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tv   Bloomberg Best  Bloomberg  July 9, 2017 6:00am-7:00am EDT

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♪ david: coming up on "bloomberg best," the stories that shaped the week in business around the world. the g-20 summit begins in a climate of uncertainty for the world's most powerful nations. a missile launch from north korea throws another wrench into the gears of diplomacy. >> they are without question going to try to continue to pressure china to put more economic pressure on north korea. david: a new trading link provides access to china's markets, and investors wonder what to make of james u.s. job report. >> bond guys take note, the bad news is it does not do a lot for wages. david: the leader of the left in britain explains his stance on
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brexit. >> it will be a partnership, but not membership in the european union. david: a ceo with monte dei paschi with the latest plans to save his bank. >> there is clarity and transparency now. david: and half of 2017 is in the books. what is the playbook for the second half? >> liquidity continues to be the main driver of markets around the world. >> there is inherent momentum in the u.s. economy. >> we run the risk of a market event. >> most credit markets look pretty expensive. >> i do not know how you are supposed to trade in nuclear war. i am not sure i would know how to do that. david: it is all straight ahead on "bloomberg best." ♪ david: hello and welcome. i am david westin. this is "bloomberg best," your weekly review of the most important business news, analysis, and interviews from bloomberg television around the world. geopolitical tensions set the
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dominant tone this week leading up to the g-20 meeting on friday, but the week began on a hopeful note for investors with the opening of a new bond link to mainland china. >> the long-awaited bond connect between china and hong kong has finally gone live, it is the third cross-border trading link, and gives offshore investors new access to the mainland's $10 trillion debt market. >> at 9:20 a.m. is when the gong was banged and the bond connect went live, at least in one direction, heading north in china. no timetable according to the dignitaries today for southbound, but it is inevitable that it is going to happen. right now market conditions favor going northbound for foreign investors, only going into china. as you said, nearly $10 trillion bond market but less than 2%, about 1.5% of that is in the hands of foreigners. there is a lot of potential. a lot of risk as well.
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a lot of questions about transparency in china's corporate bond market and also of course the issuing of ratings, whether they are a true representation of the risk. >> the chinese bond market is a bit like the chinese stock market. --re are issues of their and there and the government is known to have policies at the drop of a hat to completely change the market. we have seen a plunge in yields because of a crackdown that nobody saw coming. as a consequence, foreign investors are unsure whether to get in. >> north korea has fired another ballistic missile. it is the 11th test this year. the launch comes at a time of renewed tensions between the u.s. and china. how should we interpret this aggravation and this move again? >> the timing was very intriguing obviously, because it is on the eve of july 4, the independence day in the u.s. and also a few days away from the g-20 conference.
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this comes right after china's delegation in new york at the united nations, where they basically said things could get out of control and there were dangerous consequences as a result of this tension on the korean peninsula. there is speculation it could have been an icbm or intercontinental ballistic missile, which if they take it further could reach the continental u.s., particularly the west coast. francine: the demand for the assets have amped a little despite political concerns, in the wake of north korea's missile test. the u.s. confirms the rocket launch on july 4 was an intercontinental ballistic missile, with rex tillerson calling it a new escalation of a threat to the u.s. and allies. >> they are without question going to try to continue to pressure china to put more economic pressure on north korea to deal with the growing threat of their nuclear program. before the president took off, he tweeted "trade between china
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, and north korea grew almost 40% in the first quarter, so much for china working with us but we had to give it a try." >> in just a few moments, the federal reserve will release minutes from its june meeting, where officials forged ahead with a rate hike despite concerns over weaker inflation. >> let's check in with chris condon. >> three immediate takeaways from the fed minutes. there was no agreement on when the fed will begin trimming the balance sheet. a very rigorous debate showing again quite a divided committee over the question of where inflation is headed. and number three, no explicit mention of high equity valuations, underscoring the message that senior fed officials gave last week. >> very little in terms of new information clarity that the market was clearly hoping for, on the timing of the beginning of tapering. the consensus is still for september. anything in this you think
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perhaps this gives a shift to that? >> i think you are 100% correct. the consensus is still for september tapering, however the more divided they appear to be the more dovish the minutes will , be interpreted as. if they cannot build consensus internally, it will be harder to deliver the combination of taper and a rate hike by the end of the year. pretty confident it will be one or the other. jonathan: the european central bank has just published their account of the policy meeting, emphasis on account and not minutes. it is kind of like the fed minutes without the detail and he said, she said stuff. the governors in broad agreement that the current stance is appropriate and concern that small communication changes can be misperceived and urged not to overestimate the impact of electoral cycles. the governing council also considered whether to adjust the qe easing and said some changes of tightening are expected. widely agreeing that
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price stability and the outlook is essentially unchanged, the ecb saying it can be reviewed if the outlook improves. >> what they are acknowledging is the economy is doing much better than what we first thought at the beginning of the year, and also in historical terms, and even with international comparison, they the eurozone economy is doing quite well at the moment. they have withdrawn that bias towards even lower interest rates so they have taken that away. risks of the economy are now balanced. the next thing they have to talk about is what to do about the asset purchase program and it is one where the markets will be quite sensitive. >> employment up 222,000 in june, that is the good news. net revisions to april and may add another 47,000 jobs, so we are well over forecast. unemployment rises a tic to 4.4%, largely because more people were entering the labor force. bond guys take note. the bad news, this does not do a lot for wages, taking the annual
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rate to 2.5%, well under the 2.9% that we saw in december. >> i still think, despite the rather strong jobs report from the standpoint of jobs gained, not necessarily from wages, which is what yellen watches seriously as well, that the fed has one hike perhaps left in the year and it will probably be december. francine: president trump and president putin finishing their meeting in hamburg at the g-20. the u.s. officials are saying that the u.s. and russia have reached an agreement for a cease-fire in southwest syria. those pictures you see were from before they went into their face-to-face meeting. some friendly words exchanged. matt: the two leaders had real admiration for each other. they were not just pleasant words. president putin referred to donald trump as your excellency, mr. president, whereas president
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trump said it was an honor to be speaking with president putin. both of them said they expected a positive outcome to the meetings. they were only expected to meet for about 30 minutes, the meeting stretched far beyond the two-hour length. >> obviously a meeting with putin is eye-catching, sort of the melodramatic moment of the day. but it is important to remember that there are huge wide ranging conversations going on. angela merkel spoke with the press about an hour ago and it is clear there are deep seated divisions emerging over trade. there is no agreement on the communique right now and in a lot of ways it is feeling like g7 in sicily, where the climate change issue hung like a shadow over that summit. and in the end, the u.s. was extremely isolated. of course, the whole issue of steel tariffs hanging over the summit as well.
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the putin meeting extremely important, very interesting to see what can happen there, but trade could emerge outside of the u.s.- russia psychodrama. the rest of the world trade could be the big story this weekend. david: still ahead, as we review the week on "bloomberg best," u.k. labor party leader jeremy corbyn speaks his mind on brexit, italy throws monte dei paschi another lifeline, and a bank ceo tells us why it will finally work. plus, experts look ahead to what investors can expect for the second half of the year. up next, more of the week's top business stories. shinzo abe's party takes a beating in the elections and the effects may well be felt across japan. >> i do not think it is about the economy at all in this case. david: this is bloomberg. ♪
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♪ david: this is "bloomberg best."
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i'm david westin. let's continue our global tour of the week's top business stories in italy, where the e.u., the government, and monte dei paschi have agreed on a new rescue plan for the troubled lender. >> banca monte dei paschi has laid out the five-year restructuring plan, including cutting jobs. the announcement came after the e.u. said the lender could receive 5.4 billion euros in state aid but only after shareholders and junior creditors have contributed to the rescue. are we now at the end of the troubles? >> i think they will be clearly getting rid of a large pile of the bad loans that have weighed on the capital. they are addressing the inefficiencies that have burdened the bank as well, but going forward the key will be to maintain those efficiencies, particularly with lending. the theme that has weighed on them generally is lending
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practices that should not have been getting them into the situation in the first place. >> prime minister shinzo abe's ruling party was well beaten in a local election in tokyo. we just heard comments from the prime minister, saying he will try to move forward on this as ldp is projected to win the fewest seats in the capital. >> i don't think this is about the economy at all on this case. tokyo's economy is doing pretty well as we have seen recently. there are two jobs for every job applicant so i do not think really the economy was a factor. i think it is down to two factors. one is building the star power in the capital over the year that she has been governor. the other one is abe and his cabinet shooting themselves in the foot. they have had a number of scandals, a number of gaffes, and voters are expressing their anger at the ballot box. >> japanese prime minister shinzo abe may scrap some of his most divisive policies after his party's crushing defeat in the
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tokyo election. what is likely to be on the chopping block for shinzo abe? >> the most controversial policy he has in his plans is to change the pacifist constitution and that is something that really divides the electorate. the question is whether given the state of his public support, the question is, the lack of discipline in his party, whether he is prepared to push ahead with the idea that would take a lot of energy and might portray him as someone who is less interested now in the economy than perhaps he should be. >> the bank of australia has left benchmark interest rates unchanged at a record low. 1.5%. the decision coming a week after the bank of england and the bank of canada among others, signal taking the time to move in a different direction, i.e., hiking rates. >> is little doubt that the market was expecting a more hawkish tone, more in line with
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things we have heard from the likes of bank of canada. we did not get that. what we got was a neutral statement, very little change from the previous statement and the aussie dollar sold down accordingly about three quarters of a cent. the speculation in advance of more hawkish terms, it is usually overoptimistic, given the well documented concern that is around the australian dollar. they are very anxious not to feel that strength in any way, stall a nascent economic recovery in australia. vonnie: automakers gaining today after june u.s. auto sales mostly beat estimates. gm missed, but ford, fiat chrysler, honda and nissan reported better salesman analysts had estimated. it is a give back for last last month's dismal figures? >> [laughter] certainly it still might be a down month overall.
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the declines that we are seeing are pretty substantial from gm, ford, and fiat chrysler. but they are not as bad as had been anticipated. as you see, the reaction on the markets mean that even gm, their shares are up as well. because what investors are really liking is a little bit of discipline on the incentives, they are not eating into the margins, and especially the mixed shift, the mix of light trucks, pickups and suvs, that is where automakers make their money. it is especially where u.s. automakers make their money and that is the overriding theme of the sales and that is why investors are bullish today. mark: a former executive appeared at westminster magistrate court in london, facing allegations dating back to the 2008 financial crisis. so what happened in court today? >> today was a routine hearing to have the charges read out to the defendant and decide on bail. the judge decided that they must
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pay 500,000 pounds financial security because roger jenkins is based in malibu and is obviously a high flight risk, so they wanted that security to be paid. the other ceos were allowed to go with unconditional bail. they were also asked if they wanted to indicate a plea at this stage, not a formal arrangement, but they can give an indication and they did indicate they would plead not guilty for the charges. mark: hsbc said to be approaching peter hancock, the former boss of aig to be the next chief executive, and mark tucker considers internal and external candidates to lead the largest bank in europe. he is an outsider but has come from the hsbc club. >> he was a banker at jpmorgan. he claims to have invented the derivatives business there. of the bankfo before it merged with chase.
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he is a banker, most recently running an insurance company. it did not end in the best way for him. his reputation is somewhat intact still. hsbc is 152 years old. they have 21 former leaders. all of them come from inside the bank until tucker. the fact they are looking at external candidates is not surprising in itself, but if they pick a second one for ceo and chairman, it will be a big departure for the bank. >> global banks preparing to move london-based operations as great britain prepares to leave the e.u. today in a bloomberg scoop, we have got details of deutsche bank's plans for a post-brexit financial landscape. another win for frankfurt. what are we talking about, front office or back-office or a mix? >> they have said previously that it could be a mix of the two. you could get 2000 in the front office and 2000 in the back office. that is at the high end. some of this will certainly depend on how negotiations unfold and how hard the brexit appears to be. but we have heard deutsche bank not only looking at the people side but looking on the asset
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side as well, and making plans to set up a booking center in their frankfurt office to really route a lot of the trading through there. that potentially is a way to address the passporting issue. >> the saudi led bloc which has cut ties with qatar, has accused the country of failing to recognize the situation, describing the response to demands as "negative." they say the group shows complacency and lack of seriousness to do with the problem, but stopped short of imposing the sanctions. what is happening in terms of the timeline? >> what we know is that the saudi led alliance has said they will meet again in bahrain to discuss qatar's response to their list of demands. they have not said when exactly they are going to do this. in terms of what happens next, we have to watch for the impact on qatar. that could come about through something like inflation or higher food import prices, it could come through pressure on
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the real or through higher financing costs. we already saw a downgrade by moody's of qatar's credit rating. qatar is one of the wealthiest countries in the world, but the question remains how long it can withstand, how long it will feel comfortable withstanding this economic and political pressure through some of its ostensibly once closest allies in the region. >> the bank of japan has asserted control over the nation's bond yields, sending borrowing costs lower with their first fixed rate bond position. this is after a global debt selloff. the central bank offered to buy benchmark 10 year notes at .11%. yields dropped to 0.085% after having more than doubled in the past week while the yen severs swung to a loss. >> what happened last year, the boj has come out and they have said this is what we want the price to be, the yields to be and they are basically
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, threatening the market. and they are putting pressure on japanese yields to also rise and the boj has made it clear they do not think that global bond yields rising should put pressure on japanese bond yields to rise, and they will act to make sure that the 10 year yield stays at the level they have set, which is 0.1%. ♪
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♪ david: you are watching "bloomberg best." i'm david westin. next week, jeremy corbyn meeting with eu negotiator michel barnier to outline his vision for brexit. after a strong showing in the snap election, corbyn is aware that he could be the next prime minister as talks continue. he sat down with guy johnson to discuss the political possibilities.
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>> we did very well in the election. we did not win the majority, but we put out a large number of votes and a credible, economic alternative to this government. the government does not have a majority and it has done a very strange deal with the democratic unionist party, and it does not look to me to be very stable. guy: do think things could change quickly? >> i think thanks for trying to paper -- the inch concerns quite quickly. we could have another election, i do not know when, but we are ready for it. i am very ready for it. guy: there are many unknowns in british politics at the moment. >> you are going to tell me about it? [laughter] guy: no. but one of the great unknowns is where jeremy corbyn stands on the details of brexit. we hear this all the time. i am curious as to why you are being so vague on the subject, and when you will provide more transparency on your thinking. >> fundamentally, we want to
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make sure there is terror free -- tariff free access to the european market. that is crucial. half of our trade is with europe. and secondly that we do not become an offshore tax haven. hence the response i gave to the chamber of commerce, i just gave questions now about levels of taxation. thirdly, that european nationals are guaranteed unilaterally rights to remain in britain with full citizenship and rights to family reunion. i think it is crucial. and that we maintain the university connections across europe and that we maintain a broadly similar level of regulation of consumer products, environmental workers' rights. it would be a partnership with europe in the future, but not membership in the european union. guy: you accept the results of the referendum. is membership in the single
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market compatible with brexit? >> the single market is a concept that requires membership of the european union, so what we are looking for is a terroris tariffs free access toe european market. our team has had many discussions with the eu officials. members of the eu parliament, and we have a good relationship with socialist parties all across europe who want to work with us in the future and i will be in brussels next thursday in an extended meeting to outline what our issues are. david: coming up on "bloomberg best," distinguished guests on bloomberg television tell us where they see the markets heading in the second half of 2017. and straight ahead, more of the week's top interviews. australian treasurer scott morrison defends the rosie y projections in his latest budget. >> our forecast fits closely
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with the world bank. they are saying similar things about the australian economy. david: this is bloomberg. ♪
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♪ david: welcome back to "bloomberg best." i am david westin. the deal proposed this week to rescue the struggling bank is the latest chapter in an ongoing saga. since 2009, the lender has received and repaid 4 billion euros in the tax payer funded bailout. the ceo joined us on bloomberg and jonathanicas ferro asked him what this plan will work better than all the others. >> i think this is the first time that the precautionary recap model is applied to a european institution. so i do believe a lot of
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attention has been paid to structure the plan. our aim was to have something which would allow the bank to start working again in stable -- a sort of stable and normal commercial framework, and i think we did get there. jonathan: some say the eu is more lenient, flexible with its own rules. from your standpoint, from the ceo of monte paschi, is it good that the european regulator is being more flexible? >> i think in general terms, the rules need to be crafted, and then implemented, and then we must have a sort of checkpoint to see whether rules do actually function properly and do rules need adjustment going forward. i think it is going to be good, to see to what extent it works.
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as far as the bank is concerned, i think for us, for me, for my management team, for all of the employees of monte paschi, this is clearly a turning point. the dust has now settled and there is clarity and transparency on what the capital structure of the bank is and will be going forward, what is the impact of the final disposal of 26.1 billion gross npl. to draw the line and opine on whether the rules will work. i think we need more time to see how it will be unfolded. david: let's revisit a a few
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more of the week's most interesting interviews. starting with john mcfarlane, chair of the british lobbying group the city u.k. he is confident london will remain the center of euro clearing business after brexit. >> the thing you have to remember is that london is the eu's financial center. it has been built not over decades, but over centuries. it is not easily replicated in one place or even in a number of separate places, and if it was to be replicated in any tangible way, it would take an awful long time. you need an awful lot of buildings to replicate that. for example, if worse came to worst and we weren't allowed to do eu-related activities in london, you would have to move the bank the size of barclays out, so it is pretty material. we don't think that is likely, and therefore the right thing
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for the e.u. and u.k. is to retain a significant portion of that in the u.k., and therefore we are looking for a free-trade agreement, some mutual access to each other's markets. we are also looking for a regulatory corporation to ensure that, and at the same time, if things have to move, we can't move things that size in two years, therefore we would be looking for a time when we avoid a cliff edge effect. >> do you think an agreement by march 2019 is doable for the free trade agreement? >> ideally, or if not, if there is some form of transitional arrangement, it gives time to solve that problem. ♪ >> there is a lot of noise around brexit, and we will be monitoring negotiations. from our perspective at the london stock exchange, we are just getting on with building
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our business. we have seen a large number of international companies come to market in the last few weeks, companies from all over the world, relying on our international investor access, the strong regulatory reputation we have, and deep capital, and that continues. >> you have benefited from a weakness in sterling as well. >> i think the ftse has companies where 75% of earnings are overseas, and people understand that better now even -- given the developments of the last year, but we have always been a very international market. the biggest ipo in europe this year, allied irish bank, coming to london to raise 3 billion euros of capital following on from bank of cyprus moving their primary listing to london, so you're seeing a strong franchise. >> are you or your colleagues
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putting in contingency plans for euro clearing, given proposals potentially to move some euro clearing into the eurozone? are there contingency plans in place to mitigate that? >> of course. we are monitoring the negotiations and have the biggest pool of derivatives clearing liquidity in the world, clearing multiple currencies in one place, generating huge efficiencies for our clients, and it won't be in anyone's interest to disrupt those efficiencies and create risk to stability. >> in this environment globally, where we are seeing the global peers, the fed, potentially the boj, boe going back and talking of normalization of monetary policy, the fact that the australian central bank is not even talking about it, what does that say about the strength of our economy and the position we are in? >> we are 150 basis points to begin with. i think our central bank showed a lot of discipline and measure in the way they dealt with things on the way down and have held their mark over many months.
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they have had an optimistic view about where things are headed. recently, our employment numbers have been very strong, a high in job advertisements for the latest series, and a four year low and unemployment. the wage growth needs to follow the improvement in profit. now, we have had two reasonable quarters, on the national accounts on profits, but we need to see that continue. >> low wage growth and tighter labor markets is a global phenomenon at the moment. are these assumptions too optimistic? >> i don't think so. that is the advice we have. our forecast is where the reserve bank, imf, oecd, and so we will review it again. we do want to see wage growth, but that has to come from greater investment and a consistent improvement and profit performance. ♪
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♪ david: this is "bloomberg best." i am david westin. the third quarter gets underway this week, and we ask analysts what they predict for markets for the second half of the year. ♪ >> liquidity has been critical. we entered the year hoping that policies and global reflation would take us higher on risk assets. policies have generally disappointed due to what is happening on the political side. the global reflation is not a strong as hoped for. it is there, but not strong. ultimately, it has been again about liquidity, and liquidity does not mean investors have done great, but diversified investment, having given up too
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much by being invested in bonds, so liquidity continues to be the main driver of markets around the world. jonathan: market drivers have changed, but the critical stability handoff has remained elusive. talk to me about what you mean by that and how critical it is. >> liquidity can take you higher for a while, but you need continuous influx of liquidity. that is hard to achieve. especially if central banks have remained the determinant. what investors need to make their gains sustainable is validation, and where does it come from? economic and corporate fundamentals, so look for how economic and corporate
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fundamentals are doing, and unless we get the policy response on pro-growth measures, that will be hard to achieve, so focus on fundamentals. that is what validates asset prices, not liquidity. >> what will be driving the dollar in the second half? more about what happens in d.c. or hawkish comments from janet yellen? >> i think both. i think there has been expectation building that this is paralyzed, and the trump agenda is not going to be put in place anytime soon. that is why the dollar rallied quite a bit after the presidential elections. going forward, some comments from janet yellen, talking about or referencing the very expensive valuation in u.s. assets. on these combinations are negative for the dollar. >> even if we get policy path or shrinking of the balance sheet, do you think that will have any boost for the dollar in the second half? >> only if the ecb ratchets down its hawkishness. this interpretation by the market when mario draghi talked about inflation. my own expectation is the ecb will clarify its stance and become more dovish. it will take time, and until then, we will see some pressure on the dollar. jonathan: we have a situation where there is more upside risk than downside given the pessimism out there?
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>> slowly we are moving there. probably not today, not next week, but we expect when july comes to the end, pessimism will be excessive. we have positioning data in terms of the situation of the market, lots of pessimism. it can run a bit further, but we are close to some excessive territories. david: right after the election, all the talk was of the handoff of monetary policy, fiscal policy and what that would mean for the economy. it appears that handoff is not happening as quickly as we
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thought. what are the risks if that handoff never occurs, how much of growth and reflation is simply liquidity from the central banks being rejected into the marketplace? >> i would not be so pessimistic on u.s. growth. we think the u.s. economy can accelerate its growth momentum, even without fiscal policy, without tax cuts. of course this would be helpful, but just have a look at the last year, a weaker dollar. that by itself is helpful for economic growth. it is actually also a buildup in private wealth. this is important for private consumption. it is a segment that has been weak in the last half of the year. the preconditions, actually, for higher growth are there, and there is some inherent momentum in the u.s. economy which is overlooked right now. >> central banks around the world want to remove accommodation, they want to normalize rates.
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we believe they want to do it for structural reasons, so we think they will do it no matter what the data. they will make the story work. >> this is very interesting, because some people think there is a risk of taking away stimulus that is helping to fuel the economy and stock markets, but let's bring up another chart, the pce core, the cpi core, the feds main gauge, both made a sharp move down. you state central banks will raise rates anyway. what is the risk for the markets? there is already risk coming back into bonds. is it a risk for stocks too? >> sure, the risk is we get the policy event that becomes the market event. the risk being that, the stock market sees rates moving too fast. we have had three rate hikes in the u.s. in the past seven months, not extremely fast by historical standards, but hiking in the face of not a lot of inflation and mixed economic data, so we run the risk of a market event.
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we thought just a few weeks ago, the yield curve was flattening so much that we were getting close to where we start moving towards an inversion, which would be really bad, then last week, it reversed. >> which could indicate a recession possibly, right? do you feel we are anywhere near that? >> no, not at this point. not at this point. ♪ >> what are your expectations around treasury yields coming into this year? a lot of people had these skyhigh expectations. what are your thoughts now? >> we have moved our expectations down a little bit, but still higher than we are at the moment. you will see the u.s. 10-year yield move to the 2.5%, 2.6% range to the 3.5% one. we did have that higher than 3%, but have brought it down. the expectation still is the fed
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will put up rates faster than the market is expecting, and when you combine that with quantitative tightening, that will lead to an output pressure on government bond yields from here. >> where do you see the credit market going from here? we know you prefer credit to government bonds. what is the geography of that call? >> really, just because you're getting a bit of extra yield, but you have seen most of the spreads tightening in credit already, so most credit markets look pretty expensive. that is not to say we think there is going to be a selloff. we don't think you will get much more tightening in spreads, so you will probably earn the yield in credit at the moment, and that will be hired in which you -- that will be higher than what you get out of government bonds, and that allow you to offset that is yields move up in government bonds. ♪ mark: this year, we have had the dutch elections, the french elections, the u.k. election was a surprise. the german election, to what extent can that election throw up a shock?
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>> the german election is an interesting one, insomuch as of all these critical events, the consensus would be that it would be the greatest certainty of outcome with angela merkel elected, but it is also the biggest tail risk. if germany was to lose its figurehead in leadership roles, the impact in the markets would be far greater than any of the adverse outcomes previously, the brexit or the italian referendum. mark: is it too early to position, to hedge, to protect ourselves against that tail risk? >> by and large, the best way to navigate it is to spread out a portfolio through diversification, both globally and across asset classes, paying
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for your hedge, being paid to take that hedge, which is diversification. we generally see implied volatility is a fantastic forward-looking predictor. when we see vix below 15, returns are positive and 95% of -- a 90% of cases. the market is normally good at pricing these risks, and it pays to be invested. vonnie: did you read much into the tech selloff, or was it a blip at the end of the first half? >> no, i think it is maybe a
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little bit of a shift in leadership. tech has had such a phenomenal run that valuations got stretched a little bit. investors are looking at other areas where there might be signs of life, so i don't read too into it, other than the normal ebbs and flows within the market. it is a group that had a really good run giving some of it back. >> you see a rotation in leadership. where do the chips fall? >> i think that ultimately the economy is going to move forward as we see most of the data looking relatively good. given that, we expect to see pick up in things like the consumer area. the health care area plays well. these are areas with very good balance sheets and have growth stories. at some point, this momentum comes out of the tech trade, you look for places to put money to work, and safety at this point of the cycle would make sense, so the sectors with very good cash-rich balance sheets, like consumer and health care make sense to redeploy some of the capital. ♪ jonathan: when you look at the situation with north korea and the market is still just ok and you don't get that big risk off mood, is that just a prudent response from investors? do they look at that situation, do not really know how to price it or expected to escalate in a serious way, or at least until -- at least as a tail risk? is that complacency or a prudent response from investors?
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>> i'm not sure how to trade a nuclear war. if that is the case, then the bull market call is wrong. but again, think about the cycle. this is the most interesting thing about this cycle. think of anything that could have happened short of an all-out global war outside of the war on terror, anything that could have happened in the cycle that didn't, and we still have not gone into an economic recession, not globally, and not in the u.s. i think that is the most important point. i hear people call for a bull market peak, recession, or it is different this time. it is not different this time. it is fed driven and credit driven. credit remain sound, and the fed remains accommodative, even with hikes. this will end badly some time. but that phrase has killed more portfolio manager' is performance than any other phrase because by definition, you consider it far too early. ♪
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♪ >> you have got the visual version of "daybreak." let's look at the mobile version. it is on your bloomberg machine. the cover story, plan b, a plan b for brexit. david: there are just about 30,000 functions on the bloomberg, and we always enjoy showing you our favorites on bloomberg television. maybe they will become your favorite. here's another function you might find useful, quic . it will lead you to our quick takes, we can get insight into timely topics. here is a quick take from this week. ♪
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[gunshots] >> americans own more guns than anybody else on earth. firearms are involved in the death of more than 33,000 people in the u.s. annually. every time another mass shooting occurs in the u.s., it sparks arguments over gun ownership rights. in 2017, pro-gun advocates got a boost when republicans won both the white house and both chambers of congress. congressional republicans rolled back a rule adopted by president barack obama in 2016 aimed at preventing people with serious mental health problems from buying guns. >> the ayes are 35, and the nays are 180. the joint resolution is passed. >> that was just the most recent time congress has dealt with gun restriction. in 2013, congress defeated a bill to expand background checks after a mass shooting took place at sandy hook elementary school in newtown, connecticut, were 20 children were killed. in the u.s., 25 children die from bullet wounds each week. gun rules are largely determined
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by states. states like california and oregon have expanded gun restrictions, though the majority of states have weakened restrictions and many permit guns in more places like schools, restaurants, and public buildings. also, all 50 states allow people to carry weapons concealed from public view, and many have expanded rights for using guns for self-defense. the u.s.'s original gun law that is almost as old as the country itself. the second amendment right was established in the 18th century to allow states to form militias to protect themselves against the federal government. in 2008, the u.s. supreme court ruled that protected the gun rights of individuals, not just militias. as many as 310 million guns are now thought to be in private hands. here is the argument. the national rifle association and its allies argue that gun regulations only hurt law-abiding gun owners because criminals simply ignore them. since congress led a ban on assault weapons expire in 2004, violent crime in america has fallen significantly.
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fatal and nonfatal shootings have also declined. meanwhile, gun control advocates say limiting weapons will drive down gun-related crime and point to australia, where strict gun ownership laws were enacted. since then, there have been zero mass shootings and firearms related death rates have plummeted, so while politicians try to tighten or loosen gun laws from one administration to the next, u.s. citizens are caught in the middle of this legislative gunfight. ♪ david: that was just one of the many quick takes you can find on the bloomberg. you can also find them at bloomberg.com, along with all the latest business news and analysis 24 hours a day. that will be all for "bloomberg best" this week. thank you for watching. i'm david westin. and this is bloomberg.
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♪ announcer: from our studios in new york city, this is "charlie rose." susan: good evening. i am susan glasser filling in for charlie rose who is traveling. in a speech in poland on thursday, president trump attacked the news media, president obama, and american intelligence agencies while voicing confidence in the will of western nations to defend themselves against common enemies. the president's stop in warsaw was the first of an international trip that will

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