tv Bloomberg Surveillance Bloomberg August 29, 2018 4:00am-7:00am EDT
francine: the u.k. and european union are said to have canceled plans to wrap up a brexit deal by september. the new nafta. canada is back and reportedly willing to make concessions to the u.s. trump versus google. he accuses the search giant of pushing biased news. they are in trouble territory. ♪ nejra: welcome to "bloomberg surveillance." let's check in on the markets. we have seen a fourth day of
gains in asia come in with a little bit of a mixed session in asia. the s&p 500 yesterday oscillating. we see some muted gains in 0.2%., the stoxx 600 up the trent -- 10 year treasury yield in the u.s. moving towards 2.9%. the 10 year treasury yield is actually heading for its tightest quarterly trading ranges since 1965. that is something worth talking about. we are keeping an eye on btp's. it was heading a little bit lower earlier. we have had some reports in the -- that the italian government is seen reaching out to the ecb for a new qe round. we have seen a little touch of softness in the euro in the past hour or so. onare also keeping an eye
one of the worst performers in the stoxx 600 session. it is moving from great too good. we have seen this hit its lowest lowest in something like 15 weeks, that is inditex. for now, let's get the bloomberg first word news with taylor riggs in new york. president trump has issued a warning to social media companies after he accuses a google of biased search results operate negative news of him. issays the fake news machine completely out of control. the president commented after foxbusiness is said google favorite liberal news outlets. he offered no substantiation to his claims. >> google, twitter, and facebook are really treading on top of the territory.
they have to be careful -- troubled territory. they have to be careful. taylor: the u.s. and mexico will commit to maintain transparency over how they manage the currencies in their trade deal. this comes after donald trump said he plans to sign a new trade deal with mexico intended to replace nafta. the pact will add a clause that commits the countries to transparency and currency matters -- in currency matters. >> some governments in the past have used currency manipulation to be artificially more competitive. this will send a signal to other regions in the world that north america will not tolerate currency manipulation as a way to attract trade. -- and italy's's it -- have discussed creating a united front ahead of the european union elections in may.
the two nationalistic, anti-immigrant leaders met yesterday and talked about a political alliance. alvini said it would -- with common goals. back here in washington, an economist has won senate confirmation to be vice chairman --the senate reserve federal reserve. this reinforces the u.s.'s central bank's leadership as it faces criticism from donald trump over plans to keep increasing interest rates. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. the u.k. and european
union are quietly pushing back the october deadline for a budget deal. both -- brexit deal. both sides hope to finalize divorce terms by mid-november, at the latest. it's another sign that negotiators are struggling to make progress. joining us now with his bloomberg's editor in brussels. great to have you with us. how confident are brexit negotiators that this new deadline is realistic? i think they are as confident as they have been with the other deadlines that we have seen come and go. they were hoping to have this all wrapped up in june, and that proved to be unrealistic. they are looking for mid-november now, after also saying that they would do it but october 18 -- by october 18. it might be also that they are being more realistic about how difficult these negotiations are, especially the final bit of
beingth the irish border the main obstacle to getting the final piece of the agreement year. nejra: you point to one of the reasons that there could be sticking points. what is interesting is that publicly we are hearing that negotiations are still on track. this seems to be happening behind the scenes. is it equally coming from the u.k. and eu in terms of any disagreement? and terms of the negotiators, i think they both realize they are still far apart on these vital issues, and therefore will need more time to make it work. you can also see this reflected in the fact that there is more talk about preparing for a no deal scenario. i think at the very least, both sides want to have that out there in the public so that the public at least are aware that that is a possibility, and they won't be surprised if everything blows up later this year. at this point they are confident that this new delay, new deadline is reachable. nejra: jones hayden, bloomberg's
editor in brussels, thank you. joining us now is ralf preusser, global head of rate strategy at merrill lynch. what all of this increased talk about a no deal scenario, does that make you more concerned that we could end up with no deal? ralf: i have always been concerned with that. no deal kerley is a risk and the risk of it has increased quite significantly -- clearly is a risk and that risk has increased quite significantly. e worryomething that w about. it is something that the market has to price in. what we see and -- reflected in market prices is the forecast of a range of outcomes. it is not clear whether or not the market price today can move all that much. nejra: how are you pricing near-term brexit risk, or hedging for them?
ralf: hedging in the rates market is very difficult, because you can make the outcome that in a bad you would not really want to be gold in anyr scenario. optionse some strategies that you could look at, equally looking to protect downside in cable is something that would work in this half brexit or no deal brexit scenarios. nejra: your bearish guilt come are bearish-- you gilts, why is that? ralf: our base case for the u.k. is that we reach a deal. we have to work on the assumption that we will get a deal. in the scenario where we get a
transition deal which is really the key element that we are talking about here, the bank of england would likely see itself empowered to resume hiking rates at some point next year. that is not currently priced by the market and that gives us a bit of a bearish buy for the gilts. nejra: what do you think we should see -- could see in terms of hike next year? ralf: we have one hike per year. that is all that we can justify. the bank sees the need to slowly and gradually increase rates. i guess for fear of falling behind the curve at some point, if brexit indeed does weigh on potential growth to the extent that the bank of england fears. from: ralf preusser merrill lynch stays with us. canada rejoins the nafta talks ahead of friday's deadline. can the country reach a deal to renew the pact as a three
♪ nejra: economics, finance, politics, this is "bloomberg surveillance." let's get the bloomberg business flash with taylor riggs. brand: james bonds' car looks set to take a spin through london's financial district. --on martin is filing a aston martin-- will decide whether to proceed anh a plan to undertake
i.p.o. a sweeping investigation is said to have found evidence suggesting that sandra turner's iranian business was more extensive than previously admitted. u.s. authorities are now weighing a criminal penalty against the make and -- standard anian business was more extensive than previously admitted. u.s. authorities are now in a criminal penalty against standard chartered. goldman sachs is telling traders the federalreading reserve's -- as dovish. there does not seem to be an elevated risk of overheating. the maturity spread over two year yields is close to the lowest since 2007. that is your bloomberg business flash. nejra: thanks so much, taylor.
now let's talk trade. canada's foreign has rejoined nafta talks as the u.s. deadline looms in this friday to reach a deal to renew the pact. the u.s.-mexico agreement sets the stage for talks this week. able to make those confessions -- making those confessions sets the stage for productive conversation. nejra: joining us now from hong kong is bloomberg's chief asia correspondent. great to have you with us as always. it is looking like canada's inclusion in a trade deal is more likely, certainly more so than when headlines broke of a u.s.-mexico deal. >> the movement is quite positive. it does seem like a significant development. remember, the global trade wars and fears of increased protectionism have been clouds
over the world economy this year. we have already had something of a truce between the eu and u.s., and now it appears that the u.s. is inching towards a deal with mexico, and now it appears that it is inching towards a deal with canada as well. the issue of course is that canada continues to have its own red lines. i think what will be critical to see over the coming days is canher or not both sides compromise on those red lines, and reach an agreement by friday, which is the deadline, so that we do have a nafta, whether it is nafta by name or not, but we do have a deal on the table. mean forat does this the future of talks between the u.s. and china? that it mightview
embolden the trade talks in washington to go after china. concessions,ten whether or not you view them as concessions is your own viewpoint. hard go after china, push for them to open up the economy side,push hard on deficit and push hard for them to make structural changes. i think the bigger picture thisns that the u.s.-china agreement is much more protracted. it is not just about goods and tariffs, and even market access. is it -- it is about u.s. concerns about china's future economic policy. say we some economists are heading for something of an economic cold war unless we get a surprising breakthrough in the near term. nejra: our chief asia economics
correspondent from hong kong, thank you so much. still with us is ebitda from merrill lynch -- still with us is ralf preusser from merrill lynch. ralf: in europe is where a lot of the pessimism seems to have been priced in. it's not even a bilateral dispute between the u.s. and even in a bilateral dispute between the u.s. and china, europe would still be exposed. in my mind, the fact that we are getting some good news, obviously we have the cease-fire between the u.s. and eu. we now have a tentative agreement between the u.s. and mexico, potentially with canada as well. that removes some of those tail risks. the ecb has been completely priced out as far as the eye can see. they are putting a little bit of risk premium back into the curve
there and seeing european rates adjust a little bit higher. i think that is probably more of that to come. nejra: how does the euro figure into this? affect how you traded tactically? x-y, if you look at the it's pretty much a mirror image of that picture you see on euro-dollar. a lot of the dollar strength that we had over recent weeks has been the wrong kind of dollar strength. the dollar was strengthening because we were blowing up all of these risks. now that those risks have been deflated somewhat, that safety bid for the dollar is also disappearing a little bit. in my mind, it's not so much a euro move as much as it is is our -- a dollar move. at night -- it might have signaled that we have seen the end of the pressure in the dollar. nejra: 10 year treasury yield
heading for its tightest quarterly trading ranges since 1965. will it be a breakthrough in trade talks that leads to the breakout of that? think it is one of the necessary components, but it is itself.solution competitors our have been saying stuff that is not so different from our own views. we do expect quite a bit more from the fed. as the market slowly starts to price that in come in combination with taking some of these tilailrisks out, that is what gets 10 year yields about 2%. -- 3%. nejra: president trump calls google's search algorithm rigged. we would discuss. this is bloomberg. ♪
♪ economics, finance, politics, this is "bloomberg surveillance." i am nejra cehic in london. let's get to one of our top stories, the was president has lashed out at google, facebook, and twitter for what he claims is biased search results giving preference to negative news stories about him. >> google, twitter, facebook are treading on troubled territory. they have to be careful. it's not there to large portions of the population. nejra: joining us now for more on this story is peter.
is there any basis in what the u.s. president is annoyed about? peter: it was an unusual series of tweets. he went after google first, accusing the search giant of rigging search results and only surfacing critical news, what he . and notake news. giving room," to conservative news," and not giving room to conservative voices. he accuses the tech giants of getting more space to the critical news. this is during a time when the president sees some of and as very critical. his former campaign manager was convicted of eight felony counts, his personal lawyer pleaded guilty to eight felony counts. it appears that he is citing , thattics from fox news
came from a source that is not usually viewed as reliable, where he said that 96% of his stories were critical of him. if you look at the search results on google under trump news, you see many citations of fox news, for example, which tends to be kind of supportive of him. it's not clear exactly where he is getting the information, but it does look like they are taking this quite seriously. nejra: given that tech companies are under pressure to cut activity by that actors, how have they responded to this latest tirade by the president? awayogle came out right and said there is no political implications in its search results, that it uses the search algorithms to surface news that it thinks is most relevant to its viewers. i think one of the challenges for google and to a lesser extent the other tech players,
google is not their transparent about how its algorithms decide to show certain kinds of data and not show other kinds of data. --does have a different number of different criteria. you mentioned the accuracy of news sources. thatime, it -- if it finds new stories are coming from inaccurate places, people will see those less frequently in the search results. we are looking at congress being deeper into this. nejra: peter elstrom, thank you. thank you so much and up next we will talk europe and the latest from italy. this is bloomberg. ♪
victoria's secret is getting worse. two tops were not in style and the lesser print for pajamas or a fashion miss. the u.k. and eu are set to drop october as a brexit deal. they now want to reach a deal by november at the latest. our most read stories in third place, musk rants. brandond, james bond car aston martin announced plans for shares in london. find out more across all of bloomberg's platforms. let's also get to first word news. we have taylor riggs in new york. taylor: the u.k. and european union are said to have dropped their october deadline for a brexit deal. want a dealaid they wrapped up in the next few weeks. behind the scenes, senior officials admit this is unlikely.
they aim to finalize the divorce terms by the middle of november, at the latest. president trump has issued a warning to social media companies after he accused google of breaking search results to offer negative news about him. his reelection campaign also texted tweets to supporters the fake news machine is completely out of control. the president commented ouaf -- after a liberal -- commented after a liberal news outlet. >> they are really treading on troubled territory and have to be careful. it is not fair to large portions of the population. taylor: the u.s. and mexico will commit to maintain transparency as how they manage their currencies as part of the trade deal. donald trump announced on monday he plans to sign a new trade deal with mexico intended to replace nafta. thatact will add a clause
commits the countries to transparency and currency matters. >> some countries in the past use currency manipulation to be more competitive. these understandings we are and send a ensure signal that north america will not tolerate currency manipulation as a way to attract trade. taylor: global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. nejra: thank you so much. has discussed creating a united front with anti-immigrant forces ahead of european elections in may. both leaders have talked about a political alliance at an eu level that would bring to the core the identity our governments represent.
ing country is a plann -- milan, is now from our senior reporter, tommasso. how realistic is this plan? clearly, they are pushing ahead with their own agenda. salvini is the most prominent figure in italy's government. he is forming an alliance with orban. according to the latest intention post, about 30% of italian voters are with salvini. that is one of the reasons he is pushing ahead with this plan. nejra: in the meantime, we have
a governmentg that representative is said to be calling on the ecb to pass a new program of bond purchases in order to shield italy's debt from financial speculation and avoid a rate downgrade. what is the latest on the budget? into verywe are going intense weeks here in italy, and especially rome. they were quite vocal on this affront last week. they are saying they are seeking a new quantitative easing program by the ecb. the fact that they are seeking -- this isrenew clearly part of the talks that are going on between the parties.
on one side, they are saying we will stay into the european rules. thehe other side, we have public saying we may breach the 30% of the gdp limit. clearly, the speculation is having an impact on italian stock and bonds. nejra: tommasso joining us from milan. still with us is ralph from merrill lynch. despite everything we are seeing, we are seeing the 10 year yields down. has what is happening in italy, and as a look ahead to the budget, has that maybe reassess your budget on european rates? ralph: yes.
the market is very short. if we get a decent budget, you could actually see quite a big short squeeze that would tighten gdp. if we do breach the 3% deficit who knows where the upper bound for the 10 year yield is. where we are currently is kind of no man's land. it clearly cap's the upside for we are going to be taking out the negative risk premium into european yields while this uncertainty in italy lingers. nejra: how do you trade this? ralf: i think you have to be tactical. we have tried to look at trades or the risk reward is compelling irrespective of what your views of the fundamentals are. we are not pricing in any chance
of a rate hike. the chance isn't zero, is bigger than zero. tactically, being in money markets is one of the ways in which you can play with the market giving up some of that negative risk premium. on the other hand, the way to hedge the tail risk is still through the italian curve. curvesl like altra long -- ultra long curves. it is a trade that works as volatility picks up. and, it is a trade that works if we get credit lower. those of the types of trades we would be recommending. nejra: how would you trade buns given that they are looking quite perspective right now? ralf: i think short. i think before the midterm elections, trump once to deliver -- wants to deliver as much good news as he can.there
will be lots of efforts to try and work out something with canada to complement the that he had with mexico earlier this week. that allows some of that negative risk premium to arguably be priced out. nejra: the bond spread is one thing. i want to also show you the italy-spain 10-year spread. according to this chart, it is looking as bad as the european debt crisis. is there any value in playing italy against spain in the rate market? ralf: it is, but ultimately, all of these traits are the same. there are issues that still need to be addressed in spain, namely the fact that they have still a large structural deficit. other than that, it is just a pure italian risk trade. if you overlaid that with the
bond is spread, recent history would it look any different. nejra: how would you trade the guilt upon spread? one: that is a tough because the outcomes for the u.k. are so binary that taking any kind of outward view looks like for risk reward. reward. where i would be more inclined to -- we are short europe. relative to alternately, the bank of england will not be able to remain the most dovish central bank. outcome, it will have to raise rates. in a bad outcome, it will weigh on potential growth. ultimately, that has implications for the amount of stimulus they will want to supply.
have different scenarios ahead of us. if you look at economic development, we have seen more growth momentum coming lately. although growth has become a bit more -- you look at the risk scenarios ahead of us and there are quite a number of risk factors we have to keep our eyes on. for instance, trade protectionism going on in the world. that could have a big impact on a small economy like thailand. thai production is very much intertwined. that a rateaying hike is a mike lee to happen because it is too early? -- unlikely to happen because it is too early? >> it is up to the economy to
decide. >> what is the biggest concern for you right now? dubai has depreciated. it has depreciated quite significantly -- the baht has depreciated. it has depreciated quite significantly. investorled to some concerns with safe haven currencies. that has also resulted in the tightening of the domestic liquidity condition. we are also concerned with other risk factors that we have to keep our eyes on, the recovery of the tourism sector from the
incidence in the south that is resulted in a decline in confidence. we saw a drop in tourism activity during the past month or so. trade protectionism is something that we have to keep our eyes on. i have to remind you that was our strong -- the need for thailand to increase the policy rate is not as imminent as other emerging markets. we have strong enough buffers, so we are not under pressure is as other emerging markets that might be vulnerable to the global financial conditions. iejra: that was the tha central governor. let's talk another central bank. has won the senate confirmation to be vice chairman of the federal reserve in the u.s.
bankinforces the central after criticism from donald trump. still with us is ralf from merrill lynch. ralf: it is very difficult to see why the fed would stop raising rates this year, which is essentially what the market is pricing. there is very little priced in for next year beyond what you call normal term premium. the reasons are simple. we have an economy that seems to be growing constantly at or around 3% for a prolonged period of time. we have a labor market showing signs of life. where we saw obsessed with thinking that the level of interest rates for the u.s. -- the u.s. can stomach is barely higher than where we are? that runs smack in the face of where i would argue the inflation outlook.
in an economy that has real potential gdp growth of at least 1.5%, why is in the market talking about neutral rates being above 3%? nejra: how would you trade your bullish views on u.s. inflation? ralf: we are long breakevens. it has been one of our high conviction trades for some time. we stick to it. nejra: is this also your view on the fed while you are recommending curve flatters? we dropped below 20 basis points. difficult.urve is i really don't understand the obsession we have -- or even the fed.
nejra: what does this mean for the direction or positioning for the direction of the 10 year yield? ralf: it gives us greater concern given how short the community is. that is one of the things that we bear in mind. it could well frustrate our forecasts. ultimately again, this supports the curve flattening argument for now because with the market 30s show how0s and they can go near-term. briefly on emerging
markets, as we heard from the thai central bank governor, how much is the rate market playing into what is happening in emi now? ralf: i don't think all that much. the comment about the strong thai external position is interesting because that is one of the contrast we have to turkey. i find it very difficult to see why you would describe some of the volatility in specific emerging-market countries of late as being a consequence of what the fed has been doing.i think it is much more due to domestic policy choices more than anything else. nejra: when you look -- one you -- when you look as an observer, does it make you reconsider your positions? ralf: yes and no. if you have a full blown out e.m. crisis, quality flows would come in and probably see some demand from u.s. treasuries, but
at the same time, if we have this continued upward pressure on the dollar, it actually forces emerging-market central currencies.heir own it is not at all obvious that there is the impact on treasuries. there is only one way that you can see the scenario where dollar rates and the u.s. dollar actually lead itself higher because of em. nejra: it is never obvious, is it? thank you so much for joining us today. up next, aston martin has announced plans in london. what does it mean for james bond's favorite car brand? that is next. this is bloomberg. ♪
as aston martin have what it takes to be the next fouerr ari? chris: they do have what it takes in the sense that they are in the same sector. ferrari is a global brand. it is known by everybody through formula one. after martin is a little more niche an exclusive. -- aston martin is a little more niche an exclusive. nejra: why the timing of an ipo now, especially as we approach brexit? chris: i kind of wonder if that is the rationale behind it, the timing. if you look at the deal, it is actually more of a cash out for the existing investors. r,ustrial, and investment and they're looking to cash out and maybe before brexit hits.
that is a big? mark.t is a big question aston martin is talking this up. that is what they are going for. they are certainly trying to branch out beyond the pure play carmaker they are known for. potential brexit, what other risks are there? the auto industry is changing -- has changed in a big way. ferrari is going toward electric cars, self driving vehicles. after martin is very much a niche brand. it appeals to millionaires and billionaires, people who want high, expensive, high-priced toys to play with. they are trying to decouple themselves from that. ferarri has done it so far, but how much legs does this strategy has? the luxury brand is not
necessarily successful because it has a heritage. if you look at bentley under volkswagen's brand, it has all of that market power behind it, but it is not hitting on all cylinders at the moment. it is a strategy. it has worked so far over the last couple of years, but there are still? marks as toquestion how much like the strategy has. -- leg the strategy has. nejra: thank you so much. in the next hour, tom keene joins me out of new york. lots to talk about. this is bloomberg. ♪ retail.
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some currencies cannot find a bid. meanwhile, american equities surge. amid --rity of florida it will make for an interesting gubernatorial election. president trump searches google and is not like what he sees. good morning everyone, this is "bloomberg surveillance." this is tom keene in new york. nejra cehic in london. it is like each em currency dress. each one is like this -- currency drifts. each one is like this. nejra: it looks like today, absent of any specific news, it looks like it is a dollars spread story. if you look at the dollar, even in g10, most of those currencies declining against the greenback today. tom: bring up that screen again.
one of our interns did this. look at that dollar. alex did this? my word. listen to the greek, whatever it is. move.really extraordinary this is really front and center. we will cover this throughout all of surveillance this morning. the u.k. and european union are privately backing off their october deadline for a brexit deal. bloomberg has learned they look to finalize terms of the split by the middle of november, at the latest. it is an indication that negotiators are struggling to make progress. prime minister theresa may's spokesman says that the pace of talks is picking up. canada's foreign minister now joined nafta talks in washington.
she says she is encouraged by progress made by the u.s. and mexico. president trump has threatened to impose tariffs on canadian auto exports if a deal is not reached. italy may be relying on the hope of a new round of government bond purchases by the european central bank. that could shield its public debt from financial speculation and the threat of a rating downgrade. one newspaper says that the italian government has reached out to the ecb about such a move. standard chartered may face another fine. the british bank has already paid millions of dollars for secretly moving billions of dollars through the u.s. for iranian clients. bloomberg has learned that a new investigation found that their iranian business was more extensive than it admitted. the bank says it is cooperating with investigators. global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries.
i'm taylor riggs. this is bloomberg. tom: thank you so much. currencies, front and center with the e.m. mini meltdown we are having. churns, oil churns. next screen. , 1.25%. 296 hasbonds from a moved a good seven basis points. what do you have? nejra: i also demanded you put in cable, but i have it in mine. we are unchanged at the moment. reports that the brexit deal deadline might be delayed. european equity struggling for direction as u.s. equities keep hitting fresh records. the 10 year yield is really interesting. that was lower despite question
marks over the budget. the 10 year treasury yield pulling back. tom: i want to show a couple of e.m. charts. let me show this one. canadian versus mexico. --s is looney peso looney-peso. massive mexican collapse, stability. 1994, modest percentage collapse. real stability in here. there is this gradual depreciation of mexican peso. the path has been fractious for mexico. there is that tension above the north and south of the border of the u.s. simplei have got a very 10 year treasury yield chart because we are heading for the smallest trading range since 1965 on that 10 year treasury yield. if you look at some of the technicals caught between moving
averages, we are going to talk trade as well this hour. a big question over whether that is something that causes a breakout. tom: we are thrilled to bring you jeremy. it is great to have him here. patrick is with us. he has some really interesting ideas. guests two interesting for the hour. journey, let me go to this chart. i'm just throwing it up -- jeremy, let me go to this chart. up.just throwing it the big plunge down here and here we are revisiting and retesting. we are not there yet, but we are getting there quickly. is an idiosyncratic or beginning to be a lockup and em currencies? jeremy: i think we are still in the nature of more idiosyncratic in general. if we look at some of the
constituents of the e.m. bucket when you're looking at turkey and south africa, they have specific structural impediments, structural risks. it makes perfect sense for investors to stay clear of some of the em currencies. i don't necessarily think it is a scenario are the investor stands aside from all em currencies. yes, we are seeing funding pressures in terms of rising dollar rate, but i don't think we are seeing a broad base in emerging markets as of yet. it is something investors are remaining mindful of. tom: will the leading central banks remain mindful of what we are seeing in em? argentinian peso, i notice indian rupee, the same idea. does this begin to play on developing economies and economics? patrick: i don't think yet. i don't think we are having any real economic impact. we have seen probably in overbought positioning, people
trying to be picking up. the specific issues with south africa and turkey. i don't think it to be impacting the fed. the stronger the dollar, the higher the interest rates are obviously having a negative impact on emerging markets. in emerging-market equities, we know about the valuations, how low they are dropped. we have seen a little bit of a rebound recently. the is actually taking moving index above its 50 day moving average. is now the right time to move back in? patrick: it might be. think he probably still have the headwinds right now until you start to see the dollar talk about, which it might be doing now. tell a probably be a catalyst for us. i think emerging markets asia is the place we will look. the u.s. and china is where the epicenter is, and that has really been the headwind for emerging markets asia as a
whole. is emerging-market asia the place to look in fx as well? jeremy: i think possibly, yes. the tradeink we see war resulting in something catastrophic in terms of the region as a whole. ultimately, as a regional player, i think there is still good momentum to be seen in a particular juncture. we would certainly not be adverse to that type of scenario playing out. tom: i have lost so much money in august, i have to into september and make some money. recommende cibc besides toronto maple leaf tickets? jeremy: obviously those are always a hot ticket. to look atcontinue some degree of rebound in some of those dollar bought commodity
currencies. in certain instances, some of those have sold off a little too hard. some of my australia, for example -- someone like australia, for example. we would like to look at some of the euro satellites as potential opportunities. in the context of places like sweden, where we have seen a degree of political risk playing out, i think there are opportunities there. in contrast, someone might norway with the impending rate hike providing some support. interesting. jeremy: i would look at both the nokia and stocky. i think there is good reason to suggest that sterling downsize still plays out. remaining within the european the zone of looking at positions and looking at what you pair that against, sterling
is certainly one way we look for down risk to play out. nejra: downside risk for sterling, would you share that view? patrick: that is our only concern right now. we are short sterling versus the euro, short sterling versus the dollar. the dollar, you get more bang for your buck, but i think it is a very good trade versus euro right now. tom: a wonderful conversation. we will continue this with jeremy and patrick. the real nuances of this market, not just another day at the races. it will not be just another interview with mr. buffett of berkshire hathaway. important questions on investment and finance. mr. buffett on the future. the view from omaha. david with warren buffett tomorrow. ♪
taylor:ank this is -- this is "bloomberg surveillance." --er martin is considering aston martin is considering an ipo in london. it will decide whether to go ahead by september 20. thes said to seek valuations of as much as $6.4 billion. enterprise ard came out better than expected profit forecasts. that is it seen as a signal that hpe is starting to benefit from cost cuts in a move into higher services. it will be the biggest leverage loan offer of the year. investors, led by blackstone group will start marketing 80 yeah and dollars to pay for the
buyouts of thomson reuters financial and risk operations. that is a bloomberg business flash. nejra: thank you so much. the u.k. and european union are quietly pushing back there october deadline for reaching a brexit deal. sideserg sources say both are said to make progress by november. by european'sned government reporter in brussels. publicly, we have theresa may's spokesperson saying that talks are moving along. what is going on behind the scenes? ian: i think it has been an open secret, particularly in brussels that mid-october was always going to be tight.
it was always going to be very unlikely that they would get a deal by that original deadline. saying,y, they are now we are going to forget that. it is november now. it is another month, we will hope to get things wrapped up by then. if anything, it shows how these deadlines can be continuously fudged, southern u continue to wonder, is november really -- so then you continue to wonder, is november really a deadline? it won't be long until they admit in public that october is not doable, in a push it for another month. nejra: and then the question becomes whether november gets pushed back.what are the sticking points here ? ian: really, just one major point, and that is the border between northern ireland and the republic of ireland. a failsafes to put saying whatever happens after brexit, we want there to be no hard border between northern ireland and the republic of
ireland. the u.k. government cannot agree on what that should be.they don't want northern ireland to be split off . that is what they are talking about. they haven't really made progress on that since march. who's to say they are going to make any progress over the next few weeks? that is what is making people say, if not october, why does november make any difference, but we shall see. tom: negotiations are about incentives. what is the incentive for europe to act? why theyigure out the should do anything except wait out what is going on in the u.k. ian: pretty much, they are doing that. that is why i think, more than anything it is not really the u.k.'s fault that there has been no progress since march. it is the eu saying until you come up with something acceptable to us, we are just going to wait and see. that is what they have been doing.
the closer you get to the deadline, the closer you get to the moment where they have to say is now or never, obviously raises the stakes of everything collapsing and the failure to get a deal. despite the rhetoric we have london,ring from neither side wants no deal. that is when the time will come where something has got to give. which side that is is anyone's guess at the moment. ants noneither side wnat deal. jeremy, your year-end call of 133 on sterling, how is sterling going to get there with headlines like this? jeremy: that is certainly the real headline we are going to find. on the one side, i think there is likely to be a deceleration in terms of dollar holdings.
ultimately, if we are going to get sterling getting back north we have to get into some negotiations.the path implies that we go down first. we probably see sterling volatility going higher between now and november. that is only if we see a degree of pragmatism after that november deadline. then, we might encourage a little bit of sterling rebound. i think it does look increasingly difficult to get area. of that 131, 132 the further down we go in the shorter term. thea: why are you short ftse 250? part of thet is a u.k. stock market that doesn't benefit from the weak sterling. nejra: so those correlations are still intact? patrick i think they are still intact. the u.k. economy is what is holding that.
it is hard to pass those costs on to consumers. within margins are going to remain under pressure. conversation. really enjoying this with a lot of different nuances and linkages of international relations into the markets as seen through foreign-exchange. turkish lira, 6.39. coming up, an important discussion on business, on technology, and no doubt google. this is bloomberg. ♪
nejra: i'm nejra cehic in london with tom keene in new york. the second quarter u.s. gdp will be released at 8:38 eastern time. strategists from deutsche bank and goldman sachs see an end in sight for the dollar rally. still with us are jeremy and patrick. patrick, i want to talk about your view in u.s. equities because you are a buyer of value stocks, which have underperformed so far this year. does this chart has something to do with that? growth versus value. patrick: very much so. since 2016, value stocks are up 15%. to want to use a baseball metaphor for tom.
it is like chris sales give you seven strong innings. that is a value stocks are now. they're basically trading at 10 times. growth stocks are trading at about 17 times. over the last year and a half, value stocks have grown in earnings faster than growth stocks. the fact that growth stocks have outperformed, it is the value stocks that are outperforming over the short term. value stocks are cheaper and are growing.everyone is scared of cyclical risk and they want to chase cyclical growth. the value stocks i think is where you're going to get better bang for your buck. tom: we need to translate for a global audience. i would note that the yankees are only 6.5 games behind.
let me bring up this chart right now which shows you the ascent of the new york yankees. this is the ugliness in the financial crisis. this that after is a joy. you can't bet -- this vector is a joy. nominal gdp is growing at 5.4%. we have treasury yields below 2.9% right now. that is a big disconnect. we have got bigger short positions on 10 years and 30 years. the only thing i'm worried about is the secular positions that they may be a crowded trade. the economic fundamentals, long-term treasury yields should yield something similar to nominal growth. we have 5.2% nominal growth with a trillion dollar deficit. i don't think that is going to slow. the confidence survey cannot yesterday and hit a record high. we are looking at -- came out
yesterday and hit a record high. bonds are very much over owned. nejra: should the 10 year treasury yield be higher? jeremy: if you look at the fundamentals, yes.the weight of positioning is a big had went. -- headwind. nejra: remember, bloomberg users can interact with the charts shown. catch up on key analysis. you can save them and play around with them. this is bloomberg. ♪
6.3 eight right now in lira, but there's a couple other stories, including indian rupee having a tough go of it. nejra cehic, what is trending? nejra: let's check on what's trending across the bloomberg universe. victoria's secret is getting worst according to an analyst from jeffries saying that two tops were not in style and leopard print pajamas where fashion miss. the u.k. and eu have dropped october as of deadline to reach the brexit deal. they now want to reach a deal by november at the latest. the most read story on the bloomberg terminal in third is ceo troubles tweeting, aston martin announcing shares in london, and trump warns tech giants that search results are rigged. let's also do the bloomberg first word news with
taylor riggs in new york. taylor: it's a sign that negotiators in the u k and the european union have struggled with brexit talks. they dropped october as a deadline and hope to finalize talks by the middle of november. there's a greater chance that will not be a deal. the senate may have kickstarter policymaking at the commodity futures trading commission. be up.ncy said to for the first time since 2014 after lawmakers confirmed to new members. made a full commission before a long rule to restrain speculation on oil and other commodities. in florida, voters elect a trump republican to go against another for governor. rob desantis won the nomination.
desantis trailed in the polls, but took the lead after an endorsement from the president coul. he will take on a self-described democratic socialist. florida has never elected a black governor. approved economist richard clarinet in the 69-26 vote. clarinet has expressed support for jerome powell's rise of interest rates from abnormally low levels. andal news 24 hours a day on twitter powered by 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: that leaves michele bachmanllman. you don't know how that's going to work out, do you? taylor: this will be good to shore up the vacancies to makes
make sure they reassert their policies. tom: rich miller down in washington makes clear that vacancies are not a good thing. here's the morning must-read on the president and google from someone with a modest did of experience. floyd abrams is definitive on constitutional law and the first amendment. any such government action would constitute an egregious violation of the first amendment. then he goes back as know if feldman of harvard would state to the beginning of this in the modern world. as supreme court justice robert h jackson put it after world war ii, the core of the first amendment is rooted in the view that every person must be his own watchmen for truth because the forefathers did not trust any government to separate the true from the false for us. jim hertling has been with us for decades on bloomberg news.
when he push against floyd abrams and i do that with trepidation. it?le is not news, is why can't government keep in or contain technology that is not news? jim: i'm no constitutional scholar. i'm not a constitutional lawyer. i don't even play one on tv. however, it strikes me that the legal line between what journalism is and what news is and what information is and what google does, the line is gossamer thin. -- make a pretty compelling case to make this a gesture meant google is not news or the press under the first amendment. found fascinating is that i know marty schenker did this yesterday and i did as well -- i just replicated the president tweet, which was type
google and it came up pretty eclectic. you will cnn was there and there's a lot of life is good fox. i did not observe the tension that we see in the president's tweets. jim: context here is important. what you are seeing is a pres president whose tweets and conspiracy theories are often or usually are almost always not confirmed by reality. he is one of the original birth ers. shortly into his first term, he tweeted that the obama administration tapped his phones. now he is trying to get the base geared up to come out in the midterm elections. i don't want to climb into his head. that's a dangerous place to be,
but he's probably looking for messages that can energize his base. wasa: google's response that it searches are designed to give users relevant answers. president trump is telling these tech companies to be careful. what exactly do they need to be careful of where president trump to take this from here? jim: that's a great question. he's the president of the united states and has tremendous authority. he has shown he is willing to roll up his sleeves and get involved in literally enforcement actions. irs is in everybody's life. that's the first thing that came to my mind when he tells an organization or a person to be careful. tom: jim hertling, thank you so much. withdecades of experience bloomberg news as an editor and reporter. we are with jeremy stretch and patrick armstrong as well.
patrick, if i could stay on the idea of equity investment, how wrong is it that this is a bull market of 10 stocks, including off of it? that's what everybody says, but is that true? patrick: if you look at the s&p versusindex or value growth, growth is making new highs and has not recovered from where it was in january. those have been the leaders and that's where the momentum is. people are crowding into that trade more than any other trade right now. everyone feels safe and they expect growth. we saw what happened to the bat stocks, which are the equivalent of the u.s. bank stocks in china. things are price for perfection. perfection rarely lasts. i don't know what will set it off, whether it's taxes like we alluded to in the previous segment.
there is something that will create a headwind. tom: this is brilliant and goes back two weeks. a nice treatment on this about 14 days ago. patrick armstrong, is it fair to compare chinese tech stocks with american tech stocks? i don't buy it for a minute. do you? patrick: i think there's a lot of things. you look at amazon and alibaba, very similar. they are very much focused on their own markets. they are not competing directly so much yet. their internet retailers with dominant positions and barriers to entry and have sustainable margins. you look at other things like alphabet and ou apple. china doesn't have these things. hardwarenot in the with apple or alphabet and everything technology. nejra: i want to bring it over to your world of fx. we are talking about president trump weighing in on tech companies and he weighs in about
the dollar and the fed. how do you factor the president's comments on the dollar in your feckles forecast? jeremy: you have to think about the political dynamics and the pressure from the white house in terms of the fed position. we would take the view that the federal reserve will push back politicalat interference and will continue to pursue policy they regard as prudent, but there is a deceleration in the fed trajectory into 2019 anyway because of the economic outlook. you have to factor that into the equation. we are now less than 10 weeks away from the midterms. the political volatility is only going to become more amplified as mr. trump continues to fire up his base as we have been talking about these text companies. this will leave investors a little bit nervous. if we are going to see transition in terms of control the house, it's changing the landscape of the u.s. quite significantly. it does not say we will be on
the route of a impeachment. good reason for investors to light up what are excessive dollar long positions. from value, which we have talked about and you like, are you still short u.s. equities despite the fact we keep hitting record high after record high? patrick: we started shorting u.s. equities overall. we are long equities overall with more of a play in european equities, which are a more extreme value. european equities are cheap versus u.s. cyclical risk is very much underpriced in europe. everyone doubts the europe economy for good reasons in some parts, but i think europe is going to participate in the global economy right now where u.s. stocks are priced to participate. tom: let's continue t this discussion with lots more coming up this morning. let me tell you about an important conversation on "bloomberg markets" today.
to do something that i think must of been quite difficult for mexico and make those concessions does really set the stage for some productive conversations for us here this week. nejra: we are back with jeremy stretch of cibc and patrick armstrong. jeremy, how are you positioning around fx given the outcome you see? jeremy: in terms of the trade standoff, we are still very much of the view that we are expecting headline risk inevitably in terms of these political negotiations. there's always an attempt by the u.s. to try to reclaim itself a winner in terms of trade negotiations as mr. trump is often declaring him a winner compared to everyone else in his binary world as a loser. we do expect we will end up with a reasonably satisfactory concern and that does not mean
we will see material downside risk in terms of trade tension. in context of the currency and the canadian dollar, i think there is some scope for a small short-term rate depreciation, but ultimately we will probably see a little bit of consolidation as we go towards the end of the year. nejra: does that mean that the dollar weakens from here? jeremy: i think in the context of the bigger picture, the u.s. dollar is on a depreciation trend. there is good scope for that currency to underperform. from the canadian perspective, there's a lot of debate about the project area of rates in terms of canada. if we cannot get in early resolution in terms of the trade process, i think that brings forward debate about a rate hike as early as next month and that is perhaps under price in terms of the canadian story. thatmight be the scenario brings forward a little bit of short-term cap strength. tom: jeremy, as mexico and emerging-market and are they susceptible to the chart that i
put up 40 mint go, which was of 1982 and 1984? are a vulnerable to that kind of shocked again? hesitates tolways say that any economy is no longer susceptible to significant material economic shocks. in the context of mexico, we are in a scenario where we are undergoing a political transition as we see the new administration coming in later in the year. we are looking for the underlying budgetary dynamics that may well become relevant as well. if we can part some of those nafta concerns that have been impacting market sentiment over the last 12 months or so in particular, we can say some of those nafta concerns are no longer front and center. i think that does reduce the susceptibility of the currency to some of those uncertainties and shocks. it's going to be interesting to see how the ensuing administration comes in and their ongoing budgetary scenario. that's the next element in terms of market perspective and mexico
in particular. tom: this got a be an opportunity. i see nafta and the trade. is it a general em opportunity or do you get more surgical as you go along canada or long mexico or whatever the call may be? what is it? patrick: on after, we don't have a big position right now. the big changes is that trump was proclaiming are very minor. the big issue for canada will be the sunset clause. it's essentially six years plus 10 now. canada has indicated they are amenable to that. emerging markets as a whole, we don't have big physicians. those kind of countries will be comfortable. monday look at -- when we look at risk, those will be the first countries we look at. with a strong dollar narrative and potential had tradewinds, don't have the trade on yet. nejra: we have seen in the past few days more moves to stabilize
the yuan. are we pulling back from seven now and less likely to go back to it? jeremy: probably likely. the chinese authorities will do their level best to make sure that level isn't tested anytime soon. they are very mindful of large capital outflows. that's one of the major concerns of the monetary authority. facilitate or preclude that scenario, they will do their level best to make bye the tendencies are met increasing the ability of the central authorities rationing of the exchange rate level, that underlines their increasing determination to make sure the dollar cannot force china to level. nejra: thank you to jeremy stretch and patrick armstrong. coming up on "bloomberg daybreak," the citizens financial group chairman and ceo at 8:30 a.m. in new york and 1:30 p.m. in london. great chat with patrick and
taylor: this is "bloomberg surveillance." i am taylor riggs. let's get the bloomberg business flash. toyota is making a renewed push to make up lost ground in the world's largest car market. they want to triple car production in china as soon as 2030. they hope to make 3.5 million vehicles a year in its chinese factories. u.s. regulators have given transcanada a 49% price increase for space on the pipeline it's building to halt shale gas from west virginia. rising land prices have pushed construction prices up by almost a billion dollars. companies are racing to build more pipeline in the appalachian region. a stark warning from the deutsche presiden. he says they need to bulk up or die. regulatoryrease on
requirements will overwhelm any banks and force them to consolidate. he did not address speculation that deutsche would be interested in a tie up with commerce bank. that's your bloomberg business flash. tom: you look at eu banking and i think of the great international investor david harrell among others. us ofan pryce joins bloomberg research and bloomberg intelligence as well on the american banking. with us as well is patrick armstrong. jonathan, i really want to go here with deutsche bank and the continued churn of nine or 10 euros per share. let's start with eu banking. how cheap is eu banking with those 5% dividends to american banking? waythan: if you look at the we put, they are valued the same. the cost selective is about 10%,
which is the mean over that period. there are cheap stocks with the, but it's pretty fairly valued. you are not buying growth. how much do you want to pay for capital terms for a bank that is at best thinly capitalized rather than overcapitalize? d? i would not say they are cheap. tom: let's go to the other new source of the day, which bill wan winters is running standard chartered. and the heart of the article on iran and on further sanctions and fines to come, it never, ever ends for these banks that launder money. do they have a statute of limitations? jonathan: know because they have a deferred prosecution agreement. the u.s. just extended the dpa till the end of the year. staley and winters was quite confident actually that the
prosecutors are saying when doing a good job on quite a lot of this stuff. unfortunately it's one of those where they will not get out from under the dpa anytime soon and that will weigh on the stocks. nejra: are there any european banks in particular that stand up to you? patrick: we like the french banks. we think they are well capitalized with 5.5% dividend yield and trading of nine times earnings. they have turkey exposure, so they have a significant headwinds there. theirave two to 4% of spent toward turkey. long-term, its competitors are moving away from investment banking. dmp is increasing investment banking. yet stable earnings from the private bank so the empty is in the suit sweet spot. tom: patrick armstrong, thank you for your time. jonathan tyce, on the story that never ends.
a number of important things, including the em not crisis or meltdown, but nevertheless, where is the bid on em currencies? tom bundles on the strength and state of american economics. we saw the inventory build yesterday. tech equities was just extraordinary. tiffany's just killing up. its tiffany's new york city for those of you on radio. i will send you out a photo of audrey hepburn in front of tiffany's having breakfast. stay with us. this is bloomberg. ♪
find a bid. american equities continues to surge. wars, a mostural eventful november. trump searches google. he does not like what he sees. "google has it rigged." this google saying -- this goog le thing, it is different in europe. this is a fascinating story. google's response is we bring up relevant news, it is not partisan. it is interesting trump has taken this stance against these tech companies, telling them to
be careful. tom: there it is, a developing story. first word news in new york. here is taylor riggs. taylor: the u.k. and european union are backing off their october deadline for a brexit deal. they hope to finalize terms of the split by the middle of november. it is an indication negotiators are struggling to make progress. the pace of talks is picking up. canada's foreign minister has joined nafta talks in washington. she faces a friday deadline. she says she is encouraged by progress made by the u.s. and mexico. trump has threatened to impose tariffs on canadian auto exports is a deal is not reached.
aly could shield public debt from financial speculation and the threat of a ratings downgrade. the italian government has reached out to the ecb about such a move. in florida, voters have selected a trump republican to go against a progressive in the election for governor. ron desantis won the republican nomination. he took the lead after a vigorous endorsement from the president. he will cease tout -- he will face tallahassee mayor gillum. florida has never elected a black governor. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am taylor riggs. this is bloomberg. equities, bonds,
currencies, commodities. green on the screen. the curve steepening over the last 24 hours. oil not telling us much at this hour. the vix will not move. at 11.80.o be a higher risk on yield over the past days. chart is testing new weakness in the last 24 hours. nejra: we have seen that play out. with questionr marks. year moving lower. the 10 year treasury yield is pulling back from the 2.9% level.
riggselebrating taylor passing level three of the cfa towards her cfa designation. turkish lira goes out today. weaker here. standard deviations above seven. some stability and the last four days of trading. we are watching this closely. you can talk about standard deviation, a place you can't talk about that is the 10 year treasury yield. barelylook at my chart, budging that treasury yield. it has been stuck between the 50 and 200 day moving averages. nejra: we need to -- tom: we need to get an update in
washington. one of the giants is constitutional law. floyd abrams -- whatever your politics, you always read floyd abrams. any government action would constitute a violation of the first amendment. end of world war ii, the core of the first amendment is rooted in the view that every person must he has own watchman for truth, because the forefathers did not trust any government to separate the true from the false for us. we are honored to bring you martin schenker. truth as aed for watchman at "the wall street journal." what an extraordinary 24 hours for the linkage of technology in the news, into breaking and developing news. this is new territory.
>> it is. it is certainly knew to have the president of the united states raise the issue of how news is disseminated and whether or not , given the fact he has the executive branch behind him. yesterday, the content providers are not thrilled with the way google displays its news. that speaks to how unbiased it is. no one seems to be thrilled. don't think it is going to go anywhere. donald trump has picked a theme and he is going to hammer it. tom: you told me to type in "trump news" and see what came up. i thought it came up like you say, a jumble and intelligently
blended. >> i did it before we came on and off fox news is the number one search resort on -- news result on news on trump. google's aim is to make your search what is relevant to you. if trump is looking for positive news on trump, he can find it on google. it is hard to see where his argument holds water. wefocuses attention on how get our information. tom: what will happen legally if he approaches -- if he pursues this approach. it has to end up in the courts, right? >> it will end up in the court if they try to take action. the specter of holding google to task for perceived bias, there is no action the executive branch can take short of legal
action on antitrust grounds. .hat has been looked at . there has been no action on google or facebook or any other large dominant social media platforms on that issue. it is hard to see how that would happen ianytime soon. midterms may change the dialogue completely. nejra: i was going to ask what the president or congress could do to influence how internet companies distribute news. there is not a huge amount or it is unclear. >> the chances of congress or legislation to regulate the distribution of information would be a clear violation of the first amendment. i don't think congress has a desire to go there. there are many more important
issues congress has to take on after the midterms than this one. i don't see the chances of any action whatsoever taking place. are tech companies likely to respond? we had a statement from google saying what comes up is relevant news, relevant to the search. >> that rings true. the tech companies are going to defend their position this is algorithmic. they are changing the algorithm every day. success in the marketplace -- consumers are smart. if they were not satisfied, they would say so with their clicks. south beach, miami beach. it is going to be an interesting florida governor's race.
a statement on our culture wars, doesn't it? >> it is going to be a stark representation of trump versus sanders. the extreme wings of each of the parties. it will be fascinating, what happens on that. so much.k you we appreciate that. i did a google search. let me show you the unbiased nature of google now. cfa taylornd did riggs. here is her handle. please follow her. congratulations to taylor riggs on her huge item. we thank cfa institute for re-tweeting her joys. i want to tell you quickly,
they are seeking a valuation of $6.4 billion. -- may face another fine on u.s. sanctions on iran. they moved billions of dollars through the u.s. for iranian clients. a new investigation found stanchart's iranian business was more expensive than it admitted. a better than expected profit forecast for hewlett-packard. it is starting to move into higher businesses such as networking. now, toh us micro-analyze gdp data and the linkage into the trade dispute, our guest.
aam told the united states is relatively closed economy. dollar dynamics don't matter. i don't buy it. nafta, the summation of mexico, canada, china, china, china. how do you full that into gdp analysis? >> the u.s. is a relatively closed economy compared to others. it does not matter these external noises development don't matter at all. tariffs so at the of, we talk about billions dollars. relative to the size of the economy, it is tiny. the link between trade and domestic economy, if we see spillover onto sentiment. getsf a sudden, it
multiplied. inventoriesa pop in yesterday. is the mistake of 2018 the rollover in gdp will happen longer and slower than anybody thinks? harm: inventories have the potential to impact quarterly paths of gdp. it does not make a difference if you average it out over the first quarter. the uncertainty we had going into 2018 is nobody knew how much the stimulus will impact gdp growth. so far, most of the estimates have not been bad. 2018 will see the u.s. economy growing slightly below 3%. that is in line with most estimates. for next year, we can expect slowdown in growth. nejra: good to see you.
currentextent is the u.s. growth coming at the expense of future growth? harm: a good question. some in investment spending. something might have been brought forward because of the youitem in the tax reform -- youest your invest can expense your investment spending right away. other question is how much fiscal stimulus, which puts another stress on an already stressed public offer, will impact government spending, the ability to stimulate the economy going forward. at this point, it is uncertain. private investment spending, government spending may be areas which make growth look better at
this point, but will become a bigger drag in the future. in terms of trade wars, i spoke to ralph of merrill lynch. u.s. inflation. are you seeing the impact on inflation from the trade war's? harm: we see items that have been affected by tariffs. washing machines, laundry equipment and a fuel prices. directlye items affected by tariffs going up in prices. that said, because i mentioned earlier, the amount of the goods affected is relatively small compared to the size of the economy. it is not visible in the headline, the bigger inflation numbers. tom: we will have more to talk about about this. stay with bloomberg through the
deadline of reaching a brexit deal. both sides aim to finalize divorce terms by mid-november. it is an indication negotiators are struggling to make progress assurance it.k.'s has agreed to speed up talks. us, our politics reporter. what are the reasons this deadline is being pushed back? >> the main reason they are not able to agree to the divorce deal, northern ireland. they have a commitment to not have a hard border between southern ireland and northern ireland and they cannot make it work. toy were supposed to agree something at the june counsel and it looks like they cannot agree to something at the october counsel. they have to have a summit in september to make that work. kept: this is the worst secret, that the deadline is pushed back. has: this is the way the eu
always worked on negotiations. things tend to go down to the wire. both sides are working hard and want to make the deal work. no deal is not in the interest of either side. the difference this time is the u.k. is going to leave the european union on the 29th of march. they have a hard deadline. once that is agreed, it has to be ratified in both parliaments. in the u.k., there is division. both sides will want to scrutinize it. lawmakers are not going to sign any old thing off. they need time. there is a risk of no deal. what happens the day after brexit for germany, the
netherlands, france? what happens the morning after? tom, it depends on whether we have a deal or not. the u.k. is preparing for a no deal scenario. they are talking about stockpiling medicines. tom: let me go to harm bandholz. i think that captures the gloom. harm: that sounds very gloomy. let's hope we don't get there. we have to say, we have had a , results,shocks outcomes. the immediate fallout was not so bad as we thought. it was more like life goes on. it would be a bad outcome. i don't want to sugarcoat it. .loom and doom of the day after
mentioning in a lengthy note today that mr. mcgann is preparing an exit from the white house around a midterm election, and unusual time. right now, your global zeitgeist with first word news, taylor riggs. struggling to make progress in brexit talks. there octoberped deadline and have to finalize the terms by the middle of november. the senate may have kick started policymaking at the commodities futures trading commission. they are at full strength for the first time since 2014, after lawmakers confirmed two new members. the chairman says he preferred a
full commission before moving ahead on rules on oil and other commodities. the federal reserve has a vice-chairman. the senate approved richard klara. expressed -- he has support -- test scores are in. the number who passed the third and final level of the cfa rose to 56%. candidates study an average of about 300 hours for each exam and it takes four years to complete the series. hours a day, on ,ir and on tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries.
i am taylor riggs. tom: we are bonding. go, taylor. yes. taylor: it was a team effort. i studied on air. you let me. tom: it was very emotional yesterday. there were flowers and all of that. i don't have the pictures. where are they? taylor: instagram, twitter. tom: does she know there is a level four? i woke up this morning to read the letter and it said congratulations. a did not say we regret to tell you. tom: an incredible thing to see. migrate to the equity
markets. a great underperformance. it is a cfa moment. come on, troy. cfa level 3. taylor just got through it. you can be too smart for euro and good. our hedge funds, too smart for their own good. they are not in the u.s. equity market. >> the biggest drag has been hedging. markets have been going up for economic reasons, and also due to quantitative easing. any hedge will be a drag. the majority of assets are long-term equity, there has not been outflow from equity fromts -- not been alpha equity markets in years. tom: year after year, there has been an underperformance.
halep stat -- how upset are the institution people? troy: they have ratcheted down there expectations. where we are, if you want to take money off the table, there is a chance to make a decent return. there is a chance to make a decent return without long-term risk. the majority of the assets, that is an expensive way to get beta when there is very little alpha. i have a simple chart here i want to show troy. it shows a near record short on risk protections. gold, the 10 year treasury, vix. we can have a separate the session on what is a safe haven
now. we have talked about hedge funds . how do you diversify? you need to be long on the u.s. economy. that is the only chance you have to make a decent return. being long in the credit quality in the u.s. regional banking system, community banks, that is the way to provide long exposure with positive cash flow that is not as explosives -- not as exposed to corporate fundamentals, tied to u.s. equities and u.s. credit. it will not provide complete diversification in a downturn, but if this cycle looks like 2002, it will provide less downside than s&p or high-yield bonds. nejra: this suggests the market is a risk on. if you want to stay invested in u.s. equities, can you expect to
returns and spikes higher, or is it a slow grind higher? did you see his cfa term? troy: level 4, i was studying for it last night. we are in the camp that the bull market continues. there is no reason to expect u.s. equities not to be up in the next few months unless we get a slowdown or tighter monetary policy that reduces earnings potential. tom: this links to the outperformance of equities. here is nominal gdp, year-over-year in the vectors of this direction. the vast majority of the people look to tail off. the bottom-line of the
discussion is companies should hire more economists. it is going up a little more, looking at nominal gdp growth rate. growth pretty good real rate and inflation is moving higher. the big question is how long will stimulus continue to support the economy and turn from support to a drag? it begins in the middle of next year. there is more upset -- more upside. real growth is going higher. next year, it will follow your trajectory. an institutional client is looking at double digit s&p returns versus the mumbo-jumbo
of your world. what is the mood? troy: they also allocate to other equities, such as fixed income. for people peeling off the risk, it is tough to make money through fixed income. using hedge funds, not as a substitute, but an asset. tom: use hedge funds as a diversifier. that is a juicy phrase. troy: that is level 5. nejra: i was going to ask, in terms of hedge fund positioning, they are short compared to asset managers who were long and the 10 year treasury yield has been stuck in a tight range. how does that informed where it goes from here? troy: no one makes a living hiding in the backend of the
yield curve. it is exceptionally low. is because of loose monetary policy overseas in particular. nominal gdp is, it would surprise us if it was not at 3.25 over the next 12 months. that speculative length will be proven right over the next six to 12 months. it has been a painful past to get there. nejra: tom was asking about whether gdp could impact the rise for equities. do we get a meaningful correction for u.s. equities, what impact would that have? if we have an adjusted correction, 10 percent, 15% or so, it is painful. it affects the mood of us sitting here.
it has to last longer. if the economy starts to slow down next year, stocks will have a more lasting downward move. if it is just a correction from these high levels, i don't think it has a lasting impact on the economy. tom: a superb discussion. it is a single digit world, double-digit 12 months trailing. up, a discussion of google and trump, but much to speak about with an executive from salesforce, the co-ceo. look for that at the 5:00 p.m. hour. ♪
tom: "bloomberg surveillance." number of em currencies to look at. we have been light on that. equities to talk about and everything else. i can go anywhere in em to see tensions. maybe eastern europe, not so much. our chart of the day is when i have not shown in ages. this is from the financial crisis. the weakening of the indian rupee. there is a new leg up and it is indicative of the beginning of correlations among em currencies. are we there yet? harm: if you look at emerging markets, there has been widespread weakness. tom: widespread but separate. look, there has
been some correlation. the reasons for these developments have been different. when you talk about correlation, you look at the chart, there has been increased correlation. one factor might have in the stronger dollar. the highest interest rates -- the higher interest rates in the u.s.. tom: others, not so much. alternates, in the , isstment space foreign-exchange an alpha? opportunity for investments? emerging-market currencies started several months ago.
unfortunately, other than falling equity beta, there has not been a trend in fixed income. going forward, the idea for investors with regard to trend followers is wait until the economy weakens more substantially. the trend becomes monday said starts cutting rates. the bring up the banner of indian rupee. i want to emphasize, when you see these numbers, it is really abrupt. i am shock to see that number versus where we have been for years. nejra: one discussion that has, up, whether you want to collect contagion or not, is account deficits versus surplus. deficit, current account deficits, should the dollar be weaker? discussion has been
going on. it is one reason this has not happened. fundamentally, the dollar is overvalued. that is the price to pay if you are the global reserve currency. it has a lot of advantages for the u.s., and one slight disadvantage, that the currency is a bit too strong. nejra: how would you differentiate in the emerging market space? at the dollarook liability, how much credit growth they have had after the crisis, that is places -- that is where you see places like turkey getting hammered because they have external debt at the government and corporate level. there has been correlation in all emerging markets. it has been tied to the fed tightening policy. that has always been the case. last year, one reason emerging
markets did well, there was substantial dollar weakness, not a consensus trade at all. this year, you are seeing the reverse. many of them were problem children being exposed for their current account deficits and dollar funding that is not sustainable in an environment with a stronger dollar. tom: what are you going to write on in september? you will have to have a kickoff. for the american viewer, listener, economy, what is the theme you are focused on? harm: tomorrow, we send our piece on savings rate and wealth effect. over the summer months it has been -- tom: way better. historicalu look at correlations, eight used to be tight between 1970's and 2010.
that correlation has vanished. tom: is that a statement of our gilded age? harm: it is probably the legacy of the great recession. it may reflect increased concentration of wealth and income at the upper end. more wealth is accumulated, there is a lower propensity to consume. and thek to google debate. one of the great mysteries is the overlay of technology on our belief structure. with investments, if you did not know apple or amazon, there was no alpha or beta to play with. troy: it is interesting to us. we have highlighted the increase in consumer savings rate means this cycle has further to go then people would have thought. in our last two quarterly letters, we wrote about the
yellow signs for the economy is the decline in consumer rate. they run down their savings. least 12 to 18 more months before there is substantial risk of the consumer weakening. harm: i agree, the low savings rate has raised some flags. felt like where we see the same movie over again that we have seen before. that vulnerability is gone. i don't know if it means we postpone the timing of the next downturn. i would agree it should help to mitigate the downward turn. consumer meansr more shock absorption capacity from fiscal stimulus running off. tom: thank you. lira on the move today. we do not have brazil or the argentinian peso, but we have
taylor: let's get the bloomberg business flash. to makes making a push up lost ground in the car market. to japanese automaker wants triple car production in china as soon as 2030. toyota hopes to make 3.5 million vehicles a year in its factories by then. a warning from deutsche bank president. european banks need to bulk up or die. he predicted increased regulatory requirements will overwhelm many banks and force them to consolidate. he did not address speculation that deutsche bank may be interested in a tie up with commerce bank. nejra: thank you. let's keep it with european banks. standard chartered may face
another fine for breach of sanctions on iran. dollarsed billions of through the u.s. for a rainy and clients. they say they are cooperative with investigators. joining us more, jonathan. how significant is this for standard chartered? jonathan: it is not new news. we knew it had been extended through year-end. we know they haven't got a provision for it. stock has been weak. it is unhelpful. the biggest problem, in 2014, it was rolled over. it is an institute they don't seem to be able to get a handle on. investigators were positive about the improvements they have been making. it is frustrating. nejra: i want to talk about deutsche bank and the comments
about consolidation. it depends on which bank is talking. commerce bank and deutsche bank, they are the cheapest banks because they have the lowest r.o.e.'s germany is over banked. are we going to see a wave of consolidation in the next 12 to 18 months? no. not yet. arebanks, the large banks in the midst of a digital investment phase. they are future proofing business models. you can't put together two massive organizations and deliver on that at this name time. nejra: what looks attractive in the banking sector? jonathan: we have talked about this before. you can understand why they would want to have conversations. bank,e point, deutsche
commerce bank makes sense. before they can get near that, deutsche needs to sort out prospects. it is a horrible place to be. over a number of years, yes. it is not pricing m&a and there are not obvious targets. nejra: thank you. tomorrow, our interview with warren buffett, berkshire 11:30 a.m. int new york, 4:30 p.m. in london. this is bloomberg. ♪ xfinity mobile is a new wireless network
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s&p and nasdaq fit at record highs. dollar find its footing. fed as vicehe chair. the yield curve continues to flatten. to ecb, please, sir, by more -- buy more. welcome. was not on television, i would do the english accent, but i don't know if you are ready. there are 3.5 people trading. things, stocks at 52-week highs. maybe there are some cracks in the weakness. david: it is on a tear. alix: we are losing a little.
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