turns of the trade war. This is bloomberg. Matt economics, finance, politics. Surveillanceerg Johnson Johnson shares climb in the postmarket trade after a ruling on opioids. Largestsaid the worlds maker of Health Care Products million, far less than some investors expected. Is the first trial seeking for the opiate crisis, and could give rise to other lawsuits. Low. Ng me now is tim talk about what happened and how the stock reacted. Tim you already mentioned, the stock actually popped when news came out of this, and that is because investors were expecting million ton the 500 5 billion range, so the fact that this was 572 million is on the low side. Promote for most investors, this was not a bad situation in the short term. For the industry more broadly, this opens up a can of worms that could cause a lot of headaches, to mix metaphors, for long time to come. Matt unfortunately, that is all we have time for, but it will be fascinating to watch this case for what it means for future suits. It opens the door for possible problems. Tim loh in munich. Loomberg surveillance continues in the next hour. Tom keene will be joined by thea cehic, talking to chief executive of legal and general, nigel wilson. This is bloomberg. At comcast, we didnt build the nations largest gigspeed network just to make businesses run faster. We built it to help them go beyond. Because beyond risk. Welcome to the neighborhood, guys. There is reward. Beyond work and life. Who else could he be . There is the moment. Beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. Take your business beyond. Tom this morning, all is calm except currency markets. Emerging market fx cannot find a bid and in bonds, renewed conversion. Awaits theorld chinese response to President Trumps 68 minute presser. There is a calm, brexit calm across the kingdom. The only one working is nejra cehic. Surveillance, tom keene in new york, nejra cehic very alone in london. His brexit, does it come is brexit, does it come to a complete halt this summer . Nejra you have the Labour Opposition Party talking about ways to stave off a no deal brexit, so there is work going on behind the scenes and we see that in the pound. Tom for right now with our first word news, Viviana Hurtado. Viviana not interested in just a photo opportunity with donald trump, that is coming from irans president. The leader responded to an overture from mr. Trump, insisting sanctions are lifted before negotiations. Esther rouhani says if all he wants is a photo op you should use fettered shop use photoshop. Donald trump wrapping up the g7 summit by making clear he will not give up his roughandtumble manner to get a trade deal. There has been little real progress. The president s optimism may have more to do with his mood than anything else. In germany, the economy is on the brink of recession. Shrank by 1 10 of 1 in the past year, the second contraction. In italy, talks over a new coalition are on hold over the fate of the Prime Minister. The fivestar will not hold another meeting with the league unless the fives present Prime Minister stays on. 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. I am Viviana Hurtado. This is bloomberg. Tom 30 year bond under 2 again. Currencies,nds, commodities, futures that negative five. Dow futures that negative seven. There is interesting nuances in the market. There is the curve conversion. Under 20, 19. 89. Renminbi 7. 17, onshore. Soybean futures have not broken down. It is a meaningless number two most of us, but that is coming down on support for the beleaguered american farmers. Sign index,dollar that is a blended index without is ancurrency, and that ugly and number. Em number. Nejra we saw the rally in u. S. Equities and asia overnight. In has not carried through to europe. The 10 year btp yield still down 10 basis points. Is there more risk of an election . Cable risk up for the third day in f four. Yield,tioned the 30 year down three basis points, but we are down across the treasury yield, the 10 year lower as well. Em, this is one snapshot of the pacific rim index. Dxy. Is asia rmous crash ofno 1997. Longterm strength, the nation learned its lesson, lehman low, and we have rolled over at the cusp of the valuation of the lehman low. Over two standard deviation breakdown in weakness in crucifix rim currencies this is for graham kerr and sees. Pacific rim currencies. Nejra if you look at s p 500 index earnings yield versus the 10 year treasury yield, that could be down to the plunge and bond yields. Tom go ahead, please. Nejra joining us now is the state street senior multiasset great tus. I have just shown the chart of the fed model. Are equities background. I do like stocks. Ed is market is expecting a lot more negative outcomes than equity markets. I would probably side with equity markets, things are not great but not a disaster. Outcome thatgative bond markets are showing, is that justified . Tricky, because we are still in the process of incorporating what happened in the fast few days past few days into the forecast. Increase we got to the worst case scenario. The street is still busy pulling that into the numbers and we are pulling from an environment that was going sideways and was priced is going a lot lower. Butfront end looks extreme, the u. S. And european curves are pricing, but the back end can go anywhere. Ubs went to a very cautious call on equities worldwide. I love what you have in your note on u. S. Equities, what is not to like . Investmentptimism in in United States shares. Apparentlyst of all, optimists live longer so i will try to stick with optimistic news. What we like about euro stoxx is stocks is where our superior Growth Opportunities and more profitable corporate . The return on equities is almost as high as the next . It. Next best market. Stocks are training dutch trading at a premium but that seems to be justified by the fundamentals. The others were similar to the chart on the fed model. If you think of shareholder return in the u. S. , you can think of dividends in the u. S. , 2 , 3 , and you can throw in another 3 of buybacks. What you were getting is almost 6 of shareholder yields in the u. S. Find me a bond market where you get 6 yields. To go to quiteed risky emerging markets. Sound lesss may risky than bond markets. I would love to understand the global ramifications on the u. S. Economy. How interlinked are the two economies . Is the u. S. Discrete and doing better, or do they become overwhelmed by global challenges . Arend it has been doing better. What is interesting looking at the composition of u. S. Growth, it is similar to the rest of the world. Investmentng and pulling down. It was a lack of effect. Last year, it looked like the u. S. Was connected from the rest of the world. You had a big global slowdown and you are not seeing it in the u. S. This year, we have seen the u. S. Catch up, investment catch up. Part of it is the lag effect. It took people a while to realize this was not a oneoff supply shock for tariffs but a succession which is turning into a structural demand shock, which is much more dangerous. Tom some real nuances to the market. We are thrilled to have our guests. Radio, myon bloomberg conversation with mario gabelli. , on could not a better time the courage to invest. This is bloomberg. This is bloomberg surveillance. Johnson johnson investors are relieved and the ruling and it court case on opioids. A judge said the Company Must Pay 572 million for fueling the prices. Sees it asovernment a green for more lawsuits, affirming the policy of using nuisance lawsuits. A s ghosn reportedly ran business in silicon valley, using millions of dollars he got from a nissan partner in oman. Last he denies any wrongdoing. Namejohns is preparing to a fast food executive as its new ceo. Replaceob lynch will the former ceo. That is your Bloomberg Business flash. Nejra thank you so much. Italys antiestablishment fivestar movement ramped up on the pressure on the left, saying it would stop talks unless the Prime Minister remains. The two sides have now begun negotiations. Great to have you with us. The headline is that there is a stumble in the talks. Btp yield moving lower 10 basis points. Is this really a stumble this early . This is probably just a technique of the fivestar movement to ramp up the pressure on the democrats and forced them to come out publicly and support a new government led to by conte. The democrats, who have been better on the fivestar bitter on the fivestar until just a few weeks ago, they would want a new head of government. As the bond market is saying, wayably they will get their nejra a coalition may be formed. How long is it likely to last . That is the main question. Parties have been throwing insults at each other for years, so they are very unlikely allies. How they will be able to strike up a deal on the 2020 budget or for a government plan lasting the whole three years as the president has been asking, this is the most difficult question. We have not seen any answers. This is why talks have been so frantic in rome. Office canceled the 11 00 a. M. Coalition talks, according to a party official. What is the significance this morning . They had been planning to resume talks today at 11 00 in room, but as the fivestar said, they wont resume talks unless democrats agree they will haveconte as Prime Minister. Until the democrats move, there will be no further talks and now the ball is in the democrats court. Tom one final question where is the right . All of our article is on the coalition and the left. Is there a more conservative italypolitical party in this summer . That is the really surprising twist of the last few weeks. All we were talking about was Matteo Salvini supposed to be the next Prime Minister. Timing of bungled the pulling the Coalition Government. He was betting on early elections and there would be no agreement between the fivestar and democrats, but now he is sitting on the sidelines and has not been able to set the agenda. Tom nice summary, thank you so much. London i want you to explain to the global audience why italy matters. We perceive it as being a smaller g7 country. Why do these debates matter to the fabric of europe . Arend right now, i dont think it does matter because there is no sense that instability or default is imminent. It matters in the sense that it has a yield, not much yield left. People are trying to gauge whether this is the right entry point. Areissue and reason we close to the alltime low of the 10 year, you are weeks away from a massive ecb easing program and no one will want to be short. You are months away from having a budget, you dont know who the government is, you will want to have discussions with the commission. Some of the Spending Plans were on the league side. Waitingand watching and what comes out of this, but i dont think there is a strong read across other markets from italy. Nejra do you have a different versusr the ftse mip btps . Marija the biggest part of ftse mips banking stocks. Banksobably like a talent because the majority of their Balance Sheet is in btps so it is kind of a bouncer italian banks in the shortterm. Bounce for italian banks in the shortterm. They need to earn money on the loans and that is not what they are doing, so longerterm, we see a major problem and we worry about italian banks and the equity market in general. Shortterm, there is probably some bid, but it is not necessarily due to the politics of the Italian Government but the microstructure of the market. Nejra coming up on bloomberg tv and radio, an interview with catherine man, citigroup chief economist. This is bloomberg. Conference,he press the president of the United States back to washington. Is back inacron paris and he speaks now on his Foreign Policy with his ambassadors. That is always an important annual visit for the president of the french republic. The challenges of french Foreign Policy folded into economic contraction. You are very cautious on e. U. Investment. Now is your recession meter is a cross asset strategist . Marija we are actually quite skeptical about the european outlook. Ofnkly speaking, short german fiscal spending, we see very little that can support European Economic growth. A lot of policy talks have expanded and we have seen barely an impact. It seems the mood music in germany could be improving but the jury is still out whether we will get something. From an equity point of view, it is a lot of sector composition. We have exporting sectors. That is challenging those manufacturing stocks. Consumers are ok but not maintaining stocks in europe. Financials are a big chunk of the European Market and that is a challenging place. Constrainedpe because they dont have a euro that can move like other currencies . It is an interesting currency. Is there Economic Growth constrained by the unique character of the euro . Arend the euro can move like any other currency. It cannot move in response to the circumstances of any one country. That, the euro has not been that strong. I dont think the euro is what has been causing these problems. There is a manufacturing fromtment recession coming global trade uncertainty. Nejra is germany a value trap . Marija i would say so. We dont think germany is a buy. The biggest sectors are banks, autos, and industrials. I am not excited about either. Nejra should we be careful not to equate europe with germany . Arend ms. Is always the danger of the valve this is always the danger of the availability of data. Careful not to think about Global Growth by just looking at pmis, and careful not to think about europe just by looking at germany. Growthst part of global is concentrated in germany. It is not representative for some of the other countries in the euro zone. Nejra coming up next, nigel wilson joins us on the show. This is bloomberg. From the 5am wakers, to the 6am sleepers. Everyone uses their phone differently and in different places. Thats why Xfinity Mobile created a Wireless Network that auto connects you to millions of secure wifi hot spots. And the best lte everywhere else. Xfinity mobile is a different kind of Wireless Network designed to save you money. Save up to 400 a year on your wireless bill. Plus get 250 back when you buy an eligible phone. Click, call or visit a store today. Tom bloomberg surveillance, good morning everyone. York. And tom in new much to talk about, the data, nuance, fragility of data beginning with the trumpmacron press conference in biarritz. Euro getting weakness. That is important. Handle. Ear bond at 1. 98 not a big move but a lot of nuance going on. In new york city, here is Viviana Hurtado. Viviana iran has ruled out talks with donald trump. The president insists if the u. S. Wants negotiations it must lift sanctions first. President trump signaled he could meet with president rouhani. President trump may be misreading amiable remarks from chinas top trade negotiator at the end of the g7 summit in france. People familiar with the talks say in recent weeks, little progress has been made. Any perceived progress may have more to do with the president s move then anything else. Japan wants to end the auto tariff threat as part of a trade deal with the u. S. Shinzo abe and President Trump announced the tentative agreement over the weekend. He says right now he is not considering tariffs on Japanese Cars but he left the door open. Over to hong kong, where the chief executive sees no need for chinese troops to close down demonstrations. She said despite an increase in violence, she still wants a dialogue with protesters. Police used Water Cannons over the weekend. 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. Thank you. Timely, we were making jokes about august and brexit but it is timely to get investment and corporate view on the future of the u. K. Nigel wilson, the chief executive officer joins us. We have so many things to talk about. What is the urgency to october 31 for corporations . I get no deal and we are worried about the channel and pharmaceuticals and syria stuff about no deal. What does it actually mean . And serious stuff about no deal. Level, thereporate has been three years to plan for no deal. It is reasonably well organized. Shortterm. , the u. K. Is still a great place to invest in. We have massive infrastructure deficits that you and i have talked about but there is not competence to do many of these things. Governments out to lunch much of the time. The u. K. Is falling down. We have an amazing number of startups. 3. 6 million businesses years ago in britain, now 5 million businesses. A huge number of startups. Many start with capital. Tom we have seen a shift in the bond market since we last spoke. Lower yields, nominal yields, evaporation of real yield. And u. K. N, the city, remain discrete from economic challenges of europe . Nigel no. This confidence cap is happening across europe. Europe is low growth. We are in an era of confrontation, not collaboration. What is needed is politicians, business, finance and universities working together with a collaborative background to solve the problems. They are solvable. We have Huge Investment opportunities. Interest rates, alltime low. Inflation, alltime low. Amazing technology being produced by corporates and universities. Wonderful backed up. For some reason, the political environment everywhere and i have just been to japan, india, china, the u. S. People are not convinced they can really see a path to prosperity for their particular business, given all the uncertainty created by politicians, largely. A have the danger of creating selfinflicted recession. There is no need. We should be in this golden era of investment and we are not because Everyone Wants to squabble and fight and create confrontation. Nejra how do you make that growth inclusive . Nigel great question and that is what we are working on the g7 on. Im excited. The solution is to Work Together as capitalists. There is not one pocket that will drive growth. We have to Work Together to create inclusivity, inclusive economics. Too many people have been left behind, whether it is america, the u. K. Or europe. People like chief executives have done incredibly well. Fund,e equity, hedge incredibly well. Other people have not done so well. We spent so little time in the last 20 years on the people who have not done so well. The people who most need this Economic Growth. Nejra the suppression of yields globally, in the u. K. You are looking at negative real yields. Is there appetite and can you get more return in investing in real assets in the u. K. . Nigel we have had some great discussions about that in the last for years. We just signed a 4 billion pound deal with Oxford University to help regenerate oxford. Bristol, lascaux, they are signing up at a city level. We also need the Central Government to sign up. The city governments are investing in it. When the barrier is so low, when you look at the rates across the world, in terms of bonds, this is the time we should be investing. Too many people are sitting on their hands and they are forced to because of the uncertainty. Tom delicate question. I dont mean to insult economists. Lets try on tuesday morning. In most textbooks there is a chapter in the back that talks about nigel wilsons world. The linkage of economics into investment. Are the economists running ecb policy, whether on a nation basis or at oxford, are they naive about the negative Interest Rate ramifications for finance . Things. Wo one is, when you ask the ecb about this, they say they are cognizant of financial risk. Sure, it is an issue. It is not our problem. The second thing is, maybe in theory there is risk but we do not really see it. There is an element of denial. It depends on where you sit. Inis probably more difficult europe than other places. It is complex. There is under appreciation of the micro effects or the side effects of what they are doing. Tom not dr. Phil. Dr. Nigel. We get theory on the economists proving wreckage across europe. Negative Interest Rates . Nigel i do not think it is the right strategy for the world. Policy. E wrong we should be driving the supply side of economies and figuring out how to invest. Theres too much Financial Engineering going on and not enough real engineering in the real economy going on. Companies like ours and many others are awash with money to invest. We are investing a lot but we could invest more. A lot of us are not investing at all. Theyre sitting on the sidelines holding cash and negative nominal yielding bonds. Absolutely unbelievable that that is the world in which we are operating in at the moment. Tom we have become numb to it. Wonderful conversation. Bloomberg surveillance, will come back with nigel wilson and aredn, and i want to talk about the elephant in this august room, the consumption, the new bogie for Pension Funds and longterm investments. That will be one of my themes today as well on radio and television in a special podcast. What a perfect time to speak about the markets and media. This is bloomberg. Check lets get a quick of the markets. Risk off in the session after optimism yesterday over the changing tone from President Trump. European equities in the green after showing weakness. The 10 year yield moving lower. 50. Ve 1. Bid for safeme havens. Jira, and arenda still with us. Letsasset allocation, look at equities and i know you are positive on u. S. Stocks, how much of the move into equities is down to the hunt for yield . Majira quite a lot. Model, and the world we trillion of 17 negative yielding debt, you have to find something that gives you yield. It is hard to find a market where bond yields are higher than dividend yields before you think about buybacks and future earnings. Stocks always come with risks but if you get yields about 6 , it can seem like a lot of risk. To get those sort of yields you have to go to em in the bond space. The biggest question for Equity Investors i would probably recession,orld with earnings at an alltime high. Earnings was a lot better than we were fearing. Three quarters of companies managed expectations, to maintain earnings levels they have been at. Earnings growth is maintained over the last decade. Valuations are close to average while the bond market is at history. That is the tradeoff. Nejra tom is going to get geeky. I will get geeky for a moment. The global hunt for yield has not been that beneficial, according to this chart, for valuations of high dividend shares. What is this telling you . Is this about the demand for growth versus value or is it about a lack of confidence in future payouts from companies . Majira growth has been our favorite trade from the last three years. Buying growth is absolutely the right thing in our minds to do in a world where economic Earnings Growth is scarce and getting scarcer, you have to pay for growth stocks, particularly where the Interest Rates are so low. Youre getting a substantial premium. Growth stocks are our favorite. Premium over value, we expect that to continue. Nejra if there is a time to be buying risk assets should investors take a cautious stance around risk . Arend tricky one. It is unclear. We have been hit with shocks the last couple days. That has elevated uncertainty. If you try to measure what the level of fear is now so we think we have a fear meter, so we have gone from not measuring anything to now being in the middle of the range over the last 18 months volatility has gone up. It has made people more cautious. Having said that, what is next . One thing is in europe, we have major easing from the ecb. There is still expectation they will surprise upside so people dont want to get too short ahead of that. We have a constant tweets, which pull us back from the cliff. It is tricky to decide how cautious you want to be. Eurowhat does zero do do with the presumed easing of the ecb . What is the house ubs call on the vector . Arend it does very little. The ratios have been relevant for explaining eurodollar over the last 12 months. What is really driving the euro is relative Global Growth differentials. As long as we stay in the bottom the 25thwe are in lowest percentile of the last 20 years, that is a strong dollar environment. What the ecb is doing is trying to counteract a negative counterfactual. We have been hit with shock. They are providing easing to neutralize. That is not something to accelerate the euro. It is to prevent slowdown. Eurodollar will go lower. Forecast. 09 in the easing from the ecb will not do that much. Tom that is off of euro, renminbi and other interesting currencies. Thank you so much. We continue with mr. Wilson. For global wall street, and incredibly important conversation on the heart of longterm investment, the actuarial assumptions. This is bloomberg. Tom bloomberg surveillance, welcome all. Day the conversation of the for global wall street. We do this with nigel wilson, and we will map. A fancy phrase called the actuarial assumption. Nigel has this tattooed on his left arm. Vol10 year yield back to cker. Down we go. New actuarial the assumption for longterm pension money . Nigel you are right. It is a low rate Going Forward. It begins with one. One, with begin with a zero after it. The fundamental changes we have seen in the last 20 years are absolutely massive. I can remember having a Mortgage Rate of 15 in my youth. Today, you can get mortgages for free in several european countries. Tom what is the mechanism or reaction function of 4 actuarial assumption. Do you assume Pension Plans take on more risk . There is a very positive argument around doing that. Clearly, you cannot match longterm liabilities with negative yielding bonds. That is an equation which does not add up. Negativetrillion of nominal yielding bonds in the world right now. For the pension industry. That is not a good outcome. That is not what we want to see. We need a huge amount of new investment in new real assets. That is why politicians and regulators play such an important role. They have to help facilitate that. The money is sitting around. It is not being used productively by the economy now. Nejra i showed a chart about the global hunt for yield earlier, not benefiting high dividend shares in 2019. Should investors be looking for dividend shares as well . Nigel i agree. In the old days, net value of future dividends used to matter. More stock market returns over the last 50100 years have been driven by longterm dividend yields. It is not in fashion to buy that. Spending, short on they are hunting for growth the whole time even though there are compelling dividend stores. If youre looking in Pension Funds, they are getting 7 yielding dividend stocks, is a great solution to doing that. Part of the problem is some of the regulation around that which make it increasingly difficult to hold these assets. Nejra if companies are buying back shares or paying dividends they may not be investing and spending much on capex . Nigel that is true and there is a bit of that going around. Ceo wants to admit he is under investing in business. At a macro level, that is what we are seeing in the real economy. Europe bringing down is further is not going to drive stimulation. It will put economies on the front foot. The unintended consequence of this low rate environment is people are becoming less confident about investing. It is almost as if Interest Rates have come down to low. It is not good for Pension Funds or the economy now. Tom lets bring it back to what matters. October 31 in london. What does Boris Johnson need to do . We have given lots of suggestions on what needs doing. Opportunity,erful or whoever is the next Prime Minister, to invest in the economy. Huge housing deficit, huge infrastructure deficit. The point i made yesterday about 2 million businesses being created in the last two years, it is hard to have assets to back the bonds they want and they are starved for equity capital. Systems,o pension allows firms like ours to invest significantly more in the real economy. He doesnt need banks to do that. We naturally have longterm liabilities. We need longterm assets to match those liabilities. We are a positive force for growth. Tom we have to leave it there. The show has to end. Thank you so much. This is bloomberg. From the couldnt be prouders to the wait did we just winners. Everyone uses their phone differently. Thats why Xfinity Mobile lets you design your own data. Now you can share it between lines. Mix with unlimited, and switch it up at anytime so you only pay for what you need. Its a different kind of Wireless Network designed to save you money. Save up to 400 a year on your wireless bill. Plus get 250 back when you buy a new samsung note. Click, call or visit a store today. Tom this morning, all is calm except currency markets. Em cannot find a bid in bonds. Renewed inversion. Remain calm, the response to President Trumps 68 minute presser. There is a brexit calm across the kingdom, the only one working in the kingdom is nejra, good morning everyone. It is extraordinary to me to see how we get to september and how we get to october 31 on brexit. Is there a continuum or is there one big date in september that you are looking at . Nejra we are hearing that the labor Opposition Party is trying to stave off no deal brexit. We see the pound up on that. Where do we go from here . Not just on brexit but also on italy Coalition Talks and the trade war . Tom nuance within the tape. The bid to sterling in the last few days. Here is Viviana Hurtado. Viviana not interested in just a photo opportunity. That is coming from irans president. The leader responded to an overture from mr. Trump, insisting sanctions be lifted before there are negotiations. He says if all the american leader wants is a photo with him, he should use photoshop. The shift in tone on china but not tactics. Wrapping up the g7, President Trump making it clear he will not give up his roughandtumble manners to get a trade deal. There has been little progress in negotiations. The president s optimism may have more to do with his mood then anything else. Germany, the economy is on the brink of recession. Exports fell by the most in more than six years, leading german gdp to shrink. It is the second contraction. Italy, talks on a new Coalition Government on hold over the fate of the Prime Minister. Fivestar movement will not hold any more meetings with the he staysc party unless on the job. They have not even gotten to talk about the budget and other issues. 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. Tom thanks. Nuance data check across equities, bonds, commodities. In the last five minutes, the further inversion toward two basis points on the 210 spread. Euro bears watching. Nevertheless, wait for the tape. Next screen, if you would and 19. 72. A of the vix nejra demanded i do renminbi. It really gets your attention. Brilliant note this morning. Soybeans are what matter for the president as he addresses his constituency. Asia with a bid but it has been over weakness over a 20 year trend. Equities lower earlier. Slightly higher now. 10 year btp yields, we dropped 10 basis points on that, we pull back a little but it is still a buy in terms of Coalition Talks. Cable higher. The 10 year yield down three basis points. We managed to hold above the 1. 50 level but it has been dipping below 2 every so often. Tom we have some wonderful guests for you today. We need a briefing. 86 Minute Press Conference yesterday. I cant remember, 68 minutes. We spend 86 seconds with kevin cirilli, our chief washington correspondent. Everyone agrees, the press conference was original. You followed this guy from the beginning. Was that press conference like a press conference you would have seen five years ago . Kevin yes. The bottom line is, there was also restraint. When you look at what the president did friday in terms of how he communicated economically between u. S. China relations, the fed chairman and what you saw yesterday it was more of a restrained performance for President Trump. Bottom line . Fascinating development that has the french president essentially saying he is willing to work as a, he doesnt want to use the word gobetween, but for all intents and purposes to arrange a meeting between the iranian president and President Trump. Tom is it safe to say the iran strategy is to denigrate president obama . Is that what this is all about . Kevin the bottom line is from a u. S. Foreign policy perspective, neither president or obama for President Trump thinks iran should have nuclear weapons. I was looking at responses from other officials yesterday. Calledesident mike pence the israeli Prime Minister and tweeted as much saying they had positive conversation. Clearly some undertones the u. S. Still firmly stands with israel. I was struck by nikki haley, who criticized Emmanuel Macron for essentially trying to have that ting between ph routhani and jump. And trump. Nejra equity markets dont seem to know where to go today after gains yesterday. Would it be right to interpret what President Trump said as simply a shift in mood and having nothing to do with talks at all . There are many that would make that point. Yesterday, i was interviewing several prominent trade watchers. They raised the point. If you look at the calendar, you have talks potentially in september here in washington dc to continue between beijing and washington but you also have that december deadline where tariffs would increase. It seems recession fears of last week that intensified, clearly gained momentum in terms of perspective of the white house. There is a political optic. The political realities, but there is also economic reality as well. I would argue it has less to do with President Trumps mood and more to do with the Economic Forecast of a potential slowdown or a recession. Tom kevin cirilli, thank you. Great briefing. What we do at bloomberg is when the news breaks, when the conversation changes, we change. Matthew joins us from Deutsche Bank, writing a cutely Smart Research note which i do not understand. We are thrilled. Matthew, moments ago william the headline will be the talk of the day the fed should not encourage trumps trade war. This is the heart of the matter. Ley has been out front on do not screw this up. Do you see an institutional structure that could meet the former president s requirement that the fed stay out of the trade war . Matthew it is difficult for the fed. The trade war has implications for the fed. Dual mandate of full employment and 2 inflation. I understand if they are cutting rates it is helping prop up risk assets and emboldening the president to push further on the trade war. Ultimately, the fed cannot stay out. It affects things they are targeting. We are seeing growth affects now. They cannot stand on the sidelines. Tom any number of dynamics. Bill dudley ran the new york fed, the marketbased operational part of the fed. Operational instabilities if the president screws this up . Will they worry about currency intervention at the new york desk . Matthew it is an open question. We do not think so. The fed is worried about growth slowdown. The key message from jackson hole was that the u. S. Is not immune to global pressures on growth and currency pressure. The fed will be cutting rates, 25 basis points in september. Nejra good to see you, matthew. One of the things the fed looks at his financial conditions, as do you. What inputs are you looking at Deutsche Bank giving you a sense of recession probability . Broad index, credit spreads. We have not seen them widen as much as the decline in equities. Dollar is an important element. Tradeweighted dollar has strengthened significantly recently. Youre seeing a tightening of financial conditions. On our metrics, they are negative. They are restrictive for growth Going Forward. That is a big change relative to several months ago. If you feed that into the forecast, it is a declining growth profile. Tom Central Bank Officials face a choice, enable Trump Administration, continue down disastrous path of trade war escalation or send a clear signal, et cetera. . Hat is the clear signal what is the have to send to the sky . That jackson hole, there was some tone. It got buried with subsequent news. Matthew in that speech he talked about this is unprecedented. They are reacting to the impact of trade policy. The additional dynamic is the fact that they can, by cutting rates, they can embolden more action on the trade front. This negative dynamic that does not break unless the president backs off on the trade front. That is the difficulty they have. You see it and the diversions among the committee, there is a big group that does not want to cut rates at all. We saw that jackson hole. Tom are you suggesting within the committee, there are people sympathetic to adapting and adjusting to the trade war . Matthew those who do not want to cut rates at this point have phrased it as such that they are not worried about lowinflation and they are not seeing impact in data enough. You still have a strong consumer. They believe the labor market is still strong even though i would quibble. Committee,oup of the they have not phrased that dynamic between the president and them. They have phrased it in terms of the data. Tom exceptionally important essay released by the former president of the new york fed, bill dudley says the central bank should refuse to play along with an economic disaster. And thee on this essay linkage of economics to finance and investment. At 10 a. M. This morning, conversation worldwide with mario. This is bloomberg. Viviana you are watching bloomberg surveillance, with the Bloomberg Business flash. Johnson johnson investors relieved. The Company Must Pay 572 million for fueling the opioid crisis, which was not as high as feared. Some see it as a green light for more lawsuits. The former nissan executive ran a parallel business as a tech investor in silicon valley. Dollars from a nissan Business Partner in oman seen as the most serious charges against him. He was arrested in japan last year. He denies any wrongdoing. Name anns preparing to executive as ceo. The arbys ceo will replace. It is the biggest shakeup at the company. Tom thank you. This is extraordinary. I cannot convey enough in london and frankfurt, the importance of this essay for Bloomberg Opinion by william dudley. This has just broken. One comment from a blistering statement by the former president of the new york fed and vice chairman of the fed reserve system. Fed should not encourage trumps trade war. This is an extraordinary essay coming off jackson hole. Matthew, peter hooper, working on these delicate issues. If the fed takes a dudley approach, president response, who defends chairman howells future . Congress . Matthew from all reports, powell has done a good job of reaching out to congress and building relationships. That is part of it. In order for him to maintain support, he needs to support dual mandate. If you are seeing slowing in the economy, he needs to react. I agree with former president dudley, putting words to what we have been discussing for months, that there is this negative dynamic in place whereby easing you embolden the president to do more. Tom mx within the core equation, trade war is at the margin of exports and imports. Howdy monetary theorists, like richard clarida, adapt . Matthew i think you are seeing evidence through imports exports but it has been mostly volatility, as experts try to get ahead of tariffs. Tom how does any Monetary Authority adapt to the politics of the president s trade war . Matthew it is difficult to adapt to those. The more fundamental question is, even if the fed cuts rates by four times, can help to boost growth in a world where you have trade uncertainty weighing over capex and Global Growth . Fed at thet the moment not just fighting President Trump but also fighting the market . How can it deal with dual expectations . Matthew these things are interlinked. Market is looking at Global Growth outlook and trade uncertainty and escalation and seeing a world in which the fed will have to cut rates more aggressively than they currently expect. We have heard from fed officials a recognition that pricing in markets is helping to ease financial conditions and if they dont deliver on some of that you will see tightening in financial conditions moving forward. They have been moving more delicately than what the market has priced. We think they continue to do that in september, cutting rates by 25 basis points and the hope is that as we get closer to the election, the pressure will build in the president will have to back off a little on trade uncertainty. Have heard someone say that to boost confidence, the fed should hike rates at this point. I know that sounds crazy given the markets and pricing but housing might the fed be able to raise rates again given the discussion we are having about potentially dangerous paths . Matthew i do not see that anytime soon, reason being, you have ongoing policy review at the fed, a key component of which is their desire to get inflation to 2 sustainably and about 2 . You need to get rid of trade uncertainty, growth concerns. In addition, you need to see inflation pick up above the fed target. Those conditions i do not see in place anytime soon. Nejra matthew, staying with us on that very important Opinion Column we have out on bloomberg from bill dudley. Coming up, the italian Coalition Talks on the brink of collapse. Yields on the 10 year have been dropping. This is bloomberg. A developing story. Italys fivestar movement and the Democratic Party sparring. Movement wants a permanent position. Update us on where we are. Have talks been canceled . Right now, according to sources, talks have been frozen and despite politicians promising over the past few days that they are not interested in jobs, that is a key issue. Whetherbling blocks are the Prime Minister should be Prime Minister again and also the fivestar leader who wants to be the premier and interior minister according to the democrats. That is too much for them. Nejra talks, frozen, not canceled. Where do we go from here . Posturingf this is both for the democrats and fivestar. They have a massive interest in reaching a deal. Fivestar, especially very wary of early elections. On the sidelines, we have the league keeping up the seduction attempt and go back to government together. The moment, talks are stalled , they stillssible have a deadline until tomorrow when they are supposed to refer back to the head of state. Anything could happen between now and tomorrow afternoon. Nejra thank you for joining us, john. Mann, citicatherine global economist. This is bloomberg. At comcast, we didnt build the nations largest gigspeed network just to make businesses run faster. We built it to help them go beyond. Because beyond risk. Welcome to the neighborhood, guys. There is reward. Beyond work and life. Who else could he be . There is the moment. Beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. Take your business beyond. Tom bloomberg surveillance, interesting nuance markets. Tom, but important conversation on the Federal Reserve. Viviana iran has all but ruled out talks between chris on ruhani between president ouhan andi President Trump. The former minister saying a meeting between the two, unimaginable. , analysts say he may be misreading comments from chinas top negotiator. People familiar with talks say in recent weeks, little progress has been made and any perceived progress may have more to do the auto Terror Threat as part of the trade deal with the u. S. Shinzo abe in President Trump announcing tentative agreement. Shinzo abe and President Trump announcing tentative agreements. Over to hong kong, where the chief executive sees no need for chinese troops to put down demonstrations. She is confident her government can handle the crisis. She said despite an increase in violence, she still wants a dialogue with protesters. During demonstrations over the weekend, police used Water Cannons. 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. This is bloomberg. Tom thank you. This is a joy if you are interested in economics. Moment ofhe historic 1965 when lbj took on martin. We are seeing it again. A bloomberg essay by william dudley, former president of the new york fed, for years with goldman sachs, it is a blistering statement on the president and the institution. One quote near the end of the essay. Extraordinary. Matthew with us and we are thrilled to have Michael Mckee, just back from jackson hole. Moment. Istoric of 1965 . Ave the weight michael no. There is no interaction with the president. Trumps trade actions are harming u. S. Economy and Global Economy, as everybody at jackson hole does there is a defensible argument someone should try to stop this. Two problems with the essay this morning. The president has threatened to fire or demote jay powell. If powell were to take a public stance in opposition to the president himself, that would encourage trump to perhaps move on that idea which could create a constitutional crisis, a real issue that would send market stumbling. That could be a real problem. Fed officials fo congress for overspending. Many have said the fed has encouraged that because it kept Interest Rates low. If youre going to criticize trump, should you also not be looking at yourself . Tom i have to get where we are going. Did they know about this essay . Does Jerome Powell know president dudley will write this . Michael my speculation would be he did not. It is possible bill called him and gave him a heads up. I dont think he would know. One of the great myths on wall street is there is coordination on fed officials. They do not talk to each other about what they will say in speeches. They laugh at the speculation that they do. Nejra the point you made about low rates encouraging spending a big discussion globally and i believe it came up at jackson hole and g7, in terms of fiscal spending bearing more weight rather than monetary policy. If the fed wants to encourage that, should it carry on on the path that is on now in terms of signaling lower for longer . Michael you have to separate them. They have to react to threats to the u. S. Economy, as does any central bank, threats to their own local economy. The fed is looking at that. It is their responsibility. The idea that rates have been solo for so long is an argument for why members of congress have felt the ability to spend. There is much less cost to what they are doing. There is the psychological aspect of, if the fed is doing something we dont have to. That is also true in europe in particular. Yes, it is a debate. It is hard to say one is necessarily wrong. There is no one else reacting. Obligated to do something. Nejra tax cuts feel like a lifetime ago. Has the cost of tariffs outweighed the benefit of tax cuts in u. S. . Matthew impure dollar terms, we are getting close. Speak,ror of tax, so to if we were to implement in november as slated, it would be 118 billion. More importantly, the uncertainty this trade policy is driving, weakness in, that is the more important driver rather than the terror of tax tariff tax. Tom thank you for being with us on television and radio. A scathing essay on President Trump, chairman powell and the independence of the fed. Theael, i look at this and great question i got yesterday. You are in jackson hole, the conservative, Esther George of kansas city and others, the boston rosengren of what is the political construction on the fed that will be for or against William Dudleys effort . Michael most or all of them will be against it because they understand the politics involved. There is no disagreement trade policies we are pursuing are hurting the u. S. Economy. We heard an earful from foreign central bankers about how they are hurting the Global Economy. What can you do about it without creating a bigger problem . That is one of the reactions to the tweets. Fed officials, privately say this is really annoying and it hurts our ability to do our job. You dont get any benefit from taking on the president. Nejra matthew, further rate cuts from the fed actually going to in any way prevent the damage from a trade war . Will lower rates help increase that . Matthew it helps to ease financial conditions or keep in place financial conditions that we have. They will help. Mortgage rates have fallen. Lowering rates for auto sales. I dont think rate cuts are necessarily enough in a world where you have tremendous trade uncertainty. In that world, capex will continue to decline. Equipment spending negative in the second half of this year. You need to see that dissipate. Decent argument from dudley that there is a theoretical argument that if the fed keeps easing it does not allow the real driver of this uncertainty to get out of the way. The political argument is such that the fed must respond to a decline in growth, try to hit their dual mandate and therefore if the trade war threatens full employment and 2 inflation, they must react. Tom Michael Mckee would not come out today unless we got a Deutsche Bank opinion. If you adjusted your view . Ago, we a few months expected them to cut rates by 25 basis points in july and september. There has been fluctuation in between. We are sticking with that view. You have a Committee Split in terms of what to do. There is a decent contingent that does not want to cut at all. The center of the committee is looking at slowing Global Growth, trade uncertainty, muted pressures as powell highlighted. Tom which goes right against the dudley essay. Thank you. Reading thee, dudley essay and digesting it for us. Exceptionally important essay by the former president of the new york fed. Coming up at 10 00, a timely conversation, i doubt i will talk china trade war with mario but there is a lot of talk about on value, investing. We will touch on media and just possibly, we will look at the fall season of cbs. This is bloomberg. Viviana you are watching bloomberg surveillance, with the Bloomberg Business flash max customer has sued boeing. Order forto cancel an 35 planes. It wants 115 million in damages. No response from boeing. Deutsche bank cutting thousands of jobs around the world but hiring in india. Investment. Ing more the indian operation hiring 140 people, boosting the Retail Banking and Wealth Management operation. Described as a landmark figure in an automotive history, the grandson of the designer of the Volkswagen Beetle has died. The worlds into largest automaker and was influential in the design of iconic cars such as the porsche 911. He was 82. That is the Bloomberg Business flash. That is all 356c, you need to know. His aesthetic was absolutely are red during and original absolutely extraordinary and original. William dudleys essay is scathing, maybe the most scathing essay i have seen on the president of the u. S. And on the collective Federal Reserve system. We will try to paint the color of this. This is the chart i have used often. Inflation adjusted fed fund rates, thank you to robert for bringing this to my attention, the yellow circle is the vicechairman, stanley fischers dream of an accommodative fed. Matthew, we succeeded and now we are rolling back over into negative real yield on short term paper. What does it signal . Matthew you have to adjust that for where the fed thinks the rate is over time. It is lower to potential growth, also, from jackson hole, from global factors. Low global rates, a scarcity of dollar assets. There is a number of factors driving the neutral rate lower. Monetary policy is not as accommodative at these levels as we would have thought historically. It is suggesting we went modestly restrictive in terms of positive real fed funds rate and perhaps rolling back to zero or negative as the fed cuts further. On septemberhalt 21 or delay, what would be the consequences . Matthew financial conditions will push their hands. The market is pricing more than 25 basis points in september, through the end of the year, 60 basis points in terms of cuts, if they do not partially follow through on the pricing, you will see conditions tightening. The dollar will move higher, threatening the target on inflation and growth. Equities decline as well. Financial conditions will push them. Tom bloomberg surveillance, correction, i mentioned september 21. September 21 is when i purchased the autumnal bowtie. Nejra i cannot wait to see that. Are younot tom nocall have brought on now. In terms of front running on monetary policy, we know policy tends to act with a lag. It is not all about rate cuts. Rate cuts alone, part of the effects of the trade war. Whatare the tools, other tools may the fed use . Some people have said more qe . Matthew the fed will not introduce a new qe package unless we get back to zero fed funds rate. They want to think of the rate as the primary tool as long as it is above zero. Zero, fed useso the rate as the primary tool for easing financial conditions. After that, we can start thinking about qe. They are discussing things like yield curve control as part of policy review. Dovish shift has been swift. Could qe come quicker than we anticipate . Matthew the one thing they have been consistent on is the policy rate is the main tool. I would differentiate on the Balance Sheet. Qe where they are actively purchasing securities to try to flatten the expand, being driven by the liability side. That is a passive expansion of the Balance Sheet. In terms of active qe expansion, i dont think we see that until the fed funds rate goes back to zero. Nejra thank you so much. Great to have you with us today. Coming up, we speak to the apple at 5 00 p. M. , new york time. This is bloomberg. Trump could bet about to change his position dramatically on iran, making his most extensive offer yet to meet with the iranian president. [speaking foreign language] without amerco withdrawing from sanctions, we will not witness any positive development. The key change in the relationship is in washingtons hands. Nejra joining us now, our bloomberg iran reporter. Not the first time we have had different messages from President Trump and iran. What do you make of it . Reporter i think, you have kind of referred to the underlying problem. From iranian perspective, there does not seem to be consistency, even after g7. There is still a sense that if mr. Trump makes these are marts context,remarks in one they will change on another day, because his advisors are very hawkish on iran. I dont think the government in iran is looking at the latest comments from trump any differently. But they are mostly focused on is what europeans can do, specifically france. They have welcomed, within the government in tehran, what Emmanuel Macron has been trying to do and the efforts he has been making. I doubt the position we have ouhani has saidr will change much. Nejra if the meeting were to go, it would be the first meeting between a u. S. President and an iranian leader in 40 years. How likely is it this meeting could go ahead . Could it happen without sanctions being lifted . Reporter the next big event we will look for within this context is the u. N. General assembly, late september, United Nations in new york. The idea of there being a meeting between them is extremely unlikely. That is what he was saying today. Forget about any photo opportunities. He said, i do not a photo op. If trump wants that, he can do it with photoshop. Those were roughly his words. What is important is what the europeans can do behind the scenes and anyone else in back channel meetings on the sidelines of the United Nations meeting. That will be key looking ahead in september. Extraordinaryd be and for many americans, it harkens back to late 1979. My mathematics tell me that was a few years ago. Is there a collective memory in iran of those turbulent months of 1980 . Reporter definitely. The revolution was a seismic event, not just for iran but in terms of Global Politics in the middle east region. The men in control in iran now and the very few women also in government in iran were very much a part of the vanguard of that revolution. The same can be said in washington. Donald trump and john bolton, men of that generation, the hostage crisis in 1979, the takeover of the u. S. Embassy loomed large in their minds. It is kind of a battle of these different generations right now between tehran and washington. Tom thank you for being with us. We appreciate your reporting from tehran. Extraordinary day. Interesting markets. Bill dudley essay for Bloomberg Opinion. Scathing protection of fed independence. We will discuss these themes. On equity markets on hour. Mario in the 10 00 this is bloomberg. From the 5am wakers, to the 6am sleepers. Everyone uses their phone differently and in different places. Thats why Xfinity Mobile created a Wireless Network that auto connects you to millions of secure wifi hot spots. And the best lte everywhere else. Xfinity mobile is a different kind of Wireless Network designed to save you money. Save up to 400 a year on your wireless bill. Plus get 250 back when you buy an eligible phone. Click, call or visit a store today. Alix recession watch for germany. Exports sink. Stimulus to the rescue . Ed lees government on the break of collapse. Coalition italys government on the brink of collapse. Mann, speak to catherine global chief economist at citi, who argues trade will help solve some of the destabilizing global trends. Welcome to bloomberg daybreak on this tuesday, august 27. Im alix steel. David westin is off this week. The call is in the, it may be time to buy u. S. Equities. Nowhere. Retty much go dollaryen down by 3 10 of 1 . The yen still the outperform or. A bid into bonds. Time now for the global