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tv   Bloomberg Markets  Bloomberg  August 31, 2016 12:00pm-2:01pm EDT

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from bloomberg world headquarters in new york, good afternoon. matt: we are covering stories from new york, south hollow, to your hunt is berg. -- johannesburg. nejra: stocks on track to close out what would be an eerily calm august. matt: keeping a close eye on brazil, whether to remove dilma rousseff could come at any moment. nejra: donald trump lending a quick trick to mexico surely before the republican presidential nominee is slated to give a speech on immigration in phoenix. are nearing the halfway point of the trading day. let's head over to the markets desk. lastil: it looks like the day of august is a down day for
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u.s. stocks. three major averages all trading lower near session lows. these losses are somewhat modest, but importantly for the dow and s&p 500, today's declines have put these two indexes on pace for monthly declines. for the dow, the first since january. s&p 500, the first since february. we have a few hours left. one pressure on stocks today is certainly oil. oil absolutely plunging after department of energy data earlier today showed surprise the old. three-time expectation to $2.3 million barrels. we can see that fund. a correlation between stocks and crude. nejra: we just got some news. it was not good. abigail: we're looking at deere and monsanto.
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seeking to block become this purchase of monsanto's precision planting equipment business. this is why not both of these shares. sticking with agriculture, we take a look at the grain complex, we see big losses on the month for corn, wheat, soybeans, and cotton all lower. sinceis having its lowest 2013. cotton, since 2014. when we take a look at a chart, we see the profits income for farmers has declined for the last three years on pace for the fourth annual decline in a row. those grain prices are really hurting the farm -- since we'veggest seen since the 1950's. nejra: thank you. matt: let's check in on first word news with mark crumpton.
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mark: in brazil, delay in the impeachment vote assist been a president dilma rousseff. she will be removed from office if voted out. senators who support her want to separate the vote on her removal from the presidency from a ban on holding public office for eight years. the supreme court justice, the chief justice, is expected to decide later today on that petition. of hidings accused the size of a budget deficit using accounting tricks. donald trump is expected to arrive in mexico city at this hour. he will meet with the mexican president. a few hours later, troubles begun immigration in phoenix, -- trump will speak on immigration in phoenix, arizona. hillary clinton will make the case for american exceptionalism in a speech to veterans today. the democratic presidential nominee will speak to the amerco
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legion convention in cincinnati, ohio. north carolina's outer banks have been spared from a tropical storm that is been moving toward the state for two days. the national weather service says the system is moving away from the state. global news 24 hours a day, powered by more than 2600 journalists and analysts in over 120 countries. i am mark crumpton. nejra: as we wrap up august, the dollar is headed for his first monthly advance against the yen since may. joining us now for a look at the currency market is vincent cignarella. vince, you think dollar-yen is testing some limits? >> it is about the 50-50. it is looking good technically, bullish, very good technically since recent.
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the yen has been the most sensitive currency. since jackson hole post up most likely to remain that way. for general play, this is most likely the volatile currency we will see. matt: you have to live under a rock to not know we are waiting to see if the fed raises rates in september or if put it off until december. a majority of the people, more than half degrees, they will do it one of those two months. what is the bank of japan going to do? are we looking for more stimulus? >> they have set the bar pretty high. the markets are looking for a bazooka and a half, if you will. buying,hases, bond cutting negative rates. it does set up for a little disappointment if they do not get to where the market wants them to be. so far -- mac os the bank of japan disappoints, we could see the yen pop up like a spring. >> we could. it depends on what the u.s. does in the interim.
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you could get a double sort of bubble out of that if the boj does ease, the fed should surprise, i think, if they do so in september you could see a real pop at a dollar-yen. nejra: i remember looking at the probabilities of where the yen was going to go a week ago come the direction of travel was pushing much more toward a strengthening rather than a weakening yen. do you think that has changed? >> a little. a lot has to do with fischer's comments in jackson hole. it remains to be seen, both he and yellen have stressed data dependence. as the data goes forward, will that support the argument that the fed does want to get to normalization? they really knew the economy in the data to support it. nejra: i want to look at sterling. just get your view on this. we have seen perhaps a little recovery, some positive data recently.
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have it extending its losing run in the sense it is falling for a fourth month against the dollar. where do you see the direction of travel now? >> i don't have such a negative view on sterling as perhaps many others do. primarily, the brexit moment is not this let there be light moment. it will take years for this to develop. the average consumer does not react the way we do as markets. they are not going to panic. --y will go a long confidence number's were better than expected overnight and much better than they were the previous month. matt: hsbc, one of those guys saying, one dollar 10 for the pound. i think it is an outlier call. cable tends to have this equilibrium around 1.50, 1.60, doesn't it? >> if you look at the maximum level of cable going back to the 1970's, it is 1.75.
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1.60 for me is where sterling seems to go eventually. nejra: we have breaking news on the u.k. right now. the u.k. government is seeing no need for a parliament vote on article 50. this is just coming across the bloomberg. u.k. cabinet emphasizing no need article 50.ote on this is significant because we've had a number of lawyers coming out and saying, look, you can't have theresa may triggering article 50 without actually a vote in parliament. this is significant. this changeu, does the dynamic around brexit at all? >> i think it puts the ball in her court, where i think the market always thought it was. this is more of a formality. most of the people i spoke to did not see this as a hindrance as to the timing as such. again, the timing of briggs it -- brexit is a ways away. matt: i just pulled up brex-go.
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it shows you all of the headlines rolling across. if you look on the right-hand column, you can see what to watch. there are a number of days. coming up on september 9, finance ministers meet. it is a great function to keep up with what is going on. the u.k. economy -- the hard data we got out is not bad. we were talking this morning about the fact that housing prices across the u.k. are still up 5% in change. i wonder, is it the chicken or the egg? 's economic data not doing as poorly as expected because of the drop in the pound? is the pound is thing down because economic data is not as good as it would have been? >> to the first point, yes, the hard date is doing better. you're seeing inflows into the 15% because of the roughly
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drop in the pound. situation is, the something far away, the hard date is still holding up. it is a sentiment data that has been lagging, yet consumer comments last night is reasonable. nejra: what about the current account deficit? this plays into sterling weakness. >> i don't know it plays into it in an immediate sense. it is an outlier complete -- cap had to the other data. -- it is an outlier compared to the other data. i want to ask about the bears you think are the hottest right now. we were talking about pound-yen. i wonder if the pros are looking at the pound pairs. crosses all looking on the good side. the underlying trend to that is the weakness in the yen.
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how that plays out, we will await friday. cignarella,ent thanks for joining us. matt: the u.k. government sees no need for a parliamentary vote on article 50. we will continue to cover those headlines as they roll across. when we come back, we will talk with billionaire money manager bill gross about why negative interest rates are turning assets into liabilities. that interview is at 1:30 p.m. definitely one you do not want to miss. pimm: cio of asset allocation on emerging market strategies joins us at 1:45. a jampacked day on bloomberg television. ♪
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matt: this is "bloomberg markets." i am matt miller. a lot of attention on u.s. jobs report. before we get to that, u.s. auto sales for august. tomorrow. let's look in to that. he can't miss pulled by bloomberg anticipate a flight -- economist pulled by bloomberg down from 17.8 million during july. the survey here is the orange line. it shows the drop for this month . the pace of auto sales is the white line, remains a solid. you can see we have a little bit of weakness at the end of. growing expectations of the pullback for that. trailed analysts estimates for july. these are the average analyst estimates for august compiled by bloomberg with drops, again, you
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can see for gm and ford as well as a slight one for toyota. the u.s. automakers have underperformed the s&p 500 since the start of the year. ford shares have fallen 9%, even with the redesigned f-150 pickup a full production volume selling well with all of that aluminum and 700 fewer pounds. the f-150 is indicative of one of the trucks over cars trend, the main trend is up regular gas prices are still relatively low, which has helped create the divide with trucks -- the oars line -- and cars -- the white line. bigs cheaper to drive those rigs. to help keep those sales stable, automakers have already responded by boosting incentives, giving you more money back at the dealer. the financing is a big key to these record sales gains as well. you see the average amount
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financed for new carlin's rose to nearly 28,000 -- carlin's rose to nearly $28,000, the highest level since the fed began tracking this eight a in 2008. that has some concern, including jamie dimon who said back in june, the auto market is overheated. bloomberg viewpoints out greater intensity of sales than any other point in the current economic expansion. consumers appear to be paying for an increasing worst of the auto purchases with borrowed money. increasing portion of the auto purchases with borrowed money. leasing is also a huge deal. we will track the numbers. when they all come out thursday, it will be interesting, especially for me as a big fan, to watch. nejra: time for the bloomberg business flash. the u.s. government has filed an antitrust lawsuit to stop
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purchasing between monsanto and deere. the u.s. says it would limit condition and raise costs for farmers. more problems for certain is, blood test for the zika virus after regular discount problems with how they gathered patient data. they are the been sanctioned by u.s. health regulations for failures to run its laboratories of to standard protocols. that is the bloomberg business flash. back to the markets, bullish on banks come european banking stocks are posting their biggest ofthly rally since february last year. i am showing you this in a chart , matt. you can see a post-brexit summer rebound. august surpassing july as the best month for european banking shares.
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the bars showing the monthly change, posting the biggest rally in european banking stocks since february 2015. this has been supported partly by earnings that beat estimates are the first time in a year. it really takes the rebound from the low that followed brexit to 23%. interestingly, u.k. shares are leading the gains. hsbc and barclays -- matt: it is interesting. nejra: a lot of it is the weaker pound helping british comedies as well. best lovelyfforts surge in seven years. best surge in seven years. matt: a lot of money they get paid is different from previous years. when the shares come down, it hurts their bonuses by about
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dollars those shares come down. i have a look at the u.s. bank shares. here they have been a great performer, great part of the market. you can see this chart goes back to the beginning of 2015. i have the shaded area, which is most of 2016, just a constant game and bank shares. we see them up again today. a big part of the bullish scenario for stocks. rotation back into financials we are saying, how much of it is down to expectation of a fed rate rise? matt: absolutely. although, the market is only looking for one rate rise, so it will not have a huge effect. a little bit is better than nothing, it's really better than negative. still ahead, donald trump is an mexico city meeting with the
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mexican president, just hours before his highly anticipated immigration policy speech. what will he say? we will have a preview. this is "bloomberg." ♪
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matt: donald is touching down in mexico today. he is meeting with mexican president pena nieto. the visit comes after trump has wavered on one of the central issues of his campaign, and that is whether or not he will support an estimated 11 million immigrants who are living in the united states illegally. later tonight, he will deliver a speech in arizona, come back across the border, clarify his views on immigration policy. to get more insight in what we can expect from that speech, steve joins us. what is he going to do? how are they going to hang out? pena nieto has compared trump to
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mussolini, kittler -- hitler. has not been terribly nice. true trump form, we don't know how he is going to handle this meeting. she could handle it two ways. he can either use this as a moment to look like a statesman. he can go down and have a meeting with the mexican president and come out and say, we had productive talks, we disagree on a lot of things, but i think this is a guy i can work with. we will figure out how to work together, although, i stand by my principles and use it as a way to look like a leader. at the same time, he is expected to give a speech tonight in is going to upset, and someone's got a lot of his base. he could leave this meeting with the mexican president and say, i told him who is boss, i told him he is going to build a wall, you know, i fought with him on the -- i'm the tough guy and set
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the tone that he is trump the trumpguy, and not the softening on immigration. nejra: will it be as easy for him to do that that he is going across the trump border to mexico? >> he doesn't have much bargaining power for a guy who loves to negotiate. he doesn't have much power in this relationship as of now. trump is all about rhetoric. trump comes out and makes a statement, we will have to do some reporting of figure out what happens in that meeting, but trump will come out and say something and we will see if what he says and what the mexican president says are the same. matt: what to expect to hear from him tonight? this meeting aside, what do you expect to hear from him on policy? lot think we will hear a about him talking about sensual or cities and his opposition to that. matt: because he is in arizona. >> and because his goal is to
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contrast his immigration policies with hillary clinton's right now. he talked about the wall for months and there's been a lot of talk about him softening his approach to deportations. he may do that. he may had some lynwood. to make up for that, we will hear him go really hard at -- hey clinton, contrast will say she wants amnesty, her plan to seek citizenship and -- a path to citizenship and all that. and still come out and he will hedge a little bit where he needs to, but come strong on the wall and all of the other policies he has been talking about for months. nejra: given he is not doing as well in the polls as hillary clinton right now, is this the ideal move who should be making to kind of lift that or are there other things you should be focusing on? >> this is his golden issue, though. this is what got him through the
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primaries. this is his signature card he has been playing. in some ways, this is trump going back to what he knows. this is the trump going back to what he is comfortable running on. something that was successful for him. whether or not he's refocusing on other things, i think a lot of people say he should be, but trump does what trump knows best, and this has been successful for him so far. i don't know why he things he should change. yaccino, thank you. we will be watching. nejra: coming up, the south african rand tumbling against the u.s. dollar. we will have more, next. this is "bloomberg." ♪
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♪ live from bloomberg world headquarters in new york. matt: this is "bloomberg markets ." let's start out with the news
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headlines. mark: there is a delay in brazil of the impeachment vote of the president. she will be removed if 54 of 81 senators about her out or it now senators want to separate her vote of removal from the presidency and a ban of holding public office for eight years. they are expected to decide later today on the petition. the president is accused of using accounting tricks to hide the size of a budget deficit. donald trump has called mexicans rapists and threatened to build a wall on the border. he is in mexico and will meet with president enrique pena nieto. donaldred to meet with trump and. donald trump will lay out his latest plan to fight immigration. eu pushing apple
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to pay back taxes may push the u.s. to do something. >> the pattern of the actions appears to be highly focused on it u.s. firms. they point to smaller action against non-us firms. the largest actions appear to be aimed squarely at our tax base. s have. multinational parked more than -- they have not been able to agree on a plan to bring earnings home at a reduced tax rate. at the u.s. agency leading the fight against the zika virus will run out of money to do so next month. the head of the cdc says "the cupboard is bare." republicans and democrats in congress have not been able to agree on a zika funding measure. dayal news 24 hours a
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powered by more than 2600 journalists and analysts in over 120 countries. nejra: thank you --matt: thank you very much. the private income fixed money manager will stop lending money to south africa's largest state companies. they say they are concerned about government infighting and direct the independent to the finance industry reaction has been swift. in an exclusive interview this morning mark barton and vonnie quinn asked the chief investment officer why he made the decision . >> we are sitting in credit committees and talk about five or 10 year loans and we are doing that in an environment where the government seems to be at war with itself with imminent fighting between national treasury and the administration. last week the administration
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announced a new panel or commission or counsel to oversee largeate rnc, which are pictures of power plants and we do not know what that means. we have no context and we find it hard to make long-term investment decisions without understanding what is going on or what power struggles are behind it. it seemed rational to suspend decisions until we get clarity. >> what would it take for you to resume lending again? would it just a government that is stable be enough for you to resume lending? the answer is we do credit analysis and any credit analysis involves a financial statement analysis and long-term forecasting and a range of factors including governess factors. we are talking about lending industry, the land bank of south africa, the lending agencies, we
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will want to understand clearly how their credit is working, who they are making loans to, have a do with politically disposed persons. in the future on bilateral loans we may put clauses that relate to disclosure of material of lawn loans. -- we will probably focus on procurement and the independence of the procurement. dealing with politically indisposed persons and the like. we would be happy to come back and tell these guys we will fund them again as we have in the past. that was a future growth's andrew carter in south africa. nejra: the head of the emerging middle east and africa economics says iran has priced out
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economic risk and could weaken to about -- peter joins us from london. i have been looking at the rand against the dollar on the bloomberg and it did not actually even hit 17 back when we had the root in january. we have others calling for the rand to hit 19 per dollar. could it weaken even further than 17? mr. montalto: it is possible. i think the real problem is trying to parse out the different scenarios about what the political story really is. if we take a massive step back. under any scenario we end up --matt: can i interrupt you for a minute? goes that is if he an automatic downgrade from s mp. matt: i want to interrupt for a
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minute and you will be interested to hear this. brazil has indeed impeached doma recess. -- dilma rousseff. this vote has been dragged out. overlle -- will take officially now until 2018. this is not unexpected and let me throw a curveball at you. what the you think about that state of the brazilian economy now that we know that doma bruce ousseff has been impeached? peter: i think there is an idea that fiscal policy measures can be passed. it will be a complicated process to get forward fiscal regions.
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i think the market will give a degree of benefit to the doubt that it is a supported global environment to this news. we are seeing: the brazilian rial actually reversed losses. you were saying in any scenario it would be pretty negative for the rand. that investors have not been looking closely enough at political risk. i am wondering, if we do see gordon go, what boxes does a new finance minister need to tick? peter: i think the problem about a new finance minister coming in is why it would happen. if we do have gordon shuffled out it will be because the faction is trying to get access to the treasury and use it to assume control.
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the future group -- it is going for a low basis. we look for fiscal conservatives and someone who is willing to uphold the constitution and respect the independence of the central bank and uphold the public finance managing act which has been the stick link stickling point. matt: looking at south africa and brazil, they are looking at political turmoil. investigators -- investors are treating them differently. is the strongest currency against the dollar of all of the expanded majors. even though they have inflation, 14% interest rates. why do we give brazil such a benefit after a long six quarter recession? peter: i think since the start
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of the year it was all about this story of identifying and picking a bottom in brazil. a big market shock and a big economic shock with the recession that is ongoing. that is allowing the brazilian political elite to change. in south africa the real problem we have is picking the bottom. this is the disagreement i have with investors. this summer was not the bottom, the status quo of economics and politics in south africa is still very damaging to investors and to the level of the rand going forward. that is the fundamental difference, we cannot take a bottom in south africa. nejra: looking at brazil is there further upside to the real now? peter: we have to see the new central bank in particular, berlin, not that they are overly
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dovish, but there were concerns that the previous board may be too hawkish. they regain confidence now in the real will help. theink it will support for -- further moves. it is still early stages in terms of data, but you can get further upside on the real. matt: i want to reset so that viewers understand exactly what is going on here in this breaking situation. we have confirmation that the brazilian of parliament has officially impeached dila ro usseff. that means michelle tamura will stay as the president until 2018 hasit means that rousseff the option to appeal to the supreme court in brazil. we see the real gaining
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strength and it is the biggest gainer against the dollar of all of the expanded majors. you can see that. the vespa had been down bounces up a little bit, but continues in negative territory. i want to go to julia, our euro chief in sao paulo. gotten that right that if she can appeal or possibly leave the appeal and except the impeachment? >> from what we have heard so far she is going to appeal. she said that herself in congress on monday and she said the only reason we have an appeal is that we have it voted -- haven't voted yet. matt: i am looking at the country guide and you can see with any country, if you type up
12:42 pm on bloomberg you can pull up all of the assets that have been so strong. is it interesting to see resilient do so well with investors? a six looking at quarter recession. it must be difficult for citizens to understand this dichotomy. >> the economy has not rebounded yet. it is very hard to find signs. some confidence indicators have improved, but the economy is still not doing well. it gdp came in this morning below expectations. the markets have been rallying for months based on the hope of political change. some investors say a got ahead of itself because now we actually have to see any of this getting done. nejra: how much longer? what is the timeframe for this
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carrying on? we have an appeal, how much longer do investors have uncertainty? julia: the hope and what they are pushing for is that the new president will act more forcefully and quickly now that he is not the interim president. he now becomes the president toil 2018 so he really has push a little harder for these reforms to get the economy out of the recession. matt: what do you think we will see happen with brazilian assets? a lot of times you can buy the rumor and sell the news, the first cliche i learned on wall street. do you think we will see a turnaround? peter: i think the probability of today's economy, maybe a little bit of that.
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those reforms going forward are what people will be watching now, and the data. it is definitely time to deliver and there are benefits to the dow through the first half of the year. before we remain optimistic looking through the end of the year. matt: thank you so much for joining us, head of emerging markets. sao paulo correspondent. this is bloomberg. ♪
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♪ bloomberg.watching i am vonnie quinn. >> and i am mark barton and this
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is your global business report. >>eruo area inflation cannot get off the ground. will it push ecb policymakers to call for more stimulus? saysutsche bank executive small is better and he says the company is not looking to merge with another bank. after 13 years of uninterrupted expansion, apple sales dropped for the first time at the start of 2016. is another blockbuster product in the pipeline? thatgin with more signs the euro area economic outlook is deteriorating. consumer prices increased .2% over the year. the data comes ahead of the ecb meeting next week and policymakers already have unconventional stimulus measures and have been unable to stoke inflation.
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joseph stiglitz was critical of ecb policy. the first day we focus on inflation and then the intermediate variable they thought about was the interest rate. now they have negative interest rates. and they have not worked. these negative interest rates have not -- if not done carefully, actually weaken the balance sheet of the banks. mark: deutsche bank is shooting down a media report it considered merging with rival bank. the chief said they are actually looking to get smaller and they have been restructuring in the last year. they sold risky assets and cut thousands of jobs. investment bankers are watching their bonuses shrink. financial stocks plunged this year.
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$2.5 billion of deferred shares come among the biggest losers bankers at credit squeeze -- credit suisse. increased in the past five months. that is according to nationwide building society. we game -- the market in housing in the u.k. was weaker, but the shortage cap prices rising. ♪
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♪ matt: labor day weekend marks the unofficial end of summer at anyone on the east coast looking to skip the traffic needs to look forward than the -- no further than the uber of helicopter. they offer direct service to all
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new york city airports and they go to the jersey coast to the tennis. for more why don't i bring in blaze ceo. i was looking through your app, which is why i know so much about where you go. you do the u.s. open which is interesting. >> we are flying people from new york city and the hamptons to the u.s. open and providing transportation straight to courtside seats are it is the blade bundle experience and includes courtside seats. nejra: what is the cost for various routes? .> it depends and u.s. open package will be 695 including seats. each way. it is a great package with the cost of the courtside seats. and away you are flying for
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free. a flight. for nejra has to go back for her day job and i was thinking we round up some producers. >> you book from the app and you are guaranteed to have a helicopter within 20 minutes landing. we have people on the way to the airport in an uber, i am not going to make it and go to a blade lounge and the helicopter is waiting, five minute flight and they make it and they have done it in 30 minutes and got on their plane. we have done passports for people who have left them and they still make their plane. with all of the traffic in manhattan and all of the bottlenecks and if you flight privately, or if you are lucky enough to fly privately we can land within 45 feet of your private jet. nejra: do you think i could
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expense that? rose are just showing some to go cups. you can have wine on any flight? member of thea flight crew hands you the alcohol i need to not bring your own, you can. our lounges provide you with rose. matt: i was just thinking because i know you have a hamptons package where i do not have to have a place to stay. >> we partner with t-mobile and we have something called the southhampton same day slingshot. you leave at 10:00 a.m. and you with ad you are taken cadillac suv to a beach house and you have lunch and you rose and at 4:30 you are back enjoying a sunset on the way back with a small party at the end and you have had a terrific way.ience for $295 each
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it is a great day to enjoy a house at the hamptons and to see a unique part of new york colts -- culture. nejra: i know you are looking to make a verb out of blade. do you have competitors in this space? >> we view ourselves as the first short distance aviation company that has combined technology with a strong underground experience. it makes it an exciting adventure for people to fly and technology with customers and a digital dashboard for our operators which is kind of like an open table for aviation companies. that builds the experience and the blade brand. we have turned it into a verb and we have taken the price of a helicopter that used to be $6,000 and gotten the price as low as $295. a brand-new market, different demographics.
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the average helicopter passenger 5%actually 51 to -- 51%-80 male. female and you skew younger. , butaplanes are growing helicopters grow even faster and we think it is a better instagram for our office. it is a lot more about the experience than getting from point a to point b. we have robert wiesenthal joining us later. stay with us. this is bloomberg. ♪
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♪ 11:00 p.m. in new york and 1:00 a.m. in hong kong. matt: welcome to bloomberg markets. ♪
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matt: from bloomberg world headquarters in new york, i am matt miller. cehic.and i am nejra here is what we are watching. matt: history in brazil is made as dilma rousseff he comes the first resilient president to be impeached. michel temer will serve as president until 2018. can he lead the country out of a six quarter recession? nejra: regulators are looking to block the purchase of the san it will raise cost to farmers. his: bill gross reiterates outlook. he says negative rates are turning assets into a liability and we will hear more from him
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in this hour. nejra: halfway into the trading day let's head to the market desk where abigail doolittle has the latest. abigail: we have decent declines on the last day of trading for the month of august. the dow is on pace for the worst drop since july 5. we take a look at the s&p 500 .nd all 10 sectors are lowered the worst drop since august 2. an intraday chart shows the decline. we are near lows. when we take a look at the vix, it is near session highs as volatility spikes higher. on pace for the best day since june 24. the monthly story is interesting. the vix is on pace for the best month since august of last year. that was a big august selloff,
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the return of volatility on the month. go into the bloomberg and take a 0234.t g it shows a range up and down over the last two years or so. it appears we may be building toward a move back higher toward the top of the range. it appears perhaps it is -- this m could comeerie cal to an end. matt: the whole month of august is negative now. negativewe have turned , the dow is the first monthly loss since january. bonds are telling a different story. when we take a look at the monthly yields, the two year and
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the 10 year and the 30 year we have huge monthly spikes. on the two year that is the since november 2015 and further out the curb the 30 year curb is the best since april. big spikes up and bond yields trade in verse to price. we have a good chart that shows this well in terms of the fact that bond prices have dropped. the worst drop since june 2015 on the 10 year yield correlating to the spike in yield on the 10 year yield, the best sense june of 2015. interesting dynamics here at that end of the month. matt: very interesting correlations. let's check in on bloomberg first word news. mark crumpton has more. mark: donald trump puts the
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spotlight on immigration today. the republican presidential nominee is in mexico where he will meet with resident enrique pena nieto. theld trump will be back in u.s. tonight to deliver a speech on immigration in arizona. he has described mexican immigrants as rapists and proposed deporting millions of undocumented workers. hillary clinton is going after donald trump in a speech on american exceptionalism. you are looking at a live picture from ohio. beginmocratic nominee's to the american legion convention and she says "the indicted state is an exceptional nation." the secondeff is now president to be impeached in brazil's 31-year-old democracy. the senate vote was 61-20. she was accused of using accounting tricks to hide the size of a budget deficit. michel temer will serve as the
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president until general elections in 2018. the obama administration has picked seven people to serve on a financial control board overseeing the restructuring of puerto rico's $7 billion debt. on republicans, puerto rico defaulted on nearly $1 billion and it was the first time a state-level borrower skipped payments on the direct debt since the 1930's. ♪ global news 24 hours a day, powered by more 2600 journals and analysts in over 120 countries. i am mark crumpton. this is bloomberg. matt: the u.s. government has filed an antitrust lawsuit to stop deere purchase. that would eliminate competition and raise cost for farmers by providing the only those coat providers of high-speed planting systems.
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joining us now is karen. how expected was this? did deere note they would have problems when they went to make the purchase? karen: it depends on how you slice the market. are saying they were competitors and now they will be partners and i guess that reduces competition. everyone is working on position farm -- precision farming in the sectors. a lot of them are just big monsters and i think that is what gave antitrust issues. it has taken since november. matt: could they make some concessions, couldn't they throw a bone to the little guys and continue to keep this deal alive .
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>> they said both companies will question the decision. it is anem seems to be already consolidated marketplace and i think these two would have a high percentage of the market. there is i am sure stuff they can sell. who they can sell it to and how they would package it is unclear. nejra: i think we have a graphic showing how we have the year of the agriculture megadeal. put this in context. how much does this matter in the big picture of deals in industry? ed: when we see a name we know -- monsanto is a name we know a lot about. it is now the subject of a takeover bid by bio.
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reported there was a fertilizer deal between two other companies in canada. there is a lot of stuff going on in the agri-chemical space. if regulars feel it is competitive, they are obliged to try to block it. matt: is deere's business in trouble? we have been hearing about farm profits down for three years coming and we have an aggregate deficit in this country. been: 2017 does not look to a better year. market leader and they are doing a good job managing the downgrade in cost. billionlion on a $25 company will not change a lot. they are trying to offset the big equipment problems.
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big equipment is down 20%-30%. nejra: if they are so small why try to block it? karen: i am not an antitrust lawyer but they have been very tough on deals generally in this last year i would say. it is not surprising there are obstacles. just two big monsters trying to consolidate the industry further and i think it is the names that it is rather than the magnitude of the deal. matt: have the antitrust people been active this year? last year we had a record for m&a. ed: a lot of the deals we saw come together last year have been blown up and some of those by justice coming out and saying, we cannot let this go through. it has fallen below the previous peak because of this thing. point -- theust
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way they treat these things is not a reflection of the size of the deal, it is to do with the concentrations the combined company would have on the market. they would have 90%. farmers could be messed about in terms of cost of the equipment purity they would be obliged in almost any sector -- they would be advised to take a hard look at this. o and can i point out mag what a great function it is? you can see so much information in the bloomberg terminal. amazing. of data is here i have a 12 year look at m&a. the blue histogram is volume. if you click annually last year was still up there. below what it was previously, but still a record. do you think we could get close to last year's levels?
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ed: by the way things are going i think that is unlikely. last year it was the size of the deals being done. we saw a surge in $2 billion plus deals. i think this year there will be a lot of deals, the volume will be high, but the overall monetary value is lower. ma go is an unbelievable function. next year, the next generation will have the home telephone phone number of the banks as well. nejra: very briefly, to go back to the antitrust. could you actually see more attempt to push deals quickly because nobody wants to be left out in the cold and the one left at the end trying to merge? ed: one thing we have seen as part of this deal cycle more recently is very high consolidation rates.
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hemicals is ai-c good example. if you take health insurance, for example. the way that has been look that is you cannot look at each deal in isolation, you have to look at the industrywide perspective. there was definitely some i guess what you would call first mover premium. nejra: thank you so much. matt: coming up at 1:30 p.m. eastern in about 18 minutes we hear from bill gross following the investment outlook on a negative rates. he is not pro. rah1:45 weeks be to mihir wo leading pimco's 86 $.6 billion return fund. a do not miss interview. this is bloomberg. ♪
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♪ is bloomberg markets. i am nejra cehic. ed morse sees oil on the rise by the end of next year. he outlined the case for short and long-term prices as well as opec capacity. >> the market is perceiving a lot of reasons to be short and a lot of reasons to be long. which will be right? a lot of this will be whether your focus is on opec or the u.s. and the rebound they will have and supply. establish right now. we do a 200 day, range bound
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with a flat line 200 day moving average. what is the citigroup call? >> 48 for this quarter. 62 by the end of 2016. tom: so it should work higher? francine: doesn't mean there is no cap on the price of oil? we talk about $50 is the cap. is that a false analysis? ed: it is really a moving target. the moving target has to do with one of the things we do not talk about all the time and that is how much does it cost to produce oil in the united states. that price keeps going down. we are at a cost deflationary environment and that really muddles the picture. we have never really been in a
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situation in which we are a colts -- cost inflation air he era -- deflationary area. francine: that is why i do not understand why there isn't a cap. it means oil can break decisively above the 50. if the price of extracting oil goes lower and lower, the price of oil will be capped? ed: it will be coming we do not will be. be cap the initial $50 target is one that leads to the completion of wells. the $60 number is a real big kick up in drilling. we had almost two months of drilling level increases in the u.s. it seems to be tapering off because the price movement is not there. nejra: that was citigroup global head of commodities research ed
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morse on bloomberg surveillance. let's take a quick check of oil. barrel, down a must for percent on the day and hit a two week low. met: we see in brazil, let reiterate the headlines. we see dilma rousseff officially impeached. she said she will go to the supreme court. go.ave coun a great function for any country. brazil is this one, you can check out the risk and their profile. nejra: ups on fedex and amazon.
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♪ nejra: this is bloomberg markets. matt: when amazon first started as the online retailer, fedex
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rate the benefit of a delivery only company. amazon now has a plane of its own. what is next for fedex? devin leonard wrote about this in business week and he joins carol massar on radio. >> david leonard wrote this story. welcome on bloomberg tv. this story.e what is amazon up to? they have been a leasing planes and they are delivering? >> i guess the question is why and the answer is this is a country -- company that is delivering so many items that their traditional handler cannot handle everything, especially at the holidays. they are having to create this in-house delivery system that is rapidly becoming one of the biggest -- a company within a company. where they going with all of this?
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>> do they want to be ups or fedex? >> they would say no, i did not speak to jeff bezos come i spoke to the head delivery guy. what jeff bezos has said is that we are growing our business with .edex and with ups at the same time those companies carry a smaller and smaller percentage of amazon packages and that makes investors worried about what this means for fedex whenps and ultimately, amazon creates a business like this they open it up to other companies and turn -- it could become another amazon web services. >> is that the end game? they create this network and they open it up to everyone else? devin: with amazon web services they have this cloud computing operation. there were times and they were not using all of their capacity so they open it up to outside
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companies. that is the same thing that can happen here. in their trucks and planes will be full during the holidays. the rest of the year? that is a different story and if they send around empty trucks and planes they lose money and they could be making money. >> it is not inexpensive to lease planes and build up a network. that has always been the question. it is hard to ignore what they have been doing. they are a huge company and they seem to dominate any market they go into. it is expensive, what does it do to their financial picture? devin: they just reported their fifth straight quarter of profitability largely because of amazon web services. they spent $11.5 billion last year on shipping alone. granted, they are charging a lot of customers -- these third-party people the film and through amazon, they are charging them for shipping. they are making money. the point is that as they build
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all of these sorting centers and prime hubs come of that is fixed cost. they need to do something with the facilities that make sure it is not a drag. >> you take a big company like amazon and you whittle it down to a town in ohio. what is going on there? devin: i think that will become the epicenter of the delivery business. that little town used to be -- the wilmington airpark used to be a hub for airborne express and dhl. thekind of pulled out of u.s. largely. they did not want to go .ead-to-head with ups and fedex all of these people lost their jobs in southeast ohio in the town of wilmington and then last fall amazon started doing tests and people saw more and more
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planes flying in and out of the wilmington airpark and everybody got excited because maybe jobs are going to come back. they really went through a tough time. i do not know if amazon will put thousands and thousands of people back to work, that is not necessarily their mo. controlling --of this is a global mission? \devin: they really started it in the u.k. and now they are delivering half of their packages in the u.k. and that has had a big effect on the royal mail cousin they went public the same year and they were hoping for this take package growth and their package growth in the u.k. flatlined because of that. that has been a problem. >> container ships are part of this too? devin: we know they have a
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freight forwarding license subsidiary in china. that would enable them to buy space on cargo ships and i think a lot of people think they want to set up this big delivery service to ship items from factories in china over to the u.s. into europe and -- >> we have to run, but everyone should read it in bloomberg businessweek. nejra: that was bloomberg businessweek devin with carol massar. gross reiterates his long-running criticism of central bankers and he joins us live. ♪
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>> live from bloomberg world headquarters in new york, i am never a carriage.
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negative interest rates are turning assets into a liability, stifling the capitalist system. going to erik schatzker for more. you thisl, good to see afternoon. i will get to negative interest rate than just a moment. i want to ask you about the news. brazil senate just ousted the president. does this change anything for you? does brazilian sovereign or even equity looked even more attractive with this development? i think the market will view this not as an all clear sign, but a sign that things will get better. hard to believe they will get worse. from a personal standpoint, i do an think the soul is investment grade credit. i think they have scores of
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liability, many of which are related to pensions that allow citizens to retire with nearly full benefits. those problems, as well as the problems of a commodity-producing country with , all ofinfrastructure these problems in combination to has a lot toazil do in terms of a tough road ahead, and certainly not all clear by any means. let's talk about the all the trough, negative interest rates in the developed world. negative rates and asset purchases have passed out. inflating asset bubbles and not producing growth. the question is this, what is
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the alternative jacob i have to believe janet yellen and her colleagues and the federal open market committee want the same -- want the same things you want, a healthy economy and the capitalist system that rewards risk takers. seem to behey willing to take on risk takers? i think they are trying the other leg, beginning to stress the fiscal responsibility. ben bernanke did that long ago. in their view, they have done all they can. views, they have done too much. the big problem in terms of monetary policy, not just with the fed but the doj and bank of that they simply believe the old model of interest rates and
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elevating asset prices will eventually flow into the real economy. to be fair, 2% gdp level over the past several years is not attractive, but certainly is above zero. similarly, in terms of european countries. so it has salvaged a semblance of growth. would argue, and this becomes subjective as opposed to objective, because there is no real trial in terms of a scientific method that suggests low or negative interest rates are a hindrance to growth as opposed to a positive. they will continue to believe in this. that is part of the problem. the other part is fiscal responsibility has been advocated by most governments, and we need some good old keynesian stimulus. i do want to make clear i
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did not mean to suggest janet yellen and anyone else in the fed was in favor of negative interest rates. i think they have made fairly clear the fed is not going down and negative interest rate path, but does appear for the time being they are stuck with negative interest rates, as well the swiss national bank. could we talk about the alternative scenario. what does a central bank do? how do you get off if you are the swiss national bank or the doj, how do you get off the negative interest rate path? be a tentative seems to be only raising interest rates, but that would appear to have certain consequences, a drop in the same asset prices that have been inflated. >> there are two ways. let's compare this to an
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addiction. i think central banks are addicted to lower negative interest rates and quantitative easing. how do you move from heroin to a normal to perhaps economy going forward? there are two ways. one is to gradually raise yourselfrates, to pay or to hurt the economy now as opposed to hurt it later, which i think they have been opposed to doing in terms of the addiction. the second is conceptual and not theoretical to hurt it later, wh i think they have been opposed to doing in terms of the addiction. the second is conceptual and not theoretical but out there in terms of standard deviation, and that is to keep on doing what you are doing talking about the central bank and basically, the bank of japan as the lead dog. you basically keep on keeping on by buying up government debt, the central bank
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basically says to the fiscal authority they do not have to pay any more. that is the longshot way out. shirt thatis not the shot you are arguing for. >> i would say come on, let's raise interest rates by 25 basis points and 6-9 months let's do it again and come on, let's realize capitalism cannot really do well, it can survive, but not do well with zero percent negativerates or interest rate because as i pointed out in my outlook, $11 trillion worth of government on in a negative -- government itds is not an asset at all, is a liability. what the central bank has done trillion dollars
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worth of assets on the left-hand side of the balance sheet to the right hand side in terms of liability. perhaps in total universe of 11 trillion or more, 10% have been turned into liability. .hat is not capitalism the balance sheet does not balance that way. let's start graduate turning negatives into positives and get back to a semblance of so growth -- slow growth but the ability for financial institutions and savers to earn not an attractive rate of entrance -- interest but a semblance of an interest rate so they can meet future liability and retirement goals. erik: and your words, they need to hurt the economy now, -- instead of presumably later on. why not argue for something folder. a whole car -- volcker like
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move. he broke the back of inflation. is there not something aggressive the fed could do now to bake -- rick the back of >>inflation effectively? that is a great question. i admire paul volker for what he did. let's be fair, that's economy in the late 1970's was a much less levered economy. outstanding credit in the united unfortunately in trillion dollars, now it is 60 trillion. this basically produced the recession. one, too, or three years depending on how you define it. andch less levered economy
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financial economies were much less prompt for the financial effect. now even 100 basis points in terms of unanticipated change would shock a highly levered economy so much that it would stop the engine as opposed to sputter it. clearly, but might it not get the appointed -- economy to a point where risk assets were cheap enough to attract capital for the right reasons, as opposed to presumably the wrong iasons such as stimulus? >> think so, but this is a finance based economy, and companies and funds ands and hedge the like are dependent upon forward expectations in terms of fed funds. a shock like that would return the economy
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to a positive type of risk reward situation, but it would bankrupt a lot of companies and individuals. bank has to consider think they do. that is where they talk about a gradual base and talk about a calm within the market. this is in order to stimulate capital as we knew it that has to return to more normal levels. you pointed out for longtime financial oppression reduces returns and investors cannot look forward to returns of equity in the current -- single digits in the current requirement -- current environment and may be less going forward. another question about near zero rates and the impact of return. does it not make it harder for people to you manage money he
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can as you need to charge a fee, and it can only be a certain percentage of the return to deliver to the investor? what in make it easier for active managers to perform if we were in a more -- more normal environment? it would. in our business we call it off the generation. over and above an index becomes difficult when the interest rates are 09 matter what your index rate is to the extent the barclays i forget, investment grade index only yields 2.5%. the old 100 basis points of alpha becomes a very difficult challenge, and similarly relative to the libor or treasury target. the compression of the yield has made the financial management business extremely difficult in terms of trying to fulfill promises based on historical result.
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it would help not only asset management companies, but it would help out insurance companies and banks with a narrow interest rate margin and so on. speaks to that returning to a normalized savings-based economy as opposed to a finance based liability economy. i think capitalism requires that. i think if you can catch a fed governor or president or -- aside fromside a casual moments, they would all agree with that. >> i think it would. to be fair, active stock managers tend to do better relative to an index in bear markets because they hold 4%-5% cash. there is a defensive bias.
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bondld think the same with managers. it would show better off the types of returns and maybe bring money back to that sector. i still believe that sector is dramatically overpriced. whatever the fee is or agree just two and 20 of the old days. this is the financial asset-management business that is slowly taking hold. erik: you wrote in your last investment outlook that you did not like bonds, you did not like most stocks, so it makes me and others wonder, what have you been doing since then, and what is working? if you don't like bonds, you don't like stocks and basically the low level of volatility, which is inherently priced into
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the assets. ?he question of what do you do ultimately a cash like a equivalent. not cash because it does not yield anything. one-2%.e bonds yield you sit there and wait. an example would be linkedin and bought by microsoft. it is a few months away. it will be bought by microsoft at 196, a 2% return. that is 12% annualized. of things. can all managers do those types of things? no. ultimately at the foundation is laying lowpeaks to and waiting for a better opportunity. erik: did bill gross in 1987 billanticipate he would be
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gross 2016 the arbitrage or? >> never. in bonds pimcont style was in the arbitrage type of debt. basically we did not invent treasury futures, but we were .ne of the first in that was a situation relative to cash treasuries and earned an initial 1% per year to that. i have been arbitrage and all my life. not on stocks. that is a new development. erik: you told me a few months ago but selling volatility was an attractive trade. is that still the case? >> not at the very moment. vicks. see this with the most of the public is familiar with the vix. theyou can see that with
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vix. so it is very low. the same thing in terms of bonds. the volatility is about 65% of what it has been historically almost everywhere, not just in the u.s. but euro land in japan and the u.k.. the the vix. sales volatility makes sense as long as markets remain in a low volatility world. it is not a good risk reward opportunity at the moment. over the long term it is a good risk reward opportunity. erik: as we get closer to the next great decision, do you expect volatility to exacerbate? >> i think so. the unemployment number, we solve 80 p number, to me, that sort of cements it. wouldd think the market
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be less certain. there would be a lot of volatility relative to the september meeting later in the month. still let's take a look at the numbers. data dependent. data andok at the believe me -- don't believe me, believed janet yellen. she does not look at numbers -- gdp she says, she looks at the employment and job creation. look at job creation friday and go from there. when you say segmented, job creation between 150 and 250 rate.ement a job >> i think, given 100% shot in terms of risk and reward, no. that would not make me any money. i think a strong jobs number, what janet yellen senate jackson hole, stanley
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fischer said a few hours later, based upon what many other voting members have said, if those types of numbers and perhaps three percent gdp quarter do not allow for an interest rate increase, then what does? >> equity investors keep looking to the bond market to leave them forward. we are going on a fifth year where companies are raising $1 trillion of the u.s. investment grade market. there is less interest coverage. how long until buyers go on a strike? >> that is a good one. like as my country club after around golf, we sit at the table and the other golfers say what else can you do with your money?
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that is a decent question because 0% is not an attractive return. rarely do they consider the risk a 30 yeart buying bond at these types of levels. happen, whenthis do saber start to take cash and stuff it in their mattress? i would say some of them do that now. is as close to nothing cash in the mattress is as close as we want to get. convince andlt to investing public you cannot earn 8-10% per year because that is what they have done over prior decades and what they continue to believe they will do. always a pleasure to have
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a chance to speak to you. bill gross, unrestrained job fund. thank you. pimco is cutting the duration of the bonds it holds in the $63 billion income fund. please the to the cio of asset allocation. this is bloomberg. ♪
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>> this is bloomberg "markets." matt: i am matt miller. titans a bond trading are gearing up for inflation. pimco cutting the duration of the bonds it holds in the $63 billion income fund. cio of us is the cei -- asset allocation. you spending the time. let me ask you about the outlook and where you think it will drive a pickup. participants seem to think inflation is bad and will stay low for ever. is probably moving up. core inflation went up one point percent of the beginning of last year to 2.2% today, and that is where we think it stays. atdline inflation is running
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.7% on a year-over-year basis. we think by january 2017 it crosses and then move somewhat higher from there. we think it is probably moving up rather than dead or moving down. chart showing how tips have outperformed treasuries this year, returned 6.5%. 5.1%. i know you have been recommending them for quite some while now. does this return still have longer to run, and if so, why? are there other reasons behind it? >> there is a technical reason why the tips out that -- index has outperformed treasury index, and that is because they have rallied this year, and there is a longer maturity. of the reasonrt
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it has outperformed so far. we continue to expect them to outperformed treasuries. this is pricing only 1.5% inflation for the next 10 years. we think inflation will already hit 10% this year. in a portfolio that contains in a worldbonds where inflation might be moving up rather than down, we think tips are a better hedge. so we hold them in many of our portfolios. aroundnt to get my head a new wants here in terms of the prospect of the higher yield because of fiscal stimulus. i know you and others have been calling for fiscal rather than monetary stimulus. is it because you asked that this to be a trigger for globe -- for growth and inflation, or
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is it more about supply from increasing diffidence to fund fiscal expansion. >> the first thing is while we do expect rates to rise a little next two months as you get some fiscal expansion supporting growth, and you see inflation moving up, that does not take away from the fact that interest rates will stay low compared to the historic levels for a while. bonds in germany and japan are yielding negative. even the fed cannot allow negative interest rate to go up that month. potential growth is slower than it used to be, and we're precarioust such a point where if there is any unexpected shocks, the fed is out, to. for a number of reasons, even though we think interest rates modestly, they will
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still be much higher than they have been historically. >> this that does not show signs of becoming hawkish any time, soon. is there one candidate or that you think would be more than likely to bring us more stimulus? >> i think in the united states both candidates are likely to ease up on the fiscal austerity we have had over the past several years. the reason we have these level of interest rates with the fed is because they are the only game in town and have not had support from the fiscal side. tt: we have had donald trump specifically say he would borrow up to $1 trillion to spend on infrastructure. is he more likely to borrow money given his history with debt in the past that hillary clinton?
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i have no idea what donald trump will do in november. what ts said the past is not a basis for what he would do in the future. has said in the past is not a basis for what he would do in the future. is so low.n if you look at the outlook of inflation expectations, for example, in the eurozone, they hit pretty much a record low recently. we are you underweight? >> are underweight because while we are bond investors and still think they play a very important role to protect you against bad finding bettere values in other sectors of the bond market. to the fact we want government bond exposure. matt:


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