In london, Boris Johnsons plans to suspend parliament stoked no deal fears. Manus warm welcome to the show. There is only one thing that really drives the bond market, and that is trade and trade angst. If you look at the balance of scales of justice, in the past 24 hours, it comes down to mnuchin trying to steepen the curve and navarro keeping it real. There is not going to be anything likely quickly on trade , therefore we are flat. Nejra you certainly feel that pressure on the yield, hitting a record low. That is something that has caught our attention today, and i know its what you kicked off your data check with as well. Manus indeed. It is the white house really trying to have a go at controlling the yield curve . Thats what we need to ask. The 30 yield bond curve has spiked on the back of mnuchin talking about 100 year paper. The bottom line for the market as the tradings prevails, looking at dollar yuan, is anybody listening . Thats what we need to ask about dollar yuan. Yesterday the pboc sent a message, we have had enough. Today they sent another message. The strongest fixing for the seventh day in a row. But there is a challenge. We want to weaken the yuan. Lets see what the response mechanism is. Gold is up a quarter of 1 this morning. Money flowing into the etf. Central banks have plenty of room to increase their holdings. Just a flavor of the markets. Trade prevailed. Nejra. Nejra what the bond markets look,o be signaling is, Central Banks have limited effects in its concerns around global growth. The 10 year yield continues to fall in the u. S. Looking at futures in the u. S. As well, we are seeing weakness after seeing gains in the s p 500 yesterday. We are still waiting for Key Headlines around trade. Navarro showed reticence about quick movements in terms of the trade talks. Equities are what we are waiting for, any big movements on that. The bloomberg dollar index is completely flat. Steve mnuchin said there is no urgency at this point to intervene in the dollar. Lets get back to Steven Mnuchins comments. He is talking about the issuance of ultra long bonds. It is under serious consideration in the Trump Administration. This could set up a move that would mark a historic revamp of the 16 trillion treasury market. In an interview with the u. S. Treasury secretary, they will only 80 they said they will only issue 50 to 100 year bonds if the conditions are right. Mnuchin said interest in long bonds was unrelated to the drop on yields on shorterterm debt. Nejra these comments may have been an attempt to drop else higher. Rebounded fromld an alltime low and the u. S. Curve steepened from the remarks talking about the 530, but much of those reversed in asia trading. Is Eric Longeran from g investments. Lets talk about the attempts to steepen the yield curve. Is there anything that can meaningfully steepen the yield curve at the moment at the very long end, given the pressure we are seeing on duration yields . Insight into good what is a longstanding debate in the markets of whether the bond markets have significant supply versus Interest Rate expectations. I think what this tells you is even when you have a real announcement that we are going to respond to low yields by increasing supply, markets are about expectations and risk properties. Want to buydo long dated u. S. Government bonds. It doesnt matter how many there are, the eyes will be set by the market. I think if you step back for this from this, there is a bigger question, which is you can absolutely see the feeds emerging for what is now becoming a bond bubble that could actually unravel. You are going to get a fiscal response, because it is blindingly obvious that fiscal authorities should respond to the level of bond yields. Manus good morning, eric. What the current bond market bubble might look like. Eric i would say theres three components to it. The first is the rapid move you have seen in prices. The latest movie and bond markets is prices driving price the latest move in bond markets is prices driving price. You need people experiencing losses and it can kind of accelerate, or reverse, very aggressively. The most recent bond price action is indicative of the kind of behavior that is very vulnerable to rapid reversal. But if you stand back and ask yourself what is happening, we are seeing conventional policy is over. That is Crystal Clear to everyone now, that cutting Interest Rates will not make much of a difference, which means the next move in Monetary Policy will be unconventional. There are a few things that the ecb in particular has innovated on that i think could easily be the next stage, and they are going to be brutally powerful monetary power prior monetary firepower. You are going to get a fiscal response to this sooner or later. Seen the defeatist conclusion of jackson hole. You have mariota rock he saying if things get worse, we need more fiscal policy we have mario draghi seeing if things get worse, we need more fiscal policy. When there is no problem with fiscal sustainability, you issue a whole load. You can see the seeds. It is a bit like the tmt bubble. You drove Technology Stocks up to levels and ratings we have never seen before just as earnings were about to collapse. Bond prices have collapsed to levels we have never seen before. Yields have collapsed to levels we have never seen before just as you are setting the conditions that can reverse the fundamental picture behind these assets. Nejra a lot of people have come on the show and send what bond markets are trying to do is push governments into having a physical response, because they are pointing to the limits of Monetary Policy, saying all it can do right now is halt the slowdown, but it cant stop a recession coming. The thing is, in the u. S. There has already been some fiscal response. Eric for sure. There is a big difference between what might happen in europe and what might happen in the u. S. I think what is likely to happen is if you see serious deterioration from europe, you are going to get very radical innovations of Monetary Policy. People have not paid nearly ofugh attention to the power the potential to have a dual interestrate policy in europe, which is, in other words, you effectively freeze the Interest Rate on the tltro from the deposit rate. What i mean is the problem with negative Interest Rates is, as we all know, bowers benefit, the problem is savers when it comes to climate. This is why negative Interest Rates dont work. What if you leave the deposit rate unchanged and start cutting the Interest Rate on the tltro . That is a monitory bazooka. You can save, we will cut the industry on credit, but we will leave the interest on savings unchanged. You start cutting credit. Under the tetris game, you say, we only make these available to you if you make new loans to Corporate Investment spending or the household sector. If they start to dip, that is a big, courageous move. Manus i get the differential you are making. Rates unchanged, but get aggressive with tltro. At eric, you need demand in nonrecessionlike environment to go to the banks, to borrow the money, to make tltro effective. I challenge you in that we are in a major slowdown. Can you stand up the demand side . Eric thats a great question. There are two components. The first is you can go with dual Interest Rates. I think you could generate a large amount of demand. If you did a 10year tltro minus 2 Interest Rates, conditional beingnew Interest Rates made and those being passed on, that would create demand instantaneously, because no corporate scan found themselves with those kind of Interest Rates, and it effectively is a huge transfer to the corporate sector no corporate scan fund click no corporates can fund themselves with those kind of Interest Rates, and it is effectively a huge transfer to the corporate sector. You can say, we will provide a perpetual tltro to all european citizens. That, in effect, is a helicopter drop, and except it is done in the shape of a loan. You can make it available to all household and distribute it through the banking system. To be honest, i think the ecb is aware they could do this. This came up before when we were in the euro crisis, when people were worried about recession in 2016. They have done the thinking about this. The problem is they are very reluctant to do these things because the probability of political resistance and confusion. But these options are available and very powerful. Nejra what impact do you foresee there being, on the market, globally, of a move like that . These are big changes, and others have hinted at them before. We had blackrock talking about the prospect of helicopter money in europe. Plea i think hildebrandts in the blackrock piece is important. You cannot get a more mainstream, authority of macroeconomists than stan fischer. I studied his test books textbooks. These guys are the mainstream of central banking, and they can see what is becoming pretty much obvious to everybody, which is, qe, the marginal impact is negligible. Forward guidance was always questionable. Stage really has to be about transferring money from the central bank directly to the private sector in europe, because that is the only option available. What happens in america is very different, because the fed does not have the same degree of monetary flexibility that the that the ecb has. It is likely the endgame would be fiscal. You will either get helicopter drops or a huge fiscal stimulus. We saw what happened the last time they had a fiscal stimulus what it did to the bond market. Manus so i have two bubbles to worry about. One is the inflation bubble. By the way, i will have a bit of loans at 0 on another property and i will be off to portugal. Eric there you go. Manus the problem is you are propagating potentially a huge bubble. These are two potentially huge nightmare bubbles that you have suggested. Eric i disagree. Manus ok. Eric if you do a perpetual tltro, what you are doing is stimulating demand aggressively without further reductions in Interest Rates. The bubble as a term is misused, and i am guilty of that myself. Asset pricehuge distortions or unsustainable levels of asset prices where we get taken away by price action itself, and that kind of loses connection with reality. To some extent, that is what is happening with the bond market. But it is also caused by the fact that Interest Rates can keep going lower, and the emergence of negative Interest Rates. I think there is a general assessment now that negative Interest Rates are causing financial instability and interrupting financial mediation , and potentially causing asset price distortions. What you are going to get now is you start moving the price of money and start distributing money directly. That will create demand. I dont think it needs to create an inflation problem. There is loads of Spare Capacity globally. But we need is Consumer Spending and Corporate Investment spending. I think the ecb could legitimately defend these kinds of policies. Manus ok. Eric, you have defended them very well. It is a good, healthy debate to have. Gic lonergan from m investments. Lets get your first word news. Annabelle is standing by in hong kong. Annabelle thanks, manus. In italy, cant people get a mandate today to form a new Coalition Government. This after the former alliance collapsed in chaos early this month. The new administration will include the fivestar movement and the democratic party. But those rivals have little more in common than a desire to avoid elections. Argentina is looking to extend maturities on over 100 billion of debt. It wants to delay repayments to the International Monetary fund after a collapse in the peso and its bonds. The government will also post 7 billion in payments on shortterm notes. Johnson ister boris being granted permission to suspend parliament. It sets the clock on opponents who want to thwart his plan for brexit. Comments speaker john bargo called it a constitutional outrage. That suggests he may facilitate opposition plans to retake parliaments when it returns. Hong kong police band a protest set for saturday. The organizers says it was to be a 13th straight week of democracy marches. It was earlier reported that Police Believe approving the protests is too risky due to safety concerns. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Seek weng up, we speak with the flyway the huawei Vice President about the companys u. S. Business and its relationship at the white house. Up, the rates debate. Fed president mary daly justifies rate cuts as necessary to face strong headwinds. Warm welcome back to daybreak europe. I manus cranny in dubai. Nejra and im nejra cehic in london. Manus more changes in the u. S. Was president for 1. 5 years of Wealth Management. If you look at some of the big shifts we had last year, we saw go from the investment bank. We saw zellner go from the global head of Wealth Management. Strategic changes. More changes to come. There is in addition to the portfolio. An addition to the portfolio. Khan are to join the executive board. 60 Martin Blessing. Blessing will step down, but he will stay with the bank until september 31. Kellerbusse will become president of ubs middle eastafrica. Lets check out the business flash with annabelle druhlers. Annabelle michael bari of the big short fame sees a bubble in passive investing. He says smaller value stocks are being neglected. Is alwaysthere opportunity, but so few looking to take advantage. Barclays is in talks to sell its automation business gts. It is automated volatility trading. It buys and sells options to offer liquidity. We have learned negotiations are at an advanced stage, but no word yet from either company. Plans to make an entry into the copper sector in the 20 20s. They will capitalize on the decline of aging mines and rising demand. The Company Started drilling for copper in ecuador and plans to begin similar work in argentina later this year. We think expiration is a great way to unlock potential growth, and we think copper will be in demand globally. There are depleting assets around the world, and we are seeing an opportunity to participate in that growth. Annabelle that your Bloomberg Business flash. Nejra . Nejra annabelle, thank you so much. Sticking with the fed rate conversation, bloomberg spoke exclusively with San Francisco fed president mary daly. Take a listen. We were below the neutral rate of interest when we had those conditions. Subsequent to that increase, that rate hike, what we saw was the mood and the data were becoming more pessimistic, if you will, a little bit softer. Thats partly because of the strong headwind intensifying. It was not just a gust that went away. The whole wind gust got stronger, and it blew against us. These types of things, the global slowing, the headwinds from uncertainty, those way on the economy. The neutral rate of interest has been coming down. To recalibrate policy, thats why i supported the july 25 basis point cut, to recalibrate policy, to put the economy back in a good position. Rishaad tell me something. This is for my colleague david ingalls. If the ecb recalibrate setasides to reenter toalibrates and decides reenter qualitative easing, what do you take away from that and what is your reaction to it . All Central Banks are responding to the fact that they have Economic Conditions that are changing. In the European Union, the Economic Conditions have slowed quite a bit, and inflation is under the target, so that requires Central Banks to take action. They are doing that. In the United States, we see how the Global Factors affect us, and we have to take our Interest Rate decisions based on what we see for the domestic economy. Sense thatere is a Central Banks are being held hostage by the markets. The more Central Banks do, the more the markets want. Is that the new normal . Are you comfortable with how it is panning out . Well, markets are moved daytoday. They are fighting around fitting, and some of that is based on the outlook they have for the economy, and some of it is based on just trying to figure out what is coming next from Central Banks. What i do is i take market information, financial conditions more generally, as an input, financial conditions being tighter or softer or easier would influence how stimulative the economy is and how well supported growth is. Is not abut it determining factor in my decisionmaking. Manus nejra, there is an interesting word mary daly used. She talks about recalibrating policy. There was a lovely line this morning, the fed now controls the highest Interest Rates anywhere in the developed world. Lets discuss if they are behind or ahead of the curve. Nejra on that, i was talking to peter cap worth yesterday, and he said we will see the fed behind the curve because the neutral rate is low 1. 4 . That shows you how far