Transcripts For BLOOMBERG Bloomberg Go 20160825 : vimarsana.

There already helicopter money in the markets . They are buying so much of the debt already, pushing the maturities out. Are they really financing stimulus . Deciding many years ago what theyre going to do. In mike will bring with with his interview Esther George. Her outlook for inflation. You have to focus on inflation, jon. Jon lets get you up to speed. Teachers marginally negative, down. 2 in the u. S. A soccer session in europe with the ftse down. 25 . Soccer session in europe a softer session in europe. The bloomberg dollar slightly softer. Covering the bond market as well come a quick look at commodities, the index coming in just a little bit. It is very much a Federal Reserve story. Alix a risk off day, little bit into friday. Lets check in with our bloomberg team. Matt boesler on janet yellen. Onon clark in tokyo helicopter money coming to japan. With investoryde confidence 26 hours to go. What will be here in the next day . We hear in the next day . How its interesting that far weve come over the last two months or so, if you look back to months ago, the market was pricing a greater chance of a rate cut over the next several months then he rate hike. The fact that they now have markets back to 5050 odds for a rate hike over the next six months, by the end of this year, goes to show you the kind of have things right where they want it. What we are likely to hear from janet yellen is what many central bankers try to do when theres not much reason to move markets around, stick the landing and keep things on an even keel. Alix we have a chart that shows how the fed has helped the market rewrite expectation. Markets are confused. This chart seems to prove that the fed has done its job. Definitely fair to say that markets dont really know whether they are going to hike or not. That is what 5050 odds mean. That is not necessarily a bad thing for the fed. ,t gives them flexibility especially since the probability is not too low. Alix tune in tomorrow for bloomberg s special fed coverage. We have breaking news considering mylan. Cost. Ill cut the epipen they will cover up 300 of that outofpocket cost, cut the cost of its list price. Timing to do this, couple months away from an election where mrs. Clinton has already come out and said pretty clearly that these guys will have to do something. Why would they do this a couple months before a crucial election in this country . Alix good point. I have to look up what the final cost was cutting it by 50 . One prominent investor says the boj acting to response of ggish they will engage in helicopter money with great care and reluctance if they do it to carefully, it will not have an effect. That is the dilemma they are facing. Mobiusat was mark speaking to bloomberg tv. For more, aaron clark is in tokyo. There is a big debate over what helicopter money actually is and what it looks like in practice. Mark mobius spoke with Bloomberg News and basically said the bank of japan is going to implement or engage in helicopter money. Negativehat because rates have not been effective, they have not seen the underlying Economic Growth in hope for. Theyve not seen the inflation they hoped for. Mobius said it could happen as soon as next month. The bank would likely wait until yen strengthened jon why does he think this will happen anytime soon . Given this is still illegal in japan. Aaron that is the issue. But that is not willing to raise rates. That will strengthen the end. The yen. There will be pressure when the repatriate that money with a stronger yen, their earnings are much lower. Jon thank you very much for joining us this morning. Joining us from berlin on the confidence numbers that came out of couple hours ago. Not pretty. That is the summary of these data points today. Caroline way off estimates and years. St slump in four have a look at just how far we were away from the estimates. The estimates for 108. 5. Plunging down to 106. 2. Not much of a surprise. E third. Is that biggest export market for germany. We saw a slowdown and services. Finally, brexit is biting. Jon is that the case . Caroline we saw some movement in the euro. Businesses have been going this nervousness echoing this nervousness. Ofmany beat in terms earnings estimates by more than 10 . The number one Engineering Company in europe really paints the picture. They raised their earnings target. On the other hand, the ceo is warning of concerns of the. Eakening Investment Climate still think the underlying strength in the economy is there. Drop, the biggest drop since 2012. Having an impact on equities in europe. The dax up by one full percentage point. Futures a bit softer on the session. An shares moving up to the company saying they will cut the cost of their epipen drug by 50 . It raised its drug prices for the abbey penn 400 over the epipen 400 of the last decade. Mylany clinton calling on to voluntarily cut its costs and it listened. Drug stocks in europe were getting hit on the pricing issues here in the u. S. They are still lower, but watch them for a potential turnaround as this mylan news trickles through the market. Orkday up 10 lastription revenue below quarter was up 37 above its estimates. Hp is a different story. Fourthquarter earnings outlook lower than its lowest end of its forecast. You ended up having better revenue in terms of pcs, but desktops were down printers down 14 . The outlook for hp not as bright for the fourth quarter. Emma the death toll is rising from the earthquake that rocked central italy. The government says 247 people were killed when the magnitude 6. 2 quake hit. Three mountain towns were leveled. Rescue crews are still digging through the rubble to try to find survivors. In kabul say 13 people were killed in an attack on the American University in afghanistan. The siege lasted nine hours. No group has claimed responsibility, but the taliban is suspected. Donald trump is welcoming the support of a backer who cannot even vote in the u. S. Election. Rage said trump is right on immigration. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Jon coming up, is helicopter money really on the horizon . Mark mobius said the strength in the end will force the bank of japans hand. Jon this is bloomberg. Mark mobius says helicopter money will be japans next big monetary experiment. He spoke to Bloomberg Television earlier. More they will be much circumspect and they probably will wait until the yen reaches 90 before taking action. Jon the last time the yen reached 90 was back in 2012. Is Vincent Chaigneau. Great to have you with us on the program. Basicstart with the question define helicopter money for me. We have several different debates every day with several different guests on the same thing but the find it very differently. Canent helicopter money take different forms. Basically, the way i would put it is that the central bank creates money and makes that money directly available to support the economy. That could be through funding government projects, b spending from the government, spending money directly to the households for them to spend. Alix this is actually illegal. Can you take us through the process of what japan would have to do to trigger some type of helicopter money . Vincent it is very borderline. I dont think this is a decision that boj can take. Lightly. Very lightly. What will happen in september is will want to fight the argument that it is now out of ammunition. Possibly deliver something, especially if the dollar is below 100. Money, i think we boj would need to be need it dollar yen to be well below 100. We talked about the inflation rate in japan. When the are doing now government is using the fiscal policy to support the economy, we are not that far from helicopter money. Dealing difference is there is not determinate spending of that spending from the government. For deeperom cooperation between the central bank and the government. The only way they can prove to the market they can do more is by doing more. They will have to do Something Else other than just buy more etfs. What can they actually do on september 21 that will get dollar yen materially away from the 100 handle . Vincent it is going to be hard. We saw that when they cut rates yen actuallyhe weekend. Weakened. There is still room there. They see massive resistance internally from the banks in particular. With they could do is potentially cut rates because there is still hope that this channel will be working to weaken the currency. They might deliver some sweeteners for the banks. This is an era when Central Banks want to focus going we look at the transmission of Monetary Policy, clearly, one missing element has been bank lending. Why Central Banks have eased policy, the banks have faced massive tightening of regulation that is also hurting bank lending. If we are talking about helicopter money at the end of august, does that become the market expectation . Vincent if you build up expectation, the risk is that you will eventually disappoint. That will be interesting to hear kurota. C he is joining the jackson hole conference. There is the risk of disappointment. I would like to buy protection against a lower dollar yen. The markets will be challenging the boj. Jon this debate continues. Kurota says it is illegal. Alix how much more clear can he be . Treasuries in demand ahead of jackson hole tomorrow. Indirect bidders, including Central Banks buying a record amount of short debt would they be buying if that that was prepared to hike . Alix this is bloomberg. Is a september rate hike off the table . It might be if you look at treasury auctions. If the fed were going to raise rates, centralbank the band demand would have been miniscule. The big buyers yesterday, other Central Banks. Vincentgenerales chaigneau still with us. Does that take a rate hike off the table . Vincent i think the Central Bank Buying is not based on the inside information therefrom the central bank and all. There from the central bank at all. Janet yellen will have to do a great job tomorrow to push pricing much higher. For the be very hard fed to tighten win probability of a hike is so low. Indirect its, foreignuying bids buying. And a week when theres a lot of supply ahead of a big risk event. What is the message and the signal . Vincent we are back to international comparison. Treasuries are low, the dollar quite high. You have that ongoing demand from foreign investors. I dont think it is going to fade away. More than ever, treasuries are driven by international rates. Alix what does that wind up meeting overall meaning overall . No one will notice when they state in theour next 48 hours . Miss yellen will want to hammer down the message we got from the likes of vice chairman fisher, dudley, there of a hike this year, but she will focus on the longterm debate. The fed has been shifting towards the view that policy is maybe not as accommodative as we thought it was. The fed probably does not have a lot of work to do. The longerterm view that is quite dovish. Jon Vincent Chaigneau joining us from london. The idea is the same. Gterm hawkish jon that will be the debate. Says a 2 uest increase could lead to a 20 pullback in stocks. N t down with ahead of alix this is bloomberg. It is 12 30 p. M. In london. Mylan said it would take immediate action to cut the cost of its epipen emergency allergy shot. Mylan shares had been slumping after several members of congress began demanding explanation. German Business Sentiment on expect lee declined the most in more than four years in august. A sign that companies took some time to weigh the consequences of britains decision to quit the european union. Posted a Second Quarter loss as sales continue to shrink. Sears lost 395 million compared with the profits of 208 million a year earlier. Look at the yield curve. The lowest level since 2008. Esther we will be talking about jon we will be talking about that. Look at the bloomberg dollar index which captured the performance of the greenback. Ome a weaker one by. 1 wti pulls back just a touch. Alix mentioning the flat yield curve. We come in another basis point at 2. 237 . It is the calm before the speech. Only one lady has the remedy for that. Alix miss janet yellen herself. Jon we really do need a countdown clock. Alix global centralbank leaders are gathering in jackson hole today. Michael mckee sat down with the host, Esther George. She told Bloomberg Television about the factors that could be affecting inflation. Esther i think we are going when it hasriod been difficult to explain what is pushing down inflation. The Oil Price Shock we had come a strong dollar, number of things have influence that. Permanentat is a state, it is hard to say. Longerterm inflationary dictations have been anchored and we are beginning to see wage growth move in a way that would affect a tighter labor market. Your staff has come that with a perfectly timed topic for this meeting. Looking at what Monetary Policy should be like in this new world Going Forward. The number of members of the fomc have come out with papers, theories about this lately. The you think a fundamental rethinking how Monetary Policy is conducted is necessary at this point . Esther im not connced, but that is why im very interested in this conference. Keys to this conference is you look at these. Ssues from both sides whether a different framework will be needed Going Forward or we can go back to the kind of Monetary Policy that looks more conventional to us. Mike do you think policymakers need to be more humble about what they can accomplish with Monetary Policy . Alix ive always esther ive always thought that. We have gone through a terrible crisis. It did damage to the economy and we know that can take a long time. Want to rush to assuming we know what the future will look like. It is an appropriate time to raise some of these questions. All of us feel a heavy dose of humility. Mike i have to ask you about fed communications. In the minutes recently, there members ofuggestions the Market Committee have not been happy with the way the markets have interpreted things. An opportunity here for a lot of members of the open Market Committee to talk to the markets. What are you doing wrong . You have a credibility problem . Esther i dont know if we have a credibility problem. We all come at these issues in different ways in terms of a policy prescription. I think the minutes are good communication tool. Where there are going to be different views. How wee we talk about are each thinking about it and how thetes showed committee forms consensus around that is probably the best tool for medication. Mike the markets start to price in a move and it is taken off the table and people are we have to say that write them out of the equation unless we are absolutely guaranteed because you know they will put it out there and pull it back again. People are watching the data and reacting to that. Its very important that we be data dependent. That doesnt mean to be immobilized by shortterm use. Focus on that mediumterm outlook for me has been the focus. Mike this is the 40th year for the Kansas City Fed symposium. 30 of those years, the vice chair came and gave a keynote that went along with the theme of the conference and was not particularly newsworthy. Ben bernanke he came out here twice and laid out policy and moved the market. Janet yellen will be kicking off your conference. The markets are expecting something from her. Do you want this to be a place where the fed is making policy pronouncements . Esther the chair decides what she will address. I dont know what her remarks are for tomorrow. We will all be staying tuned. Mike has the conference gotten a little too important to the markets in terms of shortterm movement . Esther this is a function of the time we are in. I look forward to a time when that is not the key focus. The purpose of our conference here is not a policy platform. That is what the fomc is for. We will continue to keep our focus on issues we think are important to Central Banks. That was our morning must watch with Esther George. Hear it from every single central banker. They wanted so bad to be boring. It just is not boring. Participants, it has been dead boring, but certainly, we anticipate something come friday. Should it be all about that . She comes along and delivers a speech and it moves markets. Alix she says no, but the markets have a different take. Joined now by the man who wrote the book on inflation, what is wrong with money . Michael ashton says inflation could pick up as much as 2 . That could mean a 20 decline in stocks. Welcome, michael. You agree with Esther George . Michael moore esther is the prescription we really need at the fed. Alix she does want to raise rates. Mike absolutely. That that could have made a good case for hiking rates back in 2010. The fed could have made a good case. The Unemployment Rate is low. Look at core inflation, medium inflation, they all say the inflation goal has been met. Alix growth is there come inflation is there. What is the problem . Jon are we treating this 2 target as a ceiling at the moment . There is no urgency, no real need. Michael the fed believes Inflation Expectations are grounded. So, inflation is contained. If inflation goes a little bit above 2 , that is not a concern. If it goes a little higher than that, it can easily be restrained and pulled back. I think they are wrong on all of those counts. Historically, we always believe we fed has to move before got inflation to where it is going because inflation has momentum. You look at the sticky element, it looks like inflation will continue to rise for a bit. Alix you really dig deep into all those details. Where do you see the biggest risk of upside inflation over the next 69 months . Michael housing inflation kept rising. The good news is housing inflation looks like it is at least leveling off for a while. The real risk for something higher from the sticky side, you have medical care inflation. Which has been rising, around 4 , what it used to be. Maybe not leading to good things. , flexiblehe variable parts of inflation for a while. You dont have a lot of room to go, except for up. Jon a 2 move in inflation means a big dropoff inequities. How do you explain your view that what is the feet across . Feed across . Inflation goes up 2 , there is a large equities drop. Michael people think of equities as a real asset the multiple people pay for those over the next 40 years, your earnings will catch up. , when first year inflation goes from 2 to 4 , those multiples compress quite a bit. Alix you have a pretty bold call for that. Fixedrate bonds michael i would make that statement even if i thought inflation was going to remain unchanged they are in playing beingng core inflation 1. 5 or below for the next eight years. It is about that now. That theregn isnt any sign that inflation there are 95r this basis points cheap. Lation bonds are already it is hard to make the case for why you should hold fixedrate bonds at these real yields can stay negative for a long time. Theres no reason they will stick higher anytime soon. You get deflation somehow, both inflation bonds and nominal bonds pay off what you originally pay and. Pay in. There is a bit of again if you , butetween zero and 1. 5 if you own a nominal bonds and we get inflation at the present, 3 , 4 , it could be a big loss. Alix nevertheless, Inflation Expectations still mired deep, deeply down. If the fed hikes, would that actually ignite Inflation Expectations . Michael the fed will cause monetary velocity to rise. Money velocity is a lot like your teenage son sitting on a couch over the summer and you say go do something and he says there is nothing to do. That is the way money acts. If Interest Rates are at zero, money hangs around. Velocity is very low because Interest Rates are low. When you raise Interest Rates, suddenly, money has something to do. Invest in stocks at lower prices and bonds at higher yields. You do not hold cash and that means velocity goes up. Jon the solution, higher rates. Michael ashton, great to have you with us. Be sure to tune in tomorrow. We will have coverage of the jackson hole symposium starting at 8 00 a. M. Alix private equity firms have been eager to scoop up energy assets. We will look at Investment Opportunities in Energy Distressed that. Distressed debt. This is bloomberg. Jon this is bloomberg. Tune in tomorrow for bloomberg coverage. Ecial fed over 100 billion in private equities being raised by distressed energy. Many companies are buying these bonds to take control of the firm through debt. One from leading these deals joining us now to discuss is shaia hosseinzadeh. Welcome to the show. Hearing about this for a yearandahalf, private equity has billions of dollars, they are putting it to work. How much buying power to you have . Shaia the market has been incredibly divided. Prices, the bear camp and bull camp are Something Like 20 or 30 apart. Large spread in risk assets last year. Is happening now is you are seeing assets piling up that banks aresold, retrenching and youve seen those assets come into the market this year. Jon a lot of people say we want to buy, we want assets and a very good price. What is different for the Oil Companies . Shaia Everyone Wants to your one assets. Not nition, 90 are you have get out of the way of the big players. They are buying and a paying high prices the private equity world, we have to get to one assets by solving a problem. That needs restructuring or partnering with a familyowned business and helping them play offense and a time when most are playing defense. Alix when you have your checklist of what you look at bankruptcy is risky. You dont know how long that will last. Grail is tiery one assets. We cannot restructure bad luck. The most important thing to do is to start with verylow rates may sit difficult to compete. What do you guys want to see . You want to see high rates . Shaia if you step back for a second and think about the deal environment, theres three seismic things that happened in the industry. Which make this really a generational opportunity. Number one in the u. S. , youve found Something Like the equivalent of saudi arabia. Number two, a lot of the growth in the last five or 10 years has been financed by debt. The 2 trillion of transaction activity industry is Something Like seven times cash flow for an industry that has been 12 times prior to that. Oil is down 6 we are in a good point in the energy cycle, we are not as worried about rates. Its about having the right structure to go after them. You have an Energy Company in the next cycle, where will they get that funding from . They got it from the debt market. What do you see as the trend . Shaia we have a saying that the best time to raise money is when you do not need it. The problem right now, you talk about banks which are retrenching, the average Energy Company has had Something Like i have to a third of the Funding Sources from banks. These banks are now piling out this pulling out. Are now pulling out. That has not been a pleasant experience for highyield investors. Averagey markets, the midcap has lost 60 or 70 of its market value. That creates a whitespace for folks who have Patient Capital and can step in and fill that void. Alix thank you very much, shaia hosseinzadeh. The implication for that is huge. If you pay up and borrow less, does that impact how much you can produce in the future . Jon in the debt markets as well. Where has all the volatility on . Gone . Off the charts is next. This is bloomberg. Alix this is bloomberg. 26 hours until janet yellen speaks. I had of that, markets are calm. All the markets. The volume has turned down over the last few weeks. This greenline is the 200 a moving average across all u. S. Exchanges. The lowest level in a year. Quiet. S this is the implied correlation we see. The closer you get to one, you tend to see a lot of correlation in Asset Classes. Tendsou get to one, that to imply a lot of risk, so there is a lot of selling happening together. That has come all the way down, by. 4 right now. We are nowhere near any kind of volatility or crisis zone or correlation moving together. When you look at the curb in the Options Market in treasury markets. Her this isc options expiration and the tenor of the curve. You are tending to see at three months, volatility picked up along the curve. Yellow indicates much more volatility. Likeeally have to get to to come up or come in six years to go up the curve and see a lot more volatility. More risk shortterm, longerterm, more risk. It is a similar story if you look at the fx markets. Deutsche Bank Volatility index moving up a little bit in august. Calm. Any asset class, you name it, the word is calm. Jon dean maki joins us next. This is bloomberg. Alix fed up of fed speak, centralbank medications. Lost,an confidence german business unexpectedly plunges to the lowest level in six months. The brexit fallout. Alix helicopter money will be japans next big experiment. It could come as early as next month. A very warm welcome to you on the second hour of bloomberg go. Were live from bloombergs headquarters in new york city. The big news in the last hour, calling for a hike seem very confused as to why inflation has not picked up this season. Everyone in the fomc is flat out dovish given where rates are, right now. The argument over inflation will continue, but where i think there is consensus, where everyone of those disciplines is dovish is longerterm and that is where we have consensus among investors as well. Alix are we staying at half a percent . That is the question, Going Forward. We will bring you those numbers as they cross and we will preview tomorrows big events at jackson hole. Dean maki is our chief economist. Hours, a little bit of a risk off, we are waiting for the pivotal speech. Jonathan alix steel with the advice coming tomorrow, apparently. In equities, futures negative in the stock market in europe, down 2 10 of 1 on the ftse. The dax just off session lows, off the back of some pretty dire readings in term of germanys german Business Sentiment. It was the biggest drop since 2012, the brexit fallout bites just little bit. A 10th of a percent weaker, we are down by 0. 06 . No big price action in fx. Commodity comes in half of 1 on wti. Bond market, how many times have we said that this year . 30 yield the curve is spread, the flattest since 2008. Alix that tells the whole story heading into friday. Uber is a private company, but shareholders want a Conference Call and we got some details of their financials ahead of the Financial Division and you are looking at a 1. 2 billion loss in the first half of this year. In the Second Quarter alone, uber is looking at 750 million loss, a 109 coming from the u. S. The reason that is so important is because the u. S. Is where cooper has been able to turn a profit, so it is about extending , but at the expense of profit. You downeen counting and we are one day away from Janet Yellens speech at jackson hole. With theckee caught up kansas city Federal Reserve president. The most recent meeting, i expressed my view that i thought it was time to continue the process of normalization. When i look at where we are with the job market and when i look at inflation and our forecast, i think it is time to move. For more on the fed, lets ring in michael mckee, live from jackson hole. To her, you try to push her on should this speech in jackson hole be about Monetary Policy and what the next type will be . What is your take away . President george is very diplomatic out the whole thing, but this is the 40th anniversary of this imposing of. 38 of those years, the fed chairman either gave academic , academic keynote speeches, but they did not show up. Where they two times used the occasion to layout policy and there are officials who think this is not the right venue for it. President george would not go on record with that, but im sure she would like a little bit less focus on what should be done back in washington, a little more focus on her conference. President george, how much of an outlier is she on the fomc . I thought you made a great point, which is that when you look at the committee, it does not seem like there is that wide a range of views. The things that really jumped out to me from mikes interview with president george or her comments about how she is not prepared to say whether the lowinflation state of the world is permanent or not and she does not see the epcot economy overheating anytime soon. Even after Esther George, you can read her comments as dovish. Alix mike, you are on the ground talking to people. What are people talking about . What are the questions they want to hear answered . They would like the circle squared. They want to know what the fed is going to do and why they keep putting out the idea that they are going to raise rates and then pull it back. There is some there is a demand for clarity. Where is the new neutral rate and how long will it take the fed to get there . Can we plan for what the fed is going to do, Going Forward . Made a good point on bloomberg surveillance. He said so many fed people are speaking that moves the market to 1 erd and they go go from one side of the ship to the other and that creates this volatility and maybe, they would be better off in less and setting up a central plan and sticking to it. Alix you laid out what the expectations are for the next six months and there has been a rereading of higher Interest Rate increases. At out past six months from now, the probability of rate hikes and additional quarterly meetings drop off very sharply. Ands this sense of one done, if we do get a hike in september and december. After that, the onus is going to be back on the fed to explain to markets not only did they hike once, but they want to hike again. Jonathan on the ground, at jackson hole, as many investors that are looking at the Federal Reserve right now and saying it represents an economic think tank, do we need the Federal Reserve to come out and say i have a handle on this and will provide leadership . That is a good point, but the fed does not operate that way. They made a point of not being alan greenspan, not being the chairman or the ceo, operating by consensus. You cant blame the fed or other central bankers. The expected traditional Monetary Policy to work. It has not, so they have to figure out what to do next. That is one of the themes of this conference, where do Central Banks go from here if we cant raise and nation and we cant raise Interest Rates, how do we conduct Monetary Policy . I dont think janet yellen has an answer to that. Jonathan that confusion is playing out quite publicly. Thank you very much. As we cut you down county down to that allimportant that speech, tomorrow, be sure to turn in tune in, we will hear from several fed president s throughout the day. In the markets, Equity Stocks in europe and the features alix s p rates federal confusion. Im looking at news that broke over the last hour. Also going to be paying 300 of that cost itself. This is after he came under enormous pressure from many folks in congress as well as other clinton for jacking up prices over 400 over the last nine years. Going to the retail sector, we have a lot of earnings out. Tiffanys earnings were better, revenues slightly missed. Samestore sales did drop if you backup the currency by about 9 . Tiffanys has a lot of exposure to fx. Signet, this guy owns they actually cut their fullyear guidance. Another retailer sector area which is faring much better, today. This company raising its low end of its fullyear guidance, not as bad as you would think, just down 2. 5 . Chilis tillys backtoschool shopping was relatively missed. And much andre is here with first word news. In italy, it is a battle against time. Rescue teams digging through the rubble in central parts of the country, looking for survivors. At least 241 people were killed, hundreds were injured. Many of the buildings collapsed that were built centuries ago. Colombia has recent agreement with marxist rebels, ending a decadelong war that resulted in hundreds of thousands of deaths. Voters will have a chance to approve or reject the deal on october 2. The state legislature in california has made the nations toughest carbonate Carbon Emissions role even tougher. Law to cutpproved a Greenhouse Gas emissions 40 from current levels. Dayal news 24 hours a powered by more than 2600 journalists and analysts. Jonathan coming up, we take you to the fx market, a measure of volatility as investors prepare for jackson hole. Coming up,. 70 dean maki reveals why he is not rolling out a september rate hike. County you down to the fed chair. Counting you down to the fed chair, this is bloomberg. Jonathan from new york city, this is bloomberg. Futures coming in about 2 10 of 1 , significant underperformance by the dax in germany. German Business Confidence comes in at a six month low. All nine Industry Groups on the stoxx 600 negative. Obviousar story is not until lack of conviction in the fx market dollar yen still with the 100 handle. Dollar euro still up despite the data. The dollar index just a little yield. It is the shape of the curve that is really dominating the conversation. Twos versus 30s, the flattest yield since 2008. Alix the 10 year has traded over the entire month of august, not much volatility and it is the same when it comes to currencies. Not a lot of volatility in the currency market. For more, tom bluray, the head of fx research joins us global head of currency strategy and wealth management. You take a look at the lack of volatility and issues going into friday. What is the trigger . Two reasons for lack of volatility. One is the Exchange Rates are not moving and whenever you look in the morning or the night, you dont see any change, compared to the previous evening. That is one reason. The other reason is that when the fed is printing a lot of money, and the euro and in japan, you look for opportunities to find some yield in one of the and one of the opportunities we will go much higher with rates, we will i would expect volatility to go up, probably together with the dollar. Jonathan if you look at look at the euro one dollar, and last month or so, it has been the lowest since late 2014. Wasdollar was across the cross everyone was talking about 12 months ago and now it is like the sound of a pin dropping on a floor. Why is that pair so stable right now . It is waiting for some action to happen, if the fed does not move and the ecb, whenever toething is challenging bring more money, to bring more liquidity to the system, and the Exchange Rate is cap to the upside and flawed to the downside. It is now too strong to the euro and need cant move, you we can work with monetary conditions and also the for exchange and people can move in the right direction. Alix conviction really the word of the week, but when you have a fed that is hawkish shortterm and dovish longterm, we have that neutral Interest Rate coming down, had we get a stronger dollar in that kind of scenario . You hardly get something relative to the ecb. Rather Something Different continuation, and you can get a little bit of dollars trying, but if you look just one year ahead, probably more the euro that is gaining in that game, so that we see anything like the end of the Dollar Strength and that is also the other reason volatility is low, because many investors saw that this might be the end of the Dollar Strength, and they dont go into his he asked if we. Quote of therite day was to wait for yellen, then conclude the market will only be rating rate hiking rates slowly, not a recipe for either volatility or much in the way of Dollar Strength. Jonathan we face foreign markets and a wild foreign markets for a while . One new high in the equity market after the boring market, and it probably is. Into friday, when you will be exposed to potential headlines, what is the currency you are paying attention to . Is it the eurodollar . But the euroe. M. , is one thing we are looking for, so we want to see, hopefully the euro and emerging markets stronger, and that will be the is not soon as yellen signaling any hikes and if she would be signaling strong hikes, and would probably have dollars rising and that would probably alix thank you very much. Maybe we will see it. Jonathan people were complaining about too much volatility. Aboutou start complaining what . Black rocks ahead of e. M. Corporate debt, dean maki reveals how he manages. Plus, how jackson hole could affect the market. Jonathan this is bloomberg. Lets get to todays morning meeting or we will hear what he banks are looking at. More money has been invested in emergingmarket debt than any time in the past four years. Joining us to discuss this, jack dino, like rocks head of corporate of emerging markets and corporate debt. As far as investors around the situation like south africa, have they been long and wrong . Do you see a lot of this or into revolve in the last couple of months, july for instance . They could turn out to be the wrong trade . Jack i would disagree that investors have been long and long. To preface it, if you look at it given thehs ago, sevenfold increase in the aspect class in the emergingmarket emergingmarket corporate debt, we were prone for a real blow up, given the perception of fx and open effects exposure and perhaps excessive commodity exposure, but fastforward to today, and we are at a crossroads for the asset class. Would view, and our fundamental views of the Asset Classes from the valuation respect news and from a fundamental perspective on the resulted footing, the 11 total return that you have seen year to date on the asset class, we dont think that will be repeated going into september or the fourth quarter, but having said that, given current valuation levels, and taking into account a world with developed fixed income assets that are continually going negative in a search for yield, we think that current valuation levels actively manage allocations of the aspect class making a lot of sense. Alix you mentioned a search for yield. Quietked about what the rushed a highyield and that the fundamentals were not holding up. This search for yield has moved into emerging markets. We have not heard clients justify buying emerging markets on the basis of yield since the late 1990s, which ended in the Agency Currency the aging currency crisis. Jack i would have a newest view to that, as an aggregate, the Asset Classes moved a pretty quickly, but now i think it is extremely important to have an active perspective on the asset class, because obviously highyield default rates, i would lili agree that they could spike from what was close to 4 last year to maybe 5 or even higher, this year but having said that, there are still pockets of value and still very firm fundamental underpinnings for emergingmarket corporate debt. We have seen from a global macro perspective, three of the issues that have kind of dog the Asset Classes over the last few years, global e. M. Growth, the china story, and Commodity Prices we are pretty optimistic we are seeing a bottom. Like i said, it is like anything, you dont want to just blindly going to the asset class, the we do think it makes complete bottomup sense at this level. Jonathan black rocks head of corporate the conversation will continue and looking at the fundamentals of companies with this other people that are not doing that, that the e. M. Score, so to speak. At the mercy of what happened to the rate market and what happened what happens at jackson hole. Also the risk and as you say the tourism may not be able to price in the market. Coming up, durable goods and initial jobless claims. We will break down those numbers as they cross. This is bloomberg. Jonathan this is bloomberg go. We are 25 seconds away from some Economic Data. Down, thecks equities dollar story, not much conviction after lecture days of gains. Yields go nowhere as well. Thissupply coming into market, but the focus ahead of jackson hole, a bit of a distraction because we have Economic Data coming on the wires, now. Who file for initial jobless claims initially falling, week on week and it was below estimates and that is the good news in the job market, we continue to hear this, better employment, weaker inflation. Goods ordersurable for july, luminary readings look huge, 4. 4 , trumping estimates of 1 . June was revised even lower, so what is that, 0 . The front end of the yield curve on treasuries kind of reflects that data we just had, yields of a little bit, but certainly choppy. Positives and negatives and that continues. Stillcapital goods orders up 1. 6 , so affirming what we saw in july. Jonathan the debate continues in the markets. The fed has some officials saying the market is being complacent. A market that says we will take you on. It is called fighting the fed and it think it is captured by stocks go. A battle between the market, the line at the bottom of that chart and the fed, the policymakers with their estimates of where they think rates will be and you see that with the dots. If you fight the fed, you usually when. Over the last you usually win. The market has been conditioned by experience to be right. Does that change . Maki, managing director and chief economist joins us now in stamford, connecticut. Thank you very much for joining us. Phil fight the fed does not make any sense in the rates market because the market has been right and the fed has been wrong. Does that change for you . Dean i think it will change, but not soon. I dont think the fed is likely to raise rates in september. The market saying they will not raise rates, but it is really more of a december issue, the markets putting roughly even odds and i think that is when the fed will ultimately most likely start to raise rates again. Alix it is not only when they raise rates in the shortterm, but the two victories in the longterm and that seems to be where there is consensus. The most recent meeting, i did express my view that i thought it was time to continue the process of normalization and Interest Rates. When a look at where we are with the job market and when i look at inflation and our forecast for that, i think it is time to move. The market continues to be right, but the question is, which had the you fight at the end of the day . Dean Esther George makes a reasonable case. She is not convincing the rest of the fomc at this point. She has been dissenting on and off throughout the year. We have to focus on chair yellen and other central members of the fomc to figure out what the fed is going to do. Jonathan do you remember that thing called Forward Guidance for the Federal Reserve said once at unemployment comes down to a certain point, we will consider a hike in Interest Rates is to mark unemployment at has a where are we now 4. 9 . How much further can unemployment drop without inflation rising at an extension exponential rate. Dean even though i think the Unemployment Rate will continue to drop, it does not mean inflation is suddenly going to search. With the lags in this process, if the fed does let the Unemployment Rate dropped, all the way down to say, 4 , inflation will pick up significantly, but not right away. Alix even Esther George was speaking that it just feels she feels anger and is not know why. Dean there are a lot of things happening with Inflation Expectations, mostly, expectations are a lack function of prior expectations. We had a long period. If inflation does rise over the next couple of years, those expectations are going to rise right back. Jonathan what is the best way to get Inflation Expectations up . Some of these banks used to say rates will stay low for a long time. A conversation that is really starting to Gain Momentum is move the inflation target from two to four. As far as are concerned, without move the dial on Inflation Expectations . Dean it certainly would. In my own view, Inflation Expectations are overrated as a driver of actual inflation. What drives inflation is how much slack there is in the economy and how much pressure on the labor market. I do think that would be driving effective in up Inflation Expectations, just not much different for actual inflation. Said if you hike rates, that will put pressure on the velocity of money in the system, and then move it over, and that winds up bringing up Inflation Expectations. If the fed hiked rates rapidly, i dont think that would cause and nation to suddenly move higher. I dont think it works that way. What drives inflation is, as up,ht of continues to pick that is ultimately what is going to pull inflation higher. Jonathan i want to reconcile your thoughts on the economy with what is happening at. 72 and the conversations you are currently having. Being matched in the Investment Decisions at point 72, right now . Dean i would not want to comment on our Investment Decisions, but what i would say is that when you have a fed on hold, and an economy that continues to perform reasonably well in terms of the labor market deployment, that does tend to be a positive factor for the equity market over time. Alix if we are talking about a lower neutral Interest Rate at the fed, does not imply a Slower Growth rate in the u. S. Over the longer term . Dean it does, and that is one of the things that has been driving that neutral rate down, lower potential growth. When you combine that with the fed on hold, an economy that was not specifically sensitive to the shocks the fed is worried about, that drives equities higher. Jonathan great to have you with us on the program as we look ahead to jackson hole and that muchanticipated speech. We will have special coverage of the jackson hole symposium starting at 8 00 eastern time. Several fed president s will be on bloomberg, on all the platforms. This, dudley up to coming out and suggesting a rate hike. Fisher coming out saying secondhalf growth will pick up. That is where the hawkish potential comes in. This word, complacency and i am wondering who was really being complacent. The market does not listen for a reason, because the market has been right with its forecast for rates. The rate had the fed has been wrong. How do they change that . You can last two weeks, only have so many economists with different views about what is happening on the fed before you realize there is a substantial indication problem. We spent a long time talking about this issue and needs some leadership and need someone to step in and say this is what we are doing. Jonathan 4 alix or is it too much . You limit set targets, is it too much and we are just trading on words that cannot be delivered on. [indiscernible] up, drugmakers taking immediate action to cut the cost of the epipen allergy shot. Alix this is bloomberg go. Tomorrow, special fed coverage and we have interviews with fed officials. Do not miss it. Here is your bloomberg first word news. The death toll is rising from the earthquake that rocked central italy. The government now says at least 241 people were killed. Hundreds more were injured and three mountain towns were leveled. Rescue crews still digging through the rubble to try to find survivors, many of the buildings were built centuries ago and were not reinforced to withstand an earthquake. A government own Nuclear Power company in china pressed american to their consultants to hand over secret documents according to fbi files. General power has been charged in the u. S. With trying to steal nuclear technology. The company said it all of the laws. The u. K. Delayed approval of a Nuclear Power plant because of concerns over china general nuclear symbol. In brazil, the Senate Begins a historic impeachment trial and the outset of the suspended president , accused of illegally financing government spending. She will take the stand, next monday but is not expected to sway enough votes to keep her job. Alix shares of mylan are up, the company said it would take action to cut the cost of its epipen after facing pressure from politicians including Hillary Clinton. Reporter for Bloomberg Health joins us now. This started with in the past year or so, but this has been percolating for a while. The price of epipen has been going up for years, but it looks like they took the fight Decisive Action in the face of mounting political pressure in the last week or so. It is the story we know, that they have recently a monopoly on the market and have had more and more powers to raise prices and with more americans on high deductible plans, more of them are paying outofpocket for these drugs. Alix lay the steps that mylan did do. The reality is, we need to see how that plays out, and the issue is what price people pay,. T comes down to negotiations with insurers there are steps that show goodwill in terms of the efforts to move over and try to change the dialogue in this debate. Jonathan Hillary Clinton straight on twitter, epipen could be the difference between life and death, no justification for these price hikes. From an investor standpoint, hiking prices in the Health Care Industry has been great for the stock, but there must be some investors that thought this decision was out right stupid, two to three months before a massive election and one of the elements of that election and that debate is a run health care and the price of drugs. What is the Investment Community saying about the decision in the wake of mylan . Investors worry about headline risk and they are vulnerable to some of these issues that from a dollar and cents perspective may not line their pockets. Theyre much more concern with these 5 swings in the stock on things that the congressional hearings things like congressional hearings. It affects the entire sector. From a investment perspective, they would like to see some stabilization. They would like the pricing debates to die down. It has for periods of time. Alix do other Drug Companies then follow suit with this sort of thing . Not necessarily. Alix is there pressure for the whole industry . To the extent of this naming and shaming act that congress engages in, mylan is getting dragged before congress, valeant is getting dragged before congress. These things die down and then they come back again and Drug Companies often end up with monopolies on drugs and that is the real issue. Generics are not coming fast enough to keep prices down. In some cases they just arent. Alix do you feel that the drug pricing issue has been one on the table for a long time and nothing has been done about it. Why does that change with a clinton or Trump Presidency . A probably doesnt. The thing a probably doesnt. Its going to be a bit of a perception, about keeping the issue alive and hillary may do that. Trump may do that, but the reality is the way it works is going to come down to maybe more funding for the fda to get more approvals for generics. It is going to be things like that that work in the dynamics. Alix you have mylan coming out and saying they will take 300 of the subsidies, themselves and cut prices by 50 , how does that secret to their bottom line . Epipen is a huge product for them, really there only big branded product so for them, it will be an issue from a profit perspective, but they have bought metta, there and inquisitive company, trying to do other things in order to base, and they had to know that epipen will come at some point. I think for them, they have a lot of other levers they will try to focus on that they are not so heavily dependent on epipen. That has been the goal for them. Alix a fascinating story that unfolded within five days. Thank you so much for joining us. Jonathan breaking news across the wire. Saudi arabia raising more than 10 billion and a bond sale. In a bond sale. Back in may, and the book was full and the rates were low and the question was when will saudi given get into the action where oil had been trading, and the other question that was asked is getting in there early, because when came out, there was a lot of demand. Key point, didhe it take away some of the demand or will the search for highyield continue that demand . Jonathan this according to people with knowledge of the matter. Saudi arabia set the target the first dollar bond after reduction dollar bond offering after the fed meeting. Up, telling us about Consumer Sentiment in the u. K. Following their departure from the eu. We will tell you, and the battle of the charts. Jonathan this is bloomberg. Breaking news, saudi arabia going to tap the bond market and the target is first dollar bond market after the Federal Reserve meeting according to people with knowledge of the matter. The government could raise more than 10 billion in the sale. That the first time this year we have seen a big bond issue come out of the middle east. Castor came out the 9 million bond sale, but the important thing is that cutter was set to be targeting 5 billion, and of a raise 9 billion because the demand was so big and the rates were so low. The question we have been asking, where was saudi arabia and what does this mean for the saudis money eventually came to tap the bond market . Alix one of the worries when cutter came out is that sir perhaps that states you did all the demand may have been for these big middle eastern sovereigns coming to the market, but then of course we had the reversal were all the Central Banks continued to ease and that search for your continued, that need to go somewhere else to get that return continues, you could potentially argue. Jonathan saudi arabias finance ministry the kind to comment, but the timing subject to change depending on Market Conditions and a think Market Conditions will be somewhat defined by what happens after the Federal Reserve meeting. We will have more on this story, later on. Alix steel up against Caroline Hyde in berlin. I am in berlin, talking about boones post brexit because after the brexit result, we saw Consumer Sentiment lunge, this is what is being shown on the blue light on my screen, what picked up, fine wines. This is your benchmark for fine wines and it had its best month in july since november 2010. Why are people drowning their sorrows as Consumer Sentiment plunges . Investors making whileile the sun shines, the pound is low. This is about foreign buyers coming in and buying up some of the best autos in the region. U. K. Sentiment is full of it, starting to dry up, we are now shifting attention toward the new autos. This is a positive virtuous circle, yes the pound weakness helps, but that is driving the u. S. And asia to reassess what they can be buying right now in terms of fine wine and getting into autos and Asset Classes. Alix hard assets, that is your ultimate fine line. Im looking at the fx market and the carry trade, hugo barra in low yield and currencies and this is the carry trade Performance Index and you can see it hit a high early in august for late july of this year, but this carry trade index performance is down by about 2 , and this is where all that Political Risk in the fx market comes into play. Karen carry trade was one of the best returning carry trade this year, but due to the political turmoil, that return has now have to about 5 . Pickup, asvolatility you see it exposed to geoPolitical Risk as well, that poses an issue for the yield differential that makes the carry trade so hot and we talked about this a lot, if you have a lot investors coming into e. M. , not able to price the risk appropriately, you can get burned because there are factors that you can model cant model unless you can see in the weeks. Jonathan im going to get some achieved for this. Brexit and booze. Caroline hyde gets the vote. Alix steel will be so happy with david westin comes back. Coming up next, more on that breaking news as saudi arabia gets ready to tap the bond market. We will bring you the details, plus jpmorgan Asset Management chief Investment Officer joins us. The flattest yield curve since 2008, two sources 30s two versus 30s. We count you down to the janet yellen speech. 24 minutes away from the cash open. After three days of gains in europe, shaping up for a day of losses. Alix we are 30 minutes from the opening bell in new york. This is bloomberg. Happy thursday. David westin is on vacation. 25 hours. The countdown continues. Jonathan 30 minutes away from the market open. There is some decent data out of the u. S. You see that. Yields are starting to rise about 2. 4 basis points. The market is still lacking conviction for a trade on the outside or the downside. We wait tomorrow potentially for that. Alix europe is waiting for tomorrow as well when we hear from janet yellen. In commodities, the same kind of story. We have a little bit of softness, but no big positions, no big risks being taken on. 25 hours to go. If you dont get that opec deal on the back of the opec dooor, you will get a move back door, you will get a move back. Alix we have some individual movers in the market we want to highlight for you. Kicking it off with mylan. This Company Coming in, cutting 50 . Rice by it will have subsidies and put forth epipens. It got a lot of heat from politicians in congress and democratic president ial candidate Hillary Clinton. Also taking a look at some of the retail space. All having a different story. Tiffanys, you had better revenue with a slight miss. Store sales were up by 9 . Signet was a different story. Samestore sales were down 2. 3 . It cut its fullyear guidance as well. Movado group, segment of story. You had revenue and earnings of a miss. Overall, the fine jewelry sector missing. Now for a look at what is happening in other markets, abigail and mark. Staying with the retail theme, dollar tree. You are looking at that. Abigail we are. It is something after it missed secondquarter earnings and steals estimates. They missed on samestore sales. Gross Margin Expansion looked good. She will not by the possibility that is a retail weak environment behind is considering the walmart result. Trending higher, netflix. Ralph shakur is citing a millennial opportunity. A survey suggests the millennial generation is more likely to pay for netflix content. The 2020 since her base has a potential value of 145 per share. Netflix could climb more than 90 from here. Pretty bold call. Alix indeed. Abigail joining us from the nasdaq. Mark is joining us in london. You have some softness ahead of the fed, but also the german confidence market weight on the european stocks. Mark you said. Every single Industry Group on the stoxx 600 is falling today after the biggest threeday rally. All of them down. Sincee not fallen 1 august 2. , the result of a culmination of our holders and that was delez of belgium. Secondhalf profit will be boosted. Reductions improved profitability. 500 thousand stores that 6 stores worldwide. Lets get it on. In my household, if you want to shut up the kids, you stick them in front of pepper pig. From noisy to quiet in two seconds. It is astonishing. Is walking away from buying the company that owns the cartoon character. The company was unwilling to engage in talks. We had the Canadian Companies say the bid was too low. It did suggest it would be open to a higher one. Pv walking away from the ig. German Business Confidence the lowest in six months. They are still weighing the consequences of brexit on their fortunes. This,k. , i know you know is germanys third biggest export market. Brexit matters. Not hear a word after you set how to shut up the kids. Thank you so much. Alix elmo. Jonathan some tips. Alrgight. Lets get to the fed debate. Could helicopter money beheaded for japan . It is likely coming sooner than people expect. Engage inll helicopter money with great care and great reluctance. If they do it to carefully, it will not have the desired effect. This is the dilemma they are facing. Jonathan that is the investor heavyweight mark mobius. Markets reporters, great to have you with us on the program. , brought it up with tom king the essay in 1969 friedman, the optimal quantity of money, drop caps on the village, and what happens . Here we are in 2016. Are we debating this theory become practice . I guess we are. You heard marks comments. At the last meeting, they said they were undergoing a major policy review, so we are waiting to what comes out of that will what does that mean . It is a good question because the bank of japan is front and center in Global Markets right now. The dollar store is a big one the dollar story is a big one. You are hearing all these interesting things like helicopter lettin money, explodg atms. Not clear if there is much scope for that in 2016. Alix helicopter money from japan, but also ecuador. The normalization of rates in the u. S. The most recent meeting, i did express my view that it was time to continue the process of normalization of Interest Rates. When i look at where we are with the job market, when i look at inflation, and i forecast for that, i think it is time to move. Alix oliver come into your home, that is a perfect example. You have helicopter talks in japan and a hike in the u. S. Oliver i was just about to say that. You could not be on two opposite ends of the spectrum there. If we had that discussion here, but again, there is obviously a big discrepancy between what is happening stateside in the u. S. And what is happening around the world. Even though we are pretty easy, we are talking about interestrate hikes. That is all anybody is focusing on this week. For markets, given the low volatility we have seen and how there have been temporary bullish positions, if there is some kind of surprised, which is not withlly janet yellen, otherwise, you are sitting and waiting to see if there is a move to jolt markets. Fighting the fed, now we bring up the divergence again. That is not captured by dollar yen, is it . The idea they got into helicopter money and the fed will hike rates soon. With all due respect to mr. Mark mobius, this time is different. 1969 was an inflationary environment. This is a deflationary environment. The fed in the deflationary environment controls the money. There is no demand. All of the helicopter money in the world will most likely accomplish a weaker yen, but to what extent . I dont think it will be that extreme. Alix moving from the conversation to the japan and u. S. , continued talks about lower Inflation Expectations unable to be reentered even though inflation may be picking up. Matthew it is amazing how wiseman this view is even among the most hawkish that they see a lot of inflation coming there is not much chance the economy will overeat, so it doesnt sound ofe people on the other end the spectrum, the same thing on the inflation front. I find that fascinating. Alix 25 hours for janet yellen. ,ming up on bloomberg tomorrow, for coverage of the jackson hole beginning at 8 00 eastern followed by interviews with robert kaplan, dennis lockhart. Do not miss it. That is tomorrow. Jonathan dont miss that tomorrow. Coming up next, much more on a story that broke a couple minutes ago. After theia gets set next Federal Reserve meeting. We will go to dubai. That is coming up next. This is bloomberg. Jonathan lets get to that breaking news we had a few minutes ago. Saudi arabia is set to target its first dollar on offering after a september meeting. Joining us now is Matthew Martin, bloombergs middle east reporter from dubai. Bloomberg getting hold of this story. Tell us what we have learned. Matthew what we are hearing from sources close to the saudi bond issue is that the government will not be coming out until after the fed meeting on september 21. Move to likely to see a the end of september, and in the beginning of october, we will see them try to finalize the terms of the pricing within the coupl first couple weeks of october. 10 million or north of that depending on investor appetite. You raise a good point. Still seeing that kind of appetite from investors you guys speak to in the middle east . Design appetite still there is that an appetite still there . Matthew this will be a real test because we have not had a lot of activity here. It will only be in the next couple weeks whether we see that is still there. Especially with saudi arabia a very challenged story with the Oil Price Environment and a conference of Economic Reform Program going on. It will be a test of investor appetite to see whether they are ready to put 10 million or more in there. Thatll have to see how story unfolds in the coming weeks, but it is a large pipeline of issuance building up in the middle east now. A whole host of corpus are looking to raise money to fill the funding gap that has come from weaker oil price . Jonathan Matthew Martin from dubai. Thank you very much for joining us. Lets bring in bottle michele bob michele. Your First Impressions . Bob it is one of the smartest things i heard of in a wild. If you think about the economic reform matthew talked about, part of the problem over the summer was oil at 30 was that the saudis were pushing oil down and trying to make it on volume and squeeze out other producers. I think it is very clever. I think it will be a huge hit. Alix in terms of timing, no rate hike in september basically . Bob i think that is what they are saying. You have to look at the unofficial opec meeting at the end of september in on syria. That is also critical timing in algeria. That is also critical timing. Oil is not down where it was at 30. Jonathan people right now, whether there is more interest for them to talk up a deal and get crude up at a decent spread. The 30 year pay, 210 basis point spread over the equivalent of the treasury. What kind of spreads can we see right now and what kind of pricing can we get from this offering . Bob i think it will be something similar. It depends what term structure they are looking at. With a look at 10 year or 30 year . For me, 10 year is more of a sweet spot. They will have a more diversified investor base. Alix part of the conversation offering inhe huge that they would not need it saudi arabias of the world to come in. Bob not true at all. A number of Central Banks ramped on ae size of their qe rolling three month period on happy trillion dollars is being printed in cash and buying bonds. That is the dynamic in the market and helping drive this funder for yield. Jonathan lets get to a chart a lot of people are looking at. It is the two versus the 30 spread. It is typed. Tight. 148 basis points to be precise. Lets bring that into the divine middle east saudi arabia story. The demands for the long end of the curve, will we see that story . Can you be quick those two things . Bob the flattening of the curve, theres just so many different components. Initially, it was the feds march to normalize rates. Where would the curve flat around . That is still part of it. The fed is committed to raising rates, whether it happens this month or over the next decade, they are still talking about it, but the more interesting dynamic is the buyers that have come into the long and. End. I sit here and wonder with the John Williams paper or the neutral funds rate is at zero. Should it be negative . I think that can be an avalanche by Pension Funds in the u. S. And out of asia looking for you because it may not be there for much longer. Alix which brings up the question of market. Duration risk versus actual risk, right . If you go down the risk scale and moved to saudi arabia or the qatar bond offering, are you taking on risks that investors are necessarily equipped to handle . Bob of course you are. As soon as you are leaving 10 year bonds at 20 basis points and going into credit or further out the yield curve, you are bringing in some component of risk. I think that is the side effect of all of these unconventional policy tool its. Is pushing people to take more and more risks. You are choosing the mechanism and agree which they do it, but as long as the money printing continues, you are going to see the reach for yield. Alix great conversation. Stay with us. Ng up, oil enable market in a bull market. One investors seized 25. We will explain, next. This is bloomberg. Ix this is Bloomberg Oil trade near its lowest levels in a week yet u. S. Stockpiles rising unexpectedly. However, we have a call from simon greenfield. Oil 25, 20 six dollar 26 dollar oil. Really . Bob i dont think so. There was some view that there was an acceptance within opec of 30, more or less as a floor. 40. Seems to have moved to they are coming out verbally talking about production freezes. There is talk about russia joining them on production freezes. Oil can drop from here instead of land at 42 or 43, and it will not go much lower. Jonathan here is a question for you. If they havent interest in crude, do they have an interest more in doing that at a potentially 10 billion bond offering . That is a question for you. Bob of course, if their fundamental operating platform is better, they will get on saudi titers spread. The a tighter spread. I think they need to push in about 50 at this point in time because the last time we got it about 50 a couple months ago, we saw it start to come back online in the u. S. , so that seems to be the sweet spot. Alix what about volatility . You can imagine saudi arabia not liking a 10 move in oil and over a few days. They may not like a bull market in three weeks. What do you think . Bob i am also sure. It looks to us like the adrenaline is out of the Energy Markets now. We had the massive plunge, some recovery. You have supply coming more in line with demand. Not only has supply come off because of the decline in the u. S. , but the man has held pretty steady and crept up a bit. There is a balance. Below 30 a barrel oil was yesterdays story, not tomorrows. Very exposedties to the dollar, macro events, and how do you hedge that risk . Part of the reason we saw the oil law was because of the dollar. Jonathan inflation is crucial with what happens with rates. Crude lower last year and treasure yields moved with. Have we seen a breakdown of that relationship and how those two worlds collide . Bob i think there is some effect going on. You touch on an interesting point about the fed. Nextckson hole in the meeting, the fed looks a little messy to us. That has created a line of confusion in the markets. You can look at emerging markets effect, which should be doing well that have come off a bit. I think there is an uncertainty about what the fed will do regardless of what the market expectation is earlier this year, they were talking about focusing on the data, growth and inflation. That looks good. Then they shifted. That was pretty good. In the last minute, they talked about brexit and international. Those look at. What are we talking about now . Economic theory. Jonathan yes we are. Bob and the potential for a zero or negative real funds. Jonathan the here and now versus somewhere in the distance. Forget about the here and now. It more withabout bob michele. He will be sticking with us. The opening bell next. Futures a little bit softer down 37 point. Equities lower in europe. Switch off the board quickly. Yields a little higher up to basis points two basis points. This is bloomberg. Jonathan from new york, this is bloomberg. Lets get you up to speed on Global Markets. 20 seconds away from the open. 6 on the s p 500. The dax down by one full percentage point. German Business Confidence coming in at a six month low. Solid data. Yields are higher up at one basis point to 1. 57 . It is a direct and less fx market. 24 hours to go in 30 minutes ahead of the Janet Yellens speech. Dollar yen trade stable and going nowhere. Euro slightly stronger, but certainly really not much action across assets in the market at the moment. 25 seconds in. Alix not a lot of price action. We are seeing a little bit of downside headed to janet yellen tomorrow. You have the weakness in europe that is spreading to the u. S. You dont want to take in a lot of risk in the next 25 hours. We have earnings out. The futures market, the s p, you can see what happened. We got earnings coming out here. That lowered the s p. Continuing that weakness, lets look at where were some of the weaknesses when it came to earnings. Tiffany was a hit and miss. You have some good and bad. Earnings were better, but you did have a sales slump. They have a lot of exposure to fx and japan as well. The big story in the market is mylan. That Company Moving higher because it is going to cut its and giveing by 50 300 of subsidies to why the drug. It has really gotten hit the last few days is increased pricing over 400 in the last nine years. It has taken down a lot of other drugmakers as well, by now getting a little bit of a relief rally here. There is a lot of pressure from congress and Hillary Clinton. Of allergan and perrigo, the issue is will it spent to them as well . The epipen is very specific so it may not have the same boost. You have weakness, some earnings issues, a couple highlights, but nonetheless, a weaker feeling across the board. Jonathan you have low yields, and big question is where to invest . The s p 500s representative the biggest income opportunities. The s p 500 compared with the 10 year treasury yield. That spread has started to tighten a little bit. Last week, we caught up with the cio of ait, and he told us a lot of risk, not much reward. Take a listen. World thein todays problem that there is a lot of risk but not a lot of reward, so do you want to stretch to take risk when you are not getting appropriate compensation for that risk . That is the issue at hand. Jonathan bob michele still with us. Lots of risk, not much reward. You look at the spread versus sovereign debt versus equity, and you say the spread looks good, i want some of that. You look at the risk, i like my coupon. It is guaranteed, and i know it is safe. I am not sure about my dividends yield. Where do you will in on that debate right now . Bob it eventually ample to icing from the Central Banks. If you look at the movie to heal oriented equities, it always spikes at the time that banks cut rates for the to negative territory, expand the size of asset purchases, diversified what they are buying. It creates that search. Surge. Valuations have served it so much, you are seeing a shift toward valueoriented equities and more growth oriented equities, and that is likely to see a centrals we bank revert back to pulling the policy levers again and provoke investors to go after dividend yielding. It seems to us like those investors are going for the value now, and they will take their yield in the fixed income markets because that is where the money printing is buying assets on an ongoing basis. Alix i will go the cyclical route and go the safer and longterm duration route. Is that what you see . Bob it feels that way to us. It feels from a cyclical perspective, there is not much out there that will drive yields a lot higher. Hopefully the Central Banks just you dont seend an increase in these unconventional tools. What we have seen without over the last couple of months is stability, low volatility, and assets doing generally very well. Jonathan corporate credit, looking at what has happened in investment at the moment, we have seen the demand matched with the issuance. Is that starting to be a problem . Bob you could be in september it could be in september. Right now, does not a lot of supply or demand. It is the summer. In september, our estimates will be 120 billion of new issuance after labor day. That will be a lot for the market to take down. You start throwing in the saudi issue and it starts to pile up quite a bit. That creates some opportunities. If you are to keep some money to the side and wait and see the impact on the market, that should maybe be your opportunity to buy a slightly wider spread. The risk of that is that these pullbacks are very limited because there is this massive pool of money looking to come into the market. Alix the other aspect of the market we have seen is a lot new loans be issued does not give a lot of help to the creditor. Loans go belly up, theyll have a lot of recourse to get that money back. With the searchmedia outcome is there an inherent risk that will definitely unravel at some point . Bob bob youll see a lot more differentiation, and i think where we saw it first was in the highyield markets. If you looked at what the energy issue worth it over the last year, visavis the rest of the highyield market, you have this modification come so many investors looked at highyield. You will see the same thing in the loan market. Those that come late will trade cheaper than those that have covenant restrictions. That is the environment we are in. Alix that means investors are differentiating the good Risky Companies and the really bad whiskey companies. Something we do not see eye while ago. Is that true . Bob you get some of that in. Periods like the last couple months, but the reality is with sponsors still having not fully d, there is that pool of money that has to come into the market. Things are only going to get so line before the lookout onlin and they will find a pool of buyers and come back in. That is what we have seen the last years. Jonathan when i want to talk about is what i talked about earlier. Two versus 30. We talked about it being a flatter shield curve since 2008. Do i play this or continue to play the flattener . Bob that is the question of the moment because everything going into jackson hole is selling us they will be dovish telling dovish, theyre going to talk about higher inflation targeting, which means lower real yields, and those dots in the long and will come 2. 25. Rom 3. 25 to maybe all of that should yield into a steeper yield curve but because you have is will buyers looking derisk, risk to is that if they hear that 3. 25 is not realistic and it will be a struggle for the fed to get to 2 , looking out into the long end of the market and buying at r or present looks good over 4 looks good. Jonathan correctly if i am wrong, but the consensus i am gauging is to play the stupide steepener. Can we go a whole lot flatter from here . Bob i think we are going a whole lot flatter. Jonathan what is that . Give me a number. Bob i think we are going through 100. When you look at what the fed is telling us, those dots are moving to where the market has been telling them they should be. If you look at fed funds futures five years out. The market expects the dots to be 175 basis points lower than when the fed is telling us, and a fat sounds to us like the fed sounds to us like we will begin a journey to the market, which will then tell everyone to buy the highend of derisk,et and th they will not get them. Jonathan the you know how much you may on a 30 year this year . 20 . What is the upside . That is one of the best plays out there is still in a fixed income market . Long treasuries . 150 basis we are at points and we are coming down another 50, youre talking about another 10 total return on top of that. You look at some of the 30 year issuance, and you will pick up some mental yield and perhaps some sprint narrowing. That is the reality. When you read John Williamss paper, that is what he is telling us about living in a lowinflation world. Alix bob michele thank you very much. We get below 100, panic. And a curve inverted when it goes that low . Is that reality . Jonathan 10 still on a threeyear. Alix coming up, a bloombergs elusive. Uber is going on coming with a cost. Details, next. This is bloomberg. Jonathan this is bloomberg. , that up on the program and what you missed. Alix this is bloomberg. Softness in u. S. Equity markets. Now turning negative for august. Now you have been fixed climbing for four days. That is the longest we have seen it in weeks. So dow is off by 1 10 of 1 we are having some softness, but not a lot of volume, not a lot of movement into now 24 hours until janet yellen speaks at jackson hole. Abigail we are looking at a bit of a soft open for the nasdaq. After a total of 8 10 of 1 , it is unlikely we will be watching the nasdaq make any new record highs today, but the day is young, so lets see. As for movers, we have a huge mover on the open. This is a company that makes plastic wrappings. Company is buying them for 765 million. Aep is having its best day in 30 years, hitting a record high. Turning to a more established nasdaq name, amgen shares are down six cents of 1 . They feel to win approval for the companys chronic kidney disease. You think this will be negative, but the street seems to be giving them a pass. It is not a huge part of valuation, one says. Another says this can be offset by possible acquisitions. Jonathan thank you very much. Another stop were looking a at is mylan. It is cutting the cost of its epipen. Reporter joins us now from washington. The volume got turned up, the company back down. How embarrassing is this . It does not look good. They had a rough time. Are one of many drugmakers recently who came under fire for raising drug prices so high that a lot of people cannot afford them. They reacted fairly quickly compared to some of the others assistance ined trying to afford high prices for the treatment. Epipen. P jonathan the acting quickly, but they reacted to some people very stupidly and did not taken mind the reaction. Why did some of this get lost, and what are investors saying about the last for hours as a serious error of judgment . Mylan initially raised these prices and has been raising them on at a pen ep ipen for several years, a 400 increase. In a lot of drugmakers have gotten away with this. Senator,eo is a u. S. And there are a lot of senators who are upset about this price hike. Investors are saying that they were a little bit afraid mylan may take a hit as far as the profitability of the epipen so mylan not be getting as much revenue, but ultimately, none that i talked to thought it would be irreparably harmed. Jonathan for the company, will they have to make this up on their Balance Sheet somewhere . Anna that is a possibility. They have not said exactly where they are going to make this up, and we dont know how big of a hint this will be. In is not like they are slashing the price tag. From what we see, they will help patients afford this drug. You still have insurers and the federal government it will be paying the full price that mylan asked from them. Jonathan great to have you on the program. Up 3. 5 after dropping 5. 4 yesterday. Alix to the other big Company Story of the day, Bloomberg News has learned uber is said to have lost one . 2 billion for the first half of the year after turning a profit in the u. S. During the first quarter. For more on the story, we are joined now by max. Uber has lost so much money. We are in uncharted territory. Even if you look back at the biggest excesses of the. Com bubble, amazon lost 1 billion in a year. Uber will surpass that this year. Uber has been spending hugely on driver subsidies in the u. S. , but mostly overseas. His theynews for uber, just make a deal with the largest competitor in china that will allow them to exit the market. Familiar with their finances are telling us in the second half of the year, we are not going to see the losses on ubers financials. Alix uber commands and he certainly high valuation in the market. How has the market been justified when the company is bleeding that cash . Market share. Uber has 85 of the u. S. Market. People think this is a big industry. Uber may be losing huge amounts of money, but it is going really fast. Bookings were up to 5 billion in the most recent quarter. 1 billion in revenue. Huge growth, but huge expenses. When you take uber in a big city and you wonder why it is so cheap, the reason it is so cheap is on the other side of it uber is spending a lot of money to the driver to incentivize them to take that fare. Alix to your point, bookings grew from 3. 8 to more than that 3. 8 billion to more than 5 billion in a quarter. Huge. Does this affect their plans to go public . They are kind of almost a Public Company now, right . We are talking about a quarterly finances as if they are public. Likee reporting they have 8 billion in cash that they are is nog on so there worries i would not expect it in the next couple quotas, but that is the direction they are moving. Alix thanks so much. Great insight. Volume versus price at the end of the day. Jonathan price action, we have had that conversation. Stocks coming in by about a 10th of 1 . We continue the conversation on bloomberg markets. What is coming up . Cioie legalistic with the of global credit. He is saying he expects waves to continue and he prefers Interest Rate risk or rather select credit risk over Interest Rate risk in spite of what the fed may or may not do in september. We will speak with morgan stanley. The space trade maybe a little bit in trouble if we see a september 8 hike all ahead of the jackson hole. Janet yellen speaks tomorrow at 10 00 a. M. , and then we have an exclusive interview in the 11 00 hour. That is all i can say. Jonathan thank you very much. Looking forward to the program. Coming up tomorrow on bloomberg , full coverage of the jackson hole economic symposium beginning at 8 00 a. M. Eastern. At 9 00 a. M. Rt eastern time. Earlier today, we spoke with Esther George, who is hosting the jackson hole symposium. Comments from her, next. In the markets, stocks a little softer, and crude starting a turnaround. 4 10 of 1 positive. In new york for our viewers worldwide, this is bloomberg. Alix welcome back to bloomberg. Coming today at 1 00 p. M. , u. S. Will sell 20 billion worth of sevenyear notes. What thent to see indirect bidder demand will be. Asked her george will be speaking at the jackson hole conference, kicking things off. Jonathan the options in focused. And lookingt demand ahead to Esther George, we caught up with her and little earlier. Take a listen. I think we are going through a period where it has been more difficult to explain what is pressing down on inflation. I think the Oil Price Shock that we had, the strong dollar, a number of things have influenced that. Whether that is a permanent state, i am not ready to say because it looks like longerterm Inflation Expectations have been anchored. Jonathan that was Esther George, who is hosting the jackson hole symposium. Not a shocker that she wants to hike rates. She has said that in the past and has been forthright about it. Where is she on the f1 see in the spectrum of doves . Offshore. Omparative saying we need to present, the percent, or percent. Alix this is the dynamic playing and why it is hard to get price action. What are we going to raise for the next time . The longer end, everyone seems to be on the same page. The Interest Rate will have to come down. A projection of 3 , how much more will it have to be . Will we see it soon. Soon . Jonathan so many headlines in the last week talking about the longterm rate and how it will come lower. The question is, is that flawed . Is it echoed or respected . I think the market is looking for real leadership. The debate is going on at the fed, but we want to know what the Federal Reserve thinks and where she will try to lead the committee. Alix the back half of the year growth picking up, while you see a longer neutral growth and then grunt picking up. That is my confusion. Jonathan that is the big debate. Finally, tomorrow it is coming up. 24 hours and four minutes away, the fed chairs speech. 26 minutes into the session, stocks are a little softer. Our coverage begins tomorrow. From new york for bloomberg , good morning to you. This is bloomberg. York, it is 10 00 in new three 00 in hong kong. Im vonnie quinn. Mark im mark barton. This is bloomberg markets. Vonnie we go from chicago to moscow and cover stories out of washington and berlin. Kansas city fed president ester says it is time to move again on rates. She says with the u. S. Labor market nearing full employment and inflation on the rise, we should be on a path toward normalization. Pimco gives a bloomberg a first look at it new global credit report. Marc gasol will tell us how investors can still sick returns of 3 to 6 in the credit markets despite unconventional centralbank policy. Find out where you should put your money. After touting profitability in the u. S. Earlier this year, uber it