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tv   Bloomberg Daybreak Americas  Bloomberg  August 5, 2019 7:00am-9:00am EDT

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kong people are now in a stage of great society. ulterior motive are going to destroy hong kong. >> a warning from hong kong's leader carrie lamb as the strike cripples the city. the ninth straight weekend of unrest. and china fights back with ybeans to stop buying u.s. soybeans. global beyond -- bond yields sink. and the bank will fire more than 4 million people from hsbc. >> welcome to "bloomberg daybreak" on this monday, august 5. i'm david westin right here with alix steel. we have the mass shootings over the weekend but it's not the only geopolitical event. >> no. 29 people were killed over those two shootings over a few days in a al, this is according to
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not for a not for profit group. 251 mass shootings in the u.s. david: so the shootings over the weekend were one of many political developments we're watching all over the world this morning starting with those violent protests in hong kong. president trump tweeted this morning in part, we cannot let those killed in el paso, texas and "bloomberg daybreak" die in vain. we can never forget them and those many who came before them. -- he just tweeted out a few moments ago. the new york stock change and the nasdac will observe moments of silence and president trump will make a further statement later in the day.
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we welcome marty schwenneker to the show. the president said he's in favor f background checks. >> that's not going to happen. it did pass the house overwhelmingly. it was stocked like a lot of legislative efforts in the senate. mitch mcconnell can bring that bill to the senate floor. he can call back the senate to pass such situation but conflating it with immigration reform is just going to complicate matters. david: given with we were becomes political very quickly. candidates saying president trump bears some responsibility, perhaps. marty: yeah, the democrats need to tow a very careful line here without seeming to take political advantage of the tragic event. look there, are very few
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profiles encouraged in the whole gun control issue. our founder is very involved in this issue. but ultimately, there has to be some sort of leadership that coalesces to actually pass some meaningful gun control legislation and there's no sign of that happening. alix: if there were to be that, where would that come from? marty: it has to come from a bipartisan group of legislatures who say lest put politics aside and let's get something done. but you're not, i mean, even background checks won't do everything there is to control this gun violence in the united states when you have more assault weapons to the hands of private citizens than there are in the military. there needs to be a comprehensive approach to this and until somebody shows moral leadership to do that, it seems unlikely. david: which seems right except people have said that again and again and again. there's been so many instances where you say this time, there's
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going to be some comprehension. marty: why would this time be different? david: that's the question. alix: what we're seeing different is the private sector starting to change their relationship. like certain banks don't want to make loans for gun makers. wal-mart not doing anything differently but the chatrier where some of the extremists propaganda can come out and saying we are going to ban that chat. marty: in the absence of political leadership, it is efforts outside of the political arena that now seem to be gaining some momentum like banking restrictions, like individual states and cities passing their own rules that have the effect of really meaningful change. so maybe it takes extra political efforts among the population to get something done. alix: thank you for joining us this morning, marty. michael, our bloomberg founder serves as a member for every
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town for gun safety advisory board. ited a indicates for universal background checks and other gun ontrol measures. later, we will bring you more information on the mass shootings. the unrest in hong kong on the city facing massive strikes and demonstrations forcing the cancelations of hundreds of strikes. this is the nine straight weekend of unrest in the asian financial hub. steven engle is live in hong. stephen, where are we righting now in the middle of thee protests? stephen: the protests are calling for civil disobedience in all of hong kong. monday, a workday, of course, and they've been calling for a general strike and many people have come out. we are in front of the central government offices here which also have the offices of chief executive carrie lam and the
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legislative council and there's thousands of people gathered here. many of them have dispersed when the hong kong police started firing the they're gas at the hard line protestors. it's fairly peaceful i am on this side of the central government offices on the harbor side but just on the other side, a couple of meters from where i'm standing right now, there have been fierce battles between barricaded protestors and barricaded police officers that included some they're gas being fired again. and in fact, police here have had a press conference saying 82 people have been arrested today alone. the protesters are changing their tactics by day and there is no end in sight to this standoff right now. alix: here's what carrie lam had to say overnight about these protests. >> those ulterior motives are
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going to destroy hong kong. to risk one country two systems. david: stephen what, are you hearing about the longer term effects of hong kong and how china is going to continue to play into the vie dense of the protests? stephen: well what we're hearing from the local paper is that is that -- that the liaison office which had never given a press conference until last week since the handover in 1997. they had their first one to address this issue. apparently according to the newspaper here, there could be another press conference from the liaison office tomorrow in beijing tomorrow to address something new for hong kong. that sounds a bit ominous because they've taken the hard line approach as well as chief executive carrie lam is taking this hard line approach. as far as the economy here, carrie lam talked about the
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detrimental effects. we've gotten p.m.i. numbers down in 43.6. that's the lowest we've seen since what, 2009 of march, which was at the depth of the financial crisis. we've had the stock market down for a number of days in a row. we've had retail sales also sinking to the lowest since 2009. so we're really having, you know, a standoff but if you ask the protesters here, they don't care when the chief executive and the financial secretary say luxury sales are down. you know, that's their equivalent to -- david: i think we lost a little bit of stephen in there. thank you for reporting, stephen. staying over in china, chinese government said its daily reference rate weaker and the yuan fell as a result. welcome now to the international spors. is -- correspondent.
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>> all indications are, david, it is a firm response on the part of china. they were expected to respond how and we've got a hint now of ow it intend to go about it. especially if mr. trump does go ahead with it. there are risks with this move as well. people try to get their country out of the economy and the risk that mr. trump trigger some kind of pivotal backlash from him. so all indications are to china is hurting its stand and it to, can push back when it comes to the trade war rhetoric. david: it wasn't just the curtainsy. it's alsoing a which will mports to the united states.
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enda: yeah, we are reporting today that china will be backing away from some of that. that underscores how difficult these trade relations or how difficult the relationship is between the u.s. and china at the moment we had trade talks last week in shanghai. they were meant -- but now, here we are only a few days later with president trump shouting that truth with new tweets. china letting its currency fall and news on the purchase of the chinese agricultural goods. it does seem like we're a long way off to any type of greements. alix: the ensuing market turmoil. we will talk to rick rieder on a day where the bond yields are adding another record low.
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this is bloomberg. ♪
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♪ david: reverb bases continue from president trump's announcement of more tariffs on chinese imports with beijing weaken the reference separate and the yuan dropping for the first time in 11 years. welcome rick rieder, blackrock global crimson. o. of fixed income. did they get your attention, rick? rick: oh, my god, they did. it was pretty surprising when you talk about the chinese have been frustrated with the back and forth. but the currency is one that is a dangerous game to play because you saw that in 2016 where the money flows out and it finds way to leave the system. the chinese are pretty good in the way they manage capital control but you combine that
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with the agriculture news, that one definitely dot my attention. we did a better reposition this morning. that's going to be empty. alix: what did you do? rick: rates market has had quite a run. we're running a conservative portfolio today. the uncertainty around this is significant. continue to maybe contain a conservative book for a while. alix: so you rebought the long end? rick: there's the rates market. if you think about this, it could keep going. you think about where the e.c.b. is, the rates could be a very valuable part of the portfolio from where they are today. you could still get another 25 basis points of rate rally from where we are. these levels are extraordinary. but you think about where we live in the world today, every country is cutting interest rates and if you get some shock to the system, it's pretty powerful. david: let's just pin that down.
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you mean 1.5. rick: yeah. i don't think that's the base case and you have to believe that we're close to the apex of tension between the u.s. and china. you have to believe that as the president said that if schein starts to make moves in the right direction, they can pull back on the tariffs. and you look at european rates and you look at what the next move is out of the e.c.b. and then you take every other from mexico to india, they're all cutting rates. you can -- we can be in a lower rate environment for a while. alix: with that seems to me is the german low, record low but only moved one basis points versus the move is eight, nine basis points in the 10 year. what does that wind up telling you? rick: a couple of things. there's not a lot of room left n terms of european rates. and you think about when you
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look in the develop markets, where japan is, where europe is and where the flight to quality can get into, then you see that they're still -- there's still yield in treasuries. it's hard to see behind yielding lower. we had somebody saying that bund could yield to 50 and they were positive side. david: so you do equities too? you shift more into bonds? where does it go? rick: a couple of things. one thinging if you think about where we were a week or two ago the volatility markets were unbelievably low. now, i am hugging my call options because we rerisked ignificantly in the portfolio.
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a big part of it earnings do equity risk premium does. it goes up and the environment like that. and the other thing that drives equity is the discount rate. when you pull a risk-free rate down as much as you have, when things calm down, you can get a spring loaded effect. we think equities will go up. and august is the worst month on the year traditionally for the equity market. and the liquidity is not great and a lot of people are on holiday and you see some extreme moves so much you run a bilt of a cautious portfolio today. marriott, some treasury holdings run balance-some the portfolio much more so. alix: 2015 took like years of my life and i wasn't even investing. i was just reporter -- reporting and anchoring. rick: and things extend to stabilize but it's not unusual. and liquidity in this time of
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year, particularly in places like europe is rough. alix: so just to round it out back to china for a second. what i was struck with is they targeted soybeans and not things like planes and cars, like the big bazooka. it's easy for them to say soybeans because they have all their pigs dying. david: well, planes don't vote. [laughter] alix: no, but on the manufacturing level, sure. david: they're hitting the farmer. alix: but those are hard things to replace. it's going to be harder to replace precision parts than soybeans for example. does that signify that we we could get worse? david: there is no doubt what china can do that they are retaliate. rick: i don't think we're ever going to see a durable trade agreement between the u.s. and china on anything related to
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technology, anything related to i.p., etc. never going to happen of anything of substance. but things like soybeans, things like natural gas and commodities don't mean a whole lot in terms of their other sources and i think you will see that. one of the things that the markets are getting comfortable with is the dynamic that you have a truce and that you're going to operate as i would say friendly competitors in a global marketplace and that seems to be off the table at least for the time being. david: ok, rick rieder, of blackrock is going to be staying with us. shakeup at hsbc. the british lender ousted the c.e.o. as the company faces tough environment. more on that next. and this is bloomberg. ♪ ♪
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♪ >> this is "bloomberg daybreak" with your bloomberg business flash. wal-mart won't change its policy on selling guns or ammunition. following the shooting at a
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store in texas over the weekend the world's largest retailer calls itself a responsible seller of firearms. four years ago, wal-mart quit selling military style semi-auto rifle. a planned strike at the heathrow airport has been delayed for at least today. -- rlines scramble to win reinstate canceled flights today. and british airways is trying to avert a strike by pilots at the height of this busy summer travel season. next week the airline and the pilots unions will continue talks after three days of negotiation. and the power shakeup at hsbc the british bank's c.e.o. is stepping down after only 18 months in office. hsbc's believe the change was needed to deal with "an increasingly complex environment." the bank's shares have fallen 15%. and hsbc confirm plans to cut more than 4,000 jobs.
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senior executives will be a focus of these cutbacks. alix: for more on that urprising departure of hsbc, how do we get to this point? >> obviously, 18 months is probably not enough to show if a strategy is working. what we're hearing is that there were personality clashes between the former c.e.o. of flint and chairman packer. with flint being very populous on culture and on creating the althier system, while packer was focus on more numbers. it was one of the reasons why the two didn't get along well. and also we've been reporting about potential replacement of the current c.e.o. the bank is looking outside, not
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inside. a few sources pointing out that the bank may be looking for the first time to meet an outside replacement. that would be a big change, obviously, for the bank. alix: thank you so much for the update. so we have rick rieder from blackrock on set where. does that leave european banks? rick: so european banks with, you know, still we don't know a lot in terms of european banks. the on thing we own is we like some of the debt. some of the banks and equity that pay a big dividend yield are ok. it is really hard for banks to create that interest margin and it's going to be hard for a really long time if you think about where we're going. some of the banks that traded a 30%, 40% at book value are starting to look ok but it's a tough road. it's hard to see a catalyst for bank to really improve from here, particularly when you get days like today. so we own some of the debt and
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marley some of the subordinate debts for thames names that we think will be stable and a few high paying equities, that's about it. david: when you look at what's going on, it looks like in part, let's cult the cost. deutsche bank, bank after bank after bank. can they get slim enough so it really makes sense? rick: it's the best you can do at this point in time. when you analyze your ability to create, how do you create real r.o.e.? you've got to get that interest rate component. the banks are shifting and becoming more fee generating they've got more diverse business lines. but when you're running against what is a flatter inverted yield curve or negative interest rates, it's hard to create r.o.e. that are really the earnings assets which is the biggest part of your balance sheet, just hard to get them to create a dynamic for you.
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alix: one catalyst used to be dividends. does that move the needle for you at all? rick: for the banks? alix: yes, and for the general market. how much of that is in your allocation? rick: 100%. some of the banks in europe are paying 7.5% dividend yield which is the most remarkable in my career. you're paying 7.5% different yield and you traded a fraction of the book yield. for the big banks that are well regulated, there's some value there. alix: more central banks decision out. we're going to break down the fed, the e.c.b. and more. this is bloomberg. ♪
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♪ alix: this is "bloomberg daybreak." shaping out to be a very ugly monday. take a look at what's happening to the equity market. s&p 500 now up by a full 1.5%.
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the vix and european stocks pummeled here. the worst two-day sell-off in more than two years. and european p.m.i. slid again. and investor confidence is at a five-year low. and if you don't want to buy equities, everyone's going to want to buy bonds. bund yield at another record low but down by two basis points in. the but down by two basis points in. the u.s., moves like eight, nine percent yields lower in the bond market. 14 blais sis points. and you have oil down by about 1% in. relation to asset class the commodity markets, they're more calm than you would have expected. david: it's a good point. we heard from chair powell last week and a few people clear about where the fed is heading. this week, traders ramped up that the feds will lower interest rate again.
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still with us is rick rieder of blackrock. so rick, whatever they are trying to communicate, is it still operative? rick: what it described was the state of dependency. it's an important thing about mid cycle when you do these mid cycle moves. and that implies a 75-day move. he was leaving the door open and today probably kicked the door down in terms of -- unless things change radley. and the market are having a lower cut already in september. and the fed, you know, it's a hard thing. you have an economy now where the consumer is doing really well. you look at this g.d.p. number is 4%. you're cutting rates into that. i get the debate. i still think the equilibrium rate where we are in today's world is probably 50 or 75 basis points to where we are today. today is going to force that issue.
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alix: this is looking at rate cuts. you're now looking at four for the next 18 months. so to echo with a you were talking about, if this doesn't work though, is it really about the dollar now? talking it down. how that works versus the fed actually cutting? rick: part of the reason why you have to go, with the debate, i get the debate on the committee and i get the debate on where employment was. the jobs conditions index is the best it's been in 20 years. and so i think it. it makes a ton of sense. but the global conditions are such that you have to bring the rate down. and the dollar, people underestimate. in 2018, when you force the dollar higher, you get this incredible reverberation through the system through the reserve channel. you tighten liquidity significantly and it's why you have to bring it down today. and just literally to make sure the dollar doesn't appreciate there. are other reasons why you can bring it back a bit. david: has powell opened up the
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pandora's box to the white house. you know what? i'll cut rates if i'm too anxious about rates and president trump is like ok, be anxious about trade. rick: it is hard not knowing what the conversations behind the scenes are. it's hard to say. i think the fed is doing -- when you read the statement and i think they're acting pretty pragmatically. i thought they should have gone 50 but it is aggressive and you've got a commander that doesn't believe in that. so you can be a bit deliberate around it. i don't know what the interplay it because i do think this is a very thoughtful pragmatic chair. and if trade is what it is, then he's going to do and they be very clear about that. alix: let's move to the e.c.b. blackrock saying you should buy european equities. walk me to the logic. rick: i always get a kick out
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when people say you should make equity investment and it creates negative ferocity, the way you finance any asset is if the debt is zero and the equity gets you 10 to 12, it pushes everybody into the equity when you think about project and how you fund. it raises the cost of the capital. the biggest issue for europe is you have to create aggregate demand. germany has been the engine of growth in the eurozone through manufacturing and export. that's not going to be the future in terms of how do you drive the eurozone? you've got to get it into training, education and if you start to lift equity valuation -- by the way t free for the e.c.b., but you think about it. if you do a mix, and you're keeping real rates down which
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you have to keep down, if the company's equities were more buoyant, it allows for cap e. i've got to changeing what do i in terms of my business mix. when they are on their back, you can't create growth and you don't get investment. it's part of why you have to be innovative. david: i get the point cutting rates isn't going to get it done. what is the point that nothing can get it done? you wrote a column and got a lot of reaction including the f.t. himself saying the ongoing shift toward increasingly bankers monetary bazookas. the whole thing just isn't working. what is that is right? rick: you've got what is a pernicious demographic of pernicious debt burden and to put up the white flag and say we're going to stagnate for
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years, and by the way, watching china and the u.s. invest in technology, to say the eurozone is just going to keep sinking, it's not the right answer. off whole series of multi-lateral financing agencies,. for the e.c.b. to partner with those entities to create equity investment to get trade incentives, to move forward in terms of creating a gat demand, it's the only way it works. by the way, people, there's a lot of criticisms that the bank of japan did it. i'm talking about something that is really different in the way the bank of japan did it. make some equity investment. partner with some of the regional governments. i don't think people understand financing and how financing works. when you skew the financing dynamics so dramatically, you create a negative velocity. how do you try and alleviate that? it's not easy and their politics and fiscal policy would be targeted fiscal would be better. but we can just it and wait for that and that just doesn't
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happen. and now the concept of buying more corporate bonds and financing companies, lending company's money which more than 25% of the eurozone at negative yield, it's philosophically impure to me to lend -- these are not taxing entities. we're handing them money and paying them for the right to it. it's not right. and we're going to persistent further because we're going to buy more corporate bonds. it's a much more complex discussion than what people say the bank of japan tried to do. it's not that simple. david: ok, rick rieder of blackrock. always provocative. let's get an update on what is making fuse on the outside world. >> president trump is calling for a strong background for gun buyers. less than two days after the shootings in texas and ohio. the president says republicans and democrats must come together on the issue. he tweeted perhaps the gun legislation could be joined
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together with immigration reform. china is signaling its ready to play hardball on trade with the u.s. for the first time since 2008, beijing allowed the yuan to fall below seven more dollar. and companies are asked to suspend import on american agricultural goods after president trump's latest threat time pose tariffs on more chinese-made products. and more concerns about the safety of shipping in the persian gulf. the guard seizing a small oil tanker in the region. the guard says it is the third foreign vessel taken by iran in the last month. global news 24 hours a day on air and on twitter powered by more than 2700 analysts. this is bloomberg. alix? alix: we have some breaking news here. the p.b.o.c. said that china won't use f.x. as fool in trade dispute. didn't they just do that
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overnight? david: ok, good. >> they also come out and said that they're confident the u.n. will continue to be a -- yuan to be a strong currency. they can't have a massive devaluation. david: they don't want to go too far. is it just a coincidence that they reset their overnight rate? alix: don't they have some kind of conference in the mountains? now they're back and they can do something? david: a big retreat. alix: interesting. >> coming up, golden state rriors's -- warren buffett's cash pile. that's next. this is bloomberg. ♪ ♪
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>> in the hewlett packed green room, coming up, bernard carvalho's senior economic advisor. here is your bloomberg business flash. bitcoin surging past $11,000 for the first time since mid july. it is rising as much as 12% from friday's close. the rally comes after a sell-off in july. it is unclear what is behind it. fox is making one of its big moves since splitting from the disney empire and betting on consumer finance. it is spending $265 million for a majority stakes in credible labs. the san francisco based company is a mark place for consumers seeking financial information. the deal will help bolster fox business news. tesla trying to juice up sales
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of its model x and s electric vehicles. the company is bringing back the super charging perk, this with new orders of its model s and model x electric vehicles. c.e.o. elon musk calls the super chargers and tesla service centers absolute key to sales. that is your bloomberg business flash. alix: that is, if you're near a tesla dealership system not, i on't know when you're doing. hsbc confirms some cuts. the bank is going to cut as many as 4,000 jobs after the sudden departure of c.e.o. john flynn. and reforms intended to crack down on a cds deal and buffett backs off stock rally. berkshire hathaway sells a billion dollars more than it bought last quarter hitting a record $122 billion.
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david: he wants to figure out a ploy but can't figure out how. rick rieder is still with us. another c.e.o. job is open. >> no kidding. there's so many people on the market too. if you think about it, we have so many -- and in just a year ago, hsbc was looking outside for a c.e.o. and end up turning internally for one but that last less than two years. david: is that part of the problem if he was perceived as the former c.e.o. person and he's been there for a long time? >> mark tucker who was who was the chairman was there but he's one outsider. when he was looking for c.e.o., tucker was in the insurance industry before he joined the banking industry. one of the people was peter hancock who was leading a.i.g. but at the end of the day, john, flynn was under his control as well. alix: where do they find people
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then? th >> maybe it's time to look outside of banking but when these banks are under so much pressure to turn around their performance that's both cost cutting and competition, it's kind of hard to look outside when you don't know how the banking industry necessarily works. rick: how do you think about your business model in terms of ba are your fee generating products if what are the products whether it's wealth management or otherwise. and counting on interest rates is a different one. making sure you're technological proficient in a world where payment is involving and you're seeing all sorts of efficiency. you've got a twerk knowledgies to a large extent.
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>> they're hiring more tech people like coders. >> if you're goldman-sachs, you pretend you're a technology company system you're morgan stanley, you say we trade at the speed of light. so we are looking for people that are working for a bank and they're not a tech person. goldman is more consumer facing now and so, yes, technology matters but banking is another set of skills. alix: there's been a lot of drama surrounding c.d.s. there's been criticism on how banks have used them to make money now. regulators have cracked down but they're unhappy with the crackdown. >> you see regulators coming together to crack down on these hedge funds that are on these deals. they even put out a podcast a month ago to get more information. alix: podcast? >> apparently. alix: riveting.
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>> i haven't listened to it yet but maybe i will. maybe, they're looking for concrete examples of shady activity in the market. there were some deals including blackrock's trade in 2017 and cubs and subsequently some trade slipped at neiman marcus. david: some of it is intent. why did you sell it or hold it? how did you really get at that? >> sometimes hedge funds love rules. you can move above or below it. if you read down to the story of the story today, it says just that. the minute a rule will be written, there's going to be other ways they're going to have to clamp down. david: let's talk about warren buffett, $122 billion. he wanted to be at $122 billion. >> he could buy three occidentals with that money. the person who wrote the story over the weekend, she drew light
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on that i talking was clever was him complaining about his cash hoard in 1998 and in 2004. even though he was complaining about holding so much money at those times, just after that, he made some of his greatest bets. made american who was the corner seven to the empire and after 2004, we had 2008 when he went to goldman-sachsing and general electric. david: but warren doesn't like to overpay. maybe things are too expensive. rick: it says something about the dichotomy in the equity market. you've got five to 10 companies that have a huge percent and then you have a lot of businesses that are some good businesses but a lot that are more until in the manufacturing sector and industrials are having a hard time. and what is the more traditional usiness is hard to find. that's driving a lot of what us
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the upside in the equity market today. it's a more skewed equity market than i've ever seen before. anybody's ever seen before. alix: the best that berkshire may said like he didn't make them. that was his team. he still likes things like coke and candy bars. i thought that was interesting too. >> it's definitely interesting. remember also something i think is interesting speaking of debt and equity, so much his greatest bets are he would do more of is a lot of more preferred lending in time distress for deals perhaps like he's doing with occidental right now. david: but those are great deals. and it takes warren, and he uses his huge capital that he can deploy and make some money off it. rick: whenever you're doing a financing and capitalization, having him involved has serious benefits but it's endemic that capturing income in a world
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where it doesn't have a lot of income system you can own income producing assets in a world that's if you're an insurance company or the nature of your balance sheet, it's a big winner and search out those yield pportunities is big. david: coming up, pretty fasts in hong kong continue for a ninth straight weekend. more on what this means for the asian financial hub next. alix? alix: if you're heading out, you can tune into bloomberg radio. channel 119 on the bloomberg business app. don't lose touch. this is bloomberg. ♪ ♪
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♪ david: here's what we're watching today. unrest in hong kong once again. still with us is rick rieder of blackrock. we have a ninth week of demonstration. is this going to take hong kong as a financial hub? rick: it does. it affects not only hong kong
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but the emerging markets. in terms of pushback, you're seeing this in all the emerging markets today whether it's political or pension or whatever. it tends to move into all of these marks and makes it difficult to invest in. alix: so all of e.m., you mean? are there pockets that have value now or is it difficult to invest? rick: it's one of the few places where there's huge availability. it comes with as i said before, i like emerging markets, i just don't like the countries it is a tricky thing. in mexico, you have issues in terms of what's happening in the political side. you have issues in brazil around a good report on the pension side but you still have political issues. yeah, there's places. indonesia have done a good job. russia's fiscal dynamic is tremendous. arguably the best in the world. you don't always feel comfortable of how much russia you have on. but we use a lot of hedges today. but you've got to be cautious because the argentina is
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actually starting to turn the corner. 50% inflation rate. alix: and election is like in two months. rick: but still uncertain. david: where are you in india? a surprise victory and maybe the prospect to reform. rick: so we like them. we like longer term. when we think about the core portion of our portfolio on the equity side, we like owning some indian investments. you still have political challenge, infrastructure challenges, but as a place to invest in over the longer term, we like india quite a bit. but it's going to be a smaller part of the portfolio and we just hold it. alix: the -- the fed is going to cut. some say that the dollar is going to get weaker. you got to buy e.m. does that narrative still hold the way it would two years ago? rick: it holds but on aggregate and that's why i like the concept generally but it is
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tricky. when you play through the chinese situation, you think about global growth, if you have something adesign a trade war, it's really challenging around some of the emerging countries so much what do you do with that? nothing in life is digital. you say i'm just going to hold a portion of it. i'm going to use a dollar as a hedge and manage that exposure. and flow in the e.m. tend to be more radical. places like investment grade credit, it tends to move in and out. there are a lot of tourism. so you got to manage your liquidity and be thoughtful of ow much you have it. david: what price are you willing to pay for income? rick: so real rates in emerging markets are extremely attractive. you think about where we're going now in the u.s. and europe and etc. eal rates are attractive, 250,
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350 points or higher. that's plenty of premium. in cubs, many of whom are more developed than they've been in the past but again, you know, it's just -- when you have volatile periods like this and you have the largest driver of economic trade and growth in the world in china, that has some concern and you got to balance that. david: rick rieder, blackrock global crimson. o. of fixed income, thank you for being here. alix: coming up on this program, bob brown, a northern trust c.i.o. will be joining us. it's market meltdown and equities a huge flow into u.s.? this is bloomberg. ♪ ♪
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♪ >> china fights back with the
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yuan and soybeans. the country devalues its currency to stop buy u.s. soybeans. global bond yield sinks. the german bund yield hits another record low. the repercussions of that yuan devaluation. and havoc over at hsbc. the bank will fire more than 4,000 people after the c.e.o. stepped down. david: welcome to dayton, ohio -- bloomberg daybreak. two mass shootings here in the united states with 29 people killed and two separate instances in el paso, texas and dayton, ohio taking place within 13 hours of each other. viviana hurtado is here to give us more details. viviana: president trump is calling for strong background checks for gunfired. less than two days after the shootings in texas and ohio, the president says republicans and democrats must come together on
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the issue. he said perhaps the gun legislation could be joined together with immigration reform the national rifle association weighing in on the shooting saying it will not participate in politicizing of these tragedies. the n.r.a. will work in good faith to pursue real solutions. gun rights groups have usually describe mass shootings as unpredictable acts by sick individuals. and a wal-mart store decided the shooting in -- and the chain will not change its policy on selling guns or ammunitions. they call is a possible seller of firearms. four years ago, wal-mart quit selling semi-automatic rifles. i'm viviana hurtado. this is bloomberg. david? david: just as we came to air about an hour ago right now, president trump tweeted out about those killings in el paso
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and in dayton democrat he says he cannot let those killed in el paso and dayton die in vain. we can never forget them and those many who came before them. republicans and democrats must come together and get strong background checks, perhaps marrying this legislation we desperately in immigration form -- so he is in favor of background checks although he says he wants to put it together with immigration. alix: and you have the candidates talking about their solution. gun control is always part of the presidential election but it's more front and center with some of them having some concrete plan as to what they would actually do. david: everyone is in favor of background checks and the president is weighing in and joe biden really wants smart guns is the ones that sends your fingertips. cory booker wants to license everybody like a driver's license. nd cam newton -- kamala harris
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says through executive order. alix: really looking at mitch mcconnell for leadership on that. and we will bring you a live coverage of president trump's remarks on these mass shootings. it's 10:00 a.m. in new york time and also there will be a moment of silence at 9:20 on the new york stock exchange. michael bloomberg is the founder of and helps fund every town for gun safety and advocates for gun violence and prevention. and it is a very rough tape that we're seeing. equity futures are down by 1.5%, off the loads of the session. the currency market is mixed. you're seeing go into the yen and the euro loses and huge, huge moves in the bond market here in the u.s. the curve continues to flatten
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and crude off by 1.5%. i wonder how much in the commodity world this trade ramp-up is already priced in. david: and so much was triggered by what happened to the u.n. alix: most definitely. david: the chinese government set its daily reference rate weaker and in the yuan fell below seven to the dollar. we have a strategist on our phone. does this come as a big surprise to you? >> not at all, actually. first thing first. you have to put this forex move in a proper perspective. if you look at the chinese yuan -- david: chen, can you hear us? chen? i think we just lost chen zhao. alix: we will try and get him back. we want to take a look at market reaction. bob browne of northern trust joining us. if you're coming today, it's a real tough tape. j.p. morgan says buy the dipping
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stocks. do you agree? bob: we've already been overweight in u.s. equity. i'm not sure if we would add more just now in the wake of all this news. sometimes it's better to digest the new event. we do have our asset allocation meeting the monthly meeting kicking off tomorrow so much we'll see what the rest on the team thinks. but with regard to china, u.s. trade tensions, this is just another example of our long-term call that the tensions will be here for many years to come. and so investors just need to be prepare for these evens good and bad and incorporate that into their strategy. alix: how? bob: how? well, one, making sure that you're getting paid for the risk and focusing on risk asset which is are most likely to survive hese episodic tweets and strategies. and it's also the reason we're overweight and we like having
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interest rates in the portfolio which we think offer a more conservative way to get equity return in these troubling times. and we also like high yield. and we're staying away from emerging markets. we're underweight there. and we're neutral european and japanese equities but we'll probably have to revisit that as well. you think about it, the biggest unintended victim of china u.s. trade tensions has been the german manufacturing base. david: so chen is still with us. how far is china willing to go? we had the head of the pdoc saying it has no nothing to do with trade issue. but is this really a trade issue? >> well, actually it is. because there's a pretty sharp fallout in the chinese exports
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and they are saying no that it is walking a very fine line. of course they want to use the cheaper currency to send off the favor with trump but at the same time, they also fully understand that that strategy can back fire. if you recall, 2015, when the chinese currency dropped close to seven, the was a huge capital outflow and a panic among more investors. his is a big risk. that's why they reassured the market that it has no plan to use it as a weapon. but nonetheless, the currency has dropped 2.5% year-to-date. that is helpful for the chinese export. that's the point. david: chen, one of the questions i have is back in 2015 when we did have this devaluation of the yuan, did the chinese learn anything about apital controls?
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chen: if you look the chinese reserve, they've got a lot of reserve. they're more than $3,000 reserve. there's no question that they have a lot of firepower to deal with that but if you listen to and remember the chinese economy is pretty vast, pretty resilient, very domestic driven and the chinese government has been -- alix: all right, chen, thanks a lot. chen zhao of alpine macro chief global strategist. bob, if we wind up seeing a continued escalation, what in that situation look like to you and then, do you need to sort of rethink things like go over with u.s. equities and add more safety if how do you see it? bob: yeah, without a doubt. it's a risk. both positive and negatives up on the positive side, we saw that last month. this is just reminded everybody when the temporary was announce in osaka and the markets rallied quite strongly and it gave us a
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taste on when there was a temporary resolution. at a minimum, it is going to be a cause of volatility both negative and positive but to your question, alix, it looks like this trade war is going to get worse before it gets better, putting more pressure on the manufacturing sector which has already been weak, that puts up that much more pressure on the consumer to keep the economy going. now we think that happens we think we avoid a recession and we're not in the recession camp but it raises the risk and it's would be the reasons why safe assets are clearly rallying. you've got the german bund trading at minus 50 basis points. that should definitely be a warning sign to risk takers like myself. but it's an important but here. the consumers doing fine the unemployment remains low. two thirds of the economy is relatively robust. the case the weakness the manufacturing sector in global trade, does that sbleek the
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consumer side of the economy? it is premature to conclude that right now. so it's better just to sit back and see the data for a month or two and see how this really plays out. out of a new parts on the manufacturing sector, the u.s. economy has held up relatively well in the wake of this trade friction and it's one of the reasons gave president trump the confidence to raise the stakes once again. david: ok, thank you so much, bob browne of northern trust. he's going to be staying with us. from trade fears to fundamentals. a look at where we stand three quarters the way through earnings season. that's coming up next, and this is bloomberg. ♪ ♪
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♪ alix: this is "bloomberg daybreak". bitcoin surged past $11,000 for the first time since mid july. it is rising as much as 12% from friday's close. the rally coming after a sell-off in july. it is unclear what is behind it. fox is making one of its first big moves since splitting from the disney entertainment empire and it is betting on consumer finance the media company is spending $265 million for a majority stake in credible labs on the san francisco base company is a marketplace for consumers seeking financial information. the deal will help bolster business news. a planned strike at the heathrow airport has been delayed for at least today. so airlines scrambled to reinstate canceled flights. all but 16 departures have gone off. british airways is trying to avert a strike by pilots.
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next week, the air line and the pilots union will continue talks after three days of negotiation and that's your bloomberg business watch. alix: president trump tweeting it again. this time talking about currency manipulation. he says the china dropped its price to historic low. it's called currency manipulation are you listening, federal reserve? a violation which will weaken china over time. if we're not in a currency war, i don't know if we will get there at this point. david: he -- the federal reserve does not deal with currency. it's the treasury, which answers directory to him. that's what the treasury's job is. what's the federal reserve got to do with isn't it alix: the fed can execute certain spots and they can match it and they can sterilize it or not. so they can operate on the margin but literally the entity that comes in have a says we're doing this this treasury. david: the pboc cults rates --
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cuts rates as well. alix: 100%. most companies probably don't want a stronger dollar. we're still in the middle of earning period. 62 companies on steak. disney, lyft, c.v.s. and viacom. joining us is an equity strategist and bob browne from chicago as well. so where are we? if you're a good company, are you getting rewarded? where are we sitting? >> you are. one word that sums up this earnings season and that is somewhat unexpiring. it's been a rally really good earning season for companies that come in with about a 2% overall gain in e.p.s. over year ago. four weeks ago, we were thinking earnings were going to fall in this quarter. so that's better than expected. the problem is that even when companies are beating expectations, they're not guide wag great deal of confidence, right if they're not increasing
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estimates going into the future. analysts are still losing their faith in the prospects and third quarter earnings are now expected to fall by about 1%. alix: it showed in the next three quarters and you can really see sort of the downward projection, particularly over the third quarter but the fourth quarter starting to roll over. the first quarter is rolling over too. >> yeah, and frankly, it's not that things are necessarily getting worse. they're not as bad as many had anticipated in the short run. it's just that things are not getting better. we seem to have reached some sort of earnings stagnation so to speak. companies are cutting costs with pretty heavy degree of alacrity, i would suggest and keeping margins somewhat stable but we're not seeing the revenue growth improve. we're not seeing prospects improve and the longer these trade tensions become, the less likely that prospects will improve and that's the kind of catch-22 of the market right now. david: these basically numbers
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before we had president trump saying we have more tariffs and the chinese response as well to what extent is the market pricing in not just sort of lackluster forward looking earnings but also trade tensions? bob: without a doubt. i think as i mentioned, it's one of our biggest identified risk and it has to be the true for others in the marketplace. if these trade tensions result in policy changes similar to what was announced by president trump and now with the pboc reaction overnight, you know, everything else being equal, investors will want more compensation for putting money to work on the flip side is rates are coming down. so we've always been a big believer that a modest growth environment at mitt east will be more modest now but supported by low interest rates will continue to drive equities further. but just to be clear, we're talking about mid single-digit returns from this point forward, 5% to 6% for ex this, especially
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in the -- equities for the u.s. so we're not talking about another 10% between now and the ext 12 months. david: is there a sweet spot for isn't it bob: yeah, that's one of the reasons we're overweight global reads. that sector will definitely benefit in this renewed search for yield will definitely be the new market focus over the next 12 months. and this modest growth environment with more identified downside risk. and the 10-year trading at 1.75 trading negative around the world, if you can buy stable income producing cash flow generation, then absolutely. we think those assets will be bit up. and so it's a good time to be in infrastructure, a good time to be in rates. it's a good time to be in high
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quality u.s. companies that are producing earnings growth. but the broad market will be challenged. alix: that's a great point, because what i was struck with was the expectations for the s&p year end target and high end and hoe end is the wisest we've seen in years. how hard is their job right now? >> the visibility is very, very low. you stick to your model and stick to your guns and then hope that they can persist and work. alix: why 15 years? >> there are signals that we use in use in the market that are worthwhile. interest rates are a huge signal for us and interest rates continue to rally this year. it's one thing that guide our sector scorecard towards utility and the more stable groups despite elevated and they support that valuation expense relative to the rest on the market. we've been there since april in similar fashion. our factor spectrum has been very defensively positioned and leverage and stability as the primary factors that are going
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to drive performance. so you've had this market that's been all over the place making new highs in july, but now back to testing our former peak levels and breaking down persistently, some of the consistent themes are worth tying to and that rallying rates, the side way stagnation in the dollar, those are themes that are worth playing on in an environment where you don't have a lot of guidance and the visibility as to what policy is going to do except for infused thoughts of velocityity in the market. david: thank you, gina. bob browne will be staying with us. coming up, hsbc's challenges. the bank ousted its c.e.o. and cuts thousands of jobs. more of the tensions in today's bottom line. this is bloomberg. ♪ ♪
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david: it's time for the bottom line where we look at three
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companies worth watching. i'm going to take two companies. cbs and viacom. we know what their earns are but we would know who would manage the company if they happen to merge. the head of viacom will be the c.e.o. the head of cbs will run the cbs part of the assets and we know the c.f.o. will be the cbs person. they're not saying they're merging but just in case, they've got a plan. alix: maybe if something comes up, they might have a plan. tyson foods out with earnings. delivered pretty strongly. they beat on the bottom line, they also came in right above their expectation. estimates for the top line as well. and the big takeaway for me is that the best could be yet to come. you have the african swine flu decimating the hog population in china in theory for the guys like tyson, they have car gill. this is going to be very good for them going forward because it's going to be a huge lack of supply of protein like chicken and beef that they will have to
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send over to china. and you will have a huge lack of supply. that's not happening yet but it will be a big boost for the company. david: good for tyson. and hsbc, we're talking about all morning long. they've up and fired -- well, said goodbye, let me say that, to their c.e.o. alix: that's not a david westin -- that's an alix steel -- david: exactly. we talked about the c.e.o. position but talk about cutting jocks. -- jobs. >> with 4,000 jobs gone from the market now and that's after barclays already cut 3,000 and deutsche bank is already cutting thousands also. the big question we ask is how is everyone going to take this capacity in the market? these are traders, investment bankers, retail bankers and hese job cuts are very broad based. alix: how much is that is senior level executive versus the lower end hanging fruit?
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walk us through the difference then. >> that's a big deal and i probably have a quite welcome thing in the market where the most highly paid people are the ones that they're letting go. it's sad where a lot of these people are lifers. but what we're not seeing is people at the lower ranks being called as much as the top ranks in this scenario. david: the thing i don't understand is they said they're not going to change the strategy. that's not why they got rid of him. how can you not have a strategy when you don't know what the new strategy is? >> what the reporting is it's not the strategy but personalities was the issue here between the scommarme the c.e.o. david: how does that lead to laying off thousands of people? the reason you lay off thousands of people is you have a different strategy. >> there's a lot of leadership at the bank studio but if you can't get the whole team on board to do so, then off problem here and it was only 18 months, which really, you see not only
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this bank but a lot of these banks have a lot of pressure from shareholders to hurry up and show returns. hsbc won't hit 6% return by next year where their u.s. peers are in the teens already. so they've are the got to hurry up and cut costs and show how they can be competitive. alix: like i didn't know hsbc was in that bad of shape. we focus so much on deutsche bank. david: the earnings were pretty good. alix: thank you so much. coming up on this program, it's a crude reality. oil resuming its decline on trade war concerns. we're going break it down for you. on a big week for oil companies this is bloomberg. ♪ ♪
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alix: this is "bloomberg daybreak." this monday. s&p futures off by about 1.5%.
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the nasdaq looking at potentially the longest losing streak in years. european stocks getting hit. you had bad data, whether it is consumer confidence are european pmi weighing on the index. the vix elevated. you can guess what asset classes are going to outperform. that is going to be safe haven currencies as well as bonds everywhere. record low bond yields in ireland, the u.k., and germany. at 14 basis points, the young the beneficiary, the ftse the beneficiary. crude now rolling over as well. also industrial metals. david: what's making headlines outside of the business world? viviana hurtado is here. president trump is calling for republican's of democrats to pass a bill on background checks are gun buyers. the president also suggested gun legislation be tied with
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immigration reform. he is scheduled to speak later this morning. china is hitting back at president trump on trade. beijing let the yuan tumble to the weakest level in more than a decade. state-owned companies to suspend imports of u.s. products after president trump threatened to add 10% billionon another 300 dollars in chinese imports. in hong kong, protesters are trying to shut down the city with a general strike and committing disruption. you can see the chaos over there. it left traffic snarled, subway lines inoperable, airport operations a mess. the hong kong chief executive called it a dangerous situation. motives -- your those ulterior motives are going to destroy hong kong. it is a risk to one country, two systems. viviana: it is the ninth straight weekend of unrest in hong kong, protests beginning
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over a proposal to allow extradition to mainland china. global news 24 hours a day, covered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. david: for more on that unrest in hong kong, we turn to stephen engle, bloomberg's chief north asia correspondent. what is going on even as we speak? you know the protesters have adopted the old 1971 same from bruce lee. water,""b water, -- "be and that means to move around, strike quickly, and get a few steps ahead of the police before they can crack down. that is what has happened here. we have been for most of the afternoon and into the evening, in front of central government offices that also house the offices of the embattled chief executive, carrie lam, as well as the legislative council, the governing body here.
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there are still a number of protesters here, what on the other side of the federal office building, there was a tense involved the police firing tear gas. quickly, as soon as that happened, the protesters move to another part of hong kong, further east, to causeway bay. that is what is happening now. we are getting reports that these protests are moving around hong kong to stay ahead of efforts by the police, were also onermined to draw a line these protesters. we heard from carrie lam. she says the protesters are ruining hong kong. the protesters say they are not going to back down. alix: thank you so much. stephen engle joining us from hong kong. another essay getting wrapped up in the trade war overall is commodities. receiving 7% 1%, last week. bank of america had a note up friday talking about the impacts u.s. tariffs on china could further we can oil demand by 650
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-- 650 to 50,000 barrels of oil a day. could be hit by an additional 1.5 million barrels of oil a day. andre joined by bob brown paul sankey. what is your base case? extra tariffs? have been calm about next year's demand, but we have always been low. global forecasts from agencies have been coming down and down, and now we are starting to stare at will we go under a million pounds of demand growth? million -- 7ing $7 million barrels a day of supply growth. the balances have been getting concerning for 2020. the other big issue we always follow that i don't hear often mentioned is the dollar. it is a very simple reverse correlation between the two. essentially 90% of world oil
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trade is in dollars. if you get a strong dollar, you see lower oil prices. alix: we have seen the revisions of major agencies from january revision fore demand growth. how do you factor in things like iranian tanker seizures that no one seemed to going and i at, for example. paul: that is -- that no one seemed to blank an eye at. you have 2 million barrels a day of spare capacity in saudi alone. you can debate the u.s., because it is a different short cycle, but the market does not perceive there to be risk in oil, very simply. as a result, you are not seeing any impact from iranian attacks on tankers. in the 2000's, we would have had crazed panic in oil markets because we had no spec investment. david: this this makes sanctions from the u.s. point of view more powerful and effective? there is not as much demand to get oil around the sanctions.
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the united states can get the oil elsewhere. paul: there are a lot of reports that china has been circumventing it. there is a lot of controversy essentially about how much iranian oil is actually coming out. they may be using uncertainty around the trade war to take the opportunity to take iranian oil and circumvent it. i think the issues are somewhat separate, to be honest. alix: the u.s. shale supply explains the market balance, some might say. how do you look at things we learn from big oil, like chevron development in the permian, versus independence last week, where i feel like shalemageddon was in the earnings. paul: have you heard about the shalelenials? what is extraordinary about the cycle in oil is we now have a situation where exxon and chevron, especially exxon, are growing in the permian regardless of price, absolutely
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just essentially, exxon is outspending, including its dividend, in order to grow in the permian. absolutely enormous numbers. the accommodation of reports on weday -- particularly, sought exxon increased its debt to the first half of 2019 by about the amount of its dividend. debt-financeit is growth. it delivered very strong in the case of both exxon and chevron, 20%. but these are off high basis. what we are saying is important, because none of that is particularly price elastic. it oil goes down to 40, those guys are going to steamroll the rest of the permian guys. it is an interesting cycle, because back when exxon could not grow in the u.s., it had high free cash flow.
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this is 15 years ago. today, we have the opposite. they are enforcing capital discipline on another controversial name from last year. as an time coming to you investor. explain how this analysis may or may not affect your decision about investment. currently neutral, the natural resource sector in general. we are not worried about commodity-based inflation being a positive source of earnings in ,he sector across the board mining and elsewhere. it is not the place where we have been taking on a lot of risk on or off. i will defer the oil forecast to be experts. it is the one thing i never even try to forecast, because i probably have a greater than 50% chance of being wrong. i think about the consequences of the sharp moves in oil, the impact it has on the consumer. now it is more tricky in the u.s.. broadly, if you look at the u.s.
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economy, the high or low oil price is positive or negative, given the u.s. is now a significant producer itself. that has always given us a bit more pause to really think about whether a dramatic change in oil prices are positive or negative for the u.s. economy overall. a low price is good for the consumer and for companies such as exxon tied to the permian basin. alix: wrap this up for us. we have some earnings out this week on the big guys. quiter will be interesting. what is the takeaway you are most interested in learning? spend lesse want to money, generate more cash flow, and have a lower break even. there is a conviction that oil is coming down and down in price as a function of the permian and as a function of technology. essentially, the strategy of the sector is still locked in the days of peak oil, and the equity market is trying to force these guys to understand we are into
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an era of abundance, technologically driven abundance, and they have to plan on lower prices in the future. they really are not doing that. they have growth in their dna, because essentially they are expert -- exploration companies and want to prove they have the oil. it is tough to shift to the capex model we want to see from them. you have to have capex coming under the expectation, and growth at or above the expectation. otherwise, the market would crush you. last week, concho were the best regarded in the sector with what amounted to a miss. really, the market hated it. it was down 45% before the oil move, right? very much. you both coming up, more on the fed follow. several central banks will be out with decisions this week, articulately in emerging
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markets. how the fed rate cut will weigh on that. how china trade tensions play into that as well. and the member, bloomberg users -- you can interact with the charts throughout the program. ♪
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viviana: this is "bloomberg daybreak." coming up later today on "balance of power," a former fbi director. here is your bloomberg business flash. overpays fort stocks. berkshire hathaway sold a billion dollars more worth of
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stocks than it bought. that is its biggest net selling since 2017. berkshire's cash hoard surging to a record $122 billion. amazon is squeezing sellers that offer better prices on walmart and other platforms. when it discovers a product is cheaper on another site, amazon alerts the company selling the item, then makes the product harder to find on its own site. the merchant often than the sides to raise the price on the other side rather than lose amazon sales. shake shack is brushing off quality consoles -- quality control concerns regarding delivery. last year, shake shack said it's food was not intended to be eaten half an hour after it was cooked. thanks so much. time for the deep dive into stories making headlines and moving markets, with insights
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from industry veterans and insiders. today, we are looking at all the asian central banks out with rate decisions amid worldwide reactions to be escalating trade were between the u.s. and china. there with a look is michael mckee, bloomberg's international policy correspondent. michael: it is all about currencies, a catholic and scrambled by china's reaction to president trump's threats. we start with australia and new zealand, australia out tomorrow, new zealand on wednesday. look at the currencies. the australian dollar in white, the new zealand kiwi in blue. they have been going down. the fed rate cut caused reaction. people thought new zealand would probably cut rates again to keep its currency from rising. australia has been it a couple of times, so they were going to wait. you can see the difference in the dotted lines, the benchmark rate cuts. with china cutting, that gives australia more room, and possibly new zealand.
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new zealand expected to go ahead because they have additional space compared to australia. with china cutting, their currencies have been going down today. it makes it a little easier over there. for india, it is a bit of a different story because a couple of things are happening at the same time. you can see the indian rupee, and i invert at the graph, to show it has been going down recently. currency anded the has put a lid on the interest rate. seeing the inflation rate dropped enough that the indian central bank has been thought to go ahead and cut rates, because they have some scope to do that, because gdp has been falling. gdp has been down. in the last month, we have seen the inflation rate rise in india as the currency got stronger. now that it has gotten weaker, they have additional scope to cut. we are seeing an impact from what the u.s. federal reserve has done and the chinese. the last two that are going to be meeting this week are the the thai and --
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indian central bank. the thai baht has been strengthening, even though a big drought has hurt growth. that is the forecast for the dotted white line. for the philippines, they have seen the currency depreciated against the dollar. it is going up there, but depreciating against the dollar. they are expected to cut their rates to try to keep on an even keel. we are seeing central banks react to what has happened not mostto the trade war, but recent activities by the federal reserve and the chinese. they have got to take all of this into account as they decide what to do next. alix: does not sound hard. [laughter] alix: also joining us this half hour, bloomberg credit strategist damien. is the job easy or hard? damien: it got significantly more difficult. we were talking about emerging-market volatility after
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some tunnel. -- some tumult. with the dollar happen you on breaking that psychological seven threshold, there is a question how much capacity central bank will have to stimulate their economies when yield differentials are going to compress with the u.s. that situation will be really challenging, to push through stimulus with spiking and volatility at current levels. what is the biggest fear for a central bank? damian: they run on currencies. they have to manage stability when volatility has just spiked significantly. if you look at 12 months versus three months forward, most of these emerging-market curves, such as the philippines, thailand, and india -- they are rolling over, flattening, many people are demanding u.s. dollar protection because they are afraid of currency weakness. david: this shows the emerging market currency index and what it did. michael: a lot of volatility in these currencies.
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if we take apart the charts i showed, each country has its own unique problem, its fundamental issues they are trying to deal with with the central bank. now you have laid in this level of complexity that makes it more difficult for them to figure out what the right move to make his. australia. they are really, really low now. of the lowest benchmark rates in the world. how much additional firepower do they have? that is a question that is going to be asked of the european central banks. we are going to start to see competitive devaluations around the world. how far do they go how fast? if they have a down current turn -- downturn, where is it leading? alix: they want a perfectly , so you are laughing. the volatility, if you come inside the bloomberg, you can see the volatility there. describe what this means in your world. damian: if you look over to the right, that big spike -- this is
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only three trading days into the month. year to date, coming into just last week, we had the trade with the dollar down on the year. now it is up on the year after a huge 2018. at levels of spiking like we have seen an dollar happen you want. it is a much more challenging environment. i am excited to see frankly if new zealand or australia do indeed try to stimulate their economies with a rate cut. right then and there, we are going to get a real vision for how the market is going to react. where does this all end? we have had currency wars before. is about trump says it currency. how do we resolve a currency war ultimately, historically? michael: right now, and correct me if i am wrong, it is in the hands more of the chinese. it is obvious president trump is going to not back down. u.s. dollar in the --
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intervention would do nothing on a unilateral basis. does china let the yuan keep falling? the europeans are more exposed to the yuan in trade terms than the u.s. is, germany in particular. the european central bank will feel enormous pressure from this move. the gatekeeper here is china. year, we were sitting here before the big kit on the yuan and saying the same thing. we are in a very similar situation might now. we just do not know where the story is in dollar yuan. does the pboc want to bleed through their reserve? are they that committed to the gdp growth? i am not sure they are. we will wait and see. really appreciate damien sass hour and michael mckee. as a trade falling war escalates. triple effect.
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how are investors going to be position? you can hear us on bloomberg radio. ♪
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alix: what i am watching his markets. equity markets or a bond investor, here is where he said. you have a flood into the bond market, in particular here in the u.s. futures are around the lows of the session. we are joined by a bloomberg asset reporter. be the going to sensitivity over the next 24 hours? >> i think people will be incurred car was sensitive to news flow. probably data takes a backseat unless it is very bad and causes us to think the environment -- we're going into this risk off episode. if the macro background is not as strong as we hoped, that will be a big thing to watch. there is a classic chart
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tracking implied offshore yuan volatility versus s&p 500. sometimes, the charts wind up. essentially watching that overlay and watching how much willates in the fx story go over -- that is a sensitive situation. china does not necessarily want a lot of yuan weakness. a lot of holders of dollar bonds are not happy. that kind of balancing act. alix: is this 2015? >> 2015 was fast. this is slow. watching the cross asset flow, that is a repeat we have not seen. it was august 44, the monday. -- august 24, the monday. we are not there yet. that is also because of the relative speed of the move. you are watching jpy, implied volatility. fairly calm. still the one thing that has reacted
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ae most ahead of time is downside protection bid that did emerge at the start of last week. people who use the vix paid off. s&p 500 also doing well. alix: what has been the sense of reversal or calm? as you said, it is not fast like 2015. what is the repercussion? >> we have a great built-in braking mechanism, the fed. this is a deadline and month, so hopefully clarity or not, but in a month. alix: good luck. thank you very much. that does it for "bloomberg daybreak: americas." coming up, this risk off morning. happy monday. ♪ hey! i'm bill slowsky jr.,
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i live on my own now! i've got xfinity, because i like to live life in the fast lane. unlike my parents. you rambling about xfinity again? you're so cute when you get excited... anyways... i've got their app right here, i can troubleshoot. i can schedule a time for them to call me back, it's great! you have our number programmed in?
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ya i don't even know your phone anymore... excuse me?! what? i don't know your phone number. aw well. he doesn't know our phone number! you have our fax number, obviously... today's xfinity service. simple. easy. awesome. i'll pass. jonathan: from new york city, i'm jonathan ferro. the countdown to the open starts right now.
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coming up, china allowing the -- requesting state owned enterprises and stock global market risk aversion. driving treasury yields down to new lows for 2019. 30 minutes until the opening bell this morning. here is your brutal monday morning price action. futures down 47 on the s&p. on a five-day day losing streak. down 1.6%. in the fx market yen strength. treasuries with a massive bid. begin with the big issue. china pushing back. doesth china's currency it look to be the next salvo.


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