tv Bloomberg Go Bloomberg September 9, 2016 7:00am-10:01am EDT
jeff gundlach says get ready for high interest rates, the return of volatility, and rising inflation. david: the european central bank stopped short of extending quantitative easing. has north korea says it now the capability to mount a nuclear warhead on a rocket. welcome to "bloomberg ." alix steel is getting the last of her vacation days for the year, missing out on a bit of a shakeout in the global bond market rally. david: you really wonder whether mario draghi's tepid performance yesterday triggered this. do not count on us always being there. you cannot always count on more and more. jon: the central bank rumor mill around the bank of japan is in overdrive, and we will be digging through that. david: besides the fed, it is
what kuroda is going to do and how that affects the global bond market. we will debate the future of the fed's monetary policy with former minneapolis fed president gary stern. first, jon will bring us up-to-date on the markets. to the bloomberg, gear up for the session on wall street. in equities, no real drama. we are down about one third of 1%. the dax off by .4%. the real shakeout is having fixed income. let's move things over to that asset class. the long end of the jgb curve, yields up by eight basis on the 30-year. endntially it is a long selling off quicker than the front end. the idea as they -- the idea is that you place in more inflation, more stimulus may be, but more specifically, the central bank and the bank of japan may shift things toward the front end and allow the long
end to selloff a little bit. in the fx market, the move is as follows. the dollar is stronger. up about .1%. dollar-yen has been absolutely whipsawed by what is happening. if you thought the fed and the speculation around them was big, wait for the discussions we will have about the boj. david: the correlation is very high. now let's go around the world and check in with how bloomberg team for in-depth coverage of top stories. guy johnson is in london on the selloff in the global bond market. matt basel are in new york looks ahead to send -- matt basel are -- matt boesler looks ahead to a meeting in new york this morning. guy, you and i kicked this
around on bloomberg radio a couple of hours ago. talk about the drivers being handled today. guy: we are seeing this come out of japan. what we saw yesterday from mario draghi is that we are going to follow you, do whatever you are going to do. we are going to watch what you are going to do. you will have a reassessment, we will have a reassessment. i did not think he disappointed yesterday. there is a view coming out now that the boj is going to try to engineer a steepening of the curve, and this is going to ripple around the world. have notean banks improved their 200-day moving average in a year. we are there now. the banks are hard to beat on this story. you saw this a few days back as well, when we had that kind of
warble around the 30, and maybe the japanese will not get a buy for 30. the curve started steepening up. then we started to see this story spreading around the world. to a fascinating. if the ecb starts to look at engineering, a steeper curve, that is a big shift. how long it takes to get priced in, we will watch. times -- jon: times like these, the narrative runs itself or you could just drive the front end even lower in terms of yield by continuing to cut. how does this shake things up for the boj in terms of negative rates and the potential to go deeper still? guy: there is a line that has been reported in japan, talking about the idea they may go further into negative rates.
you end up pushing the front end down, maybe back that up with more purchases. you ignore the back end, and the whole thing shifts up. what you are delivering is a monetary tightening, but you're hoping that by the bank it is good news for the economy. jon: short rates are lower, dollar-yen moves in the direction that you want to move in. that you want it to move in. i want to turn now to the federal reserve. matt boesler joins us to talk about the fed. i want to begin with the double line capital ceo, jeff gundlach, taking on the bloomberg function. jeff: my guess is that the next time the fed tightens, it will be below 40, 45, 48, and they will say we cannot be replaced by this wirp function. jon: can we bring up the wirp function and talk about what he
is talking about? it is a market that is basically saying, no thank you, you are not going to do anything until september. jeff gundlach's argument is that the fed has allowed this to happen. they have outsourced monetary policy to a very simple function in his mind on the bloomberg terminal, and he thinks the fed should be able to take back the control and say we do not care where the fed rate futures implied rates are going to be, we are going to hike anyway. do you think that could actually happen, matt? matt: the markets are putting such low weight on the probability of a move -- because that is what the fed has signaled at this point, especially after the latest round of data we had for august not looking so great. the good news is we will hear from a wide range of fed speakers over the next few days, from hawks to doves.
and bob kaplan, brainard one monday. jon: i mentioned about a narrative running away with itself. headline yesterday that lael brainard is going to do a speech ahead of the blackout. and that this is it, the dove is going to be hawkish and keep rates up -- keep things up for a rate hike. what evidence do they have that that is what we will get next week from the governor of the fed? matt: it is amazing to see that kind of rumor spread when you have the most of his fed governor coming out to give a speech, and everyone takes a hawkish signal. it will be interesting to see if that turns out to be the case. i think it was down to more of a misunderstanding about how she is that appearance going to do on monday had or had not been scheduled.
we are probably likely to hear a dovish message from her, like she has been giving us over the last several months. jon: matt boesler, thank you for joining us. speech a scheduled coming in from the federal reserve governor, and all of a sudden the dove is going to become a hawk, to heat things up. i understand the story. i just do not know what it is based on. david: a little bit of speculation. what is not dovish is north korea right now. arth korea has conducted fifth nuclear test, and the world is reacting strongly. both the korean won and the stock market are down, and now oulwill turn to se bureau chief peter pae. this is the fifth test, but not the first. peter: it is the most of whatant one because
military officials register. it seems that the explosion was pretty significant. it was about a 10-kiloton explosion, significantly higher than the prior one in january or anything before it. it signals that there is a significant progress with weapons development, and that may be the reason why the market reacted the way it did. historically the market dips, then recovers. we will see how it is on monday. david: the other thing that came out was their announcement that they have developed the ability to miniaturize nuclear weapons and put them on warheads on missiles. how seriously should we take that? peter: that is not one of the most significant announcements that north korea made today. the fact that they are -- that ,hey can take a nuclear weapon miniaturize it, put it on a warhead, and put it on one of their ballistic missiles. a few days ago they fired three
ballistic missiles that when 1000 kilometers and entered the japan air defense sewn. think of that miss -- the japan air defense zone. think of that missile having a nuclear warhead. that is pretty alarming. david: now we will get an update on other things going around the world. that is with emma chandra. emma: police have arrested three women plotting imminent terror attacks. week a cars containing gas canisters was found near the notre dame cathedral in paris. french radio says the car belongs to the father of one of the suspects. john kerry is back in geneva syrianor more talks on a cease-fire. his meeting with his russian counterpart, sergei lavrov, earlier this week, russia had complained that there was a backtrack on ending the serial -- the syrian civil war. -- thes a warning that
federal aviation administration says that the note seven from samsung should not be put in checked luggage. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am emma chandra. this is bloomberg. the coming up, record-setting bond market rally. the post ecb fallout is up next with bank of america's chief european economist. from european -- from new york city on this friday, this is bloomberg. ♪
i am david westin. >> happy friday to you and to jon, and happy friday to everybody out there. first up, samsung is down sharply, on pace for the worst day in two months after the faa warned that the samsung galaxy are atphones on planes risk of catching fire and exploding. this is the larger screen smartphone samsung released two weeks ago. samsung has recalled all 2.5 million units at an up to $1 billion cost. also trading lower, in london, on news thatberry, the luxury retailer had to lower prices on its luxury leather handbags by 20% as the pound has appreciated in the wake of brexit. finally, in the premarket, we have one stock storing,
restoration hardware. up shortly -- up sharply. beating adjusted earnings by 52%. this stock is really responding quite well. the bonds turn to markets away from equities for the moment. let's call it a selloff, because that is what it is. we could also call it draghi's tough love. the ecb yesterday leaving rates unchanged, leaving the qe program unchanged to 80 billion euros a month. until march 2017 or beyond. draghi's tough love means and bond market fallout to some extent, a factor in the selloff today. 10 year yields in germany approaching zero, up by four basis points on the session, 10-year yields in the united states up three basis points. let's continue the conversation on the post-ecb, post-draghi
fallout. jill, great to have you on the program. the post-draghi fallout is a factor in the global bond market story today. newsdid you make of the conference yesterday, and who did draghi have a message for specifically? >> it was disappointing in the sense that there was no commitment to qe being lost. that is the underlying message from the ecb, quite dovish. a bit surprised -- i am a bit surprised about the bond market reaction to this. he came up with a forecast that is very dovish that tells you that they are not even sure that they will be able to be bringing it back by march 18 -- by march of 2018. in a statement, he said the ecb would deliver on the magnitude of monetary stimulus that he has currently embedded in the
forecast. and their forecast is based on a continuation of chile until 2017. the technical assumption -- of qe until 2017. could notthing that happen if the ecb was not intent on delivering more. and he would not tell us that committee of the ecb are working on how to tweak instruments to deliver more if in march 2017hink they would continue qe. the underlying message is than themore dovish market is showing right now. jon: when market participants wake up this morning, can they look at the message from draghi and say this means the emphasis is now on stimulus, that the ecb may be done here, in terms of
monetary policy? are you saying that bottom line view is wrong? yes.s: i really think it is not the message that we had. jon: i believe we are having some technical difficulties with gilles moec. but that is a very interesting point, the very idea that the forecast -- that they forecast themselves out to 2018 based on yields remaining low. qe, by definition, has to run beyond march 2017. let's read the headline word for word. "qe will go beyond march 2017 if needed," the assumption, the base case for every market participant being that it will be needed and it will happen. david: the fact that the projections of mr. draghi were better than they have been, they are somewhat worse than they have been. it does not make sense what
gilles is saying, but it is remarkable. if draghi tweaks to the modalities of the qe program before he needs to, before march of 2017, the bond market will rally, move against him, and he faces the scarcity of bonds. that issue is brought forward. the problem just comes from march 2017 and forwards to the here and now. david: mario draghi was a master at these press conferences. he is such a good communicator. you have to wonder what he was trying to communicate. he did not even have a deadline for when they would be reporting back to him. he was much more terse. i think he was avoiding going there. let's get to the markets. it is somewhat of a global bond market shakeup with yields
take a listen. gilt yields got way too low. and the brexit vote got yields down to half a percent. we are back toward 1%, in our opinion. atthe time of forecasting 1% the start of the year, the yields were much higher, and then they went through our target and now they are going back toward it. the key story is the fiscal loosening that is possibly going to come through. --a has been very matter data has been better than expected. it does seem the valuations on the gilt did not reflect the data. francine: y? steven: it is taking a wild. the qe -- it is taking a file --
while.taking a wj if the policy changes, fiscal policy is loosened in some way with these infrastructure projects and something is coming, then there will be more gilt. to me, these levels at the moment are probably too low. most of this has been a focus on japan, and the eurozone recently . quietly in the background, we have seen the gilt yields sliding back up from an overextended position that came because of brexit. yes, the central bank might ease the gains, but there also might the a fiscal policy loosening. the data so far has not been so bad. know it is all doom and gloom at everyone is talking about how bad it is going to be, but so far we do not know and what data we have got. so gilt yields go up. though,t on the curve
how much confidence can you have on your forecast, given that all the ifs you suggested are out there for the british economy? even: to me, you do not change your forecast very often if you have credibility. we have said that a year ago, and we have not moved any of them. to me, it is difficult to forecast anything. if you get it right, everyone is ready to tell you if you get it wrong. is, you have to take a view on this. i would say, looking through all of that noise, that a fair value for gilt yields is nearer to 1% than half a percent. jon: that was hsbc's head of global research steven major. he came out at the end of 2015, september, october, saying u.s.
10 year yields were at 1.5%. for him, what we have seen this morning, a correction may be but not an inflection point. it is too early to make that call. david: it is interesting whether the bond market is ahead or behind the economy when it comes to the u.k. prillaman arrayed numbers are encouraging, -- preliminary numbers are encouraging. jon: for the u.k. specifically, what is remarkable is that u.k. gilt yields, 10 year, back to where they were, and got another boost. in the s&p market, futures slightly negative. up next, jeff gundlach. we will cover that on "bloomberg ." from new york, this is bloomberg. ♪
today. that is what we have with his market after a boring much -- after a boring month. equities softer in europe, the ftse coming in by a third. the action is happening elsewhere. in fx, dollar-yen getting whipsawed by the boj rumor mill. the at some of the moves on session so far. the headlines come out of reports, the bank of japan still considering taking negative rates steeper, allowing the curve to steep and. that is what we are seeing across core government markets. yields higher on 30 years. pretty much every single developed country that you look at. let's look at the united states. treasuries up 4 basis points. gilt yields up by 10 basis points on the 30-year. what we are actually seeing in -- is we are taking some of that stimulus back out of the market.
the debate for the central bank world continues. that's go to emma chandra with what else you need to know. emma: more fed speakers on the docket today. rosengren will deliver an economic forecast in about 45 minutes from now. north korea says it conducted a higher level nuclear test explosion on friday that will allow it to build at will an array of stronger, smaller, and lighter nuclear weapons. communist state's fifth nuclear test in eight months. -- enterpriseer has said it is no longer interested in -- david: the tennis world has centered on a new york city the last few weeks as we move to the finals of the u.s. open this coming weekend. can solomon is a man who focused maybe everyery day,
hour of every day, as the chairman and ceo of the tennis channel. the channel is going through a major transformation, with a sale to sinclair broadcast group. back to bloomberg. it is good to have you. ken: good to be here. david: what has happened because of the sinclair deal? ken: it has been a spectacular marriage. i have known david smith, the ceo of the company, for a long time. it really felt like the perfect melding of what has now become the largest independent broadcast station group, with 181 television stations around the country, combined with our emerging national footprint. that has meant a lot of growth. we have moved up the ladder. david: take our viewers through the mechanics of this. sinclair owns a lot of television stations across the country. they are getting you on cable
systems. is that a quid pro quo, saying that if you want to keep your channels up, you'd better bring along tennis channel? it has become it for these discussions that you are going to talk about a mix portfolio when you talk about distribution. we felt we were being under distributed, mostly because of our independence. this level the playing field. so sinclair said tennis channel is important to us, the evidence is that the audience wanted it, and we are getting distribution. david: give us a sense of how the economics works. yourdoes that move due to economics and bottom-line? ken: it is not all that. we had to build the channel out as if it was already fully distributed. we could not go halfway with the 35 million homes we already had. we were all the way in.
it is a fixed model in terms of production and cost, and now a lot of that goes to the bottom line. it will allow us to continue to invest more in over the top, which we will talk about, in more rights and building up digital more. david: you have been an early streaming.oden top, what is the strategy, where you have an increased number of basic cable subscribers, more traditionally. what does that do to your strategy? the we are really one of few where we are not a cord cutting, court shaving replacement. sport, you of the know that there is more tennis than we could ever put on one network. even on five. we had seven tournaments. by having the app here and
maybe 70 million, million -- we will see where we go -- it allows us to give the consumer more of that what -- more of what they wanted. we have doubled the footprint of people who say if you love this match with serena, there is another when going on here. maybe you want to go to tennis channel plus. david: how do you get paid for over-the-top? en: over-the-top is the opposite we are getting direct from the subscriber a fee. it is $89.95. go to tennischannel.com, and you will find it. you have a direct model. we are exclusive of advertising. tv everywhere is being able to take the channel as it exists if we were sitting at home and mobiley, which you need
to do because tennis is going on all the time. david: spend a minute on the state of tennis, particularly in the united states of america. serena williams just lost last night, sadly. there is no american male in the top 20 at this point. what effect is that having on your viewership? ken: it is a question we get asked all the time. the real answer is that we have built this network from nothing in 60 million homes without a strong presence in the top 10. our thesis is that it would be nice to have, but not critical. tennis has always been international. documentary, "the barnstormers." we have stevie martin, who has done some great things. we have sloane stephens and madison keys. madison pringle and cece bellus coming up. they are coming up and they get a lot of airtime.
being at the top would be nice, but it is absolutely not the issue. there are a lot of young great americans out there right now. david: how big can you get in terms of subscribers to basic cable? what are your plans? the question we ask ourselves. it is one we asked ourselves over 10 years ago when the original investors said what could it be like if we had a level playing field with a sport that is almost always on somewhere in the world? when you have top 10 players playing 24 hours a day, seven days a week, and are able to program that on a monday through sunday basis -- we do not think the other guys stand a chance. that is not just bravado, it is the good stuff is always on tennis channel. people come to us all the time and say i watch it all the time because they know there is always a great match going on somewhere. we think that tends a lot in terms of balancing, strong
, andibution growth obviously we think we have a better proposition for over-the-top because if you miss because you are watching your show this morning, you can go back and catch it here. or you can watch one live later on. david: your certainly on the move. channelmont, tennis chairman and ceo, joining us on the eve of the finals. jon: the ceo of britain's what heargest insurer, thinks the finance industry needs in london. mark wilson spoke explosively with francine lacqua about how he sees the you k's historic decision to leave the eu. take a listen. need fromink what we the government is a certainty of time frame. it is entirely inappropriate
that it is entirely appropriate they have not invoked article 50 yet. we need to take some time, sort out what the plan is to we do not have to sort out all the answers. but the answers will be different for different industries. i have beenssed -- impressed with the fact that we have a new prime minister and some people in place. that is some degree of certainty, and markets crave some certainty, don't that? jon: are you worried that london will stop being one of the financial capitals of the world? mark: no. the reality is that london is the home of areas like insurers. it is a great place to live. it is still a financial hub. it still has all the systems. trying to unwind all of that is a pretty tall order. joins uscine lacqua from london on the back of that exclusive interview. they wantk of this,
certainty. where is that going to come from? the backdrop of that conversation is a meeting of european leaders in berlin. what is going to happen there? francine: we are having the same conversation that we were two months ago, right after the brexit vote. we are none the wiser about when theresa may will invoke article 50. -- only are the ceo's countries, it was very telling that the g-20 in china, japan drafted 15 pages which they handed to the u.k. government, saying this is what we need to make sure that our investments in the u.k. stay there. that japan0 jobs contributes in this country, and it is the billions of pounds it is of manufacturing that japan
has in the u.k. there is uneasiness. i know it is just the start of september and we need a plan b. but the data says everything is fine and the u.k. the pressure from japan to the u.k. is significant. prime minister may took a beating with the g 20. but in terms of who has the leverage, in terms of economic data right now, the data in the u.k. is ok. that is the story, isn't that? francine: the data is pretty good. if you look at the data from goldman sachs, credit suisse, morgan stanley, today they scrapped the idea of a recession. it just depends on what your forecast is. the pound falling makes it more attractive, which means house prices in london could fall but not by too much. then you have people that i imagine where against brexit to start with but are more doom and
gloom, say we do not know exactly what the end game is because we have not started playing that game yet. so a lot of data is coming in better than expected. weather, inad great terms of retail sales going up. let's see the next six months, seven months, if people start moving out of the u.k. jon: fantastic to have you with us. francine lacqua, and you can see that full interview, with mark wilson and the latest addition. right here on bloomberg. andng up, it is one story, emerging-market assets snapping a five-day rally after the ecb refrains from more stimulus. that is coming up next. we talk about the post-draghi fallout in the world of emerging markets. from new york, this is bloomberg. ♪
david: this is "bloomberg ." using up, tommy showed joins as we head to the end of the third quarter. emma:. your bloomberg business flash. amazon is turning to sport as a way to attract the oars. amazon is pursuing video for a wide range of sports, including the french open tennis tournament and professional rugby. live sport could give amazon an edge over streaming rivals such as netflix. banking regulators have already come up with a number of recommendations.
one would prohibit merchant banking in which banks buy stakes in companies in order to lend the money. others have been accused of receiving unfair advantages in the metal and energy markets. getting rid of non-core businesses as he gets ready to take over monsanto. the sale of its dermatology business. the unit can bring more than $1.1 billion. that is your "bloomberg business flash." thank you very much. let's take it to the bond market. the dominant story. yields up higher, five basis points as we approach zero once again. in the u.s., we are up three on the u.s.-10 year. some enthusiasm coming out of the record-setting bond market rally so far in 2016. that the kind of story
sends a message in the market. stocks snapping the five-day rally after the ecb holds off introducing more stimulus. geoff dennis joins us. correlatedone huge market. i was told e.m. was the diversified play. is that the wrong way of looking at this? is hard to get diversified plays these days and markets generally. i do not think e.m. is diversified as an investment as it was 20 years ago because all markets are so closely correlated. whenpically go down markets go down, and we typically go down more -- we go .p more when markets go up but i do not think you get much diversification safety out of emerging-market equity these days. end,high-yield at the long positive yields -- for many people, that is positive.
kit juckes said that there will be blood on the dance floor even if you do view that as positive. how close are you looking at the bond markets, and how deadly will it be for the likes of inequities? all, we were not particularly surprised that the ecb did not do anything yesterday. we do expect them to extend their qe program beyond march of 2017 eventually, but we thought that would be announced later in the year. what we are focusing on above all is e.m. bonds as opposed to u.s. bonds. u.s. bonds are going to remain relatively well bid. inflation is still relatively low. the fed will move at the end of the year. but no more than that at this stage. e.m. bonds have done extraordinarily well. we have seen the spreads come in against u.s. treasuries.
i am not sure -- we are not looking for a route here. we would feel very surprised if there was a route. we think the global growth is too week for that. david: if we cannot get diversification from em equities -- what does it mean for passive investing? is a complicated question. a lot of the flows that have come into e.m. funds -- this year when we started to see money coming back, and even when money net was flowing out the last couple of years, going into etf's, i think what that does is, it does not give investors the opportunity to go overweight this market, underweight that market. yet there is a lot of money out there, which is still obviously picking stocks and picking countries. within e.m., our view has been
for a long time that you get most safety into the relative concept in asia. we happen to be overweight in india and taiwan because of relatively being positioned. that is where you get some of your defense. whereas some of your riskiest markets are places like brazil and russia -- although we like russia to be there -- and places like turkey and south africa. is pertinent to that, but it is not the most important thing necessarily in terms of the relative risk scenario within e.m. david: what are the headwinds that e.m. investment equities could face? geoff: we spend so much time this year getting -- we keep talking about the effect the fed has on e.m. we have had these various occasions, four or five times this year, where weak u.s. data
gives you a big spike in aem, which often does not hold. how u.s. market policy plays out here is going to be very important when the fed moves, how quickly they move. that will have an impact on bonds also. aside from that, we think valuations are rich in e.m. right now. they are not wildly expensive. the saving grace for e.m. is the evidence is beginning to grow that corporate profitability is improving. earnings numbers look better this year. that is the upside. plus, you have seen so much in the way of fund outflows in the last five years. some of that money is coming back, so that is the upside. jon: fantastic to get your insight. geoff dennis. not just an outright diversified play. it is some of the fundamentals. on earnings within some of these
jon: this is "bloomberg ," live from new york city. your headline is "the japanification of everything." yield curve is the in japan a month ago. you are seeing the yield curve steepening. the front end stays somewhat anchored. switch up the chart and i will show you why this is important for banks and financials.
it is the jargon called maturity transformation, the banks that are osha, lend long, and the gap in between -- that borrow short, lend long, and the gap in between. you see this in japan. the spread widens. what you see with japanese equities, japanese equities, the banks start to rally. if you want the banks to finance your economy, give them a steeper yield curve. that is the debate, the speculation currently happening in the global bond market. that is all well and good for banks, for any other central bank potentially doing the same thing at some point in the future. switch up the board and i will show you why this is so important for global financial markets and why it is really the japanification of everything. at this correlation. it is above 0.8. last year, we were negative. you get close to one, that is a move in lockstep, japan versus everything else paid for this
market, you are looking at what is happening with jgb, and what is happening with global bonds. it is vital for everyone else to sit there and look at the jgb screen and understand what it means. and maybe there is really for the banks coming up. we will see. coming up in the next hour, former minneapolis fed president gary stern will be joining us. we have a lot to talk about what is going on with the fed coming up later this month. that is on "bloomberg ." this is bloomberg. ♪
interest rates. the return of volatility and higher inflation. bondhan: in the global market rally as the european central banks stops short at extending quantitative easing. move david:. after the biggest stocks slump in 17 years, it was a one-off. $15 billion of energy is coming your way. i am david westin with jonathan barrow on bloomberg headquarters in new york city. alix steel is off. we saw a really aggressive bondage shakeout in 2015. despite of the rally, the catalyst and the focus for everyone is tokyo, japan, and what the boj may do with the legalities of the bond buying program. it means a steeper curve. the question is if we will see that elsewhere.
david: even with globalization of trade, there is globalization of the bond markets. what happens in tokyo affects every bond around the world. the correlation between low securities and the rest of the global bond market is a credibly tight. compared to 12 months ago. david: it is a remarkable story. in the united states with the fed, we will have the governor's speech on monday. is it a risk event to call for a september rate hike? the former minneapolis said president gary stern is coming up. first, let's check in with the markets with jonathan. jonathan: a hint of risk off with futures marginally negative by 4/10 of 1%. the ftse 100 is down. u.s. equity market, 43 consecutive days of no move. been quiet. things are starting to get
choppy. even in the fx market, the stronger dollar story, 0.17% is the move, shopping for dollar/yen as well. the rumor mill begins to go into overdrive. algeria, saudi arabia, opec, the three chiefs meeting in paris to discuss ahead of the meeting on to anng output or coming agreement to stabilize the market. that is the headline in crude. the bond market, curve steepening, let me walk you through it. treasuries up six basis points. 30 year of almost 12 basis points. in the u.k., we talked about yields getting back to where they were when qe was boosting. david: as you pointed out, the ones that people are looking forward to with this deepening yield curves are the banks. inside perhaps for the
banks. let's go around the world and check in with index coverage for the two top stories. in new york on the fed with a couple of key features. guy johnson is in london with the bond market selloff. the person who made a lot of news overnight came out and had a lot to say about the future of the bond market. here's what he had to say. my guess is the next time the fed tightens it will be at around 48. they will say, we cannot be replaced by this work function. talks the work function about the probability of rate hikes. we will bring you our economics reporter and talk about what we are looking forward to from the fed presidents in response to what mr. gundlach thanks. matt: we will hear from the and rosed president
green. the last time we heard from rosen green, he was concerned about financial stability and bubbly conditions in commercial real estate, arguing that was why the fed should hikes and. that was fed president rob kaplan talking about how rates are likely to be low for a long time, but at the same time they should take the opportunity to normalize and raise rates when they can. though might be more hawkish today. david: a lot of it is about one third who will be talking about it on monday. is a lot of speculation that was dovish will turn up hawkish on monday. much she does not speak and has had a dovish message when she has spoken. the presumption is that we will hear more of the same from her. there is a conspiracy theory in
the market yesterday that maybe she was being sent out to signal a rate hike. that would be a particularly strong message coming from a dove. this was scheduled well in an dance, so it is not like this was a late addition to the calendar, so that is probably not the case. david: matt boesler our economics reporter. jonathan, we will hear from fed president rosengren. jonathan: the idea of that on a a late entryan see in terms of speeches, before the blackout theory, the narrative that the doves turned somewhat hawkish and set us up for a rate hike? i'm not saying it won't happen, but i wonder what it is based on. david: the work function, they they'reong way to go getting ready for a hike in september. it is around 24% or 25%.
jonathan: let's go to guy johnson, and talk about the post draghi fallout. what do you make of the action? guy: i cannot believe you even said that, he needs to work. jonathan: i'm going to get into trouble. we wille will -- guy: move on. let's talk about what mario draghi said. i think what he is doing is he is listening. the ecb is listening to tokyo. you highlighted what is happening in tokyo. the boj is having a review. the curve's steepening, and that this is maybe what we will focus on. we saw wobble where there is an idea that may be the boj would not go to the back end of the curve. maybe this is what draghi will deliver. you get all you can get out of it. you effectively deliver a rate cut. you may be by the front and, you
push rates lower, great for the banks. in my terminal, i will show you what is happening. this is the function for the 600. the banks are trading sharply. the banks are outperforming. we have got a technical -- coming at the same level as a european ranks. a technical indicator. the banks could be a big gainer. the curves, this is the transition organism. jonathan: the question for me, i am seeing competing narratives and hearing competing narratives that the central banks will get more creative on one side. on the other side, that qe monetary policy is exhaustion story. of the dominant factor in all of this that central banks have not gotten -- left? -- have not gotten much left.
something you have to do in this process, but you would think the european economy would the on jet fuel. it has low rates with qe going on, low oil prices, it is not doing anything. the qe exhaustion story, there's something to that. you're not getting what you hoped for, so maybe we should rethink it. they are experimenting. isbe, what we need to do, change the experiment and tries to pretty old curve. maybe that is -- and try a steeper yield curve. maybe, that is next. jonathan: let's get back to the market and back to equities and movers with abigail doolittle. abigail: shares of deutsche bank are higher, the best day in two months after the news that the
company is marrying an agreement with the u.s. department of justice to settle a long-running investigation to the sales of residential mortgage-backed security. they could receive a statement next week and have to pay more than $2.4 billion in fines but it could clear legal hurdle for a company that has seen $9 million in settlements and fines since 2008. trading lower, mastercard. this is on the news the company is being sued in the u.k. for 18 point $6 billion for charging excessive fees on transactions over the last 16 years. the largest legal suit in the u.k.. it appears this weakness will end a five-day winning streak for the shares of mastercard. kroger down in the premarket. the grocer reported the second quarter was mixed. they beat earnings slightly, but
there is disappointing guidance with the year. they cut the full-year guidance. david: thank you it is brought to up to speed on equities. on debt there are headlines outside the business world. emma: north korea now has the ability to make nuclear weapons it says. onto rockets. kim jong-il and marks the anniversary by conducting the fifth nuclear test. the north korean government says it conducted a nuclear war head and no radiation was leaked. koreaesident of south called it an act of "maniacal recklessness." protest thehey will debtor nation. francois hollande says they have foiled a terror attack by plottinghree women imminent attacks. earlier, a car containing gas canisters was found near the north again if the drone. it belonged to the father of one of the suspects. elon musk calls the explosion of
the spacex rocket the most perplexing failure in 14 years. the engines were not on at the time, adding to the mystery over why it blew up. it destroyed a satellite that facebook planned to use to increase internet access to parts of africa. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am in the chandra -- i am emma chandra. jonathan: a low year for financials hit by low rates and sluggish growth. what could turn the tide? we are joined that from new york. this is bloomberg. ♪
jonathan: from new york city this is "bloomberg ." . am jonathan ferro and japan, a stupor yield curve. comingory is the message from a lot of analysts that this is good for banks. they borrow short they loan long, it is good for transformation. let's have a conversation from the chief executive at kbw. it is greater happy with us. we are starting where central banks are considering what is good for the financial community. what you are seeing in the yield curve, how positive is that? >> very positive. a positive spread will fall to the bottom line. things have been under pressure with a low interest rate environment. the recent move in the united states will be a positive for american ranks. ecb and bank the of japan, if the bank of japan allows be long and to continue to drop a lower and take rates
into lower territory, is it the end or the spread from front to back? ,om: we think negative rates unless it stimulates the economy quickly, negative rates are a negative even if there is a spread. david: if there is a steeper yield curve, how long before it shows up in bank earnings? earnings come out in october, is that too early? tom: the biggest income is the level of short-term rates. what we saw when the fed acted is you did not see an improvement in margins. we think we will see a positive from the short end of the move in the third quarter. we think the short and absolute rate is more important to the immediate returns, and it takes a while for the spread to kick into the earnings. take six why did it years for the central banks to realize what is good for the financial is good for the
economy, and when will regulators follow suit? tom: it is taken longer than anyone would guess on how to bring about change. some of those questions are beyond my view. what we need is fiscal policies that can help. there are limits to the central bank's monetary policy. what we need is fiscal policy to rally like monetary policy has. david: do we have a view on that? reading about possible fiscal stimulus here and in europe coming around. as we get to the election we will get to that? tom: i do not think it is fiscal stimulus. i think it is fixing issues we know needs to be fixed. tax reform in the united states. looking at what regulation has done two industries, not just thinks. at some point -- not just thanks. at some point we will have to look at the best fixes for those
programs. until that happens, businesses will need to be more cautious. jonathan: the message from politicians is you need to rein it in. you said citigroup should be broken up. you look at the central banks and you think they would be better smaller. you share the view of the politicians, wall street gets smaller we do not like egg ban -- big banks. tom: point them to mid and smaller companies until the market how well they are doing. there has been a disadvantage to size. the regulatory response has been so onerous that they cannot earn their cost to capital. the viewpoint is they should be smaller to get away from some of the negative arbitrage. that is the point we have been making. they have reached the same conclusion. david: investment banking in the banking sector is in your wheelhouse. are using sales or mergers acquisitions? tom: it is happening.
it started in the middle 80's. it is cost to it with fewer bank s families to have. we studied and found the most prolific year had 18 banks in one year. we think the most prolific .cquirers will do 2 it happens at a slower, steadier pace, but it is happening. we have been working on a merger a week in our firm. jonathan: facing a shift away from some of the major investment banks? we are looking at the saudi of deal. -- saudi aramco deal. how many advantages do they have? tom: i'm not a believer that big size is not a disadvantage. firmseve that midsized like myself are well positioned be more nimble and focus on the middle part of america. i think there is a market share shift here do cannot have the big banks with pressure on their
business models without having an impact on market shares. jonathan: one thing integrated banks have been able to do is to capture a huge amount of deposits, new households. they have not been able to exploit that because of the shape of the curve. do think the enthusiasm for bank s shifts to the bigger players away from the smaller ones? tom: i think some of the best consumer banks are the american biggest banks here they are some of the best retail companies i know. thatsaid, it is th -- said, with the election coming, i'm not sure there will be a shift in the regulatory environment. i do not expect it quickly, although i would hope so. david: the fed decision asked congress for new legislation. what effect would that have? tom: goldman sachs is the bank
that is most active. we do not take up much of an industry much of the except for goldman sachs. you put it under the umbrella of more regulations coming, the pendulum has not turned. the whole economy needs the pendulum to turn. jonathan: sticking with us, the ceo of kbw. positive on the session by 1/10 of 1%. a stronger dollar on the back of comments by the boston fed president moving into the camp who thinkakers gradual timing will prolong the economy. the dollar is stronger off those comments. david: a fascinating 2 days coming up. rates bottomedys in july and it is time to be defensive. gary stern gives us his advice. that -- this is bloomberg.
i am: this is bloomberg, david westin. 15 years ago this sunday america was attacked on 9/11. we learned they targeted the world trade center and wall street to strike at the heart of our financial market. we will have a moment of silence in memory of the victims. was us is tom michaud, who there that day. where were you, what happened? tom: i the grace of god i was coming into work late. something had happened never before and never cents. my four-year-old son surprised me in the shower, caused me to miss my train. i was on the sidewalk when i saw the first airplane fly down the center of manhattan. we were in the world trade center above with the second airplane hit. our firm lost 67 colleagues out
of 174 in the office. about thek to us immediate aftermath. all of new york and the country was relaying, but particularly wall street was hit. what was the recovery like? tom: a couple of things. first, we had to resolve what we were going to do. we made 2 decisions. number one, leave it do everything to help the families of our friends, colleagues, and family members killed that day. the last chapter of our is not going to be written by those folks on 9/11. we had tremendous energy to rebuild. the energy to rebuild was extreme. there was an extraordinary amount of goodwill. for something as horrific as what happened, there are tremendously great stories. for the first two weeks, you would not even hear a cab horn in new york city in terms of how
respectful we were. i think the whole industry was. david: it was very specific the terrorists targeted wall street to strike at the heart of the financial center of the united states. looking back 15 years later, has there been any lingering effects? tom: certainly. you cannot have anything that meaningful happen and had there not be. the resilience of the industry, the resilience of the people that are motivated. we thought about it as we went into september 2008 with incredible things in our industry. we thought if we survived 9/11, we can tackle the new challenge. david: that is a fascinating point. what perspective did he give you a you would not have otherwise had when you had things like the setback of 2008?
tom: if you face something hard, you realize it will never be harder than what we saw and dealt with on 9/11. we had a meeting in september of 2008. a junior colleague of mine said, this is not the end of the world. we have seen that. we know what it looks like. this isn't it. that was during a difficult time. they did not take a senior colleague to point that out, it was a junior person that helped us rebuild following 9/11. talkinghank you for about it with us. the ceo of kbw, tom michaud. jonathan: we will be observing a moment of silence on the new york stock exchange. coming up, gary stern. ♪
in the equity market in europe, session lows with the ftse up i .7%. the dax lower by 0.68%. in the fx market, the dollar stretch to get stronger. captured by the bloomberg dollar index, off the back of common spy boston fed president eric rosengren, believing the timing is good for the economy. it's pulling up the expectations for september 21 in the rate decision over the fed. in the crude market, commodities coming in by 2% on wti. the brett two percentage points off at 48 and $.94. the long game showing off, yields up on 30 years. up by sixeasury's basis points. an aggressive move on guilds. u.k. 30 year guilds up by 11 basis points. it's been a current flattening. the story today is a curve
steeper. the question is whether that continues. let's get to stocks now. abigail: a lot happening. the stock has been floating around in the premarket, it was lower earlier and now slightly higher. this on the news that amd has priced a secondary and six dollars per share. this news has weighed on the shares this week, down more than 15% on the week. investors are sprinting dilution. on the year, amd is more than double. restoration hardware soaring, after the luxury home retailer gives the second quarter estimates right across the board , at 52%. they also maintained a full-year guidance, and this comes as a big relief to investors, considering shares were down more than 50% this year. williams company, shares a lower in premarket on the news that the company just lost another suitor, enterprise products
partners walked away from a potential deal, citing a lack of engagement. whenfollows two months ago energy transfer ended a $33 billion deal. ceo says he is disappointed, and the company will continue to pursue alternative strategies. david: we also have headlines from outside the business world. we go to emma chandra. emma: north korea has tested its most powerful nuclear weapon yet. jong-un kuhn -- kim says they have the ability to mount rockets. the was tested on anniversary of north korea's founding. the president of south korea called it an action of maniacal recklessness. john kerry is back in geneva again for more talks on the syrian cease-fire. he is meeting with his russian counterpart, sir eli broad. earlier this week, -- stargate lab ralph -- russia's military
invention as reverse the course of the war in his favor. dozens of tourists have been rescued in the alps, after being trapped overnight in cable cars above the slopes of my blog. lanc. the car got stuck . global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm emma chandra, this is bloomberg. gundlach says it's time to get defensive sec is the fed raising rates pretty soon. and he thinks the fed will tighten. when we areeve it's below 50. they're going to say we cannot be replaced by this work function. jonathan: joining us now is gary
stern, and you didn't have to go up against the work function when you are over on the fomc. basically, this is the implied probability of a rate hike at the federal reserve. moment,ook at it at the it says september, at around 25%. let's take a look at the fomc. let's say you engage like that come and market participants pretty much judged we were going to do based on what everyone else thought you were going to do in the market. there was an assumption that you wouldn't do anything unless that was at 50. what would you do? mr. stern: i think it's fair to say that all things equal, the federal reserve doesn't want to surprise people in the marketplace. rates,want to increase you try as best you can to communicate that is coming. work,atever work or no make people understand that's
coming. they should mentally a financially be prepared for that. occasionally, you can't help but surprise market participants, or at least some of them, either because can indication isn't clear or they don't accept the message. was on the unanticipated happens in the economy with inflation, and you go ahead and act. it's not always a perfect world. to domes you just have what seems to be appropriate if you are a policymaker. janet yellen is not studying the ship and is not leaving the committee. you worked under greenspan as well, they were very different fomc, different federal reserve's. what do you fear other major differences? part of the major difference is just the environment. with the financial crisis leaked
back in 2008, 2009. we are still being affected by it in 2016. you see that in a lot of ways in the performance of the global economy in the level of interest rates, the low level of inflation, and so on, and so forth. environment, the cost of the financial crisis. it's the uncertainty going forward. it makes things very difficult. think about much of alan greenspan's tenure, for example, that was one long economic expansion area and want to think it's fair to say that, the fed was by no means the key ingredient to that. the economy was performing very well. the fed basically, as long as you avoided big errors, the economy continues to perform very well. this is a much more challenging environment. no question. david: i want to talk about the law of diminishing returns.
looking alone to straighten a connotative monetary policy, it arikes me that we are seeing diminishing return. do you agree with that, and if you do, what can the fed do? i think there are a couple of things we should focus on in response to that. we seeing to managing returns in terms of communication. you have too many people speaking at cross purposes, or at least, not entirely clearly. i think with the fed can do tout it, it's not easy, is narrow who was going to speak for the federal reserve on policy. i think that's a good idea. it's hard to execute that idea. in today's environment. individual governors and individual reserve bank presidents view themselves as appropriate for them to speak out on policy. nevertheless, if you are asking
what should be done, that's part of it. as far as imaging returns for interest rates, i think you can say that the fed onto in some ways declare victory. its mandate is high employment and price stability. we've achieved both. is it a perfect world? no. but those things have been achieved. whatuestion for policy is is the appropriate level of interest rates or the appropriate path of interest rates going forward to maintain what we have achieved? we're not trying to change anything, just maintain it. if you look at what some people of foot out in their charts -- have put out in their charts, the consensus is that rates have to go up. in my judgment, that's right. they often take the opportunity when they have it to go down that path. jonathan: gary, way to take me inside the fomc. if you went around making that speech, the speech, and creating
a lot of noise, what would share greenspan say to you -- chair greenspan say to you? volcker, i was there for his years as well. paul would not have tolerated that. there would have been disciplined, but it that way. chairs have been increasingly laissez-faire about it. that was actually my attitude for many years as well. participate should in the mitigation effort. i've changed my view for two reasons. i'd only get turned out to be effective, and i think it diminishes the franchise. i which i mean, i'm not a fed president anymore. i'm sitting at talking about policy. judgmentdents in my
should not be talking about policy. they should be talking about it at fomc meetings. david: the mandate is price stability and employment. needmployment, you economic growth. it just has to away. -- just a half step away. what would be the effect of a modest gradual interest-rate raise at this point? mr. stern: the effect on economic growth would be modest at most. i say that for a couple of reasons. i don't think either inside or outside the fed, people are expecting more advocating sharp significant -- are not expecting or advocating sharp significant increases. the fed's conservative by nature. any increases that occur will be modest in size and gradual, in terms of timing. there's that. i don't think the fed -- the fed certainly does not intend to be disruptive. -- i don't think they
will be. the other reason i don't think they will be is i think the economy is on very firm footing today. is far fromh target. employment games have been sizable in the past couple of years. it economy looks to me like is quite sound at the moment. talk more about bank regulation. a successor of years has come out and said we should think about legislation. he was on the program and he invoked your name, by implication. let's play that. >> one of my predecessors, gary stern, ruby original book, too big to fail in 2004, arguing the large banks would end up needing to be ailed out. -- bailed out. congress created a distributed central bank. the whole purpose of that is to have a diversity of opinion at the table. i'm speaking out on behalf of my
colleagues in minneapolis. -- do put you on the spot you agree that there should be legislation considered to break up the banks? mr. stern: at this point, i would say i don't. it isn't because i reject the idea out of hand. , and the timeits they come when that's important. i actually think there's a part of the dodd legislation that requires major role -- major financial institutions to produce recovery plans, so-called living wills, at this point i don't have any reason to doubt they will be done well. if done well, will help significantly to mitigate the two big to fail problem. living only citigroup's will has been approved by regulars. goldman and morgan stanley has been approved by one but not
both. the others are still working on that. if the regulators gave us a rapid blanket approval, i have to say they are not taking it seriously. they seem to be taking it very seriously, and that is a plus. jonathan: i'm going to ask the juvenile question told rep things up. sift over 21, if you vote for rate hike -- september 21, do you vote for rate hike? mr. stern: i would. david: it's good to have you here giving a direct answer. that's gary stern, former fed president. jonathan: he's not there anymore. coming up on "bloomberg ," oil headed for the first week of game. thummel with $16 billion under management joins us with his outlook for energy and more. for city on top of global markets and the fed speech as well. this is bloomberg. ♪
jonathan: this is "bloomberg ," i'm jonathan ferro. coming up on "bloomberg markets," the 14th anniversary of index. ♪ david: this is "bloomberg ," i'm david weston. oil was a big this week and gave .ack gains after a big slump it was seen as a one-off caused by disruptions from tropical storm. for more, let's bring in route some -- robert thummel. welcome back. it's good to have you. bring us up to speed on where we oil market see this
taking a leg up. is this part of the ending? mr. thummel: we can thank vladimir putin and tropical for increasing prices. long-term, the fundamentals will drive oil prices. that's what we believe oil will be at $50 by the end of the year. we've been saying that for the beginning of the year, even when oil was in the 20's. the fundamentals are moving in the right direction. supplies falling, demand is rising. that's what gets us back to a $50 oil price by the end of the year. david: talk about supply falling. he referred to mr. putin, and his discussions with saudi going to get to limit on production? mr. thummel: you have to look at it from a couple places. internationally, opec is interested in potentially slowing the growth, if not just halting their growth.
, we've seen will production continue to fall month after month. we are headed in the right direction, with regards to supply. demand continues to be very strong. we saw some data out of china that still indicates the global demand for oil continues to be strong. investors continue to respond to lower oil prices. david: what about production in the united states? i would bring in more rigs online -- are we bringing more rigs online? mr. thummel: here's what's been underappreciated in the markets this year. there are certain areas in the u.s. that now can compete globally with regards to oil prices. that's in the permian basin, where you've seen will production increase. everywhere else across the u.s., you've seen oil production fall. to beforward, the place if you are an investor is you want to be looking at will producers in the permian basin if you want to look at oil. the not the entire story in
energy sector. there are other opportunities. we follow over 60 things that we think will drive energy stocks in the future. david: talking about things other than oil production. in theout williams, back news again. everyone tries to buy it or merge with it and it doesn't happen. what's going on in that sector? mr. thummel: the reason why everyone was to buy williams is simply because the marcellus shale in the northwest part of the u.s. -- northeast part of the u.s., where there's a lot of natural gas, everybody wants energy infrastructure in that area. transcanada bought the columbia group,oup -- pipeline which had a nice asset for bring in the northeast. the large transaction the sheer where ambridge and spectra energy are going to merge. thetra energy has one of purest ways to played natural gas infrastructure and the bill that in the northeast. kiliams and candor morgan --
ndermorgan has assets in the northeast. david: talk to us about lng engineer. you are interested in shinny or. marcellus shale has transformed the u.s. from an exporter -- an importer of natural gas to a next order of natural gas. this is the first mover advantage. they are building these massive lng liquefied natural gas plants on the gulf coast. this is the first mover advantage, they are going to be one of the companies that benefit from that. these take a long time to build, and as a result of their advantage, they will be a company that investors want to look at very closely for the years to come. .avid: many thanks rob thummel, tortoise capital portfolio manager. jonathan: coming up, could the ecb latest policy changers be in influence on global markets? we show you in the battle the charts from new york city. this is bloomberg.
david: this is "bloomberg ," i'm david weston. we have abigail doolittle up against lisa abramowicz. >> i wanted to look at the recent effects of selloff in government bonds has done to risk assets. these are cumulative flows for hyg, a big high-yield bond. these archie miller flows for the biggest emerging market etf's pmb. -- emerging-market flows for the biggest emerging market etf's. through strong into emerging markets but i want to bring your attention to this. that is the overnight flow out of both of a choice the and emb, indicating that perhaps investors are viewing this latest selloff in government bond markets as risk off, in other words, this could spur
another type of paper tantrum behavior in riskier assets. it's a big question, it seems like the initial knee-jerk reaction is to withdraw cash from the riskier asset classes that have been benefiting among the most this year from the rally in government bond yields. david: image you wonder all that cash is going. abigail: a great chart. i was a look at the euro, considering mario draghi did disappoint to some degree yesterday. we take a look at the chart. in blue is the euro going back 30 years, before the eu came into existence. we see that the euro is trading in this big range. most recently, of the last few months, it does appear that the euro is finding the suggestion that we could see the euro trade higher into that range, perhaps the ecb is going to continue to disappoint if the euro can trade hider.
above $1.40. back in green we have the bloomberg dollar index. it has traded to the top of the range. what makes this interesting, we will take a look at a smaller chart later today, but this could be a topping pattern, suggesting it's going to come back down. confirming the idea that the dollar is going to come down as the euro rises. interestingly, what this may --gest is that the incident the applications could be stronger. a weaker dollar to do exactly what central banks would like to do, reinflate the commodity complex and reinflate copper and other commodities. it's unclear about stocks, but it could also give the fed a smokescreen to raise rates, while not spiking the dollar and really setting off all kinds of jitters. two good charts. lisa,an: my vote is with it's the story of the day. the question we have been asking is where you want to put money in what is the justification for it.
they always say the justification is based on low rates on core government bonds. if you can do that, there's going to be blood on the dance floor. lisa, how may times has jeff gundlach said high rates are coming? but spend most of this year. it has not been necessarily the right call. david: i'm going to vote for lisa as well, i'm interested in where that cash is going. it doesn't seem to be going to equities right now. jonathan: coming up at the top of the hour, we talk about rates and credit with the head of high-yield investment-grade credit, gershon distenfeld. ♪
from the opening bell in new york. this is "bloomberg ," i am david weston. i'm here at jonathan ferro. we been talking bonds. jonathan: futures are down big time, the down down, the s&p 500 futures -13. the catalyst for the risk off is the bond market, rates higher in curves a steeper. k ofng off the bac speculation over with the boj may not do in the coming few weeks. david: one parallel that struck me. both of said let's give it to a committee and have them studying it. mario draghi said that as well. we are not sure we are going to do this, have a committee study it. if the committee will look at what can help the financial community to finance the economy. whether they come up with something definitive remains to be seen. david: as well as the fed decision the same day.
you can put a mark on that in her calendar. coming up, we speak with gershon distenfeld, director of high-yield investment great credit at aed. right now, we check on the markets. jonathan: 29 minutes away from the cache open. down futures down over a town in terms of points. in the equity market in europe, apply .8%. the dax off by .7%. pick up session highs in the bloomberg dollar index up by .4%. off the back of more hawkish comments from federal reserve president, including boston fed president eric rosengren. we meet expectations with two weeks to go until the fomc decision. in terms of the jawbone, you have lg area, saudi arabia, and the opec chief's in paris today. are they going to agree on anything in terms of the output
freeze or any kind of measures to stabilize this market? soft as the session on crude. down by two percentage points. in the bond market, the story is yields higher, curves steeper. 30 year yield up by seven basis points, and on yields, up almost 12 basis points on the u.k. 30 year. choppy session across assets. let's get you up to speed on the movers with abigail doolittle. abigail: kroger is trading lower in the premarket after they offered a second quarter results that was somewhat mixed. they mixed -- they missed on revenue and beat on earnings. but they cut the full-year earnings forecast, the nasty earnings coming in for 2016 between $2.10 and $2.20. the estimate was $2.20. we will be able to find out what caused this forecast to decline. they also cut their forecast.
also trading lower his williams company on the news that the energy company lost another suitor. they want away from potential deal citing a lack of engagement . just two months ago, we had another pipeline company, energy transfer, betting a $33 billion deal. -- heo is saying he spent is disappointed in the company will do looking at other alternatives. advanced micro devices has been flip flopping in the free markets, down again after the company did complete a stock deal is six dollars per share. they also raised the convert deal to $700 million from $450 million. the news has weighed on the shares this year, down more than 15% this week. year, they are more than a double. shares of this network company are up sharply, soaring in the premarket after the company reported record first quarter revenues. they gave a better-than-expected second-quarter.
william blair upgrading shares, saying it's too good to ignore. let's head over to london with mark barton. -- mark: call it draghi disappointment. the best run for two months, banks are up-to-date. this talk about deutsche bank. the biggest gain in a couple of months. manager magazine reporting is nearing a settlement deal with of anuthorities investigation into the sale of residential mortgage-backed securities. the fine may be higher than goldman sachs is penalty of 2.2 billion -- $2.4 billion. if it is settled, it will be a relief, theent fines and settlements it's paid since the crisis it's paid 9 billion dollars. shares of 54.4%. burberry shares falling today. the report in the south china morning post, it's cutting
chinese prices of leather handbags way up to 20% in a low-profile move because of weakness in the british pound. it's been a booster earnings this year to the tune of 40 million pounds. shares down by 2.4%. ,s we focus on bond markets this is a lovely charge. the 10 year yield here in the u.k., the day of brexit we're at 1.37%. before the boe implemented more stimulus, the yield was .80%. today, we're back to .85%. we went as low as 50 basis point to couple of weeks ago, so we're above when the bank of england had its stimulus a couple of weeks ago. performing bond market in the world according to bloomberg. things are happening in the bond market. jonathan: yields higher, curves steeper, commodities lower in the dollar stronger.
the big question for anyone in fixed income is the russian high-yield getting a little crowded. commented in a webcast yesterday when this is not the right time to invest in corporate credit. >> credit risk, like emerging-market debt and high-yield bonds, doing really well. way better than stocks, intricately this year. and yet, other parts of the bond have questionable returns. it's a time when corporate bonds are highly overvalued. jonathan: joining us is gershon distenfeld, it's great to have you with us on the program. do you agree with that? mr. distenfeld: it isn't the first time i have heard it from him. jonathan: a few people feel like that this morning. mr. distenfeld: in general, we try and predict too much. i think we are overvalued. when's the last time you had someone say -- it's always cheap. jonathan: it's always upside. whether it'sd:
overvalued or expensive, it means something different in the fixed income markets in general, and in credit, specifically. we invest in mathematical instruments. at the end of the day, we can sit and debate what it should be worth. ultimately, a couple a days you back or doesn't pay back. the fact that spreads are tight and yields are low, means you are unless. regan 10% annualized return, the high-yield market over the past 30 or so years, you're going to get lower returns. you could say that about a lot of asset classes. the bottom line is, if you hold a negative yielding asset to maturity, you guarantee a lot. there are no returns for that. , in the bondcz market, it's a wonderland bond market. in europe, with yields down to zero, you can call it a mathematical instrument can talk about fundamentals. whatever way you look at that,
it makes no sense. when does that change the real significant way? mr. distenfeld: if draghi stops buying at some point area that's going to happen. maybe tomorrow, two years, or five years from now. we don't know. it's also important to recognize that a us-based investor who goes and buys european bonds, japanese bonds, can earn a positive yield when you hedge them back into u.s. dollars. we are seeing the opposite japanese investors. we think yields are low here. when they invest in our paper, they are earning a lot less. david: you have investment-grade in your title and new also have high-yield in her title. high-yield cement going gangbusters recently. how concerned are you about credit worthiness? mr. distenfeld: high yields is not just one market. we could talk about however deals are 6.5% or so. you aren't buying a lot of bonds at 615%. you're buying a 3%, 4%, 5%.
the credit risk is fine. or 15%, stuff that 10% where some of them are going to be great opportunities and some are going to end up default and. i am worried. one of the things i think is important is not to constrain yourself to only one area of the markets generate income. you don't just have to buy high-yield corporate bonds. you can buy emerging-market debt. there are securitized assets in the mortgage space. it's a very bad rap because of what happens during the crisis. but it's a complete with different market than it is today. we have almost 20% of our portfolios in those assets. we feel like there's much better relative value. jonathan: let's take high-yield, the bottom rung of that particular asset class. the worst junk rated companies with negative outlooks, standard & poor's global reading -- global credit rating, we're back to 2009 with a number of those companies. is that where the pain will be
felt more acutely, given where pricing has gone to on these particular securities? mr. distenfeld: there's going to be determined as dispersion. that always happens late in the cycle. if you look at all the previous crises we have had. the financial crisis and the tempered -- taper tantrum. if you bought risk blindly coming out of that, you did very well. it's going to be very different this time. you're going to have bonds that traded 15%, with total returns of 30% or 40%. there will be ones were you lose most of your principal on, -50% or greater. yieldsyou can get higher if you go out of the curve, you get a longer duration. move?t a smart mr. distenfeld: we don't think so. if you are a euro-based orient-based investor, and you n-based-- were -- or ye
investor, it's making it a fighter question. jonathan: you see the sovereign debt moves on the screen. deflection point, or just a correction? mr. distenfeld: you have to put it in context. you look at the 30 year yen -- we are back to where we were last week. in the euro and u.s., back to where we were in june. not to put it in the context. we are a lot lower than we were even year ago. not?is a head fake or i'm a hearing -- i've been hearing about rising rates, it's going to happen at some point. we try and tell them it's not going to be the end of the world. over time, you have rates go up quite a bit and still not lose money. david: gershon distenfeld, director of high-yield in investment great credit at a be -- ab. jonathan: financials gaining a little strength. is it too late to buy? families that are best and worst conditioned in this environment.
david: this is "bloomberg ," i'm david westin. we are putting oil is the future and focus. bauer, of is scott trading investment. talk to us about this drawdown in inventory. how much attention to would be paying to that? >> is a lot of speculation this might be a one off. the market for traders has been
great, it's been such a whipsaw in the last couple of days. but the drawdown like i said, there's a lot of analysts thinking this may be a one-off. there's increased supply, but we have to watch later today. later today, we get a rigged call number, and that could add to more volatility here. we saward move yesterday, which we are now down to percent or so this morning, there are some major resistance, major sellers for crude. unless we see a major, major increase in demand, we will be very hard pressed to get to the safety number. thummel ofad robert tortoise capital, and he was more sanguine saying demand is looking good out of china, and he thinks the supply may not grow that much. do you disagree? mr. bauer: for the near-term, i
certainly do. but don't see the demand moving in the next two to three months for sure. 2017, all bets are off. i think we're going to be very range bound in the next couple of months. i don't think we're going to great -- breakthrough to 50. i think oil is going to settle back in the lower to mid $40 range. and probably sit there for the next couple of months. quite honestly, we are so tied to the overall market, we see volatility pick up in the oil markets. in the overall market, that $40 range to $46 range is where we're going to settle in. david: how much attention to you pay to the saudi arabia russia talks? david: if you want to look at a minute by minute basis, great. overall, don't think it adds at all to the overall market.
that's more speculation. later that month, we have to keep an eye on an opec meeting about libya next month. the current information that's out there with russia and saudi arabia, i think you up discount out of bed. david: scott bauer of trading advantage, good have you with us. in a few minutes, the new york stock exchange and nasdaq will observe a moment of silence in memory of the victims of the 9/11 attacks. we will be covering that. this is bloomberg. ♪
david: we have been watching the moment of silence observed at the new york stock exchange. they observed a similar response of the nasdaq. both exchange's were closed 15 years ago after the 9/11 attacks. they were down for most a week, working heroically to get the exchanges back up. there was so much disruption, not just in the infrastructure in the exchanges, but all of the ancillary firms who lost people. earlier, the chief executive of kbw who was working 15 years ago and record the 67 people they lost. grace of god, i was coming into work late that
morning. i typically had shared the ch the meeting -- morning meeting. aired. my four-year-old son surprised me, and i missed my train. david: your company was not as fortunate. tom: unfortunately, we were in the world trade center above where the second plane hit. our firm lost 67 colleagues out of the 174 that were in that office. david: talk to us about the immediate aftermath. -- the country was reeling, but particularly, wall street was hit. what was the recovery like over the next weeks and days? of things.le we had resolved what we were going to do. we made two big decisions. number one, we were going to do anything we could to help the family members and colleagues of people who were killed that day. the last chapter of our firm is
not going to be written by those folks on 9/11. we had tremendous energy to rebuild. the energy to rebuild was extreme. we also say there was an ordinary amount of goodwill that came out. thatomething as horrific happens, there were tremendous great stories. i thought for the first two weeks, you would even here at horn.rn -- a cab david: in the aftermath, it was very specific that these terrorists had targeted wall street. they want to strike at the heart of the financial center. , hardg back at 15 years to believe, 15 years later, have there been any lingering effects? tom: there certainly are. you can't have something that meaningful happen and have their not be. would it really speaks to is the resilience of the industry. the resilience of the city.
the resilience of people who were motivated. we thought a lot about it as we went into september 2008, and some incredible things were happening in our industry. we thought if we had survived 9/11, we were going to be able to tackle these new challenges. david: that's a fascinating point. what perspective did he give you you otherwise might not have had, when you have things like the setback of 2008? tom: if you say something that is hard, you realize it will never be harder than what we saw it will be dealt with on 9/11. never forget we had a meeting in september 2008, we watched out and it -- a very junior colleague said this isn't the end of the world. we've seen that, we know what it looks like, and this is in that. it sent to me it didn't take one of my senior colleagues to really point that out. who is a very junior person had helped us rebuild following 9/11. david: that was tommy showed -- tom michaud.
we all remember where we were what we first got word of those attacks nearly 15 years ago. it is difficult thing how you observe this. on the one hand, we to give proper reverence to the moment into the lives lost. on the other hand, we don't have an effect is too much. that was the entire point of the attack. aroundly throw all of us the world off our stride. jonathan: to attack the heart of financial communities, in a day we will remember even outside of the united states. i.r. number when i got the news, and i think -- i remember when i got the news. everyone will never that moment in time on a programming note. watchday, if you wish to the ceremony downtown new york city on television, they will be carried in full on bloomberg television. david, a poignant day. that itht to remember puts current day problems in the financial community to real
perspective. when you talk to market participants that were downtown on that date, they would tell you that as well. david: we were just looking at the tower that's been built in the shower where the two towers were, it's a symbol of resurgent -- resurgence. is a real comeback. the markets continue to be open and trade. features deep into negative territory's, dow futures off by under points, we just four -- four minutes away. in the bond market, that's the story. yields higher. we continue to debate right here on bloomberg. from new york city, we remember. ♪
s&p 500. we have not had a one percentage point move to the upside or downside for 43-consecutive days . does not change today? the stocks are down by three quarters of 1%, the dax lower by one half of 1%. yields are higher, up six basis points for treasuries at 1.6% on the u.s. 10 year. and yields approach in positive territory. we are one basis point away. the stronger dollar, dollar-yen, 102.99, euro-dollar, down to 1.1222. we are looking at a risk off of been. we had the three major averages down half of 1%. the dow and s&p 500 are for
their third decline in a row. as the asking earlier complacency in the markets could extend to a 44th day that the s&p 500 of not making a 1% move. 1%.s down .7 of more often than not, the brakes are for the downside. one headwind is oil. we had the oil complex trading down, down more than 2% following a spike higher on a surprise plunge. this could be consolidation weighing on the major stocks and the revisionist view is the 17-year, the worst plunge in stock piles, came as a one-off on storm action. the stock trading lower, kroger has pared its losses quite a bit, but shares are trading lower. the company produced a mix second quarter on revenues. they missed on earning us.
what is weighing on the shares earlier is that they cut their full-year earnings forecast. they now see it between $2.10 and two dollars license per share. -- $2.20 per share. twitter shares are trading lower on the open. on a new york post reports saying carl icahn will not be buying twitter amid much speculation about what company would like twitter. we have heard everything from google to microsoft. carl icahn is now off. jonathan: they give for the update. 2 minutes into the session and moved to the downside of .25 of 1%. .he dow jones up by 0.76% the financials, another sector on the move. financials are making a comeback, the second-best performing sector on the s&p 500.
joining us is the chief market strategist at a mayor price financial. price financial. financials, the banks, insurance groups, they like what they see in fixed income. you see the story developing from here? >> i think financials will be buffeted i what happens with central banks. in the short run, they seem ok with the fact that yields are going higher. skeptical the am rally will be sustained if the fed does not move in september. leaves you with the prospect of relying on firm economic data. the last round in august was pretty soft. both ism reports and labor reports being soft as well. financials have had a nice run, which is gratifying.
at the same time, the upside is limited unless rates move higher and i'm not sure that will happen in a big way. jonathan: do rate to need to move higher or do we need see per yield curves. look at japan. we see the spread starting to widen. the yield curve has started to stephen. you can see the rally off the ck of that. can we see that in europe and the united states in the months to come? will it benefit the banks the same way it appears to be doing so in japan? david j.: it would benefit banks no matter where they reside. some of this may be related to the ecb staying on the sidelines and the assumption that they will not be the buying demand we were hoping for. i think the ecb will extend their program in december. again, going to, once
put downward pressure on the long end of the yield curve which was be a limb u.s. were yields are higher. -- which will spill into the u.s. where yeilds are higher. david: beyond financials to the equity market, what are you looking for in terms of earnings and a last part of the year? , we are hopeful that we will see a shift to positive earnings growth in the fourth quarter, that is the view.sus there is no question that the forecasts have been downgraded consistently. no surprise. that are still positive, however. the question for us is how robust is the u.s. economy? the underlying trend is 2% annual growth. the thirdpected in
quarter, we might see something better than 3% if we get an inventory rebound, and that could lend exuberance to the notion that maybe earnings could be positive in the fourth quarter. we will see some of that reflected when the year-over-year comparisons in the energy patch get easier. marketlook at 17, the looks to the future, those earnings forecasts look robust to us. they are probably going to have to come down. ok, bute think are valuations are stretched. if we do not get decent earnings growth, i'm afraid stocks will struggle to do better than they are right now. in termse marketplace of size of the enterprises, why do small caps seem to be doing better than large caps? david j.: it is consistent with the cyclical names doing better. it is a situation where you are
seeing a shift to expectations of better economic growth, especially in the u.s. and small cap will benefit in that environment. plus, they are more domestically oriented, so they do not have to worry so much about revenue from overseas. i think it is a combination of those 2 factors. it gets back to the issue of what is happening with the u.s. economy. if it is stronger than what showed in the first half, small caps will do well and cyclical does in the big caps will well as well. if we do not get big numbers and the rebound we are looking for, lly willl cap ra stall as well. jonathan: the dow down 140, we're talking about moves of 1%.f moves to the upside or the downside. the economy as follows, if
spending has been week and consumption has been strong, how does that spread reconcile? will the consumer step back or businesses step up? david j.: you will see the consumer hang in there and business day on sidelines until we get through the election. i think that will be the case in beyond thel we get referendum in italy sometime in november. i think there is too much uncertainty for the business community to expect too much from them in the short run. on the consumer side, consumers are in decent shape in the u.s., so we expect them to hang in there getting us to the -- to at least a 2% rate, but nothing more exciting than that. consumer stocks are quite full. some pockets are attractive, maybe housing, but beyond that they are pretty full. we do not have the exact are
bets in the u.s. we will recognize the upside is limited unless the economy surprises us. david: an enormous amount of money, where are the bargains? it is often difficult to say there are bargains anywhere. if you knew for a fact that the dollar was going to stay no worse than stable and weaken a little, you would say maybe some of the emerging markets look attractive. if the dollar firms, if the fed surprises us this month or ain,ts to talk hawkishly agi that rally will stall. question if we could move higher with valuations across the board, as full, as the they rp pure that will depend on how robust the economy
.801%. the story in the fx market is a stronger dollar, positive by .5 of 1%. we have seen the stocks move throughout asset classes. in commodities, down to four percentage points. 2.3% atming in by $48.83. the catalyst for the moves lower is this in the bond market. yields are higher. it means the long and is selling off aggressively. and sales more than the front end, that is what you see on the 30-year. up on the 30 year. if fuse is lit by mario draghi. the story is what is happening looksan it and if the doj to get a steeper curve to help financials. let's go to some of the movers with abigail doolittle. nasdaq: lots of big
movers. we're looking at shares of a network company having the best days since early march since they reported record first quarter revenues. orderuided the second above estimates. william blair has upgraded the saying it isisar too good to ignore. average see -- averages are 10%. ,n the open, l pollo loco trading higher on news the stock will be added to the small index on september 12. it will replace american science. the reason this causes stock to addedher, with stocks are to these indices according to paul sweeney, it forces passive index managers to buy shares. it is also a coming-of-age or status symbol. on topoil as a big week
of a possible production freeze and u.s. inventory drop. markets are suspecting an inventory drop might be a one-off. the question for investors is where oil is headed over the longer-term and where smart money should be going. joining us is jeffrey senior integrated oils equity analyst. welcome to the program. you did an analysis of 13 integrated oil companies on various factors and rank them. chevron came out on top. tell us why. jason: in chevron, we have a combination of the robust upstream offering -- and -- offering cash and growth. the growth in front of them is easily financed, meaning the best chances of a progressive dividend. david: on the other end of the , the end. contrast that with chevron. balance -- aa week
week balance sheet. we also get cash margin compression. it is exactly the opposite, a mirror image, of chevron. david: i looked at the line chart for equity values for these companies over 12 months. both of them are at or near the 12 month high in terms of stock price. in the't the difference quality of that company reflected in the equity value? jason: that is where opportunity comes in. be appreciating more, because they are doing major capital projects that have risk associated with them. in the next six months, they can generate good outperformance. repsol has been able to take some measures to shore up the balance sheet, so maybe the risk is not fully appreciated by the market. david: to what extent is their differentiation among the 13
companies and how well they perform in a low-cost oil environment? jason: there is a pretty market difference between what has been the top three in the bottom three companies. they separate. what it comes down to is what companies can pay their dividends with cash in a little oil price environment. -- in a low oil present environment. companies like chevron and shell are well-positioned to do that. that will lead to separation in the stocks. jonathan: let's move away from companies towards commodities that they take out of where they are situated. the idea of some output agreement between opec numbers and perhaps russia. seeing these headlines come through, he is cynical about this prospect. do you think that it well? i'mn: you know me too well, quite cynical about a deal being
reached among the group of countries like this. especially what is happening is as a group they are trying to show that they have the potential to support the market is need the. -- need be. we say the market will come at the fundamental balance this year or the first half of 2017. i do not see action necessary at this point. jonathan: earlier this week, saying the risk that opec has, the credibility they are spending. when you assume the market will go into balance anyway, why are they doing this is to mark in a time where refineries go into the maintenance season and stop buying crude oil. we ares a rough patch kidding. all they have to do is satisfy the market not there is some force out there for six weeks to eight weeks and let fundamentals support the price. they have done this more than to dobut they do not need
it in the future because the market will take care of it. david: and you get to the point of balance that you anticipate you have to address the demand side. where do you see demand growing over the next eight months? jason: we move back into historical trends, 1.1% to 1.2% is our assumption seeing the market come into balance. over the course of 2015 and the first half of 2016 we are seeing outside demand growth. i think we go racking to a more normal trend, and that is all that is necessary. great to have you with us, joining us from london. coming up, bloomberg "markets" with mark barton and vonnie quinn. what is coming up? mark: it would be remiss not to focus on the bond market. the big three stories are all bond related. david goodman is our fx team
leader in london. he will make sense of the movement. beid hillier will also joining us. the chinese step of interest in english football clubs. english football authorities are stepping up investigations into who owns the companies showing interest in english football clubs. patrick spencer, i will ask him when will the european fund managers stop withdrawing funds from equities in europe? they have been doing it for 31-weeks. -derby thisanchester weekend, you mentioned football. score? 2-1, man united. jonathan: fed officials will be hearing before the much anticipated needing, that is --
anticipated meeting. that is coming up. we are 20-minutes into equities session. stocks lower in europe. the s&p 500 down 0.86 percent. the dow down three quarters of 1%. yields higher, u.s. 10 year sixds up 1.66% moving by basis points. we look ahead to the fed next from new york. this is bloomberg. ♪
dollar stronger. the dollar index appreciated by back of hawkish federal reserve comments. we have gone back and forth with market participants and laughed at the federal reserve's ability to recalibrate expectations. without a move on the head fund futures, we are approaching the 60% mark with the fed would be comfortable to pull the trigger if they wanted to. david: we had a conversation with gary stern, the former head of the minneapolis fed where we asked the consequences of if they hikes. gary: the effect on economic growth would be modest at most. a couple of for reasons. i do not think inside or outside the fed people are expecting or advocating sharp, significant increases in interest rate. the fed is conservative by nature. any increases that occur will be modest in size and gradual in
terms of timing. there is that. int not think the fed ends to be disruptive. i do not think they will be. on firmthe economy is footing. gross is far from -- growth is far from booming, but employment gains have been sizable. it economy looks to me like is quite sound at the moment. david: that was warmer federal reserve bank of minneapolis resident gary stern. i do not know if he is a hawk or a down, but he is not worried about a hike. jonathan: he said yes, i would vote for a hike. he does not necessarily think it is the right thing. istsfederal reserve
talking too much and confusing the message. next: coming up today and week, the fed speakers will continue. we will hear from several members. on monday, we will hear from the atlanta fed president and the minneapolis fed president and the federal governor. fed governor. jonathan: 20 minutes into the session on the u.s. equities and stocks lower by almost one full percentage point on the s&p 500. your higher. u.s. 10 year pushing the 1.67%. that does it for "bloomberg ." bloomberg "markets" is next in new york. this is bloomberg. ♪
there is an hour and a half left in the session. you are watching "bloomberg markets" on bloomberg television. julie: i am julie hyman in for vonnie quinn. it is friday, wishful thinking that it is one hour later. this is "bloomberg markets." ♪ julie: we will take you from washington to new york and cover stories out of the u.k. and china. here is what we are watching. hans selling off around -- bonds selling off around the world and central banks question further quantitative easing. telling the investment will this is a big moment. it is time to get defensive. ofk: u.k. authorities football scrutinizing chinese investments in