Pushback. Jay has been critical of governor carnie and his campaigning ahead of the bricks referendum. Brexit referendum. David he thought he had his thumb on the scale a little bit. And the possess schism coming ut of the f. C. S. Fx market. David love it when bears capitulate. And we will talk about the feds next move with Mohamed Elerian. He will join us in just a moment. But first, john, youre taking a look at those markets. Jonathan i am, thank you very much. Lets get straight to it. In the equity market, the ftse 100, a touch firmer at 1 . Futures coming back a little bit. In the last 24 hours, the real story has been in the fx market. Its been a story of dollar softness and sterling strength. Five Straight Days of sterling strength. We come back with a touch with a cable rate. Coming in about. 4 of 1 . The move yesterday in the bond market, fascinating. Across the treasury curve, yields come in at the front end specifically. 734 . Down from 80 to weve had u. S. Manufacturing in contraction. U. S. Service necessary weakest growth since 2010 and a disappointing payroll report as well. And yields start to come in. But were going to build up more momentum to the world of central bank. Now with the bank of england in focus today. And an e. C. B. Decision tomorrow as well. David bank of japan is always waiting. Lets check in with our Bloomberg Team for indepth coverage of our top stories. Simon kennedy previews mark carneys speech. Mike mckee on a fed official painting an upbeat picture of the u. S. Economy. And Stephen Morris in london on a bloomberg exclusive. The u. S. Is said to be investigating a criminal charge against hsbc. Jonathan simon from london on governor carnies appearance before the Committee Later today. What are we expecting from this, simon . If we say hindsight is a beautiful thing. Were now expecting him to expect whether hes done too much too soon. What is his response . Were going to see some fireworks during the campaign. If not taking sides, then painting a pretty dark picture. They did vote to leave. And now a few months on, it will e his first time in front of the parliament. The case they will make, perhaps, is that he opted to aggressively and prematurely went on unleashing stimulus last month. The case he will make in return is that its still early days and the stimulus itself has helped deliver some of the upbeat Economic Sentiment weve een. House prices as well. Jonathan governor carnie, not the only person making an appearance today. You can see the Prime Minister is making on parliament. And the accusation against was that she took a bit of a beating from china. How is that story playing out in the United Kingdom and how is it shaping out the debate around the brexit and when will they pull the trigger on article 15 . They are coming under pressure both to stop flushing out details of what she means when she says brexit means brexit. Shes under domestic pressure as well from opposition lawmakers too. We saw a bit of a clash yesterday between her office and that of david davis, the brexit negotiator in just how aggressive the brexit will be of a single market. So clarity is what is sought and weve heard various bank groups this morning, a lot of bankers are visiting with the chancellor to make the case that there needs to be claire touchdown what the u. K. Is seek on these negotiations and sued. We have the shock of the referendum. We have the summer off. And now its back to school and answers have been sought from juries made about strategy. Jonathan back to school for governor carnie as well. Simon kennedy from london. Later on this program, full coverage of governor carnies testimony before the u. K. Treasury select committee. That comes at 9 15 eastern, 2 15 u. K. Time. David in the meantime back here in the United States, were hearing from a raft of fed president s this week. The first one late yesterday and joining us is mike mckee. Hes Bloomberg Economics editor and we think of him as the fed whis rer. What did we hear last night . They are talking that book. Last night, San Franciscos john williams, hes not a voter this year but a respected voice on the policy committee. Said he still has an open mind going into the meeting. Heres the key quote from him. The American Economy is finally back in good shape and headed in the right direction inflation is moving up so much it makes sense for the fed to gradually move Interest Rates. The Market Reaction this morning . Nah. Twoyear note yield is lower. Futures markets are pricing in at a 25 chance that the fed will do something on september 21. And heres why. The big three of data so far this month, jobs. The manufacturing i. S. M. Number and the nonmanufacturing services indicator all rolling over this month. It is a hard to adjust sort of weird month, august is, but we really dont know if it means the economy is tanking or were going into a slowdown. But it does suggest that the markets are not going to be listening very much to fed speak this week. David its a little hard to square those numbers with what we heard yesterday. But should we particularly Pay Attention to something he said which is as i understand besides the data, he wants to listen to the other fed president s to hear what they have to and say hes particularly close to janet yellen, if the he . He. And she said the same thing he said last night back in jackson hole that were moving closer to that. Weve got six more fed speakers. If he comes out and favor, maybe he will convince people. But right now, the numbers dont look very good. David thats mike mckee. Thanks so much for being here. Thats one down, four to go, john. Jonathan i wonder whether we get any descent from these guys. Theyve all voiced their opinions. Have an official dissent if you believe they should hike and that hasnt happened very much for the fed charean net yellen. To o lets get steven, give us a backdrop to the story and walk us through it. And let me know what hsbcs response has been towards all of this as well. Hi, jonathan. So back in 2012, hsbc entered into a deferred prosecution agreement with the u. S. Government after it was found to have among other things, help the Mexican Drug Cartel launder money to do its business out there. It paid a 1. 9 billion fine but it wasnt formerly prosecuted and wasnt given a criminal record about it. Then this year, one of their currency traders, a guy called mark johnson was arrested and take sfwoon the u. S. For allegedly trying to bilge a client out of a transaction transaction. And they say are looking to see if hsbc has cleaned up its act as it promised to from 2012 and if it had deemed to breach the terms it could be prosecuted for both the crimes committed back then as well as the Foreign Exchanges transactions which have come to light this year. This is a very serious issue for one of the worlds biggest banks. Jonathan i just wonder what investors are thinking because the stock is down to about. 1 . No drama if you were looking at the equity market. What the investors saying about the latest legal wrangle over hsbc . It was a bit of a surprise that the shares didnt take more of a hit today because of the potential seriousness of it but perhaps the market is going to wait and see how much farther the stocks will go. But this is just another bad thing to be out there in the narrative about hsbc. It wants to move past this misconduct problem and become a boring bank again. Jonathan the world wants boring banks. Stephen morris, thank you for reporting in london. Futures are a little bit soft. Equities positive. A lot of movers to get to. S go to julie high man hyman. Julie the expectations are very, very low according to analysts for the new apple iphone. Some say there is potential for some upside surprise if there are anything we dont know about. It is widely view that this will just be small incrementle changes that will be made. They will announce at 10 00 a. M. San francisco time. And the new iphone is expected to go on sale september 16. More movement this morning is happening in chipotle chairs and thats because this is bill ackmans latest target. He is taking a 9. 9 stake in the company and his firm says its going to discuss ways to revamp the companys cost structure and strategy. This could reignite effort to shake up the nine person boarded the company after the food safety issues that have playinged the shares and the sales. This year up to 58. 5 . The airlines here over in europe. Four of them downgraded over Deutsche Bank on a weak assistor outlook. Its stubbornly high. Demand risks are waited to the downside. So easy jet which is not moving. And ryan air downgraded to buy live hansa and air france. And you see those two are the worst performance among those four. Jonathan thank you very much. Coming up on the program, a recipe for fed in action. The weakest pace in six years. Federate baits. They flied. Ohamed elerian joins us next. With futures stable, this is bloomberg. Jonathan this is bloomberg from new york city. Recent data releases are painting a less than an upbeat picture on u. S. Economy. We saw u. S. Service industry expanded their weakest pace in six years. And manufacturing, apparently is contracting. Do all of these add for a recipe in action . Mohamed elerian joins us now. Mike tomlin, you know the are berg mike tomlin, you in the low 20s for the september meeting . Mohamed i think this is a really tricky situation. I would put it higher than the 20s. Jonathan why are we sliding . Has the fed lost the handle on the markets . I think this question is really important. The data is soft but its not ugly. The fed is saying we might do something because the market is watch the data because it was told to. Mohamed two factors. One, the market has been conditioned to believe the fed is data dependent. So when it sees weak data, we readjust. Secondly, these moves cant be readjustfied. And liquidity. You see these sharp moves in response to incremental data that shouldnt have such an impact. David is the fed losing some of is out clout in terms of influencing the market . And not only the fed, the bank of england, the e. C. B. Are they really being listened to the way it used on . Used to be . Mohamed its less effective. But within that, theres a huge variation. One is the bank of japan and or the is the fed. Its effective but not as effective as it was before. And you put the bank of england and the e. C. B. In between. Jonathan how so and does that change . Mohamed so how so . It takes Interest Rates negative and it sees the currency appreciate as opposed to depreciate. Why . Because its starting to trigger the actions of individuals and companies. And that tends to happen at extremes. So negative Interest Rate, they encourage savings. You get the counterinterview reaction but youve gone too far on policies. Jonathan so this doesnt have to just apply for the bank of japan. A low Interest Rate, the problem now, are no longer the conclusion does there need to be a rethink on the effectiveness of low rates in this environment . Mohamed yes. Ultra low rates and negative rates are becoming part of the problem. And in some countries, they are a problem already, like japan and europe. As to whats needed, lets focus on Central Banks and much more focused on the broader set of policies. Jonathan can you imagine that, david . Lets focus on central bank. Youre killing us. David thats exactly right. Go back to what jonathan put over the chart. Put together with the fed. Are the two connected . What the central bank is putting their asset prices up. Getting the economy going has not been shown. Are they really designed to stimulate economies . Mohamed no facing structural headwinds and theyre not designed to compensate. They can buy time. They can borrow, and i stress the word borrow, returns and growth from the future, hoping that you can pay back with a bit more. But be careful. Because at some point, you can overborrow. So i would stress Central Banks are not made for this and was dependent on them for too long. David twhees be done if youre a central banker . Mohamed well see carnie today in london. You go to the politicians and you say i can do it all on my own. That is an excessive burden. Ive been carrying it for too long and we need help. We need help from fiscal policy, Structural Reforms and we need better Global Policy coordination. Jonathan when governor carnie says that, guess what he does. He moves first. So the question i would ask is has the bank been right all along . Sit back. If its their problem, make it their problem . Mohamed if the central bankers knew back then what they know today, they would have been less active. But this is i think the example of a doctor. You dont walk away from the patient. Even if your medication isnt perfect, you still are going to help the patient. Thats what Central Banks do. Jonathan youre sticking with us. David coming up, bond traders seeing warning signs and are moving to cash the 10year note is yielding less for the First Time Since the 2013 temper tantrum. Has treasuries gone too aggressive . Thats next. This is bloomberg. Jonathan from new york city, this is bloomberg. Fund managers take on greater cash positions and bond funds are awashed with cash. It did a signal of limits coming to the fixed income rally. Mohamed elerian is still with us. So bond funds are awashed with cash. We know what theyve been doing. Theyve been reaching for yields. U. S. High yield versus treasury and weve seen spread to be tight, tight. Not only are spreads tight, but the absolute yield, thats the real story is low, low, low. At what point do we move away from looking at the spread and saying based on risk assumed, i do not like the absolute yield. Mohamed so were getting closer. Remember, investors operate in relative space so they think wow, look at the pickup relative to treasuries. Jonathan yeah. Mohamed and at a certain point, theyre saying am i being compensated overall for the risk and they look at overall space. That pivot happens at lower and lower rates and were seeing it. Were also seeing an amazing amount of issuance and its not that credit quality is improving that much but people are being pushed out of low yields and government bonds into higher risk assets hoping for yields and like in 2006 and 2007, this will go too far. Jonathan weve looked at Nonfinancial Companies in europe. Thats been the bug story. We can show the explosion of issuance in europe so far this year. The most on record since the was introduced, when do we start looking into that chart and talking about supply and demand and saying supply is actually going to was introduce demand that will exist based on where were trading at the moment . Mohamed you have central bankers that can always buy. You look at this and you ask how much Systematic Risk is building up into the system . Jonathan how much is there . Mohamed quite a bit. Central bankers keep one eye on this and one eye on the economic variables and this eye is telling them maybe we should be less accommodating when it comes to policy. But the other one is the economy and thats why its a tricky situation. Jonathan they go hand in hand. We can bring up the chart from the Standard Poors global rate. It takes it with a negative outlook. And we take it back to 2009. When does the fed look at that and say this is a reason that we need to move away from ultra low rates and overcome dave accommodate tiff policy . Mohamed it is a trade justified between trying to stimulate the Economy Today versus increasing the problems of financial instability down the road. Jonathan so the fund manager ok. This is my absolute yield. Heres the risk ive got to assume. What on earth do i do . Mohamed right now, were coming from a period where not obviously have returns been wonderful but financial volatility has been repressed. Everything has gone up. This is the time to take some cash. Risk risk exposure and wait. Were going to have a return of velocity volatility and you will the opportunity to ping gad names at more attractive prices. To cash. Lets go mohamed it is to have less market exposure, recognize that youve got to be more tactical and that we are living in a very unusual period where everything has gone rights. That doesnt normal ply happen. Jonathan Mohamed Elerian, fantastic to have you with us. Coming up in the next segment, sales reach a record for the month of august and the stocks sit at a 13month high. We will debate that next. From new york city from viewers worldwide as we count you down to government carnies Treasury Select Committee. This is bloomberg. Its 7 30 a. M. On wall street. Heres what you need to know this hour. U. S. Prosecutors are considering a criminal charge against the unit of Hsbc Holdings related to conduct on its Foreign Exchange desk according to two people familiar with the matter. It let the bank avoid prosecution. Bank of england director mark carney testified for the First Time Since britain voted to quit the Union European union. And apple is expected to show up new iphones and an updated smartwatch during its Product Launch today. And thats what you need to know this hour. John . Jonathan thank you very much. Lets get you up to speed on the market. Futures stable in the United States throughout the session in the market in europe, we did kiss the january high yesterday and now we go forward once again. The d. A. X. Up about a third of 1 . The story in the fx market, the last 24 hours has been a stronger pound and a weaker dollar. Flipped out with a cable rate pulling back to a 133. 80 handle. The real debate though is whether the cable start tosca pitch late a littl