tv Bloomberg Surveillance Bloomberg September 8, 2017 4:00am-7:00am EDT
mark: the greenback hits its weakest in more than 2.5 years as expectations favor rate hikes. natural disasters strike. hit mexico, triggering a tsunami watch. hurricane irma barrels toward florida, forcing a large-scale evacuation. bank of russia excluded. the central bank governor tells bloomberg she will discuss a rate reduction at the next meeting. will probably be donating
somewhere between -- debating somewhere between 0.25, 0.5. mark: the british chamber of commerce says the weaker pound is failing to boost u.k. growth. we speak to the head of economics. this is "bloomberg surveillance ." i'm mark barton in london. check out european stocks today, on track for a weekly decline, continuing that trend of alternating between weekly drops and gains. down today by 0.2% on the european benchmark. above 1.20. rising for a fifth day today, best run since august last year, aside from admitting the exchange rate and volatility is problematic. draghi declining to talk about any action to reverse the course. highest for the euro against the dollar since 2015.
look at the u.s. 10-year yield. down by a basis point. lowest since november 8 last year. you know what happened on that day, the election in the u.s. geopolitical tensions, hurricane irma, driving yields lower across europe as well. nymex crude is lower today. it is headed for the first weekly gain since july as gulf coast refiners ramp up crude processing after destruction from hurricane harvey. let's get the bloomberg first word news. taylor: in mexico, the president says an earthquake struck off the country's southern coast am the strongest in a century. the 8.1 quake hit the ocean 20 miles off the coast and has killed at least five people. the pacific tsunami warning center issued an alert that tsunami waves were possible across some coasts of mexico and
guatemala. hurricane irma continues on collision course with miami after battering puerto rico and a chain of caribbean islands. the national hurricane center is forecasting a direct hit on florida, a prospect which has roiled markets with becoming the most expensive storm in u.s. history. the storm destroyed almost all the homes on the west indies island of barbuda, inflicting massive damage, and killing at least eight people. president trump says it is not inevitable that the u.s. will go to north korea -- to war with north korea, but military action remains an option. trump told reporters the regime was behaving badly and it has to stop. russia's finance minister doesn't foresee significant changes to the exchange rate during 2017.
he believes stable external factors and a conservative budget will keep the currency stable. he spoke to bloomberg's guy johnson at the moscow financial forum. to tell the truth, we are not planning any significant changes. of course, there are certain influence on ruble from the current situation and external economic decision, but i'm sure that we will not foresee any significant changes in the ruble rate until the end of the year. taylor: global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. mark: thank you very much. russia's central bank governor says she will discuss a reduction of the key interest rate next week. , 25 to 50iullina basis points on the table, but
inflationary risks for the russian economy. she's of the bloomberg's guy johnson at the moscow financial forum. forecasts. give we never give estimates of what we will do with the policy. it will be up to the board of directors that will make a decision. record,ook at our track we've taken different decisions. there's been cases where we reduced by 50, and sometimes we had to pause to give more time to give additional consideration. it will all be subject to analysis. we will look at the economy, the inflation figures, the inflation expectations, and all of that will determine a decision. guy: does that mean we can rule out -- you talk about taking into account all the factors,
and you are going to listen to your board and discuss all the options, but given where we are with inflation, can we rule out the fact that you leave interest rates on hold, and can you rule out that we see a really big cut? let me repeat once again, we do see room for reduction. donating forbly be somewhere between 0.25, 0.5. guy: you talk about this new phase. i'm curious how you perceive the inflation target. how symmetrical is the target? it you happy to be below then you are to be above it? how much symmetry is there around the target, and how much tolerance do you have for being away from it, away from the target? >> that is a very important
question. this question has been actively debated in this country. we always made very clear that 4% is our target, but that does not mean inflation will stay at 4% any given day or week or month. it will go up and down. we are prepared for that. it will be going up and down around this 4%. is in the corridor for us. tot is important for us is understand the nature of those fluctuations and come up with correct measures to respond to those. we need to understand which factors led to this, and to see whether they are sustainable, whether the trend is going to persist.
if it does not require any response or any intervention on behalf of the central bank, also , when we first started inflation targeting, we studied very closely the experience of other countries. we've seen that some of them decided to determine a corridor, say plus-minus one, 1.5%. we decided not to do that for a very clear reason. we thought that if we do that while inflation expectations are not anchored, people would expect inflation to stay at the higher end of the corridor. we did not want that to happen. we need to act on case-by-case basis. we need to do analysis constantly. economy is a living organism.
we need to track all the changes that are happening. mark: guy johnson joins us from moscow. guy: at the russian central bank. it is going to decide what is happening with rates going forward. oil price stability has been a factor for the russian economy, but inflation has come down sharply. the expectation has certainly disappointed economists. we will get a 50 basis point cut from the central bank on the 15th of september. i have to say, when i spoke to the central bank governor, she was cautioning maybe a 25 or 50 basis point cut from her, this as she tries to stabilize inflation at the current level, around 4%. the data are very noisy at the moment. russian inflation bouncing all over the place.
the expectation is, it is going to settle around that 4% target. that is one of the charges she faces at the moment. the other, the banking sector. the russian state controls over 60% of the russian banking sector. that is a big issue for her and one the rating agents are going to be watching as well. on the 15th, we get a decision from s&p. expectations are that maybe we see an upgrade. we have to see whether the sanctions and banking sector mean the s&p decide to not go that direction. mark: guy johnson live in moscow. the ecb scenario for an asset purchase after this year could be implemented without adjusting parameters of the program, according to officials familiar with the matter. draghi said flexibility in qe could be exploited. >> i'm pretty confident that when the policy decision's time
comes, we will be able to exploit all the flexibility the program has in its construction. mark: let's bring in patrick armstrong, cio of chloramine wealth. he touched on the euro, but not like he joined owned it. patrick: i was expecting him to say we might have to keep measures in place should the yellow stay at these levels. i think he indicated he's almost butortable with 1.19, 1.20, that may impact monetary policy. mark: the six-month risk reversal, highest since 2009. traders remain bullish on the euro. is there a cap? patrick: i think draghi indicated that there will come a about the rise in the euro, and said it will impact monetary policy, it will impact the decision to taper, if
we see a strong euro. there is a pain point. he didn't indicate what it is. mark: what is the sequencing from here? patrick: we are going to taper, i think. we will get indications in october, 40, 30, 20 if things go at the current trajectory. there's a lot of events that could change the trajectory. he didn't unequivocally say, but , think we're going to get that but interest rates stay where they are. mark: the implications for stocks, bonds? we talked about the euro. patrick: the strong euro is a negative for german equities. i think that strength that is allowing the taper to happen is good news for stocks. we are taking our long equity positions within europe. mark: and the economy, the
forecast was the strongest in a decade. patrick: lowered inflation marginally, growth looking good, and that should pull through into equities. they are not going to pull the carpet from underneath equities. we're talking about a taper, not a reversal of growth. mark: are you intrigued by that, that the market seems more focused on the ecb? patrick: i think the normalization from the fed has broader consequences, much more important than a taper. they will still be doing qe, still negative interest rates, but hiking. mark: stay there. patrick armstrong stays with us. coming up, the dollar suffering its longest losing streak in six years, increasing tensions and doubts about the federal reserve tightening. can the greenback rally? triggers thea largest ever evacuation from miami as the storm barrels
mark: welcome to "bloomberg surveillance." let's get the bloomberg business flash. taylor: akzonobel has warned that profit growth will fall short of its 100 million euro target. it has been forced into changes in top management following the departure of the company's chief financial officer. the profit warning comes the same day it is convening a shareholder meeting. in a show of confidence, chinese smartphone maker huawei is joining local rivals.
its phone is set to go head to head with the hotly anticipated apple product. huawei's ceo spoke exclusively to bloomberg. >> for many years, huawei's mobile phones have seen very fast growth. i'm happy to see that first half of this year, while way mobile phone shipments to china and internationally increased. taylor: three senior executives sold after thes company was struck by a massive cyber attack. none of the regulatory filings lifted the transactions. about 143 million american customers are thought to have been affected by the security breach which was discovered at the end of july, but only made public yesterday. hadcompany says the trio
not yet been informed of the incident at the time. that is your bloomberg business flash. mark: the dollar tumbling to its weakest level since 2015 amid doubts the fed will continue to raise rates. president trump says it is not inevitable the u.s. will end up in a war with north korea, but military action does remain an option. patrick, this is the bloomberg dollar spot index. seven days of decline. this goes back a year. since 2010. streak dollar isying the overdone. patrick: i think it is overdone. i think the fed people are underestimating how low the bar is to normalize policy rates. signs ofg any inflation. what you are seeing is the surveys that came out in august, they asked business owners what
is the most pressing issue, and it is quality of labor and ability to fill job vacancies. it is not a clear sign inflation is coming, but it is a late cycle sign that you might see some wage pressure. mark: the dollar will bounce, you think? patrick: definitely oversold. you had canada hiking rates, mario draghi not coming out with anything negative on the euro. you've got some momentum on the downside. mark: a rate hike this year from the fed still on the cards? patrick: 50-50. mark: they are below 50, aren't they? patrick: 26% is what the market is pricing in. jobs numbers are going to come out. we might get some inflation numbers. there's a possibility they are going to hike. there's no consensus. i think the market is discounting it too strongly.
mark: the announcement comes in september? patrick: it should. $4.5 trillion. they are going to do it gradually. mark: everyone seems to be very sanguine about it. patrick: i think the economic impact isn't going to be big, but i think they don't it up on risk assets. mark: what is it? is going to turn into a seven-year headwind. mark: are you positioning for that already? patrick: we are short u.s. equities. they are at extreme multiples and you've got a less accommodative fed, geopolitical risks that aren't being discounted at all. has only been higher -- mark: people keep giving reasons for this rally to end, but it doesn't seem to end. patrick: there will be a catalyst. mark: do you miss out in the
interim? patrick: you could miss out for sure. but once you get to extreme valuations, you need good news to push them to more extremes. there's so many things to set up for a reasonable growth. but pulling the carpet from underneath equity investors, that is the most likely scenario. mark: patrick armstrong. as florida braces for hurricane irma, mexico has been struck by an earthquake which the president says is the strongest in a century. ocean offake hit the the coast and has killed at least five people. the tsunami warning center has issued an alert that tsunami waves are possible as far south as ecuador. lets the to bloomberg's executive producer in mexico city. juan pablo, how is this being felt where you are in mexico city? >> it is very scary.
this building was shaking. , the president just confirmed that this was the biggest earthquake in the country in at least a century. imagine that it was a very strong one. mark: can you give us a sense of the damage that has been evident, and are there any signs there have been any oil refinery disruptions from the quake? >> the epicenter is in the south. refinery, the a largest of the company, and the company said that is not affected by this. here in mexico city, we didn't see damages in the
infrastructure, the airports, subway, highways. they are intact, but apparently most of the damage is in the southern states. unfortunately, five people dead. mark: thanks for joining us. stay safe. bloomberg's executive producer in mexico city. patrick is here. great function, hurr . the white line area is irma. and thele line, jose blue line is katia. the one we are focused on mainly is irma. what sort of pass way will it take through florida on sunday? the run of bad luck when it comes to weather events, national catastrophes, is quite incredible in the last few
weeks. mexico, if you throw earthquake on one side, hurricane on the other, we've not had much hurricanes in recent years, despite global warming, but so quickly, having hundreds of billions of dollars of potential damage from the one in houston and now florida. mark: it adds to the uncertain backdrop. patrick: it does. this is another reason i think the dollar is weak. we could put the fed on hold if there is big impact from this. i doubt that you get that. mark: it is front end impact, isn't it? patrick: it has led to the debt ceiling being increased as well. the market is probably overreacting. the human cost is terrible, but the economic impact probably
isn't going to be. pablo abouted juan the impact on refineries, and clearly refineries were impacted by harvey. oil headed for its first weekly gain since july. you are short u.s. oil. patrick: a number of factors leading to that. inventory is very high. inventories go up because of the hurricanes. they produce and store. index that ends up with less oil every month. factors leading to the short position. extreme high inventory levels. mark: gold is above 1300. patrick: we are long gold. none that meaningfully, about 4% long gold.
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interesting comments in the wake of mario draghi's comments on the euro. says monetary policy must remain accommodative. he says foreign-exchange rate can impact inflation. this is interesting. he says some decisions on qe will be taken in december. draghi said the bulk of discussion will be taken in october, which led some to assume there will be an announcement in october. getting a whole host of economic data crossing the bloomberg terminal. industrial production, manufacturing production. let's start with industrial and manufacturing production. making a mixed start. manufacturing rose in july for the first time this year, boosted by a rebound in car production. elsewhere, the trade deficit
little changed from a downwardly revised june. construction shrank after a plunge in new orders in the second quarter. those figures may do little to dispel the picture of an economy stuck in the slow lane. brexit uncertainty and the squeeze from rising prices taking their toll. gross in the first half was the weakest since 2012. urveys suggesting the service industry is continuing to lose momentum. the echo output surging almost 14%. ,ndustrial production rising 2% held back by a drop in oil and gas production. lots of data crossing the bloomberg. let's get the roundup of the brexit news. here's taylor riggs. taylor: u.k. brexit secretary david davis dismissed reports that prime minister theresa may is said to prefer paying as much
as 50 billion pounds to leave the european union. the economic affairs commissioner, pierre moscovici, left open the possibility brexit talks may fail after october. >> we must start by resolving the issues that are on the table. then we will think about our future relationship. it is no secret that we think we need to have a very strong relationship with the u.k. taylor: theresa may will use a speech later this month to try to force brexit negotiation. there is aplain how deep and special partnership and make the case for continuous talks in an attempt to tilt the directions of trade. this comes as a crucial meeting looms. prime minister theresa may's flagship legislation was debated
in parliament for the first time this week. the plans aimed to ensure that all e.u. law is copied and pasted into british legislation before brexit takes place. the labour party said it would try to amend the bill to change clauses that say it will give ministers power to modify laws with little scrutiny. lawmakers will hold a vote on monday. that is your brexit flash. mark: still with us, patrick armstrong. next start to the third quarter. trade, construction, manufacturing. you heard the figures i announced. patrick: the u.k. is one economy we are betting against on the cyclical aspect. much rather have my cyclical exposure within europe. the u.k. is set to disappoint because of so much uncertainty. mark: this is a euro-pound chart. this is the trend since april. we've drawn a line to parity.
if it follows that line, it means parity -- if only life was so simple. you are short sterling. patrick: we are short sterling. interest rates are very low. is cyclical backdrop uncertain at best. we are not going to make progress on brexit discussions. monthsin for months and of getting nowhere, i believe. mark: this is the wirp function for the u.k. probability,t the even through september next year, there's a less than 50% probability. when does the first read hike,? patrick: so far off. i don't know why some members were voting for a hike potentially. inflation will get past this. inflation is going to move lower despite sterling. with the uncertainty, you can't be hiking rates. the u.k. economy is lagging.
mark: what makes you change your stance on the u.k.? patrick: nothing would make me change the stands until we see hie some improvement. ande saw an improvement progress towards brexit, i think that would make me change. mark: favorite trade anywhere? patrick: to me, short sterling versus the euro. we are doing it versus the dollar, which is less safe, but more bang for the buck. mark: gilts? patrick: we are short 0.96% yields. you've got inflation well above 2%. gilts are great in a weak economic environment generally. we have the volatility of sterling and the economic weakness. you can get stagflation just as easily. overall, your funds, very
conservatively positioned. patrick: we've got a lot of pro-cyclical bets within europe. we've got short positions in the u.s. and we are short the ftse 250 as well. mark: you really don't like the u.k., do you? patrick: the currency, the ftse, and gilts right now. mark: great to see you. patrick armstrong. bloomberg radios "daybreak europe" live from london. anna edwards and matt miller are the hosts this hour. the british chamber of commerce says the weaker pound is failing to boost growth. we talk brexit and the u.k. economy. that is next. this is bloomberg. ♪
mark: welcome back to our weekly brexit show. i'm mark barton. quick peek at what is happening across europe. concerns about geopolitical events, concerns about natural catastrophes, the fed rate path, all weighing on investors' minds. 0.25%,xx 600 is down by on track for a weekly decline. it has been continuing seven weeks of weekly declines, gains, alternating. euro is up against the dollar. gaining for the fifth day, best run since august, 2015. draghi did highlight the volatility as problematic, but he didn't talk about any action to reverse the course. best weekly gain since june. u.s. 10-year yield down a couple basis points, just above 2%,
lois since the day of the u.s. elections. hurricane irma, a number of factors weighing on yields. crude is down today, headed for its first weekly gain since july. gulf coast refiners ramping up reduction after destruction from hurricane harvey. the weaker pound is failing to boost growth. the business group has downgraded its medium-term outlook for the economy, blaming a weaker than expected contribution from trade. the ecb upgraded its forecast for 2017 to 1.6%, but cut 2019.ations for 2018 and let's speak to the head of economics. thank you for joining us. why have you downgraded your medium-term outlook for the u.k. economy over the next couple years? side, thingssumer
get tougher next year. a smaller rate than we expected. expect inflation to peak at 3% this year. what is interesting is the impact of sterling. we've seen the impact on inflation. what we are not seeing is the impact on the u.k. trade position. mark: why isn't that happening? many expected we would see this rebalancing exports and investment. suren: there are always some exports who are benefiting from the weaker pound. from a practical level, support is needed. this is not really there. what we are seeing is that imports are still growing and the reasons for that, not least because businesses or customers, there are not many alternatives. we are not seeing -- that means that our net trade position is
fairly weak. mark: the trade deficit, little changed from a downwardly revised june. customers aren't switching from imported goods despite their rising costs. suren: there are a number of reasons for that. we may see a slight shift overtime, but we are skeptical about that. the global outlook is improving. there will be some benefits to exporters. key markets such as the euro area and the u.s. do quite well. that will help exporters. mark: which advantage to the government, what would you like them to announce, to implement, to boost the business environment? be thebrexit should not only story over the next couple years. there's a number of long-term issues. one of the issues is the ramping
up for u.k. firms, business rates, the increase. [indiscernible] impacting the ability to invest, to grow, and export. mark: let's talk about those issues around brexit. clearly uncertainty is the main one for businesses. spell that out for us. what do businesses want when it comes to brexit, the calendar, the transition, and negotiations on trade? suren: what businesses want is a practical brexit. what businesses ask us is practical questions. if you are a u.k. firm who exports to germany, how much longer is it going to take to get my goods out? how much more is it going to cost me? who do i pay?
what businesses want to hear is the most practical questions being answered, which will ease the uncertainty. mark: are you encouraged by the soundings coming out of the government, the cabinet? originally it was no deal is better than a bad deal. it seems to be softening. there seems to be a movement within the cabinet that a transition deal is in the best interest of everybody. suren: a transition period is needed to deal with some of these practical issues. --need to also hear that [indiscernible] it can't just be about brexit. it needs to be about long-term issues. how our immigration system is going to look going forward, things like infrastructure investment. mark: is the risk to your
forecast on the downside? there's a lot of uncertainty, but would you still say the risks are on the downside? suren: our forecast assumes a relatively orderly exit from the e u if we don't get that, numbers could look much softer. mark: you are like the bank of england for assuming an orderly forecast. on the bank of england, first rate hike, third quarter 2018, you pushed that back from your last forecast. --en: we think [indiscernible] that interest rates -- [indiscernible] what businesses need is stability over that period. mark: you don't think that
interest rates are still at emergency levels. does the economy, which is still growing at roughly 3% a quarter -- does an economy need emergency level interest rates of 0.25%? suren: it is not so much rates at the moment. it is the impact on consumer confidence. any change might not have an impact materially on the economy, but might impact business confidence going forward, where there are uncertainties out there. mark: thanks for joining us. suren thiru, head of economics. as sterling slumps and the u.k. heads for the exit door, what does this hold for the manufacturing sector? we will ask the director general of the food and drink administration. this is bloomberg. ♪
industry for the economy. food and drink is the largest manufacturing sector in the country, employs 400,000 people, but according to the food and drink administration, a third of those surveyed said their businesses couldn't survive without access to the you workers. joining us is the director of the food and drink administration. your thoughts? >> i think it is very alarming, also very odd that the government would punt this and then tell us what the answer is. my initial thought was that it was trying to get the story out so it could be shot down, and those who want a more constructive solution were trying to make sure they moved in that direction. mark: the blueprint on how to strangle our economy -- would you concur with those words? >> i think it is concerning. we have an industry of 400,000 people. we churn out about 40,000
workers are year because a large proportion of our u.k. workers are over 55. we have an aging workforce and we have to replace them. we don't have, in many parts of the country, and something that is pretty unique is it is in every part of the country -- we find it very difficult to recruit people. that isn't because the jobs are low-paying. it isn't because the british workers won't work. it is because of demographics. in many parts of the country, we have full employment. mark: let's remind our viewers. it was suggested in that leaked document low skill migrants from the e.u. should be able to come on a limit of three to five years. theresa may on wednesday, just after it was leaked, said that employers should train more british workers to fill vacancies after brexit. >> that is a reasonable
contention if the workers are there. but in large parts of the country, they aren't there. i don't think the prime minister has grasped the demographics. we have fewer people to fill these jobs than other countries. that is why workers want to come to the u.k. they are now struggling to make up the 20% they've lost in the currency reduction. it is more difficult to recruit people. a good example is the seasonal workers that come to do the harvest. we normally have about 80,000 of those. this year -- mark: net migration already has had an impact >> since brexit. >> there are three reasons for that. people at all levels of skill see the 20% reduction in the currency and they can get that money somewhere else. the second is, they know they've got one job, but they don't know about the next job.
if you are a senior scientist, you want to make your career somewhere. would you come here? finally, quite a lot of people we are finding are quite reluctant to come because they don't like being treated badly. they don't like the level of insult and abuse they get routinely as a consequence of the brexit vote. mark: is that not why may and many european skeptic tories seem convinced that failing to tighten migration rules would invite a backlash from the public? reasonworried that the the country voted for brexit was to control migration? >> i don't think we know why people voted for brexit. there's a good reason, because they don't know either. but we shouldn't be pandering to racism. this is an open cosmopolitan society. london is the world capital for very many practical purposes,
why you are broadcasting from here after all, and we should be celebrating that. we should be celebrating our food culture, which is as cosmopolitan as the people who eat it. mark: what does the industry want when it comes to transition, when it comes to tariffs, when it comes to trade deals? >> we want certainty. we want clarity and certainty as quickly as possible. the real issue we face at the moment is that the clock, as mr. barnier said in a way that i don't think was profoundly helpful, the clock is ticking. we don't yet know how the customs system will work. we don't know if there a technological solution to it. we don't know how products will come through the ports. we don't know how to register the europeans who are already here. they can't even send the right letters to the right people.
know what the tariff situation is going to be. that is a huge level of uncertainty. if you are looking to invest, -- mark: who is investing? is it the u.k. centric companies? >> a lot of companies who are selling to the u.k. and not looking at export markets are investing. a lot of family businesses are investing. it is literally their money. they are able to see further into the future. if they are only selling to the 70 millio 7 million people in te u.k., they've got a dynamic market, and it is a great place to do business. mark: thanks for joining us, ian wright. stay with bloomberg television. we are going to bring you more from exclusive interviews with russia's finance minister and
the russia central bank governor. ahead of that key rate decision next week. "bloomberg surveillance" continues in the next hour. tom keene joins nejra cehic today. we are seeing right across the equity screen, stocks are falling across europe, heading for a weekly decline. the euro's assent continues against the dollar, its highest level since january, 2015. we are continuing to see it move down. draghi addressed the issue of the strong euro, but he didn't jawbone it to the extent where the euro's continuing move upwards has come to an end. "surveillance" continues. ♪
in mexico city and earthquake this morning. markets on the move. the haven appeal increasing decisively. tangible as the president cozies up to democrats. you are waking up to a substantial earthquake in mexico. 8.1 on the richter scale. irma finally moving towards miami. good morning. this is "bloomberg surveillance." i am tom keene in new york. nejra cehic is in london. an extraordinary set of natural disasters taking us in america. taylor riggs will have a briefing in a moment. tell me about the natural disaster known as brexit in the united kingdom. nejra: that is a great way to describe it.
you have the chief brexit negotiator anti-e.u. talking about -- in the e.u. talking about the debt. i am really watching the euro, the positioning in the six-month risk and how bullish it is. tom: a substantial move we have seen, the 10-year yield getting down to 1.99%. right now on these two natural disasters, here is taylor riggs. taylor: forecasters have made it official, south florida could be hit by one of the most powerful hurricanes ever. hurricane irma is projected to hit the region on sunday bringing a potentially deadly storm surge. the wind speed has dropped slightly, but it is still at 160 miles per hour. it has triggered a record evacuation. around 600,000 people have been
ordered to leave. hurricane irma could be the most expensive natural disaster in u.s. history. mexico has been rocked by what the president calls the biggest earthquake in a century. it hit mexico's southern coast, not far from the border with guatemala. records --.2 on the on the richter scale. there were reports of tsunami waves as high as three feet. the race to be the next chairman for the federal reserve appears to be wide open. according to people familiar with the matter, the white house is considering six people, including economists and business executives. that goes against the narrative that the race was down to two people jerry cohen and janet yellen. there is a hiring boom in the u.k. rose at the quickest
rate in 28 months. the availability of workers kept falling. 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: thanks so much. markets on the move. we could sit on the data check for many minutes this morning. the curve flattening is remarkable on the 81 level to 77 basis points. the euro churns. interesting moves on that. the vix showing stable equity markets, 12.14 churn. the 10-year yield, 2.04, i think we had 2.03 earlier. that is a substantial change.
down to 91.21. it seems like with the euro it is as if traders are pushing their luck to see how far they can go. reversals,th risk the most bullish since 2009. we saw the euro and the stoxx 600 moving higher yesterday, but it is lower today. we saw the 10-year italian yields lead losses, heading lower. a turnaround on the 10-year bund yield and italian yield. tom: greatly appreciate that. i learned about earthquakes in anchorage. that was a long time ago in the 1960's. what you learned is the difference between a seven and eight on the logarithmic scale is a massive difference.
guatemala, towards 600 miles across mexico, to mexico city. an extraordinary eight level earthquake. from our offices in mexico city, we are joined by a reporter. tell us about the geography of the pacific coast in chiapas. >> that is a geography that creates these kinds of earthquakes. what is remarkable is everything about aid is really impressive. i remember we had training in the office about surviving and earthquake, and the trainer said 8 is very unusual for these to happen. it happened just a few months after. i can tell you in mexico city this really moved.
nejra: some striking pictures there. thank you for staying up for us. disruption inny any refineries? >> that is a very good point. pemex has a very big refinery over there. refinery, apparently everything is working normally there. it produces more than 300,000 barrels a day. we are in a time of shortage of gases. said that refinery is working. authorities are telling us in the city that the main infrastructure is ok. in the state of chiapas, the task is to assess all of these.
in the next few days we will know more. tom: thank you very much. we will look to further news on this earthquake across the morning. hurricane irma is in the headlines worldwide. it is a world-class storm. we are joined by bloomberg intelligence. what i really want to talk about is the drama between turks and caicos overnight and then the vicinity to the miami beach area. how is this different from hurricane andrew's 25 years ago? >> a large majority of these homes have insurance forced upon them fannie mae after hurricane andrew. before that it was really optional. you had an exit this of insurers after all those losses. program together a
keep insurers in the states to keep insuring these homes. there have been times that some homeowners have dropped coverage, but the majority of homes should be covered. tom: your expertise is not only the insurers but the reinsurance of the insurers spreading the risk out. i look at that as a gentleman's game. that is not the way it is. this is a really tough business. what is the risk to the reinsurers? >> it is really high. we were talking losses of $130 billion, compared to andrew at $26 billion. there have not really been any threats to florida in the past few years. the reinsurance market has been priced inappropriately in my opinion.
it was at the cheapest level they have had in the last three years. it goes to show you the reinsurance market was not pricing in any storms. nejra: in terms of pricing in risk, i have this chart of bonds showing the index and the losses to the value from matthew and on theom 2016 as well chart from hurricane sandy. are investors adequately compensated for the risk from these? >> i don't think so. the actual payoff on these could be a nickel on the dollar or a penny on the dollar, and no one but the storms would come through. the risk is not just through with hurricane irma, it is the storms behind it. it is a very busy storm season. tom: what does the hotel betsy do in miami beach? they have arrows pointing at the hotel betsy. what does a business to in miami beach seeing the aeros pointing
at them -- arrows pointing at them? >> most of these businesses have lost prevention policies in place. they have insurance overlays in place for damage. hopefully they have hurricane insurance in place as well. the bigger risk longer-term is the economic loss. there was a study done that look at the economic damage in coastal communities subsequent to hurricanes, on the eastern u.s. you had a 1.7% growth rate that goes down to 0.6%. tom: can you come back for jose? nejra: thanks. let's bring in our guest for the hour, max kettner, commerzbank across asset strategist. there is a lot of risk out there. how is this affecting your core asset strategy? is: from the last 10 minutes
historically those risks in terms of market pricing are relatively quickly priced out. there is a temporary spike in volatile's and a fleet to save havens, but that is it. this might be bit different because we were already in an environment where the dollar is getting done. we have relentless selling of the dollar in the last few months. we have additional uncertainty now. drops seeing the initial were much higher than estimated. when we compare that to hurricane katrina in 2005, we also had that. we had a temporary decline in consumer confidence. we actually have unemployment claims until this weekend at near record lows. we had consumer confidence skyhigh. the potential fallout even if it is temporary could be quite high. from that angle there will not
be any spice tolerance. probably in the short term, you see a lot of people following the trend, absolutely. we are sort of overdoing it at the moment. it is a temporary effect. it is not something where you say this will change the economic teacher of the next two to three years. that is a little too much. that is partly with the market is playing at the moment. that is overdone. tom: max kettner with us in london right now with nejra cehic. lots to talk about, lower yields, and weaker u.s. dollar. we would be talking with mohamed el-erian on bloomberg television and bloomberg radio in the 9:00 hour. too much to talk about, including the many and teachers at the fed into unseating -- in 2018.
♪ nejra: -- taylor: this is "bloomberg surveillance." i am taylor riggs. it is one of the most expensive cyber security breaches in --tory," back has been hit equifax has been hit as hackers gained names, social security numbers, and addresses for up to 140 million u.s. consumers. that profitsarns will fall. they say their cfo is leaving for health reasons. this comes on the same day the
chair is expected -- shareholders are expected to approve a new ceo. at: william dudley formally goldman sachs, a conversation about who he favors for the fed. known janet for years and years. we are good friends. i think she would be a fine choice. i will leave it there. tom: william dudley being political there. max kettner with us from commerzbank in london. now. a fed derby how important is all of this? will it have a market affect at this time? max: i think it does, especially with regard to what we have seen with stanley fischer who has
announced to resign. we have several seats on the fomc at the moment open. it tells you the direction the fed could go in the months and years ahead, especially years. what can we price? we have barely one rate hike priced this year, and the end of next year. of who is questions going to take over and at what posts and so on, that can play a big role in an environment where you have barely anything priced. nejra: will we get any sort of shift where there starts to be a change around traditional economic models, and what does that mean for the dollar and the treasury? max: i think the phillips curve is not completely dead. that gives you good headlines, but it is too drastic.
in reality, when we look at the phillips curve in the u.s., you can see it is a lot flatter. it still works. the relationship is still there. the sensitivity is just much lower. the danger is what happens if the upper end of the curve, that part of the curve that could be nonlinear, where we have the natural rate of unemployment or close to the natural rate, what happens if all of a sudden this really jumps up? way,: to put it another does the fed need more people like gary cohn? max: i think not. what we have had in the last three years has proved relatively resilient and relatively prudent. you can argue they may have been a little behind the curve and
tom keene in new york. we are looking at the hurricane. for those of you just waking up, a massive earthquake off the west coast of mexico. this is near the water molecule or. the markets on the move. -- guatemala border. the markets on the move. correlations now are really tight. we can talk about the euro, but that is linked in with the 10-year. this is the real 10-year yield adjusted for cleveland cpi. this is a personal chart of mine with great moderation back to the 1980's as well. the 2007djustment for crisis. we are seeing stronger euro and stronger yen within a stunning environment. max: absolutely. the big question at the moment is for euro and partly for yen,
but very much for the euro, how long can that trend really last? over july waseing that a lot of those trends we have been used to since the start of the year or the end of q1-q2, they have continued to work regardless of any noise. whether it was comments yesterday from mario draghi who is essentially sort of trying to talk the euro down but is obviously failing a little, but that is big at the moment. higher, what euro can break that trend? tom: i want to do it inside baseball chart here. this is the curve flattening at the very front. this is the janet yellen, governor carney part of the yield curve. the innerlattening of yield curve, what is the why there?
why are we seeing curve flattening out to five years? max: what we have seen, and i think we need to get a little bit back here, i need to do a little storytelling. where we were 10 to 12 months ago after the u.s. election there was a lot of talk about fiscal stimulus and inflation, that was a global picture. there was a lot of talk about reflation and that was on a global perspective. that is all context. we are seeing an environment 12 months ago where we had reflation coming back to the markets, developed markets and emerging markets. what we have there is not only reflation, but that was pricing to the upside. now is the complete opposite. that is driving the flattening. nejra: justin moment -- just a moment on the euro back, how much does this have to do with dollar weakness? is trade weighted euro too exp
ensive? max: i don't think it is. i think it is euro-dollar, too. risk reversals is a good way of looking at it because you have the daily data to see positioning on speculative investors which is close to multiyear highs. that is trend falling at the moment. nejra: max kettner of commerzbank stays with us. we just talked about the euro, there it is. yields higher after moving lower yesterday. this is bloomberg. ♪
london with -- nejra cehic in london with tom keene in new york. taylor: hitch in london one of the most powerful atlantic hurricanes ever now has florida in its sights. hurricane irma is forecast to slam into the seven coast of florida by sunday. forecasters are warning of a potentially catastrophic storm surge. mandatory evacuations have been ordered throughout the region, about 650,000 people have been ordered to leave miami-dade county. the storm killed eight people in the french west indies. in mexico, a major earthquake off the west coast has destroyed homes and killed five people. it had a magnitude of 8.2. the present of mexico -- president of mexico called it the biggest to hit mexico in nearly a century. action againsty kim jong-un could be inevitable.
prosecutors who prosecuted martin shkreli, he whooffered $5,000 to anyone harvests hair from hillary clinton. 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. nejra: thank you so much. negotiator onit behalf of the european parliament says the uk's leaked immigration plans have poisoned the diplomatic well. for more on this, we are joined by wolfango piccoli, teneo intelligence copresident, and with us is max kettner at
commerzbank. wolfango, let me go to you first. this tweet yesterday talking about the deep frustration. how much do these sentiments risk poisoning the actual discussions? wolfango: i think sentiment is an issue. we have seen worsening after the summer break. euchrecomments from about his role and so on. stillt issue is it is unclear what london wants here. in the leaked paper from the home office, that confirms our view where there is a risk with the transition deal and the future economic relations with the u.k. and the eu could be ending freedom of movement. in the u.k. there is still this
wishful thinking where it is possible to strike an economic deal, cherry picking, while curbing movement. it does not work like that. nejra: would you agree? max: i could not agree anymore. i don't have much to add. one thing i could add, for the remainder of 2017, i don't think there will be a lot of progress. you have german elections coming up now. time toit took a long form a new government. germany, the soon-to-be german government will be busy setting itself up. then we look to france, and macron is struggling with declining approval ratings. those countries are struggling with internal issues at the moment. debate, you had the tv on sunday, brexit was not even mentioned. it did not even deserve a single minute.
the focus on the moment is on internal issues, just probably not a good sign for the brexit negotiations. maya: on that, is theresa at risk for being distracted by internal issues in the u.k.? wolfango: she has been looking lost for some time. internal issues, and unclear agenda, staff missing, in terms of a resolving -- involving doo -- revolving door. we are talking a small group of people, they are more hartline. there is disruption. what is really missing is an overall sense of control of how we're going to coordinate this effort because every day we see a different signal sent by the u.k. that is what i think is really missing. tom: what is the measurement of
austerity and austerity strategy across europe? is austerity behind us? wolfango: i think it is behind us. i think we have seen already a significant amount of flexibility being given to member states. spain when there was no government, italy we will most likely see next. when we see the budget in october, it will be an important election next here. we see flexibility, possibility on the margins. the point about the german election, postelection we will not see a significant shift from of german side regardless whether it will be a grand coalition again. more of the same at the end of the day. tom: i still cannot figure out that italian 1.95%. what does the short-term paper
market look like? it used to be commercial paper. what does that market look like? max: i think with regard to europe, that is what wolfango also said, it looks like at the moment we actually see a trend following market paper. german bunds at these level, does that make sense? does that make sense where we have had in one month tapering details announced by the ecb, does that make sense that we have yields coming lower that much? probably not. there needs to be some kind of reaction. for now it looks like the market investors are really writing momentum,of whatever has worked the last couple months. tom: very good. let us return here. piccoliner and wolfango
of the north founding. we are back with wolfgang o.co coliseum of teneo intelligence and max kettner of commerzbank. it seems donald trump is trying to play the diplomat, but does he have any options of engaging with north korea without rattling china? wolfango: not of them are particularly laughable. -- palatable. sanctions will not work. the u.s. is not going to get the support of china and russia to have a robust system of sanctions in place to curb the attempt of north korea. the only thing trump can do is reassuring seoul and tokyo. he needs to make sure the partners in the region feels the u.s. is still behind them. that is crucial.
we have seen that done in a sort of confusing way with remarks by trump, but we have seen the right moves being taken. the attempt of north korea to continue to drive a wedge through the u.s. and regional partners. nejra: asian equities and asian fx have held up well throughout all this. do you see any risk being long? max: of course we do. if you look at emerging-market asian equities, one of the biggest requirements is korean equities. it is a binary risk, make or break. the problem for us is how do you build a due political risk portfolio? does that just means i am buying gold and going long yen because i am scared of everything?
the problem is it would have lost you a lot of money. when you look at the last 24 months, if you said we are scared of brazil and another impeachment, that would not work. brazilian equities one of the best performers. korean equities are also one of the best performers. we like that because of valuation, earnings trends are pretty solid when you look at taiwan and korea, still pretty cheap. we are fine. importantis an insight, the idea of geopolitics as a market strategy can be hazardous. wolfango, let me go to this chart. i have shown it a few times. this is yen-yuan. we have buttressed against this resistance point since early august, stronger yen and weaker
yuan. we are not near the two standard deviation tension which would be real here on north korea. is the markets measurement of fear on north korea, is that subsided? wolfango: i think it does. i think the question with this test, let's put it into perspective. the test on the third of september was the sixth nuclear test by north korea. we have seen plenty of those. if you look at the markets reaction historically, it has diminished. what is the use of this escalation? it is very binary. it is a very binary scenario here. is therall consensus worst-case narrow, meaning nuclear war, is impossible. i would agree with that --implausible. i would agree with that. now?is cash an asset
given all the turmoil and swirl, are we enjoying cash? max: absolutely. cash is an alternative in that environment. when you have that binary risk, you have to be -- you don't have to have confidence, but the probability of your tail risk of north korea or some kind of escalation in north korea has to be fairly high to consider cash a strategic allocation over the next 12 to 18 months, but from the short-term asset allocation, absolutely. , why do weus yuan not see much of a selloff in yuan? it comes down to we cannot really present. it is an uncertainty, but it is not a risk we can price.
tom has put a number down to that risk where you say we think at a 5% risk this is going to happen, and 95% it is not going to. we both agreed it is a binary thing. you cannot really price that. tom: what a tough way to play it right now. are we getting enough information out of north korea? all of us remember how ignorant we were in 1989. of what ist is teneo going on in north korea? wolfango: it is an issue for the industry. north korea is a black mark here. you can use indicators to figure out what is next. we have seen that around she dates -- key dates in the country. can look at where
the support of china is. there are a variety of indicators. if you asked me what is the indicator for the region, the aboutilitary, they are at 10,000 soldiers in south korea, anynot sufficient for military action with north korea. i'm talking about ground troops, aircraft, and so on. that would be an indicator, a signpost where you can start pricing in an escalation of the crisis. we are all using proxies at the end of the day. nejra: how to price this binary risk. thank you to wolfango piccoli of teneo intelligence. max kettner of commerzbank stays with us. there is wolfango piccoli, you just saw him. you can pick out any of the key charts.
surveillance." i am taylor riggs. the largest u.s. pension fund is talking to blackrock about outsourcing its private equity business. how first, the california public employees pension fund wants to control these and offset anemic returns. itsia is playing conservatively when it comes to the price of oil. russia's finance minister spoke with bloomberg news. when elaborating our budget and forecasts, we are oriented to conservative oil prices, $40 per barrel for three years to come. this permits us, this price permits us to have some reserve in our budget to fulfill our social and economic obligations. taylor: he says russia what
benefit from opec's deal to limit oil production. nejra: thanks so much. we are back with max kettner of commerzbank, cross asset strategist for the bank. let's talk about your equity strategy. in 2017, you would not have made money investing cross asset. it was really looking in traffic. what would you advise? max: that is right. we have seen return differentiation across asset classes have collapsed across the entire year. what we have seen so far was that there was a lot of correlation effects in u.s. equities following the dollar style and a lot going on and factor wise. utperformingk at o or underperforming the u.s. from
outperformingcaps in europe because of the stronger euro, they were outperforming the more exporter been large caps, so a lot of things happened going on within the equities space. within that equity space, are you concerned about the lack of breadth? or does that provide you with certain opportunities? max: you should be concerned if you get it wrong. what i think is it opens a lot of opportunities, particularly at the moment where we see such stretched positioning, not just not just in u.s. small caps, but trends getting very stretched. that opens an opportunity for investors to say is there still fundamental value in this? or is the selloff in dollar
overdone? do we also need to play the equity space? that is a lot of opportunity. nejra: time is going to love the fact you mentioned the dollars a much. tom: i think it is remarkable. let's go to this chart, what i have shown all summer. this is a really mathematically elegant chart. if anything it has gotten more elegant the last 10 days. max, we have these gorgeous supports at the resistance line of strong dollar. this is textbook. awn we go with this curve on log chart.] what does it mean that we are seeing accelerated dollar weakness? to: that is partly due geopolitics and partly due to frustration with the u.s. government. we do see a lot of distraction from the u.s. government from
trump. what we have talked about the last 20 minutes with north korea, a lot of this was accelerated by tweets. tom: i think a lot of that is valid. what about a lack of collegial courage at central banks? they have all blanked. -- blin ked. down we go with weak dollar. max: it is partly due to that, it also a different feature in u.s. dollar. the yen is a safe haven, and the euro is a safe haven. the dollar is more of a risk as set these days. that is more of that picture. from the central bank perspective, we kind of get to a stage where we see there is not a lot central banks can do with global inflation. from a global perspective, we of reflationeriod
last year and this year, and now we are in a period of di senflation. question,ly, one more i want to show this chart. it is extraordinary the convexity, linear weak dollar in march. this curve, it is highly unusual. nejra: to bring back the point of the dollar, i love that you have said it has become a risk currency. what about the yuan becoming a safe haven? max: it could be, but i would be careful to say that. there is a lot going on that is not due to the market that we are used to. from that perspective i would be cautious to call it a classic safe haven. i would stick to euro yen and the things you know. nejra: max kettner of
commerzbank. thank you so much for being with us here on surveillance. tom: a lot more coming up, taylor riggs working on the direction of hurricane irma and news on the mexican earthquake. we will have much more on that from mexico city. our next hour on fixed income, markets on the move, in the short break market, really a wonderful time to speak to mr. schneider of pimco. he will be in our new york studios as well. it is september in new york. the kids are back to school. autumn in the air. importantly -- important meetings in september and october. good morning. ♪ . .
the dow weekends. a stronger euro. yen says enter abenomics. as republicans have doubt, they adjust, taking more than conversation with the "evil democrats." and this morning, to national disasters, and earthquake off western mexico, and irma crushing the turks and caicos and has for miami. good morning, everyone. this is "bloomberg surveillance ."we are live from our world headquarters in new york. i am tom keene with nejra cehic. give us an update. how are the political disasters for prime minister may going? puts it ineally perspective, tom, when you remember in europe and in the u.k., we do not really experienced natural disasters of this kind.
but political disasters, certainly tension when it comes to brexit, comments from the eu about how diplomatically difficult these discussions are getting. tom: we will touch on at this hour as well. right now, with first word news, nearest taylor wakes. taylor: forecasters has made it official -- south florida could be hit by one of the most powerful hurricanes ever. toricane irma is expected hit the region on sunday, bringing powerful winds and a potentially deadly storm surge. the storm's whence beat is hitting 150 miles per hour. the hurricane has triggered a record evacuation from the miami area. around 650,000 people have been ordered to leave. irma could become the most expensive national disaster in u.s. history. it has already battered a chain of small caribbean islands. mexico, a major earthquake is destroying houses and has killed at least five people. it hit near the country's border with guatemala.
the quake hit a magnitude of 8.2. reports are it caused tsunami feet as high as three feet. benjamin netanyahu maybe indicted in charges on misuse of public funds. that is according to the country's attorney general. allegedlyyahu overspent. benjamin netanyahu says the allegations are "absurd." there is a hiring boom in the u.k. starting salaries are up by the most in almost two years. vacancies rose at the quickest rate in 28 months. the availability of workers have fallen thanks in part to net migration from the eu. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. i am taylor riggs. this is bloomberg. nejra, tom? tom: thanks so much. equities, bonds, currencies, commodities. really on the move now. look for a red sticky across the
terminal. 10-year curve flattening. 60, thatthe euro, $1.20 is a good thing. next screen. 2.01 on aot down to 10-year yield with the yen strength or that its new yen strength this morning. the dollar index, the dollar weaker, $91. 20. nejra: even though we have gone 120, the euro strength has farther to run. we did not get much from mario draghi yesterday. stocks are not going anywhere to fast. yields came down, though, during the press conference, tom, but they are turning around today. a dropped 12 basis points, along with the yield. tom: yields up for basis points for the italian yield as well.
let me go on the bloomberg here. we have value on the bloomberg. it is not only the 10-year but the 10-year adjusted for inflation. the cleveland inflation index, which is my favorite, it projects 30 years. down we go7, and with decline in real rates. this is critical. right now, we have rolled back over to negative interest rates taking the 10-year versus the cleveland real yield. that is a big disappointment, jra, for chair yellen. our fxi stole this from strategist at bloomberg, a mixed spread between the two-year affected the funds rate, at its narrowest in four years. is the fed really going to want to do another 25 basis point hike with where the spread is right now, tom? tom: very good. thank you so much.
so there is this earthquake. yes, irma is in the caribbean, scheduled to move up florida. four way the pacific coast of mexico down toward guatemala, 600 miles from mexico city, a horrific now 8.2 measurement on a lob scale, the movement from a bad 7 up to 8.2 is extraordinary. is in mexicouez city come our bloomberg bureau chief. i witnessed years ago a modest earthquake in mexico city. the idea thatth earthquakes in mexico are the norm, aren't they? carlos: yes, they are, but to be honest, tom, this is the strongest earthquake i have felt in mexico, and i was here in 1985. it is actually kind of it remains low.
so far, we just learned that the president has said 15 people are .ead . none of the casualties are in mexico city. to be clear, did you feel the earthquake off the west coast -- did you feel it in mexico city ?this includes belle -- did you feel it in mexico city? carlos: yes. the cold goes in, so mexico city, it travels faster than the earthquake, and that is how most of the mexico city population learned that an earthquake was happening. cases, you stay in the house or apartment or you are at the time, and then you felt it. nejra: carlos, it is always a
difficult transition to make from a human tragedy like this, are the markets reacting? carlos: yes. the markets started reacting immediately after headlines went out about the quick. it is getting close to flat. there will not be major consequences. in other situations where we have earthquakes, some companies that have to do with the infrastructure, they will have some reactions when the market opens, and we will see that. tom: greatly appreciate it. , from mexicouez city. i really cannot say on a map how far mexico city is from where this very large earthquake occurred. it has been an earthquake of nine years in the financial
crisis. jerome schneider, think of him 9 bomber inin the b-2 world war ii, whatever happened to the airplane? short-term funding in a small house called pimco. how did your year ago? are you battle scarred this year? uest: every year has battle scars. we certainly feel the uncertainty today. more importantly, we are fortunate, the removal of qe policy, something you can actually marginally prepare for. this is a remarkable chart, alks, a different spread, difference between the five-year and the two-year, so we can call this janet yellen spread. here we go coming here, and up we go with a structural curve
flattening for the last five years, and we recently, jerome, rolled over. what does this indicate about the solidity of the short-term paper market? is at all clear? jerome: one thing we have to understand is the degree to which investors want to preserve their optionality in the market. future rate hikes get pushed out with the expectation, and the bit of time.take a but it also says is you need to lowering,d for something we have said at pimco in the last few years. in terms of flattening we have seen most recently, it is something we highlight, something to the contrary, which is when you look at industry exposure, one thing you want to look at is focusing on the value of duration, focus on interest-rate exposure, and when you have curve lessening in the mid-70's on two sites that is now in the mid-30's, it is now
saying the value is waiting. you want to be how -- is waning. you want to be cautious. nejra: positioned in relation to the fed, how should they start? jerome: that is the billion or trillion dollar question that is coming up. some of it has to do with the federal reserve will hopefully announce in september of the removal of qe normalization. the second one is obviously the fed itself and the constitution of the fed. who will be leading it? institutionally, portrays a more hawkish fed. people who own u.s. treasuries will be defensive, and right now, that is a premium product. which is we look at, really interesting at the same time, the two-year rates right now trading about $1.26. the three-month libor rate is trading above $1.30.
so you have three month that will pay you a higher yield. to me that says people are willing to pay for the insurance policy if the market may come unhinged at some point in time. tom: i have to show you this, folks. bring up this chart. you really cannot see that. it is off the chart, but for you are. i just got a nemo from george soros. email fromty -- and george soros. i feel pretty large right now. we are going to come back with jerome schneider of pimco. we have a lot to talk about. there are disasters. we have markets on the move. we will drive the conversation forward later this morning on radio, on television, mohamed el-erian will join us. can mohamed el-erian be a governor at the fed? that is an original idea. this is bloomberg. ♪
sorry, i missed that. when it to talk to someone, a real grizzled for, and that would be james reimer. a really interesting guy within the cta environment as well. jim, wonderful to have you today. let me get to the obvious question -- what does it mean or orange juice in florida? jim: we have seen citrus greening in the last 10 years. this is going to wipe out many industries in florida. the everglades coming you know, which is important for ecosystems, will probably be hurt. tom: jim, you always melt in your history of hurricanes. great interview with bloomberg intelligence, the lessons we learn from andrew.
this drives north, what do you see the construction and rebuilding? jim: to talk about iteris climate agreement for a second, i do not know what is going to have entered here in florida, you have certain people where you mentioned global warming and climate change and you get fired. this is probably going to affect third-quarter gdp. debt to holdthe up. it is a disaster in florida. wonderfulnk of the work at the massachusetts institute of technology. your work, the day-to-day grind on this, the temperature in the gulf of mexico and the atlantic ocean has gone up that dreaded half a degree or 3/4-degree in temperature? jim: absolutely.
people wonder about -- why were there not hurricanes 2, 3 years ago? look at the shear, el niño, all the drop in west africa, you see the waves off the coast of west africa. you get the gulf went, some of the strongest hurricanes in history, and this will continue through october. has -- jim, howow has hurricane harvey and now a irma affected the gasoline market in the u.s.? interesting --y we close to refineries last week because of harvey. you have the holiday weekend, lots of people driving, so you saw a spike in gasoline versus crude. the world is watching crude right now. withpposite effect, refineries come back online and harvey in the gulf, you have the destruction and millions of
people might be able to drive -- they are all driving out to get away. but less demand for the next few days, at least in the east, and that's why natural gas and gasoline have been on the track. nejra: what stopped commodities closely?atching tom mentioned orange shoes, but this area in florida is also important for general food production. cotton -- typically, you do not see a move for more than a few days. u.s. causing any south is only 3% of total world production, but you see problems in india with constant problems, we see a weaker dollar, so are also watching orange and the lumber market. unfortunate situation for millions of homeowners as obviously they have to procure those items from home depot, from lowe's, those
are going up, and that has affected the lumber market. we greatlyyou, jim, appreciate it. the update from nowhere, the-hurricane is making- from noaa, the hurricane is making asdfall, the guesstimate well. these things can change, to say the least. we have got lots more coming up on economic, finances, international relations, and of course washington on investment, on the state of wall street. jeffrey solomon, 8:00 hour. look for that on bloomberg television. it is the most interesting september in washington. i guess we have a republican president? a beautiful sunrise in washington. this is bloomberg. ♪
taylor: this is "bloomberg surveillance." i am taylor riggs. let's get to the bloomberg business flash. of the most extensive cyber security breaches in history -- one of the biggest credit reporting companies has been hit by a cyber attack that left almost half the u.s. population at risk. addresses, social security numbers of 43 million consumers. the company is offering free credit monitoring and identity theft protection. we will have more on this later. and profit growth will fall short this year. the company says it will make
additional cost cuts and raise prices. ceo isso said the leaving. that is your bloomberg business flash. tom, nejra? nejra: thanks. the euro is stronger after the ecb' stopped short of john cornyn lower. jawboning lower. let's get back to jerome schneider from pimco. i showed your chart earlier, showing six-month risk reversals, and it is highest since 2009. it is actually only just above zero, which could suggest u.s. has further to run, but ultimately, who is in charge of where this goes -- draghi or yellen? jerome: ultimately, it should be
yellen -- whoever is leading the fed, we should say -- whoever is leaving the normalization process. indicating itb is has agreed to maintain optionality within the construct that was basically the statement yesterday. with that, you could be very opaque initially but how they process will occur, how much qe will be removed, but the timing of uncertainty. leading that charge, though, is obviously going to be what the fed does in that normalization process. tom: certainly leading the charge, but we saw mario draghi do that it back. the ecb, super numbers, core inflation number. this is 10 years ago, this is the disinflation on average, and we just cannot get it going here. we see that society to society. jerome: one of the things that went under the carpet this week, which is based in canada, one of the things most important that
copy markets off guard were the highest that came through for a reason, not because of carney but because we are known as wanting to be at the front end doing on certain things at points in time. i highlight that because rates moving higher is something that a, the market is not prepared for, and b, there seems to be some move for the banks to be preemptive. we may be different, but we have disinflation. mr. schneider, lots to talk about, including politics, coming up. michael mccaul in the 8:00 hour. this is bloomberg. ♪
on the disasters in north america, here is taylor riggs with first world news. taylor: hurricane irma is forecast to land the southern part of florida on sunday. the storm has weakened to a category 4 with top winds of 155 miles an hour. forecasters are warning of a potentially catastrophic storm surge along florida's southeastern coast. mandatory evacuations have been issued throughout the weekend. about 650,000 people were ordered to leave miami dade county. irma has already damaged or destroyed 95% of the homes on the small island of barbude. it killed eight people in the west indies. in mexico killed at least five people. it hit the country's border with guatemala. the country had -- the earthquake had a magnitude of 8.2.
president enrique pena nieto said it is the worst earthquake to hit mexico in the country's history. president trump did not say whether he would accept a nuclear armed north korea. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. i am taylor riggs. this is bloomberg. tom: taylor, thank you. we just heard from our mexico city bureau chief about the earthquake, they felt it in mexico city. i have not done the exact math, ut it is some 600 miles an y. we began our washington coverage. kevin cirilli joins us from our chief washington correspondent. the body language on the couch the other day was remarkable. what does mitch mcconnell do to get back on the right
couch with the president? kevin: that is a good question. are lesss scratchin their heads. they do not know what to make of the short-term deal with the democrats. someone,, i spoke with getting a response to the deal with the democrats, and he said essentially they are not blaming president trump on this. they are suggesting that but ofsional leadership, course by speaker paul ryan and senate majority leader mitch mcconnell, are to blame for not being able to get republicans on the same page to get a major policy win. tom: what is so important here, kevin, i do not think folks even understand what a moderate republican and moderate democrat is -- do we have a moderate president? is donald on the edge of olympia snowe? kevin: no. [laughs] you are right that this is the presidency i
have covered, but blue dog democrats and people like olympia snowe, their voices in congress have really been somewhat muted recently. i can tell you tha at the american enterprise taketute, a think here in washington, d.c., governor john kasich and governor hickenlooper are making their rounds here in washington. kevin, you mentioned mitch mcconnell. to what extent is paul ryan bearing the brunt? kevin: that is a great question. to be quite friend with you, a lot of the ultraconservatives army far right are using this -- on the far right are using this to criticize the speaker. not led towe have the conclusion that the speaker faces any real, significant
threat as of right now. quite frankly, earlier this summer when we saw the president targeting the majority leader in the senate, we said a lot of folks, including people like senator rand paul, senator ted cruz, actually come to visit fence against the -- to his defense against the president's attacks. it is an interesting dynamic of leverage. i spoke to one source yesterday who lobbies the white house who said the president cannot fire speaker right or the majority leader as of now, but he can turn the grassroots against them. nejra: kevin, a quick change of topic -- the white house being said to be considering at least six for fed chair. is it true that president trump is not quite engaged in the discussion at this point? kevin: yes. at this point, the president is not fully engaged. we saw the extent of his level of engagement, political flight so to speak that was received
last week when he kind of brush the -- garyuring cohn during the tax feature and left and out. i cannot wait to talk about that policy. tom: let me get quickly to my article of the morning, kevin, bring it up, on the secretary, secretary of state tillerson. some may remember where he is. the president's boisterous and somewhat belligerent manner and the secretary's reticence are an unlikely combination. relationshipthe would last. "tillerson may be the least public chief diplomat in modern u.s. history, but that is apparently by choice. by washington standards, he is strangely uninterested in taking credit." where is the secretary? kevin: he was in texas for a couple of days, and he was missing from the white house,
addressing the amir of kuwait. the secretary of state government's lack of ability to be engaged from the public sphere. there is quite frankly an elaborate, communicative operation from u.n. ambassador nikki haley. tom: very good. kevin cirilli with a briefing. thank you. news from washington, charles gabriel is with capital alpha partners, decades of experience in making policy and policy dynamics in warm bodies. bored with the politics. i have got a photo check in reel, which is a remarkable image. let me see if we can bring this up. on radio, it is really easy to touch on. chuck schumer, i think he got tips to the president or something like this, but chuck gabriel, you've been down there
for decades. this is the moment, isn't it? chuck: it truly is. there is another picture: tomsula that i like even more were mr. schumer looks even more like a cheshire cat might i would like to write a piece about why is this man smiling. tom: why is it? chuck: he faces numerous possibilities toward an agenda that somewhat dovetails with mr. trump's. of course mr. trump is not bill clinton, and he is dealing with a republican majority, so triangulating with democrats is a really interesting question, but schumer, his goal is basically -- we will work with you on spending, but basically what we really want to do is try to play lucy lou, mcconnell's can't paul ryan's charlie brown as close as possible. tom: they take the football away. the election in 2018, a few days ago? chuck: you can make that case.
it is mixed for the markets. it looks like we can avoid him as the september, maybe even permanently eliminate the debt limit, and maybe count bipartisanship on tax reform. that is something we always thought might happen was republicans figured out how difficult it would be with tax reform. if you look at what will happen at the end of the year now and look at how the republican majority is going to be very much at risk and how republicans, frankly, have been patient with the president, that is going to be severely tested. that cannot be good, particularly with the president running against republican. cehic, the size and scale of the shock in washington, i never would have even imagined this could have occurred. ofra: there has been a lot talk about whether this is just kicking the can down the road, the big sort of showdown that we are going to see in december. international investors -- what should they be looking at in terms of the timeline and when
they would actually take the position? chuck: the great news is we have delayed the tough decisions likely until december with regards to spending and a government shutdown. a little bit staggered, if you will, and decoupled. at that time, the treasury secretary would begin using what we call extraordinary measures to buy time and by room under the cap. that is always positive. there is a whole look bipartisanship, but again, triangulation really requires a measure of popularity and political strength and understanding that donald trump does not have. bill clinton pulled it off. the crime bill, the welfare bill back in the mid-1990's, but he was working with a republican majority that arguably had an issue advantage. thou donald trump wants to work with a democratic minority that wants to spend an embarrassing republicans. it is an interesting story. what might have been an
opportune time for the fed to have decent reaction in september, that might even come into more question now. clearly, the markets have priced that out for many days now, but of the petitioner in the market, december was always in question, depending on how the next fed chair stamps the ball. it might be a situation where december becomes a critical junction. that might be clouded by what is going on in d.c. nejra: i want to ask you about december as the critical juncture. was sort of movement might we see in treasury markets? we of course did see a shakeup two days ago. could all that be temporary? chuck: that was a sigh of relief. it does kick the can obviously until about march of next year. that is the good news. a we areews is
probably canceling or restructuring our christmas holidays. tom: you tonight take holidays. jerome schneider with pimco and chuck gabriel with us as well. quickly, what is the deficit to gdp, and does it matter, or is nelson rockefeller president? chuck: the deficits will be close to $700 billion, gdp is back up above 3% and on a rocket a $1d 4%, and we have trillion deficit by 2022, but as it does not stop running, we will be there a lot quicker. tom: chuck gabriel's wisdom here. what does the short-term market do with 4% deficit to gdp and a vest are going the wrong way? jerome: we are preparing ourselves with higher issuance. we are starting to think about that. there are two elements -- one is the short-term element that the treasury wants to rebuild cash balances, which is a technical reduction on the debt ceiling. in the medium-term, you are
thinking about how the reinvestment process would work when you have normalization, a reduction in balance sheet, which will be an additional issuance on the front end of the current. -- the curve. tom: how with the five-year ago? jerome: this is very critical because i think the u.s. market is priced with zero expectations and rate hikes going forward. tom: this is massive inside baseball. you just got a window into the short-term paperwork of jerome schneider, chuck gabriel providing wisdom as well. chuck, we will see you on radio in a bit. speaking of radio, stay with me forever, most don't, they turned to robert moon. a terrific duo when you wake up. coast-to-coast. good morning. ♪
nejra: -- taylor: this is "bloomberg surveillance." i am taylor riggs. let's get to the bloomberg business flash. they largest pension fund is talking to blackrock about outsourcing its business. the california public employers pension fund wants to control fees and upset returns. billionaire casino operator sheldon adelson has gone big. he has signed a new employment agreement with las vegas sands with a salary of $5 million, the biggest salary among ceo's in the s&p 500.
russia's finance minister expects the ruble to stay stable. bloomberg knows spoke with anton siluanov. truth,uanov: to know the we now are not planning any significant changes in the global rates. of course, there are certain , but ies on the ruble think -- i am sure we will not see any significant changes. taylor: russia is being conservative when it comes to the price of oil, the country was the largest source of tax revenue. oil price at $40 a barrel. that is your bloomberg business flash. nejra: thanks. $57.04, 73 days of gains. guy johnson joins us now. guy?
guy: i just wrapped up a panel with david, the minister of finance, the governor of the central bank, plus the mayor of moscow. much forank you very taking time to talk to us. is on a tearonomy at the moment. money is pouring into the emerging market. is there a scenario that allows too many to kind of rock back on their heels, relax a little bit? is it credible to keep this thing on the rails? david: it is a recovery, and it is a good, broad recovery against emerging markets. as you say, it is really ported to take advantage to fix what takens to be fixed, to steps to have faster growth in the future, and not to relax and just enjoy the ride.
it is not a period with no risk. can accelerate more than we can expect some or some of the financial vulnerabilities could lead to problems in some places, so it is not an environment without risk, but it is an environment of opportunity. guy: inflation has fallen incredibly fast here in russia. down. gone from 17%, 18% target.e central bank's if you were the governor of the central bank here, would you think now is the opportunity to clear things up a little bit, maybe to cut rates a little bit? is a rate cut appropriate right now? david: you need context. they have had a terrible decade with a decline in energy prices, the sanctions, and they have had excellent policymaking through the. they have minimized the damage, controlled the budget.
the central bank, as you explain, has brought inflation down. they have dealt with problem banks. i think they need to continue to be cautious to make sure that the hard-won stability is maintained. it emerged from recession, the economy is recovering -- i think it is fitting as you go to policies with respect to macro. i think the focus needs to be much more on how to get growth higher. right now, our forecast for their medium-term growth is 1.5%. that is the same as our forecast for european growth. russia needs to catch up in terms of living standards to europe and advanced economies. it will not happen if they are growing at the same pace as europe. to catch up, they need a couple more points of growth. to do that, they need to maintain stability and start thinking about having a more diverse, more private sector oriented, more investment driven economy. one of the points you made
of the panel we have just been on was addressing the issue of missed opportunities, and russia in the past has missed the industrial revolution. the digital age is upon us, and there is a panel going on right now discussing what it is going to me. how does russia make sure it does not make the mistake that it has made in the past and take advantage? david: it is the biggest question for russia. in ahave the prerequisite sense that they have plenty of scientific and technical knowledge, educated people who can keep them on the frontier of the new technology. the question is whether they structure,vernmental the support for a private sector that can take advantage of these opportunities. in the past, with too much control over all activities, they have missed opportunities. right now, i think the footprint is good. if you are in the private sector
, you ought to know whether you are successful, someone may swoop in and one way or another deprive you of the gain. i think to be agile, to be innovative, russia needs to rethink the question of -- what is the role of the private sector? and find a way to be more supportive. otherwise, they risk missing out on the next technological revolution. david: thank you for being on the panel in joining us now, the imf's david lipton. from moscow, back to you. tom: guy johnson, thank you so much. nejra cehic, let me do this chart right now. we will go to the story here in a moment. this is not the single best chart. it may be the single best chart in the equity markets. how would you like to make 37% operating income? do it withou like to 10,000 employees? this is the equity backstory, and there is the moonshot for
quifax stock from the 20 level two 142. this is the major story of 145 million people. trueoining us now from our expert on cybersecurity, michael o'rielly, joins us. michael, honored to have you on today. , 145ig of a deal today million people, that is pretty much everybody in america, isn't it? michael: it does not get much bigger than this. the yahoo! breach last year ,mpacted half a billion people but we are talking about emails there. the problem with this hack is it is incredibly sensitive financial information. the credit reporting agencies that a everything on cyber criminal would want to get its hands on it apparently did. tom: full disclosure, folks, i
use equifax all the time. michael riley, equifax needs money. they make $.37 on the dollar as an operating income. if they are making all the money , why can't they stop the bad guys? michael: it is hard to stop the bad guys all the time, but equifax has a pretty lousy record. this is not the first major breach they have had. they have been hit a couple of times. it seems to come from a web application vulnerability, which is, in cybersecurity terms, a pretty simple thing. the problem is not that they were able to get in but they were able to get in three simple, unless door and then get a huge amount of data. have to protect the crowd jewels like this, they cannot wrap everything, and apparently they did not. tom: michael riley, your free
time, write something for businessweek." we look forward to hearing from you on cybersecurity. how about single best chart? it is weak dollar. it is a gorgeous, elegant chart. schnider, everyone on the floor has to deal with this, a weak dollar. this is not so much about the weak dollar -- tom: i will go with that. this is an ugly chart. jerome: it is a painful chart, let's put it that way. they are obviously technicals ahead of it. as a portfolio manager, one thing you're looking at is what us, one ofe, and for the things to consider, over time, the dollar is a safe haven. that is really lost its luster. potentially
undervalued by the marketplace considering all that is going on in the marketplace right now, geopolitical, etc. meanwhile, the yuan is at some point in time. nejra: many people are saying the dollar has become a risk currency. what replaces it? is it the yen? jerome: the yen is one. given everything with north korea and things like that, there is a lack of tied between what is going on with north korea and the yen. if something is projected in the geopolitical sense, is that positive or negative for the yen? as of right now, the yen and maybe the euro are replacing it tom: in terms of safe a victory tom: wonderful to see you. -- replacing it in terms of safe haven. tom: wonderful to see you. jerome: thank you. tom: cowboys-giants, first game of the nfl season.
jerome schneider, thank you for a much, with pimco. a lot to talk about through this hour on friday and through the weekend. hurricane irma and of course the horrific earthquake off the coast of mexico. on the data screen, what am i looking at? that yen, strong, strong dollar, yen as well.7.37 hope you stay with us on bloomberg radio, bloomberg television as well. ut is a beautiful, a school, i say,in day to a school. then homework. this is bloomberg. ♪
storm will ravage gas markets. monetary policy looks uncertain. the white house is considering the fed chair. theber attack on one of biggest credit reporting companies in the united states. half of the country's population is at risk. good morning, good warning. a warm welcome to bloomberg we wrap things up and get you started for the end of the trading week. futures are softer. we are down .4%. slide toward a marginal reach of losses. two spot zeros. we are down about a basis point. the dollar index is the lowest since