tv Bloomberg Surveillance Bloomberg August 10, 2018 4:00am-7:00am EDT
francine: turkey and turmoil, the lira slumps to another record low. the president speaks this afternoon, but will it be all talk and no action? the lira fallout spreads and other em currencies drop. tesla's wild week. tradingain in extended on reports that its board is meeting with advisers next week. will they ask musk to recuse himself?
welcome to "bloomberg surveillance." all about turkey, all about being there. there is a link between inflation and the lira. the more it drops, the more inflation goes up. but we know president heard along does not want them to raise rates. at this point, a lot of market participants are saying that words are not enough. lira, isee the turkish have not seen this in quite a time. off,means the mood is risk the stoxx 600 down. we are also looking at specific spots where we should be concerned about company exposure to turkey. the banks, for example, through their exposure to the local. some of the local banks like that.
they have that exposure, down 3%. overall, they're the ones that might be most exposed. overall, we're talking about market sentiment. we brought up the gm function. i know matt miller looks at it a lot, but it gives you a sense of what exactly is losing. the turkish lira bringing down some other emerging markets. sawof the early moves we was in the korean won. let's get straight to first word news. in japan, capital investment has driven strong rebound in japan's economy. as companies turn to technology. gross domestic product expanded at an annual rate of 1.9%, beating forecasts. at the same time, business spending jumped from the first quarter, the biggest increase
since the fourth quarter. in the u.s., donald trump's lawyers continued negotiating with robert mueller over the interviews. they say to topics are off the table. the firing of fbi director james comey and from's comments about his investigation of michael flynn. the president's lawyer said that, if asked, trump would say he did not urge comey to stop investigating and did not fire kobe to cut off his investigation into russian interference. donald trump wants congress to allocate billions over the next five years for space security system as they established a space force as the sixth the branch of the military. mike pence outline the plans of a speech yesterday. >> for many years, nations from china have pursued weapons to jam and disable our
navigation and communications tablet -- satellites. , our adversaries have been working to bring new weapons of war into space itself. indonesia says the number of people killed by earthquakes has reached 319. the island has suffered three powerful tremors in little more than a week. indonesia is prone to earthquakes and because of its location on the pacific ring of fire. of 2004, a magnitude 9.1 quake triggered a tsunami that killed more than 230,000 in a dozen countries. global news, 24 hours a day on air. powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you.
the turkish lira has slumped to a record low as concerned outweigh the country's plans. that caps off the worst week for the currency since 2008. the president has called for calm ahead of a speech earlier top,, but will he be all or will we see concrete move? joining us now is a bloomberg's fx reporter. thank you for joining us. sayt of all, what could he to stop the losses. is a fear, panic, whatever. it will be difficult to make it stop. bestantine: investors will looking for two things, really. they will be looking for signs he will not ratchet up tension with the united dates -- states. concern, main cause of their decision to sanction ministers is what sparked this draft.
so they are looking for signs he will ease tension or escalate it. the other thing investors are looking for would be what kind of message she has to send about what is going on. it could spooked traders. i think we are having some conductivity problems with constancy, so we will get back. one of the concerns he saw, which is why the lira has been weakening, is also the president's belief on the relationship between inflation and what is happening to the lira. also his belief on interest rates. joining us for the hour is lucy macdonald from allianz and john lucy and john, thank you.
we have had quite a lots to talk about. what has happened? i think it is the final realization that this is for real. that this is defiant stance is not going to change. is overnight quote is echoing best. -- that. upcomingeing an speech, but will it result in these things, when the whole pattern is turned towards a defined stance. francine: how much of this is to do with the sanctions and the diplomatic spat? and how much does it have to do with the believes by erdogan on what causes inflation? constantine: it has a lots to do with the stance and the usually appropriate measures not being taken. you could have a set of circumstances. the fuel for this fire is
turkey's enormous debts in the nominating currencies, and it becomes a negative confidence spiral. when something like this is in motion, they do not take the appropriate spots, and that is what the market is fearing. whatever the ultimate outcome is going to be, if those addressing steps are not going to be taken. turkey cannot avoid a hard-hit. it is about how hard it can be and how they can turn the situation. francine: overall, how do you stop the spiral in the turkish lira? stocks are telling a different story. tools youtraditional would use are unfortunately not once earned one will be keen to use -- erdogan will be keen to use. like getting the imf involved. it will be interesting to see what he says.
some of back down baby appropriate, but that is not necessarily his character. is through the banking system into europe. but is an $800 billion economy. it has external a debts at a half of that, and a third of that is due within the next year. that is the issue. this is a stempel, and this is a three day price move it got up, and then it is down. is this investors going to the market and saying there is value? lucy: it could be the latter. we do have short-term speculation. it is highly speculative until you know.
francine: when you look at the lira, what is the next psychological level that it will or could take? john: to me, there are no levels. wasticed in an article citing a goldman sachs figure that it was somewhere around seven. you could get a situation where the excess capital is used up. those levels are more important than any number on a chart. the cascade has already happened, so it is just about where it will stop. you get a highly illiquid market. morning,we saw this probably hardly anything was transacted because of poor liquidity. then it came back well below six. so it is liquidity that is the problem and means pricing could go anywhere. francine: what is the likelihood?
i have a one month implied volatility on lira. what do you want to hear from president erdogan that could make you more comfortable about trajectory going forward? a change of tone on recognizing the pressure turkey is under. the markets are trying to discipline him, and he does not want to be disciplined. i want to hear that he has twofold his defiant stance. that is what i would want to hear. like, for example, your previous speculation. they are very cheap, and she for a reason. francine: lucy, what are your chances? this was unthinkable six months ago. i do not know if his peers speculation. lucy: i would say it low, because it is earned once great pride in getting back independent.
erdogan great pride in getting back into independence. francine: thank you very much, both stay with us. plenty coming up. boards wild ride, the will discuss plans to go private. later on, we speak to an attorney on the latest developments. that is at 11:30 a.m. in u.k. time. when we come back, we have plenty more on markets. ♪
after we saw a record low, the lira is still falling. turkey is trying to grapple with its market route. -- rout. we heard from president erdogan earlier today that they should not panic. he said not to forget that we have got our people, our right, our a la -- allah. and the back to markets bloomberg business flash. teslas aboard is forging ahead with its review of elon musk's bold and ambiguous give it to take the carmaker private. directors plan to meet and tell the founder to recuse himself. that is according to cnbc. was of interview, the ceo of softbank's of reports that his company had held talks
about helping with the plan. in deutsche bank, christian sewing is going back into growth mode and one specific business in which there are pretty much no hiring limits. the private bank in asia is still recruiting after brady on board 100 relationship managers and support staff. they told bloomberg quote i do not think there is a limits apart from what we can digest. decided to seek appointment of administrators and said court hearings may take place today. the move comes as discussions with investors and their main secured creditors have not concluded a solvent solution. the store chain has been holding last-ditch talks to avoid jeopardizing 17,000 jobs after a
rescuer plans to buy a majority stake. the disruption is set to hit this new to date, with at least 400 flights canceled across five countries. that is as pilots ran up a bid to get better cut traps -- contracts. --nair failed a legal blade and baited sous up from joining the strike. the market is slightly lower against the u.s. dollar limits to fear of the lira. wasecb's mechanism particularly exposed due to the lira's plunge. guests.h us are our want to book panic on the markets, but what are you looking at? are you cutting exposure to
stocks and exposure to turkey? lucy: we don't have much exposure. we are underrepresented within the european financials. because of the lack of rebuilding a balance sheets. we do not have much exposure. do not ones that we do have any significant exposure at all in turkey. so it is not something we need to do anything about. where it could have an impact on markets and our portfolios is through any weakness in europe. and that is a double-edged sword as far as european companies. some lira weakness is not necessarily a bad thing. but if you do get rising risk premium everywhere, then that can have an impact on higher value to stocks. francine: i want to ask you about the foreign exchange you are looking at. all, what are the
chances turkey gets downgraded? john: very high. the question is much less about downgrades than the risks. you can see them rapidly growing higher. of course, the risk of a sovereign default as well. the immediate focus on turkish banks. francine: what happens to the euro from now on? john: the 115 level was very big. doldrums,g was summer we went through this feeling the 1.15 level with -- would survive. the japanese yen outperforming overnight. i think you will see that pattern continue as long as we are seeing contagion risk. we see balance, we see confidence.
maybe, we will be back in the range. how do you defend yourself? oryou are a currency trader just an investor, is there any pairing you would buy into? this has to do with gdp, but it feels like it is also largely risk moves. the difficult thing in market conditions is correlation tends to go to one. we have to realize these correlations rapidly moving towards a one. they will continue and want to hedge, we can look at the yen has the best-performing currency. even the swiss franc. but i think the japanese yen is more of a curb play. francine: that is something we are looking into. i know tom keene is particularly excited. is this a measured selloff?
we are seeing volatility in a lot of the emerging-market currencies. this would be a concern, because it would be compounded by trade. the big picture that has been concerning a markets is the rising trade tensions. a macro impact, and increasingly becoming a micro. the last earnings season, there was a limited impact. into the second half, there is likely to be more impact on cost. there is going to be more question marks about. -- capx. it is a cost which is not been anticipated previously. those are the things we are looking at. it is in industrials, consumer
discretionary. ate areas are also looking the tech sector as the biggest driver of returns. to see where the risks are. can you see any countertrend rallies? i think the fish are all going to swim together. if the situation gets worse, the contagion of broadens out. we are seeing it across the em space and creeping into the g10 currency. maybe from a position a angle, if one phrase more popularly than the other. but, no, when the heat is on, correlations are very difficult to escape. francine: what does it mean for the yuan? everyday, we talk about it. but today, we are not. this is a welcome respite? john: last i looked, if we close at current levels, that would be
the highest close of the cycle. as long as the dollar is stronger, it is putting pressure on china. question, iing think the market is fairly complacent that china has made its point. again, constant pressure being applied of the dollar continues to strengthen. francine: thank you so much, so valuable to have you on. john and lucy stay with us. let's get back to the lira fallout and what it means for equities. the ecb is concerned about exposure of area banks following the plunge. anne-marie is here with the very latest. what are you seeing? >> banks are declining for a third day across the board. specifically, these are all down. this is due to that ecb report
in the financial times, reporting ecb is concerned about their exposure. there risk is that these borrowers may not be hedged against the lira weakness and begin to default on a foreign. speaking to this program last week. he was famous for his calls during the financial crisis. he made another call regarding turkey at these banks. there is turkey, which everybody knows about. ,his is not a systemic problem but there are two banks in europe who have a large exposure , bda and unicredit. i'm sure those two. >> they are certainly exposed. 88 just owns half of the turkish bank and an italian banks owns 40% of the turkish bank. you can see the moves, they are all down more than 3% and have been under pressure since the market opened. francine: thanks so much.
markets and ior thought is during the financial crisis, if you talk about worst-case scenario, the market could have a ripple effect. how does this work? lucy: markets have already been shifting slightly more risk-averse. we have seen that in the ways the sectors are performing. we have had a run in these markets. some of that is being recycled into the lower areas. sort of environments, it is more about a correlation of one. however, we certainly are not running in a portfolio for that. where we will be looking, and is to see if well, any socks we really like are being sold off.
i think that is, generally, where long-term investors will be looking. in the shorter term, it is about being low beater. francine: is this about what we saw in april? it seems like a different phrase. is about the size we said before, and it is serious. it is not just something that can be ignored. this is a significant economy, just on the edge of your. francine: thank you very much. up next, we talked turkey, top brexit. this is bloomberg. retail.
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millions in a startup that makes and delivers pizza with the help of robots. they owned eight patent for trucks capable of cooking food en route to customers. on bloomberg.com, currency traders are ratcheting up to avoid a note deal with it -- brexit. and our most read stories. in third place, deutsche bank has one area where saving is no limit to growth. in second, tasks or basel will be poured over by the company's board. top, fears of turkey contagion. that is taking a reporters time to figure it out. we are also seeing some u.k. gdp. this is important because of what is happening to pound. we've may also get a reason or backing up. it came to raising interest
rates and the gdp rising 0.1%. it is actually lower than economists had expected. in the second quarter, the economy grew as forecasts. story.et back to our top the lira plunged to new depths as their relationship continues to sour. dropping this morning on fears of contagion. speeches byhead of the turkish president and the country's finance minister to out -- outlined plans for a new economy, a move aimed at reassuring investors. joining us now from singapore is mark, from bloomberg. he was also a currency trader for turkish lira, so you have great insights on this. what can the turkish officials say that will reassure investors, if anything? unfortunately, there is
nothing they can say that will turn the market around unless it is followed a concrete measures. this is a market that is broken. they are experiencing a real crisis, and the only way you hold the crisis is by hiking rates or capital control. the at this stage, announcement of an imf program would not turn things around. and even an imf program would come with the attachment that they must hike rates. follow,e two paths to and early one has made clear he does not fund -- and president heard one has shown he does not want to follow either half. in reality, investors are demanding concrete measures. until they are delivered, there will not be a sustainable rally. francine: what are the concrete measures that would stem the slide? one trader was saying they want interest rates up 30%.
certainly, at this stage, even a 5%-would not be sufficient to turn this around. the market would be too worried that as soon as there is calm and a rally, they would then lower rates. he has been public over his unorthodox economic views. that is very dangerous at this time. alternativehave economic views during good times, but this is not a good time. at this stage, you might need an interest rate hike of as much as 10%. francine: how would that be taken by the citizens, and what are the chances of the imf coming in? this is probably outlandish, but i have heard about a big countries stepping up and getting a loan. is that for real? could it happen? mark: i think it is going to be very hard at this stage. i'm not sure anybody will want to get involved.
you are correct that citizens need to see a 10% hike, but they also do not want to see runaway inflation. digitsalready at double of this month, ahead of a currency falling and other 20%. ahead ofhave inflation 20%, and that is much more dangerous. that is far more worrying than having to experience high rates. at the moment, they are in a negative spiral which will eventually impoverished citizens. even though it is tough medicine to follow, it is medicine. medicine that will hear the situation. the imf is coming in, if they will accept them. but they will only come in if brca 1 excepts them -- erdogan. in turkey has shown a adverse risk to implement the capital controls.
francine: we have a viewer question. thank you so much for bringing that to us. what this viewer is asking is what do you think the president is going to say to the turkish people? i have no inside loop, but i have to basic on this morning. which is trying to inspire a sense of loyalty. they may have their dollars, but we have our people, our god. when it comes to financial markets, faith is not do enough to move things. people want to see money, and in case, through interest rate hikes. i am worried that he will try to talk aggressively towards foreign speculators who are destroying the country. he will try to inspire people to move together in this nationalist message and to encourage his population to sell their own fx reserves. but that will not be sufficient.
because the people do not believe he is on their side. how would you trade the other side? do you look at yen, swissie? mark: a good question. we broader risk aversion, are seeing it across markets. we are not seeing a crisis. was down 11% at what point, that is a true crisis. marketse we are seeing weaken, we are not seeing complete panic. that is, overall, a positive sign. that once they move beyond the situation, markets are in a good state. i would not want to traded to reactively. earlier, we had not seen the rand and things catch up. theall, we have seen contagion through to the moment, and i would not want to be too negative. francine: thanks so much.
we will have to get you back in a few minutes because we have in other question. can follow live market insights from the team at mliv . let's get straight to first word news. capital investment has driven a strong rebound in japan's economy in the second quarter as companies turn to technology. that is as gross domestic product expanded at an annualized pace, beating forecasts. at the same time, business spending jumped from the first quarter, a biggest increase in the first quarter of 2016. trump's.s., donald lawyers continue negotiating with robert mueller over the interviews. they say to topics remain off the table, the firing of james comey and his comments to comey about his investigation of michael flynn. the president's lawyer says that if asked, trump would say he did
not urge coney to stop investigating his security advisor and did not fire comey to cut off his investigation. also, donald trump wants congress to allocate $8 billion over the next five years for space security system. a spaceblish an that force as the sixth branch of the military. for many years, countries have pursued weapons to disable our navigation and communication satellites via electronic attacks. adversaries are working to bring new weapons of war into space itself. indonesia says the number of people killed by earthquakes has reached 319. the island suffered three powerful tremors and little more than a week, with the latest a
5.9. indonesia is prone to earthquakes due to its location. in september 2004, a massive earthquake triggered a tsunami that killed more than 230,000 people in a dozen countries. global news, 24 hours a day on air. powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much. back to mark. i promised this viewer we would get to his question, and for all viewers, get those in. viewer is asking how you think this affects the euro as the ecb approach to his 2019 target. we also have a great chart. it is looking at the euro forecast slighting. sliding.ting -- mark: we have seen a contagion effect from turkey.
i asked somebody who is relatively bearish, so not like i am looking it is a wrong move, the reaction to turkey is wrong. there is a story talking about some of the exposure that banks have tutored -- turkey. most of these banks have local owned subsidiaries. in terms of euro are following all the time as the currency weakens. you can calculate exposures at an old exchange rate and not take into account their liabilities. there is a problem there, but not too big. it is slightly strange it came so low. all that said, i do think the euro is longer-term and will not change the narrative for the ecb. but it is a little misplaced this morning. francine: thank you so much.
you have to go to mliv if you are listening to us, great analysis. currency traders are cranking out the pressure in britain and the eu to avoid a no deal brexit. the trade weighted pound hit its lowest level, reflecting concerns that a chances of and amicabledivorce -- divorce are fading. could a dramatic market move and told politicians into action? lucy, what do you do with pound overall? it is having a weak spell. whether that will impact negotiations, it just raises pressure the pressure is already there. when they do get to discussions
in autumn, that deadline is getting close. francine: how do you look at what we just found out. the u.k. economy bouncing back. the services sector lost momentum. lucy: we have had significant weather effects in both the first and second quarter. so the numbers are distorted. but it is not a strong picture. as we know, it is the weakest in europe. and any impact we had from a weaker sterling. consumption, which is the biggest driver of growth, is held back by rising inflation. low wage growth, and high consumer credit levels. it is not a strong picture. francine: overall, have the chances of us crashing out, of the eu increasing.
out,we talk about nothing the governments will probably try to do their most. lucy: i try not to think about that at all. is still, i think we are more or less where we were. that there is still a deal which has to be agreed. so it comes down to the politics, whether the europeans are happy to give you some ground. so far, there has been the u.k. side which has given all the ground, understandably. that is what it will come down to. the response in europe. francine: some great analysis from allianz. private, tesla is reportedly planning to review a plan for a management buyout. we talk about a wild week for the carmaker. this is bloomberg. ♪
francine: this is "bloomberg surveillance." the turkish lira is at an all-time low. we will bring you the latest market action. a rapidly moving story. the route intensified in may when the president told bloomberg he wanted to have more influence over monetary policy. first of all, you are the head of the state. when the people fall into difficulty because of monetary policy, who are they going to hold accountable? they will hold the president accountable. 's -- since they will ask the
president about it, we have to ask a presence whose influential on monetary policy. francine: looking at the timeline, the red dot is his interview with bloomberg, the blue dot is when his son-in-law was named's finance minister. was the turkish central bank decided not to like. --hike. dot is when the u.s. imposed sanctions upon turkey. this was over the detention of an american pastor. since the start of august, it has passed the psychological barriers. we await comments from the president and the finance minister at noon, u.k. time. the board is forging ahead with their review of elon musk's ambitious gambit to take the vehicle maker private.
they plan to meet financial advisers next week and are likely to tell the company's founder to recuse himself. that is according to cnbc. the cheap operating officer of softbank told bloomberg that his company also had talks with musk. we would not comment anyway. if there is a deal going on, there is a chance that we are going to be informal, part of the conversation. francine: so, what's next for tesla? does a company like this, with a founder like that, which is loved and hated at the same time, is it just a better off private? lucy: possibly, yes. that is the conclusion they may have come to in a roundabout way. funds,he can raise the then who knows.
they are going so i dark with a small number of long-term, supportive shareholders. trick soe might do the there is not so much pressure from short-term reporting, making a profit, which obviously is still some way out. i think it makes some sense to go in that direction. francine: if it is a buyout, it would be the biggest in history. lucy: that is what we need to see, how difficult it is. it is an exceptional and unique company. we will see. as far as the direction of travel -- francine: you don't own any teslas? lucy: some colleagues do. francine: do you worry about the tweeting from the chief executive?
he is giving market signals by tweets. unhelpful, as far as, yeah, efficient markets are concerned. francine: lucy mack donald, from allianz. let's get to the business flash. >> christian sewing pushed to get back into growth mode and says there is one of business in which there are no hiring limit. bank in asia is still recruiting after bringing on hundreds of new staff members. their leader told bloomberg quote i do not think there is a limit on what we can digest. house of fraser has decided to seek appointment of administrators and says court hearings may take place. the move comes as discussion with investors and creditors have not concluded a solvent
solution. been holdingin has last-ditch talks to avoid filing and jeopardizing 17,000 talks after a would-be rescuer shelved plans to buy a stake. ryanair is grappling with major strikes in the first time in its history. disruption is set to hit a new peak, with at least 400 flights canceled. that is asked pilots wrap up a bit to get better contracts from a company defined by its pennypinching culture. pilotsiled a bid to stop in the netherlands from joining the strike. samsung has unveiled the galaxy note nine, ranking on the largest agreement device to rejuvenate sales and fend off apple's upcoming iphone. the 6.4 inch screen will cost as making $1249 and $.99, it one of the world's most expensive consumer phones.
it looks similar to last year's note eight, but sports a revamped new to the stylus, as well as an upgraded camera that takes sharper photos than the s nine released earlier this year. that is the bloomberg business flash. francine: thanks. congress to wants allocate $8 billion for space security systems. as the sixth advantage of the military. -- branch of the military. >> for many years, nations have pursued weapons to jam and disable our navigation and communication satellites the at electronic attacks -- via electronic attacks. but recently, they have been working to bring in new weapons of war into space it self. francine: just getting some breaking news. a lot going on.
we will be back to the space story shortly, but we heard that house of fraser is in a spot of trouble. forst direct is now buying house of fraser for 90 million pounds in cash. this would probably come with liabilities or something in terms of debt. but this is the very latest, a big deal for the u.k.. house of fraser, one of the best-known high street breads, and sports direct buying them for 90 million pounds. we will talk more about the high streets in the u.k. in a short while. meantime, let's get back to space. back to a u.s. military force in space. joining us now is a senior analyst from bloomberg intelligence. first of all, what is this space force? as we heard, it will be a new branch of the armed services in the u.s..
i think that phrase space force conjures up visions of astronauts out there fighting wars in space, but this is something white different -- quite different. it is a technology-based set of assets, there to protect the u.s. from threats to their assets in space. satellites, but also threats to the actual u.s. territory. ballistic missiles, for example. there would be systems to protect them. so, yeah. a step forward, but necessary. -- no spaceopers troopers. heard, space has been the final frontier for quite some time, but also a place where we are hugely reliant to go about our lives.
uses it for espionage, it uses it for communications. we use it every day for the gps systems in our cars. it is a vital part of military day to day life. and what we have seen in the last couple of years with the chinese and russians creating new forces like this. so there is a perception that the threat is growing with the cost of space at} and -- exploration coming down. there is a risk of bill's will surge to accelerate and see other enemies starting to get into the world. what does it mean for nasa? matthew: not much, that is about space expiration and scientific endeavors. they are the ones putting astronauts back into flights. there could be some technology
they are developing that ultimately ends up in the new space kforce. force. francine: let's get a last check on the lira. a last check before we start the second hour. european stocks are the most exposed. unicredit also down. really, really look out for any kind of link to the euro. we saw euro weakness, yen strength. quite a lot going on. and present erdogan speaks in two hours from now. we round up turkish news. this is bloomberg. ♪
will it be all talk and no action? the lira plunges. other em currencies drop. european stocks follow asia into the red. on reports that its board is meeting with advisers next week. to recuseers ask musk himself? we talked about contagion. we are looking at what is happening having a ripple effect across the board. it is moving euro, bonds, currencies, yet. -- yen. in ino those just tuning north america, this is radically different from yesterday. we have been using the word idiosyncratic way too often. today is not idiosyncratic. francine: it touched a record low.
it is very difficult when you look at market participants of whether president erdogan can stop the rash. bloomberg first word news. here in london is sebastian civic. plunging even further. there are concerns of runaway inflation and worse relations with the u.s. meanwhile, the spanish bank and unicredit are falling today, possibly from exposure to turkey. there is concern turkish borrowers may default on foreign loans. directors at tesla are moving ahead with elon musk's old proposal to take the carmaker private. they have asked elon musk to recuse himself well they consider his plan.
investment drove a strong rebound in japan's economy in the second quarter. an annual rate of 1.9% beat estimates. companies turned to technology to cope with the labor shortage. the u.s.s say maintained a steady pace in july. the new cpi figures released at 8:30, probably rose from 3.9% a year ago. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek. this is bloomberg. tom: thank you. we will be doing many more data checks on surveillance. dow futures negative. there is a weight to the tape
over the last half hour. zero slams in. oil does not have a bid. the vix reverses. not a big figure. it is a long way from the 10 level. the dollar is the deal. new dollar strength. the bloomberg dollar index does not show that. we will show that through the show today. it looks like cold. the flight 20. -- it looks like gold. the flight to zurich. francine: i am going to look at repercussions and contagions. turkish lira, you talked about it. i am looking at yen. there is a pretty mild risk off move. something you cannot forget. this is my favorite story, the european banks. this is what is most exposed.
this is a local turkish bank. italy's unicredit owns about 41% of the turkish bank. has exposure,so but they are less dependent. tom: why is deutsche bank not on that list? why are they removed? francine: they just don't have exposure at the moment. the bond exposure, i don't know who holds that. i don't know if it is asset managers. it is something we are trying to figure out. that will have an impact on the figures going forward. tom: it is a movable story to say the least. we can show vera later. -- lira later. backis euro sisi going eight years. no doubt about that. this is a recent rollover. tot gives you a flight
quality. you can see that with the german two-year. the correlations this morning, i want to put scope and scale on swissie strength on euro. lira,ne: the turkish fresh record low this morning. concerns about souring relations --h the u.s. and our landing plans.ning -- outrunning >> first of all, you are the head of the state. when the people fall into difficulties because of monetary policies, or they going to hold accountable -- who are they going to hold accountable? the president. we have to give up the image of a president -- give off the
image of a president who is accountable for monetary policy. francine: there is a nice little chart that we are pushing out on social media. may.e bringing it back to in may, my chart shows a red dot erdogan's that is interview with bloomberg. the blue dot is about two months afterwards when erdogan's son-in-law was named finance minister. on july 24, the turkish central thisdecided not to hike, was suspected to be under pressure from the president. we guess to august 1 when the august 1sed -- get to when the u.s. imposed sanctions. we await comments from the president followed by the
finance minister at noon u.k. time. it is a 4.2 standard deviation on lira. is jpmorgan asset a.m. fixed income portfolio manager. thank you all. this is a big market day. how much of a hike would we need in interest rates for the market meansl that erdogan business? >> i think the longer they wait, the higher they hike. they did not do it. the anticipation in markets is that erdogan is doing exactly what he promised to do before he was elected to this powerful position of president, which is to take control of economic
and monetary policy. for the market to believe that the central bank is back in charge of monetary policy, the hike is going to have to be significant. the other is controls, establishing capital controls, which probably nobody thinks is a great idea. turks past, at least the have said we would never do that. we are in uncharted territory. there is no one really speaking for monetary policy in turkey at the moment. thereoid that was before, that is missing. it is a difficult position. are we looking at a 10 percentage point break i -- rate hike? to 1000 basis points.
the central bank of turkey has no credibility at the moment. there probably needs to be personnel changes. you have the new finance minister has been in position for one month. there has been no engagement with the market, institutional investors, and very little input or messaging to the market on what policy is. he is promising something today, a new economic model. we are not sure that is going to be the program. we need specifics on the fiscal side, monetary policy action, and credibility. you mentioned it, but there needs to be resolution in relationship to the u.s. two thirds of turkey's trade, financing, foreign investing is with the west. erdogan may talk about reorienting to russia and china, but number one there needs to be a resolution on the u.s.
tom: thank you for being with us. what did john norman say at jpmorgan last night? we have shifted from idiosyncratic blather to a real correlation this morning. it may be deutsche bank leading the way. i know you don't want to comment directly on deutsche bank. jpmorgan onening at your fic desk right now? goes, we as turkey have been uncomfortable with the policy next for a while -- mix for awhile/ ? now what is going on right between your strategists, your economists, and your bond desk? >> i would say first that the team is fairly cautious but not into broader european assets.
we are in favor of those banks that have huge exposures to turkey. we don't think it is systemic. we think it will be manageable. we will see how some of these banks with fixed income credit perform. tom: what are you watching as you walk in? of the manyind one data points you are watching. u.s. to zinn tends going down to going down tons record flatness. >> the strength of the u.s. curve is one thing. when you look at where the 10 year is trading in the u.s., there is a little stress, but it does not feel like a flight to quality. we want to see how that trades. if we see an acceleration lower on the u.s. 10-year, then there
is the possibility this could be a much bigger move. euro-dollar has gone through key levels as well. markets, the next level will be watching his 112. what the european banking sector is. it is not a huge amount of contagion, but something to keep an eye on. tom: the idea of the base case is going up in the wind on a friday morning. inncine: erdogan is speaking two hours. does this go back -- how much does this have to do with the diplomatic spat with the ec and how much does this have to do with it against believes on how used for inflation? >> i think it is both. it is the same problem with his views on economics and monetary
policy. it is coming together. you also have the fact that interest rates are tightening globally. it is becoming harder for turkey to finance the debt that it has. is thisthe main thing vacuum that they did not really talk. the finance minister has not come out and talked to anyone. there are major credibility issues. the market is not buying it anymore. this is now a massive acceleration in that the client that is just going through, you mentioned, 5, 6. it does not seem to be stopping. francine: does this mean and imf bailout? this was insane five or six months ago. what are the chances of capital controls? >> we look at the origin of the crisis, a classic balance of
payments crisis. they had a very heavy electoral cycle. referendum on015, constitutional reform, and then the presidential and parliamentary elections. erdogan did not listen to advice for most economists from the imf saying you are doing too much at 6% current-account deficit. turkey does not have a lot of debt, it is all short-term. you have $230 billion. classic 101 economics is to finance that you have to close it, either raise rates or let the currency adjust. that is basic stuff, and they were not prepared to do that. they got themselves into trouble. outimf can sort themselves with credible policy and policy makers. they don't need to go to the imf.
policy, proper policy, higher rates, tighter fiscal. it is only a balance of payments crisis at the moment. it is not a banking crisis, sovereign debt crisis. if they don't act now, liquidity goes to insolvency. this is critical. tom: i say this with immense respect for your work for decades in the middle east. mr. erdogan's quote from earlier in the morning, if i can find it, we have got our people, our right, and our allah. religion fit into this financial and economic crisis? francine: classic tom question. [laughter] >> president erdogan comes from background. his supporters are more on the
conservative side of turkish society. basically a conspiracy against turkey according to mr. again. we have our own tools, and we will be fine. we will trust in god. this is one of the issues. erdogan has repeatedly won elections, and he has a very solid base inside turkey. the main reason for that is not necessarily religion. er and more conservative sections have benefited greatly under erdogan's regime. there is great loyalty. you go to turkey and talk to, people, and there is great loyalty towards erdogan. if he is going to make the case in two hours that this is all a conspiracy and turkey is strong,
that speaks to that base. if the economy goes south, that this will start having doubts as well. will start having doubts as well. tom: thank you for joining us today. we will do much more on the markets through all of surveillance this morning, giving us perspective on euro, on sterling through -- on lira, on sterling through 128. stay with us. ♪
pilots in five countries are walking out in a bid to get higher contracts from the company. that has led ryanair to cancel 400 flights. nine has aaxy note 8 6.4 inch screen and can max out at $1299. it has an upgraded camera. samsung hopes it will rejuvenate sales and fend off the new apple phone over the holidays. deutsche bank is cutting thousands of jobs over the next few years. there is one business were there appears to be no limit on hiring. the private bank in asia is still hiring even after bringing on 100 people in the beginning of the year. that is the bloomberg business flash. tom: thank you so much. more data checks through the hour today. equities, bonds, currencies, and commodities. here is the vix backing up, not a big figure, which shows you the containment in equity
markets. dollar at a 96 print. dxy, bloomberg dollar index. swissie,ng at stronger turkish lira blowing out earlier at that big 5.8% move. frome looking at a speech president erdogan in an hour and 40 minutes or so. what you need to know is not about spacex or this or that or the other thing. this is the san francisco office of the securities and exchange commission. judith burns had no comment yesterday. we are fortunate that alex webb, bloomberg's opinion columnist has comment this morning. where are we right now in this drama? alex: obviously, we started with a tweet. media and investors, and
now incomes the sec. they are asking questions of tesla and if there is any truth behind those tweets and whether there should be any regulatory announcement beforehand. the question is whether they launched a formal investigation. that has not happened yet. i would not be surprised if one does materialize. tom: where are the wall street firms? one of the lead stories, at least the reporting, is mr. musk cannot. are they now -- cap them out. giving advice? hashe word is that mr. musk recused himself. we don't know if he has done that. the reporting indicates that he
is not. this is incredibly complex. there is no way he can do that without the involvement of a sophisticated investment banking team. our colleagues at bloomberg news have exceptionally good contacts there. evidence has evidence has surfe has those teams working with him. it is hugely puzzling. francine: how will the relationship between elon musk and his board change no matter what happens next? alex: this leans on an ongoing concern with tesla that there are for members at tesla that are extensively independent but have had a long-term working relationship with elon in other companies. it will be difficult to really separate out those relationships, particularly given the way operates. operates. -- way elon
he expects absolute loyalty. it will be hard to divide his relationships. one of the board members is his brother. it makes this incredibly tricky. tom: one more question if we could this morning. we are to stagger into the weekend. mr. musk, what does he do on the weekend, who knows, and then we are going to launch into monday morning or the board must act. what is their next step? >> i think the next step is they need to clarify what the nature of the conversations they have had with elon are, what his relationship with the board will be going forward. there was a rushed statement on discussedhat elon had the possibility with them last week. we need to know what that conversation was. does elon really have funding in
place as he has suggested? tom: thank you very much. greatly appreciate that this morning. francine, this really came through yesterday in many interviews. the people in the united kingdom are dumbfounded by this. this would never occur under fsa guidelines. is that the feeling you have? francine: the feeling is we don't really have an entrepreneur like elon musk. 15 or 20 years ago, the closest you got to the kind of temperament is the founder of virgin, mr. richard branson. he had a difficult time with analysts, and then he decided not to ipo some of his companies. there are parallels when it comes to the temperament of the founder and what would be best for the company because of the founders temperament. tom: bloomberg technology will
really dive into this with a west coast feel. i need to look over at the bloomberg terminal. there are so many moving parts. if you are just joining us, it truly has been idiosyncratic. that ended with comments from mr. erdogan a few hours ago. 5.92 on turkish lira. u.s. curve flattening. the german two-year is at benchmark for european debt goes into a greater negative, lower yield this morning. we'll continue. stay with us. this is bloomberg. ♪
turkey and markets, but there are other things. talksnk is said to be in with the startup that makes and delivers pizza with the help of robots. are ratchetings up pressure on britain to avoid a no deal brexit. our most read stories on the bloomberg terminal, deutsche bank has one area where there is no end to growth. musk in talks to take the company private. and the fear of turkey contagion. you can log on to bloomberg for more on that. let's get to bloomberg first word news. >> turkey is moving closer to a full-blown financial meltdown. the lira resumed a record fall against the dollar and is heading for its worst week since 2001.
government bond slump. investors are waiting to hear what president erdogan has to say later today. the ecb is concerned that turkish borrowers may default on foreign currency loans. the next step for elon musk maybe to take a step back from tesla. to board has told musk recuse himself while they consider his proposal to take the company private. independent directors will likely review the details. it appears the trump administration will come up short of its goal of blocking all sales of iranian oil. bloomberg is forecasting a 50% cut in november. any significant reduction would be a blow to iran's economy. at an annualn rose right of 1.5%. reckons it england
is the countries speed limit. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek. this is bloomberg. tom: thank you so much. let's gaze at a chart. not turkish lira. it sort of looks like. it is russia, weaker r ubel. they got worse in 2014. think ukraine and crimea. putin stability. wrubel flatness if you will. this gets us to sanctions. timothy ash with bloomberg. what is different now about these sanctions? why the market move if we are all familiar with this? the designation
of april 6 and the u.s. treasury moderated those, and in the warming relationship with trump utin, my sense is that helsinki was a defining moment. at helsinki, the trump and putin and ice went too far guess congress and the executive decided they could not trust trump on putin. we have seen a lot of action on congress. the executive decided they needed to preempt that and we ace this latest tion. is, are ther it cbs, the credit default swaps in the ruble indicative of their
domestic and international economic profiles? >> i think you have to step back and see where we don't think it is the frontier. turkey, economic management is not an issue for russia. this is a politically induced crisis. scope has the cds widened because there is a 50-50 chance that you get sovereign banks function. there is significant offshore holding of russian bonds. materializing, there can be significant consequences. we don't think the market is pricing and not for that outcome. you look at what happened between russia because of sanctions and canada and saudi arabia that escalated from zero to 100 and 24 hours.
how difficult is it to manage a portfolio when you have geopolitics that can flareup suddenly? >> i think right now geopolitics keeps us all up. it is trying to understand the mood between the different policymakers. we have seen a lot of sanctions coming through, turkey, russia and the possibility of more to come out. it is understanding policymakers ahead of the u.s. midterm elections. there is incentive to send a strong message that the u.s. will not allow diplomatic interference. i think russia is not a new story from that context. neither is turkey for that matter. markete: on russia, the took it so badly, and we don't even know the sanctions yet. are we expecting a repeat of
april? evenhe anxiousness without knowing who they will hit? >> i find that surprising. congress has been ratcheting up the pressure. there have been numerous bills. helsinki was pretty defining. rates and russia affects. helsinki, will markets be worse because helsinki saw the leaders so friendly. is this the level where we are at now? >> look at helsinki. the reaction from the intelligence community, and they were in total shock about what trump said. it is pretty clear to me that put extra meaning behind the sanctions story.
april, no one expected russ i'll, these big oligarchies. we have no idea which russian oligarch were corporate is going to be sanctioned. tomorrow, we could wake up and any of those names will be on the session list. tom: we are talking about turkish yields at 20%. who is counting? i am looking at russian yields at 8%. that is not turkey. does that mean it is playable as an investment either buying russian paper or playing the ruble? is there an opportunity here in this after helsinki angst? >> unlike turkey, russia does have sufficient on shore liquidity. there is a backstop to prevent the bond curve from blowing up like an turkey.
the economic mix and russia is very different from turkey. sanctions are not a new story for russia. they have had to rebalance and adjust to a world where this is the reality they live in. to see that first exponential price move in russia is fairly limited. we do see more premium as we approached december. tom: as the market moves, and you have been talking about the isitics as well, you do em, this an em investable opportunity and russia? >> let's figure out what this latest sanctions iteration is going to be. if it is like april 6, big names, sovereign debt, that makes it a different story. i feel more comfortable investing in russia if i saw some hope of some improvement.
to 2008, thek direction of travel is clear in terms of the deterioration. i don't see any of that. this makes it much more difficult to read. russia macro policy is extremely good. michael policy is terrible. business environment. there is no growth because of micro. francine: are there any other emerging markets on the backs of turkey or with the fed or the dollar or wrubel, any other markets you would worry about? how much can this affect other emerging markets? >> you have brazil, south africa, argentina obviously. if you take each one of those, what is interesting about em this year is it is the standalone story.
south africa, brazil, we were all worried about the fed tightening. it is the country story. nigeria survive very well. turkey's struggled. russian sanctions. itis not the big em theme, is the individual country stories. there are geopolitics, oil staying high. the geopolitics we mentioned. , sorry, u.s. and iran problems. thank you very much. diana more of jp asset management -- jpmorgan asset management. timothy ash of bluebay. this is affecting pretty much every market. euro-dollar 1.14. we are looking at the banks and europe. those exposed to turkey are down. this is bloomberg. ♪
francine: this is "bloomberg surveillance." tom and francine from london and new york. the worst performer in asia over the last three months despite pboc efforts. ofs comes on the anniversary china's shock currency devaluation. i guess at least for once china is not left right and center today as we focus on turkey. today, especially the last months, euro weakness
hitting some of the asian currencies as well. we still think in the absence of some sort of reconciliation around the trade issues the outlook for the chinese currency is still towards further depreciation. francine: what will china do next? >> for all of us the threat of trade wars is a major concern for em. the rise of em has been built around globalization and the rise of china. we have been hoping for some resolution. it looks like it will get worse, not better. globally, it is holding up ok. that gives us some reassurance in em. oil prices are a large part of the m. that makes us comfortable.
of fxhat they do in terms policy. that can insulate a bit from what is going on in trade. they don't want to link to it too much because then there are concerns about capital flight. ash, the elephant in the weekend reading room is the reuters article on volatility in domestic china. it is a pretty lonely article. i am not saying it is bad or good, but it is standing by itself right now. what do you make of it? >> how many years have people that talking about the looming crash.bust, calling it difficult, in the end, chinese policymakers are pretty top-notch at the macro level. they are engaged in the work.ational
they kind of think the same way we do in terms of orthodoxy. sheetave a great balance if there are problems to resolve it. i hope they know the problem. they can think about solutions. the have a balance sheet. tom: diana, step in as well. at bluebay in jpmorgan, how do you measure internal dynamics of economists turned revolution? we have this he did article last theh about china and relationship of australia. now we follow on with reuters in this article about discontent within the communist party. do you think it is legitimate? >> undoubtably, given what we are seeing with escalation on trade and the importance of trade to the chinese economy,
although it has been less so historically come you see the policymaking approach. if this means china is willing to come to the table and negotiate with the u.s. on trade issues, perhaps tightening up some of the things that are youerns beyond the u.s., mentioned australia, the ecb, and in europe policymakers worried about intellectual property protections, on some of those key issues, china is willing to engage in the short-term. francine: going back to the turkey story, turkish lira, it has collapsed something more than 11%. let's get straight to our bloomberg news live macro strategist from singapore. the turkish lira trader many moons ago, are we going to see
capital controls? >> i don't think so. turkey has shown a historical aversion to capital controls. that has served them quite well. after 2001, part of the reason turkey recovered so quickly was because they had been slow historically to implement capital controls. i think it is unlikely. ultimately, erdogan has two choices, either hiking rates aggressively or implementing capital controls. while he wants to follow any road, i think it is more likely he admits defeat on the race front. will dollows 2014, they a rate hike today that is insufficient and then we can again, and then a very aggressive hike will be the turning point. francine: president erdogan
according to state media saying forget this, if they have dollars, we have our people, our rights, our allah. he is giving two speeches today, the first one in one hour and 10 minutes. >> he has two speeches. unfortunately, they will be in that campaign town. he is trying to stir up national pride and hope that the locals will be determined to sell dollars in move their money back into lira onshore. ina client wrote in to say 2011, a turkish professor told me that when the turks protest, they buy dollars. they are unhappy with the policy being implement it. they will keep going one way let me ask you a question that i cannot ask anybody else. but more to the rescue. you were on the standard chartered desk in the middle of
all this. based on your wonderful experience at standard chartered, what is the exposure this morning on debt to this new volatility? will the losses the inconsequential or could they be tangible? >> the place i was with turkey blew up properly in 2006 was lehman brothers. at the moment on the em desk, it has been relatively contained. it is a day of risk aversion. we are seeing fx losses. turkey is in a true currency crisis. no other country is experiencing that at the moment. on top of that, it is important to note that this has been building for months. we have seen this coming. couple ofohnson a months ago, we said it was going to rate hikes or capital controls. that was back in april. tom: he just gave your answer,
diana. i like that. do? will institutions the imf, the world bank, chairman powell, what do they do? i guess we are not have the crisis point, but are they making phone calls today? >> i am sure there is a lot of discussion in the background in light of the ecb piece of the night. they will be watching closely. in terms of turkey being able to engage them with dialogue, the imf, which has been touted in the past, that has to come from turkey. we have seen the political cost for their administration might be a little too high for them to go down that route just yet. goes, thethe fed turkey issue, they will be looking through it because it is not systemic. the u.s. economy is doing well. cpi out later today.
the june data looks quite robust. the fed might look through it. what we would have thought the fed would put more weight on is the trade issue. what the you make of turkish stocks? they were down, and then up reply, and now down again. is this investors buying on the bid? is this local politicians telling investors to buy stocks? >> i don't watch the local equity markets closely. it is unlikely that it is intervention. the turkish lira is collapsing so much. why aren't local assets doing so badly? that is because if you are a foreigner holding these assets you are getting destroyed today. this is about locals wondering whether the panic has gone too
far, and in turkish lira terms, it is not selling turkish equities. most people believe erdogan will be forced to do something to solve this issue. if he does not, it will be complete cast. people think we're getting -- chaos. people think we are getting to the end game. francine: a question to you, diana, on russian bonds. are you selling russian bonds right now? >> we have been very cautious on the outlook for russia. we have positioned defensively across our book of business. i am not sure given what we have seen the last three days that you want to be selling at these levels. the tail risk is just too large for us. you don't know what the end game is. you don't know what nature the sanctions are going to look like in russia. we are not being compensated
enough to take that risk on. francine: thank you very much. u.s. vice president mike pence says the u.s. space force will assert its dominance in orbit. joining us now is bloomberg intelligence senior analyst matthew. this is not about sending stormtroopers to space. this is about catherine intelligence and making sure other nations don't get there first. >> this is about having the technological capability to withd u.s. assets in space vital communication to the ground, espionage, and even commercial things like the satnav in your car for gps navigation. these are things that the u.s. has been doing for a long time, but at the moment his sits under the air force. to some degree this is pr and
posturing. we know you have been doing things, but we are going to beef up will we have been doing to strengthen our capability. francine: is this political stirring up to show america first? why now? >> over the last few years, russia and china have been investing in this area. i think the u.s. sees that threat growing. they need to react to that and demonstrate that they are continuing to invest to protect the u.s. position domestically and in space. this is more than propaganda. this is a real thing, $8 billion behind the project. tom: they're going to have to pay air force one -- paint air force one to look like a saturn nine launcher. we have seen this with reagan. --here any support the
besides the military-industrial complex? is there any support in congress? >> there are clearly divisions. the u.s. air force would like to keep this within their remit. they feel they are doing a great job on this. from the present, you need to make a clear statement of intent to the rest of the world. you need to invest in this on its own so there is no compromise in budgets. tom: thank you. please stay with us. we will have much more. this is bloomberg. ♪ phones have made our lives effortless.
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the president of turkey will speak in the hour on his lira, collapsing. we see new strength in the dollar and swiss franc. thursday, it's become correlated friday. when is your 401(k) reduced because of what we are seen in i -- seeing in irna. ran. and should nancy pelosi step aside? that is the theme this morning in washington. good morning, this is bloomberg. francine, we are seen markets lockup. it's not a crisis but it's different from yesterday. it's not a crisis but it's a panic. it's looking ugly out there.
investors are a little bit in a panic because they don't know what the president of turkey will say. crisis but ifl on you are invested in turkish lira, it's not a great day for you. day is the quote of the what is being reported by turkish state media. it's very clear that for the moment the president is still defiant over this market rally. worldwide, the president of turkey speaking not once but twice here in the new york morning. right now, your morning briefing with sebastian. the lira plunging even further into record territory. it was down as much as 13 percent against the dollar. turkishutweighing attempts to stop the rout.
the financial times says the ecb is concerned that turkish borrowers may default on foreign currency borrowing. tesla is moving ahead with its review of elon musk's call to take the carmaker private. toy are likely to tell him recuse himself while they consider the plan. capital investments are on a strong rebound in japan in the second quarter. gross national product ran -- rose by 1.9%, the most in a year and a half. the company -- the country is helpng to technology to with the labor force. the government releases new cpi figures at a: 30.
there is expectation the fed will raise rates one or two more times this year. tictoc on twitter. our been more than 2700 journalists in more than a hundred 20 countries. -- more than 120 countries. deteriorate, dow futures -122. curve flattening dramatically. a lower 10 year yield. next screen, please. vix showing not a big figure movement. getting out to that one big figure. strength, we are seeing the flight to his uric -- 20, switzerland -- to zurich in switzerland. francine: overall, european
stocks falling the most in a asia.following worry that turkey's problems will spill into the eurozone. dollar advancing along treasuries. it's a risk off move. a diplomatic spat with the u.s. and turkish investors look at the president to calm the nerves when he speaks later on, just under an hour from now are -- now. it's difficult to know what he can say with words and not actions. some are exposed to turkish acids through local banks. you can see they are down between 3.5% and 4%. when putting the show together yesterday before these abrupt movements, someone sent get mark chandler. that's a good and beautiful thing. he's a -- he is the author of a
group of picks -- group of books on the bigger picture. how correlated are we on this friday morning? obviously more than yesterday but what is the letter -- level of linkage? to beeverything seems risk off and that's one of the factors not only helping the dollar but also helping explain the friends -- the swiss franc and japanese yen strength. turkey has three possible courses of action and none of them are very tasteful. first, investors want to see some bold action, a return to more orthodox policy and they are not going to do that. the second course of action is going to be imf but they would demand conditionality and there would probably also be adoption
of orthodox policy. something the prime minister clearly objects to. what sparkly spooking investors is capital control. that is stopping selling by preventing it from happening. dollar trading index go to new levels but the bloomberg index doesn't quite get there. are you calling for a strong dollar? stress isink the e.m. reflective of the dollar strength. it often causes emerging-market problems. the countries most vulnerable are the ones with poor fundamentals. it's not just about a diplomatic issue between the u.s. and turkey. it's about turkey politicizing the central bank. . large current account deficit it has to attract capital and it's not able to do so.
francine: this goes back to what actually believes. he believes the opposite of textbook theory which is that higher interest rates cause inflation. unless he changes his mind, the markets are tennessee a respite. -- the markets aren't going to see a respite. he put his son-in-law in charge of economics and he has encroached on the central bank's independence. this is what spooks investors. the macro fundamentals aren't good and on top of that you have this interference. we are waiting for official comments but i'm concerned this mill town will go further and rightntagion effect, through the european banks of exposure, looking at new lows. retracted 50% of last
year's advance. no matter what erdogan says, today will be enough. we need interest rate. how much is enough? we are talking about percentage points in my colleague has done his work on that and he has said he may be 25% andraise rates to right now they are about 17.75%. that's a challenge. given the slide of the turkish level of annualized interest rate protects you from a 50% currency move? -- 15% currency move? none does. it's not going to be just
interest rates, it has to be a return to more orthodox policies if they want to convince investors who believe in those policies. meantne: i misspoke, i percentage points. sticking with the story of the morning and turkish lira, it touched a record low. n expert on is a emerging markets, phoenix kalen. his capital control the only way out? phoenix: i don't think so. there are a lot of options and your guests have discussed a lot of them. resolving the diplomatic dispute is an easy way to alleviate some of the tension in terms of just releasing the pastor and trying to offer up an olive branch and negotiate around that situation. that's a very easy way to deescalate the tension between them and racing the rhetoric
from the president as well. he wants to compromise in terms of how he plays to trump. it's not only about that anymore. how much would you want an interest rate hike to be by? as mark was saying, it's not palatable. the too small or it hits citizens to a point where he can't justify it. as distasteful as it is to accept another huge emergency rate hike, i think that is the only or is one of the easiest courses of action. take a longrol of time to implement and it's ineffective beyond a short horizon. especially when it's a very highly developed financial market as turkey is. interest-rate hikes is the way out for the short-term. we might have to see real rates reach something like fort -- like for percent -- like 4% or
5%. i don't know if you had the privilege of sitting in a class with mark life. he has been wonderful. to talk about socgen's business, that's inappropriate, but what are the ramifications of european banking? as some of your guests have commented, there's lots of concerns about exposures that european banks have to turkish assets and how that can get you eroded over time. level dollar gets to the on the exchange rate, that wipes out nearly all of the capital buffer versus the minimum requirements from turkish banks. i think you will see lots of measures like dividends cut and
curbing of lending itself. the of big macro impact on banking sector in european banks. here is a chart i have been showing for a couple days. market,the turkish lira now off 21.63%. here is the dollar-denominated coming up as well. which is more important to global wall street? u.s. dollar paper in turkey or turkish lira paper in turkey? we have seen sharp dollar but first and foremost, the currency run is taken a huge hit on the turkish denominated paper. that's the main concern at this point given the size of the move we see. 56% depreciation this year.
the pain is still concentrated their and that's why it's so crucial for monetary policy to step up and for orthodoxy to return. francine: when you look at the contagion, we saw a move in korean won. if you don't handle turkey correctly, how much will the contagion be amplified? fortunately, we have seen somewhat of a decoupling between turkish assets and other e.m. assets over the past several months. there is lower correlations and low linkages. certainly there is some measure of contagion but it's not as big as it was in the last decade. we have all been saying with the president of turkey should be saying. is it going to be a domestic audience? it's such a tough
balancing act because he has received so much popular support from the population in standing up to the u.s. and retaliating against u.s. sanctions so it's very tough for him to appear to back down. will have to try to navigate that channel between appealing to the nationalist sentiment and trying to get people not to accumulate more asset closures. francine: if you look at psychological levels, we are below six which is a huge psychological level. once next? -- what is next? tom: seven is probably -- phoenix: seven is probably the critical point for the banking sector in they have no interest in letting the exchange rate go there. francine: thanks so much.
ryanair has canceled at least 400 points -- flights. samsung has introduced its most expensive phone yet. it has a bluetooth stylus at an upgraded camera. they hope will fend off new apple phones. deutsche bank's cutting thousands of jobs the next few years in a cost-cutting move. but there's one business were there appears to be no limit on the hiring. the private bank in asia is still hiring even after bringing on 100 people. they want to bring in wealthy asian clients. that's your bloomberg business flash. tom: we welcome you all worldwide with markets truly on the move today. near 40 minutes, maybe 45 minutes, the president of turkey is scheduled to speak. all of wall street will be riveted to that with a weaker lira this morning and some real contagion effect. will it come over to the u.s. equity markets?
ism oppenheimerfunds inc. .hoenix kalen --is brian levitt i want to go to your general expertise over what the turkish banks do. they are unique banks, unique institutions and looking at 20% yields an imploding currency and a relatively silent little system. what do the turkish banks do? brian: i don't think there's much they can do. the train to some extent has left the station so what you're going to need to see is a credible response out of turkey. it's disconcerting what was seen in the steps from the turkish government and the presidents put a sec -- politicalization of the central bank. putting his son-in-law is the head of economics. investors want to be
very cautious on turkey. this is not the time to be considering turkey and we need to see a good response. you link this to u.s. equities? do you change a u.s. allocated portfolio versus all this e.m. stress? we saw dollar strength into 2015 and 2016 slowed the u.s. economy down somewhat. we are not very epic is fiscal stimulus so it's not showing up. be a periodgoing to of a steepening yield curve and a big dollar rally. this is still a growth environment and a flattening yield curve environment in the united states. francine: this goes back to turkey and geopolitical risk.
we saw situation escalate between canada and saudi arabia that move canadian dollar in 24 hours. we saw sanctions on russia and what that did to russian ruble. how do you price in geopolitical risk? having ans clearly effect on emerging-market currencies and we called this a little bit of e.m. contagion. it's more of a problem for the european banking system than specifically some of the other emerging-market currencies. geopolitical risk has always been with us and has been for a long time. it's escalating but the fundamentals of the global economy are still quite good and inflation in most parts of the world is not significant. we are dealing with these problems but i don't view that as this is the end of the cycle. i think there are parts of the market that are uninvestable but
i wouldn't call this the end of the cycle. francine: when will you call the end of the cycle? i don't think the cycle is going to and like all others with higher inflation in the u.s. and significant tightening. u.s. dollar -- for the u.s., dollar strength could become the headwind. if at some point dollar strength and a flattening yield curve becomes significant issue in the united states, we still have the flexibility to back off. we can back off on trade wars and fed tightening. right now we don't seem willing to go down that path but we have the flexibility to do so. tom: bring this up, i'm throwing this up. from the great nobel laureate of you -- of new york university and it's a correlation map that a guy like brian levitt memorized. there's a lot of mathematical certitude off wall street models
and the president of turkey doesn't know that equation. how do you link his world with the world that is the foundation of e.m. finance? concerns in turkey spread to the european banking system. tom: just magnitude? brian: yeah. turkey is a nation the needs to be funded. they have big current account deficits. liquidity has dried up. there are a handful of european banks with exposure to turkey which need to take losses which lows credit which lows economic activity. whichch slows credit slows economic activity. the mechanisms into the other emerging-market currencies is not as large as it is in those banks in europe. there is opportunity for the european central bank. tom: this is the chart everyone
is looking at as we wait for the speech. lira.s turkish two standard deviations, right there. went out to 4.2 standard deviations this morning. cardinal rule, four standard deviations gets my attention. that mean for madame lagarde in the global system? the first thing it means is for the turkish government that this idea you can have lower interest rates and take care of inflation, it's out. should have been in. this idea that you're going to move away from independence in the central banking system is out. the imf, the european central bank, obviously we be watching closely and stand ready if the system needs support like we've
seen in the past. we will parse the words of the president today and perhaps at some point, you can't even get interest rates high enough to combat this problem. that's the issue we are dealing with. thee heard from draghi in past, whatever it takes to maintain support. the european system and the european banking system. francine: talk to me about stress levels. back in april we were talking about possible capital controls and the worst case scenarios, imf involvement at all about jazz and it's now that the markets are really freaked out. is their angst in the market that wasn't there a couple of months ago? there angst in the market that wasn't there a couple of months ago? brian: there was a belief that
the turkish decision-makers would understand the decision at hand and we haven't seen that. ultimately, the need to raise interest rates significantly which could be potentially unpalatable to president erdogan or some form of capital controls. you might be looking at imf but, again, that's going to come with conditions. francine: futures -16 to -12. this is bloomberg. stay with us. ♪ retail.
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talking aboutare the markets and walking you through some of the brutal moves we saw. not only on turkish lira but a lot of the emerging markets. tom: stay with us. all of our platforms cranking in in about 30 minutes for these moves from the president of turkey. if you care about tesla, this is the interview of the day. not about making cars, it's not about detroit, it's about the securities and exchange commission. is in marie goody washington. .he is a former sec attorney wonderful to have you with us. start with an open question to you. what will the sec do in san francisco today? what are the actual things they will do out san francisco office that
we won't hear about? they will likely look into and continue to ask questions as to whether or not there is any truth behind what elon musk tweeted. whether he did indeed secure funding. they will make inquiries and receive documents and information and goes and see whether or not there was any truth to that and what kind of communications took place before hand such that this was seen as the appropriate venue to make this announcement. we've seen a sharp demarcation between fsa and london and how we do business on these transactions of the modern america. it started with reed hastings at netflix. do we have governance in the time of twitter? teresa: i think we do and fundamentally this is a disclosure if you -- disclosure issue. years ago, tesla
had indicated that elon musk may tweet significant information on his twitter account. whether or not that makes the elon musk twitter account a proper channel and recognize channel for this time of disclosure is another issue. he also tweets that the company may go bankrupt so there are jokes about that. $420 price is the a legitimate price or a reference to marijuana. a's difficult to say this is recognize channel distribution for purposes. is this public dissemination that is broad and not exclusionary? did he block anybody from his twitter account? so many questions to ask. it all of the rigorous facts, --cumstances, and analysis
when we look at all of the rigorous facts, circumstances, and analysis, it's very intense and we are likely to find the answer. does the law have to change in regards to social media and specifically to twitter? a couple ofresident times tweeting on amazon and other companies, sending the stock price lower. should that be investigated? the president is not a ceo or director or officer of a public company so he's not speaking on behalf of the company. when you actually are the ceo of a company and you take other people's money, you have certain obligations and the sec rules and laws apply to you. they don't apply to the president so it's a different analysis. should law change?
handlesmore stringent on tweets from folks like elon musk? teresa: i'm not even sure the law has to change made -- change. they be there needs to be more clarity. sec, in a report in 2013, there was a lengthy discussion the rope plied heavily on 2008 items on websites and whether or not that is a channeled distribution as well as the 2000 release on electronic dissemination of information. then needs to be a little more clarity and analysis. i get the idea the needs to be clarity. crushed by at
tweet. how should regulators respond to that? i think the sec is going to come out and come out strong on this. i think they're going to address the analysis. it is fundamentally a disclosure issue and i don't think twitter should be acceptable for most purposes. it's unreasonable for me to to have- for investors to troll and looked through the social media of all the different officers and directors of companies. it's an impossibility to keep up with all the different social media. francine: what does it mean going strong? can they ban people from having twitter? teresa: i don't think the sec can ban people from having twitter, i think the important
thing is to have sanctions when people do this kind of irresponsible and reckless conduct. there would be monetary sanctions. said wasr not what he actually true, then we get into the criminal landscape. if these were false, misleading, or statements that omitted material facts, we get into the criminal landscape. francine: if james murdoch it's your law form -- law firm and a passion into you, what would you tell a member of the board of directors of tesla? i would tell him that i think they need to get on board with a public disclosure that is in a recognized distribution .hannel they need to fully explain the facts and circumstances around this tweet. whether or not it's true or if there is money secured.
whether or not there has been board approval of this. whether or not a tender or offer was made. , under thehe rules exchange act rule, you can't make -- you can't say you are going to make a tender offer if you don't do it. the company needs to come out and in the chaos and confusion and let us know what's going on the tesla. when you do disclose something, not only does it have to be true, you have a duty to update it. we need these tweets to be updated to make them accurate. francine: thank you so much. let's get straight to the bloomberg first world news with sebastian. closeran: turkey moving to a full-blown financial meltdown. the lira resumed its record fall against the dollar and is headed for its worst week since 2001. bench bond yields on all-time
high and everyone is waiting to hear what the president has to say later today. the spanish bank bbva is falling because they are worried turkish borrowers may default on foreign currency loans. in u.s. forecast a 50% cut theyan oil exports when reimpose sanctions. in southern california, more than 20,000 people have been ordered to flee a wildfire coming dangerously close to their homes. one person has been charged with starting the fire. in northern california, crews announced more progress in what is the largest wildfire in state history. estimatesf england -- servicesnomy
outlook was unchanged. global news 24 hours a day and a tictoc on twitter, by more than 2700 journalists and analysts in more than 120 countries. i'm sebastian salek and this is bloomberg. we hope to hear from the president of turkey. one of his two speeches today. youill have it for worldwide. we go to washington. kevin is our correspondent. get to the sunday talk shows. nancy pelosi, i guess the republicans never want her to leave and the democrats alike, what do we want her to do? is her dominance of her democratic party? depends on who you ask. the democrats are following the special election in ohio and
they are saying if they win back the house of representatives, nancy pelosi is going to have an argument to stay the course and she should say we won, i should keep my job but there's whole new generation of democrats rising to the ranks saying we knew -- we need new leadership and new blood. give us an update on the metaphor trial. i don't need to hear the soap opera but where do we stand into the weekend with this historic trial? kevin: i'm good to cut to the noise, this is bad news for the administration simply because this trial has been an absolute home run for the prosecution. paul manafort has not been able to make a case at all from what i have seen and what i am reading that these charges are false. it's bad news for paul manafort. francine: if it's bad news, how does it impact foreign policy of the united states?
does it? is there a link? i think it's a great and totally fair question. i don't see how right now, this week alone, the trial would impact policy or geopolitics. that said, when you look at the pressure as a whole collectively that this in minister asian is under to get tough on russia, and implement new sanctions -- we saw the additional sanctions with russia and turkey. there are a lot of republicans urging this president to be more tough on russia. the policy of this president is different from the rhetoric. very soft rhetoric against the policy has not changed and in some cases additional sanctions have been deployed. terrific summary. getting us to friday and through the weekend.
with what kevin just said there, the fractious nature of what some would say the bluster of the administration. does it change the investment procedures and process? brain: it does not. to his what it has led strength in the dollar that we leg of dollarst strength was behind us when we saw this significant increase in the fiscal deficit. statesons in the united that are somewhat extended. --believed this would be up this would be a moment of dollar weakness but the willingness to go down the path of trade wars with china, the sanctions have led to dollar strength. longll think we are in a moment of dollar weakness but in the near term that's been disruptive.
this is some really good mathematics of a blended dollar index. let me get out the pencil here. a have dollar stability or little bit of a moving average. clearly, a low rate for president trump. he wants rates to stay low. how does dollar reality dovetail with trump reality? isin: the federal reserve going to keep raising interest rates in this environment and you will see flattening of the yield curve and lower long-term rates. seen some indication from the president that he is starting to be concerned about some of this dollar strength weighing on the fiscal stimulus. we will see with that ultimately means. what you are finding is in a trade war, the currencies move
and become sort of an equalizer. you're going to impose sanctions on other countries but the currencies will adjust to reflect that and the dollar strength is indicative of that. francine: with the u.s. administration artificially weaken the dollar? we heard noises that the president believes the dollar is too high. brain: i don't know if they will take steps to weaken the dollar. what they can do is back down on some of the trade rhetoric and , isourse, more importantly what the federal reserve is going to do. inflation still relatively modest in the united's dates. strength becomes a headwind to u.s. and -- economic activity then the federal reserve would have to back off. we have futures that -12 and they come back to -12.
exchange for equity in the retailer. gsr will get about 3 million shares at a 5% discount. massachusetts mutual life insurance is considering an offer that could bring 5 million -- $5 billion. massmutual could still hold on to the firm. they have been grappling with narrower margins. things have been falling irregularity -- regulates three costs arising. sprint is competent its merger with t-mobile can win approval. sprint's largest shareholders spoke to bloomberg tv. i go back and i say, for the country, its pro-consumers and its pro-competition. there's no reason why it shouldn't be approved. sebastian: and that is the bloomberg business flash. tom: we go to istanbul as the
nation awaits a speech by the president of turkey. we are looking at foreign-exchange. this morning, looking at a nation that will listen. how riveted with a nation be in 12 or 13 minutes? everyone stopped to listen or is this just another speech along the way? it's not another speech but the main audiences the financial people.and not the the real concern is is he going to ratchet up the rhetoric in this diplomatic spat with the u.s. or is he going to try to cool down the tensions. and also is he going to give any signals when it comes to his stance on monetary policy. if markets are pressuring the central bank to raise rates. the difference between six lira to the dollar where we
were earlier today and if we could, heaven for bed, get up to seven or eight. what does that gradient mean for the markets? for the markets, it's a difference between more inflation, more strain on corporate balance sheets. this is what is at stake. andlira keeps depreciating it will make it even harder for companies to repay their foreign loans. there's a lot of stake here. are the chances of actual central-bank action today? we will hear from the president in not one but two speeches. what to the markets want? how many percentage points do they need? the range is huge. they see numbers like 500 basis points today. yesterday was 300. the problem is, the more they wait, the higher they have to hike rates.
it's hard to say exactly what the market is pricing but it has to be sizable from what i can tell. tom: thank you so much. our entire staff await this important speech. 's wedding to take a look at this chart. i think it shows the brutal moves. i want to to inform our non-calculus audience about first and second derivative moves. two standard deviations here. we went up to 4.2 which defines brutal. audience what is and why youchange and oppenheimer funds really care about that. brain: this is a drastic move
and we've seen significant deterioration. it's been a slow moving train wreck that decelerate it significantly. it's about independence of monetary policy, independence of central bank decisions, and it's led to inflation already been high and a current account deficits and the concerns get worse as policy decisions continue to concern the market. tom: bonus round, second chart. this is deutsche bank. what is so critical here is we rolled over right to the moving average. over butg is rolling is it an opportunity? orris at it all correlated into something ugly? how do you parse that? brain: i think in the near-term were in a moment of some dollar
strength. more say facets are outperforming. is concern in the system primarily in a handful of banks. we don't want to view this as systemic across the system. also want to note that fundamentals a lot of emerging markets, parts of asia, cheap way, are in very good shape. the global economy is in good shape. gan has created a crisis in terms of policy. that could spill over into the european banking system. i don't think investors should overstate this to believe it's the beginning of a systemic crisis that takes down this long-term bull market in the united states. i think creates opportunity in emerging markets overtime. in china, there are two stories.
the trade war and the central-bank policy that is trying to spur up growth or roll up growth at a time when by doing that, by putting extra stimulus, they can force companies to take on more leverage. chinese policymakers do stand to support growth. it's an overleveraged economy but it's not a systemic threat to the global financial system because a lot of that money is of that and a lot lending is being done directly or indirectly by the chinese government. the long-term story doesn't change. they have more millennials than the total labor force of u.s., canada, and europe. few hundred million people to still move into the suburbs or urban parts of the country. with how are they want to press the trump administration on trade and what lola popularity does the chairman maintain within that.
and what level of popularity does the chairman maintain within that. the chinese could stimulate growth and that could help the emerging markets as we had later into this year. francine: five minutes away from the first speech. a second 12 and a half hours from now. if he does not speak for the markets, do you run for the hills? if you are a long-term investor with a well-crafted policy statement and a glide past towards your long-term goals, no, you do not run to cash. if you are running an investment account and you have some exposure to higher beta assets in your concerned about that, perhaps you shift. i think there is going to be a last leg of some dollar strength in here. if you are a long-term investor you see through this and you
recognize that the state of the global economy looks quite good and in most parts of the world, monetary policy is accommodative . francine: thank you very much. this is what the markets are looking at. we are seeing a little bit of jitters on u.s. futures. there's concern that turkey's economic palms will spill into the eurozone and a lot of banks are exposed to this through local branches. erdogan ands on mr. the lira. stay with bloomberg. ♪
site, investors prepare for erdogan's address as the bottom gives out in turkish assets. beware contagion from emerging worrys to europe, the over turkish exposure to european banks. and the chicago fed president, evans, talking about restrictive policy while the markets wait for the rate is to read on inflation. happy summer friday. welcome to "bloomberg daybreak." . david westin is off today. three people probably trading, everybody is in the hamptons and we have contagion worries and huge news from turkey. jason: we are awaiting president erdogan, who talks all the time, yet he has been silent for the past couple days, except for a brief comment earlier, eagerly awaiting what he says, but not sure if anything he says will make a meaningful difference. alix