Assertion that no deal is better than a bad deal. I am nejra cehic in london. Good morning. Lets get your markets first. We are looking at the stoxx 600. We saw a close lower after initial games, fairly steady now. See the carmakers really underperforming, down 1. 3 . The asiant happen in session. It is feeding through from the u. S. Car data we got from the u. S. Yesterday. The car sales coming in, disappointing that data. We are seeing it read through to the European Equity session. In terms of dollar and yen, we are seeing a weaker dollar. Ae yen strengthening for third day. I wanted to show you the 10 year yield on the german bund. Went down one basis point, 0. 26 . We saw a lot of demand go into u. K. And german debt yesterday. The 10 year treasury yield is fairly steady. We saw it hit its lowest since february yesterday. The 10year gilts yield reached its lowest since october. A lot of demand for the safest assets among safe havens that are bonds. If get to the bloomberg first word news. Here sebastian salek. Russian investigators suspect an islamist immigrant from kurdistan detonated the bomb in st. Petersburg yesterday. That is according to the interfax news agency. The explosion in the russian metro killed at least 11 people and isnt injured dozens more. It happened during a visit by president putin. Authorities found and discharged a larger bomb at another statement station. The rain has weakened again after s p downgraded the country to junk for the first time in 17 years. It cut the rating, with a negative outlook, following president jacob zumas cabinet purge. Continuity is at risk after president zuma sacked finance himster gordhan, replacing with someone with no financial or business experience. Senate democrats have set the stage for confrontation, assembly enough votes to block president Trumps Supreme Court nominee. Republicans advanced George Gorsuch in the judiciary committee, clearing his weight on the senate floor. Mitch mcconnell has said gorsuch will be confirmed one way or another this week. Australia has kept its cash rates at a record low, 1. 5 . Policyision continues paralysis as the Housing Market is too hot to allow for easing, and the economy lacks the strength to endure tightening. The u. K. Trade secretary said asiapacific has become the most important region, in terms of the Global Economy. The comment was on the visit to the philippines to talk trade and investment. He is looking for opportunities for british businesses outside of the European Union as the country prepares to leave the bloc. Center where the center of the gravity of the Global Economy has moved to. There are opportunities here in terms of exports, but also of investment moving in both directions. We are looking to see how we can expand u. K. Exports, which are, at the moment, too low. We have to get those exports going up. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Ive sebastian salek. Nejra u. S. Jobs are the center of attention again today, as we await nonfarm payrolls data on friday. The Immigration Services department has announced a crackdown on Companies BringingForeign Technology workers to america, using the h1b visa process. The new measures are aimed at combating fraud and abuse in the program. Boostent trumps plan to jobs in the United States might have hit a snag after auto sales came up short last month. Heavy incentives failed to stem plunging demand for sedans and compact. Were cast out on expectations sales would bounceback following declines. In the head of equity strategist at j. P. Morgan, and Richard Jeffrey, chief economist at cazenove capital management. Is, wet big question have heard a lot from donald trump about the importance of jobs in the u. S. , and the importance of trade and rebalancing the trade deficit to bring more jobs back to the u. S. Is there any sort of sign there might be cracked in that logic . It is an interesting picture. You have the cyclical recovery in employment and secular issues. So far as the cyclical issues are concerned, this cycle has seen massive job creation and much better job creation than anybody expected at the start of the cycle. The jobs data now is going to get more difficult to interpret. Lets see what happens on friday. But if we have a disappointing set of jobs data on friday, you will immediately jump on those numbers and say, disappointing numbers. That means the economy is slow. What it might not. It might mean as the economy gets toward full employment, it is harder to get people out of unemployment into jobs. There is the difficulty in interpretation. I think President Trump is looking at the longerterm and is saying we want a greater proportion of our population in employment in the longerterm, and we have to focus on that. Those are cyclic or issues, not cyclical issues. Nejra one more thing, richard. There is a big discussion whether we should look at the u. S. , soft data in the and what each side of that coin is telling us. Is it that we have to look somewhere in between . What are you focusing on most, apart from jobs data . Think you have to look at all the data and tried to synthesize that and come up with an overall view. We see so much noise in economic and financial data. We tend to over interpret individual data readings, and that is a dangerous thing to do. The markets are responsible to that sort of information. What i think you have to take a step back and say, does it look to us as if the economy is gaining momentum, losing momentum . At the moment, i think most of the data is suggesting the economy is genuinely gaining momentum. This is not as exciting a cycle as prior to the stock market prices and recessions. It is not that type of cycle, that it is gradually gaining momentum. Nejra i have a chart here i pulled, and what it is showing is that the correlation with the s p 500 over the last time in clear, andeen very auto sales have seemed to lead equities. But now we are seeing that correlation breaking down somewhat, with car sales slumping to the lowest level in two years, the s p 500 Still Holding just below its record high. Is this any kind of signal to you . I am delighted richard has just made the point about single data points, because i think this is a good example. If we look at the broader picture for the u. S. Consumer, as richard says, the unemployment picture is looking healthy, getting close to full employment. Consumer confidence is holding up well. At the moment, within most other economies, you have a negative real rates and the cost of borrowing is extremely low. Those are not circumstances in which you would expect a major downturn to develop. Nejra looking into european equities as well, if we were to see any kind of pullback in u. S. Equities, for whatever reason, how would that translate into what is happening in european equities . Would it mean more flows into europe, as we saw last week . Or would it mean the general risk off would have a downward impact . Stephen it would depend entirely on the catalyst in european equities. The issue in europe is that the economy is generally recovering. Profits are starting to recover. That there is still Political Risk around. There is every reason people are circumspect in asset allocations toward europe. If you look at a price to book basis, you look for european profits to recover. A better longterm story in europe. Nejra i want to ask you about productivity. We had comments from christine lagarde, the head of the imf, overnight, saying governments need to set their signals an Economic Policy and it is about productivity. You have been playing the strong for a while. Richard productivity is crucial to profits growth. It is crucial to the amount people are paid, whether they see real pay increases. The conundrum Central Banks are faced with is, why, when we have excessively easy Monetary Policy, arent Companies Taking advantage of that and embarking on longterm productivity and Capital Investment programs . There is an answer to that. That is that they do not have to. With very low Interest Rates, Central Banks have taken the challenge out of the system and companies have become more with theirdividends surplus cash, rather than using that for Capital Investment. That is why we have Interest Rates and bond yields that are too low. Were they hire, companies would have to think about how they grow profits in real times. It is a policy issue, but it is not one the Central Banks think. Interesting. Stephen and richard stay with us. For now, lets get to the Bloomberg Business flash. Here is sebastian salek. Seb shares lower after asos said discounting and a week pound are weighing on profitability. Its reseller margins contracted by 40 basis points, to 47 . The u. K. Company said price cuts overseas remain the reason for the decline. Tesla is now a more valuable company known for. Share soared yesterday after worldwidereported shipments of 20,000 vehicles in the First Quarter, exceeding analyst estimates. Musk poked fun at those hitting against his company, tweeting Stormy Weather in shortville. In china, capitalizing on a famous investor. Warren buffett will appear on cherry coke following the launch in china last month. Berkshire Hathaway Company owns 9. 3 of cocacola, worth about 17 billion. Buffett is a heavy user. He says he drinks five cans day. That is the Bloomberg Business flash. Nejra thanks so much. South africa has lost its Investment Grade rating from s p for the first time in 17 years. The agency cut the country to junk following a cabinet purge by president jacob zuma that sparked increasing calls for him to resign. Lets speak to peter, head of emerging economics at numerous international. To speak great just the two you for the second time this week. I am sure you are not surprised by the latest development, but is there anything catch you off guard at all . Peter interesting was the rating remained on negative watch. The downgrade came because of the treasury, as much because of the removal of the previous minister as the new minister. The negative rating reflects concerns that further policy change will dramatically shift the path or damage the growth outlook. He may see them move again, particularly on the local rating, in june. News from moodys, then putting the rating on review for a downgrade. That could come as early as friday, depending how much time they need. , isissue for the market is really focusing on if zuma is removed or not. I think the market is too optimistic. Nejra how likely do you think that zuma will be removed . And how will the market react to that is to mark with a see it positively, because he has been removed and they did not have as much faith in him, especially around what happened with gordhan, or will they see it negatively because there will be so much uncertainty and so many changes . Peter the market would see a positive if he is removed. That misreads what zuma is responsible for in the economy. , labor laws were put in place. ,hat was 15 years or so damaging the structural capacity of the economy. Delay is responsible for regulatory uncertainty at the moment. But there are bigger issues going on that are not particularly zumas fault. Who pessimistic on anybody comes after him being able to turn it around. When moving is incredibly difficult. He has a majority in the anc, and ultimately this comes down to a call. Do you believe zuma is a master political tactician who can play the anc at its own game . I think the answer is yes. Nejra this interested me. The National Treasury responded said, cuts to junk and reducing reliance on foreign savings to fund investment, and relying less on debt to finance public expenditure, will secure south africas sovereignty and economic independence. What is your response . Iser the press release slightly odd, to be honest. If we look at the projections, we were on an upward path in the amount of debt issuance going forward. They have been continually revising up the amount of longterm debt. The statement did not chime even an puthe budget that gordh out in february. There is going to be a revenue shock as a result of low growth and sentiment from this reshuffle, which will ultimately mean that more debt will be required. I think raising further revenue is going to be quite hard. Nejra we have not yet heard from fitch, as far as im aware. You are expecting multiple downgrades. Do you think all of them will downgrade to junk . Peter i think fitch will go to junk this week. Nejra it is a little above the others. Peter they are a notch above. But they will react around these institute these issues of quality. Governance and management. That is what it is about. It makes it hard for the new minister. Do not judge the new minister to much yet, but it is hard to do anything here. It is down to trust. And is the reason we implied for the removal of the previous minister. Nejra i have a chart going back one year, the dollar bond. The s p downgrade affects foreigncurrency debt for local currency bonds, still one level above junk. Last week, we saw net inflows into South African from particularly foreigners, despite everything going on. Does this all come back to that you think investors are slightly under assessing, not reassessing properly . Peter exactly. I think it probably was some that buying going on, quite concentrated. I think people sort of saw this ps opportunity, not a need for structural reassessment. The interesting thing about this graft and about the dollarrand, further, 22015, when a scandal happened, you do not see a meaningful shock, if you look at that as a politician. You are not around the levels we were at the scandal. That is the markets not understanding it. Politicians look at markets. The signal the market is sending his, we are worried, but we are not freaking out about a reshuffle. I think that is part of zumas playbook. How concerned are you about South African brakes and the feedthrough to the rest of the economy and the general political crisis . The political crisis is not going to be a Financial Stability crisis. Banks remain wellcapitalized. Their funding costs will go up. Into the economy is going to be lower growth sentiment, weaker consumer. We are not talking about based on a sudden stop balance of payments. South africa still has heavy capital controls on locals, which prevents mass outflows from occurring. It means investors who have too much offshore already have to bring it back on shore. Protection. Grees of we are talking about a level repricing in risk. Nejra the head of emerging economics at nomura international. Falling, the land falling rand falling. Trade on to her. Theresa may leads a global brexit roadshow. Mps slam her assertion that no deal is better than a bad deal. U. K. Trade secretary says asiapacific has become the most important region in terms of the level economy. Made the comments on a visit to the philippines to talk trade and investments. Liam asiapacific is where the center of gravity of the Global Economy has moved to. There are enormous opportunities here, in terms of exports but also of investment moving in both directions. We are looking to see how we can expand u. K. Exports, which are, at the moment, too low. We have to get those exports going up in both goods and services. Nejra elsewhere, u. K. Chancellor Philip Hammond and bank of England Governor Mark carney are visiting india as part of a push to build trading relationships in preparation for brexit. Theresa may is in the middle east. She will be in saudi arabia later, extolling the importance of trade and security ties with the kingdom, britains biggest trading partner in the region. Her trip has been strongly criticized by the opposition leader, jeremy corbyn, on account of saudis human rights record. Under pressure to publish a thorough assessment of the consequences of britain walking away from the European Union without a deal. House of Commons BrexitCommittee Says her assertion that no deal is better than a bad deal is unsubstantiated, and failure to reach an agreement would damage both the u k and e u. Still with us are the head of European Equity strategy at j. P. Morgan Asset Management, and the chief economist at Capital Capital management. Nove capital management. How likely is no deal . Richard i do not think we know the answer to either of those questions, and that is a problem with a lot of the comment coming at the moment. We are in the area of the unknown. I think what is vital in this , whenar interim period people say it is uncertainty, businesses start planning for the future. We know at some stage we will not have easy access to european markets, as we have had in the past. When we joined the European Union, way back in the early 1970s, it accounted for about a third of the world economy. It is now about 15 of the world economy. The challenge to businesses is to focus on the 85 of the world that is not the e. U. That is where new markets will lie. I think these initiatives are a good thing. They will come through positively. The question is, with what speed . It is unknown. Nejra indeed. And when you are dealing with an unknown situation like this, what have you been assessing in terms of flows and equity markets . Have you seen any sort of versussment of