Skip to main content

tv   Bloomberg Surveillance  Bloomberg  August 28, 2019 4:00am-7:00am EDT

4:00 am
matt: dudley is a bombshell. the former fed official draws criticism after suggesting the central bank hold back on stimulus to thwart donald trump's reelection bid. deadline day in rome, the president gets five-star and the -- and givesrty five-star at the democratic party if unchecked -- a final chance. and bp exits alaska to the tune of $5.6 billion, saying it is no longer competitive. welcome to "bloomberg surveillance."
4:01 am
i am in for francine lacqua. let's check in on the markets and get a quick look at what is going on. yield see an all-new low on the u.s. 30 year bond. the long bond came down to one point -- 1.90%. it has bounced back, but still, that paper is weighing on the yield. you can see that across the curve. brent crude is rising. the nymex wti is as well. it has been a rally for oil as as u.s. stockpiles came up better than anticipated. and gold, coming off of its highs just a little bit but very little change to the bottom. 1541.64 as u.s. 10 year yields are negative, making gold more
4:02 am
attractive. now let's get bloomberg first word news in new york. sees an opportunity to restart bta european union. german and french counterparts. officials tell as they appeared to relax len which on the need for the irish backstop. dropping the position -- language on the need for the irish backstop. these requests are related to financial information on donald trump and his family but whose returns are still a mystery. the disclosure was made to an appeals court. the panel is considering the house request. younger brother of saudi arabia's crown prince is in washington. trumpsit comes after signaled his openness for talks with iran.
4:03 am
still, analysts say there is very little doubt that is now on the agenda. and tire bolsonaro -- jair bolsonaro says the menu macro and must apologize for insults before he will accept funds for the amazon. but that tone maybe cooling, a spokesman said any funds from abroad will be welcome as long as they do not interfere with brazil's sovereignty. and the former malaysian prime minister is in court on charges related to 1mdb. he is standing trial on 25 money laundering and corruption counts. --terday, a separate child trial may conclude as early as november. najib has pled not guilty to all charges. global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg.
4:04 am
met -- matt? matt: thanks so much. i want to quickly get a look at the pound. regardless of the pair that you look at, for example, cable is down, dropping in dollar terms. if you look at euro-pound, we are getting back up to 91 pence for a euro. this is after a bbc journalist " hearing the queen could be asked to agree to a pro-roe parliament. would be done by order and counsel. one source, not confirmed. watch this space." matt: it seems like that robinson is just reporting a rumor here, but if the queen was asked notmeans he is
4:05 am
to get parliament back together, allowing boris johnson to push a hard brexit through. that's why you see the pound moving on just the tweet of a rumor. we will continue, nick, to watch the space. official, indeed, the vice chairman until 2016, suggested the central bank should reject interest rate cuts to hurt donald trump's reelection chances. in an op-ed for bloomberg, bill dudley states policymakers should not quote bailout and administration -- and administration that keeps making bad choices. he argues it should be clear that donald trump will own the consequences of his actions over the trade war. urging or suggesting that the fed use monetary policy in order to affect its own chosen political outcome.
4:06 am
response, the fed has rejected the suggestion it would play politics with monetary policy. a spokesperson said decisions are guided only by the feds dual mandate for price stability and maximum employment, adding political considerations play absolutely no role. director ofs the g10 fx strategy at bank of america merrill lynch. , our reporter from bloomberg opinion. let me first ask you your take on this. it's not as if it's some political commentator: this someone who served the fed as president for nine years and was the vice chair until last year. he just spent the weekend at jackson hole. if you think like this, surely some must think like this as well. >> good morning. i think that is how the market is interpreting this.
4:07 am
the emphasis has to be former fed governors. we have seen similar comments from various central bank officials. nonetheless, given his proximity to the fed and having only left one year ago, this may be interpreted, despite the fact we had the denial, of the conscience of the fed. this is a broader debate we have been hearing. political intervention not only from the fed, but for other countries. aremuch politicization central bankers working under at the moment? this is a question we have been addressing and various reports of the need for the scale of the amount of easing has been priced in. nonetheless, the fed does have
4:08 am
an obligation to the global -- via the development more broadly as to the question of if trade will impact the u.s. domestic economy. matt: i'm curious to get your take on this. it's almost as if dudley is trying to sabotage the fed after a weekend at jackson hole. hurt theto institutions credibility. >> it does, in some sense. but i think this is clearly as though the fed can't speak and they are using a conduit, but it is probably just dudley himself, thinking he is speaking for a wider purpose. but highlighting this is the pushback from the fed to leave us alone. it can have unfortunate consequences at the drag them into the political debate. it should not be playing in this territory.
4:09 am
trump has pushed , evidently, the one really bad thing he is done. in the view on the trade policy, i don't necessarily think you can rule out would trump has done as all that. -- all bad. china's economy was coming down anyway. it is an interesting pushback. we have seen a lot of people saying they don't agree with that, i don't agree with it, but i don't agree that should be cutting rates in the first place. but i don't think this needs to go on anymore. matt: i love the statement by the fed spokeswoman there. policy considerations play or political considerations play absolutely no role. it almost sounds like don't look behind the curtain. a dudley things like this
4:10 am
year after leaving as vice-chairman, if he thinks this appointed body should be following its own political have they made monetary policy decisions in the past for political reasons? what they do it in the future? -- would they do it in the future? >> i think we are overthinking things. fed up, being poked day after day by donald trump. think they have, and hopefully, they will not even consider this. it is merrill lynch who could come up with this loop that goes around and around. they're thinking maybe break this by not cutting rates. they should not be doing it anyway, but nonetheless, they need to stop this sort of stuff. it shows you it has gotten to the fed. the fed can now take the moral high ground, as they have.
4:11 am
and hopefully, we can leave it at that. i think we need to stop trying to analyze past decisions. i have think it's the right way to look at it. matt: the mliv question of the day has focused on the juicy andpiracy theory issues more on how this will impact rates. how much impact weatherby on u.s. rates after this op-ed? >> i don't think there will be a huge amount, to be partly honest. there is a bigger dynamic going on. italy, brexit, the trade war narrative. , we havehat backdrop this global wave of a race to the bottom. ,he ecb will like to cut rates the bank of japan is likely wavering on its commitment. all in all, i think there is a bigger story that will
4:12 am
ultimately weigh on yields. we made some downward revisions to our forecasts as of last week. more broadly, i don't think the comments will have a significant impact. you, i would be shocked, i was shocked to hear this. i be shocked if hear anything like this out of the ecb. mentioned king, and earlier, they were talking about danny blanchflower and adam pozen, they're always accusations about mark carney and brexit. i would not be shocked to hear this about the bank of england. are they much more political? kamal: it's interesting you mentioned them. ,he obvious one is the ecb seeing as though they have appointed an actual politician and have clearly created situations in italy and possibly greece. but i think mark carney has done a fantastic job ring together
4:13 am
the pra, the sca, and indeed, the classical bank of england role. where he has perhaps been less good is in clearing a fine line or the brexit mess by failing to give clear strategy is obviously going to be a demand shock. and any analysis on the staggered types is possibly unhelpful. clearly, the bank of england does not want anything to do with brexit but they have roles to do. whereunately, that is they could have perhaps steered a wider line on this one. you will expect to see carney giving it both barrels.
4:14 am
so, yes, is the answer to that one. thanks for joining us, marcus ashworth, from our bloomberg opinion team. amal is our guest post from the hour from bank of america merrill lynch. he stays with us. coming up, we will talk about italy's coalition. they will stay with conte as they approached the deadline. the question is what happened to luigi demaio. we are live in rome next. this is bloomberg. ♪
4:15 am
4:16 am
matt: economics, finance, politics, this is "bloomberg surveillance." let's turn to italy now. ditch bid tost
4:17 am
carve out a majority in parliament after a rocky day of negotiations. we understand that they have on as primeep conte minister, but key sticking points remain. the italian president's the major parties will begin at 4 p.m. rome time. for more, maria tadeo joins us. are we closer to a new government in italy? it has been three weeks of confusion, but the president has made it clear that today really is the deadline. pdf five start need to come together with a credible majority today, otherwise, the country is headed for new elections. we understand there is an agreement in principle that could see a new majority, of art wouldelection, and conte
4:18 am
stay on as prime minister. the one sticking point is luigi demaio who is currently the deputy prime minister he wants to stay in this post. pd will tell you he is a no go, demaio has to go. on but demaio has to leave or there is no deal. and the flip side is salvini, who now looks to be the biggest loser. he created this crisis and is polling close to 40% and is very likely going to go home empty-handed. of course, that tweet from president trump saying he hopes conte can stay on the job. matt: absolutely, president trump tweeting his support for conte. maria, you talk about salvini. he seemed like a sure thing as the next prime minister.
4:19 am
now, what does he do? what happens? >> many will tell you he is in a state of denial. he still thinks maybe he can cut another deal. but we talk about this when he triggered the crisis. he was polling very good and his numbers look very strong but he needed an election. many areas will tell you they got the timing wrong. crisis inring this the midst of summer actually allowed rivals to come together. much, maria very tadeo in rome. kamal from bank of america merrill lynch. what you think of the situation? there are still trading above
4:20 am
bunds, do you like btp's? kamal: in terms of the outlook for markets, this is another step in the drama. they will reign in the budget spending and this is just another hurdle. of the key anchors we look at in terms of our analysis of how the markets are treated are relatively robust. the btp bund spreads is no back below the basis points. the key measures starting to rise as well. things seem relatively calm. that changes if the president believes a coalition government cannot be reached. but again, this seems to be political bochy -- jockeying -- around.
4:21 am
that is a major issue that lies ahead. matt: are you worried about the credit issue downgrade? kamal: this obviously has helped markets. ratings will probably give the benefit of the doubt to any sovereign trying to make some reforms. at the moment, where relatively relaxed about the fact ratings remain stable. matt: you will stick with us, we get more from kamal to come. coming up tomorrow, don't miss our exclusive interview san francisco fed president mary daly. why wouldn't you get up at 4 a.m.? i'm sure you do anyway. this is bloomberg. ♪
4:22 am
4:23 am
4:24 am
4:25 am
matt: economics, finance, politics, this is "bloomberg surveillance." just wanted to show you quickly the 10 year yield minus bpi. so this is the real yield on u.s. 10 year paper, it has now gone below zero, so negative, for the first time since the taper tantrum. negative for the first time
4:26 am
since 2013. what this means is that something like gold, which does not pay interest, is a more attractive investment because you are actually losing money now post inflation. look quickly at what is going on in markets. the 30 year bond touched and all new low, 1.90. it did bounceback, but reached a record low. and thentinues to climb pound dropping. 1.2233 on reports the queen may be asked to prorogue parliament.
4:27 am
4:28 am
4:29 am
♪ matt: dudley's bombshell. the former fed official draws criticism after suggesting the central bank hold back on
4:30 am
stimulus in order to hurt donald trump's chances at reelection. deadline day in rome. the italian gives five-star and the democratic party a final chance to carve out an agreement to prevent fresh elections. and goodbye, alaska. bp exits its entire business in the state to the tune of $5.6 billion, saying it is no longer a competitive investment. you are watching "bloomberg surveillance." berlin forller in francine lacqua. let's check what's moving in the markets. >> we have to start with thomas cook this morning. it is plunging more than 15%. this as it gets a bailout from lenders of more than $1 billion being led by chinese investor fosun. it is leaving investors -- shareholders with little equity.
4:31 am
bp to the upside. they are exiting alaska after six decades in the state in a deal worth $5.6 billion to help corp energy. -- hil it is handing over all of its alaskan pipelines. h&m up this morning by more than 4%. they see on improvement in retail and they say that could expand to other major growth markets. matt: thanks very much. a look at some of your individual movers. let's get the bloomberg first word news. >> the federal reserve should not bow to pressure to fix damage caused by the president's trade war according to former new york fed president bill dudley. this in a column for bloomberg opinion. the comments drawing widespread criticism. saystral bank spokeswoman political considerations play absolutely no role in
4:32 am
decision-making. deutsche bank confirms it has tax returns sought by u.s. house democrats. they are related to requests for financial information on president trump and his family. exactly whose returns? that is still a mystery. the disclosure was made to an appeals court and the panel is considering trump's request to block access to the financial records. this week, a younger brother of saudi arabia's crown prince is in washington. the visit coming days after mr. trump signaled his openness for talks with iran. the trip and may have been planned well in advance, still, analysts say there is no doubt that will be on the agenda. secretary of state mike pompeo is set to meet the prince. brazil's bolsonaro says president emmanuel macron must apologize for so-called insults before he will accept 20 million euros of funds to fight fires in the amazon. that tone maybe cooling. a presidential spokesman says any funds from abroad will be welcomed, as long as they don't interfere with brazil's sovereignty.
4:33 am
global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. matt? matt: thanks very much for that. the u.k. is planning to suspend parliament until mid october, according to the bbc, which reports the government will ask the queen to agree as soon as today. the pound is falling on the news. joining us now is alice lilly, senior researcher at the institute for government, a u.k. think tank aiming to improve government effectiveness. still with us is kamal sharma from bank of america-merrill lynch. alice, let me start with you. prorogue, what does that mean? basically what it means is that parliament takes a bit of a break between each session, and then a new session of parliament, you have the queen's speech to kick off the session.
4:34 am
what is obviously very unusual about this is that timing. we are actually overdue for a queen's speech. we have not had one for a couple of years. the fact that this looks like this will happen just a couple of weeks before the eu means --t it looks very much before the u.k. is set to leave the eu means that looks very much harder for -- to set a no deal. it will be deeply controversial. we have seen a lot of discussion about potential for this to happen over the summer. yesterday, we saw mps from across different parties essentially signing a pledge to try to sit in some kind of alternative parliament. it is not particularly uncommon, but the circumstances of this mean it will be. rout, i guess you mean there will be a lot of lawsuits. what happens if the queen says
4:35 am
no? we are in an era where bill dudley is encouraging the fed to try to beat donald trump in an election. could the queen say no? alice: it is a power in the u.k. exercised by the executive. the queen exercises that power, but crucially, she does so on the advice of something called privy council. the privy council will be visiting the queen today gueask her to proro parliament. buckingham palace would be key for the queen not to be involved in political rounds as much as possible. they will be keen for the queen -- for parliament to sort things out themselves and only come to the queen when they need to. could the queen say no or tried delayingactics -- try
4:36 am
tactics? theoretically, it is possible. matt: what is the likelihood uedt we get parliament prorog and boris johnson pushing through a hard brexit october 31? alice: parliament will return next week, as is normal. this means if mps want to try to prevent no deal, next week will absolutely be the crunch point. i think this means there will be only around one dozen sitting days between now and the 31st of october. they are really running out of time to try and prevent no deal. i think certainly the chances of no deal have just gone up. at the same time, all options are still on the table. we will have to wait and see what mps are able to do next week. matt: alice, thanks so much for joining us. alice lilly, senior researcher at the institute for government. kamal sharma from bank of america-merrill lynch, what do you think about this news? what's your view on the pound?
4:37 am
kamal: again, social media has obviously gone into meltdown with the word prorogation. this is a normal part of parliamentary business. the market is increasingly ansitive to the prospect of hard brexit, no deal on the 31st of october. we think the most likely path of least resistance will be for a general election, and therefore a small inspection -- extension for that election. are advised to investors has been to stay away from sterling hasur advice to investors been to stay away from sterling. matt: we are seeing headlines 's paul brandedtv reporting that downing street confirming queen's speech on october 14. a lot of rumors here, a lot of
4:38 am
reporting, not a lot of hard facts yet. drives your investment decisions in such times of uncertainty? kamal: i think one of the things about the foreign exchange markets, and this week is a good example, is there is so much headline risk and so much political uncertainty that investors are finding it difficult to take on medium-term positions. the one view that markets have held steadfastly to is being long yen and a chase for safe haven currencies, also the swiss franc. to try and trade sterling on this kind of news headline is very perilous. we have seen a large amount of apathy towards trading directional views and some of the major currency -- in some of .he major currencies given the range of options available, given the range of possibilities in the trade war narrative and brexit narrative,
4:39 am
buying volatility structures make a lot of sense at the moment. matt: what do you think about the euro pound pare? because if it is bad for britain, brexit could be bad for europe as well. on the other hand, so many people forecasting parity. kamal: i think the beat on sterling will be bigger than the beat on euro. sterling has actually made a bit of a comeback against the euro. up until this morning, the narrative has moved to a more balanced view on brexit. negotiations are taking place. u.k. civil servants are in brussels at the moment. there is some background and negotiations taking place. this is in sharp contrast to post january 23, when everything was about preparing for a no deal. ultimately, the euro will be impacted by a no deal brexit. that should take euro-sterling
4:40 am
higher. part of that will be neutralized by the effects of a weaker euro-dollar as well. matt: all right, this is incredibly important to me. there is a used motorcycle in sheffield that i want to buy. i am waiting for parity before i go ahead and change my euros into pounds. kamal sharma stays with us. stay with surveillance. bp sales all of its business -- sells all of its business in alaska. they are getting out of the state. we will bring you that. this is bloomberg. ♪
4:41 am
4:42 am
4:43 am
♪ watching are "bloomberg surveillance." i am matt miller in berlin. i'm looking down at the pound, which is falling down against the dollar. 1% is the drop in the cable rate and bbcines from i-tv that the queen will be asked to rogue or suspend parliament. real movement. on these reports. i want to bring you another breaking headline. i think especially key in light of the trade war, google is going to shift its pixel production. pixel is a google phone. it will shift production from vietnam to china. you hear about tim cook going to
4:44 am
a dinner with president trump and complaining that samsung has an advantage because it does not produce its products in china, but rather in vietnam or korea. and then you think, why doesn't tim cook move his production outside of china? that's what the president wants them to do. google is going to do that, shifting production of its pixel phone to vietnam from china. nikkeinikkei this is according to -- this is according to nikkei. let's get to kamal sharma from bank of america-merrill lynch. you are the director of g10 affect strategy -- fx strategy. what do you think about such a big company making a decision like this? is president trump's trade war to some extent working? kamal: i think if you want to take the purest form of trade war success, president trump probably would have preferred google to bring back manufacturing to the u.s. matt: exactly.
4:45 am
kamal: the u.s. administration has -- the job of the u.s. administration has been to create domestic jobs and narrowed u.s. trade deficit. i think the key test on success of any trade war will be, can the u.s. administration meaningfully narrow the u.s.-china trade deficit, which has continued to widen. at best, it is probably stabilized a little. what trump will want to do in his regular twitter sessions is to show that jobs that were in china are now being brought back to the u.s.. matt: exactly. i mean, if the deficit continues to widen, that's also a problem. a lot of people have been saying beforeas to end this 2020, before the reelection vote because he does not want the
4:46 am
u.s. economy in shambles as his constituents are going to the polls. will the chinese get to the table and make a deal with him? does he have time? or is it too late? has he run the wrong course? kamal: there were some signs that the president was wavering at the g7 meeting by the comments that perhaps he had made a mistake. from the chinese perspective, first of all, they are beginning to see signs of distress in u.s. agriculture. that has been an obvious criticism of the trump trade policy by the agricultural community. more significant for the chinese is how the democrats are positioning for a potential democratic president in 2020. joe biden has been in iowa. he has been commenting that he would remove the tariffs if he came back to power. from the chinese perspective,
4:47 am
the question is, well, we can wait. we know the history of chinese macro economic policy. they deal in much longer business cycles. they are prepared to wait on the realignment of the chinese yuan, despite calls for the last 15 years to do so. i think they are and for the long-haul -- in for the long-haul. the implications for the u.s. equity market and the u.s. macro economic recovery will be the key input into what trump does. matt: what do you make of -- you know, we are looking at the yuan right now getting closer to 7.2 all i read every day is the media constantly is saying, is lighting the pboc -- plotting -- ding the pboc for not setting the rate as aggressively as it
4:48 am
could. what do you make of the slide? it is the biggest we have seen, i think this month will be the biggest we have seen since 1994. kamal: absolutely. you can take this narrative back before we headed to 6.8. if you remember the first batch of u.s. tariffs on the chinese. that was calculated that the depreciation of the renminbi at that point precisely offset the amount of the tariffs that were imposed by the u.s. again, the seven-figure was psychologically very important. -- it took ag bit of time to get through there. we think there will be further upside pressure to dollar china. if this helps to absorb some of the tariff impact, then so be it. i don't think there is a a policy byver or
4:49 am
the chinese to continue to much beyondenminbi where we are going at the moment. matt: we have a great story out about the hong kong dollar. they are all betting the unrest there, as well as maybe this trade war, are going to somehow drive up interest rates and forced the abandonment of the peg for underpinned the so many decades now. what do think about that short bet that occasionally pops up trying to break the peg? kamal: i think the investment community is always very keen to look at various pegs around the world and various crisis -- in various crisis. when it was the euro swiss, it was the danish peg. the peg should stay.
4:50 am
these are well-established pegs. it is obviously a strong focus, given the events that have been going on in hong kong. at the moment, it is a sign or symbol of stability within the hong kong economy. matt: all right, you will stick with us for a little longer. kamal sharma as director of g10 affect strategy at bank of america -- fx strategy at bank of america-merrill lynch. we are seeing the pound fall against the dollar. the queen will be asked to roguelgate -- pro parliament. this is bloomberg.
4:51 am
4:52 am
4:53 am
♪ matt: economics, finance, politics, this is "bloomberg surveillance." i am matt miller in berlin.
4:54 am
boris johnson is planning to suspend parliament until mid-october, according to multiple reports. the u.k. prime minister will ask the queen to agree as soon as today. the pound is falling on that news, because it could bring the u.k. closer to a no deal brexit. joining us as bloomberg's international government executive editor in london. kamal sharma is with us as well from bank of america-fara lynch -- merrill lynch. what is going on? >> we see these reports saying that boris johnson last the queen to agree as soon as today to suspend parliament possibly from around september night until october 14 -- september 9 until october 14. ostensibly, that is to make sure nothing significant happens in the run-up to the queen the speech. it would make it -- queen's speech. it would make it much harder for parliament to suspend brexit. what this really does is
4:55 am
potentially set up a significant showdown with parliament and the run-up to october 31. you can imagine there will be objections to the idea boris johnson going around parliament to do this. it puts the queen in a very difficult spot. matt: those of us who are not subjects of this queen as you are do not understand the ins and outs of parliament or the monarchy. why does the queen's speech on october 14 make any difference? what does that mean. what they want to suspend -- wouldn't they want to suspend parliament until the deadline hits? >> the queen will be giving a speech on that day which will touch on the new session of parliament and will allow her to comment in a direct way on the state of play with brexit. as you know, as an australian, the queen is the head of state and has the right to disrupt parliament or the government as she sees fit. it is asking for a pretty serious intervention at this point. it would only give parliament
4:56 am
two weeks to work out a brexit deal before october 31. that makes it even harder to prevent a no deal brexit. what this would allow boris johnson to do is to say parliament is trying to get in my weight, i am just trying to -- way, i'm just trying to deliver what the majority of british people are asking for. matt: thank you very much for keeping us up-to-date. our executive editor for international government and citizen of the commonwealth. kamal sharma, thanks so much for joining us as well. bloombergit for surveillance with me. tom keene and nejra cehic pick it up in london after this.
4:57 am
4:58 am
4:59 am
♪ tom: this morning, pound sterling tumbles as prime
5:00 am
minister johnson will ask the queen to suspend parliament in early september. the queen will speak to parliament october 14. the brexit deadline is 17 days on. in washington, the day after the shot heard around the building, should the fed adapt, should the fed adjust to president trump and its trade war? should the fed consider the politics of november 2020? the markets speak and vote for slower global growth. dollar resilience as 30 year u.s. bond nears world war ii lows. good morning, everyone. extraordinary wednesday morning. historicic truly in an london. on truly this historic moment that i believe goes back to 1948. we can even take it back to the early 19th century. what is going on at parliament?
5:01 am
nejra: that's what i'm trying to. what we know, -- trying to figure out as well. what we know is that parliament ed onto octoberu 14 under this plan. it could trigger a constitutional crisis. it could stop lawmakers being able to block a no deal brexit. we will get into the discussion. the question becomes as well, what exactly is the point of doing this? may be boris johnson has asked to do it because he felt like the plan would not get through parliament anyway. the pound tumbling. tom: a world headlines out right now. ofant to be -- whirl headlines out right now. i want to be careful about speculating. let us move on. one an interesting day. our first word news.
5:02 am
>> british prime minister boris johnson reportedly moving to make it easier to leave the eu without a deal. this is what it entails. johnson's government would ask queen elizabeth to suspend parliament until mid-october. that would significantly hamper lawmakers efforts to block a no deal brexit. all the prime minister's office says is the queen's tradional speech to parliament will take place october 14. purdue pharma andatontrols it hn $11.5 billion offer to resolve all lawsuits from the opioid crisis in the united states. the proposal calls for them to declare bankruptcy. it would then hand itself over to a trust. the family would have to come up with at least $3 billion in cash. a stunning proposal from former new york fed president bill dudley. he suggests the fed reject interest rate cuts that could help president donald trump's reelection chances. he comments in a bloomberg
5:03 am
opinion column, drawing widespread criticism. analysts say such an approach would jeopardize the independence of the fed. today, italy may find out whether it will get a new government or early election. president sergio mattarella will meet with the country's main political leaders. long-time rivals five-star movement and the democratic party are trying to form a coalition. they want to prevent early elections that probably would be rightist league parties. global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. bloomberg. tom: thank you so much. let's look at the data right now. the huge news this morning and the breaking news out of london. ejra will look at sterling. further curve inversion. that's a big difference. .526% percentage point.
5:04 am
euro weaker, dollar stronger. onto the next screen, if we could, which really indicates slower global growth, an estimate by the markets. 30 year yields under 2%. renminbi crawls but weaker chinese yuan. gold is not breaking out the new strength. 1550 is something for others looking for gold higher. what do you have in london? yield, myt 30 year attention as well. caught my attention as well. i'm sure peter chatwell has some thoughts. you mentioned cable. there we are, down 0.8%. we dipped on these concerns and the report of the u.k. government suspending parliament, which means it lawmakers might not be able to block a no deal brexit.
5:05 am
i had the new zealand dollar index. we have seen some underperformance on the kiwi and aussie. morning.a cehic this the news flow here. i want to block it out into three parts. we have all of the news breaking in london. in washington, uproar over bill dudley's bloomberg opinion piece yesterday. newm posen quoted in the " york times" this morning. he will join bloomberg later. then we've got the markets. that's put in perspective one of the real yields of the market. this is a stunning chart. this is controversial. minuss the 10 year yield the cleveland fed, which is a different fed. a lot of people criticize it. klein.you matthew
5:06 am
this puts in rising rents, owners equivalent rent and such. we go down to that absolutely historic 30 year negative real yield off of a higher inflation rate in the united states. what do you have? are you brexity? nejra: i wish i was. before we get to that, let me show you something that connects these conversations, which is the uncertainty around trade. you get the sense, particularly in equities, that we are flip-flopping a little bit as we wait for headlines. my chart shows the age of the unknown. u.s. trade policy uncertainty spiking to a quarter-century hike. what implications -- high. what implications does that have across markets? we will get into that after we discussed these latest stunning headlines. tom: fed uproar. in august, where most are dodging brexit, at least until
5:07 am
september, the news flow has changed. leading our coverage in london is the head of our international government news. let's cut to the chase. was this a surprise? >> it is in fact a surprise. that's what's really caught the market. you have seen a significant reaction in the pound today on this. boris johnson has been talking for a while about suspending parliament. parliament has been pushing back very strongly against this idea. we are talking about a significant suspension for a number of weeks, possibly a month or more, which would really raise the question of who is running the country in the meantime. the broader fundamental question is, is he trying to go around parliament once and for all and get a no deal brexit to occur at the end of october? what does that do to the constitutional process in the u.k.? tom: prorogation is a strange word. i go back to the history of 1997, where john major used this vehicle.
5:08 am
it led to a tony blair government. do you and our team just assume that this kind of process will and to a general election a true test of the prime minister's strength? >> more than likely. i think of it as a suspension. it is an easier word for people to get their head around, the idea that parliament does nothing in effect for a month. what it enables boris johnson to do if the queen agrees to this, and that's a big question as well. she's having a dilemma thinking about that one. if this does happen, boris johnson can say to the british people, i am trying to get brexit done and everyone is against me. parliament won't work with me, i can't get this to happen. i will have to come for you to another test for another vote because there are up -- i will have to come to you for another vote because there are obstacles everywhere. it sets the stage for an election before not too long. nejra: i am going off a
5:09 am
statement about what boris johnson's decision means. they say this changes less than what people think. is there a chance that this latest move will not change that much? >> it is significant in that it limits the ability of parliament. we are talking about possibly two weeks before brexit is due to happen at the end of october to find a solution. the backdrop to this, used to have the europeans saying we are not going to renegotiate brexit, we are not going to renegotiate the backstop with boris johnson. you have got to get that sorted as well. you are really squeezing the amount of time to get something done, unless at this point boris johnson agrees to an extension of time. all indications are that he is not. he is forcing time to squeeze on this. he is really focusing on a no deal brexit and taking it seriously. tom: we are starting to get reaction from global wall street. i think it is important to filter in to the politics.
5:10 am
reporting from nomura in london, reduces the time members of parliament have in october to block a no deal. he says they have to get their act together in the first weeks of september, no more delaying. jordan rochester will join us tomorrow. nejra: that does seem to be the general takeaway and certainly what we are seeing in terms of the reaction in sterling. i suppose the other side of the equation is, is there a possibility that boris johnson has done this because he did not think that his plan was going to get through parliament anyway? is that potentially the thinking here as well? >> yes, very much so. he has a one seat majority. because he is much more of a brexiteer than theresa may was, his task is not to just bring ,he other parties into his room
5:11 am
but to convince the pro-eu conservative lawmakers to back his plan. he is much more extreme on brexit than theresa may. the numbers in parliament are very much stacked against him. the odds of him getting something parliament would agree to are even slimmer. tom: let me ask a dumb american question. my knowledge is about as extensive as my knowledge of -- is the queen involved in this? this is not the queen or her ministers, hurt buckingham palace being involved in this -- her buckingham palace being involved in this process. is this correct? >> that is correct. the queen is being very careful in terms of her public comments about brexit today. she is due to give a big speech in october 14 for the new session of parliament, where she will probably talk more directly about brexit. she has really tried to stay out of it so far. this now brings her very much
5:12 am
front and center into the process on it. tom: the history is extraordinary. i guess in olden times, the history also involved those of the red letter, the house of lords. where is the house of lords on away from the green leather of the house of commons? >> very distant at this point in time. the focus is really on the numbers in the lower house and how much that is maneuvering to get boris johnson's deal over the line. at the moment, he has a one seat majority in parliament. not every conservative lawmaker is on his side. that is really where the math needs to be focused at the moment. nejra: thank you so much for joining us. we will continue to update you on the story as we get more headlines. we are keeping an eye on the pound. it is plunging on those headlines about the suspension of parliament. the u.k. government suspending parliament over brexit, according to reports. we see the pound it below 1.22
5:13 am
on concerns that this could really stop mp's efforts to block a no deal brexit. this is bloomberg. ♪
5:14 am
5:15 am
♪ bloomberg surveillance. good morning, everyone. nejra cehic in a historic london. prorogation in the air. we just covered that extensively. we are going to try to move on here to what's going on within central banking, the uproar over dr. dudley speech. we can do that with peter chatwell of mizuho
5:16 am
international. this was a bloomberg opinion piece yesterday making the cover. i saw a full-screen of it on cnn at one point yesterday. here is a key paragraph from dr. dudley yesterday. the president's reelection arguably presents a threat to the u.s., to the fed's independence and its ability to achieve employment inflation objectives. if the goal of monetary policy is to achieve the best long-term economic outcome, than fed officials should consider how their decisions will affect the political outcome in 2020. anis is just worldwide, exceptionally important quote. let's go to our summary of this. william dudley suggests the fed put its foot down. the fed should consider whether it really wants him to still be there in 2021. the doctor with jon
5:17 am
ferro and i yesterday, they disagreed with some or all of it. that was way too expensive to get to your -- extensive to get to your opinion. will this adjust central-bank policy? peter: unfortunately not. i agree with what bill dudley has written. there is potential that the fed should be considering the longer-term gains here. this mandate does not give them the wiggle room to do this. if they were to do this, we feel pretty clear that it would put the u.s. economy into a recession, which is not delivering on the fed's mandate. i can agree with the backlash that viewers had. tom: i can see this. what is so important is that n of citigroup joined us yesterday. she agrees with you that the material in the piece had a lot of validity.
5:18 am
explain to our audience wide there is this backlash -- why there is this backlash. peter: the backlash is whether or not the fed would be stepping beyond its mandate and its institutions mandate and just controlling monetary policy or taking control of political events. i think the common thinking is that if an incumbent president presides over a recession, they are very unlikely to be reelected. the is the logic, whereas fed does not have that kind of a long-term mandate to may be do something to counteract the trade imbalances, the trade war that the president is trying to change. nejra: that was going to be my exact next point. you say the fed will be cutting rates to mitigate the risk of trumps trade war. you say the easing gives trump more room to play tariff man. will rate cutting alone actually mitigate the risks of trump's
5:19 am
trade war? peter: no. understood. what we would be doing is limiting the downside. probably would not be stemming the losses. that is the point. because the fed is likely to be persistently behind the curve on this. to give you an example, we think fed funds at the moment should be below 1.4% for them to be in a neutral setting. fed funds is still very tight, restrictive. for them to get below say 1%, to get to an expansive setting of monetary policy will take them a long time. the curve is already thing that they should be well into that setting, but they are not. they are still focusing on the hard data, waiting for the labor market to ease up. it will put them behind the curve consistently. , theiskier asset prices riskier asset markets are likely to correct cheaper in terms of equities, wider in terms of
5:20 am
high-yield dollar-denominated credit spreads. for the treasury curve, it is bullish, particularly for the front end. nejra: if they are behind the curve consistently, what should markets be pricing in next? week --rt qe -- for q. qe? right the qe trade is once the fed has capitulated. that is the time to be pricing that. i would think that the 2s/10s curve steepen's before it is the trade.ime to put on qe tom: your comment on one forepart -- 1.4% is absolutely critical. i have not shown this chart in ages. we come up here. well is talking
5:21 am
about a fed rate that would come 1.4%.here, on does that signify the new terminal value of interest rates, the new terminal value of inflation, the new terminal value of real gdp? peter: yes, typically that is what long-term interest rates on the treasury curve aim for. 1.4% isnews is that likely to be slipping lower. all the time the fed is stuck in this cycle of easing behind the curve and as global conditions we can, we are likely -- weaken, we are likely to see that neutral setting go even lower. tom: we will come back on such a huge news flow day. peter chatwell can give his perspective on global markets
5:22 am
and what we see today. right now, where are we going? i am unclear on that. we have new headlines. do you have them? i do not have them in front of me. nejra: i will bring these up. u.k.'s johnson, prime minister boris johnson, seeking the suspension of parliament ahead of brexit. this is looking like a confirmation -- it is a confirmation. he is saying a new parliament session on october 14. he is saying ample time for mp's to debate brexit. let's listen. >> -- domestic agenda. your government does not have a majority, even with the dup, it only barely has a majority. should we take that you are planning a general election before the end of this year? >> we are doing exactly what i said on the steps of downing street, which is that we must get on now with our legislative domestic agenda. we need to get on with the stuff
5:23 am
that parliament needs to approve on tackling crime, on building infrastructure we need, on technology, on leveling up our education and reducing the cost of living. that is why we need a queen speech. we are going to get on with it. >> do you know by the 14th of october whether you will get a deal? the outcome could look quite different if you do or don't. what would you say to the public concerned about economic outlook? >> we need to get on with our domestic agenda and that is why we have a queen speech on october 14. thank you. nejra: that was boris johnson speaking to the bbc. we had reports from the bbc earlier that there would be a suspension of parliament, so basically that was boris johnson commenting on bbc news, saying he is not preparing for a general election and he is seeking the suspension of parliament. also saying that there will be ample time still for mp's to
5:24 am
debate brexit. i'm not sure how those things marry together, that parliament will be suspended, but yet there will be ample time for mp's to debate brexit. he says the new parliament session is on october 14. in the meantime, we have seen cable filing. -- falling. tom: i would agree with that. cable with a little bit of a recovery after the shock of the lows an hour ago. also, you wonder if this is a point where maybe labour can coalesce and rally in some way. that is just the shock of the news, isn't there? nejra: yes. peter chatwell from mizuho international is still with us. let's get your take. your first reaction either via sterling or rates? peter: sterling is just pricing
5:25 am
in the uncertainty of today's news. my interpretation of this news is that this is close to 100% snap election ploy. it is building the conservative party momentum towards an election by positioning them to be able to secure an electoral pact with the brexit party. boris johnson is positioning himself firmly as the man of no deal brexit. tom: what is the when of a general election? what is the when of a snap election? by definition, it is after the queen speaks, correct? peter: indeed. what boris johnson would be to try to guess what his emotions and how he will portray this to the public will be, boris johnson will be very upset having had parliament block his attempts to secure a note of no deal brentity
5:26 am
-- secure a no deal brexit. article 50 is going to be postponed by probably six months , so moving it from october 31 to march of next year. that will give them, parliament has room to have a general election. i think there is a decent chance that the tories with the brexit party in an electoral alliance could probably scrape a majority. tom: we will see. peter chatwell moving from foreign exchange over the politics -- to the politics of the united kingdom. the prime minister says it simply is not preparing for a general election. from new york and london, this is bloomberg. ♪ from the couldn't be prouders
5:27 am
5:28 am
to the wait did we just win-ners. everyone uses their phone differently. that's why xfinity mobile let's you design your own data. now you can share it between lines. mix with unlimited, and switch it up at anytime so you only pay for what you need. it's a different kind of wireless network
5:29 am
designed to save you money. save up to $400 a year on your wireless bill. plus get $250 back when you buy a new samsung note. click, call or visit a store today. ♪ bloomberg "surveillance," an extraordinary morning. nejra cehic in london, tom keene in new york.
5:30 am
the developing story of phil dudley. markets indicates lower global growth. none of that matters in london where nejra cehic is teaching me how to spell prorogation. bring in roslyn matheson. nejra: we have just seen boris johnson saying he is not seeking a general election, but seeking postponement of parliament. those headlines seem to conflict. can you put it in context and explain what is happening? rosalind: he wants to suspend until october 14 to enable the queen to write her speech which is based on the legislative agenda of the next parliament. timeys there is plenty of
5:31 am
for lawmakers to debate and discuss. they probably would beg to disagree because if you are talking about suspending until october 14, that leaves two weeks to sort out brexit. at what point will they negotiate with europe, or will he craft his own deal and tried to get it through part -- try to get it through parliament? nejra: you mentioned september 9. the u.k. government is seeking the suspension from the week of september 9. what will happen, in your view? are we heading for a general election? rosalind: he said he is not seeking that and perhaps he is trying to get a no deal brexit over the line and force that to happen. he seems to think that would not be a catastrophe for the british economy some people think it might be, they will be able to
5:32 am
manage that. at will enable the narrative for him, i am trying to get this done, we had a referendum, most people in the u.k. want this to happen, parliament will not let me do it so i will take it back to you. tom: what about the conservatives that are remainers , how do they respond? rosalind: they have been saying they would work very hard to stop a no deal brexit. philip hammond has been one of the most vocal on that front. tories in parliament that are e.u. either want to remain or want a self brexit -- soft brexit. they want to remain in some fashion locked into the trading and custom rules and get the benefit of trade with the european union.
5:33 am
they are probably firing up their twitter accounts to comment on that. they said they will try and block it and we need to see what they will do. tom: i hope i do not see you for the rest of "surveillance," but from the news flow, we will see you one more time. the headline is simple, the dates moved from early september two the ninth of december -- september. the u.k. government seeks a parliament extension until october 14 and october 31, an important brexit day. first word news. viviana: a former uber engineer accused of stealing driverless technology from waymo pled not guilty. battlehe biggest legal to grip silicon valley in recent
5:34 am
memory, adding a criminal chapter two waymo's claims of uber.d -- theft against willd trump told a.p. they todon lawmaking if necessary promote building of the wall. todirected aides aggressively seize private land and disregard environmental rules. returns bank has investigating president trump and his family. that is about all they said and responding to an appeals court. it is unclear whose returns are involved. he is trying to block the bank from giving his records to u.s. congress. 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 viviana hurtado.
5:35 am
this is bloomberg. nejra: now for the latest on italy, the president meeting with the main political leaders at 4:00 p.m. rome time to carve out a majority in parliament following a rocky day of negotiations. the democrats have agreed on giuseppe conte returning but want to limit luigi dimaio. .oining us is maria tadeo it seems the bid to form a coalition is ongoing. have we made progress? maria: not really. today it is clear the president of the italian republic made it clear they have to come up with a credible government or the country is going to new elections. this decision needs to be made today. npdnderstand the five-star
5:36 am
have come together to form a coalition in principle. they want to keep conte on the job. trump made yesterday was, i hope he stays on the job. they have issues when it comes confrontation they want to put for vote. they need to come up with a clear yes or no answer today, otherwise a snap election. quickly, are the italian people engaged in this alitical uproar, or is this political battle? maria: they are very engaged and they feel matteo salvini triggered the government crisis and destroyed it for everyone. he was polling very high.
5:37 am
in terms of public support for salvini, that has dropped severely. italians are fed up with this and they feel the timing of the crisis was completely unnecessary. this is peak bearing summer and everyone wants to be -- this is peak summer and everyone wants to be at the beach. nejra: joining us now from paris and peter marcussen chatwell. welcome to the show. thank you so much for joining us. given what we have heard from maria tadeo, how high do you put the risk of an early election? michala: to my mind, there is two questions. the first question, the immediate coming hours of whether the democratic party
5:38 am
with five-star will be able to agree a coalition government. this is the first hurdle. this is politics. what we are hearing so far offers hope we will be able to see a new italian government towards the end of the day. the bigger issue is what this new government has to tackle and the consequences that could have. the government needs to put in place a budget for 2020, and that budget is to come with savings to be able to stay within the european obligations italy has. this is the first hurdle for the government. this is in the context of a slowing global economy and italian economy that is virtually at a growth standstill. my concern is, what this entails further out. when we look further out, the risk is that this government
5:39 am
find it difficult to hold together. -- how seen how to challenging the process of negotiation is. there is a concern we could be back in a difficult position in a few months, and at that time the situation may have strengthened salvini. this is a concern we also need to keep in mind. nejra: why is the market not reflecting those concerns further out? btp yields continue to decline in the btp bund spread continues to tighten. peter: if there were to be snap elections, it seems quite clear that the five-star movement and the pd would lose a significant number of seats. pute is no incentive not to a coalition together. if they put a coalition together which logically should be the case, they will not be as
5:40 am
competitive as the government with salvini. it should be a more market friendly government. the market is over the notion of italy not having growth. tom: what is the state of consumption nation to nation? in the united states, it is the consumer holding things up. is that true in europe? michala: the picture is different across different european economies. what we are seeing broadly speaking as the consumer is holding europe well together. a little concerning, when we look at the most recent data out of germany, we are beginning to see some of that weakness from the manufacturing sector spilling over to the consumer, and this is whether the concern has to be, the consumer is resilient, but as the trade issues, the manufacturing sector
5:41 am
continues to slow, we will see an increasing spillover. clearlook ahead, it is what happens on brexit, on u.s. trade, on italian politics will be determining for how much we see on the downside for the global economy. tom: this morning we are seeing a new low for the u.s. 30 year and the swiss 10-year is rolling over. are these indicators of slowing economic growth, or is there something else going on? michala: i think a lot of it is related to the slowing growth environment. one of the interesting things to be considering as investors in the current context is what will happen on the fiscal side. a lot of the message coming out of the bond markets as there is very little confidence that monetary policy alone will
5:42 am
revive the global economy. we see it is not just from the u.s., but elsewhere, we see potential for fiscal easing. at the end of the day, it could be the relative stance of fiscal policy more than the relative stance of monetary policy but determines currency market development. this relative stance on the fiscal side will be increasingly important as we move throughout the year. nejra: peter chatwell and michala marcussen stay with us, lots more to discuss about global growth and the impact on markets. 1.22,ng dipped below above it now, but perhaps the markets are starting to prepare for the risk of a no deal brexit given the prorogation of parliament. this is bloomberg. ♪
5:43 am
5:44 am
5:45 am
♪ "surveillance," extraordinary news flow out of london. there will be a suspension of parliament, is that how we put it? nejra: that will happen the week of september 9. cable getting a little bit punished, although we are coming off the lows. tom: let's go back 24 hours. bill dudley with bloomberg opinion with an extraordinary essay, is riveted economics worldwide. "officials could state explicitly that the federal reserve of the united states will not bailout. trade --making bad
5:46 am
choices on trade policy, making it abundantly clear that trump will own the consequences of his actions." what came up in the immediate heat of this release toterday was the equivalency the linkage of economics and politics in frankfurt, germany. draghi, the ecb that will be of lagarde, is there a linkage of politics and economics like mr. dudley alluded to? michala: i think when we look inside the euro area, what we have seen for some time already is the ecb warning the government they cannot make up for the fact that there are a number of structural issues that need to be addressed in the euro area. we need to complete banking union, the capital markets union. we need to work on the energy
5:47 am
union and we probably need a fiscal adjustment tool. it is clear the ecb has been giving this message to governments for some time that they cannot indefinitely compensate for these missing structural arrangements. as we look to the next commission, hope is that we will see some progress, and the european political process is not a simple one. i was struck by the article yesterday, because the dynamics europeferent, where in there is a common consensus we should move ahead on the european project. there is not agreement on how we should do it, which is where the complexity is. the article yesterday was a fedle bit more edgy in the potentially standing up to the policy from the white house. that in my mind is quite a
5:48 am
different framework. tom: it is extraordinary to see mr. macron and mr. trump at the g7. peter chatwell, you are listening to this. the currency to watch is the euro. is this enough of a news flow, a cacophony of august, where the news flow breaks down to a weaker euro against stronger dollar? peter: i think the ecb will have major problems in weakening the euro against the dollar. similarly, i think they will have major problems weakening the dollar against any other global currency. i would suspect we can have a slight drift lower in the euro, but what the ecb needs to deliver is a material weakening of the euro. need to get it about 4% lower in trade-weighted terms, and the
5:49 am
calculations we have run suggests they need to deliver a qe program of the magnitude of 1.3 trillion euros, rate cuts of 100 basis points, massive monetary easing required and they do not have the room. u.s.: how would you trade and european rate differentials? peter: the global scenario is so bleak that we would be positioning for lower long-term u.s. rates, and doing that against euro rates. the thinking is the fed will be behind the curve, allowing u.s. rates to continue to decline ecb is at whilst the least going to be delivering monetary policy easing in september, if not a poll -- full package than another step in september. that would start to allow your rates to steepen up and bought
5:50 am
out if the ecbm is delivering. it will act as a gravitational force for the u.s. rates to conferred to. -- converge to. if the fundamental picture in the u.s. continues to decline and we get a recession, the spread can invert. nejra: peter chatwell and michala marcussen stay with us. coming up, neil shearing. this is bloomberg. ♪
5:51 am
5:52 am
5:53 am
♪ i am nejra cehic in london with tom keene in new york. developments out of italy, the pd leader is to back conte in talks with the president. peter chatwell and michala marcussen are still with us. let's talk about the late cycle dynamic and the potential under price risks that might be out
5:54 am
there. what are they in your view? michala: when we just returned to the economic cycle, it is important to keep in mind it is not just the various political uncertainty in the trade war we have discussed that have been slowing the economy -- uncertainty and the trade war we have discussed have been slowing the economy. the profit cycle is coming down in the u.s. and a less dynamic credit impulse. on the fiscal policy side, even though the agreement over the summer has eased some of the pressure, the fiscal stance is turning less positive. in china, quite a lot of the slowdown happening has been related to past domestic policy tightening, and in particular --ated to the auto sector
5:55 am
autos and infrastructure spending. there have been slowing factors in the economy. risk mind, the additional of the political issues we are discussing, that just adds the downside risk of a recession to the equation. we are very much late cycle, particularly in the u.s. tom: michala marcussen, thank you so much for joining us. peter chatwell, i have 30 seconds left. what do you do in this tumultuous august? have a speculation where nejra can make money? peter: don't sell any 30 year european bonds. they are still a scarce asset in core countries, but the ones that are cheaper are in the periphery. look at 30 year italy, i would
5:56 am
argue it is one of the cheapest assets in european fixed income. combine that with being more cautious on credit spreads in the u.s., late cycle dynamics is a really good thing. it will keep the treasury curve converting and will pressure that into more -- treasury curve inverting and that will pressure that into more inversion. tom: the vanilla inversion is a large five basis points. peter chatwell, thank you so much, on a quiet morning from our desk in london. coming up, my interview of the day, dr. pozen of the peterson institute, it :00. -- 8:00. ♪
5:57 am
5:58 am
at comcast, we didn't build the nation's largest gig-speed network just to make businesses run faster. we built it to help them go beyond. because beyond risk... welcome to the neighborhood, guys. there is reward. ♪ ♪ beyond work and life... who else could he be? there is the moment. beyond technology... there is human ingenuity.
5:59 am
♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. ♪ tom: this morning, pound sterling tumbled as prime
6:00 am
minister johnson will ask the queen to suspend parliament. the queen will speak to parliament to open the government october 14. the brexit deadline moves 17 days on. in washington, should the fed adapt? should the fed adjust to the president and his trade war? should the fed consider the politics of 2020? the markets vote for slower global growth. the 30 year bond near world war ii lows, and extraordinary moment. i am tom keene in new york. nejra cehic is all prorogation in london. it is a foreign word to americans. what is prorogation? nejra: this is the suspension of parliament were talking about. 9,the week of september
6:01 am
cable will come under pressure because this increases the risk of a no deal brexit. there is some positive sentiment at the prospect of a general election. boris johnson says he is not seeking a general election. headlines, we will go to maria tadeo at some point on italian headlines. some stability toward a next election in italy and maria tadeo will explain it. york, our in new first word news. viviana: british prime minister boris johnson moving to make it easier to leave the e.u. without a deal, asking queen elizabeth to suspend parliament until mid-october. that would hamper efforts to block a no deal brexit.
6:02 am
johnson saying that will give lawmakers plenty of time to debate. and today, italy may find out whether it will get new government or early election. the president will meet with the main political leaders, who are trying to form a coalition. the democrats are said to have given in to 15-star demand, supporting giuseppe conte. purdue pharma and the family that controls it have made an $11.5 billion officer -- offer to resolve opioid claims. it would call for purdue to declare bankruptcy and hand it over to a trust. the sackler family would have to come up with $3 billion in cash. 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 viviana hurtado. this is bloomberg. tom: let's do a quick data
6:03 am
check. cameron crise is with us. further curve inversion, the negative .53 is critical. euro weakness, dollar strength over the last 24 hours, now well below 1.11. bond, 1.09. bonds,gartman is long of looking for lower yields. renminbi has a life of its own, and gold does nothing. nejra: i have been caught by the 30 year yield hitting 1.90, in combination with the 2-10 inversion. cable back below 1.22. we have stayed lower on concerns parliament a not have the power to block a no deal brexit.
6:04 am
the kiwi and the aussie coming under pressure, due to the trade dynamics and the prospect of rate cuts. tom: extraordinary news flow this morning. france,ident back from to washington. kevin cirilli is our chief washington correspondent. there is only one story, people await the reaction to the president -- the president's reaction to bill dudley. kevin: i think the president has made his case clear in terms of his thoughts on the central bank. could be the first in a continuation of many folks continued -- connected to the central bank have been wondering when defenders would come forward.
6:05 am
we saw this play out in a parallel with the intelligence community when they came out and criticized how the president was talking about intel. the president, from his vantage point, it is looking at this less from a domestic issue and more from a geopolitical international one, as he looks at europe and asia with their central banks being more agile than the u.s. is able to do. el-erianerday, mohamed talking about we moved to a more rapid t decision because of this essay. dudley and said many of the things he wrote about had already been said. nejra: certainly, a lot of people i have spoken to said it was the last paragraph that was the most controversial, where bill dudley refers to the fact that the fed needs to take the
6:06 am
long-term economy into account, and the outcome of the 2020 election. that seems to be the bit many took issue with, even if they understood other parts of the argument. tom: let me jump in and move on to our guest. how is the president doing actually in the 2020 poles? does he have momentum? kevin: his base seems to solidly be with him. if you look at the swing states, he is still within striking distance. the last thing i would note his rick perry, back in a previous election cycle, criticize the federal reserve for changing their policies to get president obama reelected. tom: kevin cirilli, thank you so much. neil shearing with capital economics in london. we are thrilled that cameron
6:07 am
crise of bloomberg macro and our markets team could join us. with all this international relations in politics, you nail in your latest note i'm seeing. i don't want to go quantitative, but i am seeing market movements that are very odd within the column. -- calm. cameron: look no further than the bond market. we tend to focus on treasuries, unsurprisingly. 1.92%. if you look at the swap market, it is even crazier. banksare lending across so should have a credit component and historically have yielded more than treasuries. 30 year swaps are 1.53%. tom: i want to cut to the chase.
6:08 am
rememberoo young to august 1998. stanley fischer writing about it and lawrence summers living it, there was always the excuse it is august and it is slow. can we use that? cameron: you can never use that. august has generally been a volatile month. it is a standing joke with me, i take my summer vacation in august and you always want to be long vol because something crazy tends to happen. the crisis in 2007 when money markets went couple louis -- cabluey, that was an august. the008, you were laying foundation for the global implosion in august. i don't think you should say august is quiet and we should ignore what we see. nejra: i know for fact you
6:09 am
remember 1998, but i have never known a quiet august. we seem to be waiting to trade on headlines. what we have had over the past 24 to 48 hours is a lack of headlines on the escalation. is that why we may be seeing relative calm? cameron: you have to look at the fixing of the chinese yuan which was stronger than expected. a lot of the models thought it 7.11 be somewhere around 7.0835, which3 -- was marginally weaker than the previous day, but substantially stronger than most thought. that was taken as, not a white flag, but at least a temporary if only 24 hour truce in the trade war. that provided a foundation for markets to calm down a little
6:10 am
bit, so we can focus on other things like sterling. meant theheadlines, i absence of tweets by president trump. let's get to neil, neil shearing from capital economics. one thing we observed at the top of the show is the inversion of curve. curve -- 2-10 you say at first sight, the blue -- gloom and the bond market is easy to justify. neil: it is really only the bond market pointing to recession now. that is easy to dismiss your been thecause it is best indicator of recession over the last 30 years. some of the points bill dudley was talking about yesterday, the challenge for central banks is some data is horrific at the
6:11 am
moment. any fracturing trade is collapsing but the service --tor, consumer manufacturing trade is collapsing but the service sector is doing ok. things, thisf the speaks to the dichotomy of the bond market in the equity market. it depends on whether your glass is half empty or half full. it is easy to make the case we are on the cusp of a downturn, but some sectors are still holding up. tom: well said. that will get us to september 18 unless the federal reserve prorogue's, as they say in england. usually wanders in about 10:00 a.m. i don't know what he is doing this morning.
6:12 am
morgan stanley on a dearth of earnings, we will get an update. jonathan ferro will lead the conversation in the 7:00 hour. this is bloomberg. ♪
6:13 am
6:14 am
♪ tom: we welcome all of you worldwide, nejra cehic in london, tom keene in new york. story,italy, a secondary now there are some real tangible headlines of agreement. wednesday at 12:00 noon in room, and they will move into the evening of a government. i would note that the
6:15 am
italian-german spread comes in 2018 narrow for nejra. that is bond talk. nejra: i am happy to be part of any bond talk. in the absence of any tweets from trump on trade, and the the, boris johnson asking queen to suspend u.k. parliament from september 9 until october 14. politicians are due to return from recess next week, squeezing the time to block a no deal brexit. johnson says he is not seeking a general election. given the developments we have had, are you raising your probability of a no deal brexit or a general election or both? neil: it is likely to be both at
6:16 am
this stage. that seems to be the way the stars are aligning. the strategy seems to be, we will squeeze as much time out of the system as possible to block a no deal brexit. there is some speculation there may be an election before october 31 which would enable johnson to go to the e.u. council with a fresh mandate. it is likely that comes after october 31. if there is no deal, there is general election. it looks like this is lining up to be a no deal brexit. tom: joining us now, we are thrilled to track down david merritt with his excellent experience on the brexit battle. what will be the response of conservative remainers and mr. corbin?
6:17 am
david: sheer fury, if you read some of the statements coming out from the lake of philip hammond and the opposition -- likes of philip hammond and the opposition. partyposition labour saying this is a constitutional outrage, it is against democracy. looking from mr. johnson's perspective, he is saying all i'm doing is what is normal for a new government. we always have a break before the queens speech. -- queen's speech. it just happens to fall in a time to deny parliament the time to block a no deal brexit. he says the constitution is on his side in the opposition says no. whents up a bigger fight parliament gets back next week. away, ig ago and far
6:18 am
believe the dup with few votes had very great power in parliament. kingdomrish united ministers, are they powerful in this arch debate? david: every minor party is powerful, because the numbers johnson has are so slim. he has a working majority of just one. --t is why there question the question of a no-confidence vote has come up, and he would need the dup to vote with him for his government to survive. yesterday, the opposition parties got together stop the deal. perhaps a no-confidence vote would be hard to win, so they decided to legislate. that sounds like it will be difficult to achieve, so we come back to a confidence vote when mr. johnson will need to keep the mp's from ireland on his
6:19 am
side. more importantly, he is on his own side from the likes of mr. hammond. are they willing to vote against mr. johnson and a confidence vote? that is the question the gamble he is taking. nejra: where do you think the pound goes from here? the market seems to be pricing in perhaps more risk of no deal brexit. cameron: lower seems to be the path of least resistance. in the event of a no deal brexit, i would expect sterling versus the dollar to trade 1.16, based on the relationship of past price action vis-a-vis the expected probability of a no deal brexit. where you would say a hard brexit is fully
6:20 am
priced. tom: david merritt, thank you so much, neil shearing and cameron crise with us. subtle, but, nonetheless lower yields. we will look at that in a bit. we willadio today, speak with adam posen, former member of the bank of england. adam posen of the peterson institute and there is only one topic, and essay by the president of desh former president of the fed. -- former president of the fed. ♪
6:21 am
6:22 am
6:23 am
6:24 am
♪ this is bloomberg "surveillance." google reportedly is moving production of its smartphone from china to vietnam. google is converting a nokia factory. no comment from google. it is not clear if this is linked to donald trump's demand. china's -- group is coming to cook,scue of thomas investing $522 million to acquire 70% of the company's tour operator division. bank operators will contribute the same amount. pelatonrcise start up filing for what is likely to be one of the biggest ipo's,
6:25 am
seeking a valuation of eight billion dollars. pelaton has not shown a traffic -- profit yet. that is your bloomberg business flash. amazing.eleton is equities, bonds, currencies, commodities. cameron crise joining us with bond discussions. 1.91 handle, getting back to world war ii levels. at 1552,eature gold many suggesting gold higher in price. nejra: that already year yield has taken my breath away. we got to 1.90 earlier. weakness in european equities, cable back above 1.22 but still weaker with the news of the
6:26 am
suspension of parliament. is telling us that is not the no deal price. btp's, which investors seem to think will be all right. well we get to 1% on the 10 year btp? it has tightened to the tightest spread since 2018. tom: neil shearing is with us. cameron crise is with us as well. i want to talk about positioning within the fixed income market worldwide. later today on bloomberg "gets," "markets," tobias live --erage on the currency in this is bloomberg. ♪
6:27 am
6:28 am
♪ from the 5am wakers, to the 6am sleepers. everyone uses their phone differently and in different places. that's why xfinity mobile created a wireless network that auto connects you to millions of secure wifi hot spots. and the best lte everywhere else. xfinity mobile is a different kind of wireless network
6:29 am
designed to save you money. save up to $400 a year on your wireless bill. plus get $250 back when you buy an eligible phone. click, call or visit a store today. ♪ "surveillance," day two of extraordinary news flow. adam posen with jonathan ferro and i later.
6:30 am
we have cameron crise. in new york city, your first word news. viviana: a former uber engineer accused of stealing driverless car technology from waymo pleaded not guilty. the cases the biggest legal battle to grip silicon valley and recent -- in recent memory, adding a criminal factor to trade theft. the two companies settling that dispute last year. he willrump told aides pardon lawbreaking if necessary to get the border wall built before the election, according to "the washington post." he directed them to fast-track billions of dollars worth of construction projects, sees private land -- seize private land and.
6:31 am
-- that is unclear whose returns are involved. deutsche's is the president's longtime banker. he is trying to block them from giving his records to u.s. congress. 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 viviana hurtado. this is bloomberg. nejra: thank you so much. for the latest in italy, the antiestablishment five-star movement and the centerleft met to avoid a need for snap election. while they continued to disagree who would hold key cabinet positions, they agreed to back to separate. -- giuseppe conte. are we close to a deal?
6:32 am
it seems now we are headed to a deal. things are moving quickly in room. officials -- in rome. officials speaking that they are ready toback conte, tell the italian president they will back him to form a new majority in the italian government. saying looking at conte as prime minister, a majority for the centerleft, and matteo salvini pushed out of office. speculation in rome about his political future. tom: what is the financial solidity of europe? you have been following out of brussels for years. italy itself is doing financially pretty well, right? maria: that is right. if you look at the market
6:33 am
reaction, at likes what it is seeing -- it likes what it is seeing. all of this talk about leaving the euro will be gone. you will have a government that perhaps is much more willing to engage with russell's, and we will see -- what brussels, and we will see the escalation. is ain mind, there continuity. conte will stay in office. european leaders like him and trust this man. he has had a working relationship with everyone. the market is really liking that today. tom: maria tadeo, thank you so much. over her left shoulder was not holiday" where audrey hepburn chased gregory
6:34 am
peck around the obelisk. why aren't we in rome? nejra: you need to make this happy does happen. -- happen. we need to take "surveillance" on tour. neil shearing sitting next to me, cameron crise with tom in new york. maria was referring to the spreadreaction, btp bund below 1.80. what does a yield for basis tells shy of 1%, does that you anything consistent with italy's fundamental? globalhe big collapse in yields is putting italy on top with some of the concerns of the immediate outlook for italy, particularly because of the budget. they have started to receive
6:35 am
salvini out of the push -- and he is pushing the anti-euro sentiment. the first question is how durable this new government might be. italian governments are not durable in the best of times and there are some rumors they might fragment. the second thing is, fundamentally, tom talked about how stable is italy. the finances are ok from a budget standpoint. the problem is the economy does not grow and has not grown. 9% of the economy has grown since the introduction of the euro 20 years ago. it is a long burdened problem, problem.ute financial as long as yields are at 1%, that is ok, but the economy cannot grow and the straitjacket
6:36 am
of europe. nejra: does italy remain a buy? neil: the short-term question is what will the ecb do, more rate cuts, forward guidance? my point is more fundamentally for the next three to six years, italy has a huge existential problem. that does not grow within the euro. tom: what is the bet -- are there strong bets, is there strong belief on global wall street now, like a strong bet on what the lagarde ecb will do or how we extract ourselves from august? cameron: a lot of people are scratching their heads. gold is telling you that people don't see a lot of return in conventional financial aspects. dutch assets. -- assets.
6:37 am
tom: correlation of gold to the growth of negative yielding debt is jaw-dropping. cameron: historically, the main drivers of gold are nominal interest rates, real interest rates, the dollar, and risk aversion. the dollar is going nowhere, we have risk aversion, but nominal and real yields around the world are plunging. headwindsof the main has been historically that you have to pay to own it. if you have to pay to own bonds -- tom: there is nothing to own. charms of great dennis gartman as he puts his track record on the back of his newsletter and goes down in flames every day. he has nailed it on gold and other currency terms. cameron: it is easy to forget because gold is priced in
6:38 am
dollars, but most of the rest of the world does not use dollars. they use their local currencies. in many cases, gold is at all-time highs in these local currencies, against the renminbi, against the euro. i am not exactly sure if that is the case against the euro, but the fact is if you are a resident of these jurisdictions, gold is telling you, this is what you want to own. it is the safest asset. tom: neil shearing, this is critical. economists will say gold does not that are. -- does not matter. neil: it does matter. when there is heightened insecurity and risks in the market, and in the backdrop playing out concerns that there is a japanification of the global economy playing out. real yields are much lower.
6:39 am
is oneenvironment, that where gold should do well. nejra: that is an environment where we are seeing the 30 year yield hit 1.92. what is priced into the market? cameron: that is the japanification of the u.s. financial system. it is a disaster. if you are a pension fund that uses long-term interest rates as a discounting mechanism, the net present value of your future liabilities have gone up, which means you have to buy more bonds or receive more swaps which helps press the yield of more. ofis this sisyphean exercise you roll the ball up the hill and it rolls back down. the ex ante, the forward-looking expected return across a broad
6:40 am
swath of access -- assets, is close to zero over a 10 year basis. tom: what is this, a classics lesson? we get sisyphean and anti-, we are all -- and ex ante, we are all latin. nejra: i appreciate that. we wereear yields, talking to peter chatwell earlier and he said give the fed a year and that is when kiwi might start to be priced in, -- qed might start to be priced in but only after a steepening of the curve. would you say the 30 year yield is already pricing qe? cameron: it is difficult to untangle the bond from the rest of the world. swaps have come lowers -- lower than treasuries, indicating
6:41 am
maybe there are some technical factors, convexity receiving from mortgages. i am a little leery of extrapolating too much fundamental views into this sort of downdraft in yields. you look at short-term interest rate curves. we are basically pricing the weights -- low rates forever. it is a disaster. nejra: i was always expecting -- to talk about foxy fluxing appellate vacation -- tom: the closest i get to that is -- let's move on to corporate news. old bondto get to 25 street. it is an earnings miss. fx adjusted, it is a -3% on
6:42 am
tiffany who is hugely dependent on a domestic asian market as well as the asian market in new york city outside their acclaimed fifth avenue store. tiffany with some challenges. yesterday, the shocking news we saw within tobacco, altria phillip morris international, they want to get back together. we will talk about that when we get back. futures up four. this is bloomberg. ♪
6:43 am
6:44 am
♪ viviana: you are watching bloomberg "surveillance."
6:45 am
toyota and suzuki are strengthening their alliance by taking stakes in each other. toyota will acquire 5% of suzuki and suzuki will spend half of that amount for a smaller holding in toyota. work towardreed to the development of self-driving technology. that would be the biggest deal ever in tobacco, phillip morris altria toia -- reunite after years apart. phillip morris has been spending billions to develop a heat, not burn smoking pack. that is the bloomberg's newsflash. tom: i would have fallen off my chair yesterday with the announcement of altria and phillip morris but i was already out of my chair because of bob dudley.
6:46 am
bring up the screen. this is a little hard to read, but i want to show you how they meant money. money. they bring revenue down to $.43 on the dollar. to begin with, it is still a very lucrative business, isn't it? cameron: it certainly is -- ken: it certainly is, and part of the reason is. economics. the top three companies in the u.s. control 90% of the market. regular price increases are common, and there are not many consumer goods that can do that. tom: on a revenue basis there is price in unit. tobacco unit sales have come down. do they get revenue stability or growth of revenue with this meeting?
6:47 am
-- mating? ken: it will be a challenge going forward. the rate of decline of cigarette smoking in the u.s. is accelerating and could worsen when you consider what the fda has in their crosshairs, potentially threatening menthol cigarettes to reduce the nicotine levels, graphic warnings. tobacco companies have seen this secular decline for a while and they have moved to the noncombustible vapor products which phillip morris has done well with. that is one of the compelling reasons bringing these companies together. nejra: because of the regulatory uncertainty, some see this deal ia thener for altr phillip morris. would you agree? kenneth: i would not agree.
6:48 am
phillip morris international has a lot to gain. they are doubling down on the potential for their vapor product. it is doing very well in the 40 plus markets outside the u.s. it sees the u.s. as a high potential market that they want to get the full revenue and profit share, and they cannot do that with altria distributing it. it has been rumored they would get together since 2015 when they joined an r&d initiative, but it is only since this past april that it became a table pounder to get it done because thecos, and secondarily possibility for juul and legal cannabis. nejra: great to have you with us. more breaking headlines on brexit, we are getting the
6:49 am
response from labor -- labour leader jeremy corbyn, criticizing the suspension of parliament boris johnson is seeking, saying he is appalled at the recklessness of the government, and saying johnson wants to avoid scrutiny of the no deal brexit plan. ubs glove --e growth management cio. this is not -- this is bloomberg. ♪
6:50 am
6:51 am
6:52 am
♪ bloomberg "surveillance," extraordinary day. right to the single best chart. neil shearing and cameron crise with us. it is just how far we have come, priced up, yield down. the german ten-year plunging lower in yield to come down near yield.ormous negative you mentioned the gamma, the accelerated modes we have right now. does that signal everybody with a one-way bet?
6:53 am
cameron: i think so because tried to if you have lean against it, you have been caught. i talked to an old friend, worst month ever. he thought 30 days ago this was getting a little crazy and there is a natural selection process. survival of the fittest, the only people who can survive are those who are on the right side of it. up: john templeton spoke about a shortage of bonds. is that what this is about? cameron: in the case of germany, absolutely. are ingerman bunds private sector hands and the ecb will take more out. for better or for worse, it is still the safest asset. it is hard to imagine it was only a year or 18 months ago that we were talking about the treasury supply crowding out other assets and leading to an
6:54 am
explosion higher in yield. you look shearing, if at the market analysis we see from cameron crise, you have to fold it back to the economics. what is the ramification for these bond prices for the greater economy? how do you link cameron's world to the world of bankers and greater economics? neil: there is a couple of things you can say. the immediate impact of much lower yields will be to reduce the debt servicing costs of debtors, but it will create massive problems for pension funders and insurers. take a step back and what the bond market is telling governments is that the way out of this, the way out of 20 years of slowing growth, low inflation, falling real interest rate, is much greater fiscal activism.
6:55 am
this gives the leeway for governments to spend. if you view the world through a prism of savings and investment, low yield is about excess of saving overinvestment. the way out of that to have governments save less and invest more. nejra: governments are given the leeway, but which are likely to act first? neil: the u.s. has acted to some extent. is simplest way through this governments that run a budget runlus, countries that current account surpluses should loosen the purse strings. number one, germany. tom: neil shearing, thank you so much for joining us, and cameron crise with us. daysan extraordinary two with the breaking news of william dudley's essay that has had worldwide analysis across
6:56 am
all media, and today, this historic moment. we have seen prorogation or suspension debates many times in the united kingdom, but this one seems different. nejra: we have had the response from the u.k. labour leader jeremy corbyn, describing it as irresponsible. the pound moving lower. do we go back to where the pound is right now? that is not pricing no deal. you would have to be closer to 1.15. itselfe data speaks for what the euro well under 111. this is bloomberg. ♪
6:57 am
6:58 am
6:59 am
♪ alix: wait for the queen. the pound sinks as boris johnson
7:00 am
prepares to ask the queen to defer parliament and clear the road for a hard brexit. we will talk to danny blanchflower, dartmouth professor of economics come on whether bankers should bailout politicians for bad choices, and whether they already are. and mark haefele of ubs wealth management is underweight equities for the first time since the financial crisis. david: welcome to "bloomberg wednesday,n this august 28. before he did do anything -- we get to anything, tiffany's is out with earnings. alix: and welcome back. i'm sure there was a lot of shopping involved. interesting, same-store sales were a disappointment, but earnings-per-share beat. in premarket they are up a little over 1.5%. alix: that earnings

33 Views

info Stream Only

Uploaded by TV Archive on