tv Bloomberg Daybreak Americas Bloomberg June 19, 2018 7:00am-9:00am EDT
additional 200 billion dollars in tariffs. china says the u.s. is losing its senses and promises to retaliate. asossible trade war looms emerging markets suffer the consequences. what the central banker to do. meet, central bankers president draghi says they will be -- welcome to bloomberg daybreak, i'm david westin. alix steel is off today. >> great to be here and never a dull moment. -- julia: let's look to the markets in the interim. more tariffs as an instant hit to risk sentiment. stocks europe 600 up by 7/10 of 1%.
we are a cue from what we saw in asia. chinese shares plunging. u.s.en up versus the dollar. slight --so see a we've seen in treasuries as well. that is slightly lower than it was earlier in the session. down 86 and the 10 year yield. u.k. guilt and bunds, the whole case. take a look at it's going on. this is the one-day performance you can see on a relative basis u.s., the downside the real underperformer is the south african rand, the turkish lira making a fresh flow. overnight china responded forcefully to president trump threat of more tariffs saying this is the chinese, if the u.s. --, chinasenses and
will have to take measures. what does measures we just might rran fromlcome enda cu hong kong. what are the options available to china? we put up a chart here that shows they don't have enough imports to put that kind of tariff on them. true they can't match the u.s. dollar for dollar. the 25% is not altogether a feeling. a what a lot of analysts are talking about is trying to make life more difficult for usa inc. operating in china. korean companies in japanese companies in terms of political tensions, that basically heightened the bureaucratic
hurdles for those companies operating in china. they increase inspections, they increase various costs and they slowdown investment. --t is without getting into outright. leaving aside tariffs, they are plenty of options that could make things quite difficult for american companies in china. i have a terminal chart here that shows the level of chinese imports in the united states. you see that redline, they don't get up to the $200 billion level. the question is what kind of pressure can they put on u.s. companies that have these qualitative barriers? >> i think all around they can make things difficult. china isstments in many hundreds of billions of dollars bigger than chinese investment in the u.s.. it does matter in terms of revenues out of china.
ofna can go down the route the tariff buyers in terms of how the want to target the business and operations. you look a huge american auto who drawrers significant revenue out of china, there are several options available to the chinese authorities of the want to go down the route of a much more -- trade. could flow both ways over coming months. david: thanks so much for staying with us tonight. now for bloomberg first take we are joined by thin cigarette a rella. vince cigna we have a chart here to show what happened to commodities across the board. , that is thehere
aussie dollar. ,ou can see crude and copper that is steel. vince: china being a large importer and you would expect china to small currencies and commodities in general do well. we are seeing the reverse. if we are putting tariffs on china, the entire global growth situation is declining. was really interesting at the moment is traders are still going to yen as a haven currency which is an export driven economy. it's a bit of a problem there. -- julia: if we are looking for safe havens, investors have struggled in many ways to work out what ratcheting out the tensions will mean as
far as this is concerned. every time we talk about this and have this conversation, how serious are these threats and we talk about if these come in or if there is a resolution and that's a difficult thing to determine. we've seen throughout the administration that when it comes to trade, they will ratchet up tensions, but we have actually seen with canada and mexico and the eu, the tariffs do seem to be coming in there. perhaps this is a way to drive to the negotiating table, that doesn't seem to be the case. with china they are trying to get them to the table. the word out of china overnight, they said stop messing around. how you negotiate some kind of trade agreement with the sort of damocles hanging over
both sides. what we have seen as a focusing of the pressure on emerging markets. we've seen outflows are etf's and equities. i've shown you the one-day performance, but let's look at the chart. this shows the pressure on em fx . argentina was down. the u.s. dollar in the last three months. vince: you see the pecking order. the turkish lira is dealing with political issues. then the south african rand with exporting country suffering as well. i think you can't dismiss the political side of this with trump and what he is doing with china. you have midterm elections coming up or it is what got him the midwestern states
into the election for himself. i think he is really playing towards his base trying to attract that vote for the republicans to maintain. julia: we haven't even mentioned monetary policy. david: let's do that next. in the meantime this trade thing this is what larry summer had to say about the economy. living with a very brutal economy. , the odds ofpen the downturn are about 20%. , the normalppen playbook is to cut interest rates by 500 basis points and there will not be that going forward. david: one of the things that make indicate that is the 210 spread that shows how low that differences become. we have a flattening curve. that is something they've
been talking about for at least three or four months. policy where you see the connect into the trade issues. if we do see those come to bear we could see inflationary pressures in the u.s.. that hasn't impact on desk that that has ant -- impact on potentially what jay powell will have to do at the fed. he is talking tomorrow on a panel with kuroda. that will be very interesting to see how that plays out. inia: we have only priced two thirds of the hikes the fed is looking to do. how are they ever going to be able to find rates in a
potential u.s. slowdown? vince: the ecb will be the hope for the for seeable future. the pricing is and where the fed has it, the market doesn't believe the fed will be able to get as many hikes is they want to down the road. the interesting thing he didn't a 20 plusis that with trillion dollar deficit, the one of the other things that happens in a recession as you ramp-up government spending. we don't have that flexibility with the deficits we have. the fiscal and monetary policy may not be able to respond to a recession which give the fragile recovery he is talking about. intersection the as ours trade is concerned, the consequences of u.s. monetary policy and global monetary policy and trying to restrain that to some degree on em because we are seeing that
despite investors thought this would be different. vince: em is caught in a rocket a hard place. mostad a stronger dollar, of the em currencies and governments have funded their local debt in u.s. dollars. the idea was the dollar was declining and it would be cheaper to monetize your debt using dollar denominated insurance and now the situation is reversed. the stronger dollar is increasing the deficits and it's a bit of a catch-22. for the receivable future that looks like it will continue. and with the trade situation is doesn't look like an easy way out for emerging markets. david: many thanks to rachel evans and vince cignarella. we will hear from one of the big players in oil on what the cartel decision could mean for oil prices. that is next and this is bloomberg. ♪
hit with extensive sabotage by a disgruntled employee. said the, the ceo worker broke into the manufacturing operating system and sent sensitive data to unknown third parties. tesla is investigating. oil prices are reacting to talk over opec's compromise on an increase in production. opec is aiming for a modest production boost in a bid to bridge the gap between russia's push for a big game and iran's assistance no changes be made. that's your bloomberg business flash. ahead of that meeting, alix steel sat down with the ceo of -- natural resources. ask what to expect of the cartel at its meetings and what that could mean for oil prices. >> i think it's clear if you look at some rhetoric in terms of the premeeting information it is clear this idea inevitably
increasing supply is going to happen. it make some sense when you consider the fact that as well as probably lost 500,000 barrels of the last six months to a year and they may lose an equal amount next year. when you consider opec has a big plus off the market and you can also consider the indications with iran, you can see it where an increase make some sense to keep some balance. demand looks pretty strong. dictates a reasonable measured approach to increases probably make sense. two toople call for 500,000 barrels increase. some people call for a million. because of the supply and demand situation i think we are in the $60 to $65 wti case when it clears. i think it could be more
volatile. we are in a situation where more auction is brought on board the market at the same time, that means there's less availability to attack the next supply issue. on the other hand when we've had relatively lower prices in the $60 range, demand seems to be picking up in additional volumes as well. i think we could've more volatility. we've seen a lot last year. you see that happening especially with situations. does opec coming back make it easier harder? >> i think the world is better and we have some semblance of stability. keep prices $60 to $65 by adding extra oil i think it helps us to set our economics and be able to look long-term at wellsonomics in terms of
so we can afford capital program. that was alix steel with tim dove. russiare on how much oil would like to pump, don't forget to tune in on thursday to catch more of that interview at 1:00 in the afternoon eastern time on thursday. right now we want to talk about this oil issue and why saudi arabia wants to pump more oil because will get the prices down. julia: the fact the russians will come in and say they want more than the iranians or the iraqis. david: they are trying to broker a deal in between the two. we have a chart that shows the level with the red horizontal line indicating what the russians would like they would produce. i didn't realize a lot of these countries at $70 will make their budgets.
david: europe's central bankers are in portugal for the forum. we'll go to matt miller who is at the forum with the national bank of belgium governor and ecb councilmember. matt, great to see you. matt: let me first ask about larry summers's speech yesterday. the most exciting things to come out of the conference so far because he convincebe trying to
central banks around the world that it's more important to work on employment which is not the ecb primary mandate and less to worry about inflation which is historically something the ecb is very concerned with. we have our primary mandate and it's in law and it is price stability. so we should stick to that and tried to get there. we are convinced price stability is the best contribution we can make to economic growth. that if the real interest rate is going down. for factors like aging and others.
to get to the subjective and to maintain the proper accommodation to get there as we because since the real component of interest rate is gettingwn, the risk of there is even greater. to anchor we have and getn expectations to this inflation objective in order to then be able to have backest rates later on where they belong in a natural way. matt: what could you possibly do? incredible tried an amount of bond purchases and quantitative easing program and lowered rates to below zero, none of it has worked to bring inflation to mario draghi's
target. now that you are us -- you are taking your foot off the gas pedal, how can you possibly spur inflation any higher? jan: we are pretty confident. qe and all the measures we have been doing did work. it did add to economic growth and add to inflation. it hasn't in a position now that we are pretty confident that this convergence of inflation will continue and we are confident we could decide to announce the asset purchases. through monetary regulations and other measures.
strong form of guidance as far as interest rates are concerned. matt: after this incredibly policy, are you concerned any asset prices have gotten out of hand? paul tudor jones said it's due to this interest-rate policy that you have seen housing crises, market prices -- housing prices, market prices reaching levels. jan: yes, but we are monitoring this. there is no fundamental inconsistency between a monetary objective and what we are doing. you need monetary stability and to help price stability
the economy to recover in order to have a sound financial system. have a sound financial system and financial stability if the economy is not growing. it's true in the environment of low interest rates can create some search for yield and , itaps to some levels depends on what you are seeing locally. we should address this locally as we are doing and belgium. jan: thanks so much. president of the belgian national central bank. ♪
possibly a billion dollars worth of tariffs. , 385ow jones off by 1.5% points. slightly.me back s&p futures lower by 1.3%. europe also taking a hit. a bit of flight to safety in u.s. treasuries. 2.88.-year yield, flight to safety for dollar-yen as well. higher versus the u.s. dollar. also pointing out gold, if we are looking at further save haven assets, lower by .4%. always an interesting one. ofde also giving back some the gains from yesterday. questions swirling over what opec and russia can achieve in terms of increased output. sterling as well trading at a seven-month low relative to the u.s. dollar, a defeat for to
reason they and the house of lords. it looks like parliament will get a meaningful vote on brexit. vote. another meaningful didn't they have one last week? find out what's going on outside the business world. for that, we turn to emma chandra. the trade dispute between the two largest economies is escalating. china has got to retaliate after president trump written terrace on another $250 billion in import. move extremed the blackmail. the chinese benchmark stock index fell 4% and u.s. futures are lower. on capitol hill, lawmakers from both parties are calling on the trump administration to end the separation of families caught
trying to enter the country illegally. democrats have seized on the issue, families be kept together. president trump meets with house republicans later today. in the u.k., british prime minister theresa may is trying to head of a humiliating defeat over brexit. we have learned that may will not be offering any more concessions. the house of commons votes tomorrow on an amendment that would give parliament the power to stop a messy brexit. global news 24 hours a day, on-air, and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. continues itsu.s. trade dispute with china, europe, and north america, emerging market seem to be bearing the brunt with em currencies particularly hard-hit. this is the jpmorgan index, taking you back to when
president was first elected. it really strengthened but then has fallen off a cliff in recent days. we welcome lupin rahman, the emco global head of ian sovereign credit. great to have you here with us. -- pimco global head of sovereign credit. global markets really seem to be taking a hit on this. is there any recovery in sight? there arek opportunities in emerging markets but one has to be selective. em fundamentals are strong but em is a beta to global growth and also to the dollar. all of those factors are actually posing headwinds to the em story right now. we think the current selloff has resulted in some value being created in selective pockets, so we think now is the time to be very selective in where to take em positions rather than writing the em data -- beta. david: if emerging market
tied toes are a beta, projections of overall growth, does that mean the fx market is telling us these trade disputes will curtail level growth? >> what we are seeing from the markets is increased concerns not just about trade tensions but also in terms of a potential for the fed to be a lot more hawkish than the market is pricing. essentially, this is a strong dollar story, which is affecting the rest of e.m. valuation. julia: if we go back to the imf meeting a few months ago, there was consensus that argentina, egypt offered great value. this time would be different and emerging market fundamentals were stronger than in the past. what went wrong here, where you just caught offguard by some of the outflows, pressure we have seen on e.m. at the moment? that story in terms
of the em being fundamentally stronger than in previous cycles still holds. what we are seeing here is em macro fundamentals remaining firm for most of the as a class but a series of idiosyncratic risks, some of them political emma some arising because of external financing needs coming from the tight and in financial conditions. for example, when you are looking at a country like turkey which has very large financing external needs, elections being brought over, that combination of a global headwind and idiosyncratic factor has been relatively negative four as a valuations. but when you're looking at other economies like south africa or indonesia which has been affected in terms of a selloff related to dollar strength, we see those economies are much more better equipped in dealing with a headwind. a are not seeing as much of repricing as you probably would have in the previous cycles. you mentioned it's
important to differentiate among em. another chart here shows the jpmorgan index, over a short until of time, going down rather precipitously. the white line is latin america specifically, which is even steeper. does that mean there are even bigger problems in latin america that in general with em currencies? you are seeing in latin america is a series of very idiosyncratic stories which is tied in with the dollar strength story. for example, in brazil, you have a very uncertain election coming up in october where the voter base is really looking toward the details of the distribution rather than the center of the road candidates. selling see the real off as a result of that uncertainty, as well as the fact that it is one of the cheapest shorts when you are looking at em shorts against the dollar.
in latin america, you also have newso, where a lot of bad has been priced into valuations and i given the nafta risk and because of the upcoming elections. julia: political uncertainty a problem for some of these guys. bear with us a few second. the trade spat between the u.s. and china weighing on emerging markets, as we have discussed. it is also boosting chinese demand for one of brazil's top exports, soybeans. bloomberg now is our bureau chief. can brazil meet this kind of demand we are talking about, particularly as we see tensions ratcheting up between china and the u.s.? >> brazil can meet part of the demand but not all of it. is said to have imported 90 million tons of soy. about 75ports in total
million tons. we can likely meet part of it in the medium-term but not in the -- not the full brunt of it. julia: this is one piece of the puzzle for brazil here. we see the central bank tried to stabilize its currency, we have protests, strikes with the truckers. what is the economic backdrop particularly as you see the political uncertainty heading toward the election? a complicated year for brazil come it already was with the elections coming up with such an uncertain outlook. the truckers strike put a dent in growth forecasts. analyst had been expecting me percent but now the central bank survey is already at 1.76. it has fallen off the cliff. like you said, we have elections, a complicated year. inflation is still under control but we are waiting for the
central bank tomorrow. they've elect the hold interest rates -- they will likely hold interest rates. lupin, you have said the fundamentals are strong in many emerging markets. do you include brazil in that, how do you reconcile that with the uncertainty in the election? >> i think in brazil the fundamentals are as good as you can expect. clearly, not a strong end of the spectrum within em but essentially you are seeing an economy that's been growing at low growth rates below 2% for some time coming out of the recession with a very slow recovery, rather than a v-shaped recovery. inflation now looks to be under control, well within the central bank's target for this year and next year. and there are no massive external imbalances. a current account has adjusted
quite significantly. however, longer-term, i am more , givencautious on brazil the significant reforms that need to be done on the pension reform and social security side. these elections become even more critical given that you have this rising tide of debt that is growing which needs to be tackled. the only way to tackle that is by doing very important and difficult reforms. julia: what are the best opportunities in the em at the moment? >> we favor looking at opportunities in mexico, both in the currency as well as local rates, as well as countries like you have ahere relatively hawkish central bank. this should be supportive of the currency there. julia: thank you, lupin rahman, and julia leite. let me give you some context of where we are looking as we head to the market open.
dowfutures off 1.2%, the off by 1.5%. not as low as we were earlier, but significant weakness in light of what we have seen. the nasdaq has been the upper former the past two weeks. butd: not as bad as it was not pointing to a very happy day at the moment. coming off of europe, not having a great day either. is a broader risk off, commodities. a lot of questions being asked. ultimately, what will china's u.s.nse be to the responding to china? david: moore on brazil's challenges. more on brazil's challenges. you can listen to bloomberg on the radio.
shares of a japanese online marketplace sort in their first day of trading. it raised $1.2 billion in japan's biggest tech ipo in two years. the smart phone app has become the default market for buying and selling used goods. that is your bloomberg business flash. let's go to the wall street beat, where we cover three things wall street is buzzing about this morning. em that's gone wrong. one hedge fund guru gets hit hard as the markets take a downturn. blackrock that to focus. they are closing 16 exchange traded funds after introducing artificial intelligence products. rah's fortune climbs to
$4 billion. david: joining us now is jason kelly. talk to us about this hedge fund. it is the largest in brazil. >> your guest just before we came over here, was talking that being cautious on brazil. these guys should have been more cautious. lost almost 15% since april 30. to use a technical term, they got whacked. to your big existential question around hedge funds right now. david: hedge funds, i thought you didn't take risks, but these guys are betting. itau has aingly, hedge fund in our asset management unit. they made the opposite call, not short brazil but cautious and
contrarian on a growth story. they were up 8.3%. they went the right way. julia: betting the right way. and we have this story. they went short on tech come along on value. whacked is the technical term? it is interesting because this has been a theme in 2018. can hedge funds stage a comeback? 2017 was a rough year to say the least. we got some vol early in the year which should portend well for them. this is a long short equity fund. also a terrible name. maybe that was part of the problem. pulled $6.6 billion out of that type of equity strategy even 11.1 billion was
going into the overall market. questions -- and we have discussed it before -- does macro make a comeback in this kind of environment? julia: the question is, is all that money not going into equities and hedge funds going into etf's? >> a lot of them are but not these. i stock is up to a win for the humans. we are hearing about a eyes taking our jobs, robots making jokes about wall street. it is not a huge amount of money, $91 million in assets. when you put that into the whole context of blackrock, they have 3.4 trillion. 91 million, you can get away with. but it is interesting that these
ai strategies apparently did not work. 16 funds. david: this is smart beta. you take the index and you make it a little bit better. does that mean you go back to the regular index or do not tweak it? >> maybe you just need some humans to take some calls. very grumpy this morning. oneid: third story, some not lacking for money, oprah. her wealth has really gone up substantially. >> this is the sort of chart that you like if it is about your stock price. topping $4 billion. she is the first black female entrepreneur on the list. interestingly, dig down a level, this is largely down to weight watchers. david: she crossed a billion based on her show. this is really a second act,
this is not her being on camera. this is her as investor. >> that's right. she is obviously a brand like no other. certainly, she has helped to drive the weight watchers story. but credit to mindy grossman. david: she spots talent, brought in mindy grossman, who did an amazing job. >> sky is the limit it feels like. they are turning into a real lifestyle company, and associating your lifestyle company with oprah, not a bad bet. now she has signed a content deal with apple. the third iteration. >> do not bet against oprah, ever. david: she is very smart. >> i have never seen human beings react to human beings the way that people react to oprah. we had her in here about a year ago for a taping for the david
rubenstein show. everyone was shouting, i love you! and in my experience, it is all genuine. it is all real. julia: good thing 72 good people. things happen to good people. david: coming up, president trump's zero-tolerance stance on immigration has drawn criticism from various sides. more on that in bloomberg opinion. julia: and check out tv , you can interact with us online. we are showing you the better amounts from earlier. bidder amounts from earlier. from new york, this is bloomberg. ♪
with china may be driving the markets this morning but there is another dispute over how the u.s. deals with other international relations that has seized washington's attention. that is the separation of young children from their parents when they come over the border illegally. we welcome james gibney, coming to us from washington. it is interesting, what david wrote was australia has had a problem, they would put people on islands offshore, and it's had terrible effects on the people located there. >> it has been a disastrous policy in terms of public relations. in the u.s. has been involved in the sense that one of the first blowups that donald has was with the prime minister of australia over a deal to take some of those refugees who are there. we are hardly the only country to be dealing with this problem. i want to read from the
piece. he writes a restrictionist approach can look like a delicate told for a temporary problem when first taken out. once in the hands of a government, it is a ratchet. i wonder if that is where president trump finds himself right now. anticipated they the repercussions of what this would be. >> when you think about it, what is happening now is a product of either incompetent or malice. as you point out, the numbers are already there, they knew how many people were coming over month to month. they knew how many family units they were dealing with. they also knew how many detention cells they had. when you think about outcomes, you have to anticipate, where are we going to put all these people? we don't have enough prison cells to house families together, we will have to separate them. big problem. julia: what are you seeing here
when you have a cap on the number of migrants you are willing to accept into the country? you force them into a black market. they don'tecause feel they have any other option, they don't feel safe. so by restricting too much, you create a bigger problem here? right, youthat's create a bigger problem, but it is larger than that. a lot of immigration policy is a chain reaction of unintended consequences. if you restrict the ability of those killed labor to come here legally, it's a problem. julia: james gibney, great article. worth reading. from new york, this is bloomberg. ♪
president trump orders up an additional $200 billion worth of chinese imports to target for tariffs. china says the u.s. is losing it senses as it promises to retaliate. as a possible trade war looms, markets suffer the consequences as e.m. assets selloff. and what to central bankers do as the worlds leading central bankers meet in portugal? they willesident says be patient and prudent even as they mourn about the risks of protectionism. welcome to "bloomberg daybreak: americas." i'm david westin. julia chatterley is here. alix steel is off today. julia: an immediate hit to global risk sentiment. we are taking back some of those earlier losses. 1%,futures down just over the dow off by 1.3%. at the lowest point, down 450 points. so we are easing slightly as we
head toward the open. the japanese yen, the traditional safe haven relative to the u.s. dollar. flight to quality right now. and just to reiterate what david mentioned, the pressure that we continue to see on emerging markets, foreign-exchange south african rand. at a session low. for the gainers, it is unchanged, all pressure. david: that is pretty dramatic. time for the morning brief. at 8:30 we get housing starts and building data permits. blankfein will be speaking at the economic club of new york. and after the bell, we get fedex and oracle earnings. right now, let see what's happening outside the business world with emma chandra and first word news. the train dispute between
the two largest economies is escalating. china vowed to retaliate after president trump threatened terrence on another $200 billion on chinese imports. beijing: move extreme blackmail. the u.s. is targeting gets finished in china but whose components often come from other countries. stockinese benchmark index fell almost 4% in u.s. futures are lower. on capitol hill, both parties are calling for the trump administration to end the separation of families at the border. democrats in particular have seized on the issue, demanding family to get together. president trump meets with house republicans later today. in the u.k., theresa may is trying to head off a potentially humiliating defeat over brexit. officials will be meeting with anti-brexit lawmakers, pushing for more power over the process. may will not be offering any
more concessions. they vote tomorrow on an amendment that would give parliament the ability to stop a essy no deal brexit. global news 24 hours a day, on-air, and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. are meeting in portugal to talk about the state of the economy but overhanging it all is growing trade dispute between the u.s. and china. larry summers started it off with a warning about how trade could become a big problem. >> trade war is not likely to be large enough that it's direct effects damage the economy profoundly but it's psychological effect, increases uncertainty, could be very serious. we are certainly getting later in a cycle of escalation. david: we welcome mark howard,
bnp senior strategist. pick up on what larry was talking about. until now there has been a lot of talk about trade disputes. but the markets had not reacted much. are the markets catching up, what does this tell the investor mark: i think the markets are catching up. the degree of rhetoric and substance that have gone back recently is worrisome. this has caused a bit of a risk off trade today, calls for caution by major investors. julia: the top thing for investors, it is hard to price. we see tensions in the short-term but ultimately we reach some kind of conclusion because that is what is in everyone's best interest. b on one day of solid doing a to start thinking about the consequences here? mark: i think you have to look at it in the context of where we have come. we had a pretty benign environment.
certainly 2017 but also the first half of 2018 some wobbles that not a lot of repricing, new risk, except in emerging markets. also we are approaching quarter end. amongreates sensitivity major investors to position appropriately. i think what we are seeing now is some readjustment, we sa may see further adjustment. julia: the one area we have seen it is if you look at the divergence between large-cap and small-cap stocks. those that are more insulated. does that continue to play out? mark: that is probably fair. the russell and the nasdaq have a smaller market cap focus, home bias. certainly, that seems like a safe haven, will play out to the extent this accelerates. , ifd: one of the questions you are an investor, is where is the downturn coming? sooner or later there will be a
downturn. putting on this chart on the 2/10 spread, we have trade disputes around the world. at the same time, the fed is signaling we are going to keep raising, and it anything, maybe faster than you think. how much of a stress does this put on the economy? mark: i'm glad you bring that up. one of your guests was talking about the shift we had in markets globally since the first quarter of the year. synchronous growth was the theme. now what we are seeing is a breakage in that. policy no longer in synchrony from a taxation and trade standpoint but also monetary policy standpoint. last year we saw clear differences between ecb and the fed. a flattening curve is probably a proxy for growth but also a proxy for uncertainty. signaling ecb also some sort of conclusion on the asset buying program.
yes there is a day virgins in terms of time, but also synchrony this -- synchronicity in terms of what they have provided. are we pricing that appropriately? mark: certain markets are, others are not. to cut to the chase, equities are the one area where perhaps there is more vulnerability, not pricing that in as much. even in some of the russell and nasdaq said yours. in the credit and emerging markets, we have seen that. they were real beneficiaries of central banks buying assets. now that they are signaling going the other way, those markets are adjusting. come back to to the question, as an investor, what do you do with this? you have the fed pushing the rate hikes on the short end, short-term borrowing costs may be going up, at the same time, trade concerns are suppressing growth in the out years.
does that mean that you move from growth to value? mark: there is a technical question and a strategic one. in the short-term, investors have been trained to buy the tip. pullbackn example of a . certainly in 17, 16, that was the thing that was prevalent. i think there will be buyers of the dip once we see some capitulation. strategically, the storm clouds are brewing. that is what the curve is telling you. , which couldaggles become a true war, are more concerning. it is more of a broader issue. populism is a theme that investors are concerned about and what that means for political implications down the road in a range of countries. julia: what are they specifically asking you? if there is blood in the water,
you get back and invest. are they asking you when to get involved, or are we right to be cautious and stand back? work with the largest investors around the world, i don't deal with retail investors, so i can only speak to a large institutions are doing. they are not throwing in the towel but they are looking at selective hedges on their more risky exposures. they want to protect themselves from rising uncertainty but also want to retain the best assets. they don't want to sell their best assets and then scramble to buy them back. david: what do those hedges look like? if equities are hurt, we go into bonds, but on the same time, the u.s. government is issuing more treasuries. where do you go to be safer? that is important because it doesn't feel like there is a terribly safe spot right now. one of the things big investors are trying to do is hedge some of the more esoteric assets they
ventured into because qe push them into that. the other challenge that we are helping clients with is how to ke hedges that reflect not only the markets but the causal factors. if you are concerned about the curve lightning, is that due to treasury issuance, repatriation, is that due to inflation expectations, are certain hedges around commodities that might be a better hedge than generically selling futures or options on the underlying? julia: what does this mean for the u.s. dollar? mark: boy, that is a curveball. [laughter] the dollar is being influenced by a variety of factors, benefiting from a risk on sentiment today. to the extent the fed seems dedicated to moving the dots higher, hiking into 2019, the dollar will probably remain
arrested him, fear he may tamper with evidence. elon musk says tesla has been hit with extensive sabotaged by a disgruntled employee. broke into workers the company's manufacturing operating system and sent sensitive data to unknown third parties. tesla is investigating. shares of british department definitions plunging today. they have been struggling to compete with online rivals. that is your bloomberg business flash. emerging markets bearing the brunt of tense trade relations with currencies weakening across the board. mark howard is still with us from bnp paribas. is obviouslypace very diverse. what are you saying to clients right now about the opportunities within? first of all, we are
reminding clients it's been a crowded trade. there have been massive inflows up until april of this year in emerging markets. january through april, 100 billion blue into emerging markets. in may, we started to see that turn. i think we will see the data in june show acceleration. any time you have a market that has a long rally and a lot of inflows, when it turns come it's painful. you have a lot of people squeezing through the gates to get out. you expect some turbulence. when you're looking for is opportunities in this rush for the exit. frequently when people sell, they sell what they can, rather than what they want to do. sometimes when you can sell is good. there are opportunities in this transition period but there are also a broader narrative that people are talking about. i'm debating with them around global growth, the impact of obviously,ons, and,
the dollar and what's happening with u.s. rates. caution is warranted. julia: we got to the imf spring meetings and they realize that they were all in the same trade. everyone loves argentina, which had a meltdown subsequently. where are the babies that are being thrown out with the bathwater? an em specialist, cannot talk about individual asia isut are merging one area where we think investors will be most aggressive in buying the dip. the central story is intact, fiscal positions are sound. earliera great guest today, the finance minister from indonesia, making the case for their credit. think there are opportunities there. also in latin america, situations that are temporarily in because of the elections coming in mexico and brazil.
intoe will be legging trades as assets get cheaper. david: where are you in e.m. and how much do you allocate? given what is happening, would you change your relative allocation with e.m. versus developed markets, u.s.? it is not like that all markets are a safe haven either. it is a challenging question. acid,as a higher beta higher risk premiums, investors have gotten bullish. i did a roadshow in march of this year, and it was uniform the degree to positivity around emerging markets. scaling back some of those exposures is prudent but not a wholesale cut. what youstening to say, maybe it is time to be more defensive, the e.m. play by and large is high risk, high return. in this environment where you
don't know where things are going, maybe you scale back. do you go for more liquidity? mark: it depends on your time horizon, whether liquidity means that much to you. it is better than 10 years ago so i would not say it is greatly disadvantaged. but the point you want to focus on is the volatility of the underlying asset. there areent nontraditional investors in any asset class and they pull out, they pull out unrelated to core value, and that is what we are going through right now. in emerging-market pulling out, and it is leaving the dedicated investors holding the bag. julia: we went from glass half-full to half empty. what changes sentiment that to being half-full rather than half empty? mark: central bankers are doing a nice job helping with that, showing clearly a run what they will do, forward guidance. solidified that today
with his comments, reconfirming what he said last week, no hikes for an extended period. i think we get through earnings season in the u.s. and globally and we see corporate profitability is still robust. then a little toning down of the rhetoric. maybe if we start play more golf, more time doing something haggling in nations capitals, maybe we will see some stability in the markets. julia: good luck with that one. [laughter] david: you think that will happen this summer? more golf? mark howard is staying with us. buyers --chase 15 billion dollars in bonds. why they decided not to sell to some investors. this is bloomberg. ♪
david: it is one of the biggest corporate brawn sales of the year. beyer has offered $15 billion in u.s. bonds to help fund its acquisition of monsanto. molly smith covers corporate finance for bloomberg news. mark howard is also still with us. thank you for being with us. you wrote a fascinating piece in bloomberg about this. they decided to go out a certain way. , which listed as a 144a limit to can buy them. molly: not sec registered. that is what was so interesting about the sale. when you have such a massive offering, as beyer's was. we were expecting this to be in the $15 billion arena. you would think that you would try to market this to as many
investors as you can and not limit yourself but i think this was heavily marketed at institutional investors and insurance companies came up big time to support the deal yesterday. a lot of insurance companies do not like having the noise of etf's going in and out of their investment, so you see that a lot with these index bonds in my which we are not eligible for. this has been a long time coming. two years. the roadshow was extensive. how much of a premium do we think over where treasuries are trading right now, they will have to pay in order to get this away? yesterday.e price the 30-year ended up going at 1.85 over treasuries. prettyht it came in significantly, starting at 2.05. i didn't know how it would come in because of how they marketed it. are investors going to be
tolerant, are they going to put a deal that is already so restricted? david: those numbers would suggest there is healthy appetite out there, investors want this. particularly insurance companies, insurance funds. molly: that is what we have been looking at, what are insurance companies, pension plans looking at? the 30-year, 20-year part did really well yesterday. those are the investments they are looking for. toia: we know we cannot talk you, mark, about bayer, but it is a broader he increase in issuance. we have a host of deals. comcast, at&t. timing in terms of where we are in the marketplace right now and the concessions that we have already seen priced into the work is this year? mark: it's a really interesting period right now.
aside from emerging market credit, investment-grade credit has been the worst-performing asset class in the u.s. your today. question, what are people looking to do with emerging-market assets? one of the quality trade is to buy investment grade credit. companies that have hard assets, good cash flows, in particular, is in an m&a transaction with delivering to follow, that is an asset that can deliver positive return, particularly given the asset class has sold off. investors are moving out of areas that have held in wealth, leg in to investment grade on the new issues. new issues come with some concessions generally. david: going back to the bayer situation, one of the issues with investment grade is liquidity. if they are being locked up by long-term institutional investors, doesn't that limit
them? molly: exactly. these will not be in the index is where you would see flows coming in and out. this is where insurance want to be. when you have so many blows going in and out and you are an index manager, you need to be we market your book at the end of the day. if you are an insurance company, that is not something you are interested in doing. julia: we were saying a few months ago that spreads were too tight and now we are having some concerns about liquidity. mark: there is macro liquidity and dollar liquidity. corporate liquidity is ok. julia: thank you so much. mark howard is staying with us. coming up, may housing starts report. this is bloomberg. ♪
slightly better than yesterday. we are taking back some of those losses that we have to wait and see what the open looks like. s&p futures off by 1.1%. it follows a weaker asian session and european session. the u.s. tenure as well, down by five basis points -- 10 year as well, down by five basis points. last month it was revised and the starts are at 5%, a big beat of the consensus which was 1.9%. reasonably strong housing start numbers coming in right now. that is the news right now from housing. terrazas, theon zillow economics -- economist.
housing starts have been up eight or 9% over the last couple of months but we are only building single-family homes at the rate we built them in 1960. how much of this is multifamily? multifamily had been up. that has been a surprising point this past year. multifamily housing starts are at historical highs. david: what drives that? aaron: there have been investment -- there has been investment in multifamily construction. mid-densitystarts, and single-family starts, there are three very contrasting stories. single-family starts edging slightly higher but still near historic lows. julia: so we lost our capacity of that mid-density point. aaron: that's right. we are seeing these density
debates in many midwestern cities. julia: what about affordability? if you compare scores to where we were precrisis, how are we doing on that metric? aaron: higher than they were in 2005 but if you look at where we 1998, if youand have a high income and good credit score, it is relatively easy to get a loan. those people with low credit scores, they are still having trouble. julia: at what point do rising interest rates in the united states -- david: let's put a chart that shows mortgage rates versus applications and basically they are both up. normally i would think they would be in reverse order. what: when you think about drives people to buy a home, particularly the first time young homebuyer, they're motivated by big life decisions.
mortgage rates are not going to change their decision. millennials are looking at school districts and deciding to have kids. they are buying, regardless of movements in mortgage rates. david: how important is the housing market to the overall economy and therefore investment decisions? mark: it certainly is an indicator and to the earlier question about affordability, i would point to employment levels and disposable income. the third thing i see in a totally, but i think you can confirm for us is the hangover from 2008 and 2000 nine where people were shellshocked about buying a home back in 2012, they have forgotten about that. in terms of investment, it is a nice part of the high-yield market. a sector that has been irforming pretty well and so
think it is both a leading indicator for economic activity in the u.s. but also an important part of the high-yield market. julia: if we go to the affordability question, looking at some data in the median housing expense income, these are around 22%, even with a 20% down payment, it is 10% lower than it was precrisis. that gives us more sensitivity or less sensitivity to mortgage rates at this point in the cycle compared to where we were before. aaron: a handful of markets where it is starting to get more worrisome levels. julia: what is the worrying sign in the u.s. economy? housing looks pretty good at this moment, even a rising rate environment. where do you start to get concerned about some of the
noises we are hearing, particularly around the consumer? mark: you asked about tightening liquidity and credit. the central bank continues to withdraw -- withdraw credit and not pumped in through -- not pump in through qe. -- that is going to be a bit of a concern as the year plays out but the bigger question is about the u.s. consumer and could there be a shock to confidence by some endogenous factor? and aaronkel word terrazas, thank you very much andbeing -- mark howard aaron terrazas, thank you very much for being with us. breaking news crossing the bloomberg. processes servicing
company -- payment processing services company. continued heat in the payment processing area. abigail: let's move on -- julia: let's move on and talk about home prices and more homes shifting to solar power and it could be a boon for the industry according to a new report. account fornd will 50% of global energy generation by 2050. joining us now is the head of the energy economic team at bloomberg new energy finance. great to have you with us. now and what facilitates that shift? start withy i would a long-term forecast earlier today and what we have seen is a profound change to the global
power system. cold,1970, we have had gas producing about 70% of electricity across the board but we see this 50 year situation is coming to an end. solar and wind are expected to generate 50% of electricity across the world. the reason is no other than cost. batteries are getting extremely cheap. we are seeing that up over the , the global power sector will attract about $11.5 trillion. 8.4 trillion dollars will be invested in solar and heat. one reason is, they said solar and wind gets cheaper and the other is batteries. this is the first time we see how the declining cost of batteries will affect solar and wind penetration.
we expect half $1 trillion to be invested in batteries, batteries installed at the grid level and also by households and businesses and these batteries ensure solar and wind meet demand even when it is not windy or sunny. there are quite a few changes we expect in the market. julia: this is quite fascinating. to your point here, part of the problem with renewables is that you simply can't store it. store the capacity. how do you see that evolving as we head toward 2052? >> that is one of the big challenges that solar has but
the declining cost of batteries, we have seen in almost 80% decline in battery costs since 2010 and we expect batteries to be 70% cheaper by 2050 compared to today's prices. this is what makes solar and , what we call dispatch of all -- dispatchable. david: what has gotten a lot of this started is government subsidies. where are we right now and how dependent these new technologies are and at what point will they stand on their own as a matter of market forces? >> that is a very good point. in this report, we don't take into account subsidies. there are some today, but solar and wind are competitive in all
major markets without any in this report, we don't take intogovernment support. , withare moving forward all the declines we have observed in terms of technology, financing, everything is coming 2050 solar and wind by will be around $25 per megawatt hour. the costs are coming down at a quick pace. julia: have you done any work on the key vulnerabilities when you look at china and the united states and the prospects for ratcheting up trade tensions in terms of the energy space, whether it is subsidies from the respective governments or imports and exports, where energy is concerned. >> we have looked at a couple of countries and it is not just china and the u.s.. steephe kleins are so
that you cannot delay the competitiveness -- compare competitiveness with more traditional sources but eventually, this crossover point will -- one thing to consider is it is not just the big utilities. activityee a lot of through residential and commercial users and businesses .hat install batteries not linked toing the market but at the same time, having consumers that are that mindful creates a very important trend and new component in the system. david: thank you so much for being with us. bloomberg's new energy finance. china'sp, the tale of
now to your bloomberg business flash. rosch has agreed to buy the percentage -- it does not already own. that represents a 29% premium to yesterday's trading price. they're the biggest maker of cancer drugs. that will boost their assets to develop personalized treatments. shares of the japanese online marketplace have soared. the stock rose 77%. they raised $1.2 billion in almost two years. the smartphone app has become japan's default after buying and selling goods. u.s. homes of a lot cheaper than they look. ine prices have been soaring the u.s. but studies show the inflation-adjusted monthly payment on the median single-family home in 2017 was , because a 1987 interest rates are much lower. anid: congress is not having
easy summer so far with ongoing issues over both trade and immigration raging in washington and a rage -- any a range of lawmakers proposing to restrict the president's trophy's in both areas. we are now joined by senator chris van hollen of maryland. becauseart with the zte you are involved in this. you have sponsored legislation that would restrict the ability -- the president ability -- president's ability to make a deal on this. sen. hollen: this is a bipartisan effort. senator cotten, some to rubio and many others on a bipartisan basis in the senate believe we should keep the original penalties in place on zte. those were announced by the secretary of commerce as you recall back in april and we have had lots of testimony before the congress by leaders of the
intelligence zte committees that -- intelligence committees that zte poses a national threat to the american intelligence network. on top of that, zte finally did u.s. sanctions multiple times flagrantly, and tried to cover it up. yesterday, the senate passed the authorization bill which has this provision in it. david: are you confident that your version will prevail? i am confident because there is strong bipartisan support in the senate and when the house appropriations bill voted on this issue number of weeks ago, a subcommittee unanimously voted to maintain the existing penalties on cte -- on zte. i know the white house once this out, but there is very strong bipartisan support in the house and senate for keeping it in. david: is this the beginning of
a broader effort to bring back some of the control over trade, because trade is obviously a very big issue. is congress going to take back some of the authority? sen. hollen: i hope we will assert more authority here. i joined senator corker on a separate bill that would require the president to come to congress when he tries to assert national security basis for me,sing sanctions, excuse tariffs on canada. people are shaking their heads and confusion on how the s onident can impose tariff canada or europe, our allies.
that amendment did not happen, but there is still a lot of concern here in the senate about the way the president is going about the tariffs. china and their theft of intellectual property is an issue that has to be dealt with and so i think there is strong support for doing that, but going after our allies on national security grounds for tariffs is something you are going to see strong opposition to. julia: i want to talk about the issue over immigration and the separation of families. what is the compromise solution here? what is the ultimate compromise that can be reached to protect families? sen. hollen: i think everyone realizes this now. ,he president could today before we finish this conversation, reverse the order that he put in place six weeks ago. they put in place a deliberate policy of separating children from their families which is why
in the last six weeks, you have seen this big spike of kids who have been taken from their families. that is what the president needs to do, he needs to reverse this policy. there are lots of immigration issues we can deal with in the united states senate. we had a bipartisan bill. others putham and together a bipartisan bill after the president asked everybody to , he said he wanted a bill of love. we put it together and then the president and homeland security departments pulled the rug out from under that effort. these are two separate issues. one is the president should immediately and what they began six weeks ago -- immediately end what they began six weeks ago which is this policy of separating kids from their families. there is a growing outcry to get that done and stop that policy. david: would you be willing to support increased border
security beyond what has been proposed as a trade-off to keep these kids together with their mothers? sen. hollen: we need to keep the kids together with their mothers. this is praising what is happening -- this is crazy, what is happening. there is no justification for breaking up these families. you can keep families together as they go through the asylum process. if you are asking me whether i support stronger border security as part of an overall immigration plan, yes, that is executive what the bipartisan plan from a few months ago did. that is why senator collins, senator lindsey graham, republicans and him across joined up. that bill also dealt with the dreamers and provided them legal permanent status and ultimately a path to citizenship. you have a larger immigration bill that the president opposed, but this policy of separating kids from their parents started six weeks ago and is outrageous
david: this is what i am watching, it is actually your home country. the drama playing out in the house of commons. a last chance to review what is going on. julia: there is a technical term for this and it is called ping-pong. it is what happens after march 2019 parliament does not like the brexit deal that gets announced or more importantly, there is not a brexit deal. david: theresa may won this vote
last week and you would say they are just going to do it again except it was really put together with chewing gum and scotch tape. it was very close. julia: they were lied to and compromise. now we have to go back and forth and find some kind of solution and i think this is why the market is reacting is because this just lowers the amount of ability she has to play hardball with the europeans over this deal. she has no backup from the broader conservative party here. the one thingd: they have proven is they can get the pound lower and lower. three-time they go through this, the pound weakens further. the market pricing out the prospect of a future rate hike. david: in the meantime, it is not as if the economy is booming along. you have to feel badly for theresa may do you?
an emphatic yes. will they just keep doing it back and forth? julia: yes. the british do love debate and they like to compromise eventually. carry on. david: coming up on bloomberg markets: the open with jonathan ferro. they're going to have jason trennert who says we are not too late in the economic cycle. julia: a quick look at the futures as well. global market pressure as a result of the prospect -- this is bloomberg. ♪
coming up, trade tensions intensify. the united states threatening tariffs on another $250 billion in chinese imports. the chinese bowing to retaliate forcefully. all of that injecting a little more uncertainty into a fragile global equity market. stocks heading south. 30 minutes away from the cash open, injures negative -- futures negative. dollar stronger against everything in the g10 except for the japanese yen. the top story, trade tensions intensifying. wall street weighing in a what a trade war would mean for markets and the global economy. >> trade deals are what has the market moving up and down. >>