Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20170707

Demands. Welcome to bloomberg daybreak europe. I flagship morning show in europe. Im manus cranny. We have a cracking lineup for you today. The much anticipated g20 summit kicks off in germany. Matt miller is on the ground. We are going to break down the fx markets. We are going to be joined by the former u. S. Deputy treasury secretary, robert tinted to put politics and g20 in context. The and besser of the the ambassador of the United States, what better man to put the geopolitics into context . And stock markets, the german bunds market, does it really ignite the bond market around the world . Lets show them at the bottom of this screen. After hours, they hit the highest level since may. This is treasuries and equities, down to more than 1 . Does the bond market trigger liquidation to cover the margin calls from your bond market snap. Thiswas last time you saw kind of combination. That was referred to as a taper tantrum. That was the federal reserve. This time you are looking at a coordinated, or im sorry, a cohort of Central Banks that could be shifting the paradigm of banks. Because of that number back in january. Del rio says stimulus if you break 2. 6 in government bonds, we still have a distance to go, the market rally is over. I talked about stocks having declined, you see a little bit of a reprieve. Nasdaq just get themselves, dow jones referred to them as have a look at the risk radar. Asia is playing catchup in terms of the pickup. If you go on your mliv blog, for those that have the terminal, there is a lovely light at the top of it which is, this years trend is facing a challenge to get to the upside. Do not have a look at dollar yet. Do not fight the bank of japan. That is the message of d. Llaryen, perio they came in and battered the bond market. So you have them dropping to an eight week low as japan comes to the market and sends a very clear signal. 04 at the moment. The u. S. Output has expended by the most since january according to the eia. Thats the only focus of the oil market. Lets get global with the first word news, Juliette Saly standing by. The u. S. Russia is seen as the chief suspect for hackers working for foreign governments, recently breached at least a dozen American Power plants. According to current and former u. S. Officials, the new their facility was among the sites targeted. The warning has sparked concerns that attackers were searching for more abilities in the electrical grid. A u. S. Led effort to broker United Nations Security Council statement condemning north koreas latest missile test has broken down. According to two officials, the u. S. , france, and the u. K. Were unable to overcome objections from russia and china. In the middle east, the qatari government to refusal demonstrates the emirates have links to terrorist groups, according to saudi dress agencies from the alliance. The four countries, saudi arabia, united arab emirates, bahrain, and egypt were surprised that they rejected the demands. In germany, Hamburg Police ordered a water cannon to break up protests against the g20 summit as World Leaders arrived for todays gathering, organized by Angela Merkel. Closely watched events will be a meeting between donald trump and a Vladimir Putin. Has exertedjapan control over the nations bond yield, sending arlington costs lower with the first fixed rates since the global debt fell off. Buycentral bank offered to benchmark 10 year notes at 4. 1 . It dropped after having doubled in the past week. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. On the find more stories brick at top. No surprise, we have seen the bond and equity selloff slow into the asia of course. Significant selling coming through in china as well and the asx 200 was one of the person one of the worst performances because [no audio] manus investors are fleeing the bond market. The policy tightening conditions, the right has determined bond market, bunds at declineth high, only a as the ucb underscores the concerns about stimulus and stimulus tapering. The was bond market also sold and theield services 200 day moving averages. Later today, you will get a big report of them all, the jobs report. What will that do to this story . Foley, jane, ine started the show with this. Done one point 7 , ray dalio is sending warning shots to the world. He is saying stimulus is over. Mock says the present is on the table. How would you describe yesterdays markets move . Putting possibly this is what we are doing right now. Which looking at and ecb next year, could be tapering. We have seen taper tantrums before. This perhaps has got some likeness with respect to that. The market at the end of last year was not thinking that Central Banks such as they ecb, i give canada, etc. , could be tightening and now they are. The market is reevaluating, thinking if the Central Banks are tightening, what does this mean for my portfolio and i to long bonds . And its if i went in that context. From 1515. This is a much longer part of the curve. The market is the most long since two dozen feet and what strikes me as perhaps the , if theissue is this bond markets are so long and so strongly held, then this move yesterday, if it continues, has a propensity to really ship the rest of the risk markets. Guest of course there is an if. There is a lot of pressures to suggest that we have very low inflationary pressures. This is not in normal economic cycle. Because its not a normal economic cycle, this is like there is longer bonds than there have been before. If we go back to the fed with a pc inflation data that was released last friday, it was weaker than expected. If we look at wage inflation, which inflation is still by now. If we look at countries such as australia, the weakest inflation ever even though implement rate was coming down. If we look at the u. K. , again we are not getting wage inflation. 1. 49 jobs for had every seeker and yet inflation is 1. 5 year after year. These are structural factors keeping inflation lower and once the market is going through this reevaluation, inflation rates are still lower than they have been in previous economic cycles. Manus but still the fed has intimated that they may be divided on the Balance Sheet and there is still an intimation from the dots that they are on path for hikes next year. What caught my eye yesterday was the dollar. Today is the jobs number report which will give us more information in regards to wages. But the dollar is finding it ethical to get a bid, even on the news. It comes down to this employment number. Guest there is a greater context. If we go back to try 14, since the lower 2014 and the high in january this year, there was Something Like a 30 move in od, the fed was considered to be the only game in town. The market is looking at tapering potential for the ecb next year. If the ecb goes, it gets more room for other Central Banks at the swedish, maybe the swiss, obviously, to move to. There has been a rotation out of the dollar back into the euro, which is probably going to continue for some time. Stopped oron has prevented the dollar from carrying on with this 30 valley we have seen over the years. Manus what is the funds flow like . If the market is very long bonds, what is the flow like into the dollar . The the market feel short dollar to you and what are the flows into the euro . Guest the market has been long dollars for a while and it was short dollars, sorry short euros, and the rotation we have has turned of euro longs. We saw euro longs at the longest level since may 2011. The question is, is the market fluctuated get with the euros or is there more to go . In the last couple weeks, i have seen more banks change the euro dollar forecast, revise them higher. If that is still happening, that is a signal to me that the rotation has not run out of steam. Euro, in terms of eurodollar, where does it have the momentum to go . Guest our forecast is 117, but we have come a long way in the past four months. But we do think it will go higher. That seems that the ecb will take the next year, but we do not think the ecb will be any fester into hiking Interest Rates because of the low inflation rate. Manus ok, so to separate conversations. There is this issue that the ecb is running out of bunds to buy,. Overcompensating on france, italian, etc. They are going to have to adjust qe, which is what steven major said yesterday. Just because of supply and demand. Oldfashioned issue at play. There is no alternative for the central bank. Guest totally agree. From that point of view, its lucky that the Economic Data is coming out. But the same argument could apply to the bank of japan, they are still suggesting at tapering is far too soon. Thats another debate, but we do think tapering will happen next year. Adjustthis is slightly that the bank of japan just go for more stimulus there because its doing us a problem. We are going to talk about the bank of japan area shortly. To0 p. M. , we will be talking bill gross. What does he make of the bond market moves . Daybreak, we are live where the g20 kicks off today. Matt miller is on the ground today. Last night was all about Water Cannons and protests, but today the focus will be on the u. S. President donald trump and his bilateral meeting with russian president Vladimir Putin. The g20 being hosted by Angela Merkel and the germans this year. They want to focus on trade, on immigration, and on climate change, all issues that could cause differences with the west president donald trump. This is bloomberg. Manus welcome back, its bloomberg daybreak europe. Warren Buffetts Berkshire Hathaway Energy units has agreed to buy texasLargest Energy utilizer. They invite in equity value of about 1. 25 billion for 100 of the company. The takeover is key to ending the bankruptcy for Energy Future holdings. Its part of the biggest leveraged buyout in history. Samsung electronics has topped analyst estimates with its best operating profit, income rose 12 billion at the end of june, thats as local demand for semiconductors remains strong and the newest galaxy smartphone one over customers. That is your Bloomberg Business flash. Thank you very much. The World Leaders are gathering in hamburg for the most anticipated and eventually the most turbulent meeting in years. The hostess, Angela Merkel, will problemsg to avoid the that happened at the g7 in may. Matt miller is on the ground. Matt, good to see you this morning. This is a big meeting for trump and put in. What can we expect there . Thats the question that everyone is asking. How will this play out for President Trump . Howlett play out for president putin . Will President Trump confront president putin on allegations that he cyber attack or had Russian Hackers cyber attack the u. S. Elections and now we are hearing reports of hearings of attacks of u. S. Power plants as well. What will Vladimir Putin want from President Trump . The two ci to eye on a couple things, notably, President Trump held a speech in warsaw focusing on the western values as religion and family and less on democracy and freedom of speech. It will be interesting to see what comes out of this meeting to see how this meeting is held. I think thats what most people are interested even though it is not the most important meeting for geopolitical troubles right now. You have obviously got the problems of north korea, the problem with syria, you have a lot of other issues turkey, for example. Maybe more important right now as far as safety of the global community. There are more tensions in terms ge and trump in terms of merkel. This is where it can get murky. To the extent that trump doesnt need china to help him execute some kind of temperance on north korea. As the days go on, as the tweets come out, its almost as if he is focused on a unilateral solution, his own solution for north korea. Absolutely. Thats the most important point is that the world is focused on but thepputin meeting, other meetings are much more important. Indeed, donald trump held meetings yesterday with japan, and south korea, to try and put a little bit more pressure on china in order to the escalate the situation in north korea. And as far as erdogan is concerned, he says if he is not allowed to speak at rallies, it would be german suicide. Take from that what you will. Manus matt, thank you very much. J foley is on the ground here, currency strategist at robert bank. 54 hours ina punchy terms of news flow. G7s,ou go into g20 and how do you go in with risk . Is that just to bunch at the moment to carry into a big meeting like this . Guest its been so used to political risk, which this is all about. With respect to risk, i expect you get to the yen and north korea and that situation, but underlying that in the g20, there is lots of potential discussions in regards to trade. We have merkel and abe and possibly xi in china. We had the announcements a couple days ago and at the eu and in japan, it was deliberate trade, climate, all very important, but it will be north korea, with respect to risk, that the market will be watching diligently. Manus lets break them down quickly. This is the Morgan Stanley traded. This is a worrying sign, isnt it . This is the biggest concern for the world. It was set up to build trade in the eye of crisis. That was the risk to the world. Guest if we look at defense budgets, that tells the story in itself. We have trump telling other nato countries that they need to expand their nato budget. If they expect their 2 gdp edges, maybe they should. Japan, the last five years, they have been expanding their defense budget. They are reinterpreting their constitution with respect for their pacifist constitution. That tells you enough about the state of the world, the state of tensions within a Global Economy. The yen. Ts talk about the juxtaposition between the bank of japan sending a clear message to the markets. Do not mess with the bank of japan. But the juxtaposition is the global, geopolitical risk. How did the boys and girls look at it . Guest these are two opposing forces. We have had this position about ecb tapering, the bank of canada, bank of anglin, etc. Manus none of that from boj. Guest absolutely not. If you think about the carry trade, that should disadvantage again. However, the yen will be bought as long as there are signs of satan and that keeps the dollaryen quite content. Manus we will pick this up after the break. We will be speaking to the ceo of unicredit. That is at 9 00 a. M. Italian banks have been a huge focus. Next toive to qatar discuss the gulf issues. It is a Beautiful Day in tokyo. It is 2 30 in the afternoon. That is a live shot. Dollaryen is on the move. The bank of japan has a clear message for the market, do not think about fighting with us. We have a target in mind. The dollar up. The yen down. Lets put the bank of japan context. Cehic gets to the heart of the matter. The bank of japan stepping in with yield curve control after we have seen this selloff in bonds globally. The lackluster french auction, and after the ecb accounts, we go above 50re jump basis points. The selloff in the u. S. Have continued in asia. The bank of japan stepping in. That has pushed the 10year jgb yield lower. We thought drop below nine basis points. Jgbve this for you on the 10year yield. We are keeping a close eye on that. The impact has been seen in treasuries as well. We are seeing the 10year yields climb higher today. This is the 30year yield. We thought breach the 50 day moving average. It did go above the 200 day as well. We are watching to see whether it goes about that 100 day moving average. If it gets, there could be more losses to come. What we have seen a some curve steepening, certainly in yesterdays session. There are signs there might be liquidation of those long positions. Is there more pain to come is the big question. We saw the selloff in bonds and into equities as well. Pressures precious metals. Silver hitting a 15 month low in the session. We are singled dropping him heading for its fourth weekly loss. The biggest drop since early may. Youre looking at 1000 manus new edition of daybreak. Have a look at this. I love a cartoon. This is it. This is the cover story. Oruda. Nk of japan, ko the bank of japan back in the market for the third time in a number of months. Thats bringing jane foley. Lets bring in jane foley. You said, i think dollaryen is cap. The simple question is, where . Is this a Strong Enough message . Do you think we will see more of this . Jane yes. Japan does not want to let go of those sites. It wasbeen adamant that too soon to consider a tapering. It still had a long way to go. That inflation target is 2 , inflation rates we have now are below. There is speculation that at the next meeting the they will have to revise lower the reflation forecast. That is not something they want to do, but it seems tactical that they would have to do. Manus there is a certain amount of pragmatism. For me once, for me once, only twice. They dont want to be caught short. Talk about the next story. Lets talk about the next story. Dalio says,our responsibility is to keep dancing closer to the exit under their sharp eye on the tea leaves. They are so wellpositioned, arent they . Is open. Ing that time i put it to you in a slightly different way. I put it to you that these markets were doing healthy adjustment. Move in the bund market is a realization of practicalities from the European Central bank. It is a mindset readjustment, but has it up homework of a deepseated shifting gears . Jane i think there is a shift in gears. Whether or not it is deepseated remains to be seen. Whether or not we have a more deepseated correction depends on medication from