tv Bloomberg Surveillance Bloomberg September 6, 2017 4:00am-7:00am EDT
and abroad as she prepares for her first comments grilling. is bloomberg surveillance. check out what is happening with european equity today. you can see from this chart that the stock is down about one quarter of a percentage. nations deal with how to deal with provocation from north korea, they down in the third consecutive day. the dollar marginally lower. time i used this function it was running against the g10 peers. the 10 year yield was growing yesterday at the close. thelowest since november ninth. just after donald trump was elected. down by 1/5 of a percentage they have beenst
create. let's get our first word news bid hurricane irma has been the strongest front to form in the ocean. with property loss in the u.s. that was hurricane katrina. cruise lines and insurance stocks have plunged. storm barreling towards puerto rico some worry that it may have lorna. -- florida. they say it could cause $30 billion as the worst's case scenario. china willrump and discuss north korea. with theds trade pyongyang. this was unacceptable and unfair , russian president vladimir putin rejected the call for new sanctions. cohen them useless and ineffective. theresa may will face opposition
later with jeremy corbyn. for the first time since the summer break. the labour party said they will try to amend her withdraw will to change because for her power to modify her power. says talksnegotiator are going slowly. say german lawmakers says there could be a improvement made on the key discussion. over chipth the eu pricing prepared to drag on after the top court today. they will send it back to a lower tribunal. record when it was levied back in 2009. the case is being watched to impact the future
courses. should allow emmanuel at the headleeway of the finance committee. a democrat told bloomberg that he deserves flexibility on deficit rules. >> one expects small miracles of him. it is our job not to make his life harder. we need to help them were weekend. if he says we need to go into debt, we should say it know. we should say ok. if it gets you out of debt in the long run do it. >> global news 24 hours a day powered by more than 2600 journalists and analysts, in more than 120 countries. this is bloomberg. increase doinge real hard to the u.s. economy. that according to deal kashkari. this is why inflation
is staying persistently low. : maybe our rate hike is doing a real harm to the economy. it is very possible our rate hikes over the past them on our leading to slower job growth. even more people on the sidelines, leading to lower wage growth and leading to lower inflation. these premature hikes that we have been embarking on they are not free. i think we need to remind ourselves of that. >> this comments echoing those of another governor who spoke earlier in the day. bowlingse we have been short of our inflation objective over a longer. -- over a longer time as well. until we are confident that inflation is on target. a reporter to in talk about this.
totlemen, thank you so much talk about this. do you have any sympathy to his arguments that are doing real harm? >> not unless there is real evidence of that. i am not sure there is at this moment in time. that is his opinion. roughly speaking the federal must the coming around to the view that the participation rate will stay at roughly stable. jobs can still cause the unemployment rate to fall. that is going to have a impact on what the fed does with rates. we are seeing a tapering of investments. a hike this year in december and then one or two next year. i think that will probably reflect that we are seeing that
pickup and wages. it is probably coming up more. function with this hike, it is 31%. the probability of that is low. >> i think it is low and it is falling if you go back. we were talking about something that was more 50-50. clearly the lack of inflation pressure that we have been getting. language some of the is suggesting that there is less expectation in terms of the additional hike. are thethe question is fed correct or is the market correct? i think that is where the real debate will be going for the end of the year. the influence of that will be -- influence and so it's
when we see any sort of inflation with higher wages. not been evident. if we see any evidence of that i think it will be brought back towards the projection we have. >> do we see any evidence of that that it is moving in the wrong direction? with the last rating come over to receive that pickup in inflation? >> i think the underlying inflation will remain soft for the foreseeable future. i would agree that this is a clincher in terms of the fed arguments. i would expect we will see this come down more towards where the market is already. i am not completely -- it will not completely abandoned the case for a more rate hike and normalization. you also have to consider that they are investors as well. you have a double whammy there.
date against the g10 peers, the best performers of 15%. event, data,y whatever stopping the decline/ i think there are a couple of things to consider. we were talking a little bit about the debt doing. historically when we have seen resolutions on the debt ceiling we have seen that dollar having a little bit of a left. that is one factor. the other thing relates to china. that goes back to the fiscal sense. the dollar has been down against all of their peers through the course of the year to date. we look at the graph in the the trumpter it is inflation story. that is going to be on the back burner or it will be taken off the agenda entirely.
is that appropriate if we would see even somewhat subtle movements in terms of fiscal reform, i think that would be a catalyst to suggest that we are going to see a long-term reversal. perhaps we will see some degree of corrections going through this. positioning is a factor. technically speaking if we were to get a big move with the dollar it would probably be more to the upside on the downside. bleed lower in the broadside with the global backdrop. what we see with the 1% of appreciation over the coming year. issue does notg become a major global risk scenario that could affect the dollar until we are on the eve of a payment and it looks like it is actually going to miss the
payment. until that happens the dollar will probably bleed lower as the debate in congress works its way through. largely speaking negative dollar fits with the macroeconomic profile of the united states. why need a bit over the next decade. due to demographic factors. it is also a risk on trade probably speaking. we think over the course of september the market will largely seek to the debate on the debt ceiling as political posturing and something will be done even if it takes until mid october. it is not become a big risk factor coinciding or collided with north korean tensions until we are on the eve of that payment. then it was a get will be missed. >> stay with us. we have lengthy coming up. we will take a look at the next steps as we interview the kiwi
discounts and it wasn't they will take action to protect them. the united shares plunge in more than two years yesterday. while companies say the manufacturer risks are downgraded. electric caring to relief. they have introduced their first makeup the model sense seven years ago. it includes autonomous parking and a increased driving range. soldberg data says they 40,000 cars last year that 50,000 units less than the tesla model. bloomberg a couple of minutes ago. on the julyown figure of 51. still above the 50 level from theraction as we approach ecb decision tomorrow created
that kicks off today. here we see the dollar of one quarter of a percentage. strategy at cibc. is positive in the short term. bullish ahead of this meeting, slightly negative a few days ago. euro you see a bullish with this? >> we have been bullish on the euro for quite some time. it was north of 120 last week. a ratherhat would be brave trade at this juncture. i think there is not a risk reward that would suggest this.
they made mention about the impact of the currency and we have seen that. there is a opportunity for the that push back a little bit. is enough tok that really drive them at this point. >> does it ultimately have any impact in the long-term? thatthink it is well known they would like to slow the price of appreciation down. i think it is clear that they have in trying to have the 120 double. to i that debtue until they make it very clear how they are going to be tapering and if they are going to be tapering and a fashion. we think the best thing would be to publish a paper. that gets it out in the open. that shows there is not much to
see. we think the euro will continue to appreciate. it reduces the risk of the market trying to call their bluff. because they are dragging their feet by announcing this taper. tapery did announce this it is not a fringe case. then i would look to sell the rally. if they do not and they try to drag their feet i would buy the dip in the dollar. that theing last week comments will come just a couple of weeks before -- >> that was a bit of a surprise. about whatalking that actually constitutes. i think in reality if we would go through the october meeting i would suggest it would prepare staff beingor the
ready for the technical programs and how they are going to i just the multiply programs. i suggest that it would be in october than this week. entirely that any pullback we will see in the current environment will get along at better levels. gentlemen, stay with us we are going to get much more ahead of the decision with the supervisory board member who will join us. do not miss that up next. florida, a powerful storm brings damage that could pass over with hurricane katrina. this is bloomberg. ♪
♪ >> you are watching bloomberg surveillance. powerful storm is forming in the atlantic ocean and barreling towards order rico. there are fears that it could hit or do. this could make landfall in the sunshine state it could in white property losses that will surpass hurricane katrina. insurance stocks lunging yesterday. couldaid injured losses be as high as $130 million bid. joining us now is the bloomberg managing editor will kennedy. the go.ok at path thatpath is the
we are focusing on. enlighten us to what the chart tells us. >> the main thing we can see about this storm is that it is the biggest storm ever recorded in the atlantic. to wreak devastation on the caribbean and the next several days. there are going to be huge losses for insurers and those across the state. >> i think that is the key. it is going to carve that will determine the impact. it is interesting. we are learning any new things about this. it is important to florida. >> absolutely, it is one of the two big areas of interest productions. seen the insurers. we have also seen prices jump,
we are going to see more of that. on theines have dropped expectation the visible recap it on the cruise line industry. theill not know exactly moment. it is a very powerful storm that is expected to hit florida sometime at the end of the week. >> energy with the focal point of our analysis. natural gas sliding on speculation that the storm will hit the powerplant fuel. other repercussions of the energy industry with this? has note moment there been a disruption that we saw with harvey. it has been made refining centers on thick all in louisiana and texas. declare the major pipeline to the northeast. natural gas will be impacted as you say. be hit.ants will
president, who reckons the move could help explain why inflation is remaining persistently low end job growth has slowed. >> maybe our rate hikes are actually doing harm to the economy. it is possible our rate hikes over the last 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth and lower inflation and inflation expectations. these premature hikes we have been embarking on, they are not free and we need to remind ourselves of that. mark: the comments are echoing those of lael brainard, who spoke earlier in the day. >> because we have been falling short of our inflation objective not only in the last year, we should be cautious about heightening policy further until we are confident inflation is on track to achieve our target. mark: hurricane irma has become the most powerful storm to fall in the open atlantic ocean and
could inflict property losses in the u.s. lineance stocks and cruise stocks have plunged. there is fear it could hit florida. insured losses could hit $130 billion. president trump and chinese leader xi jinping will express threats by north korea later. president trump has promised to increase sanctions and haults trade doing any business with north korea. putin has also rejected the call for new sanctions, calling them useless and ineffective. theresa may will face opposition leader jeremy corbyn int h the u.k. parliament today. yesterday, the labour party said it would try to amend her eu and give thell
power to modify laws. meanwhile, the brexit negotiator says the divorce talks are going too slowly. no movement has been made in the key areas under discussion. german leaders need to cut french president macron' some slack and give him the leeway he needs for his economic agenda to succeed. that is according to the head of the german parliament finance committee. the social democrat told bloomberg that macron deserves flexibility. expect a small miracles of him and we must make sure and it is our job not to make his life harder, but help him where we can. if he says he has to go into debt than we should not say no, but we should say ok, if it gets you out of debt in the long run,
then do it. mark: with the german election a couple weeks away, let's cross over to the morgan stanley conference in frankfurt. hille, thanks for joining us. -- is theminal action german election a market moving event or not? >> hi, mark and welcome from frankfurt. we don't think the german election will be a market moving event and obviously we are in a low volatility environment, but we expect a relatively calm outcome. mark: the low volatility environment, what risk is this low volatility under, given the risks that present themselves in the month of september, from hurricane irma to north korean tensions, to the raising of the u.s. debt ceiling.
those are just three issues that investors have got their eye on. >> we have looked at the low volatility environment and it can persist much longer than a lot of people expect. on average, they can last 12 to 22 months. you have to be in it to win it, so returns can be good. at the end of the day, low volatility itself is not a good indicator. what you have to look at is implied volatility versus real life. that premium is still in a normal environment. mark: you are not forecasting a market correction then in the near-term? >> i'm not forecasting a market correction based on that. the only risk off scenario we will see is more based on event driven risk, likely north korea conflict, or a policy error form rom a central bank. you cannot predict
and we do not predict anything in that low vol environment. i would say it is a good indicator, on the contrary, for a longer growth cycle that we are currently seeing, if you look at gdp numbers, fundamental earnings growth, particularly in europe. mark: you prefer european equities to u.s. equities right now? equities,er european but we also prefer european equities relative to high-yield. it is the first time since 2002 that european equitity dividends are actually higher, or the dividend yield is higher than the high-yield return in european high yield credit. a yield around r tell the u.s. 10 yea us about the bond market's opinion about the pathway for a
fed rate hike, and the u.s. economy? >> i think, a couple of things. first of all, we have to realize the implied probability of a fed rate hike has come down substantially. i would put it at below 30% now. nevertheless, we expect two further rate hikes in the next 12 months. on the other side, looking at longer-terms, the 10 year yield in the u.s., it is getting close to 2%. they could go below 2%, but the probability is not very high from our perspective. people are using treasuries hedge, as aduration diversification element. say 10said that, i would year treasury yields are in the range of 2% to 3% for the
foreseeable future. mark: what tweaks have you been making to your multi-active portfolios lately? >> on the fixed income side we employ what i would call a strategy. we have the money market floating on the one hand side. and then we have the emerging market sovereigns, typically dollar-denominated, but hedged into euro on the other side. that is on the fixed income side. on the equity side, the name of the game is growth and income. so, we are preferring companies that have growth potential. and you know, sustainable dividends over the long run. that is most predominant at this moment. mark: christian hille, thanks for joining us. we are getting breaking news. south korea's moon is asking
investors grappling with geopolitical risks, how to deal with escalating provocations from north korea. day, the strongest level this year. yields up in the u.s., 2.07. yields yesterday, touching 2.05. the lowest since november 9. you know what happened on november 8, the day of the u.s. election. ,old touched the highest level. signaling the fed is in no hurry to raise rates. theresa may's brexit plans are facing trouble at home and abroad. the prime minister will face questions from jeremy corbyn today. this is after jeremy corbyn's labour party said it would try to amend her eu withdrawal bill. sufficient progress still has not been made on the issues.
stretch.h us, jeremy stephen, what is driving the pound right now? politics, brexit, domestic data? the percentage split? >> i would say in the last few sessions, eurosterling has been driven lower by positioning. people have been short with sterling. they are still short with sterling and the ecb has been trying to temper the pace of euro strength. it is vulnerable to a correction medium-term. i would would be looking to buy the dip. mark: what difference does it make? >> in the airports, you are already getting a worse rate and we are. effectively we are trading below the euro. sterling is treating weaker than the euro. mark: you are not as close to
parity? >> not as close to parity. i think we will see further upside 9 if we get to4. 94.pside if we get close to we are nowhere near the extremes, but we still have got a lot of negativity priced in. the short-term, it could be will positioning, but the political dynamics have also played a part. the announcement from the labour party had a little bit of noise in terms of eurosterling going lower yesterday, but ultimately, it does not change the debate and it will be fascinating to see how the labour leaders plays it today because he seems to be on a different pace from his own brexit secretary. there seems to be a lot of discord going on in both sides of the house of commons. >> the discord will play a role. does it really matter who is in government in the u.k.?
the eu has made it clear they don't want to talk about trade until the exit bill is dealt with. and migrants, and whatever else. but largely, they want the money. that is what brussels is aiming for. ok, a labour government comes in. they are just going to roll over and give the eu what it wants? this is going to go on for a long period of times. as the window closes for the negotiations, he will see more upside in eurosterling as we failed to tackle that issue of the trade relationship. mark: the eurosterling upside. what are the best ways, given what we have discussed, jeremy, to make money around sterling, whether you are going long or short? >> well, we are running a sterling stopping position currently. going back to one of the previous graphics, the stock has been one of the best performing this year.
i think that probably has some to go. a number of pairs, the on just the euro-sterling. perhaps, divorcing yourself from being wedded to the ecb, and the debate whether the ecb will push back against euro strength. you will look at the other europe bangs, which are moving towards a monetary tightening. that could be the case in terms of the australian dollar, for example. sterling is underperforming against the canadian dollar as well. there are a number of pairs that have these opportunities. mark: what is your canadian dollar thought, gentlemen? we have some breaking news. milan afterd in rising 5.5%. chrysler shares have been halted in mylan after rising as much as 5.5%.
"bloomberg surveillance" and i'm mark barton in london. a clash with the eu over chip prices. the case was sent back to a lower tribunal. the antitrust fund was a record back in 2009. the case is being closely watched. facebook is offering major record labels hundreds of millions of dollars so users can legally include songs in videos they upload. under current laws, they can ask to take thers material, frustrating users and risking legal action. concerns about united technologies'$23 billion coalition of rockwell collins. it will take action to protect
itself if the merger harms the business. united shares plunged by the most in two years yesterday, while credit ratings companies say the manufacturer risks downgrade. revamped electric car was unveiled, boasting features including autonomous parking, and increased driving range. bloomberg data shows nissan sold 29,000 leafs back in 2016. that is the bloomberg business flash. taking a drink of water, because you have got to fight your caca. the rate hike in canada is imminent. the only question is, when will it happen? economists mainly think next month or the next meeting is the time to do so.
chance here show a 57% of an increase big announced later. works for ach canadian bank. jeremy, kick it off. rate hike today? >> rate hike today. printer hasgdp tipped the balance, in favor of they move now. we were talking about the absorption, and coming growth suggesting that incoming data suggesting that will be key to the rate trajectory. subsequent to that we have seen sparser growth. justifies a move now, rather than waiting until october. the canadian dollar could strengthen further on expectation of that hike. mark: i am going back to the canadian dollar. at least five of 26 surveyed expect the boc to hike today.
thee've moved because of gdp. that is a pivotal element in terms of the debate. mark: this is my we have an argument because stephen gallo is going for no rate hike today. >> i don't want to disappoint you. i don't think this will be much of an argument. are not calling for a rate hike today, but even they have said in their own words that this is basically a knife edge moment. they are not going to go, but there is a chance they could go. our official collies no move. -- our official call is no mov e. there are risks to this strategy, not going today. most people would tell you the move and the currency over the summer will shave something off the end will rate of cpi inflation and we are already below target. but if the canadian dollar is this strong, or stronger, in
october, what is the bank going to do? wait again? the issue here is the bank wants to get, i think, rates back to at least pre-oil crisis levels because of risks in the canadian economy. there is a risk attached to them waiting because the window might not be as opportune then. our official call is, no move t oday. our economists are also saying, don't expect the boc to promise a path of continual rate hikes. and jeremy would agree. >> and i think that is the point. we were assuming they would hike today. i think the bank needs to push back against the consecutive hikes. we have not seen a non npr hike in seven years. mr. carney was the last want to push one through. we have seen two hikes. should there be a third in the not too distant future, the bank
would push back. at this time, it is all about taking back the emergency stimulus. a surprise, going back to the press conference in july, was that they pushed back against the idea that this is what the bank was trying to achieve at this particular juncture. i think it is fascinating if you look at that chart. mark: this is a five-year chart, going back to 2012. >> if we are talking about removing the emerge the rate cuts, that takes us back to the beginning of 2015. that is just north of 1.20, not materially away from where we are now, and where we could easily get to. mark: what is the forecast, both of you? >> i think we will see short-term canadian gains, if we see that rate hike today, towards that 1.20 pressure. but i don't think we will see this ongoing appreciation down to the levels we are seeing at the extremities of the left-hand of the chart.
>> given our house view, our preference would be to play the dollar cap from the side. 1.2550 ifee 1.25 to there is no move today. we are still looking for additional upside in the canadian dollar post the boc. mark: we have done the fed, the ecb, the boc, we have done canada. give me a sexy trade, something we have not mentioned that could excite orur viewers today. moreink there is still traction to begin. we have the riksbank this week as well. not expecting them to change policy this week, but we are of the view that monetary policy is far too lax in sweden and there is the opportunity there to play the swedish krona. >> i would be looking at the
dollar. the reason here is pretty simple. we are heading into the cpc autumn congress. there is going to be a leadership reshuffle. xi wants to prove to the higher ups within china that he has a handle on the currency and the economic situation is stable. that's going to mean a continued low environment for the r&b. i would not be buying r&b here, though, because in this tense environment for trade, more strength in the r&b is going to look like donald trump is winning that trade war. mark: stephen gallo and jeremy stretch, thank you both. this is bloomberg. ♪ tom: september in the united
cap. in the u.s., let congress fix it. president trump issues a one-way ticket back home for thousands of young who call america home. call it the korea adjustment. theds drive lower than stocks drop in value. can the 10 year yield visit 1.99%. the exertion of back-to-back hurricanes from the atlantic. giant irma approaches florida. this is "bloomberg surveillance" and i'm tom keene in new york. nejra cehic is in london. i'm not quite sure where francine is. nejra, wonderful to have you with us. tell me about the numerical cap in united kingdom. are they going to limit eu immigration? nejra: tom, you are breaking up, but we are watching the general risk off sentiment across
markets. we will look at some really fascinating underlying things, particularly with volatility. here is taylor riggs on irma. reporter: the most powerful storm ever to form in the open atlantic ocean is taking aim at florida. hurricane irma made landfall in the caribbean today. 85ma has taught winds of 1 miles per hour. a worst-case scenario has irma destroying so much property that damages could surpass hurricane katrina. that was the most extensive natural disaster in u.s. history. south korea's president is seeking putin's help on north korea. they met in russia today. moon warned that if the provocations are not stop now, the situation could turn uncontrollable. moon said there is no point in backing north korea into a corner. two problems for british prime minister theresa may's brexit
planning. the labour party will try to rewrite the repeal bill. meanwhile, the eu's deputy brexit negotiator told german lawmakers she doubts officials will be able to start talking about a trade deal as they had hoped. minneapolis fed president neel kashkari says the interest rate hikes could be doing harm to the u.s. economy. he is one of the fed's most image policymakers and called the hikes premature and said they could explain the economy's low inflation. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. riggs.lor this is bloomberg. tom: we are looking at equities, bonds, currencies and commodities. really a tumultuous day yesterday. futures rebound, curve flattening from 81 basis point, down three solid basis points.
this is really reaching new levels of curve flattening. oil advances by one dollar in the last 24 hours. next screen. the vix showing elevation. i think we would be higher there, given the carnage in stocks, but not all that bad 12.24. the 30 year yield says it all, 2.69%. that should be green on the screen, a higher yield by one basis point, but yields come in with a vengeance. we will show a lot of that through "surveillance" on radio. down to a stronger and stronger yen. in japan and korea, i will show you right now on the bloomberg. this really paints a picture of the tensions of korea. i would begin this with one of the presidential tweets yesterday. here he are back in april, strong yen. here is the average, the zone if you would come of this closely trading pair. we roll up here, weaker yen and
a stronger korean won. tension here and critically, we are right up near this strong yen level. that is my litmus paper and two standard deviations are just appear. there's the litmus paper of what is going on in the korean peninsula. we have many stories today and of course, for all of us in america recovering from harvey, jason kelly is on assignment in houston, we have irma moving to the caribbean. stewart wallace is with us from bloomberg commodities. this is a completely different commodities story. the pictures, the images look the same of this giant storm. let's start with stuart wallace, something we never talk about, which is orange juice. it is still a big story for florida, isn't it? >> it is huge. in terms of the world it is the second-biggest producer after brazil. we saw a 6% move in futures yesterday in new york and we anticipate that will keep
getting higher. the real issue now is that the crops sitting on the trees, the next crop due for harvest the next couple months is about the size of a golf ball, which does not some great, but when it gets hit by a 80 mile per hour wind, it will get hit pretty hard and drop. we are two to four days off when it hits. it could miss the orchards, maybe not. that is what we are watching. nejra: what about wti crude? we actually see a little recovery there is some of these refineries come back online. >> this is a strange hurricane. because it is going to hit florida, we're not so worried about the energy aspect. human life, that is the much more critical issue. but in terms of the economics, it is not bot, this one. -- it is not bad, this one. we have seen a bit of recovery,
but i would not expect a huge move on the crude market. tom: let's go to the bloomberg, which has the advantage of showing is not one but two hurricanes. this is very easy to see, the american continent. florida is right in here. there's my terrible map with my pencil. this is irma, with the variability of irma from below cuba to the bahamas. over here is where stuart wallace vacations. here is joese behind it and it seems to have a flight path curving oftein the atlantic ocean. for our global audience, harvey was over here in houston to the west of the gulf of mexico. irmaart, you can see driving your florida. but this is not a hydrocarbon story, is it? >> i don't think so. we expect some drop-off in natural gas demand.
but in terms of a direct impact, no. we were slightly worried for a little bit of time because one of the forecasts showed it veering into the gulf of mexico. that does not seem very likely at the moment. but just to add to this fairly complex matter, we have a tropical depression in the gulf of mexico. i don't think that will affect the u.s. production, but we are worried about the production in mexico. nejra: our guest hosts are antonio garcia pascual and co-head of fx and rate strategy at ubs. they join us now. let me turn to you first, in terms of the reaction we have seen to a confluence of risks in global markets. the 10 year treasury yield is powering down towards 2%. do you see that going any lower? >> firstly, let me say there are very few assets out there that
offer the kind of insurance as the 10 year tends to have. throughout the year, the 10 year has always had a little upside in terms of the yield. the natural pressure release. second, this is support for the equities. the third is from a valuation basis, we do not expect much higher yields. this might be closer to something like 2.3%. been: volatility has not as high as you might expect, certainly when you look at the vix and volatility through the asian and european markets. are there any overflows, spillovers from this that you see in europe at all? >> that has been a big battle because the geopolitical risks are fairly high. you have political risks in the u.s. you have all these natural disasters or hurricanes about to
hit. there is a bit of a battle. i think the concern, and this might not happen immediately, is that if risk aversion were to jump, the world economy is not in a great position. when you look at the safe assets, what we are discussing now, interest rates are very low already. risk aversion is an automatic change. if the perception changes, this lack in the world economy and the policy space is there. you should be ready for a strong reaction if that were to happen. tom: i want to look at the dollar right now. with the carnage with the carnage we saw yesterday and the correlation of the markets with risk off, this is the chart we were showing. i have zoomed in on recent dollar activity. this is a very elegant weak dollar chart. this is the bloomberg dollar index, which is way cool mathematics.
i'm sorry, themos, but this is the mother of all shorts. what is the magnitude of dollar weakness that we could see? >> it depends on the time frame, basically. i don't think we will see tremendous amounts of additional dollar weakness this year, unless something big and negative happens. for a number of reasons, which we can discuss. heading into next year that will probably resume. it is not about direction. directionally, the dollar is expensive and the euro is cheap. it is more about the speed at which these developments are happening and the kind of reflexes creates with the policymakers. nejra: antonio garcia pascual and themos fiotakis stay with us . stay with bloomberg. we will bring you all the latest ahead of tomorrow's crucial ecb meeting. we will bring you that decision live tomorrow at 7:45 in new london, 12:45 in
surveillance." it is a partial victory for intelin the eight year battle with the european union over a $1.3 billion fine. the eu court of justice as a lower court must re-examine the antitrust case. that matter could have ramifications for disputes involving u.s. tech companies. factory orders unexpectedly fell in germany, europe's largest
economy. the july figures were released less than three weeks before angela merkel faces an election for her for a term. the germany economy had picked up some momentum. the largest energy company in europe is investing in projects to boost natural gas demand. executivetch shell says the company is supporting the development of gas use in heavy transports, such as shipping. shell is also helping small and less creditworthy customers. that is your bloomberg business flash. tom: we need to pause. we knew it was coming. that was an extraordinary american politics of september. the end of the summer brought a terrific essay from john mccain on congress getting itself back in order. he has become distracted by the new immigration debate called daca. president trump''s decision to
eliminate daca is the wrong approach to immigration policy at a time when both sides of the aisle need to come together to reform our broken immigration system. saidld have respectfully that kennedy could have written that note six years ago. stephanie, we knew all this was coming. i want to get to secretary tillerson in a moment, but on d aca, we, like the united kingdom, are distracted by the third rail, which is immigration. reporter: this is a really difficult issue for congress to grapple with. remember, immigration reform in versions of the dreamer's act have been difficult issues on congress' table for the last decade and a half. the house passed a version of the dreamer's act in 2010 and a failed in teh senahe senate.
the notion that they could get this passed by march is unrealistic. and it kicks it to the midterm elections and makes it a central issue they will have to grapple with as they campaign for reelection in november. tom: i agree that were president trump it is actually political genius to throw it over to congress. none other than mike bloomberg, he writes today for bloomberg news of the need for courage. i'm hearing that from a lot of other sources. what is your take on the history of courage in congress? >> like this then, to get this passed, there is bipartisan support for this. look at what paul ryan said yesterday, that the dreamers are the most sympathetic immigrants in america. there are moderates in the republican party who support this, but they will the democrats to back any bill they
pass. reluctantwill be very to support the agenda of the republican-controlled congress read before the midterm elections. either way, whatever lands on trump's desk, he will either have to pass some version of the dreamers act and alienate his base, or reject it, and alienate a wing of the republican party. nejra: it was interesting that president trump made the decision without consulting republicans, but also it seems, without consulting business. we got a fair amount of reaction on that front. reporter: widespread criticism of the decision from mark zuckerberg, tim cook, google, microsoft, wells fargo, jamie dimon, across-the-board. they have criticized him for doing this. they are ramping up pressure on congress to pass some sort of reform package that will help them. many of these people work for
fortune 500 companies, and they are affected by this. tom: something percolating right now, and i saw a great essay on foreign policy on this, is where is secretary tillerson? this is away from daca. the secretary is much more affiliated with the diplomacy or non diplomacy to north korea. where is secretary tillerson? reporter: he has been notably quiet on many issues. there had been speculation he was considering resigning. that is something he has denied. he's been upstaged on a number of issues, whether it is north korea. accounts, hey many is reconsidering his position. maybe he will stay on until january. he has denied that. his silence does raise questions about how long he will be around. nejra: stephanie baker, joining us from bloomberg news.
let's turn to our guests for this hour, themos fiotakis and antonio garcia pascual. themos, does this development change how you look at the u.s.? is it just the fact that there is another couple getting factor when we are trying to get reforms passed through in congress on other issues such as tax reform? >> i would say if you look at where the yields are before the market started pricing some fiscal optimism before now, we are still above those levels. so, the ability to coordinate and produce some kind of liberalization, some kind of fiscal stimulus is very important for the bond markets, or the dollar and for equities. having said that, that expectation has already been scaled down quite a bit. nejra: themos, thank you so much. he stays with us. coming up, we speak with the ing group ceo. this is bloomberg. ♪
nejra: i am nejra cehic in london. let's get straight to frankfurt and focus on the sid zietgiest, as tom might call it. ralph hamers joins us from the frankfurt conference on european banking. great to have the on the program. we have just heard that ing is to distribute economic research for free.
good morning. i'm wondering why you have decided to do this and how exactly. for al, i think it calls clear decision as to which research is available to everyone. what research would be more proprietary. always want to be very clear, as soon as possible. we have been very clear as to general economic research, ecb s the kind oft i research we want to make freely available. we did so already this week through a website that is available to anyone and accessible to anyone. nejra: does this mean that it will avoid you having to make job cuts in research departments? >> it has nothing to do with that specifically. it's just that we want to be
very clear as to which part of our research is freely available and what part of the research is proprietary. that's the separation that we made early on. a storiedave got career at ing, including tours of duty in ing territories. john cryan today of deutsche bank cries for consolidation within european banking. are we going to see this kind of consolidation? can europe consolidate cross borders? ing, we if you look at are the product of a consolidation. the largest banks we have in our portfolio are the dutch bank and german bank. they make up for than half the size of ing.
we are proving it can be done. whether more is necessary, honestly i think we will also need more progress on the single supervisory mechanism. real necessity for cross-border banks to really happen. nejra: thank you so much, ralph hamers, joining us from frankfurt. we will be back with antonio garcia pascual of barclays and themos fiotakis of ubs. this is bloomberg. ♪
yesterday. stronger japanese yen. here is taylor riggs. is a storm for the record books and it is set to hit lord up. .00 -- hit florida 185 mile-per-hour winds, models say it could strike florida this weekend. people should evacuate or hunker down. expensivee the most natural disaster in u.s. history. president trump is leaving a door opened slightly after program and said he would revisit the dreamers' issue in six months. the president's action has put in limbo about one million people who consider themselves americans. resident trump takes his
campaign to overhaul the tax code to north dakota today. he will have in unusual guest on u.s. one, heidi heitkamp. he's living in congress. negotiators are downplaying president trump's threat to pull out of trade talks. have canada, and mexico reiterated their commitment to deal thistiating the year. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. document says.k. administrators are considering limiting immigration from the e.u. after brexit.
should bed migrants able to come to the u.k. for a most two years. the draft has not been agreed on by ministers, joining us is chief economist at barclays and cohead of rates strategy at ubs. quite a few steps to make migrationn terms of clampdown, but how do you model this when you look at the u.k. economy question mark do you see an impact on wages? migration is a political issue. it is a redline for the e.u. it to also be a redline for the u.k. side for the current on the prime minister. it matters a great deal, for wages, already not showing so much of an increase in that has an application for bank of
england. the big migration in 2000 is in a way that has changed the demographics and has helped sort out the issue of -- security. short-term wages, it's a critical issue, something that the u.k. has leveraged embedded figure -- and benefited from in the past. tom: do you get any sense of immigration normalization in e.u. policy, or is it in great as disarray as we see in the united states? little: i think it is a more the latter, there has been -- that issue is still having big problems on migration from third parties into the e.u. what you have seen post crisis is less marketability, less than
one would expect. the u.k. obviously you have the issue of a bit of this redistribution that should come with migration into areas where income per capita is lower. it's a critical issue, there is no doubt. i think there are issues to be resolved for the outside of the e.u.and inside the is a clear redline issue. as far as brexit goes, that is an issue that has to be clarified quickly if you want a soft exit. tom: not to be rude, but i'm not aware of the barclays call, but i know the e.u. caught out against the weak sterling. brexit the eurosterling, with a blue circle, you can see the substantial move of strong
euro and week sterling. -- weak sterling. are there other factors going on here? themos: you raise a couple of good points. firstly when it comes to the pound against the dollar, the main actions of support there has been the euro. 75% of the volatility of the pound is the euro dollar that is the reason why we haven't been particularly bear on cable. in terms of eurosterling, the around 92,s been which we are hovering around and perhaps having even higher. two factors driving this, the first one is this recent move of the last few weeks is a catch-up of sterling to the euro, driven by politics, but also the stronger euro strength. it's not about brexit, but the
impact of exit on the current account of the u.k. which has the potential of pushing the sterling weaker. : what about the sterling-yen? i think that's my favorite and most interesting crosses. sterling itself has benefited from the global reflation story. it is a look at the current account that we see an income abroade u.k. based asset . it means for whatever reason we have a downturn sterling is particularly vulnerable for reasons outside of brexit. the yen is a typical safe haven currency, for the added reason that the policy set up implies their yields are constant within treasury moves. basically mirrors the 10 year
treasury. sterling-yen is a cyclical currency kind of like the -- hedge. nejra, you are killing me. you are dazzling me. it is a two standard deviation strong move. when draghi is working on this thursday with the ecb, i would suggest this chart overwhelms everything, the brutal move in strong euro is front and center, isn't it? absolutely. right on the mark. this will pretty much be the center of discussion tomorrow. if we will go back a few months, the situation was looking fairly good in terms of close -- house bread -- how spread out growth
separation hits the area, not so much the growth story, in fact, heart of the reason we have the strong euro is we have better growth and less political -- but this creates a major headache for inflation, which was already low. we estimate that this roughly 9% trade weighted appreciation of the euro since february implies 2.3% less inflation over the next 12 months and that is material. already in a low inflation environment. next year average of 1.2, far away from it. it will be at the core of the debate, no doubt. you, nejra, you
listen to president kashkari, . >> maybe our rate hikes are doing a real harm to the economy. it is possible that the rate hikes are leading slower job growth, leading more people on the sidelines, and leaving the lower inflation. these amateur hikes we have been barking on, they are not free and i think we have to remind .urselves of that 101.if i was teaching econ that is the first thing i would show in class today. and "bloombergs markets: americas as "bloomberg mars
-- themos fiotakis. as well. this -- antonio: it is quite a statement , it is hard to defend from the market 101 that you asked me to use that the standard test would include interest rate still at historical lows. we have been discussing how well the labor market is doing, growth is not doing so poorly either. there a part we cannot explain well and that could be a reason for the fed to deliver the stoxx cks, but i think there are good for the fedeasons to deliver according to the notes.
natural geopolitics, --isters, obviously the the one they cannot control and i think this scenario is also predicated on the part that they will pass some of the tax cuts. fitgs are looking a better than a few days ago. i think that is critical for the fed. it will influence growth and influence the debate on monetary policy. tom: this is what we do a bloomberg. we had larry summers on jon ferro.alix, and ofi take my hat trick fisher, summers, and olivier blanchard, they are going to say that president kashkari borders
on irresponsible comments there. what is it that's wrong about the theory that the head is forcing a wage growth slowdown? you describe it well. i think the labor market is already fairly tight. we can debate about phillips curve, about the slope, but in theory we are probably very close to -- and wages should be push from the theory your discussion before. there are international factors that are not well understood. that debate is open. there is a cross-country -- that we cannot explain. but from where they labor market also within a are time of normalization.
one more thing, the u.s. is are more advanced in the business cycle than europe is on most economies, so you need to create policy space on the economy .ycle side that is important. we are in a world we were discussing with low risk, there -- withuch policy to safe levels. didn't know you are signing up for a macro lecture, did you? turning back to the markets because robert burgess writing today talking about this bull market and bonds pointing out that u.s. banks have boosted
their holdings of government bonds to a record. maybe i am focusing too much on the 10 year treasury yield, but should the head be re-assessing the -- should the fed be re-assessing the bond yield at this point with all geopolitical risks and looking ahead to tightening? >> there are a few underlying questions. tom, i think you mentioned havers as well, that would a little bit about -- to what cost car he has said. a few things, is the bond market completely mispriced? it's slightly expensive, but not completely mispriced. openly the accepted equilibrium of rates, which we estimate to be somewhere between 2.3 and 2.9 has declined a lot on the previous cycle. how much can we expect rates to normalize by? the second thing here, inflation expectations have declined --
some of it may be -- tunis, some .ay be a measurement issue is an, risk aversion important manifestation. one quick thought regarding the fed. financial conditions play a big role. you remember reason why the fed pause last year was the tightening conditions in the beginning of the year. tom: is that the cause now? no, it's the opposite. it may impact the hiking decisions. tom: brilliant. that was outstanding. thank you. nejra? we will be back with and themoscia packe
nejra: this is "bloomberg surveillance." mario draghi makes a statement on policy tomorrow, the central bank will raise its gdp forecast, but the site -- despite a strengthening economy, they are likely to dampen inflation outlook. still with us are antonio garcia pascual and themos fiotakis. i want to know what you think the impact from sign-up the conditions could be and why that is important. critical, one of the inputs into the growth forecast, and into inflation. overall activity. the euro appreciation, which has been dramatic and accelerated, really deteriorated at all the financial conditions. when draghi made that point in
the previous meeting, he was right. and still it is the case. why is that? the factors are the arctic conditions, lending rates, qe, the balance sheet continues growing. all of this, the monetary, credit, market going to the index he mentioned. has worsened, but other factors have been enough to offset it. that is not the case for inflation. for growth you can make a similar story, it has been doing well, but inflation, that's where it hurts. that's where pass through is significant. biggest headache. the ecb has a single mandate, which is inflation. that will be at the center of the debate tomorrow. nejra: what about the debate in on potential impact sustainability?
themos: i think that's not an issue that should be linked in the minds of market participants to monetary policy. for whatever reason whether the debate of whether it's a leak is or is not in the monetary union resurfaces with a political crisis, that is a problem. that is a risk and it may resurface for the end of the year. -- italian economy in a good scenario can withstand higher yields. -- itgher yields trigger doesn't make sense economically. you're talking about a scenario where the key parts has a slow growth environment, yet the ecb forces quite high yields and high rates on italy itself, which intuitively doesn't make sense. antonio, this is super core inflation, a great approximation of ecb super court inflation.
here is what it was 10 years ago, here is the crisis of 2007 and the new average low inflation, we are well below that. wes barclays have a sense will get back to this higher inflation, or is that a headache for draghi? antonio: the latter. it is a headache for draghi, we are forecasting that core inflation next year average of 1.2%. tom: ok. so that's down -- antonio: that's right. with the output gap still not close by the end of next year, that's difficult to measure because we do not accept potential. that is true. when you look at three out of the four large euro economies, they have employment rates close to double digits. let's see what happens in france
. it is certainly true in italy and spain. i think it matters, and it is not close yet. you not going to see wage pressures yet to close the gap. tom: we will have full coverage tomorrow looking into the meetings in frankfurt here it antonio garcia pascual, and themos fiotakis, thank you so much. furt, ellen zentner in the next hour on the american economy. kevin cirilli will join us from washington. this is bloomberg. ♪
in the united states of america, president trump issues a one-way ticket back home for thousands of young who call america home. call it the korea adjustment after a presidential tweet after stocks drop in value, can the ten-year yield visit 1.99% again? the exhaustion of back-to-back hurricanes, a serious matter. hurricane irma approaches florida. this is "bloomberg surveillance." i'm tom keene here with nejra cehic. how is the u.k. doing? nejra: we have had signs that consumers are perhaps being hit a little bit, there is more news coming out about brexit, leaks about crackdown on immigration
and brexit talks moving on at a glacial pace. is in theration headlines of the headlines of various papers in london as well . right now, with an update on irma. here is taylor riggs. taylor: the most powerful storm to form in the open atlantic. it may make landfall in the caribbean today. of 185 miles per hour, it could hit florida this weekend. damage may surpass hurricane katrina, the most expensive natural disaster in u.s. history. seekingrea's history is vladimir putin's help on north korea. the two met today. warns if provocations are not stopped now, the situation could turn uncontrollable. give way to not
emotions and drive north korea into a corner. we should take steps leading to escalating tensions here it is difficult to make progress in the current position without into cormedix tools, i believe it is impossible at all. theor: putin has rejected idea of imposing more economic sanctions on north korea. for theresa may's brexit planning, they will try to rewrite the repeal ill paving the way for a new legal system after brexit here. meanwhile, officials will be able to start talking about a trade till next month as they head home. -- neel kashkari says the central banks may be doing real harm to the economy.
he called the rate hikes premature. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. riggs.lor this is bloomberg. is a much. stable markets now, but what a move yesterday. charts, the euro 11936 oil elevated with curve flattening. next screen, the vix i thought would be a 13, no, well .27. .he 30 year yield, 2.69% that should be green. a big shift in yields in the last 24 hours. and a stronger japanese yen below. nejra: i'm glad we are in line. i also have the 10 year moving about 10 off. euro at the highest in more than a week at 1.1937.
we are seeing weakening in european equities, but interesting things happening but none of that happening below the service. ce, butting divergen today moving in the same direction. tom: ten-year yield halfway to 1.99%, we will talk to david kotok not as well. as is my litmus paper it shows banks on the president's tweet yesterday. and other matters here it this is weaker korean yuan and stronger japanese yen. two standard deviations. nejra, what do you have? nejra: your chart is fascinating . i am looking at the u.n., though, may seem offbeat but we have seen the unsure yuan at a
high, the offshore 43 days of gains. this is the replica of the ecb index, the yen surging compared to other partners. some people calling the yuan a safe haven currency now. others say that's taking it a step to far. this is a great service for commodity pros on the bloomberg and it shows two hurricanes, jose,n gray and this is not a story. irma has significant variability. what is important to know that we would mark that david kotok lives right here. we are thrilled to have what does michael mckee with important work on science and hurricanes as well as well as economics of the moment.
or importantly he will fly to his florida today, david kotok of cumberland advisors. florida is selling out of gasoline, water, plywood, stores are empty. there is mad panic. tom: is it different than other hurricanes? david: i think it may be difference because the story of harvey is fresh, people sought and a week later they have to confront it again. mckeeirst of all, michael we know where this thing is going to hit in florida and within the caribbean? michael: we don't have a perfect answer, but it does look like it will hit florida and go up the east coast, but it doesn't matter. the storm is so big it covers the entire state of florida. give the scope and scale versus what we know, which is the last big florida hurricane
and katrina? beenel: there have only three category five hurricanes to hit the united states, c amille, and hurricane andrew in 1992. category five hit miami, basically almost wiped it off the map. tremendous amount of damage. tom: you are with bogart and -- bogart and bacall, what you in that hotel room? state.florida is a low drainage is an issue. of waterillion gallons that fell with harvey. this is not funny. nejra: we have seen markets bracing for the potential impact of hurricane irma following the
reaction to harvey, when you look at economic impact there are two things to look at, short-term which could be negative, but longer-term it could be positive it because of reconstruction. that's true. if you look at the impact of hurricanes on gdp and the back to hurricane katrina, that's the biggest most damaging hurricane we have had. it was $160 billion if you adjusted to today's figures. it barely shows up and there is an immediate rebound as people rebuild. then superstorm sandy, we were in a downside, but immediately after you see it pop back up. hurricane effect is usually washed out of the national economy fairly shortly. katrina, the strongest storm, we are still waiting to see where harvey slots in, but clearly it will be up there as number two
or perhaps even number one. andrew in 1992 is still on the list of the most dangerous, biggest ever. you want size and scope? winds that sustained taylor was talking about, the scale doesn't go that high. if it did, this would be a category seven. pleaseyra, jump in here, -- nejra, jump in here, please. nejra: ensures taking a plunge, how does this affect your view of investing around assets? we have a cash reserve -- there are so many moving parts of the world here at we have had
a lot of conversations about monetary policy, it's uncertain and not getting clearer. dry reserves means you have powder if you have a drawdown in the stock market, we think that could come. tom: i got a lecture last night that we only focus on miami, david kotok's abode. bring up the map on the bloomberg, it is a beautiful graphic. i'm sorry, mike, puerto rico, and acan republic, haiti, good part of cuba, this could be overstating for the caribbean? michael: it could be. the problem is the infrastructure isn't as strong there, and for the most part they don't have government resources to rebuild in the same does.e united states the easiest analogy would be the haitian earthquake and they haven't recovered from that. tom: thank you some much.
case. it could have ramifications for disputes for google and apple. factory orders unexpectedly sell in germany, europe's largest economy. the july figures were released as chancellor faces reelection for her fourth term. the german economy has picked up momentum, but the stronger euro good hurt exports. boosting natural gas demand, a royal dutch executive says the company is -- shell is helping smaller and less credit worthy customers afford liquefied natural gas. united technologies, rockwell collins, real pushback over that valuation over the last 24 hours. "the new york post" talking about speculation that boeing is looking to end the transaction,
but they make it clear it is just a conversation with no substance at this point. tore is immense substance the debate on immigration in america. we saw that yesterday with the attorney general's comments on so-called daca. is theirilli notes third rail of washington politics here it this is michael bloomberg of bloomberg lp, the former mayor of new york, very much associated with the business known in response to political issues. michael bloomberg "the future of depends onn dream lawmakers having the courage to lead where the president won't. those in congress who oppose deportation have the luxury of sitting back and allowing obama's temporary fix to remain in place. that is no longer a viable option. "
kevin: this is 800,000 folks affected by the recension of daca. he urged lawmakers to get something done. yesterday, lindsey graham and it and there been -- dick durb have put forth a proposal to allow dreamers to become u.s. citizens should they serve in the military or volunteer programs and have criminal background checks. that is the more moderate path forward, so to speak, but it is anybody's guess whether or not there is an appetite for a moderate path forward in congress. nejra: the president made this decision without consulting republicans, are we going to see civil war in the gop? kevin: good point. he consulted nobody. he didn't consult anybody with banning trans-genders from the
military, either. there is a lot of confusion. you are watching images of protest, a lot of millennials, both who have lived there are entire lives are questioning whether or not they have a place in america. it is up to congress to act yo.r tom: one of the great mysteries, where is the secretary of state, is secretary tillerson to be polite, done? kevin: according to the sources i have spoken with outside of the white house as well as those who have worked with the state department, there is definitely tension and that is putting it nicely between the president and secretary tillerson. i think it will be interesting to watch the triangle between the white house, state department, and ambassador haley.
exactly. that's where i wanted to go. the president i believe is coming up to the u.n. general assembly tying up traffic in midtown manhattan, but is he coming to do a job interview with the ambassador to replace secretary tillerson? kevin: good luck with the traffic, but there are rumblings that ambassador haley would be interested in secretary tillerson's post. on the flip side some say she wants to stay as far away from washington as many in the business community can attest to. tom: thank you. i greatly appreciated. we have david kotok with us. we will get two investment affect thedoes daca code talk family where you live? there are people in our community that are part of the
800,000. , theyontribute, pay taxes want to be productive members of society. they are threatened and have family members threatened with deportation. they are uncertain, almost one million people and productive people in the united states. that's not a healthy circumstance in florida or anywhere else. david, i have to give the caveat that i am an immigrant myself, so perhaps i'm the most impartial on this issue. followsant to ask, this the debacle around charlottesville. what impression does this give of the president as it stands taking this decision so shortly after what happened in charlottesville? it -- it adds to a cutout adds to a chaotic,
threatening story from washington. i will get pushed back because i say that. the fact of the matter is we have a mechanism which is chaotic and altering our thinking about our society and justesponsibility that tom mentioned and kevin that the congress now has their feet to the fire. the dos about time nothing congress has to either do nothing and get thrown out and replaced or act. hasso, may be trump actually done us a favor by triggering an action. it would be something to see. tom: 10 seconds. are you in the stock market? >> yes, but not fully invested. tom: we will come back on that. conversation with david camp of michigan, the former house ways and means chair. that will be an interesting
tom: "bloomberg surveillance," all on the x axis is where they put time, there can be short, medium, and long-term across the continuum. i've got a good question from a viewer which talks about the time function. is it reasonable to assume treasury yields will pop before we see a significant reduction of the fed's balance sheet?
kotok, do david yields move the day of the announcement or do they get out front -- do the vigilantes get out front of the -- david: the path will be so gradual, you have to be on mars not to know what the fed is trying to do, the different question is should they try to do it at all. at is the debate we are seeing from the members of the fomc. they are hell-bent to shrink the balance sheet regardless of whether or not they should. tom: is it linked to the equity markets? i get bonds but you bring it to the s&p 500. david: i think so. as long as we have low interest rates, which we do and are likely to have for a while, we are going to have valuations in equity markets which scare
people by historical standards, because they say look how pricey the market is. but as a practical matter, relative to the interest rates available, the market is not rich. growth,t has earnings earnings growth -- that is what is key. tom: heaven for bid we talk equity fundamentals with co -- kotok. tradinge of you on your desk, habit-forming, david kotok, you can watch in real time. over here, bring up a block and you can steal that chart, take it to your bloomberg.
it is the strongest atlantic storm on record. early today, it passed over the caribbean. models show it could hit florida this weekend and people are prepared to evacuate or hunker down for a worst-case scenario that burma could be the most expensive natural disaster in u.s. history. president trump is leaving the door open for preventing the deportation of people brought to the united states illegally. he said he would revisit the dreamers and six months if congress fails to take action. the president's action has put an level about one million people who consider themselves of america. trump takes his plan to overhaul the tax code to north dakota, he will have the democratic senator. the president will argue that his tax code policy is worthy of both parties.
and a nafta negotiators are downplaying president trump threat to pull out for the second round of talks have concluded in mexico city. negotiators highlighted their progress and commitment to rewriting the deal this year. there have not been breakthroughs on any of the hard issues. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom: thank you. major houses been as cautionary as gop then ellen zentner. she was brilliant 18 months ago idea that thethe back-and-forth but the fed has been way behind, it is ellen totner who has called it
preempt is with a mario draghi in frankfurt. did mr. draghi ask you to go to frankfurt? ellen zentner: of course. he dials and, i am on his speed dial. tom: very good. it is good of you to join us. we need to rip of the script by the amazing comments from neel kashkari suggesting that rate hikes may have slowed the economy, slow job growth and slowed wage growth. are these rate rises having the effect? ellen zentner: you know, i would have to take exception to his comments because we do not know that counterfactual's. could the unemployment rate to be even lower had we not embraced the rates? it could have been. i look at the limiting factors productivity,like growth and our labor market, general demographics and it
seems we are growing about right where we should be. even with rate hikes, we are growing beyond the economy's potential. at financial conditions today and our own measures show as they are the easiest since the financial crisis. that would suggest that the fed has raised rates and it had no effect so far. i think there's a good argument against the raising rates have damaged the economy. team havend your written brilliantly on fixed investment in america. this is a chart we rarely show, it goes back to the 1940's and a beautiful trend and ends in 2007 and yeah, we have come back. we have a $2 trillion shortfall in fixed investment to where we would've been without of the crisis. what can the president do within your discussion at morgan stanley conference to jumpstart
investment? ellen zentner: well, i think, let me back up and say, we believe we are in a cyclical upturn and equipment investment in the u.s. and we are seeing companies reported for capex. labor costs have risen that we capex.centivizing wehas taken this long that are seeing a durable, cyclical pick up. what could president trump do on top of that? the types of reform is that encourage investment as a share of gdp to rise. thesimply dropping to corporate tax rate but doing something of real reform that structurally raises the share of gdp and raises the productive capacity. if it is going to be straight
tax relief, honestly, that is not something we need at this late in the cycle and can harm the durability of the business cycle if you punch it with too much stimulus too late. nejra: this is nejra cehic. great to see you. i want to ask you about the dollar, one of the most shorted. how much weaker does it have to go? : i think we do decline in the dollar, the reversal and of the dollar last for a great deal longer before we see it have a lifting effect essay goods prices in the u.s. and what we import. we have to keep in mind that up until january or so of last year, the doctor had depreciated by 16%. post election we saw the dollar rise edit now we see the dollar, back where it was pre-election.
we are 15% higher and that is having a depressing ongoing effect. the way i look at it is like how monetary policymakers view it, there are effects from currency and now the dollar has, back, that is -- come back and that is encouraging and dudley said something similar. it is not something that will effect the number for current policy and will make policymakers more encouraged about the inflation outlook for next year. neighbor bank we have top -- neighbor bank is it there -- nejra: is there anything to convince the market, the dot plot will transpire? that thetner: i think hawks with more and more weekend inflation coming in, the hawks will have a harder time of convincing markets that further rate hikes are needed. one of thing that is driving the
it that the economy is growing beyond potential and the unemployment rate is below where the fed things full employment is. financial conditions are extraordinarily easy and that is a recipe for inflationary pressure. even though you are missing on inflation today, you believe inflation every pressures are coming and by continuing a very gradual, cautious pace, you are doing the market a favor by strengthening the cycle longer. the fed wants as long a runway as possible to continue raising rates but very gradually. that's a argument for maintaining that gradual path, we think i'm deposited in september to kick off the balance sheet, they return -- we innk in pausing september to kick off the balance sheet, they return.
we think it is hard to overcome. nejra: why is at the phillips curve not working as it should? that:: -- ellen zentner: is of the key question. from our own research, we have presented to fed policymakers, the phillips curve is alive and kicking. it is only alive for very small segments of inflation where we have seen a very big response from the labor and to prices. are notall segments enough to overcome other broad segments of inflation that are in secular downtrend. latestined in our research the long-term effects that say amazon is the world have been having on price, airbnbs, those are not a transitory. we would argue that the fed will contain to miss on 2% inflation goal. tom: you have been very good on
a dampened gdp. to pick 2 numbers. america or could we think about a 3.31% gdp run rate? ellen zentnerl i think -- ellen zentner: i think it is too soon to call that we could sustain 3%. we are above potential which is dominated by productivity and the demographics. we think potential at 1.5%. pickup in some sectors like investment that are going to be counteracted by slowdowns in others. the household sector, rolled disposable income has been slowing pretty dramatically there and they key is to have some tax relief next year out of -- we areess or else
going to have some impeding factors, a cyclical pick up against the slower consumer. i do not know we got out of the 2% growth range brent tom: ellen zentner, thank you so much. with us at the desk is david kotok. kotok, thes, david school of lower for longer. are we mentally prepared for the lower for longer you see? david kotok: we are getting there slowly and in some sectors as a bond market, but only some of them. my colleague said, there is a new jersey deal, a double leg credit ending sure credit, 15 years is the average life at 350 tax-free in new jersey. a 70% at almost up to one of the highest taxes states. tom: why is there such a gap? 160% of the it is
taxable treasury yields. that's a monster is gap, says of the chief, people are afraid to buy because interest rates are -- tom: it is critical. will is a calm and lower or is full faith and credit going to come up? david kotok: i think they will meet. comes down and we do not mention a repatriation deal that changes the cap x chart. tom: there is some optimism and we will, back. stays with usotok and can wait to talk equities. coming up, we will head back to frankfurt with a conversation from a bank of member. this is bloomberg. ♪
taylor: i am taylor riggs. bloomberg business flash. facebook is offering to pay hundreds of millions to legally use music in its videos according to people familiar. the social network has been negotiating with major record and publishers for months. many of the videos posted on facebook have music which facebook does not have the rights. john crane is called for an end to the era of cheap money in europe. we see signs of bubbles and more and more areas in the capital market where we would not have expected of them. i therefore welcome the fact ,hat several, the ecb as well is about to gradually and loose
monetary policy. kevin: in a conference, he said he you bank have a competitive advantage due to be fed having twice in this year. this see your bloomberg business flash. nejra: thank you. elite u.k. government documents suggest ministers are considering measures to limit and discourage immigration from the eu after brexit. the document proposes the low skilled migrants should be able to call for at most two-year sprint simon kennedy joins us -- at most two years. -- simon kennedy joins us. we will have prime minister's questions after recess and theresa will have a lot to contend with. toon: she will have a lot answer for. after the document leaked, she will be quizzed on is that. and from bloomberg in berlin, michel barnier, the negotiator, his number 2, she was skeptical
the trade talks would like to start next month. she is skeptical they will start oftime and so she has all these things going on and the labour party is doing is a job of opposing and taking on bills to revamp the lower brexit. on three fronts she is facing quite a tough a day. nejra: the key is at the timeline about the trade talks? simon kennedy: if the original plan was the eu plan was by october if the british made sufficient progress, that is there quote on various issues about the divorce and a settlement, the border with ireland, progress made on that and they would acquiesce on starting trade talks. the brussels side does not think the progress has been made and a summit meeting in october unless theresa may can talk politician to politician with angela merkel
and emmanuel macron and sway them it is in their interest. pointsso many sticking that have stopped this progress and bloomberg has written a great stuff. any of these that can be resolved? way, kennedy: making its citizens rights is supposed to be the one thing they can all agree on and that has not been resolved. you flip to the money, everyone said it would be the hardest and no progress made on that whatsoever. tom: i look at all of this and i had to ask what does it mean for the city? isn't there a change in the september the city, or business as usual as everybody comes back to work? is a kennedy: i think it concern for the city, they wanted a transparency and they are not getting either. they were re-financial sentiment is not to being made -- they are worried that a financial
settlement is not a being made. you wonder about a transitional deal, a some old pathway out of the european union which theresa may's government is seeking. if you are a bank or company and worry about your access to the eu, all of this will make you more concerned it is not going to be a smooth ride. tom: the green leather of the house of commons. simon kennedy, thank you for your bishop on our brexit coverage. tomorrow, mario draghi will be front and center and i made a joke to ellen zentner, no, she will not be asking questions but the press will be. tomorrow, the ecb. this is bloomberg. ♪ >> meanwhile, wales with under strategy. barryeaker, some call it
question, what to do with your money? for more money has been lost since the great bull market. the single great chart to woodward to and the lehman low. well, a lot of people have been wrong. how have you had the courage? david kotok: i have been in the markets since 2009. as long as the u.s. economy will grow, as long as earnings will increase, we have a very low inflation and we have had it for a while, low interest rates, we will have them for while, the stock market is a long-term goal. tom: i saw with united technologies yesterday, lots of single digit growing. ofit the fat on the income debt income statement to keep the more -- income statement to keep the margins where they are? depends on the
sector and how they are getting relief from the past eight years. you good regulatory reform. tom: will they deploy the cash to shareholders? david kotok: some, of course. if we ever get some clarity on taxes and repatriation, more. under the surface of a bull market, equities risings with volatility and a lot of swings and individual industries , the gap between the best and worst performing on the s&p 500, the widest since the recession. david kotok: i think if there is something that needs to be said to sectors free biotech, a great sector doing well. now another question with north korea. we took our weight up in defense.
selection is very important in a very low inflation, slow-growing, low income growth in the wage sector, the consumer side is weaker. it makes sense it would be. nejra: yep. in terms of the correlation, both correlation within the s&p low, but also with a bond market, you still think you should stay invested? : i think there's a place where sectors are cheap and we talked about it for a second earlier. that tax-free bond market has maturities and high quality 160% ofhat are 150 and taxable treasuries. is it taxable treasury yield comes up, which i am not so sure it will do a lot of, the tax-free sector will, down and the price will rise. --, down and the price
will rise. that is one of them. youa: that is great for mentioned the bond market, to this, the four-month mother bill rate exceeding the two-year note yield. we are looking ahead to the debt ceiling. is this of concern to you or will reverse? david kotok: there is an issue about the chore -- short-term treasury curve and what is going on with the debt ceiling. this will revert back to a normal slope whenever congress has done with this charade about the debt ceiling. between now and then, the shorter-term investors and the money market funds have to deal with a there is large shift that is an unusual construction in the shorter end of the treasury curve, so that is why you get the craziness you get. thank you.kotok,
greatly appreciate it. foreign-exchange right now, the markets are moving yesterday with dollar weakness. on yen and ever stronger yen, yen-yuan litmus paper. , mr.role -- euro-dollar draghi has its hassle full tomorrow with a stronger euro. stay with us through the day. -- mr. draghi half his hands full tomorrow with a stronger euro. all of ours across bloomberg platforms. this is bloomberg. ♪
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that selloff in equities continue. head winds continue. florida braces for hurricane rebuilds,e city another prepares for the most powerful storm to form in the open atlantic ocean. a hike, neel kashkari sounding the alarm about raising rates. mario draghi repairs for his own announcement. >> welcome to "bloomberg " i am david westin alongside alix steel, jonathan ferro is off. after thelm blockbuster day. triple digit selloff in the dow. a quick knee-jerk, safe haven trade a few minutes ago about half an hour ago based on headlines from north korea and now we are calmer. yields are up by 2 basis was by selling by almost 10 basis point yesterday.