Skip to main content

tv   Bloomberg Daybreak Americas  Bloomberg  August 23, 2019 7:00am-9:00am EDT

7:00 am
fed chair jay powell takes the stage at jackson hole. in the real black hole. we speak to larry summers, former u.s. treasury secretary, about blackhole economics and how the u.s. is one recession away from negative rates. china's retaliatory tariffs plan. the g7 the stage for this weekend. welcome to "bloomberg daybreak" on this friday, august 23. i'm alix steel. david westin is still off, over it in italy. buy equities, sell bonds. that's what we saw earlier in morning. you have "global times" saying china is looking at retaliatory tariffs, setting the stage for the g7. time now for global exchange, whereby take a look at all the news this morning. ,oining us now in hong kong
7:01 am
karen lee, as well as in france, maria tadeo, and in jackson, karen hole, wyoming, michael mckee. first, we want to start in asia. china willorts that soon unveil retaliatory tariffs. karen? reporter: based on what we know, china will take further retaliatory measures on billions of dollars of chinese goods -- measures in retaliation to tariffs on billions of dollars of chinese goods. at the same time, we have unrest in hong kong. we will be looking to see what those tariffs are. no details were revealed. alix: and hong kong, political turmoil potentially
7:02 am
triggering a world recession. that was the conversation yesterday at jackson hole. >> these are not segmented regional effects. these have really global consequences. pointould be a tipping that could trigger a very significant global slowdown, even a recession. alix: what is the talk over there? that's harvard university economist carmen reinhart saying it could be a detriment for the world economy. there are mobile shocks that could rattle the economy. it is also a concern for the business community here, whether or not this will continue to be a safe haven for business as it has been for a long time, whether we see potential designation it has with the mainland, and whether people
7:03 am
will be able to operate here in the way they have been. alix: thank you so much for joining us. now we move over to france, where world leaders are gathered for a two day summit. maria, what is set for the g7? maria: there so much happening here. there are many concerns about trade, and also concerns about a global recession. they also worry a lot about president trump. they see political instability, they see someone who is unpredictable, and there is trades tension between the united states and china, but also europe. there could be a tariff on technologyuse of the the bar is so low we are being told there is no communique by the end of the session monday, just a good
7:04 am
debate will be enough for everyone to save face. alix: thank you. bloomberg's maria tadeo joining us from france. in jackson hole, fed chair jay powell will speak into three hours. michael mckee is on the ground. michael: the stakes are high for the fed chairman here today. in his news conference after the july 31 meeting, jay powell characterized that rate cut as a midcourse correction, which is not how global wall street sees it. they've been pricing in what maria just called a possibility of a recession. it's jay powell's job today to bridge those two views. how does the fed chairman see the economic prospects ahead, and how and why with his fed react? how bad are the trade wars that seem now to be permanent?how bad are slowdowns in asia and europe? how strong really is the u.s. economy? for jay powell, it's a tight rope walk. he's had trouble communicating with investors in the past. today he wants to let them know
7:05 am
the fed stands ready to act without, as they say here in wyoming, scaring the horses in his assessment of the economy. we will get the headline at 10:00 wall street time. alix: mike mckee, thanks a lot. we will bring you the latest from jackson hole, including interviews with james bullard, st. louis fed president, robert kaplan, dallas fed president, and others. joining us for bloomberg first take, carl riccadonna, rachel evans, and damian sassower. the main event is going to be powell. there's so many questions going around. what is the right question to be asking this morning? carl: i think there's a bit of a misunderstanding that there is this renegade hawkish contingent building against the fed central line of thinking. .e heard from known dissenters
7:06 am
when you are hearing esther george speak, you know it is going to be hawkish commentary. adon't think there is resistance building against the fed's policymaking. powell is't think jay going to put all the cards on the table today. ishink the message from him going to be this is still a midcycle adjustment. we didn't say how big that adjustment was going to be, and today he's going to suggest that that adjustment could be a little bit bigger. we are not in a full-blown easing cycle. recession risks are lower than a lot of folks believe at the moment. so the midcycle adjustment might mean a handful of rate cuts. my team earlier this week changed our fed call. we are now looking for the fed to move in september, october, and again in december. this is basically the fed pursuing an un-inverted yield curve i'll economic fundamentals
7:07 am
look relatively decent. alix: i feel like you're telling me today is going to be a snoozer. that markets are basically just extrapolating. [laughter] carl: i wouldn't necessarily say snoozer, but moving in the direction of less trauma and fireworks ash less drama -- less drama and fireworks. the question i don't think he will address today is the scenario are the fed moves into a full-blown easing cycle and potentially another round of quantitative easing. i don't think we get there today. rachel: it's been very interesting looking at markets today. market's definitely been on vacation. . was looking at volume figures everyone is often the hamptons, having a lovely time by the look of it. to your point about volatility, i think we could see something if we see a big enough surprise, just given the volumes are so low. that does tend to translate into bigger spikes, bigger falls, if we see something to move
7:08 am
markets. we do see a bigger action, i think we come back into the office in september. onian: i think what is going thehe short end of curve, i think three rate cuts would go a long way. widening.bor spreads this is still trending out in the broader credit markets. these are all things we are keeping a close eye on. alix: i'm glad you brought that up. can we break it down a little bit for those not in the know? basically, it is very expensive if you are a foreigner to buy treasuries, which means banks have to hold more. that means a stronger dollar. why does that mean the fed has to cut? really, you have basically foreign central banks depositing dollars with the reserve bank of new york,
7:09 am
basically collecting overnight rates, not investing, which they have historically done. it basically has this inversion at the ultra short end of the curve. with all of the issuance and the debt, the cbo just upped its budget deficit estimate to $1 trillion for next year, two years ahead of time, they are renting in the overnight space. that's going to weigh on inventories and make it more costly for them to fund fx swap rates. that's one of the things driving cross currency basis and all of the negative yields abroad. alix: that brings up another question for me. how much preventative cuts do they need to do? how much is that going to be to fix the technical plumbing and also alleviate distress? there's a broader issue, which is net interest margins for banks. if the curve is flat or inverted, that is not a profitable environment for banks
7:10 am
, or at the least, they are not passing along the full extent of monetary accommodation to their customers, be it households or businesses. so the fed has to move so that the overnight rate is lower than the 10 year yield if they want to have a healthy banking environment, and he won't have a healthy banking environment -- a healthy economy without a healthy banking environment. alix: if you pair this event with the next 72 hours, you have monetary policy over the next 12 hours, then fiscal policy. that's what the g7 is really going to be about. is this where we are at, where it is really going to be about fiscal? damian: i think the one thing we have heard a little bit of is germany and france talking about maybe aligning their fiscal needs and aligning ecb stimulus with fiscal stimulus. if they have a coordinated approach, i think the ecb stimulus will have a lot more weight. that will be discussed, but g7 is going to be a lot more about trade, about iran, and about brexit. carl: and as the reported
7:11 am
earlier this morning, the per dissidents are watching their twitter feeds to see what is happening in the background -- the participants are watching their twitter feeds to see what is happening in the background from president trump. underscoresely what's happening here, and i think the expectations of maybe not even getting to a communique by the end of the weekend is very indicative of where things currently stand. rachel: i think that's kind of unusual for a g7 meeting. these were created to be about unity. to beere created about everyone getting on the same page, to end standing united. we look to the g7 to really show leadership and reassurance. here, we are already talking about the divide. macron arguing with bolsonaro about the amazon, we've got brexit. there's all kinds of things to discuss. there's all kinds of risk out
7:12 am
there. damian: you've got trump froming about the defense nato being too low. u.s., three point sent -- the u.s., 3.2% of gdp goes to nato defense, and other places are lila us and that bashar a lot less than that. -- other places are a lot less than that. times" editor just came out with possible china tariffs. what does that do for the g7? carl: the fed gets the messaging down pat, clearly communicates to the markets, and then betrayed tweets and headlines derail everything. potentially, we could be looking at that scenario later this afternoon or whatnot if they are antagonizing president trump.
7:13 am
he will be happy to tweet back at them that there will be additional tariffs in the u.s. not necessarily that there will be followed through that, but he will sabr radel with the best of them -- he will sabre radel with the best of them -- he will sabre rattle with the best of them. and we got the cable rate overnight that was actually up 3%. south korea has a rates meeting, and some expectations may have been cut there as well. alix: thanks a lot. really appreciate it. good to see you. ask for helping us analyze the day ahead. coming up, we speak to larry summers, four masked -- larry summers, former u.s. treasury secretary. this is bloomberg. ♪
7:14 am
7:15 am
7:16 am
♪ alix: former treasury secretary larry summers blew up twitter yesterday, warning that there is a black hole in can my policy. one of them really stood out. at zero, rates stuck was no real prospect of escape. expectation in europe and japan with a sexually zero or negative yields -- with essentially zero or negative yields over a generation. the u.s. is one recession away from joining them." larry summers is with me on the phone. this generated a lot of buzz over twitter. how did you get to this conclusion? what is black hole economics? whole -- the black hole, loosely, and monetary economics is when the interest
7:17 am
zero and absorbs the and the economic energy can't get out. the difficulty is it doesn't seem to be much that central bank in japan has been able to do for a long time now to get inflation going. europe is heading into recession starting at zero interest rates. in america, when we have a recession, the interest rate usually is reduced by 500 basis points. it has to be 300 below the neutral rate in order to get the economy going. given where we are starting, there seems to be no real room to get anything close to that.
7:18 am
that we'veusion is got to think much harder about economic stabilization directly. those mechanisms might involve the government deciding to run a budget deficit. they might involve some kind of change in transfer programs or expansion of social security. they might involve efforts to mobilize more infrastructure funding. there are a variety of possibilities, but i think we have to think outside the box. when i see central banks debating how often they are going to have their press conferences or in what form they are going to offer their shorttions, it just seems of the potential problem that we face.
7:19 am
small't need to plan for contingencies. we need to plan for big contingencies. alix: to that point, on twitter you had one chart that really echoed what you were saying. of easingher periods and just how much the fed was able to cut. as you mentioned, upwards of 500 to 800 basis points, and how we don't have that kind of room now. it seems like what you are saying is the answer is, in essence, modern monetary theory, where you borrow a lot of money to have a lot of stimulus. is that true? larry: things very much in that direction are going to be necessary if we are in a recession or if we get too close to a recession. where i part company with modern monetary theory is in believing that it would somehow be good to never change interest rates, to
7:20 am
believe that somehow we can do it all always with zero interest that nothing about budget sustainability matters in any circumstances. so i think there are some real problems with the breadth of applicable of the that the modern monetary theorists take there's ado think core of validity. by the way, it goes back before modern monetary theory to i know an idea calledto focused finance. monetary policy can't always achieve stabilization, even of
7:21 am
what we think of as monetary quantities like the total dollar values in gdp or the rate of inflation. i think that is an important lesson that we are going to have to take going forth. i think another traditional in myne that i had thinking until fairly recently given lots of weight to, the old isa of monetary policy sometimes pushing on a string is something we will need to think on. [indiscernible] -- or on the side of dovishness. that's what i've been arguing for a long time. i think that's right, and i still believe it.
7:22 am
we need to beh, directing more focus towards that canry policies stimulate demand. unfortunately, central banks, understandably enough, are reluctant to acknowledge the limitations of what they are able to do, and that peaks the debate -- that takes the debate further from the fiscal policies that are necessary. alix: larry, i really appreciate it. it was a
7:23 am
7:24 am
7:25 am
viviana: this is "bloomberg daybreak." hasbro is becoming a full-fledged entertainment company. the toy company agreed to spend $4 billion to buy canadian studio entertainment one. brands thehasbro's ability to spread into foreign markets such as china. new tariffs that president donald trump is threatening could drag china's growth to the lowest since 1990, according to a bloomberg survey of economists. if tariffs on $300 billion of chinese goods are imposed, gdp expansion could be cut by half a percentage point. that would push growth below 6%. that is your bloomberg business flash. alix: thanks so much. those tariffs are also disproportionately hurting women. and analyst of pipeline equities came fromurden
7:26 am
apparel, and women shoulder 65% of that load. "on average, men's clothing has a border tax of 40%. the interesting part is how this could play into the election. polls show the president is hurting when it comes to female voters. if there is some pushback, women might actually have this way. -- have the sway. coming up, how jackson hole could guilty markets. duessel,peak to linda federated investors senior equity strategist. markets still holding onto the gains. s&p up 3/10 of 1%. this is bloomberg. ♪ ♪
7:27 am
7:28 am
from the 5am wakers, to the 6am sleepers. everyone uses their phone differently and in different places. that's why xfinity mobile created a wireless network that auto connects you to millions of secure wifi hot spots. and the best lte everywhere else. xfinity mobile is a different kind of wireless network
7:29 am
designed to save you money. save up to $400 a year on your wireless bill. plus get $250 back when you buy an eligible phone. click, call or visit a store today. alix: this is "bloomberg daybreak." no rest for the weary on this friday because we have a ton of fed speak coming up, as well as from jay powell.
7:30 am
marquis futures climbing near the highs of the session. we erased some of the gains after "the global times" reported that china is ready to retaliate on tariffs. it is a buy equities, sell bonds story. not even one basis point on the 2-10 spread. yields moving a bit higher, but still right around continued inversion there. one highlight i want to point out is the stronger dollar. you're looking at a weekly gain here of the best week since about 2017 for the dollar index. how long will that last? at what point does it wind up tightening financial conditions and put more stress on the fed? fed chair jay powell is set to take the stage in jackson hole eastern time. you have some on the fed saying it is not time to cut.
7:31 am
-- dallas fed president robert kaplan said he would like to take -- said he would like to wait to take further action. michael mckee is with us in jackson hole. it's a random selection of those who i was able to do interviews with ahead of time. we will hear more from the devilish side this morning -- the dovish side this morning. we will hear from jim bullard at the top of the hour. it's a situation where probably not a lot has changed in terms of who will go which direction. it's also important to remember who is voting. pat harker not voting this time. is.er i feel like we want to
7:32 am
walk this question forward. how many ounces of prevention are necessary to sufficiently give an accommodative boost to the economy? what is that conversation now? michael: you hit the nail on the head there, alix. if the fed is going to be cutting rates, jay powell in july characterized it as a midcourse correction. wall street sees a recession ahead. how much accommodation to the various fed officials think we even even if we think -- if they think we do need a rate cut? is this a correction, or the beginning of a rate cut cycle? this is an important conversation throughout the day and a question we will be asking. alix: looking forward to it. thanks so much. he will be back with us in the next hour with interviews from jim bullard and robert kaplan. now let's take a look at how markets are positioned ahead of powell's speech in jackson. i want to go right to bloomberg's taylor riggs. taylor: interestingly, we are starting to see major outperformance by momentum strategies overvalue strategies.
7:33 am
stocks are doing well. keep buying. if stocks are losing, sell out of them. do not try to do that reverse where you buy cheap stocks and hope they turn around. clearly momentum stocks outperforming value. on the flipside, we've talked a lot about the bond market. who is right here, equity markets or bonds? more people after that manufacturing survey yesterday pushing the u.s. into that contraction territory are saying that the bond markets were right. more and more, they are seeing low yields and perhaps negative rates are starting to make sense given some of the negative data we've seen. we do know we are at least pricing in one rate cut for september. not sure jay powell can say anything today that will change that around. -- wrote a lot about the term equity between the markets and the s&p 500. for him, it is a very ominous sign as the term premium comes
7:34 am
down. that means stocks come down with it. the last time this happened was in 1998, and again in 2010. so the struggle continues between the bond market and the equity market. alix: thank you so much. appreciate the set up. joining me from pittsburgh is linda duessel, federated investors senior equity strategist. if we walk that forward from an equity lens, you are going to want to buy utilities. can you still buy utilities when they are still so expensive? linda: utilities are expensive versus their history, but the problem is you have so many baby boomers now in the older generation that they need income that they think can be relatively defensive, and they can't go to the bond market like they used to historically. years,t couple of utilities probably would not get to their average price to earnings ratio. where else do you look for income from high-quality dividends? alix: when is going to be the
7:35 am
right time to play with different types of protection? for example, there's been a lot of puts on treasury futures hedging against higher yield. when do you need to do that? linda: well, i don't think that higher interest rates is the problem. i've not thought so for quite some time, and particularly now. ,round the globe, as we know now counting towards $17 trillion of negative interest rates, sovereign government interest rates. here in the united states, interest rates are very low by historical standards. we still have a positive yield curve. i'm more afraid that we are heading towards a negative yield curve or at least some negative yields in the united states than protecting for an increase in yields. alix: so how do you protect against negative u.s. interest rates? we heard that from larry summers also, that perhaps it is the reality of an extra session.
7:36 am
what do you do with that? linda: that is such a difficult question, and one that i hope they really flesh out at jackson hole. i think the challenges -- excuse policy.onetary i think they will start talking about monetary policy and how this game will end. no one seems to be talking about how this global gain will end. alix: i spoke to larry summers earlier. here's what he had to say about the next step in the global easing cycle. got to think much harder for economic stabilization about mechanisms that involve spurring demand erect lay. -- spurring demand directly. we have to think outside the box. alix: outside the box is kind of fiscal. he hedged a bit, it wasn't complete monetary theory, but what do you think about that? linda: i think the united states
7:37 am
is in pretty good shape. we all know that the consumer is doing much better than the manufacturing sector, which is suffering from the effects of the global trade war, but because we are such a heavy consumer into -- heavy consumer oriented economy, fully employed, and wages are going up , and the s&p 500 is maybe 5% off its all-time record highs, it is such a bifurcated situation now that how is one to behave? i think as investors, we need to , asullish, go for growth your previous person suggested, but also have some balance in our portfolio. that goes right to the dividend stocks and utilities. alix: then wrap it all into the stronger dollar. all of what you said to me means a stronger dollar. when are we unable to tolerate that strength? linda: there's nothing we can do
7:38 am
about that strength, unfortunately. even though the dollar is strong, as the rest of the globe pushes further and further into negative interest rate territory, our dollar is going to remain king dollar. it is going to remain so, and there is nothing any fed can really do about that. the last cut in interest rates didn't do anything to stop the move, and we didn't really need to jumpstart here in our economy. 25 basis point is not going to do anything to an economy either. alix: linda, thanks. i really appreciate it. linda duessel of federated investors. viviana hurtado is here with first word news. viviana: in italy, president sergio mattarella has given rival political parties until tuesday to form a new coalition. the antiestablishment five-star movement is in talks with the centerleft democrats. mattarella has the power to either appoint the next prime minister or call new elections.
7:39 am
economic advisor larry kudlow telling reporters there are still plans for a chinese delegation to visit washington next month. administration officials have warned there are still significant structural issues with china. the equity analyst who warned investors to dump shares of cathay pacific airways is getting a whole lot of heat. he told bloomberg he's never seen so much pressure on a stock rating, issuing his report as the airline was under fire from china and facing boycotts. employeesthay's have joh joined antiaging prote. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm the vienna or cotto. this -- i'm viviana hurtado. this is bloomberg. alix: coming up, falling flat or still sizzling?
7:40 am
and if you have a bloomberg terminal, check out tv . watch us online, click on our graphics, interact with graphics, interact with us. this is bloomberg. ♪ this is bloomberg. ♪
7:41 am
7:42 am
viviana: welcome to "bloomberg daybreak." coming up in the next hour, robert kaplan, dallas fed president, live from jackson hole. ♪ this is "bloomberg daybreak." disney has found another way to cash in on its star wars franchise. the company has unveiled plans for a multi-day experience at walt disney world. it will let guests feel like they are staying inside a
7:43 am
spaceship. it is called star wars, galactic star cruiser. disney calls the hotel-like attraction a space cruise. its ceo is leaving the company to attend to a personal health matter. his were placement will present proposed changes in october. critics have been protecting down.ock's ceo would step this week they were proven right. entanglements with what he called "the deep state" and law enforcement, and said he had been romantically involved with a russian operative. i'm viviana hurtado. that is your bloomberg business flash. alix: let's take a look at some of the insane comments from the ceo of overstock following his resignation. da davidson analyst,
7:44 am
says, "i think the latest controversy was one too many. some of his colorful comments include comparing a company executive to a star trek character. he would also sign communiques .'"'your humble servant those are some of the nicer ones we've heard. an unbelievable story. we turn now to our bloomberg weekly businessweek feature, where we preview some stories in the latest issue. first up, mcdonald's is up for alternative meat producers. and lacroix is losing ground to big soda. nervous retirees sit on their wealth. the beneficiaries of america's longest recovery are increasingly frugal.
7:45 am
first off, we've been speaking things we eat are changing and meat alternatives. here are some of the highlights. >> i think this could be a $30 billion category in time. people are looking today for things that are less processed, but if you make the change, the change has to be dramatic. it's one of the greatest things we've ever done. impossible and the burger have figured out the way to weave together the proteins and the fats. they have a huge head start against these big lumbering companies that have been very slow to develop those kinds of capabilities. >> meat eaters are enjoying the sandwich as well. it looks, smells, tastes like beef. peter coying me are and taylor riggs. is this just all the fight to overtake mcdonald's? taylor: that's a very important part of the story. this sort of goes back to the
7:46 am
rivalry of pepsi and coke. in grocery stores, you have some inroads. you have white castle and burger king. donald's is the big player here because if you can get in mcdonald's, you would see big increase in the business and a huge international market that could really start to change your business. i think the battle is there. you have some other smaller entrance as well, some new competition. foods meat and impossible the leaders trying to battle it out. peter: our feature says the ceo does not want to talk about the price of the stock, which is like 500% of the offering price at the opening, but does want to talk about how you make the stuff. it is fascinating because they take vegetable matter, peas on, and breakso
7:47 am
it down to its component parts, right down to the chemical level, and try to rebuild it anyway -- rebuild it in a way that resembles meat when it comes to taste and texture. he says they are 50% to 75% of the way to where they want to be. i think they are pretty good, but it does seem like it really could be a challenge to conventional meat. taylor: i think peter rightly brought up the share price. we knew after the ipo sword to like but it does seem like it really could 800%, then camea little bit after that secondary share sale, as we know, it is trading right at the average analyst price estimate. so you had this big balloon up, but perhaps some of those hyper valuations are starting to come down a little bit, as you can see there, right about 151%. sort of wondering the future growth prospects for the company. alix: the other part of the
7:48 am
battle issue, the bubble wars. apparently lacroix is the only thing out there. seltzer is the thing. taylor: this is the other sort of big battle between early entrants to the market. in the 1980's,t 1990's, and i've really sort of pushed to become a leader. but as there's become more competition in the market, they are now a little bit on the defense. we have a great quote in the story talking about whole foods, said you need to lower your prices if you want to maintain our prime spot. lacroix said you need us more than we need you. we are not going to lower our prices. alix: is this a deflation story in a good way for the consumers? peter: i hadn't thought about that. i was thinking about it more from a come i hey, this is august. it is summertime.
7:49 am
let's do meat, let's do burgers, and let's do seltzer. a nice entry into the labor day weekend. alix: but it sort of raises the point about what is the first mover advantage. let's say for lacroix or when it comes to impossible, how much of a leg up does that wind given you? you have things like coca-cola and pepsi now that are pushing lacroix a little bit >>. do they need to lower prices? how do they look at their margin? they have massive international distribution and of really have massive international distribution and of really pushed into this market. so again, you're starting to see the tug-of-war market share versus price. alix: let's go to our third story, which is what a retirees actually going to do with their money. there's an amazing chart that shows the spending of americans since the 1990's, and you can see how much they are not spending at the end of the day. what is up with that? peter: back before the advent of
7:50 am
social security, one of the poorest groups of american society where the elderly because they would just run out of money. social security made a big difference there. now it's the young who are the most likely to be poor. this is talking now about a of the elderly, which is the fairly wealthy. they are not spending their money. so the of the elderly, which is the fairly author talkf people about why not. they have this idea to never invade your principal, so you die with all of your money still in the bank. that's fine for your heirs, but kind of not good for society as a whole to create these dynastic wealth centers. taylor: i wonder if there's a lot of recency bias. we remember our parents losing half in 2008 and starting to only now just recover a little bit from what they lost.
7:51 am
there was a great quote in the article about if you were over 75 years, you've only recovered what you lost, but the younger generations have not recovered what they lost back into thousand eight, so there is ash back in 2008, so there is frustration -- back in 2008, so there is frustration and fear of another session. peter: i have a theory that one of the reasons people aren't spending more is that they don't have a good rule of thumb for how much to spend, so the default is just don't spend at all. there used to be a rule of thumb people would use, like to spend 4% a year as an initial amount, and then adjust that to inflation year after year. then there's the required minimum distribution thing, which is another standard, and people don't know what to make of it anymore. as i said, they are spending. i think if there were a clearer
7:52 am
idea of what to do, they might do it. they might actually spend more. alix: that's why i'm never going to retire. peter coy and taylor riggs. check out these stories and more in the latest issue of "number businessweek -- of "bloomberg businessweek." there's a lot of dues's and don'ts about the apple card. apple now warning people who have a titanium credit card that it can be discolored by fabrics such as leather and denim. and by the way, don't keep it against loose change or keys. and don't put it in a wallet where it could even touch another card. that could scratch it. man, how delicate. coming up, tesla reportedly agreeing to buy batteries from lng to use in its new china factory. if you are heading out, to into -- heading out, tune into bloomberg radio on sirius xm channel 119 or on the bloomberg
7:53 am
business app. this is bloomberg. ♪
7:54 am
7:55 am
alix: here's what i'm watching, not cars -- watching, and that's cars. have struck ato deal with lng to buy batteries for its factory in shanghai. has huge plans to address the chinese market with local production, which it's it around the trade considerations by manufacturing locally. there have been some tensions reported by publications in its existing relationship with panasonic, who makes its batteries in nevada at the moment. this is clearly a huge win for the south korean company, and perhaps something of a blow for panasonic, although we are i expect in them to have multi-battery suppliers going multiple battery
7:56 am
suppliers going forward. alix: who else could but he be winners for this? with they are in talks some other companies, our colleagues have reported. is -- as withms components,es for particularly something as price-sensitive as batteries, it is hugely advantageous to have because itppliers ensures your supply, and you can make arbitrage on price. alix: coming up on the program, jim bullard, st. louis fed president, will come to us live from jackson hole. this is bloomberg. ♪
7:57 am
7:58 am
i'm all about my bed. this mattress is dangerously comfortable. when i get in, i literally say 'ah'. experience deeper rest with the award-winning leesa mattress. this bed hugs my body. i'm now a
7:59 am
morning person. the leesa mattress is designed for every body. providing strong support, pressure relief and optimized airflow to keep you cool. hello bed of my dreams. order online, we'll build it, box it and ship it to your door - so you can try the leesa mattress at home. love it, or get a full refund. and rest assured, returns are free and easy. i love my leesa. today is gonna be great. find out why so many people love the leesa mattress, then try it in your own home. order now to get big savings - but only for a limited time. just go to leesa.com today. you need this bed. ♪ alix: powell's main event.
8:00 am
fed chair jay powell takes the stage at jackson hole as the market pares back expeditions. "global times" has china will against tariffs. and hasbro makes a $4 billion offer for entertainment one. welcome to "bloomberg daybreak" on this friday. i'm alix steel. here's where markets stand. a strongly was pre-u.s. equities. s&p up by 3/10 of 1%. strongerstory is a dollar. euro-dollar very close to the lowest level since two on a 17 -- since 2017. traders all looking to fed chair jay powell's speech today for guidance. he may make it clear he stands on interest rate cuts at the
8:01 am
conference in jackson hole. we spoke to former treasury secretary larry summers about the issues and limitations of monetary policy. larry: we've got to think much harder for economic stabilization about mechanisms that involve spurring demand directly. we have to think outside the box. alix: there's also a report that china will announce soon tariffs to retaliate against duties imposed by the trump administration. the report comes from "the global times," a paper controlled by china's communist party. we are awaiting details. and you've probably heard this song a zillion times. ♪ from the opening risk from led zeppelin's "stairway to heaven." today the group is asking a federal appeals court to rule
8:02 am
infringe on the copyright from another song. on the gentle retaliatory tariffs from china to the u.s., we learned now that china will throw on retaliatory tariffs on another $75 billion worth of u.s. goods. of course, the issue with that is that there's not as much u.s. imports that china contacts versus the u.s., so at some point the market intimates we are going to have to see more creative ways of punishing the u.s. these tariffs will take effect september 1 and december 15, echoing president trump's tariffs. china willhe news is put retaliatory tariffs on another $75 billion of u.s. goods, restarting u.s. auto tariffs. i thought this conversation was
8:03 am
going to be about the fed, but it is about the china versus u.s.. when you see this headline, does it worry you? guest: sure it does. i think this is a really important day. as we are looking at the fed, we have an economy in its late stages. the 10th year of expansion, the longest we have seen in the record of economic history, and yet we are still going. so everyone is kind of a little bit anxious about this. in the have been forefront of that discussion. the manufacturing side of the economy has been a little bit weaker because of the tariff conflicts. i think there are reasons for that. alix: fair, and you see immediate market reaction. the s&p down 10 points, by and coming into the market. we are flat on yields. it feels so risky to unwind some of the bond trades, so what do you do in the market? jason: we've been taking a fairly balanced approach.
8:04 am
we think, based on our estimates, we still have ongoing economic expansion. it is more of a slowdown in nature, and the fed is trying to adjust to that slow led by tariffs. we have it tilted to the point where it is a recessionary sort of territory, but we've experienced this, the fourth slowdown we've had in this economic expansion. as of yet, the data still supports the idea we will eventually make it through. it doesn't really feel good when you're going through it. alix: no it does not. jason pride of glen mead will be sticking with me. -- of glenmede will be sticking with me. we have learned that china will be imposing tariffs on $75 billion of additional u.s. goods, effective september 1 and december 15, echoing what we are seeing from the u.s. the market reaction, really no surprise. the dollar gaining, setting a daily high. gold erasing some of their losses.
8:05 am
stone.s drop like a a bid coming into the bond market, setting the stage for what is happening in jackson hole. let's turn now to bloomberg's michael mckee in jackson hole, wyoming, joined by st. louis fed president jim bullard. mike? michael: we would like to welcome all of our viewers and listeners on bloomberg television and radio worldwide to jackson hole, where the kansas city fed is holding its annual symposium. yesterday the hawks were in control. random selection of who got interviewed, but we are bringing bullard, who, jim was one of the first to call for rates cuts. you're still calling for rate cuts, although you are not ready to do 50 this next time. james: i think there will be a robust debate about 50, so i think it's creeping onto the obviously thet markets have a base case of 25 basis points.
8:06 am
michael: jay powell characterize the rate cut on july 31 as a midcourse correction, but the markets are basically pricing it is the start of a rate cut cycle. how do you see it? how much accommodation does the economy need? james: i like to think about the mid-1990's, the 1995 and 1998 examples. i know some of your viewers weren't around, paying attention to financial markets at that time, but if you look at that, the fed was worried about the asian currency crisis, similar to today. policy rate by about 75 points. the u.s. powered through that whole episode, and then the committee took those insurance cuts away later. i think that is a great baseline idea about what we are looking at now with the global trade war, global manufacturing contraction, and possible spillovers to the u.s. you want to ensure the economy against that and stay out of trouble. michael: so you think may be 75
8:07 am
basis points is where you would see us stopping at this point? james: i'm saying that's what they did in the 1990's. i don't know where we will end up, but i do think you've got this yield curve that is massively inverted here, and you've got the funds rate at the very highest point on the yield curve. that doesn't make a lot of sense, so we have to react to the fact there's been a downdraft in global yields. michael: what is it you are insuring against? there doesn't seem to be a demand problem in the u.s. or a cost of credit problem. james: this is a global slowdown, and there's a trade war going on. i don't think there's resolution likely anytime soon. this trade war is triggering other actions around the world, other countries thinking about reevaluating their own trade so this could easily get out of control and easily feedback to the u.s. that's not my base case, but it
8:08 am
is something that could happen that i think we should protect against. michael: how does monetary policy do that? james: lower rates will stimulate our economy somewhat compared to what they would be otherwise, and that would help us power through the churning waters here of the trade war. michael: a lot of people say lower rates won't help because vingproblem we are ha is companies cutting back because of trade war uncertainties. james: there are lots of other aspects to the economy. enter sensitive sectors are going to matter -- inter -sensitive sectors are going to matter. michael: what kind of stimulus do you think you can provide to the economy? james: there's been a lot of literature at jackson hole over the years about what the real monetary policy are.
8:09 am
if you think about the 1990's example, we actually argued in st. louis during that period that because rates were lower because of the flight to safety, that that helped the economy get through that episode unscathed, so maybe we can get an outcome like that this time around. michael: how much of it is the idea that somebody will see lower interest rates and go buy a car, and how much of it is just reassuring people that someone is watching out for the economy? continue do want to the expansion, and we are certainly willing to take all actions that we need to to continue the expansion as best we can. michael: how much do you worry about the way wall street sees the idea that they think there's a recession imminent, and they are looking at four additional rate cuts? do you think they are reading the economy, the outlook wrong? james: if you look at the yield curve, it's been a good predictor of slowdowns and recessions.
8:10 am
so if you have a recession prediction model, it's going to use the yield curve to try to pretty that -- to predict that. our job is to try to get the yield curve on inverted's -- yield curve uninverted. to not interested in trying test somebody's theory that this time is different with the yield curve. michael: do you think with the haven these days, you might not able to get long rates up because so much money is coming into the u.s. because rates are negative elsewhere? james: there's a silver lining to that because that is driving yields lower. that's what happened during the asian currency crisis. michael: what are ceos in your district telling you about what they see happening? james: it depends who you talk to. in manufacturing, they are very much scrambling to reorient supply chains, think about new strategies that will work, even in a more uncertain world.
8:11 am
if you look at agriculture, that is very much a down industry, i would say. for now, they are very much affected by the trade war, but on the other hand, consumer goods or something more closely tied to u.s. consumer, they are doing pretty well. walmart reported out of our district last week very strong sales, so i think there are good things going on on the consumer side and household side, which makes perfect sense. you've got a greatly per market, unemployment near 50 year lows. michael: business has been holding back on spending. do ceos tell you they think they will be demand out there, there will be a reason to invest if they get past the uncertainty of trade war's? james: i think they would be willing to invest, but are kind of wondering how should i do this given the uncertainty out there. michael: do you worry that the
8:12 am
fed is the only game in town, and that people are putting too much responsibility for keeping the economy afloat on you? james: i do think all eyes have turned to central banking over the last decade, and people are coming to the realization that you need other types of policies to help you. there are many policies pursued by federal and state governments. it is the sum total of all of those that help the economy. michael: do you think the economic situation right now in the u.s. calls for significant fiscal response? james: we just got a budget deal through, and it is more spending, so i would like to see an analysis of that on the economy before i go to another spending bill on top of that. [laughter] too.: bipartisan, people say there's never bipartisan, but that actually got through, so i thought that was pretty good. michael: the minutes showed there was division on the committee in terms of inflation,
8:13 am
and some people thinking that cutting rates is one of the reasons expectations have slipped low. i presume you are in that camp. james: i'm very concerned about the five-year tips breakeven. i'm not sure where it's trading today, but it's been very low. if you subtract 30 basis points to translate between cpi inflation and pce inflation, it says that markets are only expecting about 1% or maybe 1.1% inflation over the next five years, and we are supposed to hit 2% inflation, so i think we can afford to be kind of dovish here, get those inflation expectations up, and hopefully hit our target over the next five years. michael: again, a question about what you can accomplish. do you think you actually can move inflation expectations even that you had rates at zero for seven years and inflation couldn't hit 2%? james: we have to try while we
8:14 am
can and while we are in the position to do so. i definitely think inflation expectations move up if we play our cards right here. michael: how long do you think we will need to be in a rate cutting cycle? as long as the trade wars are on? james: i think the trade wars have been priced into markets in a way that they weren't earlier. as of may or april this year, markets were kind of putting, making up numbers like 90% probability on a deal with china just around the corner, just two weeks away, something like that. now i think it has shifted the other way, where wall street is putting 90% probability on no deal anytime soon, the notion that maybe the chinese will just wait for the election and see if they can get a new president to negotiate with. i think all of that has now been priced in, so there's probably
8:15 am
no more downside to that, at least. michael: jim bullard, st. louis fed president, thanks for joining us on bloomberg television and radio. we will send it back to you in new york. alix: that was bloomberg's michael mckee speaking with jim bullard, st. louis fed president. that was a great interview. some of the highlights i thought was that he does not expect a speedy resolution to the trade war, and that is reflective of what we heard out of china. there are going to be new tariffs on u.s. goods coming in two trenches to hit autos, potentially tech. you saw swift reaction within the equities. s&p futures down 4/10 of 1%. money moving in now to the bond market. the dollar was the safe haven on the news, but now the dollar index is giving up some of its gains on the day, though still in positive territory. gold getting a bid. copper and oil totally falling out of bed.
8:16 am
this is bloomberg. ♪
8:17 am
8:18 am
alix: china hits back, announcing retaliatory tariffs on $75 billion of u.s. goods, really rattling the market. the dollar losing some of its shine, but overall the stronger currency of the day. we just spoke to st. louis fed president jim bullard, who talked about the trade war's impact on the global economy. james: it is a global slowdown, and there's a trade war going on. i don't think there's resolution likely anytime soon, and this trade war is triggering other actions around the world, other countries thinking about reevaluating their own trade this couldps, so easily get out of control and
8:19 am
easily feedback to the u.s.. the phoneing me on from washington is shawn donnan, bloomberg trade reporter. still with us is jason pride of cio of private wealth. awn: this is continuing the theme of the summer. but we were hearing yesterday from larry kudlow and from the president in recent days, all trying to put a positive spin on the state of affairs with china, emphasizing some working level talks that took place wednesday by phone, the fact that there may still be some negotiations come september, face to face here in washington. the reality is as we have seen today, both sides just keep slapping tariffs on each other, and the heat is rising. alix: does this take the phone call conversation off the table
8:20 am
now? shawn: i don't think so. i think this is something the u.s. side will have expected. this is in retaliation to the u.s.'s own $300 billion list 1.lier this august it was then split into two. september 1 we will get about $110 billion of that, so the chinese are responding to a u.s. move here. alix: to be fair, you are looking at when he 5% tariffs on u.s. autos, soybeans, all of that getting hit hard. jason, your take? our impact to gdp in terms of the cost on tariffs on all of the goods, these
8:21 am
increment will amounts against $300 billion from the u.s., that is another 10 to 15 basis points on gdp, so we are still in that modest 50 to 60 basis point sort of range of impact. it is meaningful, but not an overwhelming amount that takes gdp into negative territory. think the reason this brings up angst and anxiety by investors is the amount of threat that have been put on the table actually total up to something -- somethingf gdp like 1.6% of gdp. that is the fear that comes up. what's next? how does that pileup to this? if it piles up all the way, does that mean we put in place enough that it goes all the way down into negative gross territory? i think that is why it dovetails with what bullard was saying. we are in a slow down, and it is the manufacturing side of the economy feeling some pressure from all of this. it is also not so slow that we are looking at a definitive recession at this point in time.
8:22 am
the fed is trying to offset it. it is a slow down, but not all the way. alix: so what's next? if china is going to continue the tit for tat, what is going to be next? at some point they are going to run out of goods to tax, so what happens for china? what is next on their list? shawn: we've always known the chinese were going to run out of goods to hit with tariffs before the u.s. it is just the nature of an economy that runs a trade surplus. it exports more goods to the u.s. than imports. but they've also made very clear --y have asymmetric waste they have asymmetric ways to go after. they have a list they can place companies on, they've raised the possibility of limiting exports of rare earths, and other measures that could hit u.s. companies by limiting their access to important commodities that they need. isn't thehere
8:23 am
immediate actions and immediate effect of the actions. the uncertainty around the trade war's is continuing, and the big economic affect we've seen from that already is the damper it's been there on investment, the fact that companies don't know where to put their money, where to build their plants, how to restructure their supply chains. that's what's dragging on the economy right now. alix: to your point, we just had a headline cross that china is urging the u.s. to cancel planned arms sales to taiwan. the defense ministry is saying the u.s. should stop military ties with taiwan. not directly related, but it is a different kind of pressure we can put on. jason, if you take a look at the market reaction, it is basically vol, momentum and utilities. is that still your playbook? jim: i don't know it is
8:24 am
buy momentum playbook. you can take the approach of taking a defensive stance in this environment or to dampen volatility in the portfolios. one way you can do that is buying bonds or cash. that is not approach that's worked so far, but now you've got into the points where rates are so low that your return potential in an ongoing expansion has actually dulled so much that you really don't want to be doing that. buy this idea of toing low volatility stocks dampen the volatility on the equity side of the portfolio so that you can basically participate and protect at the same time. a little bit of having your cake and eating it, too, in an environment that is uncertain. it turns out that many businesses that are low vol are also less exposed to these trade tensions. alix: i want to point out that
8:25 am
china is now imposing a 5% tariff on u.s. crude oil imports. that is huge. oil had been exempt, but will now have a 5% tariff on u.s. crude oil imports. shawn, your reaction to that? that is china being willing to shoot itself in the foot as well, but also hitting another key sector that donald trump has touted in the u.s. economy, one of the big accomplishments they like to tap at the white house, the u.s. becoming a net exporter of energy and oil. alix: wasalix: the tweet we can expect this morning? [laughter] shawn: you never want to predict those tweets. it's clear that the president has been increasingly anxious about the state of the economy, about the reaction of markets, and he's been eager and certainly demonstrating that to show things are going well with china. this is not what he would've
8:26 am
hoped for. we may get an angry china tweet this morning. alix: thank you so much, shawn donnan. really appreciate your perspective. jason pride of glenmede will be sticking with me. imports of u.s. autos.s, oil, and you're seeing brent take a huge leg lower. oil is off, equities are off. a bid into bonds. the dollar the general beneficiary, as well as the yen, and risk aversion here. more coming up next. this is bloomberg. ♪ from the couldn't be prouders
8:27 am
8:28 am
to the wait did we just win-ners. everyone uses their phone differently. that's why xfinity mobile let's you design your own data. now you can share it between lines. mix with unlimited, and switch it up at anytime so you only pay for what you need. it's a different kind of wireless network
8:29 am
designed to save you money. save up to $400 a year on your wireless bill. plus get $250 back when you buy a new samsung note. click, call or visit a store today. alix: this is "bloomberg daybreak." i am alix steel. rally into the futures market for the s&p with news of china retaliatory tariffs from autos, from soybeans.
8:30 am
the dax the other performer in europe. pretty exposed to tariffs. it is the normal reaction you would see. a move into the yen and the dollar. lower, thereeuro have been key levels we have not breached. you are seeing buying all across the bond market, almost inverting on the 2-10 spread. i want to point out oil. oil was -- this was the fear. oil had been spared tariffs from china. the theory we need their oil. that has now materialized. a 5% import tax on oil. u.s. producers will be in a world of pain. watch that level. time for the bottom line. three sectors expected by tariffs.
8:31 am
joining me on the phone is bloombergs david wells. ponczek, andrah bloomberg's block sullivan. what does this mean for the auto sector -- brooke sullivan. -- brooke sutherland. david: this is the tariff they have traditionally paid in beijing. onhas the biggest impact companies like daimler and bmw. they make vehicles in the u.s. and export them to china. they will pay big tariff on those cars and those stocks are down 2% today. ford and gm stocks are not impacting that much because they do not export much in the way vehicles to china. they build most of what they sell in the chinese market. even the cadillacs, they built most of them there. ford does import lincoln's.
8:32 am
in terms of most of the volumes the companies selling china, it will not affect them all that much. if there were to be a retaliatory tariff, what would materially hurt? david: the tariffs on the german automakers that have big plans in the u.s. that export to the chinese market among other places. carolinalant in south exports more vehicles from the united states than any other plant. they are the biggest in -- exporter from the u.s.. they would probably take the biggest hit. jonathan: thanks so much -- alix: thanks much to bloombergs david welch. sarah is taking a look at some. mis.t ser -- thewe are seeing philadelphia semiconductor index is now down 1%. when you look at some of the
8:33 am
individual companies, think micron, think intel. they have popped in volume. if you look at premarket trading volume, amd is the third most traded. micron is notching within the top 15. gets 57% of50% -- its sales from china. whenever these fears come back to the forefront, you see it take a hit. alix: thanks a much to sarah ponczek contact. joining us is brooke sutherland. what has been the reaction? brooke: it has not been good. manufacturing has taken the brunt of the trade war. the tit-for-tat tariffs have focused on industrial goods and now you have this potential expanding consumers. for industrial, we just had the ihsage -- the ia's -- the showing the u.s. is slipping into a contraction. i think about names like 3m.
8:34 am
3m was banking on a rebound. now it definitely seems too optimistic. the other place where people are putting their money in industrials is an oil and gas. now you are seeing this potentially take the wind out of the sails. halliburton stock downriver 2%, which gives you an -- halliburton stock downriver 2%. -- halliburton stock down over 2%. alix: china will have to get it from another country so it recalibrate straight flows. it does mean that in the u.s. you get oil to the gulf coast and now what? it will go to europe and they have an oversupply so that becomes a different question. brooke: and you've seen a lot of the oil equipment companies focusing on cost discipline. concerns about where the oil is going, the demand fluctuation.
8:35 am
how they will spend their money. i feel likeing brooke is touching on but also what david did is it could always be worse, right? the car tariffs is a reiteration of where we were. what is the risk of overreaction in the market? jason: there is always a risk of overreaction. we have to contextualize how big these impacts are. the impacts are in the ballpark right now, i would probably put the impacts at .5% to .6% of gdp , which in the context of an economy growing at 2.5% is a manageable number. it is still causing the slow down. it is meaningful but not enough to throw us into a recession. it references the market numbers. if you read the report, it was reported -- the data was contextualized at being contraction, but really being something that indicated a 1.5%
8:36 am
gdp growth rate for the economy. the services side is catching the other side of the equation. a lot of what we are talking about this not talk about the services side of the economy. isx: what i find interesting we learn on days like this what is priced in and what is not. i am looking at soybeans. another 5% increase in tariffs, up.eans are brooke: this was expected the agricultural makers john deere was already talked about needing to make cost cuts. you do start to wonder at the longer this manufacturing slowdown persist, at what point does that start to step over into services? brooken: brexit -- alix: sutherland and jason pride, thank you both. appreciate that perspective. coming up, robert kaplan will be
8:37 am
joining us from jackson hole. the backdrop, a 25% increase in tariffs on $35 billion worth of u.s. goods. this is bloombergs. -- this is bloomberg. ♪
8:38 am
8:39 am
viviana: i am viviana hurtado in the hewlett-packard enterprise bring room. coming up, the philadelphia fed president live from jackson hole. this -- alix: this is "bloomberg daybreak." i am alix steel. jay powell will announce his address in a few hours time. you have a risk off in the market as china retaliates on
8:40 am
more tariffs on u.s. goods to be implemented beginning in september at the middle of december as well. you nameeans, autos, it, it is on it. now bloombergs michael mckee is joining us with dallas fed president robert kaplan on a risk off day. thank you and welcome to all of our viewers and listeners on bloomberg television and bloomberg radio worldwide. we are with robert kaplan, the dallas fed president. thank you for joining us. a lot of people yesterday took the comments with the fed presidents interviewed as a hawkish rebellion. since you got here, you've been basically telling people you are sympathetic to the rate cuts. robert: the disagreement within the fed is how to manage the risk.
8:41 am
as long as the u.s. consumer stays strong we will not have a downturn. the issue is manufacturing is weak, global growth is reseller ready, and if those intensify those will seep into the rest of the economy. the consumer will be the last thing to go. intensify,gatives you could have a negative jobs report in the next couple of months and then you will see weakness in the consumer. if we wait to see that, i think we have waited too long. i'm very open-minded and constructive we may need to make policy adjustments in the next months, but i'm keeping an open mind and i've not made a decision yet and i will decide before the september meeting. how big of a policy adjustment you think we need? there was jay powell saying midcourse correction. you have wall street pricing in the beginning of a rate cut
8:42 am
cycle. robert: i have been opened about saying unless i see meaningful weakness, i view the adjustments needed as tactical. limited, restrained, modest. ado not see this as being rate cutting cycle. we may need to make adjustment and for me the reality check is when i look at the fed funds rate, i do not worry so much about the debate between ones and tens, i look at the fed funds rate versus the entire treasury curve. the fed funds rate is now above every rate, including the 30 year. that for me is a reality check that says maybe policy is tighter than i might have thought three or four months ago and you may need to make an adjustment. i think that is a good second check for me which i'm cognizant of. michael: the rate increase might have been a mistake?
8:43 am
is if you own view had asked me on april 30 what my forecast was for the economy, i would've said to .5% growth in if i was wrong the risks were to the upside. in april i would've said i have my concerns, but i think policy issue,hen had the china we then had to threat against mexico, which might have been more significant for a number of businesses. we at recent intensification, and now in light of these events, there is an argument that maybe the policy-setting needs to be adjusted. it is the result of other policies away from monetary policy. michael: why was the mexico threat worse than the china threat? robert: the china threat clearly affected businesses.
8:44 am
if you have logistics and supply chains. mexico is central to so many companies in this country in terms of logistics and supply chains. when that threat occurred, even though we had a trade agreement, that really, for the businesses i talked to, even though it did not actually happen, it was so significant to their business that after that, most of them told me they have now internalized that trade on turn t -- that trade uncertainty is a fact of life now. before that threat, they have thought if we could resolve some of these agreements, maybe we will settle down. the mexico threat helped business internalized -- i think trade uncertainty will be with us. what i saw businesses do is become more cautious in terms of capex expansion plans, and i think that caution is still there. michael: tell me how monetary
8:45 am
policy, you guys making a rate cut, will help this? robert: to that point, if i talked to businesses today, availability to me and cost of capital is not my problem. monetary policy, you guys are not my problem. my issue is trade uncertainty and other issues related to that having challenging impacts on my business. here is the issue. if you look out over the horizon , and the chop of the central banker is not a look at what the situation is today but what will happen in x number of months. if the policy is too tight, eventually you're going to see credit tightening, you will see that tighten financial conditions, which will impact the economy. i think my job is to look ahead and balance these risks and try to make risk management decisions so that the policy is more appropriate. tight, itit is too
8:46 am
may seem innocuous, my own view is that will lead to a tightening of financial conditions down the road. michael: rua hammer in search of a nail in the sense that people expect -- are you a hammer in search of a nail and that people expect the fed to solve problems and it will not do that? robert: quite the contrary. i have said that the center of gravity in the u.s. economy is not monetary policy. , it israde uncertainty policies that relate to skill training, infrastructure spending, but particularly in the short run, trade policy and immigration policy. that is the center of gravity in the u.s. economic policy. it is not that monetary policy does not have a key role to play, but it is not the fulcrum of economic policy.
8:47 am
i would regularly call that out. policyt believe monetary -- if we have a slow down, i do not believe it is causing a slowdown. i we have a severe slow down, do not think monetary policy will be enough to arrested either. it still has a key role play. we have to make the decisions to play that key role. michael: you probably know more about wall street than anyone else on the fed. do you worry that by cutting encourageare going to financial misallocation? robert: you always worry, and iis is one of the reasons have said that going into an adjustment in september or the next few meetings, i would prefer not to have to make an adjustment. if you lower the fed funds rate and reduce the rate for savers, and encourages risk-taking. -- it encourages risk-taking. i will acknowledge that if you
8:48 am
look along the treasury curve, to some extent that horse has left the barn for investors. alternativescome have already declined substantially. the only rate that has not declined with it is the fed funds rate. to some extent, the incentive to increase debt or leverage is already there because the treasury curve is where most businesses borrow. the number of them borrow on a floating rate basis, but a lot use the treasury curve. i am balancing that and i'm concerned about it, but i think most importantly, foremost in my mind is can we take steps that will help moderate this slowing we are seeing, or help global slowing, which might transmit united states and manufacturing weakness. it appears it could seep into the rest of the economy.
8:49 am
those are the issues i'm trying to balance good -- trying to balance. bringl: you are trying to the fed funds rate down to the treasury curve? robert: not trying to bring it ton to the treasury curve, -- we will not be led around by wall street. the curve is not driven by monetary policy. i watch the curve extremely carefully for my whole adult life. the big moves in the treasury have not been in response to monetary policy action or rhetoric. they have been in response to trade uncertainty and other economic policies away from monetary policy. michael: do you think we can talk ourselves into a recession? robert: yes. psychology is a critical part of the economy. i noticed the consumer sentiment numbers were a little bit weaker. i think if you have continued uncertainty, if you have
8:50 am
intensification of trade uncertainty, and not just with china. more broadly, with other countries globally vis-a-vis the united states, consumers pay attention to that. this chain of events i mentioned about weakness in manufacturing seeping to other parts of the economy eventually affecting the jobs market, consumers are watching that chain of events and are very cognizant of their own industry and so sure that the psychology can turn negative and affect the economy. we have to be cognizant of that. michael: robert kaplan, thank you very much for joining us. we will send it back to you in new york. mckeethat was michael speaking with dallas fed president robert kaplan. coming up, you have china striking back. china will impose additional tariffs on u.s. goods, shaking up the market on this friday. we do bring you somber news.
8:51 am
--id cope, the cash david david koch has died. he used his fortune to transform american politics. he was 79. ♪
8:52 am
8:53 am
alix: here is what i am watching. that is the markets after china hits back on the u.s. with tariffs on $75 billion of imports. this will take effect in two stages. one september 1, one december 15, echoing the tariffs that were going to put on china goods from the u.s.. we are going back up to 25% on autos. we are going to see an additional 5% tariff on u.s. soybeans, and we will see for the first time of 5% tariff on crude oil imports. crude oil imports had been
8:54 am
removed from any tariff impact. now they are getting wrapped up into the tariff war. we did hear from st. louis fed president jim bullard about the trade war and about monetary policy earlier in the show. slowdown is a global and there is a trade war going on. i do not think there is resolution likely anytime soon. the trade war is triggering other actions around the world, other countries thinking about reevaluating their own trade relationships. this could easily get out of control and easily feedback to the u.s. alix: that is the main worry, especially if you are dealing with a permanent trade war. you said robert kaplan also saying the businesses have a problem with the trade war, not just the fed. the market reaction, autos front and center. gm, ford, tesla, all getting hit.
8:55 am
the question is what would be a material impact. that probably comes from the european company making autos in the u.s. exporting to china. it could have been worse. shawn donnan joins us now. what is going to be the response from the white house on this? shawn: we have seen the president tweeting about the economy. he is keen to emphasize things are going well in the economy. a part of that narrative coming out of the white house has been the talks with china are going well and back on track and they were talking about some this week and they may be talking face-to-face in september. this obviously pokes at that narrative and deflates it slightly. it will be interesting to see how the president responds. in the past he has lashed out when the chinese have retaliated. he will step up his own retaliation. reminder, this is a
8:56 am
that the trade's are continuing to escalate. at 5%just wrap it up, import tariffs on oil, is that a real escalation? how material is that? : that is a real escalation. china is a big importer of oil. the u.s. is an exporter of oil. that is something president trump prided himself on. oil and natural gas where the subject of discussions over big purchases by the chinese. alix: appreciate you joining us on that tariff impact. shawn donnan of bloomberg news. coming up on "the open," cleveland fed president from jackson hole. this is bloomberg. ♪
8:57 am
8:58 am
when you rest on a leesa hybrid mattress, bedtime is no longer simply the time you go to sleep. it's time to switch off and catch up. enjoy me time, and we time. 40 winks or 8 hours solid. the leesa hybrid mattress combines two technologies to give you deeper rest and
8:59 am
rejuvenation. 1,000 pocket springs provide edge to edge support, responsiveness and comfort, while premium foams relieve pressure. keep you comfortably cool and limit motion transfer. leesa's hybrid mattress is not only recommended by experts, experts choose to sleep on it too. try it yourself in any west elm store. or order online and we'll ship it to your door so you can try it risk free. the leesa hybrid is american made. built to last. and, because everyone needs a place to rest, we donate tens of thousands of mattresses to those in need. experience the leesa hybrid mattress. right now, it's on sale. order today. go to leesa.com. alix: from new york city for our viewers worldwide, i am alix steel in for jonathan ferro. "the count of the open" starts right now.
9:00 am
open"e count down to the starts right now. ♪ alix: china strikes back, announcing it will impose retaliatory tariffs on $75 billion of american goods, sparking a sharp risk reversal. treasuries paring their losses. futures turning lower. all of this coming ahead of the main event in jackson hole. investors looking to chairman powell for hints of what is next for the fed reserve. 30 minutes until the opening bell. it could be a doubly morning. s&p futures off 10 points. euro-dollar down .1%. treading at levels we have not seen since 2017. yields in the u.s. go nowhere. we did see selling so we paired that back. the big story is oil. down over 3% as they are wrapped into the tariff war's. we begin with the escalating tensions between u.s. and china. jim

20 Views

info Stream Only

Uploaded by TV Archive on