tv Bloomberg Daybreak Americas Bloomberg August 27, 2019 7:00am-9:00am EDT
stimulus to the rescue? ed lee's government on the break of collapse. coalition -- italy's government on the brink of collapse. mann, speak to catherine global chief economist at citi, who argues trade will help solve some of the destabilizing global trends. welcome to "bloomberg daybreak" on this tuesday, august 27. i'm alix steel. david westin is off this week. the call is in the, it may be time to buy u.s. equities. nowhere.retty much go dollar-yen down by 3/10 of 1%. the yen still the outperform or. a bid into bonds. time now for the global exchange, where we look at
the market moving news from around the world. joining us on the phone from hong kong is karen lee, from london, emma chandra, and here in new york is michael mckee. first we want to kick it off and hong kong come over the chief executive carrie lam spoke at a briefing following 12 straight weekends of protests in the city. lam: the government is confident we can handle a months long disturbance. i think it is a common goal and hong kong to handle this by ourselves. alix: bloomberg's karen lee has the latest. where are we at? carrie lam speaking publicly after another weekend of violence, saying they can handle unrest without assistance from chinese forces, and that she still wants to hold talks with protesters. this comes after beijing issued its most direct warning yet, saying in a commentary on state media that the
government has the legal authority to halt what it said had become a revolution, even though analysts still say such a move remains a last resort. there are calls now for another march this week and that would make it the 13th straight weekend of protests have really rocked the city, and called to question whether it can remain a safe place to do business in the years going forward. alix: thank you very much. we turn now to london. the final reading of second german gdp falls 1/10 of 1% on the quarter. we have more with emma chandra. emma: we got that second and final print for the second quarter showing falling german gdp of 0.1%, in line with expectations and confirming what we learned from the preliminary print earlier this month. we also learned there was a massive slump in exports. they fell 1.3% in that time, the most in six years. all it does is ramp up concerns
that the engine of the european economy is headed towards recession. alix: it's not just the exports. on the flipside, you had government spending picking up, so there are good spots within that report. walk us through some of those details. emma: the exports side of things was really the big headline from it we saw. net trade really impacting the overall gdp number by some 0.5%. it took half a percentage point off of the overall gdp number. of course, germany is export oriented, and has been really impacted by conflicting signals about the trade war, both with china and the eu, from the white house. we are seeing a tick up in government spending that points tick up in government spending that points to the pressure that chancellor angela merkel is feeling now to perhaps introduce some fiscal stimulus, also to perhaps try and repair some of the relationships with donald trump. all of what we learned today, both in the gdp numbers and
others, really echoed pieces of evidence we've had over the last few weeks, including falling business confidence and a number of profit warnings from some of germany's biggest companies. alix: thank you so much. now we turn to italy, where the government coalition talks are now at a standstill. italy's five-star movement says it will not hold further meetings with the democratic party. alessandro is here with the latest. yes, the news today has really been whiplashing markets. news was that the government talks were progressing, but that stopped today as they have broken down again. this is probably still all just tactics. contacts are still on between the democrats in the five-star, but for now, everything is frozen. thethe key positions in the
cabinet. who will be prime minister, interior minister, and the five-star democrats are jockeying for the best positions, but talks are still going on, even if they are frozen for now. alix: all right, thank you very much. finally, here in new york, we got a lot of economic data out prices,ning like home consumer confidence, as well as $40 billion in two year treasury notes. here in new york is michael mckee. what is going to be the highlight? michael: the big question around the fed these days is can lower interest rates cure what ails the economy. usually if there's a downturn in interest rate sensitive sectors, but mortgage rates have been going down since before the fed began cutting. we see housing starts down,
building permits up. today we get another read on it, prices. the home price index is out this morning, and it should, if we are seeing a slowdown, show slower gains in prices. also, consumer confidence. is the consumer losing faith in the economy? earlier this month, the university of michigan sentiment index fell to a seven month low. we will see if that is ratified by the conference board numbers today, and if people think jobs are going to be harder to get, and whether their incomes will rise. op-ed of the morning comes from bill dudley. fed'stes, "what if the accommodation encourages the president to escalate trade war further, increasing the chance of a recession? the fed won't bailout a recession that keeps making bad choices on trade policy, making it abundantly clear that trump will own the consequent his of his actions." what do you make of this?
michael: it makes sense if you policies president's have been hurting the economy, and of course, everyone at jackson hole thought that. taking on the president directly would probably bring around a crisis on that issue. the fed has been criticized for years for low interest rate enabling congress to spend more than we take in, so there's a problem of consistency there. the fed didn't act against that when bill dudley was there. alix: great point. thank you so much, bloomberg's michael mckee. coming up, more on your market analysis and more in today's first take. this is bloomberg. ♪
alix: time now to give you all the news and get you some trades and analysis for the markets. gdp number showing the economy in germany on the brink of recession. here to discuss that in what it means, vince cignarella, damian dessner, jpd maddi morgan asset management multi-asset strategist. i feel like this does put pressure on stimulus from the ecb, as well as the government for germany. vincent: the interesting thing is from the government, we are getting pushback. we are getting pushback from the wonders bank is -- from the bundesbank as well. no, isn't that how he's labeled now? what is he not seeing that everyone else seems to be seeing? maddi: one of the things we are expecting is that the ecb and germany in particular is going
to jump in with fiscal policy at this point -- at some point. we do think there is some upside to the extent that we start to see that fiscal stimulus come through because clearly there is a need for that. vincent: the point on the fiscal stimulus from germany, what they are talking about is essentially $55 million. trillion global gdp, it's a drop in the bucket. it will most likely help germany come about the rest of europe is sitting, watching and waiting for the breadcrumbs to fall. it is probably not going to hit anyone other than germany, so the rest of europe needs to get involved. the italian government, are they going to let the italians expand their budget? damian: i do see merkel relenting a little bit and allowing the u.s. to enter the agricultural sector into its negotiations regarding autos. we know that autos have come off a cliff, and we expect the bundesbank to move again on september 12, cut the deposit
rate down further into negative territory. budns have been in negative -- bunds have been in negative territory for the past six months. maddi: i think it is really important that if we see the ecb jump in here in the next couple of months, that we see the tiering that needs to happen. at the end of the day, we need to make sure they put a floor under the banks, or else we have a challenges in europe. alix: but that didn't really work for japan. why would it work for europe? maddi: in europe, so much more of the market is securitized that it would have a more exponential filtering effect if we start to see the tiering come through, more so than in japan. vincent: i think you are absolutely right, but again, you get to the point where, what are the central banks going to do? ,hey've really reached a point wouldn't it have been interesting at jackson hole if all of the central banks had gotten together in a little kumbaya moment and said, we are
done? we've tried everything for the last 10 years, and it's now time for fiscal policy to step in. run a deficit. don't be afraid of it. inflation is nowhere to be found. we are not worried about it. it's so true. but i feel like we were talking about that earlier. point, you have a two-pronged thing. btp's are a two-year fiscalrmany can't do stimulus, italy has two. vincent: europe is falling into a recession. let's do some stimulus and help this economy. what's the point of the european union if the wealthy don't help the poor? that's what's always been a
problem. there's no wealth transfer mechanism. damian: what's truly interesting is how quiet salvini has been through all of this. i think he's the most popular politician in italy. vincent: biding his time. damian: exactly. i think he's going to raise his head. we may see some sort of foray between the parties, and if they do a snap election, a budget is not getting passed before the end of the year. alix: we do have a question coming in from one of our viewers, asking, going back to germany for a second, how can german stimulus help we can -- demand?ken export that leads us to the bigger issue of the trade war. maddi: i totally agree with that. one of the things that the fed and other central banks have made clear is that monetary policy is not a panacea.
when we have volatility in the broader economy, whether from external influences or domestically induced with policy , monetary policy can't change that, so it is really important to make sure that we see calm coming from external influence as well as internal stimulus. damian: i think you have to look at asia. look at singapore overnight. the government just revised its gdp growth to 0%. the asian economies, all five of them, basically the weakest growth in 70 years. look no further than asia trade for how germany is going to fare. alix: fairpoint. talk abouter if you the russian to global bond yields, you have the german spread under 200, how is that sustainable? what does that wind up telling us about where we are? vincent: i don't think it is sustainable. alix: in syria it would make
sense. vincent: it's back to the -- in theory it would make sense. vincent: it's back to the reach of yield. something like $16 trillion of debt now in negative yield, growing as we speak. to both of your points before, you can't stimulate demand. you can't make demand. it's the reason why monetary policy has failed in the last 10 years. you had all the supply to the system, -- you put all this supply into the system, but you can't force people to take it. there's no impetus for fiscal policy to work if you are not growing wages. to spend money, you need to grow wages. the targeting of fiscal policy needs to be more appropriate than it has been over the last 10 years for all of this to work. maddi: it's important not to read too much into the shape of the yield curve here. vincent: agreed, yes. maddi: given where we've been over the last decade with the first qe trade in 2008, central
banks have been pulling the premium out of the yield curve for years now. reading something more in syria -- reading something more insidious into the yield curve is something i'm suspect of. damian: look at commodity curves, what's getting priced into oil and copper. that's really the key. if there's a decline in african demand, you would think that oil prices would effectively follow for cliff. they are actually holding up well. some of that is the middle east and the geopolitical risk will bully, but if you look at what is priced into the oil forward curve, my goodness. you are basically seeing flat prices into the future. the range is really an indicator to me that african demand is not expected to pick up anytime soon. alix: to that point, we got calls today from j.p. morgan saying maybe you want to buy stocks. essence, the dividend yield is so much higher than the 10 year yield, so you want to buy.
is that a correct way of looking at the market for evaluation? maddi: i think it is a little but of a false signal. taciteing said, we have support for u.s. equities right now, just given it's not so much the aggregate demand story, but it's the u.s. consumer story that we like so much. the labor markets are tight. wage growth is continuing to rise. consumers, despite the fact they are saving three times more than they did in 2005, they are still spending a lot, so to us, that is going to provide support for markets. the other notion is that, given where the yields are today with year, we think multiples can expand here. that's another support for equities. vincent: the u.s. consumer once again, you nailed it, it is the driving engine of the globe.
you hope it continues, but it is built on credit, essentially. alix: some wage gain. vincent: in some ways, but a large part is built on credit. the personal loan levels are down to rates we haven't seen ever. banks are actually willing to make personal unsecured loans, which we haven't seen it at least 10, 15 years. alix: let's get to the other really interesting read of the morning. this is coming from the x new york fed talking about a different way of engaging president trump. "what is the fed accommodation encourages president trump to escalate the trade war further? officials could say explicitly bailout -- the fed out an administration
that keeps making bad choices on trade policy, making it abundantly clear that trump will own the consequent as of his actions." we talk about keeping the fed independent of politics, but this is political. damian: fed credibility is absolutely key. that's why i really think rate cuts -- why no rate cuts with what is going on in the funding markets, no, i think the fed has to cut rates here. holding firm just to show president trump something is going to really draw his ire, and i'm concerned if they were actually going to do that, that would -- do that, what that would mean for chair powell. maddi: i think the administration has pulled the fed into this political debate. it's not that they are shooting first. the administration did that first. i think one of the key things we have to rumor here -- we have to remember here is monetary policy is not a panacea.
despite the fact the fact that is probably going to do another cut, it is just a different story. 25 basis points isn't going to change that. vincent: to your earlier point about the yield curve inversion, at two point ioer 1% and the 10 year yield at 2.5% -- at 1.5%, it is not going to change anything. alix: or as long as you point out that trump's election is at risk. point feel like, at what is this a broader conversation of central banks versus politicians in general? pervasive next step of monetary policy in the government issue. and we will end up there. -- we will ended their -- we will end it there. [laughter] alix: that's my soapbox for the morning.
viviana: this is "bloomberg daybreak." johnson & johnson investors relieved in a ruling that the company must pay 572 million dollars for helping fuel bop owed crisis in oklahoma. fuel the't as five -- opioid crisis in oklahoma. that wasn't as high as feared. former nissan executive carlos ghosn reportedly ran a parallel business as a tech investor in silicon valley. according to "the wall street
journal," he used millions of dollars he got from the nissan business partner in oman, which is seen as the most serious of charges against ghosn. he was arrested in a wide-ranging financial crimes investigation. oil snapped a four-day losing streak. crude prices firming up after president donald trump struck a more conciliatory tone on the trade war with china. he also signaled he is open to meeting with iran's president and possibly easing restrictions. that is your bloomberg business flash. alix: thanks so much. then president rouhani kind of dumb some cold water on meeting with president trump -- kind of dumped some cold water on meeting with president trump. president trump is looking for is a photo op, he can use photoshop." the key to changing the relationship is in washington's hands. alix: president trump said he is
willing to meet with rouhani to discuss their standoff over the nuclear agreement. that comes after the surprise visit from iran's foreign minister at the g7. papa john's reaffirming its new sales view and naming john lynch its ceo. this move had been expected, but --ertheless com nevertheless, that stock jumping 3% in the premarket. looking for explanation of the market's wild swings? check out president trump's twitter feed. this is bloomberg. ♪
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despite calls that the german economy may be near recession. a ton of buying happening all over the curve here in the u.s., as well as in europe. 10-year btp's at one point hit the lowest level since 2016. they are still down eight basis points. the yen still catching a bid. the curve continuing to flatten by almost 2.5 basis points. investors who take president trump's tweets and comments on trade seriously have had a wild ride as he flip-flops from one stance to another. pres. trump: i have second thoughts about everything. china called last night and talked trade and said, let's get back to the table, so we will be getting back to the table. i have great respect. i have great respect. this is a very positive develop and for the world. >> was there are not actually a
call last night? >> there were discussions that went back and forth. let's leave it at that. pres. trump: last night, and before last night. we are at a better point now than probably any other time in the negotiation, and i don't think we could've gotten here without going through this process. maybe they want to and maybe they don't, but i think they want to make a deal. i'm not sure they have a choice, and i don't say that as a threat. alix: and that was just in 24 hours. let's go through the market action. , chandra's joining us from london. -- emma chandra is joining us from london. 2017 seems like a long, go , first year that president trump was in office. people were actually complaining about the lack of volatility in 2017. we were talking about tax cuts for corporations, also talking about the possibility of an infrastructure plan, and the markets liked all of that.
then the next two years have been very different. all country world index in the s&p 500, look what has happened in the last two years. it is a case of be careful what you wish for because we should be able to show you a chart which shows the outside moves. here we are for the s&p 500, the daily moves since 2018 threw two 2019. we are back into that period of outside moves for the markets, both up and down into the green and into the red. this month has perhaps been the biggest expression of it. this is stocks and bonds in the u.s. since that august 1 tweet from president trump where he said he was putting tariffs on chinese goods. we then had a number of tweets back and forth across the course of this month, perhaps signaling different positions when it comes to trade. is that stocksen
and bonds have moved entire correlation with each other, moving up and down in response to all the latest from the president's twitter feed. alix: thank you very much. still with me is maddi dessner of j.p. morgan asset management. so what do you do? is the jp morgan call buy now, or do you have to find a way to hedge this? maddi: you've got to find out where margins are today. there is upside in u.s. equities, but you've got topside earnings coming down because you see global slowing in manufacturing and trade and investment, and you've got a squeeze coming from the bottom up because you've got wage pressure. you have to think about where you are buying and be thoughtful. we started to take a lower beta approach to equities at this point because while we want to be exposed to the asset class, we want to make sure we are doing it in a relatively risk constrained way because we have news the markets
and trade rhetoric driving the volatility. alix: what some might say is that they are going to buy utilities and offensives because even though they might be a essex -- they might be expensive, they are undervalued compared to other assets. do you buy that? maddi: with the tenure at 150, we are going to see -- at 1.50%, we are going to see that, but they are very expensive. concentrating in those sectors we think is less of a wise strategy then thinking about exposing ourselves to the upside in markets. we often do this with derivatives. we will buy call options on the upside of markets, and that way we limit some of the downside. having a more balanced approach across sectors, which is going to be some beneficial of trade policies, some won't, we will have a more balanced approach and use the options to take the
upside and limit the downside. of j.p.ddi dessner morgan asset-management will be sticking with me. viviana hurtado is here with the first word news. iran's president hassan rouhani insists if the u.s. wants negotiations, it must lift sanctions first. the foreign minister says the meeting between the two is unimaginable. president trump signals he could meet with rouhani and could lift restrictions. japan wants to end the auto terror threat as part of a trade deal with -- the auto tariff threat as part of a trade deal with the u.s. president trump left the door open to imposing them later. democratic presidential candidate bernie sanders once to block giant media mergers. sanders saying if he's elected, he would impose a moratorium on
s of deals that would make big media companies even bigger, and said that employees theld be able to buy company through stock ownership plans. 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 viviana hurtado. this is bloomberg. alix: thanks so much. for more on that is bloomberg's paul sweeney. media companies, really? is that a thing? are people talking about this? it hasn't been for a while. what has been a thing from antitrust is technology companies, but we are seeing consolidation in the media space. he referenced the viacom deal just announced. i think what is happening in the media space is media companies feel like they need to consolidate because competition isn't just with each other. it is with big technology companies like apple, like amazon, google, facebook that
are much bigger than the traditional big media companies, and their global. they are really taking a lot of the ad dollars, a lot of the subscription dollars. they are getting into the con did business. if you are the walt disney company, you feel like -- into the content business. if you are the walt disney company, you feel like you need to compete not just against media companies, but technology companies. alix: they needed to launch disney+ to be able to compete with netflix at the end of the day. so is this the call, do not focus on tech? surprising,k it was but he's also talking about the loss of local journalism around the country, which is a significant issue. the issue there is simply economics. consumers do not want to pay for local news. they'd rather get it off the internet. newspapers, radio, tv
stations are struggling for advertising dollars and are trying to manage the move digital. big national brands are doing localell, but nationa -- but outlets in general are struggling to do that. bernie sanders is saying we will put a clamp down on big media mergers. maddi, this brings up the broader issue in terms of government regulation or the need to break up big tech. we seen faang stocks underperform. how big a risk is it too big tech that has been the growth driver? maddi: i think those are less of a major concern for us right now. technology is benefiting from the resilient u.s. consumer. they continue to spend and they have diversified product lines and lines of business. the regulatory pressure may be
something we consider in the next year or so, but we think right now the consumers will continue to vote with their dollars to support those tech stocks. alix: why do you feel like they've been underperforming?do you feel like that is a valuation call? maddi: i feel like that is part of the manufacturing global trade slowdown. goodsllion of technology will be taxed for consumers or will have tariffs on them. there is some concern that will seey companies some of the backlash from the increased tariffs. that in and of itself, along with the fact that investors are moving towards or defensive sectors, are really what is going to be in the headwind for technology the last couple of months. alix: i have to wonder, when you have european regulators
anti-big tech, will ebay -- will they be anti-media now? paul: i don't think so. they've tried to really protect their markets and they view privacy much different than we do here. historically, the european union has been pretty tough on american big tech, but american technology figured out how to manage that process. what is different is it is taking a bigger, harder touch to technology, that would be a change to the sector. alix: a pleasure to have you. coming up, risks to volcker rule 2.0. credit rating agencies say it could have a negative effect on banks. if you have a bloomberg terminal, check out tv . watch us online, check out our charts and graphics, interact with us directly. this is bloomberg. ♪
viviana: this is "bloomberg daybreak." coming up in the next hour, globalne mann, citi chief economist. this is "bloomberg daybreak." struggling pizza chain papa john's named a fast food executive is its new ceo. it is the biggest shakeup since -- for theareholder first time, a 73 seven max customer has reportedly sued boeing.
it once $150 million in damages. no response yet from boeing. he's been described as a landmark figure in automotive history. the grandson of the designer of the volkswagen beetle has died. he turned vw into the world's largest automaker and was influential in the design of the the porsche 911. he was 82. i'm viviana hurtado. that is your bloomberg business flash. alix: thanks so much. we turn now to wall street beat, where we cover three things wall street is buzzing about this morning. first, the risk of the volcker rule revamp. then dojo bank's india -- then deutsche bank's india ambitions amid a huge restructuring sweep. and norway once to add $100
billion -- wants to add $100 billion in its holdings. let's start with the volcker rebound. what i thought was super interesting about the rating agencies was it wasn't about the banks. brooke: at least for moody's --sonali: at least for moody's it wasn't. that doesn't mean the smaller banks won't be diving into risks. it does say that more risk is a bad thing. if they see a lot of prep trading going on, they will view that negatively. brooke: it is sort of a twofold impact. for the midsize, more regional banks, it means you can get into different types of activities you previously couldn't under the old volcker rule. i think that is what moody's is concerned about, that you could see smaller banks getting into more swaps trading, for example. for the big banks, the compliance obligation does go down, and that raises the risk. sonali: there's also this existing debate about whether
the banks are already buying into risk in a more hidden way. the maxwell call it hedging, -- the banks will call it hedging. there is that debate going on right now, but what is clear is that this rule may open the door director saysdic is about $600 billion of trades that wouldn't have been done under the original volcker rule. it is a lot more essentially. alix: it is a lot more, but i wonder if we know if that will be bad or not. you are calling it on the one side, hedging so someone else will benefit from that. that goes back to the whole point of why volcker rule is hard because you have to assign motivation to something. sidebrooke: is it really that mh of a boon for banks at this point? when you have questions about how they will be able to make money going forward, i don't -- this iss is ther
them popping champagne over there come really excited about going into risk. alix: you can take on risk, but you don't have the traders to execute. let's get to our second story, and that has to do with deutsche bank. likei, you were up at 4:00 a.m. emailing us these stories. sonali: i reporters say it is the only retail banking franchise outside of europe getting more investment. after a few years of covering go to bank, i was caught a little offloaded where i didn't know the ending operation was so big. you've got to wonder what deutsche bank's strategy and asia overall might be. it is quite big in india, but also in asia, where they've been cutting as well. brooke: it's one of the areas where they want to focus on going forward. it is wealth management and retail banking. we are not talking about investment banking.
but the say place where it makes sense for them -- but this is a place where it makes sense for them to invest. alix: the question is, are they going to hire children of wealthy indian officials? settlement was last week, but resurfacing again today because he was only $15 million with the fec for allegedly hiring children of chinese and russian officials, but we also have potential answer from deutsche bank to the courts about whether they are going to reveal trump's tax returns in his lawsuit. so we don't know whether that will be made public or not, but definitely people are talking about the buzz around deutsche bank and all their international operations. brooke: i think the question raised by the lawyers for the house of representatives is most banks wouldn't touch donald trump, and deutsche bank did.
when you look at these settlements about giving jobs to russian officials, it clouds the picture and raises more questions. alix: any headline with deutsche bank, if it is not like, they are awesome, it is going to be bad. norway's sovereign wealth fund come i want -- wealth fund, they want to increase their weight. yesterday we had ubs saying there's volume moving outside of stocks, so you have a pension fund moving in, and where else are you going to go? yields are going to nothing. maybe stocks is a safe bet for norway somehow. brooke: one of the areas they are moving out of likely would be the u.k., which makes sense when you see what brexit has wreaked on the stock prices there.
you're seeing a lot of sign that a slow down is not a recession. in the u.s. you are still seeing a little bit of growth. when you look at tech companies or software players or even on the consumer side, there's a lot more opportunity there. alix: you're looking at 2% plus, not -1/10 of 1% for german gdp. yes, you have ubs asking if you want to get out of stocks, but then you're going to go in for corporate credit. where are you going to have find that value? that's all money is to the u.s.. that is all a stronger dollar that perpetuates this cycle. sonali: they were saying you are a little overweight here european equities. this is diversification for norway. alix: fair. sonali basak and brooke sutherland, thank you very much. here's something off the beaten street. it's been one of the hottest issues on chinese social media this month, the ban on outside
food in shanghai disneyland. it is it or was forced to pro away six dollars worth of snacks at the theme park. parks allows food outside in disneyland and disney world in the u.s., but not in shanghai. seriously, this is a thing people are talking about. coming up, one recession indicator blessing read as capex slides to zero. if you are jumping in your car, don't worry about it. you can listen to bloomberg radio on sirius xm channel 119 app.he bloomberg business this is bloomberg. ♪
alix: we are looking at one indicator suggesting a recession is on the horizon in the u.s. for more, i am joined by bloomberg's vince cignarella, whose chart was all over yesterday. maddi: i got a lot of -- vincent: i got a lot of feedback in both directions yesterday. this was witnessed and civilly around 2011 -- this was written extensively around 2011. my buddy reminded it yesterday. it is basically a directional indicator on the economy. not necessarily a recession, but it is leading in that direction. and it is shrinking as the economy is shrinking. basically, if you think about it logically, it makes perfect sense. ,s spending declines corporate's are pulling back, it is more likely that economies are shrinking, but that is what we are seeing now.
we will probably see more as the trade situation becomes murkier. major companies and companies in general having a difficult time deciding what to do and where to go. alix: the question for me is is this time different? vincent: i don't think so. every time you say this time is different, it tends to be exactly the same as the last time. what stops a second recession perhaps is this indicator was declining around 2012 2013 was massive qe. had we not had the monetary policy intervention, i think we would have seen a redo of 2008. that has held us a float, but things are catching back up to us again. when you look at monetary policy, even central bankers are telling you there's not really much we can do about it. so if fiscal will step in remains to be seen. alix: if we are relying more on the consumer then is manufacturer, does the capex
indicator matter much? vincent: i think it does because we've been relying on the consumer for a long time anyway, and capex has been the support of that. -- will can see and do you continue to see job growth, wage gains, which is propelling the consumer in the economy? there's no guarantees, but this an early warning signal that we are talking about it and looking at it and looking at is as a potential problem. alix: you can catch all of vince cignarella at macro squawk on the bloomberg. coming up on the program, catherine mann, chief city global -- please citi global economist. this is bloomberg. ♪
august 27. i'm alix steel. david westin is off. here's everything you need to know this morning. iran's president hassan was says he- hassan rouhani will meet with president trump only if it is not for a photo op. with america going on the path it has chosen, we will not witness any positive development. the key to changing this is in washington's hands. alix: japan once president trump to drop the threat of auto tariffs. the president has left the door open to new duties. in germany, the economy is on the brink of recession. second quarter exports fell the most in six years. papa john's has ordered up a new ceo with a fast food background. arby's president rob lynch will workplace steve ritchie.
in the markets, upside for s&p futures, up by about three points. jp morgan and the like coming in and saying you are going to want to buy here, september is going to be ok, but you have to look at the other asset classes. dollar-yen almost down by 4/10 of 1%. also seeing a pretty steady surge into the bond market, in particular italy, despite seeing major dysfunction. we get a lot of supply coming on in the u.s. at 1:00 on the two-year. joining me for the hour is marc chandler, bannockburn global for x managing director. good to see you -- bannockburn director.ex managing good to see you. you are looking at the canadian dollar. why do you care about this right now? foreignlot of people in exchange looking for trends. the canadian dollar has weakened .
the market's repricing the odds that the bank of canada is going to be forced to cut rates. right now they are neutral. they have a policy meeting next week. many people expect them to soften up their position in face of the global slowdown. the market is adjusting to the that they hint at an ease as soon as october. alix: what's the relation between that and oil? marc:marc: i find the canadian dollar has a risk on, risk off, so out of these past six weeks, the stock market, the s&p 500 has weakened four of those weeks. alix: one of our top stories is germany teetering on the brink of recession. , butontracting 1/10 of 1% net trade went down a percentage point from the total. the strongest area is inventories were higher, and government spending on the upside. joining us now is catherine mann , citi global chief economist.
good to see you. not a pretty day for germany. what do you make of this in terms of leading us forward to ?otentially fiscal stimulus catherine: we've already seen discussion of using the automatic stabilizers, the shared responsibility between the government, the profits of corporations, and the unions and wages. we've seen a lot of that being put on the table as opportunity. marc: do you think germany can come up with a big enough package? enough forbig germany to come out of recession or avoid recession, or big enough given how much opportunity they have to do some spending? marc: i think the market would be looking for something big enough to help lift all of europe, not just the german economy. a lot of other countries don't have that fiscal space and still have treacherous austerity. catherine: that is true, but all
of the other countries are doing better, italy aside. the other countries in the euro area are doing better than germany, partly because they have been more resilient on the services side. germany's services were very resilient up until the most recent data coming in. marc: do you think the german manufacturing sectors, i think about the auto sector on exports to china, do you think the export model itself is coming into question given the global slowdown? catherine: for germany to make a transition to being a more balanced, services oriented, that requires some changes in service sector regulation, which is rather higher in germany than in other places. that kind of transition from export oriented model is one that almost no country has ever done. alix: fair. china is trying. catherine: japan might be another one. alix: the question becomes what is the political will to do something?
they said, "what matters is that we are on track to 2% inflation targets. if our journey experience the occasional delay are good reasons, i think that is acceptable." what do you think? catherine: i think it is interesting that his language of been more vocal recently both on the fiscal and monetary side, although he talked about allowing the automatic stabilizers to work better in germany. i think there's an opportunity for germany to do a lot more not just on the spending side, but also on the tax cuts. we have seen some discussion of that by some of the party members. marc:marc: one of the things they are thinking about is getting rid of that solidarity tax, which no good -- which no one seems to like anymore. catherine: there's also things to be done on research and develop, and that would be very helpful in order to maintain its competitiveness. at that two structural changes
on the services side because they are an important ingredient in export competitiveness. alix: does it mean that you have to let italy do something? look at the btb bone spread -- the btb-bund spread at one point tightening to 200. if germany is going to spend, why not you? marc: i think germany has so much more fiscal space. germany is one of the few countries in the euro zone low the debt levels. that shows you germany has more space. i sort of wonder, it is not just a structural issue you raise. it is a deeper issue ideologically. they don't accept this kind of debt management through fiscal policy. they never really have come about resistance to it seems to be growing as we see other countries who try to solve a debt crisis by issuing more debt. catherine: i think what we ought to do is think about monetary policy and fiscal policy in the same context. easing from the ecb has created a lot of fiscal space come about
through the channel of lower sovereign yields. there's a question of -- fiscal space, but through the channel of lower sovereign yields. there's a question of what you do with that. it is really a matter of how you spend the additional space being created by monetary policy, and don't smile appeared policy -- and don't ask monetary policy to do more because the scope is limited, especially in europe. alix: how is that not modern monetary theory? catherine: modern monetary theory is a variety of different theories, but in the end, monetary policy has been easing. you are using the space for fiscal reasons. that's not new. in the end, what are you going to use the fiscal space for? you can't just throw the money around. you have to use it for the appropriate things. it isa metal a fiscal -- a matter of fiscal choices that
will make the difference longer-term and economic stability. marc: to that point, i could issue more debt -- i could issue more bonds and not increase the debt or debt servicing costs. germany tried issuing the 30 year coupons with a negative yield. even though it wasn't a great option, it still raise almost one billion euros. catherine: i think germany is unique in being able to do that. not sure other countries in the euro area would be able to do that. but nevertheless, they are able obligation, so you should take that opportunity. if you are a private sector company, that's exactly what you should be doing. today we had a two-year auction in germany that they were only able to sell about 5 billion euros worth of bonds versus the five they wanted -- about 2 billion euros worth of bonds versus the five wanted to. should we read too much into that? catherine: coming off the back of the most recent one,
maybe they came into the market too soon. marc: it is a fascinating problem they have. limit, we sawthis the irish back in the 1990's raise the interest rate. we are just not sure where the bottom is. switzerland is leading the past there. alix: we are going to delve deeper into globalization. we will discuss catherine's latest report on why a more globalized world would be better for everyone. that's coming up next. this is bloomberg. ♪
weekout with a report this that says globalization "for better or worse, has peaked in the past decade. the problem is not too much globalization, but to little. we need to both reinvigorate and redeployed domestic policies to ensure that gains are widely shared." with us is citi group's catherine mann, who wrote that, and marc chandler of bannockburn. walk us through where we are now versus where the trendline should be. catherine: if you look at a number of different measures of global integration, whether it be trade or finance in particular, those two measures of integration peaked even before the financial crisis. part of that is because come on the trade side because of a lack of initiatives to engage in trade negotiations. we've seen a decline in productivity growth or
increasing inequality, and at the same time, globalization has deteriorated. in some sense, you can't put globalization globalization , lower productivity, and higher inequality and say it is globalization's fault because over the last 10 years, we had a retrenchment in globalization. alix: but you could say perhaps that financial flows has contributed, but you point out service flows have picked up, so it is a shift in what is actually flowing. catherine: yes, services flows have increased, but financial flows across borders have also come down dramatically since the financial crisis. ab that's a good thing. it's hard to know exactly -- maybe that's a good thing. it's hard to know exactly what is the right amount of global to say this ist because of globalization, it is hard to make that equation make sense because the last 10 years has been a retreat from globalization, whether you measure by trade, services, or
financial flows. marc: you have this argument that globalization did contribute to the inequality, but is your point also that if we move away from globalization, it will increase inequality? retreate: if you from globalization, you're making the pie smaller. it's always been a question of how you distribute it. how you make the gains widely shared. that is a to domestic policy problem. we've ignored it for far too long. but if you make the pie smaller, it does not make redistribution easier. alix: so how do you then make the pie bigger? catherine: we reinvigorate our commitment to global integration. alix: exactly the opposite of what most politicians are advocating right now. catherine: yes, in short. alix: how will that help? catherine: if you reinvigorate globalization and pair it appropriately with the types of to domestic policies that support individuals and regions, because there is a lot of work on how globalization has
impacted certain regions and the people in those regions disproportionately, the burden of adjustment is not widely shared. is notden of adjustment widely shared, and that means the policy to address those issues also has to be focused on regions and individuals. those are not national policies. some are, but a lot of policies on the domestic side need to have a person focused and region to make surer the globalization gains are widely shared. marc: is it possible the globalization strengthens to muster forces that work against that? for example, i think of the u.s. the union's most affected by globalization like auto and steel workers have been decimated. can globalization we can -- can globalization weaken the forces we want to strengthen? catherine: of course, technology has been a very important factor to manufacturing job losses.
we know from all of the research over the past 30 years, it is ethical to disentangle globalization and technology forces, so you have to address them as a package, and both need to be addressed through the domestic policy space. again, taking away technology, taking away globalization, that is not a strategy to improve benefits to workers or to a country as a whole. you have to go back to the issue of how do you address these adjustment issues? we have not addressed them effectively. the burdens of adjustment are narrowly burdens on individuals and regions, and he gains are less widely shared. alix: in your research, did you feel that it is a region disco location -- a region dislocation or within a country dislocation, where inequality is more of an issue within a country or a developed economy? catherine: that is an important question. there has been more convergence.
in other words, poorer countries have converged to richer countries. we can see that in terms of productivity growth and wages. that is the gain from globalization in an international sense. the burden within a country is more narrowly focused on regions and sectors, and workers and firms in those sectors. alix: is a pickup in trade going to be the answer? you also have a chart that shows harmful trade practices. is that enough to help fix? catherine: absolutely not. you can't fix the inequalities and the productivity issues by just increasing cross-border trade, whether in goods, services, or financial flows. you have to have the domestic policies to go along with it. but again, i get to the point where i say we have productivity issues in the advanced economies.
we have inequality issues around , through emerging markets as well. those cannot be solved if you make the global pie smaller. that does not ease the adjustment challenges. it makes it more difficult. marc: if we increase the size of the pie, your argument is that is not enough either because we need stronger to domestic institutions. what happens if we don't have those stronger to domestic institutions? should we go forward with globalization still? catherine: yes, because the distributional challenges are heightened or made worse if the distribution is smaller. it is important to provide the source of the funds or the gains in order to be redistributed. it puts the onus on domestic policy makers to do their job better. alix: it was a really interesting report. very thought rep. king:. -- very thought-provoking.
viviana: this is "bloomberg daybreak." papa john's has named a fast food executive as its new ceo. arby's president rob lynch will replace steve ritchie, the biggest shakeup since activist shareholder starboard valley set its sights on the pizza company. a ruling in an oklahoma court case on opioids. johnson & johnson must pay 572 million dollars for helping fuel the crisis. that wasn't as high as feared. lawyers for state and local government see it as a green light for more lawsuits. the ruling affirmed the high-risk strategy of using
public nuisance laws to punish predatory drug marketing. executive carlos ghosn reportedly ran a parallel business as a technology investor in silicon valley. according to "the wall street journal," he used billions of dollars from the nissan business partner in oman. he wasar in japan, arrested in a wide-ranging financial crimes investigation. ghosn is denying any wrongdoing. that is your bloomberg business flash. alix: thank you so much. as we debate the validity of term limits here on set, we will talk about the fed and what it means with president trump. you had new york fed president bill dudley coming out with a really interesting read, talking about how the fed should be reacting to president trump's trade war. accommodation encourages president trump to escalate the trade war, leading to a recession? officials could make it clear the fed will not bailout an
administration that keeps making bad choices on trade policy, making it abundantly clear that trump will own the consequent his of his actions." what do you make of that? catherine: i think he was making a very strong statement that there is a correlation between -- potentially a correlation, as it is viewed in the market for sure, that there is a relationship between fed easing and trade policy escalation. it was certainly in jay powell's comments after the last fomc that one of the reasons they did the midcycle adjustment was because of concern over the consequent his of trade. that provided -- the consequences of trade. that provided opening for escalation. marc: i think it is worth pointing out that bill dudley is the former new york fed president, sophie is not in office now. he might not be able to say this if he was in office. i don't buy the idea that this
is bailing out trump. this might be self-induced. it doesn't prevent them from responding. their goal is to fulfill the mandate, and it doesn't matter where the shock is coming from. policy willk easing bailout the president. he said "fed officials should consider how their decisions will affect the political outcome in 2020." this brings up the broader conversation of when you don't have separation between monetary policy and government. catherine: i agree that when the economy is hit by a shock, the fed has to react to it. but one of the things is the size of the shock and the implications are being felt literally more through financial markets then in the real economy. the real economy is doing extremely well. maybe manufacturing isn't, but for the u.s. economy, the
vast bulk of production, employment, and demand is on the services side, and that is great. so what shock they might be reacting to his potential turbulence in the financial markets. we've seen quite a bit of that associated with trade discussions and so forth. does the fed easing potentially ratify the financial markets' attitude toward trade? this gets into the potential issue of if the fed is going to contribute to asset bubbles. marc: the fed has got to navigate that, but i just wonder if what dudley is adjusting come of the fed coming maybe it is the right side of politicization to some people, but it seems to whatangerous precedent for one wants to see in 2020. catherine: as you say, he is not in the position now as a
president, so he can speak as a person from his former position. have auickly, we question from a bloomberg user saying, "is the president right to knowingly damage the economy to get the fed to follow their mandate?" a tricky question. well, i can't speak for the president and the administration, but i think there are a variety of people within the administration who think he's not damaging the economy in the long run, that dealing with china is a key element of it. alix: you guys are sticking with me. coming up, we are going to talk about argentina and the imf's biggest loan. ♪ this is bloomberg. ♪ -- this is bloomberg. ♪ from the couldn't be prouders
billion into u.s. equities and futures are up .3%. germany is up .8%, despite the fact that we saw a contraction in the second quarter of gpd -- gdp. up .5%. the cable rate jeremy corbyn is going to host a meetingtians later to discuss plans to block a no deal brexit. the talk in the market is if you ,o not get a big brexit fallout if it is not priced in, you could see upside. you are seeing a little bit of that today. 10ly's 10 year yield down by basis points. government on the 66 in italyovernment since world war ii. that is pretty much ignored by the market. breaking news for you -- revlon is set to approach potential bidders next month, looking to
goldman sachs to help them shop themselves, looking for bidders. more on that news, the stock up over 4%. in other asset classes, argentina's troubled history may be repeating itself your the imf's record loan was supposed to boost efforts. instead, officials saw warning signals. marc chandler and catherine mann -- if you take a look at the money they are supposed to get from the imf and was going to come do starting in 2021, it is astronomically high numbers for this country. how does this play out? >> i think we have the vocabulary word every profiling. alix: what does that mean? catherine: it means changing the terms of the contract. restructuring. catherine: it goes with a different word these days and i think you can probably argue that anyone who owns those instruments probably should have known.
you should not have been in there if you did not know. marc: last year, selling that 100 year bond, it was oversubscribed. now you have trading it at $.50 on the dollar. the market is betting on some kind every profiling of argentina debt. even if the imf comes through with the money, which is about $5 billion. alix: this sets up the other conversation we have been having. if we take a look at imf expectations for argentina, lower, lower, lower. they were able to sell a century bond because yields were so high. can you connect the dots? catherine: argentina has always been an important part of the portfolio. in some sense, if you're following a portfolio strategy, it is in there whether you want it or not. it is a long-term history and you should be going in with your eyes open. aboutwhen we talk emerging markets, i feel like we talk a lot about this is
idiosyncratic. turkey -- idiosyncratic trade argentina -- idiosyncratic. it is not going to spread. do you buy that? marc: when you say it like that it is hard to say i still buy it. earlier,ine's point that is the idiosyncratic level. it seems to me the argentina and people rejected the imf's austerity. actual investors are rejecting what turkey is doing, encroaching upon the central bank. i think idiosyncratic problems in those freely accessible currencies -- many currencies in east asia are not freely accessible. that is why i think you use the mexican peso for example, which is making new lows for the year, as a proxy. if you cannot sell the one you want to sell, sell the mexican peso is a proxy hedge for emerging markets. marc:catherine -- alix: catherine, that is also a
broader issue. you want to grow, but you have this big deficit you need to plug. there is no stomach to make the top -- tough call to the imf. we were talking about domestic policy earlier as being a serious challenge. there is -- domestic policy is challenging. selling it to -- there are political sales, domestic sales that you have to make. there is also the pace of adjustment. there is an issue that demands on the pace of adjustment on parts of investors may be different than pieces of adjustment that can be stomach by the domestic population. that is an important political challenge. the: bringing it back to treaty of versailles, he basically says there is so much to pay to foreigners. we have reached that point in many countries. we do not want to give up our current output to service past mistakes. someone has to bear that burden.
alix: it is funny you mention that. that point, i wonder what the tipping point is going to be for us to get there. when central bankers come into a room like we cannot do this anymore, i do not know what we are going to do to get there. marc: the ability to coordinate and cooperate right now is at a low ebb. the plaza hotel agreement in 1985 was the peak. we are still bottoming out. lack of globalization and the ramifications. we want to get an update on what is making headlines outside the business world. that is coming from iran's president. the iranian leader responded to mr. trump. he insists sanctions be lifted before there are negotiations. alliranians are saying if
the american leader wants is a photo with him, you should use photoshop. newtaly, talks on a coalition government are on hold over the state of prime minister giuseppe conte. the five-star says it will not hold any more meetings unless it agrees that conte will stay on the job. the two sides have not gotten around to talking about the budget and other issues. over to hong kong, where carrie lam sees no need for chinese troops to put down demonstrations. she says she is confident her government can handle this crisis area -- crisis. lam says she wants a dialogue with protesters. police used water cannons and one fired his weapon over the weekend. global news 24 hours a day, on the air at tictoc, on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. alix: i want to stay in hong kong.
that political turmoil could be a tipping point for the global economy. segmentedre not regional effects. these have global consequences. what could be a tipping point that could trigger a very significant global slowdown, even a recession. and catherine are still with me. catherine, do you agree? catherine: the hong kong protests are important for the region. hong kong is an aborted financial center, but i do not put them in the same category as the collapse of the global supply chain associated with the trade tensions. of aare -- the origin was governance issue come a political issue. the two typessh of issues. i think some of the -- from the standpoint of economic prospects, concern about a global recession, we have to go back to the trade tensions being
a potential source for a global recession. we do not have that in our projections. citi had a report saying we do not expect a trade deal under this president. catherine: that was right. we discussed that significantly. we changed our call on whether there would be a trade deal and we do not think there will be a trade deal before the election. alix: how much worse does it get? catherine: we have done our exercises on how potentially the trade issues -- trade tensions, challenges to the global economy. there is the real side effect which is through the global supply chain. then we talk about the potential financial consequences, global meltdown on the stock markets, potential increases on uncertainty. those factors dominate in terms of potential implications for the global economy. marc: turn back to hong kong. how do you think the endgame is?
it seems to me hong kong once not to be part of china. the ultimate endgame is to be a democratic republic. i do not see how that is going to happen. at the same time, i see china as being restrained. they have elections in taiwan next year. the u.s. theoretically could cut hong kong off from being a special trading partner. how do you think it plays out in hong kong? catherine: that is an issue for the people in hong kong to address. -- the that is the way intervention by other countries -- marc: if china were to use force -- catherine: marc: -- catherine: that is another matter. marc: it would be a repeat of tiananmen square, where the u.s. cut trade off for a while. catherine: trade tensions are effectively doing that now. alix: to your point come out when you have the visuals of hong kong protesters flying youican flags, in october
have the 70th anniversary in china, this is a big deal. the optics for that get more complicated, whether or not the u.s. is necessarily involved. marc: it is tough for me to see the end goal. china is more restrained than the french are being restrained over the yellow vests. think about the level of violence on both sides. hong kong seems to be escalating. alix: it is interesting when you try it back to trade. what is at stake for the u.s. versus china and the rhetoric that the u.s. is grossly misinterpreting how much china is going its heels and how much pain china will be willing to take? it means something different than just a trade deal. catherine: one of the reasons why we do not see that we changed our view on the likelihood of a tree deal being achieved before the end of next the was because we see
sides hardening in terms of their positions. the opportunity to find a common ground seems to be deteriorating. so that is basically why we changed our tune. marc: this been we get sometimes from the president is that the reason china might hold off agreeing is that they would rather negotiate with a democrat. how do you see it? is -- ie: maybe that think the issue more is that it is not a political negotiation. it is more a -- we do not know who we are going to negotiate with next. right now, there is no deal on the table. there is no agreement about what it is that either side -- i know what the chinese side we need to do in order to reach some kind of agreement -- deal. alix: such a pleasure, great to have you on set, catherine mann. forng up, the hunt
times, a russian service wants to cancel an order for 35 planes placed before the plane was grounded. it wants damages. no response yet from boeing. deutsche bank is cutting jobs around the world, but it is hiring in india. bankingender's franchise is getting more investment. deutsche's is hiring about 140 people. trillion dollar fund bullish on america is calling for a shift away from europe. this would allow it to boost its u.s. holdings by as much as $100 billion. it wants to take a larger chunk of the biggest technology companies. alix: time for bottom line. we will dig into three companies worth watching. we are joined by taylor riggs. first, we will take a look at j&j. this landmark lawsuit
that was brought by the oklahoma attorney general going after j&j for its involvement in marketing opioids. jj lost that case and was ordered to pay $572 million. you are seeing shares popping on this news because that is not as big as analysts and investors expected. you had different opioid companies settling for less. this is not as bad as it could have been. alix: implications for the industry -- we will break that down in a moment. revlon,ant to return to the second company we are watching this morning. is looking for a strategic fire -- buyer after the holiday weekend. they will go outcome approaching some of the interested parties that have already come forward and expressed some sort of interest in buying the company as a whole or their bigger
brands. we will see how that plays out for them. this is not the first time they have gone to the market and looked for potential party is that they can partner with. we are seeing premarket shares popping a little bit. there are only 1500 shares out there, but we have seen some interest, especially when this news first broke. investors are looking to see what is next and if they can get their turnaround to get underway with the strategic buyer. alix: things are breaking that news. our last is taylor riggs, looking at papa john's. taylor: it is all about papa john's today. they are getting a new ceo, coming from arby's. that is rob lynch. we will think starboard value for helping on this turnover we keep seeing a papa john's. john schnatter stepped down as founder and chairman in january
of 2018 after he used a racial slur and was involved in the nfl anthem kneeling controversy. took overme protege for about 18 months. starboard value says we like the guy at arby's. we are going to come over and put him in place. investors seem to be happy. shares are up about 6% in premarket. if the current share price opens at these levels, you could see some upside potential in the next 12 months. six buys, three hold, no cells. into i want to dig deeper johnson & johnson. brooke is still with us. even though it was not as bad as we thought, does this open the door to more lawsuits? brooke: it dies. the initial reaction was financial. then you have lawyers coming in
that are looking at pursuing opioid-related litigation and saying this is a victory for us. in the oklahoma case, they were using the public nuisance law to argue that j&j's marketing of opioids created this epidemic of opioid addiction. it was a risky strategy and it worked. what that tells the other lawyers is these other cases might have the potential to go forward. this is just one case. the fact that there was a victory here at all with a meaningful payoff, $572 million, increases the optimism among the legal community that they might have a case. marc: the models for the opiate will be the tobacco industry. what is the next step? casee: there is a big coming up in cleveland and that is one of the master cases. for will be a real test what happens next. j&j will probably appeal this verdict in oklahoma. that will let us see whether
this legal strategy stands up two additional tests. i assume the next step is going to be more lawsuits, more legal fees for all the players involved. it helps us get direction here. this is a step in one direction. alix: david is not here. we cannot make fun of him for being a lawyer. it does remind me of the monsanto thing. they want to settle. the number was big, but the conversation was that is not going to be enough. even if you wind up settling, at some point, maybe the ticket is too big to stomach or manage on a daily basis. brooke: i think the case helped drive the relief rally. handedre huge payments out and the buyer lawsuit. the limit was $2 billion. that got reduced on appeal. j&j is not in that ballpark. that may be why you are seeing this relief rally among investors.
it is the momentum built. buyers are facing thousands of lawsuits. j&j is facing lawsuits over opioids. if you get the settlements, even if they are in the couple hundred million dollar range, it adds up over time. that is when you start thinking about do we change our strategy? is our legal case not working? loss would seem to suggest that this public nuisance argument is more valid than they thought. give us a sense of how large the opioid market is for j&j. brooke: they are not the biggest player here. some of the arguably worse actors do not have as much financial firepower. what happens when you get into legal battles? you go after the person who has the most money. that will be interesting to see how this plays out. j&j's on the hook for bigger bills not because it was the worst actor but because it has the most to spend. alix: brooke sutherland, thank you.
alix: here's what we are watching today. you have the two year option 40 billion today. what the takedown is going to be with yields around these low points -- marc chandler with me. i am going to pair this with a story reading high on the pension funds and how that is paying trade for retirees. walk me through how you connect the dots. anybody in their right mind by a negative yield bond? there is a lot of reasons why people are buying negative yielding bond and why it is going more negative. first we have people follow
indexes. germanindex, if you have boones in your index, you have to buy more german boones. you have the capital gains. traders,tutional similar with dollars. euro byd out the selling the euro and buying dollars. because of the interest rate differential, you can get a better return on a euro hedged german two year that has a negative yield then you can buy buying a u.s. two-year at today's auction. alix: is it the same for japan? marc: same for japan. what governs the cost of the hedge is the interest rate differential. you are paid to sell the euro, sell the end, and by dollars. the hedges is where you make the money. alix: that seems to be a
structural issue of why we will see a stronger dollar. marc: part of the argument is the interest rate differentials -- those who have to buy, who need to buy positive yielding interest for whatever reason, they can come to the u.s.. for americans, with dollars, it might be better for institutions to be buying these negative yielding bonds and hedging. alix: always a pleasure to get marc on set with me. marc chandler joining us. that does it for bloomberg daybreak: americas. coming up on the open with jon ferro. u.s. investment strategist and a rally in equities and a rally in the bond markets with yields lower in the u.s.. this is bloomberg. ♪ ♪
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jon: coming up, president trump taking a softer approach. investors doubting the longevity of the shift. former new york fed president bill dudley arguing the fed should not provide offsetting stimulus and the damage it has done in germany. an export slump pushing europe's largest economy to the brink of recession. with 30 minutes until the opening bell, here is your tuesday morning price action. futures are positive .4% on the s&p 500. muted price action for the euro. a 10 year has a bid. treasury down 10 basis points on the u.s. 10 year. let's begin with the big issue a car the president taking a softer approach. >> the vice-chairman of china came out. he wants to see a deal made. he wanted to be made under calm conditions. he used the word calm.