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tv   Bloomberg Go  Bloomberg  August 29, 2016 7:00am-10:01am EDT

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janet yellen's speech boost investments. the focus turns to jobs friday. caroline: and going from a bear to bull market with opec, spurred -- the picture is not so clear anymore. alix: that your bottom dollar, the greenback climbing to a two week high. "bloomberg ," i am alix steel in new york, along with my guest cohost, caroline hyde, joining me from london. david westin and jon ferro are vacationing together in some warm country. this is really a story today about a market rereading -- re-rating it's rate hike expectations. caroline: still so much division going on. still hearing from the likes of pimco saying maybe not september quite yet. look at the market reaction.
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you have to be seeing across the board, every single group is falling. equity market feels the pain. alex will talk central banking and the markets. we clearly want to be discussing where we are going ahead with our guests. we will be talking with scott mather, coming up in a bit. fascinating, his viewpoint on when they will hike. and of course how good that job number has to be. alix: overall we are looking at a market re-rating for the fed hikes expectations. it comes to equities, the dax lower. you have emerging markets lower over the last two days, and they are trickling through with a story in the fx market that is stronger -- that is the stronger dollar. particularly, dollar-yen, 1.02. you have yen weakness, but is
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that confidence about the boj in --rode a -- in corrode a commodities are getting hit across the board. off by 1.3%.ti, a 47 handle now for wti. bond marketsthe friday -- you saw that big rally ofyields on the front end the curve. the biggest jump, 10 basis points, the biggest jump since may when it comes to the two-year yield. we are seeing a little bit of a by across the yield. bit of money flowing in, but not a lot of positioning , caroline.the market commerzbank is coming out and saying dollar index, now you need five. is that pricing in one or two rate hikes this year? maybe not. caroline: you have a holiday here in the united kingdom. volumes are off.
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over the next hour, we will go around the world to bloomberg team coverage. --ries from beijing to south let's start with our top story of the day potential bankers, the weekend in -- the big weekend in jackson hole. johnson onguy comments coming from the ecb. fromhen we have details hong kong. lookingart here with across upon to new york, to matt basel her. give us your -- matt boesler. matt: you know to the probabilities of the september rate hike, jumping a lot over the weekend. the most interesting thing is that investors now see a september rate hike as more likely than a december rate hike for the first time since before july fomc meeting.
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you can get a sense of how that rate hike expectation has been months now.rd a few it will be interesting to see if the data continues to support that case. alix: you are taking a look at the fed reaction across the board. the gap in the market, that it feels less now by mario draghi. we have not heard from janet yellen in months. now we have not heard from mario draghi. are we in a similar situation for the ecb meeting? we have a whole lot of data this week, and that data will be really important as we work our way toward september 8. what happens on september 8? not only do we get a rate decision, we get projections as well. mario draghi really change the
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direction of travel. waiting for the .eptember 8 for the ecb what is going to be delivered upon? at the moment, governments do not look like they are getting their acts together. caroline: waiting of course for september as well, from the boj governor kuroda's about from jackson hole? >> the interesting thing is how went.t kuroda he said he would boost stimulus without hesitation or it he is more than ready. he is more than happy to ease monetary policy. .e is willing to do that now the yen is declining from friday
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onwards. this kind of signals how not only the bank of japan, even other central banks around the region -- asia, emerging markets -- are ready-to-eat is to allow for the fed's raising of interest rates. might i just take a moment to say that the expectations of a red -- of a rate increase have been staggered. when it finally rules, the markets in asia will be prepared for a rate increase. caroline: certainly some hopes in the japanese stock buying that we saw, robin. give us a little sense going forward about how much this would really affect the asset classes in japan if we do see a weakening in the yen. the markets do not brace themselves for a sustained weakening in the yen. robin: absolutely, i agree. i do not think there will be huge effect in the short term because the reactions we have seen so far in china and malaysia and india and the rest
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of asia -- they seem kind of to the fedons comments. japan is slightly more reactive probably because the yen -- the question is, how far can governor kuroda actually go. far can ee's monetary policy? how much stimulus can he provide stimulus-- how much can he provide? alix: the weakness in the yen was about the strengthening of the dollar. , what is the magic number where the fed has to hike in september? there iso not know if any specific number per se, but economists are looking for 180,000, 100,000 less than the last two months. maybe if we get another big number on the order of the last to seeths, we will start the presumption of a hike
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becoming more likely than not. before we get to friday, we have a ton of economic data. and consumertion spending. we have manufacturing and consumer confidence later in the week. it should be a fun week for economic data watchers. caroline: thank you very much indeed. that was matt boesler from new ganguly from hong kong, and guy johnson from london. alix: a couple of movers we want to highlight -- in italy we want to check out product, rising as much as 15% off the session. the chair is calling it a turning point for this company, producing sustainable growth for prada in part due to a cost-cutting plan. over here in the u.s., taking a look at mylan. this company will sell its first generic epipen. the cost will be about $300 per two-packed carton.
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heat from mylan over the pricing of the epipen at 400% over the last decade. a lot of heat from congress, hillary clinton, and now mylan is doing something about it. take a look at the drama that keeps unfolding at herbalife. carl icahn buying a 2.3 million bill ackman said that carl icahn was trying to offload his shares. the stock went down, carl icahn bought. carl icahn is looking for an 18 present to 21% stake in the economy. up, it is the fed boosting the u.s. dollar to its best week in two month, but are investors betting too much on a september hijack out our next guest says the yen is on its way to a fresh four-year high by year's end. this is bloomberg. ♪
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>> this is bloomberg . in brussels, reports of an explosion turned out to be false. authorities say someone set fire to a crime lab in an attempt to destroy evidence. five suspects have been arrested. a false report that shots had been fired caused panic at los angeles international airport. hundreds of passengers were evacuated from terminals. flights were delayed and a huge traffic jam develop. suspended president dilma
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rousseff makes a final appeal to save her job today can she would today.y address congress the senate will hold a final vote on her future tomorrow or wednesday. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am emmaountries, chandra. alix: the best rise for a september rate hike in goldman now, seeing a 40% chance of a hike since janet yellen's comments. stanley fischer's comments, you saw a continued rally into the close. it all boils down to jobs friday later this week. hsbcng us is daragh maher, head of strategy are there was an asymmetric risk to the dollar into friday. what do you see? daragh: i agree to a point.
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when janet yellen came out, i think the market walked away from that speech saying she has not seen that she has not said anything particularly new. then the stanley fischer comments recast everything that janet yellen said. pricing more for september than december. that is phenomenal, given where we were thursday. had aft payroll report much more profound impact on the dollar. alix: if you look at the dollar 95, what rate hike cycle is truly priced into the number? daragh: not much. it is gradual. have in thewe markets is that there has been such a minute debate. we are debating one hike or another this year. it does not take much to shift the dollar in that context. get 3, 4, ore we
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five hikes. that is not the issue here. the near 4% move for the dollar like a 25 basis point hike -- this is one of the dilemmas. you want to buy the dollar because you think the fed is going to hike, it is the dollar goes up, the fed will not hike. is problematic. caroline: we are hearing from other central tank policymakers, governor kuroda among them. -- central-bank policy makers, governor kuroda among them. him talking about further stimulus is not earth shattering news. he has been talking about further stimulus for three years. the fact that it came alongside this dollar bullish move has amplified the impact on dollar-yen. he faces a really difficult task. in a cynical market -- one that
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is used to under delivery -- he is anticipating that he would cannot do or will not do helicopter money, which is the big story out there. in that kind of environment, the pressure will be for dollar-yen to move lower. if you add to that idea that equities are lower today because the fed is expected to hike, that is another problem for dollar having yen, another reason dollar-yen will go lower. fed timing is not securely great for risk appetites. caroline: we could see on the back of it some heavy lifting being done by a stronger dollar, particularly if we see a stronger economic dollar coming friday. what if we see above 50% toward a hike coming for september? i am just curious whether the fed will actually want to rise at a meeting where the market is more anticipating
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a rate hike than not. do not rule out a rate hike. please do not place one in. ideally, they would like to get to this fomc meeting with 40% probability. maybe they are hoping for 150, 180, a number like that. probabilities would go up further. alix: we have seen that reflected in dollar having yen probability. the fed meeting, jobs friday over the last month. you are looking at dollar having yen in 1995. what kind of disappointment will we have to get us there? a percentage is that they are running out of bombs to buy, that the negative rates -- that they are running .ut of bonds to buy now you're launching into a market that is thinking i do not think dollar-yen necessarily will go higher.
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they are running out of options. unless he can come up with some shock and awe tackett, i do not's -- some shock and awe tactic, i do not see him doing that. alix: if you are going to bet on a stronger jobs number, you will bet on a rate hike over the next two week spirit what happens if there is that disappointment as well? the ramifications for the emerging markets as well, coming up on "go," we will talk about the brazilian real. it is on its longest losing streak since january at the moment, three straight weeks of declines. the currency rebound if president rousseff is officially impeached? that is next. this is bloomberg. ♪
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caroline: this is "bloomberg ." dilmaian president
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rousseff is set to talk today in front of congress regarding her impeachment. give us a sense of what we heard in terms of the tussle that went on throughout the weekend. >> we have been hearing pretty much most of the same things we have been hearing for the past nine months. no new arguments came up, no new strategies came up. rousseff herself is not expected to make a different speech than what she has been making to the media, that she is the meeting -- that she is the victim of a coup and that this is an illegal impeachment. caroline: her predecessor seems to have flown back in just in time to hear about police charges. is it likely we will see her? >> we have not heard from in the market or political analyst speared nobody expects the impeachment to not pass. everything could change if
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brazil is still brazil and things change frequently, but the impeachment is widely expected to pass. thirds of the senate, 54 votes. there are 10 or so senators who have not declared votes yet, and there are currently 52 votes according to polls. we are still with daragh maher, hsbc head of fx strategy. sticking with brazil, i want to bring you on my number w crf. this is how much it has outperformed. up 21%. out, the real give us a sense of where the real goes if we do get impeachment of rousseff. daragh: it goes lower, as in weaker. you are right, it has been a
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phenomenal performer because we have had this transition to a new economic management team. you have a sense that they will do something new. high-yielding currency. you have the fed in the background, generally low volatility, but now what is beginning to creep in is a reality that brazil's fiscal matterge is enormous, no who is running the country. the market is now realizing we can move this currency of an awful long way. newe we are giving the government too much benefit of the doubt and we need to be regained -- and we need to begin repricing that. alix: you bring up an interesting point about political risk when it comes to emerging-market currencies. the carry trade has had a killer year. come up a little bit, though. we still had those political risks like you mentioned in brazil.
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you searched for yields but you do not know necessarily the risk you are taking on when you go there. daragh: why do you get paid yield? you get paid yield because some kind of risk is in inflation risk, but also if you like swallowing in order to get that payback. the difficulty with emerging -- i think it is relatively simplistic, despite that the kerry has been a relatively positive trend. you are just going to get hit by these idiosyncratic risks. alix: what does the fed hike and of doing to the likes of the carry trade in the current market? daragh: it should not be too damaging. even the more hawkish fed speakers, i do not think they are so hawkish in getting rates up. this would be seen
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location, but i do not think that is a killer deal. for emerging markets it is about growth. --oline: we have seen such you say we are in a lower volatility regime. do you still stand by that viewpoint? daragh: it has been that way. -- it is all relative, as currencies always are. we are anymore benign environment for the fed and for the chinese renminbi, which is a big scare factor, and a more benign environment for commodities. we have become very accustomed to not much actually happening. i absolutely stick by the idea that we are in this relatively
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low volatility market. alix: daragh maher -- caroline: daragh maher, great to have you. great having you on the show today. alix: your semi jon. a little bit of re-rating. coming up, $11 billion invested in chinese equities, one of the biggest u.s. investors in china growing uneasy about the policy direction. oppenheimer funds direction of -- revealing why next. this is bloomberg. ♪
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emma: reaction is mixed.
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goldman sachs puts an objective odds of move up to 40% before the speech. pimco says there was nothing of note in the speech, just a looming rate hike. drug maker mylan is responding to complaints that its gouging patients by raising prices on the epipen more than 400% in just a few years. the company says it will sell a generic for $300 for two pack. brazil suspended president makes a final appeal to safer job today. she was dressed congress directly as impeachment is near a conclusion. she is accused of illegally financing spending and they will hold a vote on impeachment tuesday or wednesday. get a checkt's giv of the markets.
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we are down 4/10 of a percent with auto dragging lower. i want to show you the fear gauge here in europe. the biggest move that we saw in the fear gauge in europe since august 2. let's look at the next stretch of assets to keep an eye on. it is a story of dollar strength. your key underperformer is the and oil isn you wanted falling off. alix: it is time for morning must-read. janet yellen might have toed the line at jackson hole, but there were outside of the box ideas. he spoke at jackson hole last week as well and he made a case for central banks diets, suggesting that central banks focus on interest rate policy over weighty balance sheet policy. in his speech, he specified that
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the zero interest rate down should be removed much as the fix foreignd exchange rate encumbrances were removed in the 20th century to free monetary policy to credibly deliver and sustain a stable purchasing power of money. us and this is really an outlier. a laureate from princeton got most of the play with his patients and importance of fiscal economics, basically the senate and the house coming to the rescue and legislating fiscal stimulus. it is completely another way of what he is a claim for worldwide, which is an analysis of interest rates. what i like about this is that he cited from early in the 20th century and then irving fisher as well. this is old-style economics, back to the gold standard. what if you bring that forward
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now and forget about the zero bound? i think a lot of economists would push back against professor good friend. alix: he was talking about negative interest rates in that he 99, almost 20 years before took place at central banks. how do you do it? he even had the rooad map. tom: here's the roadmap and it's about courage. it's about the idea of being brave enough to impart negative interest rates on society. we really have not done that. you remember a number of weeks ago that a smaller german bank actually throughout negative retailt rates in their smaller depositors. nowhere else has that really occurred. it's an institutional trust for big safe, institutional money without the impact on the people. professor good friends
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paper, until you distribute the effect of negative rates across a wider part of society, then only will we test the theory. alix: he speaks about how nominal rates have been falling for two decades. there is an inherent pessimism that stuck with him people. there for what central banks do does not end up getting the job done. tom: i hate to use the word pessimism. that is removed from the analysis of economics. to your point, and peter huber mentioned this this morning, the bottom line is savers and retirees are at the zero bound. they do not care if you have a phd from carnegie mellon. whether it's a money illusion or real interest rate, remember in japan, yield came down. with deflation, that was a high real yield. luxuryot have to japan of deflation and the united states. i got to read the thing cover to
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cover. alix: he says, look, we get the next cyclical downturn and we need aggressive action. most people at the for a more making the assumption. he said you could see -1% interest rates to really get the money starting to flow again. we really do not see that anywhere. tom: i would go back and defense of professor good friend and established a surveillance like conversation. professor blonde chart said it was a scam. these are economist who can collegially disagree about this. i would go back to the politics of it, which is that the public will not tolerate negative interest rates whatever some phd says. alix: no doubt front and center with your interview with stanley fischer. tom: thank you for this. i will cite alix steel to vice chairman fisher. a richd friend paper is theme to speak to vice chairman fisher about. alix: such a pleasure.
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we never do this anymore. tom: my people will have to talk to your people. [laughter] alix: tom keene joining us from radio surveillance. caroline? caroline: cannot wait for that interview tomorrow. coming up, for a second week, money managers/bets on falling oil prices. has iran raised the prospect of a collective agreement at opec's meetings next month? that is up next. this is bloomberg. ♪
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alix: this is "bloomberg ." i am alix steel. coming up, bank of america senior economist joins us to recap jackson hole and preview
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jobs friday. ♪ bloomberg is this flash. samsung is a potential pirate. ceo marchionne spoke to bloomberg following reports that samsung was interested in seattle -- fiat. >> we have a good relationship with samsung as a supplier and a potential strategic partner . what i did say yesterday is that there's an opportunity that has been looked at by ever idea people. rally. no interest in has strategic value to us. emma: whatever they decided it will not happen overnight. mylan is responding to complaints that it is gouging patients by raising prices of percenty over 400
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in two years. they are selling a two pack for 50% less than the price of branded medicine. aremakers in massachusetts considering moving into a new time zone. there's concerned that massachusetts is a losing college graduates to states like california and new york. chandra. alix: opec has expectations and this is where the saudis talk about an informal meeting at the sidelines international energy forum at the end of september . you had a bull run and now press is coming off of it. joining us now is the procedure economics president who says this is a formal meeting and it is close to extraordinary meeting as he can get. jason, like the fed minister, we are getting oil minister saying
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55 different things all at once. and theing we will go saudi saying we will freeze, but they are not doing it. how do you know what to expect in four weeks? we do not know what to expect and the same is true for the fed, which is going to meet in just over three weeks. we do not know exactly what we are going to get. isould say the tone of this very different than anything we have seen in a while from opec. they have had side meetings before, but they have not been formally announced with a press t release directly from the opec secretary. they say they might do this and might do this, but i do not think personally they are going to change their production levels. the fact that that could be on the table if prices fall earlier is something that has stemmed prices during the shoulder period once the summer contracts closed on the nymex. you begin to see the price move down sharply .
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this announcement sent prices sharply higher. alix: for me once, fool me twice, shame on me. we have seen that with shorts taking off. added it continue to be into the market and we see on the chart how extreme positions have come since that. was the downside potential? we have so many shorts. what happens? jason: i think there are downsides and i think that's right. i think you could see some downward pressure here from stronger dollar expectations last week. we have stronger dollar expectations this week. still some hawker spill over as folks try to digest what the fed meant and they try to make sure their positions are short up before going away for the labor day weekend. i think you could see oil come under pressure before the 21st before the fed meeting. i do not think the fed is going to do anything. oil will get a pop along with other commodities like gold and
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instrumentals. , thisof that meeting informal meeting, which was very formally announced through a formal press release from the opec secretariat, we are having an informal meeting, nothing to see here, but it's very formal. that is going to happen between the 26 and 28th of september. going to pop before that. if nothing happens, we will see it move lower. if we see it move lower too much before then, you could get some action. this time honestly it is different. alix: why is it different? the rhetoric last april was that these guys are producing right at their max capacity. a freeze would not do anything to adjust the supply market. why is this time different? jason: this time is different because you have a new saudi oil minister that was very much involved in building some bridges at the june opec meeting. esau finally after years the agreement on a new secretary-general and really the
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new saudi opec minister was essentially a pr campaign. he met with different analysts and journalists and other industry groups and really tried to move the opportunity to work together forward and away we have not seen in quite some time. -- thatvery different conciliatory, cooperative nature of the different ministerial groups, which have sometimes been at loggerheads. we now see the opportunity for them to work together. this is political more than anything else. it's a very different tone that was struck in june and i think that does increase the probability that something could happen. alix: even if iranians just show up to this informal meeting, that is a very different world than what we saw back in april. what also happened is that bloomberg reported that the saudi's are close to issuing sovereign debt. is there a correlation? but kind of correlation is there
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from the job opening to this meeting and the saudi's coming out and tapping the debt market? that is do not know if really what is at play here . a lot of the opec members are under pressure from a debt standpoint or credit standpoint or cash flow standpoint, which is something we see affecting u.s. oil and gas companies, the sharedy credit review is semiannual and not just want t once a year. default are expected to continue through the end of the year. those dynamics that affect u.s. companies are also affecting opec national companies, cash flow issues, and budgetary problems. that is something that all the opec members are contending with. alix: jason, great to talk to you and get my conspiracy theory head out of their. caroline? when you talk about oil, you talk about the ramifications we have seen on the emerging markets.
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one of the biggest u.s. investors and the emerging is soundingchina the alarm about his growing worry over the policy direction in the country and the way it is taking. he even wrote a letter to the i'mernment, writing, " increasingly concerned that china is eyeing a short name, which is in conflict with the sustainable long-term strategy at development and for the progress." for more, let's bring in the justin,f that letter, the director of emerging-market equities. let's kick it off with china before we moved to the fed. talk about your concerns. gdp? jet to ddp -- debt to how worrying is the debt situation in china? justin: good morning and thank you for having me on. the debt circumstance needs to be understood in context. you suggested,as
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there has been an enormous expansion of credit in this economy and the last eight years after the financial crisis. as you suggested, debt is to 50% of gdp. that has increased 100% since the financial crisis. one needs to understand the context. demand has been very weak and the two engines of historic growth in china, trade and real estate, have really reached saturation levels. for we have seen is this consistent credit impulse and we are try to keep levels of growth at unsustainable levels. that is really the context that we are speaking about. how worrying is it when the banks have a lot of debt, but a lot of those corporate are stick-back? will that state help wipe out a lot of the debt should become difficult? justin: at the end of the day and the purpose of writing this
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open letter to china was that special a very circumstance, quite different from the rest of the world. this is a government that effectively owns the banking sector but also large parts of the industrial stock of the economy. provocation is to have a discussion about possibilities, because i think in which 3-5 years this is a problem but it will not manifest itself in terms of any catastrophic circumstances. however, there are things that can be done in the next for years to mitigate potentially difficult circumstances. caroline: you do not cut that $11 billion exposure moment? you stick with china? justin: i actually believe in china in two dimensions. the first is that i am an investor and externally companies and we do not get bothered about country exposure. as an emerging market investor, you have to realize increasingly
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emerging markets are kind of a china plus circumstance. china is little over a third of my fund. is about 25% of the benchmark. it is a circumstance you have to be involved in. the second is that the companies that we own our disconnected from the underlying problems of the economy in china. these are extraordinarily competitive companies with businesses like e-commerce and online advertising, the travel sector, education -- all the sorts of industries which are thriving and the new china. this is not part of the industrial, real estate exodus banking sector where much of the problem resides. caroline: you got significant exposure to the rest of the emerging markets. you say you have idiosyncratic particular companies that are not affected by the overall china situation, but what about the overall dollar situation? the emerging markets cells altuve. how much is the party over?
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i think you mentioned an extremely important part. china has not really been a participant in that. if you look at the very strong gains, whether it's emerging-market bonds or emerging-market equities, the underlying story about the emerging-market strength this year, which china has not bigicipated in, and other emerging markets like mexico have not either, is really a phenomena that is exogenous to the emerging markets. the real fundamental issue is the context for the developed world and particularly unconventional monetary policy and unintended consequences of negative or extremely low or nominal interest rates. what we have seen is a massive leakage in terms of lurch for yield. that has affected many things
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like commercial real estate and residential real estate prices and parts of the world. currencies, there has been an extraordinary focus on macro and not really about fundamentals. i would be concerned about areas like brazil where we have had enormous equity market gains. we have not had a significant change and economic fundamentals or even fundamentals of corporate earnings. china is a very different circumstance. china has not been a participant . caroline: we will look out for how china performs going forward. great to get your perspective on the exposure to the rest of the emerging markets. justin, director of oppenheimer funds, live from beijing for us. alix: it is all about inflation. i will show you three charts that will dig into why inflation expectations are so low and what, if anything, and boost them higher. off the charts is next. this is bloomberg.
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alix: this is "bloomberg ." i'm alix steel. some fed officials say inflation is not picking up, but one area holding firm is inflation expectations, causing a big fed.em for the this is what we got out on friday from the u michigan report. it continues to move lower down 2.5%. it is the lowest that we have seen in the past five years. that sticky inflation expectation has been a big problem for the fed. this chart explains why. this blue line here is the u.s. cpi. the white lines are the five-year forward breakeven numbers. you do see inflation start to move somewhat higher now around 2.2%. it is versus inflation
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expectations that are staying very sticky. keynote to desk you multiply this does not see through to a lot of confidence for investors, which is in part of the reason why expectation has been sinking so much lower and has and sticky. it does not make you feel good about where prices are headed. one possible upside could be wages. this chart comes to us from bank of america. it is where we are seeing the wage increases not necessarily a positive. the bottom 20% of earners have seen wage gains up almost 4% where the 80 remaining percent of wage earners are down -- they are up, but they are 2.5%. the game has been in the lower income workers, minimum wage, a shortage of less educated workers. not necessarily does that feet through to the overall which picture and to overall
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inflation. watch where we are seeing the wage gains. it might not be all positive and enough to fix though slower, sticky inflation expectations, carolyn. caroline: fascinating because we will be getting all that data coming out. in the next hour, we will be discussing with some of the guests we are getting on the earnersut lower wage and how that has been pushing up in terms of wage inflation. bank of america's senior economist, she is the capital chief u.s. market strategist. she will be digging into how the lower wage earners are pushing up inflation. and then jonathan will be joining our roundtable over from rbc. stick with us. this is bloomberg. ♪
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♪ prepare for takeoff.
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janet yellen boosting bets for a hike to 42% in the focus turns to friday's jobs report. chancellor tries to win back voters by issuing tax cuts and reaching out to voters amid populist challenges. alix: the greenback climbing to a two-week high after said hike doubles after jackson home. welcome to the second hour of "bloomberg ." i'm alix steel along with my guest host caroline hyde. david westin and jonathan ferro are on some kind of violent. it is a market that is re-rating fed hike expectations and drums on jobsone friday. caroline: jonathan ferro will be tweeting out reaction to this and so will david westin about
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once again the repercussions coming from janet yellen speech. it seems to be that the dollar is back with all bets on 42% for september hike. alix: the question now being are we looking for asymmetric risk when it comes to a dollar into jobs friday? if we do not get that seller number, what is the potential for selloff? much more dramatic for any kind of outside. caroline: we will talk central banking when we talk the economy. we will be talking markets with pimco's chief investment officer. aboutl discuss how much how they feel about how september is not all lined up. first, let's check in on how the markets are reacting. alix: to want to start with what was happening in the bond market, particularly in the 30 year treasury's. we are seeing yields down by 1.4 basis points. it is not down as much as earlier it in the session, but a
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big change from what we saw back on friday. we saw a huge jump in yields. it is the biggest jump since may of 10 basis points. a possible rate hike in september possibly december. that is cooling a little bit today. what is not cooling is dollar strength, continuing to see the dollar move higher. the dollar index up 3/10 of 1% and seeing pressure across most major currencies. mr. corona is saying thank you very much, jackson hole, for helping me out. overall, the bloomberg commodity index is lower. brent crude and of uti getting hit particular hard as we pound nonofficialto the opec meeting. we did see emerging markets selloff today. not a lot of physicians being put off. we do have a lot of question
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marks on what to expect 8:30 a.m. friday with that jobs report. caroline: every industry group falling here in europe on the stock market. let us dig over the next hour when we go around the world with bloomberg team coverage from beijing to sao paulo. central bankers big weekend in jackson hole. matt has been in new york for us, digging into janet yellen's speech. tony is in berlin on angela merkel's pitch to voters. thean is in san paolo with latest on the impeachment hearings. alix: matt basel is joining us. fed officials do what they need to do with stanley fischer backing up janet yellen on the end of the day friday? matt: it was fascinating because if you look at the charts on friday, the investors expectations for a rate hike
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this year actually went down after they heard janet yellen speak. it was not until later that stanley fischer came on tv and said maybe we will raise rates this year. that caused a big reaction in the market. it will be interesting to see how sticky those expectations are as we get a ton of economic data. we have the big jobs report on friday. alix: the rhetoric seems to be if it is a blowout number, it's going to be very difficult for the fed to not increase interest rates in september. matt: that is certainly the risk when you look at the last two months. we have had these big job numbers of the last two months. now we are looking for something a little bit less around 180,000. we really only need 150,000 to keep job growth study around 1.7%. if we get another big blowup number, people are definitely going to be wondering if the fed will resist raising rates in september or december. a lot of them seem to want to go if they are able to. let us see if the jobs number
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presents them that opportunity. alix: matt, thank you very much. the key there is able to resist. i love that framing there. caroline: certainly and how much they can fight back a strong dollar as well. let us switch gears a little bit and look to berlin and germany where tony has the details on chancellor angela merkel's pitch to gain more votes. what was she saying? saying -- taking of various domestic points. it was less so about briggs it andes -- brexit and these international crises. this weekend, she appealed to turkish voters. the has been a lot of controversy over turkey and relations with turkey. angela merkel reached out and said i am also your chancellor.
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she also dangled the idea of tax cuts after the next federal election. everybody likes tax cuts. the debate has taken off a bit in germany. she was focusing on those themes all the while stuck in a sort of slump in her approval ratings. mostly because of the refugee crisis. caroline: talk to us a little bit about the upcoming votes that we are going to see. there is crucially one in berlin and also her homeland as well. give us a sense of how close these races will be and how much that dictates things for next year's key election. tony: you always have to be careful to cd state votes in germany as bellwethers of national sentiment. the one this weekend in merkel's political homeland is a state on the baltic and former east germany. it looks like the alternative for germany, which is this
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party, gunningn for markle on all caps of policies, including the euro, will do quite well. they should get 20% of the vote, although they must like will not get into the government there. that is the caveat on that. you have a vote in berlin in two weeks time, which is the city state in its own right. all this is leading up to the big prize already now, which is the next federal election in germany. it is in just over a years time. we do not know whether merkel will run again. she is definitely coy about it in a television interview yesterday. that is something that is very key and we do not have the answer to that yet. caroline: the fight against populist parties surrounding germany at the moment. now let's keep talking politics. ilma rouseff is set to
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speak before congress before the impeachment vote. >> we had a very long session on saturday. seff anddefended rous spoke about eight hours in the senate, which is not a common occurrence to have saturday sessions. they argued it is not a crime and that this is a political trial. there is no legal grounds for her impeachment. caroline: we've got live shots just coming throughout the moment ahead of that speech coming from dilma rousseff. give us a sense of public viewpoints. will there be an impeachment and how likely will she be able to manage to defend herself? >> it is seen as very likely as impeachment passes. most of the newspaper polls have the number of votes needed to oust her. the newspapers have around 52 or
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53 and 10 senators who have not declared about. this is expected to be one of the biggest days. dilma rousseff is attending for the first time since proceeding started last year and her mentor and predecessor is expected to be by her side, one of brazil's most popular politicians. caroline: julia, great to have you on the show. i know you have planned stocks we should be digging in to. alix: we are seeing individual movers. mylan continuing its advance as it will sell its first generic epipen that will cost $300 for a two pack. that cost was $57 back in 2007. that current $300 price is a 50% cut from what it was requesting. a lot of heat over drug pricing here. congress and hillary clinton all coming down on drug pricing and mylan. also taking a look at pandora as was amazon.
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the financial times is looking at amazon may be starting a music service next month and matched pandora's price of $9.99 a month. reporting that amazon is in coordination with many major labels and would look to do something of a royalty rate treatment like apple does. apple currently pays a higher rate than the likes of spotify. wrapping up when it comes to square. square wound up getting a cut from a neutral by from beat tig. priced andnow fully have reached the goals of 13 times. not as much upside anymore for that company. let's get an update on what is making headlines outside the business world. emma is here with first word news. emma: a false report that shots had been fired caused panic at los angeles international airport. hundreds of passengers were evacuated from terminals. flights to and from the airport were delayed and a massive traffic jam developed on a
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nearby road. reports of a gunman were prompted by loud noises. italy will investigate whether faults have to do with the number of people killed in last week's earthquake. at least 290 people died. contractors want to know if building codes were broken, making it likely that buildings would collapse. italy wants to make sure organize crime does not get involved in the rebuilding effort. up herman -- a permanent cease-fire has taken effect. it is laying down its arms as part of a peace accord. it could get rebels political power. fighting and club you has killed an estimated 220,000 people. global news 24 hours a day power by more than 2600 journalists and analysts in more than 160 countries, i am emma. this is bluebird. bloomberg. alix: we will turn our focus to u.s. inflation.
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janet yellen and stanley fischer all saying they are closer to their target. michael pond has one chart that is telling a different story. what could it be? this is bloomberg. ♪
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--x: "bloomberg ." thi this is "bloomberg ." janet yellener in same effect closer to their innovation goals, but this chart says it's a problem. the blue line continues to move higher. how do you solve that gap? joining us now to discuss his michael pond, the head of global inflation linked research at barclays. you are the man. what will help expectations
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catch up? michael: we believe it is hard for it to move up meaningfully at the same time that the fed talks about tightening. it is a fed that has missed its inflation goal for eight years in a road now. alix: do i hear that your flesh and targets will be 4% coming down the line? michael: not at all. minutes thatin 10 core pce inflation came in at 1.5% month over month. that is the 90th time at of the past 94 that the fed has missed its target to the downside. to yet, they're likely tighten in september, at least as long as the jobs number comes in ok. caroline: you are thinking september. what is i your viewpoint? michael: that is our baseline that we expect the fed to hike in september. that has been our baseline for a while. hawkish fed rhetoric has
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increased recently and we think it will take a decent number around 200 for them to go. in a week as vice chair fisher indicated, maybe they wait until december, but our baseline is september for now. caroline: what about the dollar spiking higher? that cannot be something the fed wants to see in the long-term. ofhael: since the middle 2014, every time the fed has talked about hiking, the dollar has moved higher. that has slowed the economy and pushed down on inflation and the fed has had to wait to hike. to some extent, the dollar has been a bit of a governor on fed policy. alix: nevertheless we have seen a drastic change in the yield curve. we are now at 1.4%. we are trending towards 1%. do we get there? it just shows how low expectations are and how much the front end has started to read rate. michael: this is exactly
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consistent with what i was talking about earlier. the fed was talking about hiking and that is pushing up short rates in the market sees that a potential policy area error. as long as that happens, the yield curve will likely continue to flatten. we do see the scope for it to stephen if the fed comes out with more dovish rhetoric. right now, that does not seem to be happening. alix: if the jobs number disappoints on friday, what kind of selloff do you expect on the long end? michael: it is not really clear how much of a selloff we will get. we could even rally if the market prices are tightening. we saw that on friday that as the market started pricing in september, it is still not a lock, but yields moved higher and the back end moved higher but not by much. it is not clear how much of a selloff we will get in the long end. alix: we have had many investors on the show saying any decline
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in the long-term treasuries, you have a lot of buyers overseas come in and affect the yield . caroline: you have to pay for hedging in these particular moves in the u.s. dollar at the moment. that seems to wipe out a lot of that positive yield in the u.s. give us a sense of inflation linked securities. do you think they are a biased they are not hitting the target anytime soon? michael: we think so because they are priced cheaply. we are seeing 2.2% on core cpi and yet the market is priced to around 1.5%. we do not expect inflation to accelerate sin, but we think the market is quite cheap, even versus recently realized inflation trends. alix: when you wind up taking a look at inflation and break it down, yet many different experts and they all look at different things. what is the number one metric that you look at to determine where inflation is going? michael: we look at cpi and then
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we look at cpi. alix: are you looking at housing or medical? look at we certainly inflation and we forecast inflation from the bottom-up perspective. in general what we see is that service sector inflation, domestic induced inflation looks normal. close to 3%. it is really good price inflation, which is a global story that is low around zero. that is likely to stay low. the fed seems to be focused more on the domestic induced inflation, which is why they are more comfortable height and rates. -- hiking rates. alix: michael pond is sticking with us. really interesting when you take a look at the nuts and bolts of inflation and how the fed reacts . caroline: jets coming up, we will be digging into the emerging markets assets. newsg odds for 2016 fed with the tuesday advance. up next, we will debate which
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countries will be impacted the most by tightening of u.s. monetary policy. from london and new york city, this is bloomberg . ♪
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caroline: welcome back to "bloomberg ." let's talk emerging markets now . they fell after comments from diverging from policy in the u.s. and around the world. michael pond, the head of global inflation at barclays is still with us. he spoke earlier on this brilliant phrase that the fed is being governed by the dollar to a certain extent. how much is the fed going to be governed by the rest of the globe? michael: it will be tougher fed policy to diverge too much from other central banks. one of the things we heard over the weekend at jackson hole is head ofage from thae
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the bank of japan is that they are likely to continue to stimulate their economies. qe asope embarks on more does the bank of japan, it will be tough for the fed to diverge significantly from what other central banks are doing around the globe. caroline: these are developed nations that your speaking of with japan and ecb. give us a sense of which emerging markets are going to feel the most if we do see the dollar strengthening. michael: i do not have a strong view on that, but the fed certainly looks at what the impact of u.s. growth is when emerging markets decline because of fed policy. there is definitely that circular loop and that has impacted fed policy. in the past, that has been another governor on the fed tightening when it sees global growth weakening as a result of their own rhetoric at least. alix: do you see a possible issue that if a country actually stopped using like the u.s. that
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we are going to import disinflation? michael: if the dollar strengthens and it impacts global growth. that is exec at we have seen the past couple of years. alix: is it the velocity of that or an absolute level? michael: it is more due to global growth. global growth weakens, we will continue to import deflation. as i mentioned earlier, core goods is already in negative territory. if the dollar strengthens and global growth weakens further from here, then that deflationary pressure will worsen and the fed will likely stay its hand. alix: i know you want to pinpoint one market that will be hit harder by rate hike, but are we looking at january of this year at the fed does hike in september where we saw the yen fall off the cliff and establish an -- destabilization and the emerging markets? michael: china is a particular
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concern out there and that is what we have seen in the past when the fed increased its hawkish rhetoric and the dollar strengthened. the outlook on china has tended to worsen. that is certainly a concern looking ahead. caroline: give us a sense of the european reaction. you mentioned the ecb. we are at two different speeds when it comes to stimulus to come. are you expecting more ecb stimulus at the next meeting? michael: we are expecting more stimulus, but we have moved our call from september to december because the data has not been as bad as we and others have been expecting. there was an expectation that the impact of brexit would be quite on europe and the u.k., but we've not seen it in the numbers it. we expect it to play out and the economic data to prove a backdrop of more stimulus in europe. we think it will likely be in december rather than in
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september. caroline: crucial unemployment data from the u.s. and europe. thank you very much, michael pond. great to have you on the show. alix: we want to get you caught up on were equities are trading. it is softening pretty much across the board. london is closed today, but you are seeing futures basically alatively flat and it wil little weakness at the dax. switch up the boards here and it is a stronger dollar. is 1.02.r-yen coming up, we will be speaking about what the fed's next move is and what it means for stocks and corporate profits. this is blumber bloomberg. ♪ . .
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caroline: this is "bloomberg " the u.k. shut for a back holiday. we are stocks down after we got sally fisher's comments about
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the fed interpretation. nearly every industry group is lower. the fear gauge is rising 5%. let's have a look at the fx market. we have the year off right .25%. the key underperformer is the south korean yuan. breaking news? alix: we are looking at personal spending for july in line with estimates. personal income rising .4%. income rising .3%. with personal spending revised up and personal income revised up .3%. the reason these numbers wind up being critical is if you dig beneath the second quarter gdp it was consumer spending that helped gdp because private investment was weak.
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the question was can people afford to keep spending. this data would seem to indicate yes. we are seeing two-year yields move lower. caroline: it continues to be a fourth month of gains in terms of overall income and spending. let's look at how the dollar has been performing. we are taking up .2% -- kicking up .2%. let's look at the futures market. still flat. there does not seem to be much of a move from the data on the dow jones futures. we saw the selloff on friday. alix: yes, all about friday the jobs report front and center after jackson hole. mohamed el-erian spoke with bloomberg television friday about how this report could influence the fed. >> i think if we get a strong employment report, 200,000 plus with a much higher wage growth,
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they would find it very difficult to resist the hike. probably in september but definitely by december. but that depends on getting such an employment report. alix: joining us now is emanuella enenajor and jonathan golub. what is the number? friday we need to see that the fed cannot resist a hike in september? >> i think it is difficult to say there's one specific job number. we are looking at 180. the average is 250. i am not sure that is enough for the fed to go in september. i think you need a much stronger number. that kind of number would be justification for december. >> here is what you have. an implement rate under 5%. core cpi is running over two and has been for a while.
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the fed should be moving the rates up. whether they move in september because we have more jobs created this month or december, the economy is in decent shape. here is the most important thing. the stock market will be cool with a move on the part of the fed because ultimately it is the economy's success driving as opposed to the fed forcing the issue. alix: of friday, we saw fisher come out and it seemed more hawkish. >> 15 basis points. that is nothing. within 1% of all time highs. the s&p did not have any response at all. nothing that would give you reason for pause. of howe: give us an idea much longer will see growth sustained by the u.s. consumer. 70% of the overall economy.
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they are still seeing growth. will this continue? >> i think so. the consumer has been the engine of recovery. they have held up in the past year. i think the consumer is critical. we have been getting solid jobs numbers. i think this is what you need to see to have the consumer to continue to have growth. incomes are strong. this will continue to be the engine for growth. the fed needs to see this continue to feel confident with further hikes. citi digging into the range growth, in up and saying the wage increase will not be done by the higher earners in the economy. see on aggregate a gradual pickup in wages. if you dig into the data, defined wage growth is very bifurcated. you have a two-tier market where you see very strong wage gains among lower pay earners. restaurants, retail. there are a lot of signs of wage pressure. some of this is the minimum wage
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hike. that means cash in consumers' pockets. a lot of this has to do with tightness in the lopez sector. low-paidsector -- sector. there is big push towards higher education. this is shrinking the labor supply of these individuals. these companies are having to paint to get people to work for them -- pay to get people to work for them. caroline: jonathan, a seam sanguine -- you seem sanguine about market moves. i want to know about the u.s. dollar. we have seen a big reaction. michael pond says the fed is sometimes governed by the u.s. dollar. does this make them step when they see these little market reactions? probably exactly the right way to look at this. let's be honest. the u.s. is a much better --
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stronger economy on a long-term trend than anything in the developing world and most of the emerging world. as a result, the natural tendency is going to be for a stronger dollar. from a stock market perspective, when you have a stronger dollar it draws global capital into the u.s. to try to take advantage of that and pushes stock multiples up. on the other hand, it is a slight negative for corporate profits. fear from sphere -- the market perspective it is a stronger dollar is going to be some kind of problem i think is incorrect. if you look at other times when you have had persistent dollar strength, u.s. stocks have done there's usually strong economic performance on a relative basis. alix: i'm glad you brought up corporate profits. ath minimum wage going up,
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some point, that will eat into corporate profits. at what point does that figure into hiring? >> this is the most troubling thing for investors. we are in a 3% earnings growth environment. i'm not saying you get to count buybacks is earnings. this is running at half or less than the historical trend. i don't see that getting any better. the wage issue puts pressure on margins. oil picking up is a very positive thing because it is good for corporate profits. i think the struggle people have is how stocks can keep rising even the profits aren't moving. that is driven by different dynamics because stocks are generating so much cash flow impaired to bond alternatives. i'm not just talking about dividends, but buybacks as well. i think he will continue to see
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this strange bifurcation. lousy earnings that don't seem to get much better and a stock market which pushes ahead high andle digits, maybe better, people are uncomfortable with this but i think it will keep going. alix: if we keep seeing the profits, thee worry is at some point they will stop hiring or layoff workers because the aggregate demand is not going up. >> we have had several years of strong employment growth so it has not happened yet. i am not sure if that is an inevitable conclusion of what we are seeing now. profits have been taking a hit by a number of factors including lower energy prices and others seem to be fading. we look at what is happening in terms of hiring, wages. they are still a relatively low share of the overall pie. the overall labor share is still
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low. it still makes sense to hire. we are quite confident in terms of hiring. over the medium-term, maybe get to a stable level of 170 for the next couple of years. we still think the consumer and hiring is a critical component of recovery. caroline: carry on. >> if you look at all the sectors, there is a big difference between the market and economy. when you're talking about profits, you're talking about economic profits as opposed to s&p profits. than one sector that has been a huge stand out in the last 12 months in terms of how well it is doing in terms of earnings, it is the consumer sector where the consumer broadly continues to spend. it is much better than the news headlines appear to be. caroline: we heard coming from jackson hole once again the call for monetary policy makers to go to fiscal policy. we want to see government step
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in. our you as confident about fiscal policy being adopted as you are in the underlying economy? >> that is a decision that is a bump by paygrade in terms of whether physical -- fiscal policy will be moved. there is a lot of opportunity for governments to spend and borrow. there is an infrastructure deficit. we have not seen governments spend on state and local levels. >> let me adjust it. i don't think the question is whether this will be good or bad policy. when you have the government spending more money to boost the economy, much of that ends up being squandered. i think it is coming. i think when it does come it is going to have a big direct impact on gdp and markets and profits. whether we think it is going about policy, i don't think that is a relevant issue. i think the question is how long between now at a time when you
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start to see that come on. if you look at the common space hillary clinton and donald trump , it looks as if both of them are looking to do something right away after they get elected. i think it could change the whole tone of the markets and economy in the u.s. the issue it gets to of whether monetary policy has reached effective limits. i think we are seeing evidence of that in some countries. monetary policy is doing. all it can. central banks are easing as much as they can. growth is ok, not gangbusters. to have fiscal policy step in would be positive for the overall perspective on growth. alix: thanks very much. let's take a quick check on the markets after we got the in-line personal spending and personal income data for july.
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june was also revised up. u.c. features still relatively futures stille relatively flat. there is not a lot of volume. in the fx, the dollar continues to climb higher. the dollar/yen is marginally higher. yields coming down from earlier highs of the session at 1.6%. the two-year continuing around the lows of the session at .8%. oil keeps getting hammered in the commodity market, caroline. caroline: it does. all eyes shift to friday and the jobs number. coming up, we are going to talk crunch time for apple and the e.u. could face at major irish tax bill if the european union decides its arrangements were illegal. we will have the latest details from london and new york city. this is bloomberg. ♪
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alix: this is "bloomberg " i am alix steel. pimco's chief investment officer of u.s. core strategies will be joining us. your bloombergis business flash. carl icahn is raising the stakes in the battle over herbalife with bill ackman. he bought more than 2.3 million shares of the company. that sent herbalife higher in premarket trading. after thereselloff was word he was looking to sell his stake. he has called it a pyramid scheme. the drugmaker is responding to complaints it is gouging
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patients by raising the price of emergency ownership -- the jelly -- allergy shots. the company says it will sell the first generic at $300 for a two-pack, 50% less than the price of the branded medicine. there is a report amazon may introduce a music streaming service as soon as next month. amazon is closing in on deals with the biggest record labels. amazon we charge nine dollars 99. -- nine dollars $.99 a month. that is your bloomberg business flash. this is bloomberg. caroline? caroline: apple could be slapped with a big bill in ireland. authorities have said the tax arraignment was designed to give it financial boost in exchange for jobs in the country. the amount apple will have to pay in back taxes will be decided this week. the number ranges from hundreds of millions to billions of euros.
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the bureau chief for bloomberg news in dublin joining us now. where are we in the process at the moment? back to a couple of years ago. in initial findings in 2014, they found there was evidence of a sweetheart deal between island and apple as far back as last september. we reported apple was going to lose the deal and this case. they were going to fight back. we have heard a decision is imminent. we expect it possibly thursday or friday. that is where we are now. caroline: we are talking hundreds of millions to billions. is there any talk in ireland what the size could be? >> this is where the question is now. we have seen massive numbers, nearly $20 billion by some analysts and $8 billion by bloomberg analysts.
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today one of the irish newspapers quoted a figure as low as 100 million. that would seem extremely low for the richest company. we are watching for thursday and friday. what is the number going to be? we don't know what this point. it seems likely it will be less than one billion. we won't find that out until the end of the week. caroline: it will not be denting its huge cash piles. what about the country? will they be fighting this in the courts? >> absolutely. interesting question because apple will be paying this money to the irish government. why doesn't ireland is take the money from the richest company and spend it on schools? the bigger picture for the has built is ireland a reputation of having simple, transparent taxes and a 12.5% corporate tax rate.
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that has attracted companies like google. the worry from the irish point of view is if they are not seem to stick by apple, that could cast a cloud on the reputation. the bigger picture is what is at stake for ireland beyond one billion. this case could go on for years at this point. itsline: trying to defend reputation, but what about political ramifications any voter base? what do they think? >> that is an interesting question. up until now, it has not come to people's minds much. is ireland really going to turn down his cash from the world's richest company? does that make sense? there are several left-leaning members in the coalition now beginning to make noise that ireland should not fight the case and just take the money. talking to sources, there is a determination to fight this as far as it goes. i don't think we will see the government step back from the fight but take it always the
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highest european courts. it does not want to be taking money. it wants to be spending it. great to have your viewpoint. thank you very much. it will be fascinating to keep an eye on throughout the week. alix: it is. convergence and sentiments surrounding u.s. stocks. we will show you in the battle of the charts next. this is bloomberg. ♪
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caroline: this is "bloomberg " time for the best part of the day, battle of the charts. we have alix steel in new york versus ryan chilcote in london.
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ryan, you are looking positive. give me a sense of the volatility you are looking at. >> this is all about how you should position yourself on the s&p. what caught my attention the great chart. the blue line is where i want to start. that is institutional investors. this is effectively institutional investors and their market shorts on the s&p. at the very end of the graph, they completely fall off the map. institutional investors are increasingly becoming bullish on the market. they are removing, surrendering shorts because they think the s&p is going to continue to rise. they are in disagreement with retail investors. that brings us to the white line. , bets thatket shorts we will see more volatility on the s&p. those have risen 11 fold. that is an e.t.f. popular with
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retail investors. they are getting very bearish. who is right? we talked to one c.i.o. he unsurprisingly said the smart money is institutional investors. he said retail investors are not reading the fine print which he says is encouraging. they are just reacting to the headlines. they have got it wrong. if you want to be right he says come you have to go long on the s&p. that is what institutional investors are doing. that is my chart. caroline: great stuff. your debut. you killed it. what have you got? alix: we are total oil nerds and neither of us did a chart. that is unprecedented. i'm looking at the data point out of italy. the white line is italian consumer confidence and blue is manufacturing. both lower in august. manufacturing most level since 2015 and consumer confidence the weakest in more than a year.
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earthquake tragic but you also have significant political risk like the november referendum and needing to form a government. is that reflected in bond yields? it is not. the purple line is the 10 year bond year -- tenure bond yield for italy. it is down to 1.2%. you have the search for yield spread the hungry money coming in any return. there is still risk as the economic data keeps showing us as well as political risk. you have to wonder at what point investors get hurt and burned by become soes the debt much worse it will cause a rush out of the markets and cause the yield to spike. we have not yet seen that at all. caroline: i love it. you are both looking at hungry investor bases. i have got to say, beautifully done. i love the color coordination.
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overall, we have got to give it to the debut, ryan. it is his first ever time on battle of the charts. what a sterling job he did. i love the volatility you are showing and am intrigued to see what the retail investor base will be saying in terms of going forward. why are they getting bearish? are they the canary in the coal mine? hats off. in the next hour, we will be looking back at jackson hole ahead of friday's jobs report. scott maven will be joining us. we will be digging into dollar moves. european stocks tracked lower ahead of the open in the u.s. this is bloomberg. ♪
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are from the opening
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bell in new york. happy monday. this is "bloomberg " i am alix steel. caroline is joining us from london. david westin is on assignment. jackson hole was the talk this weekend. pushing forward, it is about jobs friday. what number will make the fed have to hike in september? caroline: consensus, 180,000. do we have to be in the 250,000's before we see the dollar push higher? fascinating times. jonathan the most addicted to these things lies on a beach somewhere. alix: he will probably be tweeting. where to put your money during low-volume, the manager of one of the biggest bond funds in the pimco scott mather of will be joining us.
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we've got to check on the markets. is relatively calm. a little bit of risk being taken off. caroline: we are following europe lower after the u.s. sold off friday. the function is where you go when you want to see the biggest news in terms of asset classes to set you up for the trading day ahead. currently, we are seeing russia and emerging-market speaking the pain today. the ftse 100 closed. it is a bank holiday in the united kingdom. we are seeing the emerging-market selloff. the dollar in the green. still more pain when it comes to oil. that will be factoring into the russian ruble. there has been much anticipation of the meeting in algeria with opec. the most formal of informal meetings. it seems we are tracking lower
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in terms of commodities in general. in bonds, we are seeing yields rising slightly on the 30 year. outperforming yields coming down four basis points. where seeing money taken off the table along with fresh as well. -- we are seeing money taken off the table along with russia as well. alix: amazon and pandora, this is a fascinating story that you want to be following. the "financial times" saying amazon may start a new streaming service by next month. amazon is a negotiation with major labels. the more important part is it will compete with apple music paying the kind of royalties apple does. herbalife, the drama keeps unfolding. carl icahn bought 2.3 million shares. this came friday when bill ackman said he was tried to sell
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the shares. and debateted rival when it comes to ackman versus icahn. friday volume for herbalife was six times the average trading. you can bet it was not trading off of jackson hole. harley davidson cut to underperform. calling out the lower than predicted sales. for more on what is happening in the markets all over the world, abigail doolittle is in new york. in europe, mark barton joins us in london. abigail, you are looking at the gaming company. abigail: the shares are plunging premarket down 34% on the news the gaming company could be forced into bankruptcy alongside the named operating unit on the lawsuits creditors or bondholders with lawsuits worth
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four point billion dollars. that could force the company to pay for the debt of the operating unit. some investors are not surprised. there is a high shortage of some shares by 25%. turning to a stock soaring a little, it is down bit from where it was earlier but still up nicely on the news the biotech company has started an early-stage vaccine for the zika disease in puerto rico where it is considered to be an epidemic. the c.d.c.'s saying 25% of the puerto rican population could be infected by the end of the year. this early stage trial perhaps will be successful. investors are somewhat positive. the stock is down more than 30% this year. this could give it a turnaround on the year. alix: mark barton is joining us in london to look at what is unfolding there.
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off the lows of the session. a common theme across europe. >> we were .6% lower earlier. we have improved but still down. investors ruminating, thinking about what happened in jackson hole over the weekend. the average volume 67% below the because everyone but caroline and myself are on holiday today in the u.k. but we are down today. just one industry group rising, health care. the french equipment maker won a contract to design and build 28 new high-speed trains to run betweentrak's quarter boston and washington -- corridor between boston and washington. 3.5% gain. that is set to rise. we had data out of italy. manufacturing confidence in august falling to the lowest
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level since august last year. the prime minister struggling with a stagnant economy, compounded by the massive destruction from last week's that the earthquake. to add to that, we have consumer confidence falling. i want to finish with this chart. this is the market cap of the german versus the french stock market. since 2003, the french stock market has been bigger. right now, $2.120. the german's $1.86 trillion. germany is nearing having gained invaluable in more than $62 and an in the last year mere $50 billion shy of overtaking france as the biggest economy in the region and biggest stock market as well. there is my factoid of the day. alix: i love it. great chart. spotlight is on friday's jobs this could put a september fed rate hike in play.
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janet yellen said in light of the solid performance of the labor market and outlook for activity and inflation, i believe the case for an increase has strengthened in recent months. of pimco joins us from newport beach, california. the job's comment, everyone can get behind that. the question has to do with inflation expectations. does that justify a fed hike? >> certainly, inflation expectations in absolute terms certainly does because they are still above the fed target of 2%. they have been falling slowly, so that is a source of concern. perhaps there is a good explanation. it could be because of zero rate policy and low yields throughout the world. if an investor says i don't know what inflation will be and they look at bond yields, it may be a drag on their own expectations. we don't think those inflation
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expectations will hold the fed back. we don't think it should. affect is actual inflation -- the fact is actual inflation is rising. core inflation in the u.s. is at the fed target. headline inflation will be rising rapidly month by month as we head into the new year. look at my chart of the day. cpi is picking up versus inflation expectations. they have diverged. it feels like the market is saying i don't believe you, fed, you have not delivered for seven years of your inflation targets. raise market do to expectations on the inflation side? >> one thing they can do is stop providing forward misguidance. and has been more like misguidance. in terms of describing a reaction function and developing of the economy that would cause
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them to do things they have not done. probably the best they could do to regain credibility and get control of market expectations is just to follow through. maybe provide less forward misguidance but to follow through with the monetary reaction function which means hiking rates at a faster pace than once a year until they get back to something closer to normal. we started talking about this idea of a new neutral. it does not mean the fed has to go back to some dramatically higher level of yields. we think the neutral policy rate is around 2% nominal. that seems to be what the fed thinks now as well. that does not mean they should take five years to get there. the market currently says that is about as fast as they can go. we think the market has mispriced that. we think the fed will struggle with credibility as inflation goes up and they are reluctant to hike back to the neutral rate of 2%. caroline: inflation will
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overshoot. time to get into inflation l bt?th de >> we think so. we think we will be closer to the fed's 2% target by the end of the year in headline terms. everything the fed is doing tells you they are not trying to stabilize inflation at the headline rate. they are trying to overshoot. that is the only rational excavation for keeping rates so far below neutral. they are saying we will be close to full employment and our inflation target very soon, yet they have no intention of having a policy rate back to neutral. there will beely an overshoot of inflation. therefore, the best defensive high-quality place to be in terms of the bond market is in treasuries which have the huge
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valuation cushion. alix: we are waiting for the market to overshoot inflation. we have a yield curve that teams -- keeps flattening, the flattest since 2007 as money keeps buying any get. what kind of selloff might we see and is it sustainable? >> some of the flattening pressure and drag on yields is likely to persist. a lot of that is coming from things happening outside the u.s. we have around 180 billion in quantitative easing and purchases high-quality government bonds happening outside the u.s. on a monthly basis. that is a big drag on yields. it means we will see a lower level of long-term yields for much longer. we will see a flatter yield curve than fundamentals in the u.s. would dictate. that is the way you want to position in the portfolio. we think the right way to play it is to not own overvalued
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treasuries. seek out undervalued treasuries. at the shorter end of the curve where the market is not pricing in the fed moving fast enough, you want to take advantage of attractive corporate and mortgage spreads. that is how we have constructed our portfolios. caroline: scott mather, you will be sticking with us. are going to get an update on the news outside the business world quickly. suspended -- brazil's suspended president makes a final appeal to keep her job as impeachment proceedings had into the last days. she's accused of illegally financing spending. they will hold a final vote tomorrow or wednesday. a false report of shots fired caused panic at los angeles international airport. hundreds of passengers were evacuated. flights were delayed and there was a massive traffic jam.
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reports of the gunmen were prompted by loud noises. donald trump will go to detroit next weekend to make his first appearance before a predominantly black audience. the candidate has been making a bid for black folks but has done it in front of predominantly white crowds. polls show trump has little support among black voters. .lobal news 24 hours a day this is bloomberg. alix: thank you. they are set to become their own industry group this week. we will look at how that could affect volatility among financials. hedge funds bloodletting. we will look at record says thens and why he days of buy and hold her over. this is bloomberg. ♪
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alix: today, we are putting wheat in focus, down over 2% today. this story caught me by surprise. it is at the lowest price, under $4 a bushel. we have not seen these prices since 2006. unbelievable decline for the commodity. a few things going on. you have a stronger dollar. heatalso see a lot of w coming on the market. you want to clear supply so corn can be added to inventory. global oversupply. one agency says the global crop will be up by 8 million tons. it will hit a record. you also have egypt coming out with an import ban because certain wheat had a fungus they
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were bringing into the country. all those things added to the downside. this is a commodity at a 10-year low. let's get to the other commodity and focus. that is oil. off again over 1%. what triggered this today? >> i think you have a number of factors. when you put everything together and lay on top of that the stronger dollar, i think you will see short-term weakness on bearish crude oil. when you take factors like saudi thata earlier this month, is a record for them. iran is up to 3.6 million barrels a day trying to get you fto 4. canada coming back online after the fire a while back. when you see the supply factors coming in and note the end of the summer driving season is the end of august, i think you're
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talking about weakness in a wider range. alix: all of that leading to the opec nonofficial meeting at the end of september. positioning is bananas. long positions have been increased. give us the downside risk target if we don't get some kind of opec stabilization. >> you are smart to bring that up. there are two things i'm looking at in terms of that. a look at the record of production by saudi arabia, they are doing one thing and saying another. it will be a bumpy ride as we wait for the meeting. i don't think anything will happen at the meeting. the national average for gas at $2.20 and falling demand coming, i think we are looking at $45 on the downside as support i don't think will hold. $51.67 and hit traded in a 10% range for a month. i think that is probably what is going to happen. we will see the range of $45 to
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$50 going back and forth with no direction. production access capacity out of saudi arabia and opec is at a record low. it is only 2.4 million barrels a day in excess capacity. if we have some exxon goodness -- shot, i think it will spook the shorts remaining. there are not many left. alix: thank you, bobby. coming up, credit risk versus duration. we will look at what pimco is betting on next. this is bloomberg. ♪
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caroline: welcome back to "bloomberg " with asset prices inflated by central bank stimulus, pimco says investors need to be more defensive. let's look at what they are buying. scott mather is still with us
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from newport beach in california. you are comanaging one of the biggest bond funds in the world. you have already said you like inflation linked assets. on the short end, you like the corporate area. give us a sense of how you trade volatility. we saw a reaction from janet yellen. more volatility to come? >> we certainly think there is more volatility coming our way. we are at very low levels at the moment. over the last year or two, we have seen sharp spikes in volatility. we think that makes sense. it is likely to be an issue for investors. something we think you should take advantage of but you have to anticipate it and anticipate the volatility is coming. we think those spikes happen because investors suddenly realized every once in a while that we are at levels of asset independently you would say somebody is going to be wrong. you can only square that circle
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by putting central banks into the picture. when you do that, you realize we might be at an inflection point. central banks are unlikely to keep doing what they are doing forever. investors question what would be the equilibrium market clearing price for bonds and equities if we did not have central banks doing what they are doing. that is a big source of volatility spikes. it does not take much for investors' concerns to rise. winches abate that is likely to keep happening. that is why we say when volatility is low, investors should be looking to get more defensive in bonds and stocks. caroline: having a look at how the treasuries reacted to jackson hole. two-year yields spike higher as we see the probability of a rate hike ramped up higher. you are seeing both rising in tandem.
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this is the volatility you are outlining. give us a sense of how you play this from an asset allocation point of view. you're getting into credit and corporate's more. how do you prevent your hit from volatility? >> i think the consistent theme across all of our strategies is we are taking off risk. we are owning less of lower rated credit, making sure we are moving higher in quality and shorter immaturity with respect to treasuries. we are continuing to reduce nominal treasuries. we are looking for pockets of value. in the bond market, we see it in things like inflation linked bonds and also the mortgage market where we think there is quite a bit of value. there is still some value. it is the sort of market now where investors instead of adding more risk to increase yield should be going in the opposite direction. alix: you echo comments we heard last week from mike buchanan.
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here is what he had to say. >> we are shifting things around a little bit. we are taking some gains in high-yield. we still think the right after corporate credit is to remain long. alix: you are doing something similar. you want to take off duration risk. do you agree on gets you want to buy longer-term credit? >> we think credit is fine if we look at valuations, spreads. credit is close to long-term averages. you don't have to worry so much about a dramatic selloff and credit -- in credit. we think it could be a buying opportunity unless you are altering your forecast for recession probability. our best case is the u.s. continues to grow at a 2% rate. we are not close to a fundamental turn in the credit cycle. if we see rapid overshooting like earlier this year, we think
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those can be opportunities for investors to rebuild their portfolios with a heavier weighting to corporate. it only works if you go into those environments prepared and you are not already with a portfolio that is substantially riskier. alix: great to get your perspective. thank you for joining us, scott mather of pimco. we are four minutes away from the opening bell. futures up slightly, relatively flat. the dax off lows of the session. it is a stronger dollar story. a rally in treasuries. this is bloomberg. ♪
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caroline: here is what you need to know this morning pair of u.s. consumer spending rises for a fourth month.
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continued spending is the biggest part of the u.s. economy. rug maker responds to complaints over the pricing of .ts allergy treatment, epipen it will sell generic for $300 for a two pack, half the price. barrel -- $37 per per barrel. next, pushing down prices. we are at markets opening right now. away here,nts waiting for markets to really start opening today. up by about .5%. volume is light. these guys are also the lows of this nationally for abrading, potential rate hike janet yellen that for us on at a. markets are slowly opening, looking at a slightly higher down s&p.
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it will all be about jobs friday and pushing ahead into that. futures.he s&p i wanted to highlight what happened around 8:30 third personal spending and income .ata in line estimates in june, revised higher. are making more, they will spend more. that data helping to boost markets. name we are following closely, the company is coming out and saying they will file -- first generic epipen for $300 for a two pack carton. it was $57 in 2000 seven. that price would be a if 2% this count from what it was charging before. a lot of heat on the government and congress and hillary clinton. amazon and pandora, a , amazon mayreport start its own music service that may match the nine. -- 999 a month.
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-- will have the same royalty deal that apple has. stocks not moving a ton today but a story of how many businesses amazon can get into that is moving amazon us going forward. caroline, you're looking at a huge start we need to pay attention to. yes.ine: the imap is my favorite, a breakdown, you have got to be keeping up with the ramifications of what happens with the united states and europe. nearly every single industry group is falling. health care is one ray of rain. meanwhile it is selling off in particular is oil stocks. oil is taking a hit as you are telling us earlier. consumer discretionary up about .6%. out shows whatever comes
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has ramifications globally and are dictated not only by the u.s. dollar or consumer spending, but by what happens worldwide. alix: i am looking at my favorite chart, the 32 year yield spread. it is around the flattest curve since 2007. story,was a different big jump on few year yields. the biggest jump since may. today, you have the selloff, money come back into the market, and you're seeing a 10 year yield in particular rallying the most in weeks. that idea is that that is a market extortion. what kind economy is that if it continues to flatten. the fed have any control
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over the longer curve? these questions are percolating in the markets. really looking at where he feels inflation is going. withis bang in line expectations. he is getting out of the shorter duration treasuries. big on friday but he really does like the inflation overall. alix: go figure. for more on market expectations, jackson hole remarks plus, mike regan of bloomberg at fly joining us now. it is going to be about the short end of the curve. >> absolutely. 1.2%,increase, up about the most it gained since about may. for that muchek
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of the year, part of the underpinning on the equity rally. we did see some volatility on the market. the s&p 500 moved from its high to the low the day, the most we have seen it move since early july and yet the rain still -- range still holds. we have been stuck in the below. range to a little even the volatility did not test the lower end of the range. we could be in store for another quiet week. everyone waiting for friday for the jobs report to see what it means for the possibility of a september rate hike. >> in financials, we could get a movement. what is the meaning for the sector in the s&p? >> it will be an interesting anomaly on.
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there are two types of investors. for a passive investor, if you nothing is500 index, going to change but if you buy a very bigfunds, changes coming. despite of that tracks the it is realector, estate companies. it will be broken out from xls and investors will get a etfdend of a real estate toward the end of september, september 22 i think is when it pays out. it is an interesting time. expected thise would get people more interested at ahe change is occurring time when everyone's eyes were on interest rates. very sensitive to interest rates because obviously the lower
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mortgage rate is good for them. it is the opposite phenomenon of the rest of the financial index. tanks and insurance companies are correlated to higher yields. the s&p financial index reached its highest level of the year on friday despite its weakness on rates. it is a breakup of the financial sector that makes a lot of sense from that perspective. in opposite directions with the prospects for interest rates. alice: nonetheless, a potential market moving event in the low-volume week as we had two jobs for friday. thank you very much and overall, the idea, low volatility and low-volume, just wait for it for friday. >> currently volume is down 60% here in europe.
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the latest company to a -- withdrawing from hedge fund activities according to the financial times. this is after hedge funds saw a record of those in july. an adjunct professor is joining us now with an interesting take on the hedge fund out -- hedge fund outflow. all, the laws of gravity have not been repealed even in the case of the hedge fund. the fund they're looking at had gated and effectively stopped redemptions. and they get a cell recommendation and that is pretty much the kiss of death in the industry. to see it unwinding is not a massive surprise. to --l, an interesting statistics, 54 percent of
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investors and hedge funds were planning to redeem at all but a were planning to reinvest. actuallyngle digit leaving the sector, where are they going? equities at this point have got to be getting people pause. the question is what is driving these investors? of the largest factors has got to be a change in the role of what a hedge fund investor a hedge fund investor is an quite importantly, what the hedge fund investor to be successful must to do. , set it of a manager and forget about it, that has absolutely changed. now the hedge fund managers must have an active management view. what strategies will do better looking forward? what strategies will actually be outperforming. you have to have a view on fed
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funds. scott talked about volatility and inflation. if you take his view that inflation will overshoot, do you have a appropriate mortgage-backed funds that can protect in a rising rate environment, particularly with the curve as shallow as it is here and you do not have to get in there and get a view on what the earnings will be like, but if you are a hedge fund manager, just looking at the things you and alice discussed this morning, rate x dictations five years out, inflation expectations five years out. if you are a manager investing in hedge funds, you have got to have a view. caroline: do you think the money coming out of hedge funds is thing distinct? are people being discerning or is this a generic poll out of the system? >> sadly what i think we have
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you geting, obviously punished for low performance. you can see withdrawals from managers with an excellent long-term track record which might be well-positioned for rising rates in the future and seenime themselves tremendous redemption because the rising rates have not happened. past performance is no guarantee of future results. it is really catching on on wall seemingly not to hedge fund investors that are to the degree just dumping , the previous performers current powerful but unsustainable trends. >> there is also an argument to be made that hedge funds is got too big and that is why you seeing it out match creations of hedge funds this year potentially because they are just too big and you cannot have
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a stellar performance -- what is the argument you made for that? >> the headline makes for a great headline about all the but we are talking about a movement of $6 trillion. >> it is trillion. >> many would be thrilled for such a small percentage. you're talking, for an industry that was $2 trillion, it was to join dollars three years ago. when i started in it, we were thrilled when it crossed $1 trillion. so you have seen one quarter of redemptions. one thing worth looking at is the reality of how much harder it is partially because of the size.
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had been a good allocator and allocated to the largest top-performing strategies, you would have outperformed the s&p prior to 2007 by over 20%. since more recent time the crash, even if you had been in the top forming strategy, you still underperformed by four or 5%. a difficult road unless you are actively moving your portfolio, to catchgot to move it up and be able to continue to compete if your index, when you sit down with the board and they are talking about the s&p, you have got to actively invest your portfolio. alix: thank you. great to get that perspective. will roundup reaction to janet yellen's jackson hole speech and look ahead to friday's jobs report. this is bloomberg. ♪
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alix: this is bloomberg . coming up on bloomberg markets, susan wong, m&a head of americas , will be joining bloomberg television. >> we heard from several voices friday as markets digested fed chair janet yellen's beachwear she said the case arising has strengthened in recent months it -- but provided no guidance. take a listen. >> there is no preset course. you have got to see how the economy performs. if we continue on the path of growth around 2% and reasonably job creation, we should
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patiently be raising interest rates. >> i am puzzled by the argument that the answer to the current dilemma is to raise the inflation target. i think the answer is to widen the discussion to make sure we do not continue to rely excessively on just one policy tool, monetary policy. of the fed being the only game in town is what should be addressed. >> just because you have an inflation rate below the target, does not mean you have a foot on the accelerator. you pick -- you can begin a movement toward normalization even with the inflation rate where it is at this point. case for nominal interest rates in a negative direction, moving interest rates below zero to a greater extent than possible today. >> the evidence we have that it is coming down as party result
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of the policy central bankers have for themselves during that tends to drive rates down below what they otherwise would bp retire i am not ready to go down .nd say it is 3% or even lower >> expectations are already in place to have either in september or december, conceivably at both meetings. shey point here, whatever may have said today, there is one particularly additional data point that will come in before the september meeting and that is the limit report, the jobs report, for the month of august. i think that would up the probability of something in september. if it is weaker, it is likely to not be the case. >> all through the last three years, we have been able to point to strong payroll growth as anchoring the central view
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that the economy is very strong. you look through volatile gdp growth, very volatile, when the labor market sends a negative signal for the first time in years, you have got to look at that. >> a really strong report to 100,000 plus with a much higher wage growth, and they will find it very difficult to resist a hike, probably in september but that depends on getting an employment report. alix: highlighting what matters -- what matters most to investors. listening to them all condensed at once, is a prize there is any kind of clarity on friday. >> janet yellen gave us a sentence. the case for a rate hike has strength and this month, a low bar. most of that came after the fisher, thestan vice-chairman, went on tv and
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said a rate hike may be september is in play. september is now viewed us more likely, not something we have seen for a while. if we do not get that rate hike will be interesting to see where things go from there. >> we have the chart you made for us and it is great. you can see how much we have surged for september. september now beats december. he would not have thought that is the case last thursday. >> the answer he gave was, he basically asked, should we look out for a rate hike as soon as september and he said yes, maybe, which, what are you going to say, no? take both of those off the table. it will be interesting to see how durable the czarist actually as we go through the week.
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we got data that was all right, not much market movement. everyone is looking forward to the jobs report friday. , you mayg question have wage gains or personal incomes, but expectation is so low, it tells the fed that it has been seven years in the market has been right the whole time. biggeryes, this is the rack drop of we can go slow and we do not have to be quick here because inflation is below inflation expectations so noted to get them to move, you need jolt out of the environment. you probably need a big wage or a big jobs number that pushes the unemployment rate down and it's not just the result of falling labor force participation, something to speed them up is what we need to
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see. alice: a very busy week for you, matt era nonetheless, the beating of the drum, we are four days away from the adjuster or it. -- from the jobs report. caroline: always looking to wake -- obs mike -- mark barton and vonnie quinn today. mark: welcome back. >> be here back from holiday. i forget it is a bank holiday. we are always here. wells fargo chief economist strategy us. hearing from the weekend, was to what he has to say about the equity market. he helps manage $233 billion. that is a biggie at the top of the hour.
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marchionne's flirtation. i love this story. what is inctronics, this for samsung? are they strange bedfellows? some will say donald trump has a model immigration policy. speech this wednesday. we will preview that, up in just a minute. >> i'm really looking forward to that. samsung's auto story all about cars. we will look at what investors need to keep an eye on today. stick with mark martin, vonnie quinn, coming up. ♪
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outs: we want to check in here on the mark. the dow is up, as severe as well.
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volume is not as bad as i thought it would be. we picked that up here and remember the uk's out for that holiday. the shiver down the line of the effort market that we could see a rate hike as soon as september. 42%. this is interesting. the movement in terms of the fear gauge is really starting to ramp up in europe. slightly more than the u.s., a risk appetite, great being with you. alix: we are still seeing the money moving to the treasury market. you will be with me friday. that wraps it up. this is bloomberg. ♪
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>> it is 10:00 a.m. i am vonnie quinn. mark: i am mark barton. this is bloomberg markets on bloomberg television. ♪
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vonnie: we will take you from washington to johannes erg and cover stories from italy to brazil in the next hour. it seems janet yellen's speech was hawkish enough to boost the september rate hike and bond whattors agree, but not -- it could mean for the equity markets for this friday practice u.s. payrolls resort. chrysler's is looking into the time -- samsung. what sergio marchionne has to say as the italian american company widened its search for a technology partner. vonnie: shares rise today as it announces lance for the epipen in the coming weeks for


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