tv Bloomberg Surveillance Bloomberg September 21, 2016 5:00am-7:01am EDT
>> bend it like the boj. the stimulus focusing on steepening the yield curve. eliminating the negative. banks rally as kuroda -- subzero cuts. yellen in the wings is an odds of a september hike fades. this is bloomberg surveillance in new york for the week with tom keene. there is the little matter with the boj and reports from the oecd. we will be speaking -- we will be speaking to catherine mann. they are downgrading their forecast be -- for gdp locally.
-- gdp globally. tom: which is a big deal. it is a general rule that 3% is global recession. percent.e than .1 -- .1%. is there a lot going on today? francine: there's a lot going on. we will speak to catherine mann. they're managing the debt. conditions they see in advanced economies. tom: deutsche bank has been on top of this. a shift toward financial instability for next year. francine: we have ocd -- oecd. >> terrorism charges have been filed against the man accused of setting off bombs in new york and new jersey. a complaint says that rahami planned the attack for months. prosecutors say he praised osama
bin laden and hoped the bombs would be heard in the streets and he was captured in a shootout with police. british lawmakers -- two defeat islamic state. parliaments defense committee says the u.k. and its allies need a grand strategy to defeat the extremists. the effect -- the panel supports the strategy of air power and political progress. the white house is charging russian warplanes attacked convoys in syria. another damaging blow to a shaky cease-fire. the kremlin has denied it. a judge accepted prosecutor's argument there is enough evidence to bring him to trial. there are allegations that wide-ranging kickback schemes he has denied any wrongdoing.
and immigration campaign group is urging the u.k. to limit worker permits issued to european union nationals here it -- nationals. that would mean britain would reduce migration by 100,000 a year. global news, 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. i am taylor riggs, this is bloomberg. tom: let's do that first data check. our special coverage of the fed later today. the euro slightly weaker. nymex crude top yesterday. really makes it back from the 42 level. 101.79. sterling under 130. yesterday,o blowout 165. to 19.76.
that is a big deal to see peso weaker. francine: stocks rallying around the world, yet it all has to do with the boj. you could argue it has not done enough. financial institutions, the weak spot at the moment which people are worried about. gained.x equities overall in asia and futures here. konstantinos: we will level out. we are going to go to tokyo in a moment. this is a chart that have never shown, this is mexican peso compared to brazilian real. in the middle of the chart, there is a great brazilian miracle, the rally. , thet mexico weakness collapse of brazil is back on the other side of the 90's. the recent hockey stick over on the right side, is that about brazilian strength? is that about mexican weakness
or perhaps it is about mr. clinton -- mr. trump and mrs. clinton? that mr. trump is doing better than good in the recent polls added onto recent mexican peso weakness. i've never shown that. francine: it is nice. this is my chart with the boj. 10 year yields. you can see on the chart that it is in positive territory for the first time since march. i think we can show it to you now, but the basic idea is it has gone into positive territory because the boj introduced monetary easing. it is keeping the policy down to -0.1%. what people are focusing on is the fact that they set a cap on the 10 year bond yield. back in positive territory but not for long. tom: there is a lot of ways to go.
we are going to go to brian in a moment. the music market reaction outside of equities. we will see how that seeks through off what the fed does today. we are going to show a couple of charge here. francine: this is what we are focusing on. it is to do with how the fed sees -- ryan fowler is the editor -- brian fowler is the editor. he joins us from tokyo. brian, first of all, let's kick it off with you. the question that markets are trying to digest is how smart was this tweeting from -- this tweaking from governor kuroda? tweak.it is definitely a i think it is an elegant move. they had to capitulate in certain areas. they removed the timeline for hitting that 2% target. they came back and said we are
going to try and overshift that target as long as it takes, the easing policy will remain in place. going to do more than we promised, it may take a little bit longer. francine: what is your take on inflation? they say they can overshoot the 2% inflation target, but you cannot reach 2%, you think you're going to overshoot it seems far-fetched. brian: that is right. the economists are skeptical. no one can see that happening in the next two years or 18 months. the yield curve, that is the other big story. that addresses some of the concerns that banks, insurance companies have about rapid ability. -- about profitability. i think mr. kuroda hopes that having a steeper yield curve implies there is more inflation down the line.
whether anyone believes that is another story. some said artificial steepening. tom: i think you nailed it there with the idea you have to see it to believe it. let's go to the chart to show the conundrum brian speaks of. here's the japanese yield curve the red circle is the 10 year yield. yieldegin with a -10 year . the first order of condition is to lift that above 0%. is there any evidence they can do that? do they have the ownership force -- the and are sure force to move yield up? can cut back on purchases longer-term bonds. we had a story today showing they have been doing that for the last few months, cutting back on 10 years over 25 years. they can continue to do that and hope it puts it -- it takes a
little bit of the shine off those binds inputs yields higher good whether it is sustainable is another question -- hire. whether it is sustainable is another question. makes itrto garlow clear that this is the death of an irp and qe. brian from tokyo, is this something that other banks are going to follow? brian: you know, the other thing is on the zero rate, a lot of economists we spoke to renewed their forecasts that we could see a deepening of negative interest rates at the next meeting in november. or possibly october, but at least by november. there isome are saying a 50-50 chance to short bankshares. some people think it is still coming. francine: thank you so much. he joins us from tokyo.
let's get on to london, ewen cameron watt joins us. i am trying to figure out what today's tweaks meant. it shows that central banks are willing to experiment. is that fair? ewen: central banks can i go backward. -- central banks cannot go backward. i think there is quite interesting stuff happening. repression in the 1940's and 1950's which cut interest rates in a high low range. that is what i think the bank of japan introduced today with the cap on yields. think it ishing i of course there is no credibility in the inflation target, but the more you say there is no credibility, the longer the policy is going to last. the third thing is that leaves you -- that leads you to the
conclusion that this is the bank minister of finance will issue as much as he likes. merger offull-scale fiscal and monetary policy and helicopter money. a distention between british and american economics. americans look at short and long-term. in british have this odd thing of medium-term. i see no evidence that a central bank can apply these strategies over the long-term, or even over the medium-term. djj---== -- as today -- llo said >> it is not the end. they are going to continue to and itsdaption of nirp
yield term targeting. you can buy fewer bonds than you were buying before. you may be putting less money into the economy. you are using the bank of japan's balance sheet to fix the shape of the yield curve for a pretty long period in the future. i think that is completely -- medium-term, long-term, nobody knows. tom: what is so important here is we don't conflate the two time functions. one is the length of the policy and the effect, medium and long-term. the other is the length of the yield curve. 10 years is a long time. francine: on the move more immediate trouble, -- on the more immediate trouble, answer me this. our central banks struggling to get away from global inflation? will they ever find a way to
inflate inflation? ewen: i think this is a lost cause. it doesn't seem to create excess credit. if we had not done this, where would we be? this is why the emphasis is moving in the conversation towards fiscal. you can what monetary policy is doing is buying the fiscal time to expand the deficit. we will see that in the u.k. at the end of the year when the chancellor is able to expand the deficit. same is true in the united states because the duration of treasuries continues to stretch out. tom: great to have the here today. we are in new york. lots going on including a summit with the human meetings. the fed meeting this afternoon --with the ewen meetings
francine: it is new york. it is bloomberg surveillance. tom: francine lacqua walking around manhattan. francine: because the traffic is so bad. let's get to the bloomberg business flash. here is taylor. tellico -- taylor: into dax operates a brands and has more than 7000 stores in 90 countries. the company's putting a priority in boosting online sales rather than opening more stores. volkswagen investors are soon got a make or for more than $9 billion in damages believed --
damages link to the emission scandal could more than -- emissions scandal. vw denies the allegations. that is your bloomberg business flash. francine: thank you so much. let's get back to ewen cameron watt. if you are janet yellen, the fed, look at boj and think week, when i might ready to hike? ewen: look at the boj will be a short one. i think what we will see today will be the moving down of the dot.term. -- long-term a signaling that the terminal rate is lower. a weight andybe seahawks statement. -- maybe a wait and see caucus statement.
francine: what will they tell us? ewen: no change. the long-term expectation for inflation are probably diminishing. in so doing, while rates will rise over time, it will be a bit, not a lot. any textbook proof of our new economics, whether it is boj with their original economics today? or maybe the idea of janet yellen not working in a vacuum of a global slowdown? are we in a land of new economics? ewen: i think we are. -- japanhat moving moving into the era of regulating is is rates, the next stage it will regulate recredit goes is a kickback to what you had in the u.s. in the 1940's and 1950's and the
nationalization of financial markets is taking place. we have seen during wartime. the textbooks will be written after the events rather than before. tom: i look at this, francine. there is so much going on today pit we look at the bank of japan as may a part of what the fed action the fed meeting was that today, this is absolutely this isly -- -- absolutely original economics from the bank of japan. francine: i wonder longer-term if they will be more disappointing because they could've done more. tom: it is most interesting. in our next hour, questions from wilbur ross. if you are a trump supported, mr. ross is your guy. he is adamant on the advantages of mr. trump over secretary clinton. in our next hour. this is bloomberg. ♪
tom: good morning. from new york, francine lacqua in town it she is here with a summit -- in town. she is here for the summit. let's get to our morning wall street. 10 merkel, i love this because i don't know much about what is going on in germany. let's bring it up here if we could. bloomberg view. they're been five defeat in every state of germany that held
elections. mistakes have been corrected. it is by far the storm's party in germany. the chancellor's stoicism is grounded and optimism. ewen cameron watt is here in london with us. it sounds like an -- it sounds like a lecture at oxford. chancellor merkel is the united kingdom -- is to the united kingdom speaks to. eva: this will be the most closely watched selection. -- most closely watched election. -- because she feels her authority will carry her through again. it will be a different shade of coalition. that is the determining factor. germany without merkel is a
different proposition from someone who has been there for a long time. tom: i read a lot this weekend .bout strasbourg francine, i witnessed you at or caroline hyde at bratislava, angela merkel had a fractured room. francine: yet 28 liters and they don't have the same purpose. you have a fractured europe. i concern for as the merkel is the lessuse of all of moderate politicians, that even the moderate politicians like angela merkel will have no choice but to be either more right wing or left ring -- left wing. ewen: we know that germany will be a coalition.
that is how the general policy has been set up. ofrefore, it is a question is it leftward leaning or rightward leaning. i would guess that is going to be left-leaning. the same agenda for fiscal prudence and not taking big risks will be there be much whoever steps in as chancellor. tom: ewen cameron watt, thank you so much. including thesues decision from the bank of japan good on the fed on bloomberg radio worldwide this morning, abby joseph cohen is. this is bloomberg. ♪
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francine: yes. tom: it is a beautiful new york city with many world leaders. francine: and exciting. this week, the first week i have been in new york for the u.n. general assembly. it is like star wars. tom: central park south has six lines of limos. i will let you figure that out. it is something to see. it happens every year. every year it gets a little more crowded. westwood news, here is taylor riggs. taylor: the big of japan has shifted its focus of the monetary policy program at it will move away from a rigid target for expanding the money supply. the boj introduced zero inches rate target 14 your bonds as it stepped up its fight against inflation. prosecutors say ahmad khan rahami praised osama bin laden
and warned that the sound of bombs would fill the streets. he is responsible for the bombs in new york and new jersey. rahami was captured after a shootout with police. charlotte, north carolina, protests erected after police shot and killed a black man. police say an officer opened fire. members of the family says he was not armed. according to police, protesters threw rocks. several officers were injured. it is another sign of how the presidential race is fractured. traditional voting block. high income voters are narrowly supporting democratic cap -- democratic candidate hillary clinton. 46% to 42% among members of households -- republicans have always one that demographic. china's premier league says he is confident that relations with
the u.s. will remain positive no matter who the next president is. he was speaking in new york. he did not have anything to say specifically about hillary clinton or donald trump saying the election is an internal affair for the u.s.. -- for the u.s. global news, 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: africa's economic almostis a slowing as -- philanthropyberg are cohosting the second annual -- joining us now is the senior partner in -- great to have you here on surveillance. this is a huge opportunity and yet you see growth expectations in africa that were largely pushed because of commodity prices in oil.
it really took it back turn in the last 12 months. >> they had to take a back turn because the fundamentals were so strong. we look to the growth story. -- we looked to the growth story. [indiscernible] [indiscernible] the fundamentals around urbanization, technology, those are there. they are there to stay. francine: that is ever structure that has the investment bank looking at. what is the common thing that is most misunderstood about africa. it is a huge continent with a diverse economy. >> the 400 companies -- they make a billion dollars or more in africa. they grow faster on average than
the global peers. a bigger riskakes .ppetite then certain countries redistribution of wealth is not like and a lot of our western economies. acha: which is sector, which company and look at that quite carefully. the reality is -- tom: the idea of the slew rates. there is a whole idea of africa ,nd around the william easterly foreign aid, how are we going to help africa? beyond anally traditional foreign aid debate whether africa is freestanding and we move on to some new discussion of assistance? acha: i think we are way beyond
that. if you look at the last 50 years, foreign relations investment has reached a fast-paced significantly. us mobilizing our own resources. this is relying on foreign aid. livingl of us are still in our memories, those who of us who were on the street. one day china showed up and bought all of the cobalt. you've got one off huge amount of money and agreements coming in. are those agreements wrapped around corruption? are they becoming more arm's-length agreements? acha: they are becoming more arm's-length agreements. i think it is a good thing for the continent to have a lot of partners who are interested in doing business. the reality is we need to be of a two negotiate a much better agreement. to negotiate a much better agreement. tom: where will that be in 10 years?
acha: the 40% to 50% range. you are seeing a lot more of these linkages. companiesean and u.s. starting to create joint ventures. francine: what is a country that has missed opportunities? acha: there are arbiters across the board. that's there are opportunities across the board. -- there are opportunities across the board. day -- your your first day like an johannesburg? you walked in the door and you were like i am here. elliott: it was amazing to see -- acha: it was amazing to see. tom: what is the thing we get most wrong about africa? what is the thing that drives you nuts about the western interpretation -- the plaza
hotel of interpretation of your continent? risk.it is the the perception of the actual risk on the ground. a lot of people sit behind screens. the reality on the ground is very different. not that there are no risk but the perception is different. tom: don't be a changer. -- don't be a stranger. bring mark barton with you. francine: stay with bloomberg because we have plenty more from the u.s. africa summit. tom: an important conference today. all of the headlines across bloomberg today on that. robert diamond, former barclays .hief executive and jay ireland i love that jay ireland is with us later today. ♪
francine: i am francine lacqua with tom keene. this is bloomberg surveillance. time now for my morning must-read. i picked out something which went to the heart of the medication issues with a lot of central bankers. getting communication right is one of the biggest challenges for central bankers. it affects credibility and its effectiveness. syntel banks plan to take the economy but not exactly about how they plan -- when they try to sit with ford guidance, it is difficult to have a clear can medication. -- francine: the problem is and it is interesting -- mpc
have more opinions and the markets decide what they want to do. tom: i would say that but i would say better clarity of language out of the boe. i love all of these acronyms we are using. that must mean it is time to bring in michael mckee. he will be with us over at our africa summit as well. george is with us as well. i'm still reading team coverage about brands alina. g you did not even look at brangelina yesterday. quote strothero martin from cool hand luke. we -- what we have here is a failure to communicate. take a look at what the big in japan has done. they keep promising they are going to generate inflation. abovere hovering right
zero. you see where they went down when they went to negative interest rates. they are not getting their. that is a problem for the japanese. the other problem -- ask line francine: -- problem -- francine: is it a failure to can indicate? or is it you can i get there? >> you take a look at what the japanese have done, they have gone through this monetary policy, expanded the balance sheet and done all kinds of negative interest rates and other things and they cannot get bank lending up. this game is designed to mitigate effects on banks of negative interest rates so they can lend more good look at that lending channel, it is just flat. there is no demand. they are not attacking the demand side. tom: we demand an opinion of someone from nomura.
what was the reaction in tokyo? >> quite interesting, you look at the market reaction and how things have worked out, volatility has been low. you are not seeing swings. expectation going into it, a lot of moving parts. it is going to be hard to get it right. at the same time, they delivered the message that it is going to be terrible for the markets to digest moving forward. this idea that they are out of , enhancing conventional type easing, they could've went for the helicopter money tom: -- money. tom: the idea that they have gone beyond negative rate policy in qa, thank you alberto gallo. they are still utilizing the negative rate policy within this new policy. which side of the fence are you one? means theyble option
can go to negative rates. their have chosen to be more yield targeting and forcing out there. just because that is happened does not mean it doesn't work. they are looking for taking away some of this pressure that is been happening from the asymmetry of the qe design here to francine: i heard used -- design. francine: you could argue that these tweaks is a whole new way of doing things. this is as experimental as you get until you do helicopter money. text at this point, -- >> at this point, it seems the bank of japan is recognizing they do not have anything left to change the game. ,hey can keep policies in place but they are waiting for the fiscal authorities because monetary policy is not reached the limits of its effectiveness. tom: let's bring up this chart.
this is the japanese juncker. -- japanese yield curve. the red circle is a 10 year yield. it is negative now. do either of you have any experience of a nation pushing up a yield that far out in the curve? >> think about this. this is taking a page from the 1930's. yield targeting comes with a host of issues. , have actually give up the activity in that sector of the curve. nowadays, draw the line in the sand at the zero line, it is interesting how the defendant zero bound. michael: the reason i woke up to look at the bank of japan, i heard that enormous sound of turning over in the grave. bond marketovereign
and they are going to be controlling the yield curve. the government is deciding what prices should be, not the markets. is what weould say experienced in the 1930's, history does not have to repeat itself, but when you know you have a buyer at a certain level, you don't feel the urgency to sell to the central banks. supersize ande to by his bond -- by bonds as much. this kind of intervention. francine: george, is it longer-term bonds are the place to be, because overall they offer higher yields. it seems like a no-brainer. george: a combination of the target and not really -- 10 year sectors, japan will offer some yield interest for those locally . does play a role back to the u.s. ifrything is connected, so
you've got a situation where the local in japan could continue to buy their own paper without having to compete with the bank of japan, it could go up in a very diverse way. tom: this is critical, your comment that this harkens back -- this harkens back to 1930's policy. modern economics versus some form of 1930's 40's good will this policy affect animal spirit nominal gdp. >> ultimately, they want to get real rates low. the bottom does not go anywhere, then hopefully we'll rates will stay. thek see goes back to second chart i showed, there is no demand. .ou can make money cheap the bank of japan has been trying to do for years.
addingow, they are not to spending. francine: i am going to be in the timeout chair, but i don't know -- but i don't care because i don't want to go back to what happened in the 1930's. this is globalization, right? everything in play. this is the boj, they also have a higher yen as they are haven and they are fighting evaluations across the world. it is a different world. currency perspective makes it completely different from the 1930's, but the way they are targeting yields harkens back to that time period. it could come with the same issues. it could actually support local markets better. we have had a lot of flows going into markets is of investors. that might challenge that. >> one interesting point is this
is a shift from the bank of japan. they are not targeting a weaker yen. this is a mystically led. -- this is domestically led. the fed may have more impact on japan that the bank of japan has on the u.s. tom: this chart has a strong or yen and bring it appeared. yen.s stronger bring it up here now. yen will tradenk within a range that is going to be hard to break. tom: this is incredibly smart. great conversation. francine: if you are watching from japan -- tom: i'm going to go back to reading. francine: coming up, we will speak to catherine mann and her view on the boj and the policy at 6:30 a.m. new york. this is bloomberg. ♪
the cartel faces the sermon internal -- the same internal rivalries. iraq and iran signals -- signal they want to pump more oil. the head of the world's largest advertising company says customer spending is tracking gdp growth. martin sorrell spoke with bloomberg tv. >> the underlying growth rate was 3% ago depending on where you -- 3% whether -- that is not bad but it is not great. i would like to see worldwide gdp stuck in the range of 3% to 3.5%. the projections for next year are 3.5% to 4%. i would like to see worldwide gdp up another 100 basis points or so. taylor: w tpp -- has been making acquisitions. microsoft is planning another buyback.
microsoft stock is up 31% in the last year and now close to the record high set in 1999. that is your bloomberg business flash. i would point out that microsoft is generating $24 billion of free cash flow every 12 months. bloombergk of the surveillance map, -- what took so long is what many on the street would say. the bank of japan, the fed. we are going to reductive that at the top of the hour. george, i want to go away from institutions, to retirees. you mentioned the real experience. i am sorry, this is financial reap russian forever -- financial repression forever for retirees. >> the notion that maybe they're going to scale back. we are still doing qe.
the bank of japan now is going to be the buyer of last resort at the zero level. they are going to have to keep qe which is financial repression. thati would predict francine -- francine: if you go back to inflation, we keep on saying inflation is hard to achieve. this helps consumers and those retirees. right? >> from a consumption standpoint. if you're going to gain the kind of growth on your money, the idea to have cash flow -- if things are cheap and you have no cash flow -- tom: i would say a valid point. here's the first order of condition. get it up here. this is the 10 year yield. cleveland cpi, come on george. that is a negative interest rate
which not only crushes direct savers but indirect yield hawks desperate for yields. >> little by little cut -- little by little, there peeling away at savings. tom: this is amazing what the japanese did. we'll get that discussion out on itunes podcast. will continues with this. later in the hour, wilbur ross will join us. we will speak to him about his strong support for donald trump. on a market -- catherine mann on a markdown. this is bloomberg. ♪
the bank of japan commits original ban macro economics. chaird's turn -- will yellen waltz to a rate hike? and a vote for trump -- it is a vote against mrs. clinton. this is "bloomberg surveillance ." i am tom keene, in new york. in new york as well, francine lacqua. francine: it is fun. it is packed. ,heresa may is here in new york as prime minister. we are getting headlines talking about brexit. tom: what is the chancellor saying? francine: that he feels he has the tools necessary to support the economy, and the underlying strength in the uk will support growth this year. tom: everyone talking their book in new york. our first word
news. here is taylor riggs. the bank of japan has shifted the focus of this monetary stimulus program. the central bank says it will move away from its target for expanding the monetary supply. it introduced a zero interest rate target to fight against inflation. it is another sign of how the presidential race has fractured traditional voting blocs. according to a poll, high income voters are narrowly supporting democratic candidate hillary clinton, who leads don't 46% to hillarygst house -- clinton -- terrorism charges haven't filed against the man accused of setting off bombs in new york and new jersey. a criminal complaint says ahmad khan rahami planned the attack for months, praise osama bin laden in a journal. he was captured in a shootout with police.
british lawmakers warn the military strength alone will not be enough to defeat islamic state. parliament's defense committee says the uk needs a grand strategy to defeat extremists in iraq, syria, and beyond. the white house is charging the -- that russians attacked a convoy in syria. 20 people were killed, another damaging blow to a shaky cease-fire. the kremlin has the night responsibility. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. tom: thanks so much. to the data quickly. kevin logan will join us in a moment. 1.1148., francine will mention japan. yen, 101.55.
sterling, 1.29, back up with some strength. mexico weaker yesterday afternoon. francine: this seems to be because the tweaks done by the to are offering support financial institutions. some of the concerns we had about negative rates are being tempered somewhat. tom: the mexican peso, resilient real -- i have never shown this before -- the mexican peso, the brazilian real -- i have never shown this before. the above hockey stick we have seen in the last number of weeks , this is the idea of stronger brazil -- or is it really about weaker, weaker mexican peso? many would suggest this is off the improvement of mr. trump's process. wilbur ross will be here in a
bit, and we will talk about his ardent support for mr. trump. picture foris is a what we have seen. after the announcement this morning, this is a three-day chart for that yield that went into positive territory for the first time since march. this is something we will talk about with -- that we were talking about was george goncalves -- we are not sure how to cap it. how do you make sure it stays at zero? tom: we have had a fabulous discussion about some of this arcane and original macro economics. now joining us, maybe the guy with the most interesting job in economics, kevin logan with hsbc. the idea that you have to deal with james steel's call on gold -- you have daragh maher with a 1.10 sterling. what do you do at hsbc with all
these successful calls? kevin: it is fantastic. we have great calls all around the globe, one thing that gives us an edge. collaborating with people around the globe helps in the current environment because everything seems to be driven by global consideration, not just domestic consideration. -- will kevin: it is the boj's turn for action, not the fed's turn. we will not see anything exciting out of the fed, not an actual change in policy. the most we can look for is more forward guidance with what is happening later this year. one thing we will look for is whether they dropped the reference to international risks. also what they have to say about inflation. for some time they have been saying inflation is expected to be low. if inflation is low, they will not be tightening monetary policy. we will think -- we will see if
there is a sign that things have improved to the extent that there is more confidence inflation will pick up. if a signal that, we can start looking to december. but no action today. francine: on boj, the main take away is that they are tweaking to make sure they safeguard the backs -- they safeguard the banks, kind of. what can the ecb learn from this? what is the central bank that can look at boj and say i might do something very similar? kevin: i think everyone realizes negative interest rates are harmful for central banks because it is not that the central bank's lending money at a negative interest rate. toare trying to prod banks lend. but the banks need borrowers, someone on the other side who can use the money for productive services. that does not change because of a penalty at the central bank. b do?can the ec
perhaps they can expand the facility to lend money at favorable rates. can they enter negative territory? the problem is then the ecb loses money. now you are into fiscal policy, giving money away. i do not think they are ready to take that step? francine: when the boj introduced this, they did a three-tier system that was meant to safeguard the banks. for a couple of weeks it worked. then market sentiment turned after six or seven trading days. think we have always looked at japan as a laboratory of easing and experiments, or whatever you want to call it. what could the ecb learn? we were expecting something out of the ecb in september. they stayed mum. they need to tweak their program.
japan has tweaked their program, the ecb will have to tweak theirs as well. tom: in the last hour we had a lovely debate between alberto gallo and a representative of blackrock. the 10-year yield is a red circle. kevin logan, i look at this and it is a time continuum of a central bank trying to act far out the curve to that red circle. good luck with that. separately, the kind -- the time um of short-term policy in making a medium-term and long-term policy. there are two things going on here, aren't there? george: there are. the bank wants to provide cheap money in the near term and at the same time has to preserve profitability. a steep yield curve generally represents the idea that things will improve, and that there is remuneration. thee is yield out there on
long end because the economy will get better. bankfrancine, how can a profit from that yield curve? discuss. francine: let's look at it does go ways. you say, how can they make profit, or how can they lose money? remember that this is three quarters that will be owned by boj. yen,are you paid in george? george: i am paid in dollars. having the steepness is right. you need to have steepness in the curve. we are, in the fixed income space, looking at rolled out and carry, all these fancy things, and you need to have the ability to get compensated for lending long, even if it is zero but you are borrowing and still earning some pickup. tom: george, thank you so much.
george goncalves. kevin logan will continue with us, with hsbc. it will be a wonderful day here at bloomberg on economics and financement -- economics and finance and investment. when we come back, scarlet fu, michael mckee, and myself. -- fed decides at 1:00 p.m. that will be most interesting. a stellar, smart group of guests. this is bloomberg. ♪
wilbur ross is a frequent guest of bloomberg. he has been an investor for years in this, that, and the other things. right now he is investing in donald trump. he was an early economic adviser to donald trump and he joins us this morning. wilbur ross, is your ardent support of mr. trump about mr. trump, or is it an anti-vote for secretary clinton? the above. of i think we very much needed change in policy in washington. i think we need a thorough shakeup there. i think he is the right person to do that. i think with hillary clinton, at best it would be more of the same failed policies. tom: do you have a confidence within the notes you have seen and the details of the published trump policies that he can do it with fiscal stability? wilbur: i think he can do it
relatively well with fiscal stability, in that if you saw the tax foundation analysis of his economic policy, they indicate that in the dynamic model it would be around a 2.6 trillion negative over the , but that did not include anything from his trade policy, his regulatory policy, or his energy policy. tom: many people would disagree with a tax foundation analysis and the idea of dynamic scoring. is there any available proof that you can have fiscal stability even without dynamic analysis? wilbur: no, but i think economic analysis is the whole point. the only reason to do the tax cut and to do these other reforms is to jumpstart the economy. so if you start with the
assumption that any such action will not jumpstart the economy, then what you are really saying is, no tax decrease ever would make economic sense. i think that is a very dangerous and fallacious starting point for anybody's economic philosophy. francine: michael mchugh reminded me that you own nine auto-parts manufacturing companies in exit code. trump fronts -- donald wants to enact the nafta -- what will you do if there are higher tariffs? tariffs aswould use a negotiating tool, and he would be fully prepared to use them if he had to. but the real objective would be to set a framework for negotiation, to improve our exports to them. francine: isn't that wishful
thinking? problemsne of the many with the nafta treaty is what is called "country of origin." right now, around 40% of the total content of an automobile that comes into the u.s. from , could free of any duty be from a non-signatory country. how does that help mexican business to let them bring 40% of the content in from the non-signatory? there are a million things that would have to be changed. francine: are you willing to move any of your plants to the united states like your presidential candidate is asking? wilbur: well, i think asking the question that way says, do i deliberately want to set out to
make an economic sacrifice? no, but i think on balance it will be very good for our portfolio of companies. i am much more worried that if we continue on our current practices, china and others will gradually go up the value added spectrum, and it will not be just high labor content products that get moved offshore. wilbur, there are things put in place that you disagree with. so far you have said you are 100% behind trump, but it will hurt your business. trump. i am 100% behind you only get to vote for people on the ballot. i do not think that the two minority sort of french party people have any chance whatsoever, so a vote for them is really a wasted vote. it is at best a protest vote. -- you andd i listed
i listened to mr. trump populist speech in new york, and you are clapping along in ardent support. i get that. he needs a marginal vote. where he -- where will he get the marginal vote away from the trump diehard supporters? wilbur: i think there are more people for trump then who will admit it when a pollster calls them. i draw up the analog to brexit. the pollsters all thought that brexit would go down and that britain would stay. i think the reason that they misdiagnosed it -- or at least one of the reasons they misdiagnosed it -- is that a lot of people did not want to say they were for brexit. they did not want to be called anti-immigration. they did not want to be called anti-refugee. they did not want to be called anti-a lot of things. when they got into the booth,
they said here i am, i am safe, i am by myself. bingo. tom: you have been one of our great internationalists. you explain your economic and business and financial support of mr. trump, with some of the more outlandish statements he has made about race, religion, etc.? wilbur: i think to a degree you have to view what he says as a little bit speaking in metaphors. when he talks about some of like -- first of all, he tends to get misquoted. the press said he will put a 45% tariff on everything from china. if you read that original speech, the one speech where he mentioned that, what he actually "if after i am president the analysis shows , we arena's currency
still overvalued by as much as 45%, and if they refuse to negotiate, i then might have to impose a tariff as high as 45%." thatedia have all played trump is going to play reckless 45% tariff on everything out of china. that is not what he said. so i think one of the problems is that he gets taken a bit out of context. tom: wilbur ross, thank you so much. i am sure we will speak again before the election. you can get started on this tonight. mark halperin and john heilemann, "with all due respect." it is an amazing presidential campaign. from new york, a gorgeous new york and long island, out to jfk -- this is bloomberg. ♪
," a "bloomberg surveillance most busy day. our fed coverage today at 1:00 p.m.. i have to give it up to the "new york post." francine is stunned to bradew york response pitt and angelina jolie. francine: i do not know why everyone cares. tom: we need to go over to one of the great calls not on brange
lina, but on the u.s. dollar and the british pound. outlier call on sterling. the red line is hsbc. daragh maher down to a 1.10 sterling. 1.20 sort of a consensus. kevin, what does this mean for the u.s. dollar? is it one for one? kevin: if it really moves away , andthe ec and the break their trade is disrupted, it is unnecessary to keep the pound up thread that kind of deficit in the long-term outlook will not be very good for the pound. the dollar is a bystander in all of this. just like we saw today with the bank of japan and then tweaking monetary policy, all of these machinations in europe, none of that really has much to do with the fundamentals for the dollar. francine: a lot of people out
there are saying that the fed is not losing credibility because with the $100 of tightening, it is not doing much. tom, heading to the u.s.-africa business forum, giving us brexit on the way we have interviews throughout the day, including bob diamond, j ireland. we will also talk about commodities. it goes back to what china is doing. you were looking at iron ore and cobalt. but this is serious business. if you want to invest in africa, what is the best business structure to get into? ♪
taylor: a new bloomberg politics shows that donald trump is failing to dominate among a group of voters that traditionally supports republicans. the poll shows hillary clinton narrowly leading trump in households making under $100,000. say ahmad khan rahami praised osama bin laden and warned in a journal that they sound of bombs would fill the streets. he has been charged in the weekend bombings in new york and new jersey. the criminal complaint said he conducted a dry run days before he constructed the bombs. he was captured in a shootout with police. in charlotte, north carolina, protests erupted after police shot and killed a black man. members of the families say he was not armed. -- members of the family say he
was not armed. but if lawmakers warn that military strength alone will not be enough to defeat islamic state. parliament's defense committee says uk and its allies need a defeat.rategy to there also needs to be political progress. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. francine: the bank of japan has shifted the focus of its monetary stimulus toward controlling the shape of the yield curve. governor kuroda said the base target, which is previously fixed at annual increases of ¥80 trillion, have policymakers seeking to fix inflation. our guest joins us from tokyo. kevin logan is also still with us. brian, talk me through what you
think is the most essential. tweaksre a number of that show that governor corona is taking on the criticism in how they are dealing with -- that governor kuroda is taking on the criticism and how they are dealing with banks. but to me it seems more experimental. ability is ax keyword. it had been undermining the credibility for some time. there is no time frame, no reference to that at all. it is more we will do anything we can for as long as it takes to get to 2%, and overshoot 2%. so the commitment to ending inflation is still there. i think mr. kuroda is hoping that energy markets recover in a couple of years down the line and that takes care of some of that problem. the yield curve addresses a lot of the cynicism we have had about negative interest rates, the impact on banks, pension
funds, insurance companies, and this allows the boj to deal with that sort of -- those negative aspects of their policy. is unclear how they cap the 10-year yield above negative. question,t is a good and people in tokyo are asking the same question -- can you really control the yield curve? it is not just setting interest rates at the bottom end of it. we can expect the boj to cut back on its purchases of long-term bonds, both above 25 years and between 10 and 25, and on theome of that focus lower end will steep and the curve and bring the market along with it. francine: he did not talk about yen a lot. if you look at what yen did, i am not sure what markets are expecting. things toe expecting move a lot quicker.
: he did not say a single word about the yen. he was not asked about the yen in the press conference, which was disappointing. we understand that the dollar rose for a while, and the idea is that people in the market are thinking that they left negative rates stable today, which they had to do because of concern in the broader economy. but next month or at least by november, look for a deepening of the negative interest rate. i think that is what -- that is what was being factored into the market a little bit today. francine: where are the structural reforms, and where is the fiscal spending we had a couple of weeks ago, the two-pronged attack? brian: we are still waiting to see the real impact of any of these fiscal spending that mr. abe has promised.
i think even mr. kuroda is realizing he could not take any bold action today, partly because policy has run its course, but also because he wants the government to come through with its part of the bargain on the fiscal side. we are waiting to see that there have been some positive signs. yesterday we had real estate data showing for the first time in nine years, nationwide commercial real estate prices actually rose in the latest year. first time in nine years. there is some kind of success in fighting pockets of deflation. the broader effort is still lacking. let's bring in kevin logan, chief u.s. economist for hsbc. we were talking about boj and the fed.t this has on talk about the linkage between the p boc and china. if you are fed today and you say they will not move today, the on the backgeted
of their expectations of what the fed will do. kevin: there is some of that. things have quieted down in china. think of september of 2015, all of the turmoil coming out of the chinese markets. yuan, and then again in january. the problem is the global economy seems to be stalling out, and one of the reasons is that there was a stall in china. and whether or not the chinese could manage their transition to . domestically oriented economy that seems to have quieted down. chinese authorities seem to have gotten a handle on things. their market is less volatile, the news on the economy seems to be better regarding real estate prices and growth. all of that has columns down. -- all of that has columns down -- all of that has calmed down.
were someoneyou from mars and you were catapulted into see what the fed is doing, do they see risk going forward, or are they just led by the market? kevin: it goes both ways. in,s true it is not placed but it is not priced in because the fed has indicated it is not going to raise rates. if they were sending a signal that the fed would raise rates, the market would price it in. francine: the markets are on it? kevin: i think so. the fed has goals with respect to inflation and employment. when we look at that, we have to see that inflation has been very stable at what .6% -- at 1.2%. unemployment -- at 1.6%. we are not seeing the kind of
progress that we saw last year with the unemployment rate falling. then we look at the broader economy, and a lot of things seem to be flattening out. for six months now, housing has been at a plateau. same thing with auto sales. the economy is not growing that fast. is this a time to tighten, or should they wait a little bit longer? and i think they made a decision, which is more prudent, to wait a little bit longer. francine: but the next crisis can is if the economy overheats weekly, you would have to raise rates quicker than expected. kevin: that is the counter argument. and we see that at the fomc a long time. theother traditionalists on fomc are saying that the unemployment rate is low enough, eventually we will see some inflation, and we could have that problem later on, so let's go now. let's call them the globalists, who are taking a new view,
looking around the world and saying this is a new world we are living in. companies do not have pricing power. inmay still have slacking the labor market. let's be careful here. in between, others are sympathetic to both sides. all of us are speaking from one day to the next, not sending a coherent message. we are sending different messages that all are understandable, and the problem that the fed has is not an easy answer to what they have to do. we have to understand them, and from that, ourselves, decide what will they do. the market has made up its mind. -- i am: the globalists going to put you in that camp. coming up, we will speak with catherine mann. we will speak to dr. mann. this is bloomberg. ♪
francine: this is "bloomberg surveillance." africane is speaking to leaders of the african business summit. let's get straight to the bloomberg business flash. here is taylor. taylor: opec probably will not reach a deal netsuite in algiers -- next week in algiers. the cartel faces the same internal rivalries from the previous agreement in april. iraq and iran has said that they want to pump more oil. apple's iphone margins have narrowed with the release of its
latest model, according to analysis by ihs. iphone seven costs more to make because of its greater storage options, glossy cover, and more advanced displays. iphone sales make up two thirds of apple's revenue. homes -- values of luxury homes will slump this year because of the brexit vote. expensive houses will fall 9%, the most since 2008. a realityg called check for the high value of the market. that is your "bloomberg business flash." collapse in trade growth suggests globalization , affectingalling world economic outlook, according to an analysis from the economic cooperation and development. let's bring in catherine mann, chief economist for the oecd. she is in caret -- she is in
paris. great to speak with you. one thing that really struck with your report is that monetary policy is overburdened, and this creates market distortion. we have not talked about market distortion for quite some time. when do these unravel? do you talk about bubbles bursting? we are changing our tune in terms of the relative costs and benefits of monetary policy. each country has to what is best for its own country, but you add it all up and the costs of distortions and risks are greater than the benefits. that is why it is important to pointed out in this economic outlook. francine: when you talk about overburdened monetary policy, it is what is the alternative? do they need to pull back? do they need to stay put? at the end of the day, the central banks have a mandate that they need to fulfill. isherine: what we are saying
that the fiscal authorities and the legislative bodies that promote and change structural policies have to step up. they are not at the table and they need to step up. , the risks in the , the risks in the financial system could turn negative on them. francine: do you believe the fed should hike today but it will not? catherine: there is a challenge to the federal reserve timing wise. when the federal reserve moves or other central banks move, the timing is very important. when there are so many distortions in the market now, whether you look at equity markets, a credit spreads, the term premium or the lack thereof, all of these are predicated on very low interest rates and the time horizon for very low interest rates. communication is key, and the federal is working hard to communicate. francine: where do you see the next crisis coming from? if you look at financial stability and the strength of banks, and i would point you japanese banks and european
that -- are you concerned we will see another financial crisis? catherine: there has been quite a bit of change in financial market regulation, with a focus on the banks. my view is that they are not the systemic source of problems to the system. appear somewhere else. compared to previous periods, households are less indebted, so it will not come through the channels it came through before. it will be coming through other areas. francine: are you not concerned that even if a lot of these banks, especially the european banks in the wake of concerns about deutsche bank -- even if it is not systemic, it is difficult for the economy to grow if it does not have strong banks. ofherine: there is a lot work to be done in terms of the banking union and the capital markets union in the euro area. there is progress on some of the
banks, but there is more to do. there are efforts on that side, but more needs to be done. more consolidation. right now the banks are more national than they were before. that is burden on the fiscal authorities, ultimately. report, you your talk about globalization. tradey globalization and tendencies have stalled. what would you make of a donald trump presidency? catherine: we have to look at it at a historical tendency, to show that the tendencies showed with global value trade expansion, even the advancement of china, these are periods of time when we had faster gdp growth as well as faster trade growth. the real issue is to focus on a stalling of trade, which means -- and an unraveling of value chains means that there are
productivity losses. productivity is a capacity for an economy to make good on its promises. what we focus on is, what kind of domestic policies need to be put into play? not just trade policies, but domestic policies broadly, to ensure that the gains that the winners get are more widely shared? that is a problem. those have not been deployed. francine: is anyone listening? it seems politicians are ignoring warnings from almost everyone because they have to deal with a very discontented population. we get back to the story line that says at the current rates of growth, policymakers cannot make good on their promises to their citizens. the young people that will have better lives, the old people that pay for their pensions and health care, and the middle class who want to see rising wages.
i believe politicians, if they hear that message enough, will step up. francine: dr. mann, thank you very much for this insightful interview. kevin logan stays with us. we will be talking about the money markets, about the fed, and i also want to get your thoughts on trade. later today, we was big with the european commissioner for competition, and she will be talking about apple. there is criticism that she is only going after u.s. companies. is that true? this is bloomberg. ♪
francine: this is your forex report. a little bit of movement on pound, but we focus on yen. yen rising against the dollar. questions about whether it will work or not. coming up shortly is "bloomberg and, alix steel, i know it is a pet show. on alle have you covered of those fronts. economist at the doj for 35
years will join a spirit he was the director of monetary affairs. he is the guy you want to hear from. also adam posen will be weighing in on the boj as well. you will be delivering some great stuff from the african summit. bob diamond will join you. francine: he is going through a painful time, to say the least. i want to get his take on european banks. i hope he will give us a clue on deutsche bank. tom keene and michael mckee will be with us throughout the day on bloomberg radio. i should come to new york more often. alix steel there with "bloomberg ." kevin logan, we have been talking about the fed and a lot of it is theoretical. you told me we have to look at the money markets because this is -- it tells us the story of regulation that some may not like. bign: right now there is a
change in regulation coming up on october 14, on new money market regulations going into effect. the prime money market funds will no longer have a fixed net asset value. in addition, to prevent fire sales, these funds will be allowed to impose gates that can close and stop people from taking their money out. the last thing a corporate treasurer wants is a lack of liquidity. so corporate treasurers will keep hundreds of millions of funds -- hundreds of millions in these funds, but they are moving them out. they're going to government money market funds or other liquid assets. the corporate treasurers all have that money at hand when they need it. this means that right now the prime funds are losing their assets. so consequently, they cannot buy the securities they normally buy. commercial paper or bank deposits. so rates are changing because it is not clear who has the
collateral, who needs to borrow, who needs to lend, and where that money will go. francine: it makes me worry that you say it is unclear. are we underestimate the lack of liquidity in certain markets and how difficult over the next six to 12 months it will be in terms of liquidity? kevin: particularly in the money market, liquidity questions are acute right now. it is not clear who will facilitate the flow of funds. other parts of the market, there are -- there is ample liquidity. bigger and bigger issues all the time, jumbo issues, over $5 billion. it shows that borrowers have no lack of liquidity. there is of the market out there for certain types of loans. but in another corner of the market, the money market, things are different because of regulatory changes. francine: as we look to the fed, how much of a problem is it for
janet yellen? miskick communicating could be another temper tantrum. kevin: it could be a disaster. at this moment with so much confusion and the lack of clarity, how it is going to function. if the fed has a surprise rate hike in the mist of that -- in the midst of that, there would be, i think, quite amount of disruption that would be untoward. it would be a problem for the markets at the moment, so that affects the timing for the fed. francine: kevin logan, thank you so much, hsbc chief of economists. "bloomberg surveillance" continues on the radio. this is bloomberg. ♪
stimulus to focus on the yield curve as governor kuroda sticks to his commitment to stoke inflation. alix: investors look to the dot .lot to thicken the rate debate the decision at 2:00 p.m. eastern. jonathan: jonathan ferro alongside alix steel. david westin will be on location in a couple minutes time with some special guests. boj, all style, little substance. alix: the yield curve correction. jonathan: yield curve targeting. alix: you had a risk rally out of the boj and pimco is raising the question. jonathan: for the fed, a big day coming up. coming up in the next hour. alix: you