francine: all eyes on shinzo abe as investors weigh the details of the japanese stimulus package. could this time be the charm? the australian central bank cut interest rates to the lowest ever. all monetary policy really work or is fiscal the only route? concern the0 amid global glut is not going away but analysts are not abandoning help. this is bloomberg

"surveillance." i am francine lacqua in london, tom keene in new york. the banks are the biggest industry losing ground in europe and you have credit suisse, ubs and commerzbank down between 7% and 8%. tom: i would note when i walked in the door american oil was below $40 a barrel. francisco blanch is going to join us in a bit, but it is a deceptive tuesday. there is a lot going on. francine: let's get to the bloomberg first word news. japan's economic stimulus plan will increase spending by $45 billion this year according to a draft being discussed by the ruling party today. it includes low-cost loans and money for infrastructure and disaster relief. they have been hurt by a stronger yen and week consumer

spending. australia's central bank has cut interest rates to a record low. they lower the cash rate by a quarter percent to 1.5%. -- inflation and wage growth are at record lows. warren buffett is challenging donald trump to meet him anytime and anyplace to reveal their tax returns. while campaigning for hillary clinton, he ripped trump for failing to release his terms -- returns. clintonrshly criticized and bernie sanders' endorsement. mr. trump: he was so angry when they were talking about him. if he had not done anything, he would have been a hero but he made a deal with the devil. she is the devil. test outarlier trump

on the legitimacy of the political process and is worried the november election maybe rigged. the international olympic committee has second thoughts about staging games in developing countries. you can blame it on radio. -- rio. we are frustrated with problems brazil has had. they appear to be backing away from their goal to open the games to a wider range of cities. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: equities, bonds, currencies, commodities, a fold into the idea of where we are. futures are a little bit south. euro stronger. nymex crude, we had 39.14. vix to the next screen, the , 12.95. the yen is a shock.

point -- 101.62. could you believe a 99 handle on yen? dollar mexico is a emerging-market proxy, new weakness in peso. francine: i'm looking forward to talking with derek halpenny about yen. i do not know if a 99 handle is possible but 100 certainly looks at the moment you pressure on european stocks, definitely on the lows. what i want to focus on more is the banks. i have two boards today. if you look at a lot of the stocks under pressure, credit squeeze, ubs down 6%. there is no real reason but as lionel put it, there is no positive news for anyone to buy. down below came in expectations.

thrown out the banks of the stocks with the index that there is flat-out erosion. bring that data screen up again. i look at the 10 euro level on deutsche bank. we are now at 11.40. a nine print on deutsche bank, i do not know how that changes. francine: the fact that they are getting kicked out is not significant per se but it is a milestone and a crowning moment of all of the discouraging news we have had from a lot of these banks. tom: how about over to the bloomberg and wall economic data we will see in the united states? i showed this chart to the team this morning. they were mostly awake. 60 years back, savings as compared to personal, disposable income. we used to save a lot of money. we were almost biblical.

we tied the green line, 10%. then the slow rollover in savings down to 5.3%. all sorts of people have written about why this decline and where we go from here, i would suggest a lot of this is the aggregate taxes americans pay. francine: i picked up something for you and related to the u.s. i picked up something a little plane but it goes to treasuries. the treasury volatility has been vanishing. merrill lynch option volatility estimate is at 63. it is a benchmark that sees what it has been doing and it tells us that the expected price has dropped since -- to the lowest since 2014. it is another way of looking at what markets are really pricing. is the be clear, that volatility index across the entire curve going down, the

merrill lynch move index. francine: that is right. tom: that is an important chart. francine: i think tom gave me a be plus or and a minus for that chart. tom: i think that was a quality a. francine: japan's government announced extra spending as prime minister shinzo abe tries to bolster the economy. let's get straight to derek halpenny. as always, you have great insight into what happens in japan and with stimulus. the market is clearly disappointed. you argue they are basically pumping 1.6% of gdp into the economy and that is not a bad figure. of fiscalterms stimulus programs, it is going to have an impact but it is more of the same in terms that this is a demand-side focus stimulus. and therefore, yes, it will have

an impact that then it will fade going forward. i think markets are disappointed partly because of that but primarily i think because of the unrealistic expectations that have been built up in the market in the last three to four weeks that we were going to get something much more substantial with coordination with the boj. francine: is the market to binary? -- too binary? derek: at the moment, the focus is very much on japan. we had ben bernanke come over from the u.s. to tokyo and there was a lot of chatter about helicopter money around that. we have come to the point where the markets correctly realize that the whole abenomics optimism has unraveled completely. the five-year inflation went from slightly negative when he came to power, shot up to 2% and is down more now than ever.

tom: i think that is a great insight. let's go to the chart. we are talking some first and second derivative brutality. this is a zoom in of the corroded chart we have been doing for now months -- of the kuroda chart we have been doing for now months. yen does a 100 print on mean for the japanese economy? it has got to have an effect really across all of their gdp calculation. a valuation perspective, i would argue that we are actually just around fair value. i do not think the level itself has a hugely such damaging impact on real gdp growth. but of course you are right in saying that part of the story with the devaluation up to one tourism has surged

in japan and there will be an impact on that going forward. from a valuation perspective, i think we would have to see fairly sharp moves below 100 act toward 90 before we start to get the japanese authorities more explicitly signaling their dissatisfaction with the move. tom: i look at this, it is extraordinary to try to imagine the move through 100 down to 90. if it completely refused abenomics, can he stay today that abenomics is done? derek: certainly explaining the dynamic i just mentioned about inflation expectations, it has had its impact and that is now over. therefore, another injection of action is needed to try and restore some of that optimism. i feel it has to be more down on the government side and in particular, the structural reform we have talking about -- talked about before.

this type of policy is required to lift the potential growth rate in japan. abe is looking at a 20% in nominal gdp in 2020 and it is not going to happen. muscine: derek halpenny of with some unique insight into what happens in japan. coming up, we speak with francisco blanch of bank of america. we talk oil. hits 38 orether it 39. if it hits 38, what it means for a lot of these oil rig counts? live pictures from new york, it is a miserable day here. i hope it is warmer in new york. ♪

francine: this is bloomberg "surveillance." francine lacqua in london, tom keene in new york. taylor: second quarter profit rose almost 8% at bmw. they kept a tight grip on cost and their reliance on cheaper feels -- vehicles. intercontinental hotels posted first-quarter earnings that beat estimates. they said they are confident in the outlook for the full year despite an uncertain environment in some markets. has raised almost $20 billion in its biggest bond sale ever and will use the proceeds to finance their acquisition of linked in. that is your bloomberg business flash. francine: thank you so much, taylor riggs.

oil trading their $40 a barrel today. thatfell amid the concern the oil glut will persist. with us is francisco blanch for some unique perspective. meant tot was stabilize and supply and demand was meant to be a little more stable by the end of the year. we are back in oversupply. francisco: i think what is going on right now is quite seasonal. if you look at what happened last year between the settlement of the july contract in june, in late june and the settlement of the september contract in late august, we lost 18 and a half dollars a barrel. this year we have lost nine. settle, i going to

think, 38, 39, 40, in that range. it is all extremely seasonal. in the u.s. we lose one and a half to 2 million barrels from demand. , this isins being weak putting a downside pressure on the price. francine: i have an oil chart which basically is an oil rig counting. this and theith problem with demand is there is a linkage between oil and global growth, which is very strong because we do not know what kind of growth we are seeing. you are confident this is all seasonal, it is not something ugly and demand coming from asia? francisco: we are pretty confident this is a seasonal pattern and in our view, we are still looking for oil to be back in the $50 plus range at year-end.

we view this dip as a buying opportunity. obviously the market has moved to a steeper contango so the market rate has dropped. if you look at december 2016 prices, we do think those probably end up settling over $50. we are in a refinery maintenance season because the market is always creating roughly two months ahead, we see a pickup in refinery consumption for crude oil. the to your question, amount was very strong last year at 1.8 million barrels a day. certainly brexit puts a bit of a question mark on global growth, but lower interest rates are helping emerging markets. i do not see a drastic change at this point. tom: i look at where we are now in general, is a rationalization

of microeconomics of oil which is a great mystery to everyone. brent crude log, slope matters, down we go back to the 200 day moving average. $29 a barrel was the outcome of 80 and theng at rationalizing at $60 a barrel. aren't we doing the same thing now, trying to rationalize the mysteries? what is the percent of likelihood you could be wrong? francisco: that is an interesting question. francine: good question. francisco: i am pretty confident we will see a rebound in oil prices at years and unless there is a global recession. supplies are looking pretty dire heading into year end. we are predicting a contraction in global supply year on year

throughout the rest of the year. we are already on a year on year decline rate and that is going to turn into half a million barrels a day and possibly 700,000 barrels a day. supply is already contracting on a year on year basis. it is rolling over and demand is still ok. i think as long as demand holds up prices will move into year and. going to look back and it will feel like a seasonal downturn. it could be steeper than we expected. i have not changed my forecast since january, since the first week of january. i'm probably the only analyst who has not done that. we are still calling for a pullback into the third quarter because of seasonal factors. saudis kept a stable process profile -- price profile and the market has to keep that happened

-- make that happen. we rationalize supply and demand and the saudis are no longer acting as a central bank so the market has to create meaningful price swings to adjust that balance. i think demand is actually quite good. if you look around the world, demand for air travel is quite strong. the demand for driving is quite strong because prices are cheap. more, liet to drive more, and that is what matters for oil. with thecisco blanch mystery of where we are in the 200 moving day average of oil. with us next hour, richard haass. there is a little bit to talk about. russia, ms. clinton, mr. trump. we could talk to richard haass four hours. bloomberg "surveillance." ♪

francine: i am friends in the clot in london, tom keene in new york -- i am francine lacqua in london, tom keene in new york. the new york times says, the voters deserve to know what mr. trump is hiding, considering his , thery of bankruptcy government investigations of trump university, and other dodgy part of his branded universe. i thought this was significant because it is the kind of debate

we had pre-brexit. it goes back to inequality. there were concerns about hillary clinton being part of the establishment but a line of thought, if you picked what is happening in the u.s. -- pit what is happening in the u.s. against brexit. tom: it has heated up postconvention days and you can't imagine where the heat will be in september into october. i thought the most important article yesterday was in the washington post, on mr. trump's tax history from many years ago. i understand that is ancient history but for most americans who really do not understand the conflation of business real estate into someone's personal tax return, that it was stunning. as tax profile of the 1970's and 1980's, that is what i would watch as the release of the tax returns debate. francine: i do not know whether

in the u.s. there is more pressure than in certain european countries. there is a clear difference how the u.k. treats their politicians in relation to tax returns and i would say that is probably one of the things that theresa may, has andrea leadsom wobbled about, i do not know why she has to release her tax return. tom: i would state for our global audiences, it has really heated up in the last 48 hours, some of the mysteries of mr. trump and ms. clinton. paul bloxham joins us from hsbc. ♪

tom: good morning, everyone. francine lacqua in london, tom keene in new york. a lot going on, japan action, weak european banks, and

australian banks with a surprise cut. taylor: british prime minister theresa may will try to get the economy moving again with a new industrial program. she says if the u.k. is to take it vantage of the opportunities provided by brexit, the whole economy must be firing. singapore is word -- warning that u.s.'s credibility is on the line and it is a litmus test of americans seriousness. pentagon plans further airstrikes against islamic state forces in libya. they struck a tank and two other islamic state vehicles in the first group outside syria and iraq. they will coordinate continued strikes with the libyan government. stepping up pressure for the release of the man they

blame for last week's cu. has lived in exile in pennsylvania since the late 1990's. u.s. officials have said they need to see more evidence. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. riggs.lor this is bloomberg. central-banktralia cut interest rates to a low. they have to counter disinflation and underemployment. we are here with paul bloxham. francisco us is blanch. great to have you join the program, paul. did an idea of what central banks still have to do. the specter of disinflation is not going anywhere. paul: inflation has fallen below the bottom edge of the reserve bank's target.

it is sitting at one and a half year on year and they target 2% to 3% so they cut interest rates again today. they cut earlier in may. the have cut 50 basis points this year to try and stimulate a lift in inflation but we have a bit of honor employment so we need -- underemployment. we think this will be enough for the moment and the rba's rhetoric will shift to watching for the impact on the economy and how much effect it has on inflation. looking further out, the key question is will they have to cut more? francine: when you say this will be enough, enough for australia because they cannot do anymore or they are waiting for other central banks to cut and hoping that bigger economies can dent disinflation bubble? paul: both factors are important. i think the low global inflation story is having an impact on australia there are also some

domestic dynamics that are a little bit different. we are in a mining investment boom and it has been a big drag on the economy. commodity prices have fallen along the way and that is one of the key disinflation or a forces but that will come to an end very soon. commodity prices may already be pass their trough. maybe the rba will not have to cut too much further. tom: let's get the chart up of australian inflation. what concerns me is the trend is right down to zero. it is without question talking a trend to deflation. i get the economy one off. is it a japan like disinflation? paul: certainly not when you have a growth rate for gdp running at 3.1% year on year in the first quarter of this year. you have above trend growth and

that is generating a fall in the unemployment rate at now 5.7%. it is not quite got enough momentum to lift the mastic inflation and that is coming in our view -- lift the mystic inflation and that is coming in our view. thing we are shifting for is growth being driven by services imports and that has gotten some momentum. as the services are picking up and we think that growth will continue. the main thing that is going to disappear, we have had a big drag from mining investments. and soag stops very soon gdp growth will get a bit of a left just from the mining investment drag disappearing. francine: how much of this low inflation world has to do with china demands of deflation being exported to china, and through commodities? francisco: i think commodity

prices have been a tremendous deflationary force and a lot of it has to do not just with china but with the technological change on the supply side. the fact that oil prices have collapsed is very much related to shale technology so in some ways, commodity technology has delivered a deflationary shock. as paul points out, this will start to change because as commodity prices stabilize and start moving higher, we think hit this will start to headline inflation in the u.s. and around the world. tom: this is wonderful, this is what "surveillance" is about. give me an update on iron ore. i want to hear it from you and then francisco. is that the litmus paper of this rebound? paul: the lift in iron ore

prices is partly because we are seeing continued demand from china, partly because we are ining a bit of a fallback terms of the supply side as well, particularly in china. if you look at the chinese import numbers, they are still rising but if you look at the chinese production numbers, it has fallen quite sharply. there is a rebalance, restructuring going on within the iron ore industry which is why we have seen the price past its trough. tom: do you believe that idea iron or is the canary in the optimistic iron ore mine? francisco: there is also coal which is very important for australia, they both behave in a similar pattern. we have seen chinese production coming down. it boils back to the story that the chinese are allowing their currency to move finally. they are starting to shut down

russia like some of the other industries because they have too much spare capacity, and capital is focused on other parts of the economy. to me, the story for this commodity is still not very strong going into next year. we are projecting iron ore to be at $48 a time on average in 27 teen -- 2017. francine: what is your favorite commodity? do you sell off commodities? .et's leave gold to one side is there anything i can get my teeth into as an investor? francisco: we think oil has the chance to move up significantly next year with prices averaging $59 a barrel and we think we could see as high as $70 a barrel in the second quarter of next year. mostis probably the attractive risk reward because

china is overall slowing down as an economy. that, to me implies we are going to see somewhat muted reaction on the metals mined commodities sector. the investment cuts we have witnessed are going to put a bit of a floor on supply so eventually we will see a bit of a recovery but it will take longer. oil is different because it is much more cyclical and the cap x cuts have been accomplished in 18 months in energy. the surplus was much bigger in metals and mining to begin with. hsbc onre is aussie-yen? it has got to be the ultimate play of strong yen, week aussie. is that something people can make money in? help francisco blanch out. can you do it in aussie-jan? -- yen?

clear that ist necessarily the right spot to be in. we have to mind, the rba having cut today may not have to go too much further. the dollar probably does not have that much downside. the big selloff on the aussie dollar is done and that is consistent with the idea that we think commodity prices are passed their trough. we think that was in the early part of this year. tom: paul bloxham from sydney, thank you so much. christopher grisanti will darken the door in the next hour on your equity portfolio. ?re you in growth are you in value? are you in stocks with a pe of 50? york, iton, from new is the yankees, they traded everybody yesterday. ♪

francine: this is bloomberg "surveillance." francine lacqua in london, tom keene in new york. european banks are getting hit quite hard today. this is a picture of credit squeeze and deutsche bank. we found that yesterday -- credit suisse and deutsche bank. we found that yesterday they would be taken off the stocks 50 and it goes to the weaknesses in the banks and the troubles they have had to go to to keep their share prices from sliding. let's get more from our bloomberg news reporter in frankfurt, eckel is comfort. i -- nicolas comfort. does it have to do with the recap of mont take a passkey?

-- monte passkey? that would hit some of the banks. is there any truth in that or is it because we cannot find good news on the banks? the case,hat being there is always going to be a little bit of negative sentiment coming from them. when i've been hearing is that people are really worried about the growth prospects for the banks. commerzbank came out and said an additional hundred million euros will fall away from their revenue as they process the cost of paying for deposits and the ecb. it is a question of how do the banks make money in this negative interest rate economy? the prospects today were pretty grim and did not make investors feel any more comfortable. francine: because the business model is broken because of the economy, we do not know what

happens next. dashboardg that boyd up again. credit suisse down six and a down a similarbs amount. are we going to see in ever lower share price until the economy recovers and until they cut costs to a point where they can really interested balance sheet? nicholas: they are dealing with some very specific issues. and deutsche bank, it is the case of their outside litigation cost and once they can get past settling the two big outstanding cases which they hope to do this year, you could see a positive catalyst for shares. end,ey come out the other maybe investors will say it is not so bad, they do not need a share sale. credit suisse showed some progress in the second quarter and i think if they can show two

or three consecutive quarters of the plans paying off, and reduced losses in investment banking, then you can see a more pleasant picture. tom: you are the pro on german boards. let me bring up the deutsche bank chart. this is in euros, down we go. is wherele white dot deutsche bank is now, 11.36 and 10 is a big emotional deal. what is the linkage of john cryan to the board? is there an urgency by the board? paul: if the question is, will the board fire him, i think they would be hard pushed to do so at this stage certainly because he came from the supervisory board. he is one of their own. they express so much confidence

in him. he got a very high level of backing at the annual shareholder meeting in may, so he still has the benefit of the doubt for many big shareholders. the question is, at what point does that wear thin? if we saw his comments about 2016 being the peak restructuring year, if that peak istinues that i think he going to come under a lot of fire internally and externally. tom: i'm going to ask you the same rude question i asked you yesterday or the day before. why can't they speed up the process? as any good anglo-saxon bank would do? nicholas: we have seen does go quarters of deutsche bank saying, the market environment is not that great, we will consider further cuts. this last couple of weeks, we have said why don't they go

further? when it comes to their global markets business and the trading business, that is mainly in the u.k., u.s., and asia. they could cut more jobs but that is also one of their big money spinners in a year. costrmany, there is a big base and there are very strict labor laws. it is hard to fire people so as much as they would like to be pulling down headcount, it is a laborious process and they cannot speed that up overnight. tom: i cannot imagine where we will be tomorrow or into the second week of august. nicolas comfort with us this morning from frankfurt. equities, bonds, currencies, commodities. 40.45, bounces off the $39 shock this morning. , fromondon, from new york

a washington, it is a devilish washington. everyone is a devil in washington. this is bloomberg. ♪

tom: good morning, everyone. tom keene and francine lacqua, thrilled you are with us. richard haass to join us in the next hour, particularly on russia. right now to our bloomberg business flash. taylor: intercontinental hotels has hosted purse -- earnings that the estimates. intercontinental says it is confident in the outlook for the full year despite an uncertain environment. terror attacks have hurt demand for hotel rooms in europe. endangert vote may hundreds of billions of construction projects in the by the voteanging to leave the eu. business readers -- leaders reacted with alarm last week --n they decided to delay another pipeline company has cut its quarterly dividend in the face of low interest -- energy

prices. that is the first time the oklahoma company has cut its dividend and at least a decade. -- williams also expected to sell off its holdings. francine: demand for haven assets is rising amid the volatility and financial markets. with us is francisco blanch. you are making a good point when we were talking about politics and a donald trump presidency. you are pretty certain gold will go up. francisco: if you make an analogy between brexit and a trump presidency, we saw what happened to gold and british pounds as the brexit vote came in. andasically showed up showed up for a couple reasons. the british pound came down but

also because gold started picking up higher. the uncertainty that it would bring was pretty positive for gold. heading into year and, i think g 10 politicsthe will become a lot more important to gold prices. what happens to italian banks? what happens next year to the french election and german election? if we keep moving in this path there is a chance that gold will be positively impacted by those developments. we think gold goes to $1500 an ounce over the course of the next six months. francine: i think tom keene is working on getting the chart on gold in pounds. overall is it going to hurt demand? it is a haven against inflation, haven against everything. there is also demand we tend to forget about coming from china and india. francisco: there is an element

of that but gold is mostly driven by investor demand. today we have in excess of 25% of government bonds delivering a negative yield, and that in itself is a reason to buy gold. one of the most interesting developments in recent months is that the negative carry on gold is smaller than the negative carry on say, the euro or some of the other currencies. it is more expensive to carry euros then to carry gold. that is a good reason to buy gold. gold is an asset that has no offsetting liability. bonds on the other hand are basically government liabilities. why would you buy government liabilities when you could buy an asset with no liability? chart,t a bring up this this is gold and dollars. inflation-adjusted when gold became free with nexen, the

1980's crisis that francisco and francine do not remember. upsive gold deflation, and we go again. sterling,l switch to and it is a whole different look. it is profoundly important with gold, what you do with the currency. whether it is in yen. there is the same gold chart but in pounds sterling showing a dramatic outperformance recently. francisco: and i think there is a very strong case to be made that if we move into a period of political uncertainty in the u.s. where we have a self-proclaimed king of debt running the country, i would say arguably gold prospects are bigger. so in this case, it is a bit of a hedge against negative rates

but also a hedge against what could, on the back of these negative rates which arguably is going to be a wave of relentless government spending and obviously, abenomics in japan are starting to point in that direction. we do not know what will happen next but we know that direct monetization of government money is in the cards. tom: thank you for the synthesis, francisco. you see that with yen well under 102. stronger yen, weaker european banks, a fascinating market. on value orgrisanti lack thereof and richard haass on your international relations in the next hour. ♪

tom: a stimulus to replace

japan. the yen strengthens this morning. australia cuts rates. texas intermediate breaks the $40 level. the oil decline signals possible global slowdown. informs harrisburg pennsylvania of hillary clinton's attributes. this is bloomberg surveillance, live from new york. it is tuesday, august 2. francine, if the political discourse in america -- i can't fathom what it is like to europe . are ane: i think people little bit baffled and since we had that brexit vote, it may be more easy to compare or understand this fear or anger which is propelling donald trump to the polls. what wealso talk about are seeing in the banks because they are off by quite a lot.

we will get to the yen in a moment with michael mckee. we need first word news. here is taylor riggs. >> japan's economic stimulus plan will increase spending this year. that is according to the prime minister's ruling party. low-cost loans for projects and state-run companies and money for infrastructure. japan has been hurt by stronger yen and we spending. australia has cut interest rates to jumpstart inflation in the job market. the reserve bank lowered the rate to 1.5%. still, inflation and wage growth are at record lows. donald trump is being challenged by warren buffett to meet to reveal their tax returns. buffet appeared in omaha with hillary clinton. he ripped trump for refusing to

leave his returns. trump harshly criticized clinton and bernie sanders's endorsement of her. >> he was so angry when they were talking about him and his people are angry at him and they should be. if he had just gone home and relaxed, he would have been a hero. but he made a deal with the devil. she is the devil. >> earlier, trump cap doubt on doubt onimacy -- cast the legitimacy of the process. global news, 24 hours a day, powered by 2,400 journalists in 150 news bureaus around the world. i am taylor riggs. this is bloomberg. for thenk you so much news. let's get to a data check. this is a really subtle data check. yields higher, 153, higher over the last number of days. 39, nice jump in

crude in the next hour or so. we will talk to chris croissant about it.r i was shocked at the one-on-one level there. i know the mexican peso is an emerging market. francine: this is what i'm looking at. european stocks declining. banks are dropping now very quickly on pound. we had some better-than-expected, albeit contractionary mode for july for the u.k., so pound that -- so without really anything penning that, so we know that deutsche bank's are falling out of the euro 50. it goes to the severity of the situation. commerzbank figures down 8%.

tom: that is the first amazing board of august. let me get quickly through this bloomberg to a smart discussion on yen. savings out today, personal income, personal spending, this is savings to disposable income. 50 years ago, we saved 10%. now we save about 5%. , there is a lot of good research. part of it is the aggregate tax bill that many americans pay has led to lower savings but there is more going on. francine: i have a volatility estimate index, which is basically a -- across the curve. volatility goes back to 2014, so this shows that volatility is vanishing.

it is a measure of expected price swings in treasuries and it dropped in 2014 and shows there are a few signs that the fed is ready to raise interest rates. tom: that is the volatility. i came in last in spelling, that is why i am not in a council on foreign relations. we start with richard haass. he is with the council on foreign relations and michael mckee is going to give us -- when is your next book out? >> january 10. tom: be there. mike, give us a primer on yen. a they are calling it stimulus package. but it is not. point 5 trillion, that is $74 billion, they are going to

to get the daycare help women into the labor force, infrastructure spending largely high-speed rail and cruise ships. also, some money goes to small business and some brexit relief. take a look at the jgb market, the bomb market -- on the market in japan. tom: can you show us that? >> let's see if we can get it up. since the bank of japan did their thing last week, the orange line shows where they yield today. the yellow line was just last week. they called it the widow maker but it is now working. the whole market has moved up. >> what will be the spots -- the response of the government? is not clear because what

the market seems to be saying is we are missing the third arrow. you can see what is wrong with japan in just a couple of charge. how fast you can grow is how faster labor force is growing. the orange line's labor force, the white is productivity and both are going down. japan's potential growth rate is just 2/10 of 1%. imf looks at that and says the potential growth rate is going to fall below potential growth rate. you can see the box for another lost decade. it is going to come 1% below even a 2/10. francine: the problem is the structural reform, this arrow. but you could argue the markets just got ahead of themselves and what is new in the stimulus package is 1.6% of gdp until the end of the year. tom: it is not bad for the next

six months. >> but it doesn't solve the problem long-term. they were hoping that maybe the third arrow would be filled out structural reform that would raise potential growth and that there would be even more of the short-term growth in the first two arrows. francine: what do you make of the review, we heard from governor kuroda that he would go to this review. why does he need a review? is there a concern that what he is doing is not right? >> it is a bit cultural and a bit of a sales effort. to satisfy do enough the markets last week so we threw in the idea that we were going to review policy. the markets want helicopter money. there is a lot of reasons they don't want to do that. we are seeing something with the bank of japan in the markets similar to what we are seeing

with the fed. of anotherk ambassador, mike mansfield, 11 years on the watch in japan. is it a generational shift in japan when you talk to your cfr 6 -- cfr experts? or is it business as usual within their cultural economics. slightly less critical, at least there is a second arrow. there is no structural reform out. at least you have something doing something. japan is not just a traditional successful it is too . if u.s. the japanese people, they would prefer where they are or something like it rather than taking the risk of serious change so they are too comfortable to have the social drive for serious structural reform. tom: what do you make of the

research cfr on japan? back to the chrysanthemum and the sword, and we have an emperor moving aside and a new emperor moving in. is it time for a shift? ofi think it is kind unlikely. index, it is immigration. aboutan is serious immigration, that will show a society that is much more open. for the moment, that is a third rail. the interesting question is whether it continues to drift for another decade or whether this, at one point -- the numbers go down. at some point, things get bad enough that crisis is ultimately leading to serious reform. >> why is immigration such a

taboo? unemployment at 3.3%, and yet the balance sheet keeps on increasing. demographics-- if is your problem, -- >> is what you should be doing but what you can't be doing. there just isn't the social openness to it and that is where the extreme traditionalism and the nature of japanese -- the dna of the society doesn't allow you to do it. cap as high as japan's, people don't wake up in a mindset ready to complicate that, -- contemplate tom:. a lot going on today. chris grisanti will join us today. the marketsorts in

of growth versus value. the yen, 101.67. this is bloomberg. ♪

>> this is bloomberg surveillance. i'm francine lacqua. tom keene is in new york. let's get to the business flash. >> air france is seven-day strike has cost. allfrance plans to operate long-distance flights today which is the last day of the strike. edna posted second-quarter earnings that beat estimates to ensure it beats its forecast.

it has a battle with the justice department. microsoft has raised almost $20 billion in its biggest bond sale ever. it will use the proceeds to finance its acquisition of linkedin. that is your bloomberg business flash. tom: greatly appreciated this morning. christopher grisanti with us. having him on because he runs real money and attempts to find value. where is the value right now when i see multinationals fading at 25 multiples. >> it is kind of a funny market. it is difficult. officially, i think the value is in cash. we have the highest caste -- cash position we had since we started the firm 20 years ago. the risk reward out there is really difficult.

you've got the consumer stay rules -- stables and utilities and of the other side of the scale you've got some technology and other stocks that are also a bit up. we are finding someone offs. offs.ding some one tom: there is a linkage between the s&p and bond market and a linkage with a vengeance this year. >> if you are looking for a canary in the coal mine, there is nothing better than this chart. down.nd deal goes the white line is a bond deal and the blue line is the equity market. they come back with strength, but finally, starting in april they have diverged so you have low bond yields at the same time the s&p is hitting a high that worries us. francine: because we are missing

pricing risk? >> i think it is a missed price of risk. i think there is more risk out there then the market is incorporating. tom: what is your percentage? >> 30%. tom: chris grisanti could not fund.by prospectus mutual the rules are maybe you could have 7% cash. francine: in what currency? >> in u.s. dollars. francine: that is crucial, isn't it? >> our foreign investors love that. i am not expecting armageddon -- what we point out are expecting is tougher times ahead and active stockpicking

coming to the four. .- coming to the fore francine: as long as there is cheap money out there, we are pretty safe. if you are 100% in equities, i don't think you are safe. what we are looking for now is stocks that could succeed in spite of the market environment instead of with a tailwind that we have had previous to this. that is a significant, small but significant change. tom: i want to bring up the grisanti chart. wonderfulver to this effort to have a strong foreign policy. this is the market back before the depression. the slope matters in the percentage -- there is the ugliness of the depression.

haass associated with the carter malaise, but that is the strong america you talk about. >> the threat is not so much economic but it is politics. wewe can't do the things need to get the economy growing we don't have an immigration policy or infrastructure policy. our politics raises questions. this is the reality. the trend is a reality more than anything. do you need to stay on that trend or build up cash waiting for us to go beneath the green line. >> this is a tough chart to invest in because it is such a long forward book. but richard throws another thing into the mix which is with all the uncertainty of the election ,ollowed by a raise it result

do we think the market is going to be flaccid? tom: we are going to talk about that. francine: we will be back with chris grisanti and richard haass . i want to specifically look at some of the banks. look at the ubs. the other banks amongst investors. ♪

tom: bloomberg surveillance

thrills you with francine lacqua and tom keene. let's get through. averaging money in china. longer spending 70 days a year. the company may be able to focus on national monopolies elsewhere. uber has reasons not to want to wipe out lift. it has been a battle with regulators and taxi drivers. much about the new global economy where entrepreneurism is treated differently. hard it is to do business in china. they are not the only ones who have grown into the buzz saw. tom: do you buy foreign companies or just multinational? >> we will buy foreign companies as long as we can trade them in the united states. all our financial companies are

in china. uber is someone who couldn't do it directly. if that: i don't know is different because uber is a technology company or if it is -- whether it is a banking ceo or anyone that says china is different. >> china is changing. the crackdown in china israel and severe. the entire political environment has changed. it is much more difficult to find partners willing to commit to things because they are not sure about the consequences of what it is they might do. financing in china has become that much more difficult. francine: because of the regulatory environments and the antitrust laws in china being different, this is not a blueprint for what uber will do in europe. toit is not just country

country, it's community to community. some places make it difficult for uber and some places don't. is with usd haass with a book out january 10. we know our presidential campaign is in disarray. mr. trump says mrs. clinton is the devil. mr. trump informed harrisburg pennsylvania about their attributes. something else about the deceased worth euro. it was a day of disarray, a washington of disarray. coming up, america's disarray. ♪ e

francine: we are bringing you surveillance. this is the picture across asset classes. at currencies,

yen because of details of the stimulus. the markets were expecting more. 101.69. construction was a little bit weaker and i would focus on banks. led on thise really today and you are dead on. the banks are frightened in europe. francine: you don't cnn game. we speak to investors and they say as long as the economy is weak it is going to be tough for these banks to regroup and set forward. let's get the first word news. japan's economic stimulus plan will increase spending by $45 billion this year according to a draft being discussed by the prime minister's ruling party. forncludes low-cost loans statement companies and money for infrastructure and disaster relief. --an has been served by what been hurt by weak consumer spending.

rare meeting with executives from global companies. it is the government's latest attempt to manage the economic fallout from the attempted c oup. warren buffett is challenging donald trump anytime, anyplace to reveal their tax returns. buffet appeared in omaha with hillary clinton. he ripped trump for refusing to release his taxes. >> he can pick the place, anytime, i will read my return and he will bring his return. nobody is going to stop us from talking about what is on those returns and send the word to him if you will. >> trump harshly criticized clinton and bernie sanders's endorsement of her. >> he was so angry talking about him and his people are angry at him and they should be. if he had just gone home, he

would have been a hero but he made a deal with the devil. earlier, he told a crowd he is worried the november election maybe rigged against him. global news, 24 hours a day, powered by 120 countries. tom: never seen it like this. neither has richard haass. on the politics of the united kingdom and president on the council of foreign relations. is for everybody that has .een waiting for this obviously you have never seen anything like this. you have advised republican presidents, advised this republican candidate. get him back to discussing policy instead of the devils that he has in his brain. >> people have been waiting for

that and they keep hoping the day will come when donald trump he comes a traditional candidate. the other day you have a job numbers and the economic growth numbers and you would have said we are only growing at 1.2% so why isn't the candidate hammering away on that. instead he is taking a fight with a family lost a son. he will lose this election badly if this becomes a referendum on his character and temperament. the live way he can win is if he makes it a referendum on the issues because 70% of the american people think the country is moving in the wrong direction. thisbvious ploy is to make a referendum on just that, the case for change rather than continuity. almost the american equivalent of the price it -- keep rates at vote. vote. brexit ambassador, you have

advised both parties, you are a political, what is your to do leaders?republican people are screaming for them to act. >> that is the real question. at a minimum, republicans are going to take a pass on the presidential race. they are doing what you might call a performer endorsement for distancing as much as they can onspend their resources congressional races to keep the senate and make sure they don't lose the house. that is where the politicos are doing. if trump gives doing the sorts of thing he has done, the question is whether you see people move away. you saw john mccain, the congressional leadership, and if trump crosses lines -- and

somewhat say he has artie done ---- would republicansd de-endorse. francine: doesn't it feel too late for people to diss endorse? too far and yet people on social media are saying if there was a window is closed. one of the interesting questions of one of my colleagues in the new york times is what does it say about the future of the republican party. what does it stand for? i think the president actually made a good point of the convention, that donald trump is putting forward a mixture of his own policies and attitudes which are not republican. nothing about it is conservative. it is anti-establishment, populist, nationalist.

this is not the republican party that any of us have known. >> i like the parallel with brexit. there are lessons hillary clinton can get from this. i want to bring in gideon rockman pointing out parallels between brexit and donald trump. of first is the potency immigration and how the campaigns have become vehicles for protest votes about economic insecurity and the third is the chasm between elite opinion and that of the white working class. how much do they feed off the same anger? >> i think what gideon has written a spot on. the brexit vote was not about about europe. most people voting didn't know about the technicalities of the relationship with eu. people a lot of

supporting donald trump don't know what trade impact has had. what it has done for our society and our economy. what this becomes is a basket that collects all the frustrations and angers and fears about the future direction of the society. that is what this is about. tom: two strands of thought off of what francine said. you mentioned max boone who said the republican party left him. but still back to james macgregor burns, 1978, transformational leadership's. what is a transformational leadership to adjust to that white anger in a party? question, a big because bernie sanders was tapping into similar stuff. you need to come up with a program that helps people deal

with the challenges of globalization. it doesn't mean you are anti-immigration. like wage things insurance, various types of protections, education, retreading, how are you going to deal not just with globalization ? how do youdeal is deal with technological innovation. what do we do when rival's trucks come around and million people lose their jobs. >> technological innovation goes .ack 80 years francine: i think brexit in this country was a surprise for many and you wonder whether, had a thought about this a couple of years ago, if income inequality could be addressed better. whatestion for chris is

would it trump presidency mean for the market? it is probably money into havens such as gold. >> i am thinking of donald rumsfeld and there are unknown knowns and there are things we really don't know. offers another corollary which is the uncertainty event the elites thought could never happen happen. as we get towards november in the markets, one of the things i'm concerned about is added volatility even if donald trump doesn't win. folks won't be quite sure what happens even if the polls are leaning towards clinton. richard haas with his book in january, the world in disarray. we drive forward to 5:00 p.m. this afternoon. we will double down with smart conversation. how can tuesday cut monday? within the disarray of american

politics? from london and new york, bloomberg surveillance.

>> this is bloomberg surveillance. tom keene is in new york and i am francine lacqua in london. here is taylor riggs. emerson electric is selling its power division to platinum equity and other investors to deal with $4 billion. second-quarter profit rose almost a percent at bb -- bmw. the automaker kept its tight grip on costs. such asheaper vehicles the x one compact suv. it is the world top celebrating

-- top-selling luxury car brand next to miss 80's. germany's second-largest commerce bank fell after scrapping its profit target. deutsche bank was lowered and italy's unicredit considers raising capital. that is your business flash. francine: it is incredible when you look at banks across the board in europe. some of the ones we have been talking about are much weaker than i expected. ubs down to 1.2%. this is not on the back of a news. commerzbank came out with some earnings that disappointed. for more, let's get to our knees banks reporter in frankfurt, nicholas comfort. is this a general trend which it isgo on for longer? >> a real concern about the growth prospect of these banks.

if we look at a commerzbank today, very dependent. the positive charge with the ecb, the banks have to put money up there overnight, they are going to cost them 100 million euros a year starting next year. so people are really worried that this is going to hit x across the sector and they are going to be tough times to build a capital. tom: what is the catalyst you are looking for? is there a new sequence this week or into august things fall apart? i think the big question essentially, it is a survival plan on the way. you can get a hiccup there and will be a bad sign. people are looking at big bank costs, hopefully closing in on the settlement with mortgage

backed securities in the department of justice. in within the banks, that could be a part of the capitalist but if it comes in a lot higher and looks more concern about the overdosed bank. why are the ecb being tough on the banks? to lend to the economy, let's not forget the primary role of these banks. those goals aren't always working together. if the tell the bank to tell -- cut its risky loans, you're are telling them to go in different directions. as far as the stress tests are concerned, clearly they want to

restore some confidence and say the banks have more capital. the question is, how much and when? tom: nick comfort, greatly appreciate it. onis grisanti is with us investment and richard haas as well from investment. shown, jpmorgan -- did you see jamie dimon the other day in the polo shirt? jamie dimon in the bmb terry labonte green and the dogs them below ubs and deutsche bank. bnp is not joining in the rollover of ubs. the green line hasn't rolled over like those at the bottom. it is about attitude. >> where is the angle of courage? there is some courage in the united states

after own nine. tom: where in europe? >> when you talk about anglo-saxon courage, you have to talk about british banks untangling themselves from the european banks. it is a new rule. more importantly, in the near term you've got monti prostate. -- monte kospi. it is not a surprise to me to see for no reason, the european banks getting hit hard on relatively minor news of some soft losses. god for bid the economy softens. i want to push back against anglo-saxon courage. the u.s., undoubtedly was the first to get the bank sorted.

at the u.k.back banks, let's not forget that this country had to run the bank. forced them to be a lot quicker than europe. is that clear? on europe, they were slow, but the economy is a huge part of it. only play the hand you have been dealt and they have been dealt a mediocre hand. you've got growth 1% at best and in some countries still negative, so you've got a real problem, a yield curve that is starting to platinum. it is just a terrible environment to make money, and that is without credit issues. >> some of that is going to be the news of august. people care about pfizer being versus 62% operational

growth but then it is sort of the same old thing. i am going to do a generic tease because pfizer is competing with generics. pfizer with a little bit of a beat analysts in the market as well. immense,on and from playing the new york yankees, new york, subway series. ♪

tom: some days it matters, some days it doesn't. our expert this morning almost the europeang as banks. the yen, one 01.77, the euro-yen is roque and under 114. anything through 19 gets your emerging-market attention as well. >> shortly, it is bloomberg with david westin and jonathan ferro. david is with us now. we've got some important stories to cover, starting with the reaction to the announcement of the stimulus.

we will be joined with ebrahim rahbari. oil is of a story, moving into a fair market on the uptake but still a good story. -- ofbe joining with morgan stanley. commercial real estate come back . we are going to have colin dyer, to talkjones lasalle about whether that marks a turnaround in the somewhat sluggish market commercial real estate. >> the russian economy has been shrinking for years. for 18 months, vladimir putin has not had a need to get going. growth has boost given to address of that the markets or defend his kremlin. , richard, i want to go to you straight on the

trump-putin relationship. he has praised production for russianften invited hackers to look into hillary clinton's e-mail. >> this is the question everyone is asking, not just those things that the statements about crimea and the not coming to the defense of nato allies. it just doesn't add up so the parlor game is trying to figure out what explains what you describe. donald trump -- why is donald trump essentially taking a blinded you of russian power. russia is behaving in a way that nobody is denying. estonia. shot at collectivea's ignorance of the baltic sea is stunning. into st.of finland

petersburg, what is the defense in the foreign-policy strategy we need to affect to revise support to the baltic states. end of the cold war, we essentially demilitarized and nato.rope we have begun quietly re-militarizing. we have an and or miss cap which is what you never want to have between your commitments in your capabilities and since we are not going to reduce our commitments, we have got to increase our capabilities which means going up the baltics. not just russian tank formations that might come across the border, but we have to help them be in a position to deal with the stuff we have seen in georgia and ukraine. an atlas is on its way to new york and tom keene. why does nato matter? >> europe is one of the great

venues of history. it is one of the two great concentrations of power. as goes europe, as does the world economy. >> you know in your fiber, every distance in europe, we don't do helsinki is just miles from st. petersburg. the new 9.9% of americans don't know that. tom: francine, thank you so much. chris grisanti, sound -- thank you. this was wonderful. teachers at negative four. this is bloomberg. ♪

>> japan's government

announced a $45 million extra spending as it seeks to prop up the wills largest economy. david: we'll rebounds after falling below $40 a barrel for the first time since april. concerns over the glut send crews into a fair market -- bear market. >> cutting rates to record low in attempt to counter disinflation as a support -- report of sluggish labor markets. welcome to bloomberg in new york city, number 26. stimulus plan for japan since 1990. david: and they expect a different result. i can't quite make them at up. >> you have heard reports that they are going to just give ¥15,000 to low income people.