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tv   Bloomberg Daybreak Americas  Bloomberg  August 10, 2018 7:00am-9:00am EDT

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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: usually what we talk about
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is how the turkish issue is idiosyncratic, but now it is, what is the contagion like? we can see it across assets. futures down by 11 points. u.s. faring better than europe, europe down over 1%. the euro-dollar really getting taken down, down 6/10 of 1%, there are technical levels being spoken about, the dollar being a safe haven. the means you are buying core bonds in europe, and the two 10 spread continues to flatten. and this is on its own, despite the risk off field. jason: that is a fascinating turn of events. alix: it does not make any sense. we have to take these moves in that mindset. jason: we are joined this morning by mike mckee, as well
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as brooke sutherland, bloomberg's opinion columnist. so -- none of us are out there. alix: keep going, whatever. >> i am going in five minutes. said something interesting as we were coming on, there are a lot of folks on vacation and they have to be waking up and to thinking, do i have to get back to work? mike: it is a big deal. our friends at the financial times started this by reporting that the ecb is concerned about the european banks and their exposure to turkey in foreign currency loans. particularly unicredit. and that raises the specter of, could this be another greece? could this bring down the banking system? most analysts i have read this morning say probably not, the numbers are relatively manageable, but the idea of it
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has everybody on edge again. the problem is turkey's financials are not good. the budget of us not bad, but they have a large account deficit and inflation is rocketing higher because they overstimulated. so the choices are not very good. and the president had suggested that he does not want any of them, so people are looking at a wall and saying we need a door. alix: to that point, bloomberg spoke with erdogan and he talked about the central bank relationship with the presidential office. here is what he had to say. areow, first of all, you the head of the state. when the people fall into difficulties because of monetary policies, who are they going to hold accountable? they will hold the president accountable. since they will ask the president about it, we have to give off the image of a president who is influential on monetary policies. alix: that is a question that the market, with the leader at
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another market low, he needs six edge of basis points to stem the tide. >> a lot of it was nice to hear, but the proof will be in the execution and are they willing to make the types of changes that need to happen in order to stem this route. and he just talked about his vision being very much an extension of himself, with the central bank, and following his vision. investors were struck by the fact that they were kept from raising rates after the election and i think the concern is, are they willing to do what is necessary, is he willing to veer from his own beliefs to stop this? that is what we are waiting to hear. jason: this is in part triggered by sanctions levied by the u.s. over the continued imprisonment of a u.s. pastor, so this has a geopolitical tint to it as well. >> and the reports that turkey
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officials met with u.s. officials and there was no conclusion to those talks, no progress made on giving -- getting that pastor back home, i think that is adding to the fears of could there be more sanctions. alix: we are waiting for president erdogan to speak. state-run television says according to remarks there, erdogan says we will not lose the economic warfare being waged against turkey, some more aggressive rather than not. what is idiosyncratic for turkey and what is becoming a sanctioned u.s. geopolitical issue? mike: the u.s. sanctions are a minor part in terms of their effect on turkey, but a larger part in terms of the psychological effect on investors. we have sanctioned two individuals into to come i know banks, not even the government, but two individuals as president trump tries to pressure them to let the pastor go. the threat may be of additional
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sanctions, that could be weighing on investors minds, and probably the least important factor here in terms of what it could do to the turkish economy, but the most important factor of the last week or so in terms of investor psychology. alix: that brings us to our second top story, contagion. come inside the bloomberg and look at the turkish lira, the white line, versus the currency index, moving in tandem now. how much of that is true contagion versus how much of that is -- trading? mike: a little bit of both. this is a reaction to the strengthening dollar, the dollar rocketed up today on the turkish news. and you get headlines like, i do not think charlie evans is hawkish necessarily, but -- alix: i have to make news, come on. mike: it is the pressure others are feeling. and now with the news of
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contagion possibly in europe, the interest rate differential stays wide, but a lot of factors are at play here, however the u.s. is in a stronger position than other countries. jason: the whole idea of, you know, the asynchronous city of this, to some extent, with the u.s., as well as with the rest of the world. and breakdown the difference between with contagion looks like in europe and what it could look like for other emerging markets, what should we be more worried about? >> with thing i want to point rose againstllar not just emerging markets, but other currencies more globally. what is striking is seeing this reaction in the emerging markets, you had not seen these before. these problems are not new. this has been happening. but it tends to be more of an thesyncratic relation --
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thought that these would be more country specific issues, and other central banks have built up more credibility. now, i think that is being tested as these situations drag on. jason: mike gave us a preview of the third story related to charles evans, of course the chicago fed president. here is what he had to say. "it would not surprise me if we made a judgment to move to a restrictive setting." you are the fed guru, restrictive setting? charles evans talking about research of setting? alix: you have to give me a little bit of hock. alexander: not that different from what he has been saying, but he had focus on a because he was begin directly to reporters. the fed is continuing its gradual slow process. sometime next year, they will get to neutral. they do not know exactly where it is, it is a floating concept, so they get to 2.75%, which would be for moves this year, three moves next year.
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they are about their and it might be slightly restrictive. then they will probably stop for awhile. it is not like we are raising interest rates to a level that will choke off the economy, 2.75%. if i told you that your mortgage rate would be based on that five years ago, you would say bring it on. a lot of this goes back to psychology, the idea that rates are going up and we might be a little bit restrictive, but he is not outside of the fed box. alix: thank you so much, mike mckee and brooke sutherland. and you can find all of these charts at gtv , you can check it out, all the charts we are going to use, come and to save them to your computer. alix: we are waiting for the public address from erdogan. we will discuss the fallout in the asset class and the spread to emerging markets. this is bloomberg. ♪
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>> this is "bloomberg daybreak." largest discount airline is taking its biggest target its history today. pilots walking out in a bid to get better contracts from the company known for its pennypinching. forcing ryanair to cancel at least 400 fights. the struggling british department store chain has been rescued. is scooting up the stores, as well as the brand name, for $115 million. that came after house of fraser went to court to seek protection from its creditors. shares of soaring. 375has agreed to invest mind dollars in exchange for equity in the online retailer
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and its lot chains it's a very -- blockchain subsidiary. and that is your bloomberg business flash. jason: thank you. we are of course awaiting president erdogan in turkey. you can see the empty podium, awaiting people. and we want to get a little bit more of what we are going to expect. london is ourm bloomberg mideast it africa executive editor. nice to see you. so, very busy morning. or getting toward afternoon there where you are. what do we think he is going to say? what can he say to calm things down here? wo different t things. he gave a hint earlier where he said people are waging war against us. so, you know, it is -- which
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suggests he will give a speech that is directed at his base, say thatis going to this is a conspiracy against us and we have the strength to hold out and we are going to hold out. what people, or what markets were investors are looking for him to say is, look, we will espouse reasonable economic policies, we are going to ensure the central bank is independent and it sets interest rates in line with what central banks should do to control inflation, which is at 15%. but -- or he will announce other measures that are aimed at dealing with this crisis. measures -- so as this goes on, the measures need to be more radical. five budget basis point -- five
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budget basis points rate hikes was not the issue days ago bid and people are talking about controls, which turkey said they did not want to do. others are talking about going to the imf, which turkey has a history in which they do not really necessarily want to repeat. jason: certainly a lot to look at and as you say, people really, the investors specifically, looking for specifics about what happens next. riad, thank you. alix: what do you do if you are a market participant? we asked many strategists through the morning. >> it is no longer about policy, it is about credibility. turkey has bank of almost no could ability at the moment and i think there needs to be personnel changes. >> turkey has three possible courses of action and none of them are very tasteful. >> as far as turkey goes, i think we have been
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unconscionable with the policy for a wild. >> it has been disconcerting, the steps from the turkish government and erdogan's politicalization of the central banking system and the appointment of his son in law as the head of economics, so i think that for investors we -- you want to be very cautious with turkey, this is not the time to consider turkey. alix: we have alexander dryden to weigh in. turkey assets, not time? bearish have a pretty overview of what is happening with turkish assets. it comes down to the political situation, it is deteriorating rapidly and changing dramatically from where it was a fee years ago, which was a progressive democracy. now you are starting to see the bumping in to turkish economics and financial assets, and i do not want to catch the falling knife. this is something i will leave alone until we see some stability. alix: we heard last week that
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foreign investors pulled $18 billion with a bonds, but they were buying equities. what kind of rotation can we expect to continue? alex: you will start seeing more risk off moves. a sort of sucking out of foreign denominated assets within turkey and people pulling back, that is a problem for a country that is running a big current account deficit and a big budget deficit, it is reliant on foreign funding, particularly from the european financial system, to stay up. if the dollar strength persists, coupled with the geopolitical situation that we are seeing, things are going to get a lot worse before they get better. jason: they will get worse, it feels like, and that contagion. we were not hearing about that really until the past 24 hours. it feels like. how does that play out? alex: let's put that on to the table, the comments from the
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ecb, they are concerned about the turkish financial system and that is a flight concern. when you are looking at the loan books of a lot of these companies, they are not making huge amounts of loans into the turkish financial system. i think it is fairly contained, i think it is an example of what happens if you do not run the economy on a more balanced sitting and you get negative political news, but the on that i am struggling with the ramifications. alix: you can see the lira tracking em. so what is a buying opportunity for you on that? alex: we are looking for a peak in the dollar, that is the entry point. i will not try to time and to the very day, but what we are starting to see is when we are looking at the long-term expectations, we believe the dollar will be peaking in the next few months. the reason being, the deficit will -- and the interest rate
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differentials suggest that the dollar over a long time should be going down. jason: we were hearing earlier, michael mckee made the point that turkey is not grace. -- greece. there is the question of, people's memories are not that short, what about broadly in europe? do you worry about the european story changing based on this? alex: i do not worry about that. the european story itself is actually pretty solid. you look at the pmi numbers coming out for a host of countries, they are looking good. i think it will see a nice second-half rebound in europe and there has an inventory drawdown that will reverse. i do nothing turkey will get into the way. alix: what emerging markets do have the best opportunity right now? alex: i am leaning into the southeast asia-pacific, like
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korea, taiwan broadly. it is a true story. in the late parts of the economic cycle, those regions doing very well as you start to see europe, the u.s. and other markets really firing on all gears. what that does is consumer discretionary goes up, tv's, iphones, cars, which may not be made in emerging markets, they are made in southeast asia. the dollar is a little bit stronger, and we need to look at that area. jason: so as this alix mentioned, you mentioned it too, there is concern over european exposure to turkey, so let's bring in our correspondent who runs fx coverage in europe. what are we to make of this from an ecb perspective and of the concern about financial services exposure? ben: obviously, they are going
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to be concerned about these things. they have singled out bba, priebus bank, and that is taking the euro done with it. we saw the euro dropping pretty much the most to the weakest level in more than a year. it has come off of its decline, but those will linger, so the pressure on the euro will continue going forward because, keep in mind that -- is not long on the euro as it is, even before the support because of the outlook for the european central bank. they are not likely to raise rates, as you know, until the end of summer next year, and the definition of summer itself is under discussion. intol of this is playing the euro and obviously it is on a decline, and it is not clear, even though it came off of lows, how long it will hold its keel.
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that is an open question. jason: i wonder, i think about the newsroom over there in london. this must have amped the interest over there as we are talking about, with alex, that this idea of a contagion and exposure came more to the fore, those are big names, blackrock, goldman, all having some exposure her. e. are people starting to get worried as you talk to them? ven: at the moment, there is no widespread panic. there is widespread panic on turkey itself, but on the contagion fears, i would say less so. it is a concern, but these are sophisticated investors, so therefore you would imagine that they have kind of hedged their currency risks. they know going in that turkey is a country where it has been a train wreck in slow motion, so people know what is expected if
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erdogan does not act. i think that is being sophisticated investors, that they are hedged very well. and which is why you see at the moment it is quite contained. that is one of the reasons the euro has come off of its lows as well. alix: we have an analyst basically saying that the risk equivalent in turkey is upwards of 3%, 2.5% to 3%, so something but not -- it is there. alex, with the euro-dollar, what do you make of the massive slide we have seen over the last few days? alex: i think it is about u.s. strength versus european economic weakness in the first half of the year. me going into the second half of the year, i think that europe's strength will come back and i think there is -- that has to unwind. we have seen the peak in economic growth in the u.s., it
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will be hard to accelerate for the second half of the year as the fiscal effect fades. and as we move into 2019, with the possibility of an ecb rate hike, and the u.s. pulls back on more rate hikes, you will see the correction happen. i think the direction of travel is downward for the dollar going into 2019. alix: will it be a broader europe story, or is it regional, because the turkish exposure for example, that is a france, italy and spain story, not really reflected in the bonds of the peripherals. alex: i will get more excited about the european banks. the removal of the negative deposit rate will be removing the earnings pressure that has been placed on european financials. now, i do not have a particular problem about the state of european financials, htey have increased -- they have increased capital, i do not mind sitting on the debt of european banks
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right now, they're just not the most profitable industries there. right now i hope the debt, and 2019 i might hold equity. jason: since we have you here and we have been talking about turkey, i have to ask about the u.s. we talked about evans getting a little bit more hawkish, how do you feel about the fixed income market given the backdrop that you see from monetary policy here in the u.s.? alex: here, for me i think it is the front end of the yield curve. i am comfortable with where we are going. two more rate hikes later this year, i will be looking for guidance on whether it is two or three in 2019, but i do not think there is a huge number of question marks. the focus is on the back and. the lookup is fighting around 3%, but i think it will break it, move up toward 3.25% by the end of 2018, and push to 3.5% going into 2019 credit alix: i know you have not -- 2019. alix: analysts saying you could see -- exiting turkey into that
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could be 3% of its market value, will we see notes of this getting together because of sanctions? ven: it is possible, because they may want to get out of turkey altogether at some stage, that is definitely the impression we are getting here. alix: and it could be 3% of its market value, so pressure on those banking stocks continues. van, thank you very much. alex, thank you. we are waiting on erdogan getting ready to speak, followed by his financial minister, his son-in-law. can he stem the route in turkish assets? this is bloomberg. ♪ this isn't just any moving day.
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this is staying connected with xfinity to make moving... simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. alix: this is "bloomberg daybreak." a live shot of the press conference waiting for president are to want to make a statement and it things like that and it looks like things are starting to happen. it is a risk off feel due to
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turkey issues and the possible contagion spreading. european banks getting hit the hardest as a lot of french, italian and spanish banks have exposure to turkey it in analysts warning that that could harm their business with the bad loans, and they may have to pull out of the country altogether due to sanctions. other asset classes, similar story to a risk off feel. the euro-dollar getting hit the hardest, ecb warning of the bank exposures to turkey, dollar being the safe haven of choice. calls for the lira to hit seven. talk about a falling knife there. 26 basis points if you want to buy bonds. that is the thesis going into the cgi. and could on its own -- crude on its own drum right now. alex.e joe weber and i want to start with you,
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because we were going to talk about the life of steve mnuchin and how he got to where he is, but now he is the sanction guy. >> we wanted to put him on the cover this week, another compelling cover. the thing i like about this story is it is a little bit of a window into treasury under donald trump. that is the cover line. you are ais that little quieter than donald trump, you have a place, right? but to bring it back to sanctions, this guy knew nothing about international affairs or international trade, china, yet he is now the guy leading all of those efforts. jason: i am so glad you pointed that out, because as he has defined his role, it is very different from previous treasury secretaries, who really focused much more on policy, they talk a lot more about the dollar, a lot more about a strong dollar, as a matter of fact. >> there have been a couple of
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gaps. jason: and a couple to versions from previous policy. as you say, steve mnuchin has taken a different tact. and the sections have been one of the most important pieces of his portfolio. >> tax policy, trade and sanctions, those are the three things. and within treasury there is a feeling if you are not in one of those three buckets, you are in the cold a little bit. there is a little wheelhouse, those are the people who have been working in will continue to work. so between iran and venezuela, whatever happens in turkey, and the big one, russia. the lead in forcing a russian sanctions going into midterms, and it is yet another thing that makes all of this time so compelling. jason: as mike mckee mentioned earlier, the sanctions on turkey so far has been so limited. it is on two people, not the broad sanctions we have seen on
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other countries, which is a fair point. the other point is that this is a geopolitical hotspot at this point, and part of what feels like is driving this market so insane is the potential of more sanctions. alix: great point. to your will house, alex, how do you hedge? alex: against turkish risk? alix: geopolitical risk in general, i have to factor into the market thesis? jason: like a sanction rich world. alex: the unpredictability that comes with that, it could be triggered by as much as a tweet. when we look at geopolitical risk, we focus on the long-term perspective and it is about whether or not you think that these geopolitical risks are going to leave too many scars on the economic backdrop of a particular country or asset class. turning to the trade discussion, we see a lot of noise, but the
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actual economic impact has been somewhat limited. therefore, for us, when we see investor sentiment getting rattled over trade, it is a buying opportunity because we do not see it changing the economic backdrop, therefore not looking to try to hedge. alix: i like that you brought up tweets. different management styles, when you have a president who is tweeting and it no longer doing policy announcements, he just does it through tweeting, where steve mnuchin actually have to get things done. >> he is actually like almost like a cipher of donald trump. alix: what he really meant was -- [laughter] that was kellyanne conway during the election. joel: in argentina, where he comes out with a big tweet and steve mnuchin has to tell all the counterparts there, no, i have talked to him. he is this translator. and because of that he has to let donald trump have a more public profile, keep his mouth shut in public, then back channel.
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that also speaks to these other dynamics, navarro, lighthizer, it is a shark fest and here is steve mnuchin trying to be one of the last remaining moderates. jason: also worth noting, president erdogan is a guy that the president of the u.s. has gotten to. when he has been a big meetings, it is a guy that he has sought out and has a style that -- joel: there are interesting parallels between donald trump, erdogan and how they actually interact with government officials who are the heads of treasury and other agencies. jason: and people who are related to them. we are waiting on an additional press conference from his son in law, who is also the finance minister. alix: and also iran. there is a narrative that eventually countries like iran locate because there is too much economic pressure, but on the other side, why would you do that? erdogan said the same thing, as
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it come into the struggles, we will fight back. president trump is giving other countries somebody to blame, so that means we will continue to hit at these stalemates. i understand you want to look for opportunities, but how do you deal with that downside? alex: one area you want to look at as you are in investor hedging against the middle east and of the political environment is to look at the oil prices. right now, the geopolitical risk premiums is baked into oil prices, and at their highest levels since the arab spring. investors being a little bit nervous about the geopolitical shifts happening in an area that is responsible for 50% of the world's oil supply. any disruption, any flame that starts, could see those prices get disrupted. if it looks like the close of that wouldof --
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lead to a rally and it could be risk to build in political premium, at least in this part of the world. jason: i feel like you set him up to come that way. alix: i didn't. i swear. but you have seen the attack on iranian vessels, so there is a trickle-down contagion from that point. jason: one of the headlines that got lost in the shuffle, it feels like, is the political tensions between saudi arabia and canada. alix: another leader who is very confrontational. jason: absolutely, and that has an impact on oil, again. alix: it is all about oil. jason: that is the sort of, i would think, confrontation for lack of a better term, that would push the middle east in a different way. alex: you combine that with supply and demand that backs up oil to be higher than where it is now. on the supply side you see a lot
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of disruption, particularly in venezuela, then you look at the demand side, we have a global economy that is continuing to pick up momentum that is eating through a lot of inventory. yes, shale production is keeping a little bit of a lid on that but it does not offset the swings in the middle east. alix: we are waiting for the press conference from erdogan and his son in law speaking later today, what will stem the route in turkish assets. there could be a six under basis point hike. that could be the only thing we need good jennifer ryan, bloomberg opinion editor, i want to bring in a specific quote from one of your columnists, saying that there are only two ways that the diplomatic risk between the u.s. and turkey can end. or aet a compromise, complete rupture with devastating consequences for turkey's economy and america's regional strategic interests. either way, no going back to the
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way things work. that is pretty binary. can you give us a lay of the land and what we will be looking for in erdogan's speech. jennifer: i am sure investors will be looking for some clear signs on what the policy will be that will get the economy back on track. one thing i want to point out, this is not just something that is a problem for turkey, it is bleeding over into european banks. our columnist had a piece today that looked at what the damage there was. alix: and bahrain coming -- barring him saying, we will have a move of 600 basis points, the other option could be looking for a bailout from a imf. what are the other options in what is the reality behind the? >> one thing we have focused on is who is it that is leading the economic policy here. something that has put off investors is that erdogan
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replaced officials that were well known for speaking directly to the markets, with his son in law. it is not just talking about one hike, but there will be continued dialogue with investors so they can see that there will be some sanity restored it to policymaking. jason: jen, as you alluded to, this would be a big turn if president erdogan decided to raise interest rates, given how vocal he has been again -- been. and again, that go back to the united states and donald trump weighing in on those kinds of policies as well. what is your sense as you look at it, and as you talk to calm this there, about the broader geopolitical impact of all of this playing out as it is? jennifer: well, what is at stake -- one way to look at it is to consider what is at stake with the relationship between the u.s. and turkey. the u.s. is in a position to in the regionrder
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and turkey is an excellent gateway for that. by the same token, the muslim majority nations in the region, there is none that can replace turkey as the gateway to the west. so for sensible order to persist there will have to be continued dialogue and the improvement in u.s. turkish relations and it is hard to see how that will come about. alix: you couldn't have said it better. we have heard from an aid telling fox news that donald trump is working to bring that pastor home from turkey, so that is not really an open relationship. jason: i am glad jen brought that up, because as alex mentioned, we are in a situation where not too long ago, you know, turkey was on a much more progressive path and it does hold a crucial, crucial place in terms of the region and the region's influence and relationship with the rest of the world. especially the united states. alix: we are looking at a live
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shot of the conference, waiting for erdogan to begin speaking. according to a tv station he said that turkey will prevail and economic warfare triggered by u.s. ascension's over the pastor, you could make the argument that that is a diverging conversation versus the economic trauma that the country is undergoing at the lira continues to get pounded at a record low. and the contagion is spelled out over different asset classes. futures down, european stocks getting hit hard, european banks getting hit hard, the financial times with a report that the european banks, such as unicredit, that have exposure to turkish banks could be hit, could perhaps have to close up shop there if the u.s. ramps up sanctions. radio --where do you go? the dollar and bonds. avoid anything like the euro, or like of the lira. we still have joel and alex with
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us around the desk. jennifer ryan joining us in london. so, joel, you had a great cover on steve mnuchin. set the stage of what the and ministration will be thinking about as we are waiting for president erdogan, and as his rhetoric is going to be about the u.s. and turkey. joel: the inflation theme will be the want to watch. that will be the enduring thing for them to grapple with. and it is something that if they cannot get control on it, we do not know what will happen. and we have done multiple stories about this, there is this institutional problem there with the people who have been in charge of the finance ministry are no longer there. whose hands are on this wheel right now? jason: the whole idea of not being able to really fun tertwine, i -- un-in
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do not think that is a word. alix: hm. jason: it is friday. [laughter] trying to separate the geopolitical from the geoeconomic has got to be one of the biggest challenges of your job in this case, because as alix was saying, president erdogan will make this all about politics and about the relationship with the u.s., even while he has a massive economic and financial problem at home. how do you make sense of it? alex: it is one of the more challenging aspects of the job, working out when politics will leave marks on the economy and how much of it is noise, how much will actually be implemented. a plot of what we see in turkey, unfortunate, is politics leaving marks on the underlined economy. that is when you have to pay attention. there are geopolitical events elsewhere in the world, where it is harder to understand the ramifications, go back to the north korea debate earlier this year. a case study.
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despite it having devastating consequences potentially from a geopolitical point of view, try to understand how that implements the markets is difficult, because there is a myriad of potential outcomes, which makes it difficult to price. with turkey, however, it is a binary outcome about where this thing is going. if you keep going down this path, the turkish financial assets will keep seeing pain and suffering. alix: based on the u.s. of the last couple years, even with the brexit, it did not pay off at the end of the day. the three options i keep reading about that erdogan can do, you have some kind of dramatic action, hiking rates like argentina did when they hiked to 400 basis points, they can do capital controls or go to the imf. in your research, what is the most likely? jennifer: it is hard to put odds on any of those, because we do not know what erdogan plans to say. he could come out with the same
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line that has been trailed all morning, that he will be happy to continue to fight in economic war. looking at the three options he laid out, what investors want to see sort of as an immediate measure -- alix: hold on, we are looking at a rally as president erdogan gets ready to speak in turkey. let's listen as we hear about how he will confront u.s. intentions and market turmoil. [shouting] alix: ok, we are working on a transition for you. it is a heavily populated rally, no doubt erdogan playing to his base and a talking about u.s.
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aggression and how they will aggressively push back, especially as a presidential aide tells fox news that they will do everything they can to get that pastor back. a large crowd forming. we are also waiting for a press conference from the finance minister, his son-in-law, as well, and what if anything they will do to stem the tide of the lira selloff. 600 basis points is where we need to sit. michael mckee joins us now. geopolitics,out can you bring us into the economic world of turkey right now? mike: not a good picture. turkey has spent a lot, erdogan spent a lot to get reelected to stimulate the economy ahead of time. and now it is at 15%. so they have got a problem there already and a very large current account deficit, that will make a harder for them to pay their bills if the lira keeps falling. and a lot of companies that have dollar denominated loans, they
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are the ones that will feel the pain first as the dollar continues to strengthen against the lira. alix: we were talking about the three options, imf bailout, capital controls are central bank action. all three of them probably not realistic. jennifer: again, i think it is worth speaking about what investors want to see in the near term and what will be available for long-term recovery. what he will have to see is the strong man climbing down from some of his it really unorthodox views about monetary policy and what the economy actually needs. jason: we are getting a translation now, so let's go live to hear what president erdogan is it saying. >> today is that day. before i continue, i would like condolences and good feelings and support wishes for those who suffered from the
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flood problems. will protect all of us from such terrible occurrences. there are those who suffered with damages at their houses, workplaces and fields. and our state and our government will lend the necessary support to those who are the victims of the flood tragedy. also get together with my lithium -- from our lyceum times, and i would also like to announce that the public opening of the circular route, t he travel route, that was built
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recently. and it is going to be beneficial for the whole region. no one should be concerned, we have enough and we will combat the situation. but i still repeat, if there is anyone who has dollars, gold or euro under their pillows, i am asking them to take them into the banks and exchange them with turkish lira. thisis our response of -- is going to be the response of my nation to those who are maki ng this move, this hostile move to our country using the currencies. today is the day when we need those foreign currencies. let us respond steely to those
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people who are making our economy suffer. area that ish an famous with the beautiful nature around, as well as the maturity and understanding people of --. in history, it has a critical role in turkish history, a very special role they played. our ancestors here. and they have settled in this area after --. including the leading name of our literature, this is an iconic city where many important people resided in the past.
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this is such a critically important location. fromhis city suffered occupation and also became independent. so the people know the importance of independence. and therefore i would like to repeat, if you have any dollars, any euros, or gold, please exchange them with our domestic currency so we can respond properly in unity, as a nation. are you up for this? are you ready for this? brilliant. this is the strong point. this is the strongest point that we have, that is our unity. this is going to be our response to the west. and this city was one of the leading cities in our
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independence war. and in the same way they continue to be leading in terms of this support for erdogan. ofse supporting huge numbers support gives us a clear message. in fact, 81 million of our citizens, even those who voted for the party, unite with us in this message. our nation is expecting us to stand up for our four rules. our voice so that no one in the world will -- or everyone in the world will hear. are you ready to give our answer? one nation, one flag. one country, one motherland.
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and one government, one state. this is our understanding to gro w our country. highery our success to levels. before we came here, before the friday prayers, someone, a religious leader here, built up a museum on the hills overlooking the city. we have visited that museum before coming here. and we have seen our grandfathers,our what they have produced. we have seen the pottery they have created. you have created so much. we have seen them all.
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a dean of the university came build this area and museum. we thank him for doing this. this is how we protect our nation. this is how we serve our nation. even at a regional level. so, in order to do this, we are not in fear of challenging these countries. or any number of countries. in the same way that we never had the fair to challenge and fight back -- fear to challenge and fight back the terrorists of the world as well. so we will not be afraid to remove the heads of those who are betraying our countries.
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because we are only responsible to god and to the people. not thent back to you, accounts. you people.o to this nation. we have started this campaign. we have taken up this route in order to be servants of this nation. ruleo dominate, not to as such. other than that, we do not care whatever plots or scenarios we are facing. we might suffered difficulties a o, but we can overcome that sort of difficulty. they have done everything they bring our nation into
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suffering. they have tried every type of attempts.inister havehe republic that we founded has not been shaken with these plots. everything byd could because and other attempts to reroute our democracy, but on the contrary our nation did not give up. on the contrary, we fortified our democracy. they tried to damage in the main body of our democracy, but our nation did not give up. lent the necessary support, and
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made turkey stand up again in unity and strength. are people talk about the herd going backwards, but the lame leading. we can see that sometimes the lame ones, they came into leading positions and became strong, but we have combated and we have overcome those situations. we know who is around, who is looking for power for their own ends or for our country's ends. so we are confident, we are hopeful for a good, strong future for our country. on the 24th of june, the results of the election have been an
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important expression, a demonstration of how strong democracy in our country is. it was a worldwide listen to other countries. a change of government has been held in the biggest possible democracy -- democratic approach. -- successfully moved to the new presidential governing system. achieved by the very nation of our country. so our country, our nation is entitled to be in the top of the lists of the democratic nations. anotheracing yet meaningless wave of attacks.
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on the night of the 15th of july, two took side not with democracy, but with the -- and they did not observe, they did not obey to the nation. and they took other routes. they supported the terrorists. in the recent negative developments in our economy, we have yet a different aspect of this unpleasant development. neither in a macro levels, nor in banking systems, nor in the production levels, we do not have even the minimal difficulties, but we still suffer from an artificial financial pressure. have different
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reasons. this is obvious. that approach displayed by these countries, unfortunately, the relations between us and those countries will suffer from irreversible damages. we do not have any problems with any countries, so in respect of the issues we have mutual interests, we cooperate with these countries and if they differ in our approach or interests, we try to negotiate and work out our differences. however, if it comes to a point where they want us to compromise from our independence, our economic independence, we cannot compromise. we cannot compromise, we cannot yield to any pressure regardless of where the pressure is coming from.
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we will -- they will not make our nation fearful. these threats will not make our nation fearful, either. they do not know our nation very well. and theion citizens, supporters in the world of these citizens, will be able to come back in any circumstances. we are such a nation. we can get together and act in unity. and our ancestors have a saying, do not
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you will not be shaken. we only trust in oregon, we don't trust anything else but our god. on other saying that is we put our confidence ah we approach every good step toward our country. we have done so in the past and we will continue to do so.
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we make people feel hopeful that our country will suffer economic difficulties. interest rates, i am addressing them. don't get your hopes high. you will not be able to crush this country. you will not be able to raise interest. you will not be able to benefit from the suffering of this country. conditions.mporary yesterday, you may have different parameters. they may be different from iran to russia. , we have taken important steps toward finding different alternatives.
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faitheally counts is the in our hearts. says, theous poet real gem is the faith in people's hearts. if you don't have faith in your heart, it is a burden in your chest. this is what we think. our strengths come from our faith. our strength to fight is also based on our faith. country willevery march on with turkey will win. those who make calculations to make our country summer will regret what they have done in the future. important details.
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on the 15th of july, we have defended our country. way, we are -- my currency and interest rates. it is no different from a military coup attempt. we will fight back. this is our biggest response. we will increase employment. i invite them to use all of their resources to increase employment, to increase
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productivity and export. the when we were campaigning. in the same way, we are doing this economic campaign. markets isiling the everyone should take their dollars and golden by the lira. stocks are rolling over. bonds continue to selloff as well. if we were looking at some kind of hope or roadmap for how they are going to navigate the drama in the financial markets, we are not getting one. jason: there was an interest rate hike, that was unlikely given what president erdogan has said it.
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some capital controls, is answer in this campaign rally style speech is go into your pillow,es, under your take those florida currencies and exchange them for the lira. it is not responding well to that. >> one of the most open statements, turkey will not given to economic hitmen. statement.triking we are waiting for his son lot to speak as well. we are waiting to hear what he has to say. things like capital control is potentially coming up through him. he really seems to be stumping at the end of the day. he has a very large crowd of supporters. we will keep listening and as the markets continue to roll over. day,is the theme of the let's continue to listen.
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our government by these protective steps. continue,ermined to no one should be bothered and keep looking to the currency tables. you should be able to look beyond the currency table. you should look into the bigger picture. this is what i want for my people. we will work hard to make these provinces become bigger. attempts.ce these services, all the investments in particular
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provinces, we share this with our citizens. benefits will be enjoyed? this is the smallest population we are facing in a province. have investments. they have been made. 507 classrooms have been built in education. we have built a university. education, we have built dormitories. these are being built. hospital children, a
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has been built. family healthers, centers have been built. two big hospitals are in the process of being built. 1000 socialt housings. we did not have multilane roads. we have introduced these roads, 2000 kilometers long. as i said, i was able to speak from the museum there.
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650 million lira was the cost of a title. final -- tunnel. more than half of that is complete. ready to bewill be used. that will help transport easily, and adjacent one is almost complete. will bennection roads ready to serve my people next year.
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connection roads will be open next year. roads will be built in the year after that. 2 million passengers a year will airport.rom a new you will be following this up. you know what i'm talking about. the capacity of the airport will be 2 million passengers per year. they will be able to benefit from their very own airport. 2020, and airport will start serving those people. 2018.ost completed
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we resolved the problem of drinking water. of river, that will prevent possible floods in the future. war, 6000,t world large area will be a historical national park. who plot of those against enemies in the first world war. you will follow this up. >> we're monitoring president
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turkey -- and one of turkey. the market is in the way believing that. i want to break it all down in different directions. joining us is michael mckee. mike: it's a strongman standard speech. in this case, it seems he is putting the blame on financial markets, unnamed financial markets. he is saying they are out to get turkey. the only solution he has suggested his turks who have shouldr dollars or gold come in and exchange them for lira. the market doesn't believe that. the lira is tanking on this.
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maybe on the idea that the nation won't give in, won't back down, the market may be reading there are ways to deal with us -- this which would have been backing down from his previous positions. >> let's get to trade. join us on the phone is paul. questions, how many sellers are still left in the market? point it'sat some going to be a fantastic buy. when you get a big selloff like this, it creates value. it's not going to be until something changes. stance, theypolicy don't have a foreign currency to cover their needs, especially for european banks which are spooked or reined in by the ecb.
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our best guess is they will need the imf, they can put together a coalition of chinese or qatari and. theireed to change approach. that is not on the agenda right now. >> given what we have heard and seen so far from president erdogan, how much do you worry about? can this be contained to just a turkey trade? >> there aren't really any other emerging markets that have the same toxic blend of what turkey has. has externala deficits and they don't have as much domestic debt. really disintegrates or goes into a major crisis and they impose capital controls, that brings the asset class into
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disrepute. that would worry us most. we are weeks away from anything like that. >> it's all about are we going to see some kind of stabilization. 1000ad fidelity saying basis points would be needed to stem this. how many sellers are still the market to wreak havoc on these asset classes? saying 20%y is it's notond yields, about interest rates anymore. that's the one thing where he has a point. rate hikes will not cut this. the trouble with hiking rates is work for the banks and they are ground zero. >> what is on your shopping list as we see this selloff?
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paul: we are not buying anything in turkey. there is money opening up across the yen. we have a stronger dollar. brazil and russia look more interesting to us. we are underweight or short where we can be in turkey. we're not doing anything to take those positions off. >> thank you so much. it's great to get your perspective. let's get you caught up. resident erdogan is finishing his speech. it felt like a campaign rally to a large crowd. informationng on from the finance director. turkisharket, all assets are selling off. everything is down 8% in the u.s. they are going to be buying the dollar and read buying bonds.
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there is a point to spread here in the u.s. as the 10-year is coming in at 2.89%. let's get more detail as to what we can expect going forward. us from the phone is a political science professor. walk me through what you've learned. >> say that again? alix: what me through what we've learned in the last half-hour. >> i think we learned two things. number one, turkey is facing a major international conspiracy to undermine its economy. infrastructure will be continuing it. in view of what we have been talking about, there is not an interface or correspondence
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between these two approaches. thinkesident appears to that the crisis can be met by a number of local measures, mainly by encouraging self sacrifice on the part of citizens to take their dollars to the bank. whether those would be enough, if people did that to meet the needs of the economy, that's open to question. >> we're hearing now from the son-in-law, the finance minister. we are going to listen to that in translation. you can go to live go. where does it go from here? how long will it take in your estimation for turkey to stabilize economically? actually, this is an
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extremely difficult question to answer. year --d have to first here a new policy as to how long it would take for the economy to stabilize. what we heard from the president is essentially does not propose new policies, but simply argues that the investments will be continuing. time, the lira has been faring against the dollar on a daily basis, the law says been tremendous. i would be inclined to think the thernment has to redefine position.
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at the moment, the government seems not to treat the existing situation as a crisis. some things need to change for them to think of it as a more serious situation than they seem to think at this time. thank you very much for joining us. set,u are joining us on you called this earlier when you came on set and talked about turkey. once the contagion effect long-term? >> we have seen this movie before. this reminds me exactly of when malaysia in 1997 claimed currency speculators for the problems in malaysia during the asian financial crisis in 1997.
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there was an imf report put out last year. it showed a matrix of countries that were preparing the balance sheets and those that were not. three countries were in the far right-hand quadrant that were ,ot preparing balance sheets even with record low interest rates. they were the united states, china, and turkey. this is a fundamental problem that they have taken on too much debt. their banks of use the debt market to finance themselves. that to me is the problem. the playbook is that there is more contagion to happen. there is more bad market reaction to happen over the next several weeks. matt: what does it look like in the immediate? constance: you brought up are really good point, not many
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people hold turkey anymore. you can sell your good assets to fund your bad assets. that's what caused the contagion. that leads toon the european banks that are exposed to turkey. that's going to get them to look under the hood at banks. a report on asian debt, a lot of it is financed by european banks. alix: how do you hedge it? mark: you stick with what works. you look at the fundamentals. the u.s. is considered -- continuing to deliver the goods. it's the only one that still has positive earnings trends. emerging markets has been muted for a while. we saw what happened with europe. earnings revisions have been poor. we are wrapping up the earning seasons in the results are stellar. i think you stick with the u.s..
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matt: you are both staying with us. it's been quite a morning. we are getting a lot of headlines this morning obviously from turkey. we have more to come here in the united states. alix: we will have some turkish coffee during the bait. we are going to get the latest read on u.s. inflation. with the be along hawkish side and how that will influence the markets. this is bloomberg. ♪
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alix: you've got risk off day in the market across all asset classes. the dow is up by triple digits. european banks are getting hit hard with exposure to turkey.
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in other asset classes, you are buying the dollar and buying bonds. passed 6.1 pert dollar. a dramatic, this is risk off day we are entering. if you look at the core backing out energy, it does come in a higher. the headline number coming in just under that 2.9%, this feels like a consistent cpi reading, very consistent to what we heard yesterday. jason: this is the biggest since september. that is substantial as we look at it. we will have to see how the market reacts. usual low-volume at this point in the summer, also given what going on
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overseas, we will look at this all morning. alix: we get average hourly --nings, they are down by 2 .2%. we have weekly earnings coming in a little bit higher at .1%. that is a little bit of data on wages. asset classes will be dominated by those numbers. there you have it, the biggest annual gain for cpi since 2008. that is coming in at .9%. still with us is constance hunter. americawith bank of merrill lynch. thisme your impression, is stable or a rising story? constance: i think inflation is creeping higher. the concern would be is there any catalyst that would make it shoot higher?
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prices,e see higher oil i don't see a catalyst that will make it shoot higher. when you look at wages, they are still growing at a modest pace. at some point, everyone expects the phillips curve to kick back in. right now, there are not the wages to have significant demand for inflation. to somee do want to get breaking news here. recommending them to vote for the deal. you can see the stock moving there. it is up 4% in the premarket. this has obviously been a much watched deal in this age of big m&a. shift back to the economic news. what did you make of this?
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mark: it's coming in line. we should see a gradual increase in the inflation economy. it is booming right up. the u.s. is looking really good. we see that evidence in earnings. you have seen an explosion in. it -- this is really healthy. it is interesting, small caps have benefited from weaker growth abroad in the dollar strength. when you dissect what is happening in the market, you see multiple compression across the market. it's the only region that has seen multiples expand. given the leverage that small-cap has, given the fundamentals are better, i think
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the momentum is there for the rest of the year. alix: are we still protecting corporate margins? wageance: because the part, we have to think about the tariff impact. tariffs would increase the cpi. we have a strengthening dollar, which helps to defuse that somewhat. i don't think the tariff story is over. i think there is still some impact going forward. this increase is an important factor. appreciation of the tax law change. that will create investment we might not have. that could be inflationary before it is productivity enhancing. then: if you're sitting at fed right now, you are thinking
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about the things that some of the people have said over the past time, how does this make you feel? mark: if you put the data in perspective, there are continued hikes. it is safe to assume in september we will see another height. seeing the trade data affecting earnings. some companies have mentioned it. when you talk about wage pressure, it is still being passed through. is an acceleration from the 8% we saw in the first quarter. when consensus was expecting q1 to be the peak of earnings, that was quite remarkable. veryottom line is we see healthy economic data in the u.s..
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we see inflation picking up. it is still a constructive backdrop. alix: what they did was brought their rate hike forecast forward. it is a defensive call. is that the right framework to be looking at the economic scenario? it's difficult to make a recession call in this environment. there are two things it cause recessions, they are caused by a that leady shortages to inflation, which leads to faster rate hikes. we have been there. we've been in that stance for about seven months. that is my view as well. visibilityve enough
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on the timing. timing, butt the stay tuned. jason: this make you feel better about the u.s.? are we seeing a divergence? is it'sottom line follow the fundamentals. what has been the best performing factor,'s companies of seeing positive revisions. doing your homework is paying off. shareholders are being rewarded for that. after two years of not seen rewards, you start to see them again. then your homework is paying off for investors. jason: mark and constance, thank you very much for joining us. i want to go back to those
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headlines around cigna and express scripts. you are seeing the premarket there, cigna is down 1.5%. this is a pretty contentious deal. carl icahn figures into this. he has been pushing to derail this deal. alix: he says they are overpaying. they were trying to get the deal done. iss nose of prize that cigna down. even if they overpaid, shareholders don't think it should go through. entering --ll be interesting to see what goes on. carl icahn is not a shrinking
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violet. olde's nothing like a good m&a battle to heat up a friday. let's get an update on with making headlines. emma: in turkey, president erdogan bounces country will win the economic war being waged against it. to converthe moves into the turkish lira. many investors are looking for more drastic calls from the president. in the u.s., lawmakers are divided over the plan to create a sixth branch of the military. mike pence and james mattis appeared to announce the creation of the space force. congress would eventually have to fund it. california, 20,000 people have been told to flee a wildfire that is moving close to
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their homes. one person has been charged with setting the fire. fire crews in northern california are reporting more progress. destroyed 100 homes. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. i am emma chandra. alix: you've got two things leading the market, one is the cpi data that came out. since the biggest gain 2008. core is coming in solid as well. airline fares are making a big move. all of that part of the market is being dominated by risk off deal. the dollar continues to rally. jason: coming up, what a day.
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what a week. it feels like three weeks ago, but elon musk sent out a tweet and said he was thinking about taking the company private. it roiled the market in a different way. we will discuss that with an old friend of mine from the university of chicago. this is bloomberg. ♪
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emma: i am emma chandra in the green room. coming up, the open. this is bloomberg. jason: it felt like the story of the week was tesla. elon musk came out this week with a cryptic tweet, saying he had committed funding for a $420 a share eye out. this is the carmaker that he controls. he also has a spaceman as well. we've been trying to make sense of it. let's break it down a little bit more. breaking it down is an old
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friend of mine from the university of chicago. david is our detroit bureau chief. i want to start with you to bring us up-to-date with where we stand and what may happen next with tesla. david: the board is going to meet with the advisors next week to figure what they should do. whenever there is a leverage buyout plan or an offer to buy a company, the board has to make sure that the interest of shareholders is represented at whatever structure, in these to be in the best interests of the stockholders. they are in a precarious position. they have a very charismatic ceo who hates being the ceo of a public company. he doesn't like the scrutiny of the markets. they need to make sure that whatever offer come zenit, it's really in the best interest of shareholders.
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$420 a share is not going to do it. there are long holders who think it's worth $570 or more. routine, i is partly think you know nothing is routine when it comes to tesla. you've been following buyouts and m&a and corporate governance for a long time. what do you make of this? what needs to happen next? stephen: great question, it's great to talk to you, jason. this is really unusual. it's not exactly a leverage buyout. we don't know exactly what it is. it's $70 large, billion. it would make it the largest buyout ever. this,ally unusual about the company is cash flow negative.
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most times when you see a buyout, they are generating a lot of cash. that allows you to borrow money and buyout the public shareholders. that was the case of dell a few years ago. here, he is cash flow negative. where is he going to come up with $50 billion, that's what he would need to do this, insiders hold $20 billion. he's going to need $50 billion to get this done if it's at $420. that they question here is where is the money coming from. it's probably going to have to be a big equity check. we don't know where that's coming from. jason: some of our reporting this week pointed out softbank was one of the companies that had preliminary conversations
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with him about a potential transaction. cityammond was in kansas yesterday and spoke with the softbank coo about whether or not they might be interested. we won't comment anyway, but on,here is a deal going there's a chance we are going to be part of the conversation. jason: tell us what the rest of the car industry is saying about this, what does it mean for other big automakers? >> they are upright with the rest of the car companies. stakestablished carmaker elon musk's gotten a free pass. he misses his production targets
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, he inevitably falls short of the guidance he gives on financials. he says he going to be cash flow asitive, they look at him this guy who because he's making electric cars doesn't get the same scrutiny. -- they're watching to see what happens next with the company. it doesn't really affect them other than what going to happen to our big competitor going forward? jason: thank you for joining us. he is a professor at the university of chicago. alix: the lira as at another record low. president trump tweeted out, he todoing tariffs on aluminum turkey. our relations with turkey is not
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good at this time. we will break down the currency reaction next. this is bloomberg. ♪
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alix: president trump increases tariffs on aluminum. join us is our micro slot. where do we wind up? there are so my things going on with turkey right now. you've got a 10 year on tuesday. s&p will rate them next friday. i would not be surprised. jane: i think that's right. there is too much uncertainty. there was defiance, there was nationalism and nothing giving
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advancers -- investors what they want. jason: i've got to ask you, this continues to be up. we just got a tweet from a president trump. what happens from a broader perspective beyond turkey? vincent: you will see something of a contagion. borrowed as many emerging market countries have in u.s. dollars to fund their debt. it is more expensive to repay. that weakens the entire structure. there not talking about asian contagion of the late 90's. it could spread deep enough within europe to affect other emerging market currencies. euro-dollar is taking it
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on the chin today. jane: there is a bit of both. liquidity has been low today. that has been a contributing factor. breakout andhad a this was the incentive to break lower. morning of thes european banks are being exposed. it's been a watchword. yesterday, it was idiosyncratic. investors are concerned about a contagion. but we don't know exactly is to firms exposed to turkey. this is evidence the market will try to analyze over the next few weeks. our view is it's going to 112.
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i didn't think it would go below 115. it could hang around. there been several differentials. the outlook for risk is poor. that is bad for emerging markets. i don't think that's going to stop anytime soon. jason: we have some expected news in cbi. how do you look at the u.s. in the context of this world it seems to be a flame or unsettled. vincent: it is smoldering. that, itsee data like speaks to that positive differential. it makes our assets more attractive, especially with this kid situation. jane is right. idiosyncratic, now it's a contagion issue.
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it's at the forefront. alix: thank you so much. we really appreciate it. it is a risk off day. you have contained from turkey spreading. you want to the buying bonds in selling off these assets. night we went to bed last
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. .
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jonathan: i'm jonathan ferro. 30 minutes to the start of training. -- of trading. this is the countdown to the open. ♪
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jonathan: coming up, turkey getting closer to the financial meltdown. board forging ahead with its review of elon musk's ambitious plan to take the company private and u.s. consumer prices come again as advertised, underpinning expectations of the fed will raise rates in a month. more risk aversion, futures down 14 up by .5%. in the fx market, the dollar story, the lira falling to a record low. resident erdogan failing to stem the rep. of turkeytral bank has almost no credibility at the moment.


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