would the results keep on selling? the b.o.e. will act tomorrow. francine: and oil looks to rebound in a bear market as the global supply glut weighs on prices. tom: welcome to "bloomberg surveillance." jonathan: the call that gave me a little bit more color. david: i want to point out hsbc because the finance director, c.f.o., it will cost them $100. alix: that raises the question that's hurting their

profitability. it all comes down to cost cuts. hsbc heading annual cost of bout $5 billion. jonathan: he had a bit of a message for the bank of england. alix: and it come downs to the retail banking sector. we're going to have a big interview in the next three hours, talking commodities with the new man in charge over at oy tinto -- rio tinto. you look at overall at the arkets, it seems to be a risk. jonathan: s&p 500 futures

marginally negative. in europe, it's the ftse 100 that's soft but no drama. hsbc stands sure leading the gains. in the f.x. market, this is the one to watch as the cable rate against the u.s. dollar ahead of the bank of england decision. we are positive on the day but we trade at $39.78. and ahead of pay rolls friday, ahead of the bank of england decision on thursday, yields coming in on 30-year treasurys and off 30-year gilds as well. alix: time warner increased its full year outlook and a 10% investment in hulu. you can glean it beat on earnings coming in at $1.29 a share but it's an investment

into hulu to be carried on hulu. david: disney and fox are already in their stay. and nbc going with hulu now. alix: setting the counter. o.t.c. setting the counter now. it's a wednesday. time warner cable is moving igher by 3% in premarket increasing its 2016 outlook. let's check in with our bloomberg team for all of our top stories. richard, a slew of european banks reported earnings this morning. plus we have lucy on the u.k. services shrinking the most in seven years ahead of the bank of england rate decision. it's all about european banks the last 48 hours. jonathan: we begin in london with bloomberg banks reporter.

let's start with hsbc. seems to me it's less about the earnings and a whole lot more about the buyback as far as the session is concerned. >> absolutely. that's the big thing the investors really appreciated today from the bank. they have been concerned in recent quarters about the capital generation in return of this institution as it faces revenue he winds that we talked about. those low interest rates really squeezing down on the profitability whether they're able to cut costs fast enough. the buyback that they announced today really to do with selling their brazil unit. and that enables them to carry out this buyback which investors are cheering this afternoon. as far as standard charter is concerned, it's an asian story. are we finally starting to see a little ray of light coming out of the restructuring, the big

restructuring that we've seen at that bank? richard: hsbc, yes. one thing that we've seen today is both hsbc and standard charter asian banks reporting 45% drop in earnings on the year-on-year basis for the half year. that's really negative. however we are turning the cycle hopefully for these institutions as they restructure and cutting the costs. they're generating capital from disposing of loan books and that is something that investors are looking through today. it's notted a bad. and there's a bit of a mixture of stories going on here. revenue environment very weak. operationally, they're attempting to do the best that they can in this difficult world . jonathan: thank you, richard. the low rate story is something that's planned into all of the bank earnings and now in thick as well. alix: that story is going to be front and center when the b.o.e.

comes out with the rate decision tomorrow. let's bring in lucy. the u.k. services, it was really decides mall, falling the most since 2009. talk us through the u.k. economy since brexit. >> it's really negative because there are huge u.k. computer, three quarters. it's not that it's the largest component, it is by far the largest component. that is going to be a huge problem if it continues. and that's the real question. this is one month. so we're going to have to see what else comes up. that would translate to a .4% contraction of the u.k. economy for the quarter. alix: and this leads into the b.o.e. tomorrow. 99.3% chance of a rate cut tomorrow. what can we expect? lucy: well as you say, people

are really expecting a rate cut the markets have got it completely priced in. it will be a real shock if we don't get one. the last time they met three weeks ago, the market was pricing at an 80% possibility. so there's nothing set in stone here and we're expecting a packages measure as well. so we could be seeing an expansion of kiwi. they could extend their funding to lending scheme or they could even play around with the time horizon for which they're trying to get inflation back on target. so they could say instead of trying to get inflation back to its target in two years, we'll give ourselves three years. alix: you want to stimulate the man and supply all for loans. lucy, thank you on the bank of england and u.k. economy. and we're going to have you covered tomorrow on the bank of england decision and mark carney's news conference. do not miss it on bloomberg. and david, we have economic data

out of china which is a different story. david: we want to turn to our bloomberg reporter in hong kong. we expect services in china chafment cha what have we learned from these new data? >> what we've seen over the past few days, we had some economic data missing estimate, some beating estimates. at the end of the day, what the market is taking away from this s china's two-speed economy is almost on a pretty solid, solid track even on the best of times. it's difficult to predict what's really going to come in. but what investors are seeing the people that i speak to, they're all saying these things haven't declined. both manufacturing and services are hovering around the 50-mark which bodes well for the economy after a sharp turn.

david: there's news about a possible changes in restriction on the futures trading. what do we know that is coming down the pike and when? robin: so what we're hearing is there are some restrictions on stock futures allowing people to open 100 new accounts rather than 10 per day. this is a reflection of the confidence that the chinese authorities have in the recent few months. if you remember last summer's stock route earlier this year as well, when the currency or debt appreciation led to turmoil in the stock market. pretty solid ot practices in place at the moment now. they also have massive state on funds which can interfere with the markets but there is always a danger because sometimes the chinese stock market doesn't always move with fundamentals.

avid: thanks very much, robin. alix: talking about breaking news as to do with time warner taking with a 10% stake on hulu, joining other big media moguls like fox and comcast. and they're raising that full year guidance as well. european banks front and center. hsbc profit falling 45%. but the market's ok with that billion has a 2.5 buyback. because it's an economic uncertainty, but all of that taking in stride because we did get that buyback. also did have charges for bad loans coming in at 1.2 billion. we will be talking more about the negative rate environment in the next three hours.

i.n.g., a bit of a different story. they're making some stories despite the negative rates. interest income is up 6.7% and second quarter profit rose. it did cut some of the bad loans that it had on their books. a better quarter for i.n.b. stock general stocks i.n.g. there. it had lower provisions for bad loans. a theme that we're seeing from a few of these european banks. like hsbc, it is worried it won't reach its 10% r.o.e. goals because of the market and economic conditions are totally different than they were two and a half years ago when they could reach that profitable target. a constant theme. profitability for european banks. for what you need to know outside of the world of business, taylor rigs is here with first word news. taylor: an airline went up in

flames after going to dubai. there were 300 people on board. television footage showed a large plume of smoke over the airplane. it's the worst accident for emirates which this world's largest carrier in politics, it's payback time for donald trump. the republican presidential candidate is refusing to endorse the highest ranking republican, paul ryan. ryan has a primary election next week in wisconsin. after trump had clinched the nomination, ryan spent several weeks before deciding to endorse him. trump withheld his endorsement facing primaries, senators john mccain of arizona and kelly aot of new hampshire. hewlett market enterprise endorsed hillary clinton for president. whitman once ran for governor of california as a republican. she urged all members of the party to reject trump. whitman says clinton's

templement and experience make her the far better choice. i'm taylor rigs. this is bloomberg. john? jonathan: thank you. european banks rebound but it's been a rough year for credit suisse and deutsche bank. up next, we reveal which banks have a track evaluations and which are still value trapped. this is bloomberg. ♪

jonathan: to the european banks we go now in focus since the brexit decision.

here is more. >> it's difficult to say when the environment would be stabilized. today the risk are very high and the uncertainty is very high. the brexit decision is creating an additional uncertainty in the environment. the global -- has been revisited at a lower level in the past. and it could last very long. jonathan: joining us now on the stat of the financials is krishna memani. if i said to an investment bank, they go whoa, no, no. but the environment for european banks, it's so different. there are four, five different stories all on the same index. krishna: absolutely. jonathan: talk to me which ones you're looking at. krishna: so so far, european banks have been the ultimate

value trap kind of put it mildly. having said that, i think -- and there are certainly significant headwinds and the profitability is under severe stress. but even with that there, are really good franchises that exists out there that are being punished with the rest to the crew. so companies like u.b.s. and credit suisse where the investment bank may not be doing as well as they have in the past , the welt management part of sweeties, test, -- bba. alix: it is different across the board. credit default swaps and deutsche bank has held up very well versus the underlying stock, david. david: it depends on what you're investing in.

in debt or equity? the reserves are going up with these banks which makes it a better investment, isn't it right, krishna? krishna: if you look at the stress test results, solvency is not an issue anymore. so banks react to solve vensy are just fine. on the other hand then profitability is under severe stress because of structural headwinds that these ubstitutions face. jonathan: the question is debt versus equity is just growth and profitability versus stability. and if you look at the u.k., let's take a franchise like hsbc. big asia story baked into that. now they face the prospect of very low interest rates in the united kingdom as to many of the lenders in the u.k. this story has gone global. the banks are saying we don't like it. why isn't the central bank

acting on that? krishna: they're key job is to make sure that the economy is sport supported. they are going down to the interest rate to support the economy. banks are collateral damage. after the japanese experience, the policymakers are far more aware of the fact that this may end up being significant collateral damage and that will have impact on how policies transmitted and therefore, they're being far more careful. can you do that without strong and strengthening banks? krishna: absolutely not. and as i said before, with the negative interest rate experience in japan, i think policymakers are coming to that realization and perhaps that helps on the banking equity front. jonathan: i think we're going to be talking about this for a while because the u.s. banks just incremental steps across europe slowly -- we'll be doing this for a while, stick with us.

alix: and coming up, crude has some company. we have a supply glut weighing on prices. we're going to discuss how low oil can go next on "go." this is bloomberg. ♪

alix: this is "bloomberg go." i'm alix steel. brent oil joining w.t.i. you have a supply glut weighing but something odd is happening. take a look at my bloomberg here. this shows the dollar index versus the w.t.i. what's going on? they're both going down. they usually have an inverse correlation. ow does that make sense? krishna memani still with us. goldman coming out saying guys, this is not about the macrofactors. so what is moving oil low? krishna: this chart is really the biggest difference between

oil in 2015 and oil in 2016, which is the driver of oil prices in 2015 was one, supply glut but at the same time, the dollar move was exacerbating that. that's not the case. so yes, oil is a problem. prices going down is a problem but it is a localized problem. it probably will not have the same impact on the overall economy, overall financial markets as it did in 2015 and end up being far more self-correcting than it was in 2015. david: is this a temporary inventories issue if a few rigs have come down but it's not close to the peak. krishna: the supply-demand mismatch is reasonably substantial and probably takes up to 2017 for it to match up well. i think the thing that can change that is growth prospects in emerging markets. so if growth prospects in asia

change materially, i think the oil picture can change. for now, the prices are going down but it is not going to be as harmful for financial markets as it was in 2015. alix: but we have seen china stabilize somewhat. we have seen money guy into emerging markets which should be supportive for oil. why is that? krishna: the financial markets are anticipating the turn if emerging markets. the economy still are at the verge of strengthening further. i think if that is realized, oil price will react more favorably. david: i wonder what effect india is having. because india is a economy growing faster than china and their oil consumption is growing as well. is that a growing factor? krishna: india has been a large importer of oil forever and has been one of the biggest beneficiary of the down trend in oil prices but indian growth is

stabilizing but it is not getting to the next level where it needs to hopefully it does. they're implementing certain policies that gets growth going in a better way but it's still to come. and that's true of emerging markets. if you look at the other countries, things are stabilizing on the verge of turning up. if they're due, they'll have a meaningful impact in oil. alix: so when you take a look at oil, where are the areas that you cannot invest when you have oil at $39 a barrel? krishna: so where you can -- i guess where you cannot invest is producers. producers are on the verge and some high yield bonds that are dependent on that revenue stream. having said that, there are pockets in the energy market that offer you tremendous opportunity because prices go down and their fundamentals don't. m.l.p.'s are the best example of that. alix: they have the juicy dividend and they want return to

investors. david: which have gone up and gone down. alix: a lot of retail wind up being in that trade. krishna: for people looking for income, i continue to believe midstream m.l.p.'s offer tremendous income opportunities. lix: krishna, great stuff. jonathan: the chinese hard line has become a reality but only in one profits alone. we'll discuss a fragmented china right here on "bloomberg go." from new york city and the markets two hours away from the open, futures a little bit softer. s&p 500 futures negative five. 24 hours away from a bank of england decision from london and new york. this is bloomberg. ♪

alix: this is "bloomberg go." i'm alix steel. here's a check on some stocks moving before the stocks open. b.o.g. funded by asset sales and

second quarter operating profits with six cents before. we'll be speaking with the c.e.o. at 10:00 a.m. this morning. also standard charter, you've got the good and you've got the bad. the good it shall the stock is up. it's bad loan charges fell to about $1.1 billion. the rough part was the profits still fell by 46% year-on-year, the lowest revenue since 2008. so definitely sort of the good and the bad when it comes to these european banks. also bitcoin, this had a huge move. it's really fascinating. down by 5% but its low was about expect%. the worst daily fall since january. you had a hack of a hong kong exchange about 120,000 bitcoins were stolen. over to john for a look at what's happening in the markets.

european banks, profits may be down but stocks really moving. jonathan: that buyback from hsbc really happening. and the wider market, the dow on a seven-day losing streak. the s&p 500 on a two-day losing streak. futures softer. europe, three-day losing streak. the ftse down .2%. germany, margically negative 24 hours away from a big bank of england decision. he anticipation is too much. it's been a soft weak, weak, weak pound story ever since the u.k. voted to leave the e.u. the monetary policy response, we get some answer on that tomorrow. in a commodity market, w.t.i. has been a big story. it sapped the $40 barrel for the first type in april. percentagically positive on $39.69. and the global bond market rally is starting to unravel.

g-7 yield, five-week highs. at the long end of the curve, 30 years, we start to come in on treasuries and on gild. that's the bond story. the bank story, very much in focus, alix. alix: earnings are trickling out on uni credit. net income coming in at 916 million euros and that beat estimates that we saw in the first quarter. the stock is moving up by 3% now in the market. so again, the net income coming in at 916 million euros, double from what it was in the first quarter. stocks moving higher. we're continuing to get these headlines as it comes out. we want to point out that it's ratio and c.e.t. 1 ratio is 10.33%. so we'll continue to look at tease headlines and update you as they cross. david: thanks, alix. back to japan and the stimulus over there. some people were disappointed by

the stimulus announced by abe yesterday. one says he thinks it should be a model for the rest of the world. to quote "interventions in labor market can have valuetory long-term effects on fiscal alance and growth -- we're joined by tom keene from "surveillance" radio. annoy you're a big fan of adam posen. i find telling the linking of the fiscal stimulus on the one hand with reform on the other. the second and the third arrow put together. taylor: our link is not so good. tom: the coming quarter, we will see actual reform. what i love in the posen essay was one single line -- the received wisdom. it's this convention and

received with how you do crisis in the united states, in europe in japan and those received is with comes are different and what dr. posen is saying is here's a lesson to be learned. david: as you say, what we're seeing is japan departmenting from that received wisdom and going the fiscal stimulus. but on the reform issue to peers and mr. abe is trying to stimulate things to address the demographic problem by relieving pressures from child care, changing the tax code to encourage people so have two wage earners to address that. tom: my ignorance is mr. abe on the domestic front, we spoke ith john israeli yesterday and he was heated about the popularity of mr. abe in rural japan. once you get outside tokyo and the other two major cities.

the idea here that mr. abe has an audience that will support him towards those reforms. is going to need it. david: it's the second beat. another piece -- tom: you have a second beat? david: it's related. japan's worst bond route since 2013 beats anxiety. tom: that's the elephant in the room. david: the yield jumped. the price fell the most in three years. the question is what does that mean? tom: that is the elephant in the room and asterisk, if you will. it's sort of like a baseball asterisk on a home run debate or whatever is the japan bond erratics are different than ours. huge savings in the government and their bond market is almost a captured bond market and that fear for well over a decade has been someday that will end. and all the news stories you saw in the last 24 hours is that day

here. i would suggest not, but nevertheless, price down, yield up. gets your attention. david: is that phenomenon unique o japan? tom: it is unique to the society. robert feldman at morgan stanley is wonderful on this. it is a unique system. nevertheless, you saw this one chart that bloomberg had yesterday with the japanese yield went above the european yields. that's shocking to people if that was to persist and continue, that would be a big deal. david: extraordinary story we continue to follow. you want to tune never day 7:00 and 10:00 eastern for "surveillance" radio with tom keene and mike mckee. 8:30 ow, adam joins us at a.m. eastern time. jonathan: after a big bank of england decision, we're looking forward to that.

a contracting economy and one northeastern province contract 1% but growth in expect of the countries ticked up in the first quarter. for more on the divergence, a chief asian economist joins us now. i'm used to talk about a fragmented eurozone but china is on a very less critical decision but we are seeing an increasingly fragmented economy in that country. why? find itred to europe, i a divirtue generals. in northern part of the country, they are dominated by steel sector, energy sectors and also by state owned enterprises that are not as efficient as the private secer to.

then you see all the external hocks. so actually, i think that there are specific sectors in the enterprise problems and that's the reason why we see huge divergence in growth. jonathan: on the question on divergence, looking in to the country at the moment, you see one province contracted by 1%. another province expanding by 10%. the perception is this is a valley planned economy. how do they pull the levers to pull the whole economist up to speed? is that broken down? >> in china t very hard to do a planned economy because the most part of the economy is dominated by the market force. all the private sector, foreign companies. so there are some for the enterprise issues but that's quite common if you look at the

united states. you see san francisco and other cities in the industry that are suffer from the system. that divergence is happening in china because in the coastal region, you have new sectors like semiconductor, automobile, and nternet, i.t. sector financial service sector dominated by private sectors. it's booming. but then you see the northern part. so that's a key issue is the state-owned enterprise reform. that's a critical issue. how to reform the state-owned sectors and make it more efficient and also how to eliminate the overcapacity that is playing the economy. that's a key issue. alix: we've seen china so reluctant to do that. they want to combine two steel companies even though china keeps exporting so much steel they keep flooding the markets and lowering prices. how do you stomach the short-term pain that will cause

when the private sector cannot make up for that public investment? >> that's an issue for everybody, cutting back overcapacity. alix: but it's much worse in china. it's been self-correcting in many other countries. >> that's right. because there's no state owned companies. if you have that, and also in china, there is no bankruptcy mechanism procedures for state owned companies. then you know, they keep producing even though they are losing money. that's why you have production expanding. so that's actually exactly the key issue. how to reform this sector. so you have to create, you know, bankruptcy procedures. so chinese leader talking about making s.o.e. leaner, you know, healthier, but on the other hand, there's also other thoughts, opinion about making it bigger, stronger, by emerging together. so there is actually -- there's no common opinion.

there's very different views. jonathan: here's a big question for you. how do you consolidate steel scout put? how do you address state owned enterprises when ultimately you know the only thing that matters is social stability and the prosperity of the middle class? do you see unemployment start to rise in a significant way in these provinces and you tell them in a very capitalist fashion go out there and educate yourself and gear yourself for a modern economy. that ain't going to work in china. what are the problems that are going to come about from that? >> that's the issue. we know it's very painful to lay off workers, especially they are employee of state-owned companies. those people saying i'm working for the state. why are you laying me off? so what the government is actually seeing is they want to avoid -- but at the same time, they want to cut down the production. you can see the coal production decline by 17% in june.

jonathan: yeah. >> they said companies cannot produce seven days a week now. they can only produce five days a week. that's the reason why you can see coal production decline so much that's exactly the issue. there's no mechanism to distinguish between good and bad companies. so what they do is across border and every company have to cut 10%. that's what's happening in the steel sector as well. the problem is when the price recover after the initial decline and production? there are a lot of companies, you know, increase production and then suddenly, steel production went up unlike the coal company. they say you cannot produce at all. so that's exactly the issue. so in a way, i think what they are doing is every company want to cross -- want to make everyone suffer a little bit but to no major -- jonathan: not too much. that's the big one. so thank you very much. ome earnings here.

taylor: stock fell down in milan. it was up 3% on earnings and now it has fallen 4.3% triggering as that halt. overall, you did have second quarter profit gaining 75%. that was due to some one-time gains in lower operating costs up on the other hand, you have unicredit affixing 25 billion euro. it's loans for long-term loans for cheap interest. they're evaluating if they are going to continue to tap that lending program but i will tell you second quarter profit up 75% but the stock has halted in trading in milan. >> and the loan lost provision as well at 114 million euros. the estimate about 898. the loan process provision that a lot of people are going to be focusing on in the coming months and quarters.

alix: other european banks drew down on the loan loss provisions for the bad loans. much more coming up on unicredit. and we will be looking at the great migration. the biggest global bond funds are seeking refuge from negative ow yielding bonds. this is bloomberg. ♪

alix: this is "bloomberg go." in the hewlett-packard greenroom. coming up on tomorrow's show, bank of america c.e.o. brian moynihan will be joining us in a bloomberg exclusive.

jonathan: from new york, this is bloomberg. once upon a time, a man bill gross used to run the biggest bond fund on the planet. he says i don't like bonds. i don't like stocks either. these comments coming from his investment outlook. i don't like bonds. i don't like most stocks. guess what he wants to buy, david. he favors gold. david: i thought he was the bond king. jonathan: i don't know what he is anymore. he certainly doesn't like bonds. he said where rates were at record low rates on g-. bonds. they were just too risky. that kind of makes sense. that's not a contrarian call. doesn't like bonds. doesn't like equities. i imagine two of the same story. david: as i understand is the yields have gotten so low, if there's a turn, it could go fast in an ugly direction. jonathan: he favors gold. he favors real estate over bond stocks and we're hearing this a

lot more around this table on "bloomberg go." alix: how much more upside can there be in gold? there's a lot of risks there. there's costs as well. david: and in the real estate, you have liquidity problems. jonathan: absolutely. bill gross doesn't like bonds or stocks and he favors real estate and gold. find a rock and just hide. bill gross not under a rock. he will be joining us friday following the jobs report at 8:30 eastern on "bloomberg go" and on bloomberg radio. david: now we're going to turn to emerging market. blackrock calling it the great migration. global bond managers are putting money into the debt and you look at look at this chart. it shows how much increase has been. the blue part is the emerging market and how much it's changed. for more, let's bring in pablo goldberg for emerging market debt. welcome to the program. pablo: thank you. david: explain us to your thinking. you're saying we should go

further into emerging market. why? pablo: if you take bill's words about not liking bonds, i think he was talking about developing market bonds and he was trying to look for something that has some yield and spread that could potentially, actually cushion price what could be the but emerging markets has that yield. and this is what we like. this is what we call the push effect. develop markets pushing money out of its fear. now we need to see how is the emerging market prepared to receive these funds and we call it the pull. and we what we are seeing is the improvement on encouraging market pusm after three years of adjustment, it is at a good place to receive this money that is flying away from negative yields. alix: 4.4% on average versus half a percent for developed countries. makes your point. more money comes in. but doesn't that lower the spread and lower the efficacy of

the debt? pablo: you should expect that the price of emerging market bonds might go up. that is part of being early in the game and this is why we're calling this migration so far trying to capture that effect. in this sense, we will find a point eventually where that spread will not make sense anymore to take the hike. but that we're two there yet. david: when you say emerging market debt denominated in what? local currency? euros? how do you deal with the risks? pablo: the asset location decision has become increasingly more important. our analysts show when you look at local markets, about 757% of the return volatility is explained by fx. you need to be sure about it. so they're we're liking more of the rick adjustment point of view but we like to use the local market as a tactical play.

alix: what happens when the fed raises rates and the dollar rallies? that's going to put a lot of pressure on that hard currency debt, right? pablo: it will put more pressure in the currencies if the dollar gets stronger and that's why we're now hedging some of our position outlook on market exposure. but you're right. eventually if the fed raises rates a lot, that would put pressure on the hard currency. the question is how much of the effect of the fed will affect the long end? and there's where we feel more comfortable that what we're seeing as 10-year level has a lot to do with the q.e.-in japan and others. alix: where is the end debt that you need to buy? much more on "go." this is bloomberg ♪

alix: this is "bloomberg go." pablo goldberg is still with us.

what about those risks? usually oil winds up dragging emerging market currencies down hurting e.m. debt. we're not seeing that around. we have a great chart that shows a divergent. oil is that blue line. e.m. debt is that white line. at some point, does oil drag it down? pablo: this is the risk year looking at. we're starting to reduce our oil exposure in our funds about a month and a half ago when we sold oil. we started to sea some supply coming back to the market particularly from the u.s. shale producers. so this is something that pluffed us to start to reduce what we call the exposure to oil. yeah, this is an important factor. the question is where are we stabilizing? are we going back to sub 30? are we going to be around 40? that is something that the emerging markets can digest pretty well. that is not the only risk.

what happened with china? we sent another anchor for emerging markets. acceleration and growth in china have been quite important. our view in china is china will muddle through. we are still holding enough for investors to continue to invest. david: let's be more specific. what particular countries are you attracted to? pablo: we are going to go for the high yielders because we need that spread going back to the comments in the first segment. so we left some small african names. we're still, you know, thinking about venezuela or argentina of places we want to be. david: venezuela? pablo: yeah. you need to trade it around. this is a place where obviously, is in significant dire straits. and we need to see how we time that. this is why you need to rely on the experts that are looking at these on a constant basis. there's a place in brazil are turning into better as well.

corporate is something that we like in particular. in local markets, russia is a place that we've been getting a lot of attention in rubles. alix: ahead of the curve, february out with a call. blackrock's pablo goldberg. thank you. jonathan: coming up, we will be from by jean-sebastian rio tinto. in the market, futures are soft. the dow on a seven-day losing streak. dow futures up. s&p 500 futures negative four. and europe struggling to put together a day of gains. from new york, this is bloomberg. ♪ ?c+sv

david: better than estimated

for european banks, will it help? jonathan: the service sector has grown for the past -- fastest pace in seven years, more reason for bank of england to act tomorrow. alix: money manager bill gross says he does not like bonds and most stocks but favors gold and other real assets. david: wacko -- welcome to the second hour of "bloomberg ." out with hiss come outlook. he is the king of bonds and was to be the king of gold. about theas warned negative yields and what the repercussions could be but his liking gold. gold is up 28% on the year. it's partly because of the central bank monetary policy with negative rates and bill gross is jumping on that bandwagon. jonathan: when bond yields are at a record low, stocks are

hitting a record high. he says bonds are too risky. i don't think that's that controversial. gold, real estate come away from traditional securities like stotts -- like stocks and bonds, it's something to think about. nominal growth needs to reach for percent-5% in the u.s. before the global economy implodes. we will have an interview for you later in the hour. the new man in charge at rio will discuss the miners earnings and challenges his company faces and what is ahead in the pipeline coming up shortly. you are looking at the markets and it's a stabilizing day despite a slew of european bank earnings. jonathan: the banks got beaten up yesterday. a little bit more stable today on the back of these earnings.

the dow is on a seven-day losing streak and not much of a rally in europe. we look at had about 24 hours get a bank of england decision. they might cut rate for the first time since march, 2009 but the pound is stable. the cable rate is 133. we look toward friday for the payroll report. g7 yields are at a high. bill gross is is too risky in the bond market but yields are coming in two basis points on treasuries and the same on giolt. soft.he story has been we trade south of $40 per barrel. but still it's a bear market. let's check in with our bloomberg team for in-depth coverage of our top stories.

for a key labor report ahead of the friday payroll report and we will talk about the bank of england rate decision and a slew of earnings from the european banks. let's keep it in the u.s. gettingadp out in 15 minutes and why do we care about this number? the economy has been performing strangely. we get struck numbers in that we get big out layers like the.mate payroll report and second-quarter gdp number people are concerned that maybe adp will show us another funny member on friday because there.is concern about how the economy is developing if you look at this chart, adp has a hard time actually predicting what will happen. compared to the private payroll number with the labor department numbers, it's more stable than the labor department. it has narrowed its margin of error to about 12,000 but posted overestimating,

148,000. it was too low for june but most useful for looking at trends. will want to see the number today and compare it to what we have we seen with payrolls over the last couple of months. it has the potential to move markets on a day when people are looking for something to trade on. alix: it will be about wages and earnings. the personal income data we got yesterday did not hold up with the consumer spending we have seen, putting pressure on wages. michael: the consumer spending numbers have been strong lately. we will look for a slight increase in wages at 2.6 percent year-over-year gain. if we get that, it will reassure the markets but anything less come of people will be concerned. watch the unemployment rate for the labor participation level. alix: thanks very much.

before we get that jobs number, we have the boe tomorrow. some data coming out of england already. we have new numbers about the services sector in the u.k.. we go to london right now. take us through these numbers, they are not very encouraging. >> no, it's an awful services number. just so account for much of the u.k. economy. it's very concerning when we see a slowdown but this is just a one-month number. they were taken straight after the vote to leave the eu. it could be we see some pickup in the coming weeks and that could be a respite. could see a pickup at the bank of england tomorrow will not have those numbers. what is the likely effect of these numbers on what they will decide? >> the boe is data dependent.

this is all the data they have to show what has happened since brexit. and it it will be huge is the last vote for david cameron. he told us a couple of weeks ago he wanted to see more hard data before he would vote to cut rates. i think it's safe to say this is a big deal. thank you very much for joining us. jonathan: the decision is made later today. and it willt on it make its way out tomorrow because they envelop with the minutes on the forecast and everything else at the same time. they decide may affect what's going on with european banks more generally. standard hsbc and charter are in focus.

they are complaining about low rates. let's bring in stephen morris from london. we begin with one of the banks that are in the eye of the storm. we had earnings out from unicredit. walk us through this. for unicredit, we see a common trend across the european banks. they are all just focusing to get the costs down and cope with a low rate environment which looks like it will carry on indefinitely. earnings are down about 45%. you can just buy back the stock for about $2.5 billion and a market will forgive you which is what happened with hp -- with hsbc. what is happening there? it's kind of a

counterintuitive situation on european banks. there was lower revenue and lower profits and higher loan back theirand pushed profitability expectations but we see both of them up. what you are looking at is the fact that they had a low bar in the just about stepped over it and therefore investors realize things were not as bad as they could have been. certainly, it's not a vote of confidence for the economies. with regards to future restructuring, hsbc said there will be deeper cost cuts. they said their current expense reduction program which started last year will be extended by another few years. that will be more job losses, more business exits and potentially another restructuring of the bank in the wake of brexit. jonathan: thank you so much. let's get up to speed on some of

the movers. time warner's mcnitt 10% stake in hulu. fox, andoin disney, fox and adventure. earnings beat estimates and revenue was a bit light but it was the full-year forecast being raised by five cents and the state time warner is taking in hulu. financial so they made 34 cents this quarter after reporting a loss a year ago and they are selling assets so that is making the numbers jump in the premarket. , samsung is said to be in talks for a potential $3 billion buy of fee at assetsr which could be or it could be a bid for the entire company. if this goes through, this would be the biggest by of samsung

outside of korea. it's an interesting headline worth watching today. thefor what goes on outside business world, here is taylor riggs. republicans are examining options of donald trump quits the race. is soelieve donald trump unpredictable, he might withdraw and a new candidate would have to be selected by the 168 members of the republican national committee. crash landed in dubai and everyone escaped. the line burst into flames after landing on a flight from southern india and all 300 passengers and crew were evacuated safely. it's the worst accident ever for emirates. the dubai airport has been shut down. for the first time, north korea fired a missile landed an exclusive economic zone of south korea in the water 160 miles

from the japanese coastline. shinzo a call to the serious threat to japanese security. day, inews, 24 hours a am taylor riggs and this is bloomberg. up, we will dig into the world's second largest miner, rio tinto, reporting it's worth profit since 2004. the new man in charge discusses his vision for the future. about one hour and 20 minutes away from the open in new york city. europe is struggling to put together a rally. this is bloomberg. ♪

jonathan: the attention of the world is on payroll friday as we count you down to that. we have the adp employment report coming up soon. these are how the markets are shaping up. futures are soft and the dow is on a seven-day losing streak. are lower. futures banks were hammered in europe yesterday. the cable rate is stable at $1.33 i had of the bank of england decision.

street says everyone is short and there is room for disappointment and we will get the answer tomorrow. the dollar-yen is stable and yields are coming in by about one basis point on the u.s. 10 year. bill gross says he does not like bonds. we have data from the u.s. that's coming out and a second. sector addedvate 179,000 workers in july which is estimated. the estimation was for 170,000 workers. june was 172. 100 79,000 workers were added according to the adp employment report. is not a one-for-one correlation for the jobs number but nonetheless come another sign that the may jobs report was an anomaly. there is not a lot of market reaction with s&p futures relatively flat and the dollar index is up on the day. the two year yield is lower as has notsury market

gotten the filter through. david: but not discouraging. alix: and it will all do depend on the labor force participation rate and will depend on the earnings. can the earnings support the spending we have seen that has been pivotal for gdp growth? jonathan: it's a little clue. full coverage right here on bloomberg. for now, the big story is rio tinto that released earnings this morning and posted the worst robert they have seen since. 2004 joining us now is the rio tinto ceo who joins us now from london. great to have you with us. it's my job to promote these things but you guys made it difficult. you said things will be boring for a while. the cfo said boring is the new exciting. for investors, why is boring good news? >> good to hear your voice.

long time no see. believe we gave a strong set of results in a challenging environment. more importantly, we delivered on our commitment. let me give you a few examples. $2 billion of operating cash in the first half and saved $1.9 billion of dividends and reduced costs by $580 million and last but not least, we reduced [indiscernible] said, the results in the first half has been boring. investors space the worst running since 2004. the bottom line is, you mie more to earn less. more to earn less.

why is that the right strategy? >> i cannot say anything about the last couple of years. it's about the quality of the portfolio. we have lots of options. we want to deliver compelling returns for shareholders. said we have ai clear target for the coming years and a clear dividend policy. we have a $2 billion cost saving target for next year and we are on track. we are delivering what we said we would deliver to shareholders. jonathan: what is the and and a strategy? -- what is the m&a strategy? that is now speculation

you are putting some unwanted assets into a unit and getting ready to spin them off. does rio tinto look more like a seller of assets than a buyer? all, in terms of it's about build and small buys on the word smart is important. there are assets we would love to have in our portfolio. those are two year one assets. -- those art tear one assets. -- those are tier one assets. copper in the last humans, the transactions that have taken place, the price achieved by the buyer were fully priced.

that is not what we want from that aspect. we will be selective with m&a. in terms of our portfolio and putting together assets. i know you will ask the question. the logic is simple. it's about a portfolio of need toassets that we run as best as we can from free cash flow. that we havession is acting as an incubator for new businesses. we have new prospect. we talked last year about potentially developing a position [indiscernible] project that we

are looking at. jonathan: i was never going to bring up south32. is youstion i would ask use to run the coal and copper division and you know china incredibly well. growth there is stable but not as commodity intensive as it was. you operate the world's second largest miner. do you have to gear yourself for a new generation of commodity intensive activity? is lithium the way to go? is that where you would expand with m&a? clearly, china has slowed down. we have remained volatile going forward.

people assume that market conditions will remain challenging in the possible future. work very hard to continue to optimize the portfolio in terms oftier one assets. whatever market environment we have, her assets will be cash flow positive so we can give dividends to our shareholders. we have a project we are currently assessing as far as lithium. progress and conclude, we will come back to the market with this one. jonathan: in the steel industry in china, they are trying to consolidate capacity. i want to understand what that means for you. multi-billion-dollar

trade with that country. if they consolidate still capacity, what is that mean for iron ore for the country? i spent lots of time in china the last three-month to meet ath customers and partners to really understand what china is going to do. i have no doubt that they want to restructure the mining industry as well as the steel industry and remove the low performing assets. this beat of the execution of the plan is key. we are watching it carefully. the strategy is not bulletproof cash positive.

you have taken the job at a tough time. prices are low and profit is low. the demand growth is not there and china is weak. we began this conversation by talking about a boring market. is there to be excited about as far as you're concerned? becauseretty excited the market condition is tintonging but the rio strategy is based on two things, and weolio of tier one can give value to our shareholders. 1.9 billion dollars spent this year is pretty impressive. againstank rio tinto the other companies in terms of dividends, i think rio tinto ranks pretty high. i am excited.

i believe we can create volume for shareholders long-term. jonathan: great to see you and i'm sure we will talk again. the earnings from the minors is fascinating. it's like an opec-like strategy to maintain market share and volume and prices recovered but they keep putting on capacity across the board. what i find interesting is you get a sense of their mindset. in commodities, you have to have a lot of capital and a really steady hand. you cannot panic with these ups and downs. alix: i like that you mentioned it's like opec because china throws the wrench into it just like the u.s. through a wrench into opec with their production. china supported by the government and it hurts rio tinto and others to do business. the job is not to

manage price, it's to manage assets and keep the cost low and they are doing that. alix: how much more can you ring out of the cost cuts beat -- before it cuts into profitability? david: you need to distinguish between what you can cut and cannot cut. alix: coming up, we will preview report as well as the jobs report and we will discuss the challenges that have destroyed european banks this year. we are looking at second-quarter earnings. this is bloomberg. ♪

alix: this is "bloomberg ." we have big movers in the european market.

profit rose and then fell and it was halted because it fell over 4% and now it is still trading lower. in loan-loss provisions came higher than estimated at 45 million euros which was a different story than we heard from stock jan and ing presumably because of the plethora of nonperforming loans. unicredit is lower in the market. is a different story. you had profit falling 33% but you have a buyback. a 2.5 billion euro buyback. the finance director was trying to quantify what negative rates or even lower rates in england would mean if the bank of england reduces rates by 25 basis points. hsbc could see a loss of $100 million. stock jen was a different story. profit rose 8%.

it pulled back on those loan provisions. they soldreduced and a stake in the set europe which helped its numbers. they said we are worried about the 10% roe. they can predict the environment two years ago but there is uncertainty and different economic conditions so they don't know if they can meet the profitability goals. it's a common thing with european banks. let's look at how it's impacting the overall market. jonathan: yesterday, the banks got hammered and today in europe, you can see the individual groups. the banks of the best performers. the ftse is down two/10 of 1%. -- number 10/two of 1%. 2/10 of 1%.r two/--

for the bond market is next week the supply, 62 $2 billion worth of bonds coming into the market in the coming week. it's a tenure auction on august 10. the bond market today is longer in the curve. coming in about two basis points from the 30 year gilt. so bonds rallied after yesterday. let's get to the headlines. is a report the obama administration sigrid airlifted $400 million in cash -- secretly airlifted $400 million in cash to iran last january. u.s. officials deny the payment and the release of the prisoners and critics say it amounts to ransom. it's payback time for donald trump. the republican presidential candidate is refusing to endorse

the highest ranking elected republican, house speaker paul ryan. he has a primary election next weekend in wisconsin. paul ryan spent weeks before deciding to endorse donald trump and donald trump withheld his adores me from two other republican critics facing primaries, senator john mccain and kelly ayotte of new hampshire. a parliamentary committee says the u.k. will need the royal navy to fight people smuggling. not say the border does have enough resources to keep criminal gangs are moving people between mainland europe and britain. forces only three ships monitoring 777 miles of coastline. day,l news, 24 hours per this is bloomberg. david: thanks very much. european banks are in the news today and are under pressure since the brexit decision. early this year, they tracked the daughter index as the chart

shows but after the brexit vote, the banks fell behind other european companies. joining us now is stephen whiting, the global chief investment strategist and the ihs chief economist from boston. gives an oversight of where we are with european banks. are they on the upswing after a troubled time? >> i would look at the environment with slight negative interest rates. it's a profitability challenge. absolute rate of growth in the eurozone, the divergences between these countries north and south and where the troubled assets are. further up inly capital structure. the solvency of the banking system is considerably better and better regulated earlier in the recovery.

there are still ongoing challenges for equities. david: because of the regulations and increased capital, the banks seem to be safer so are they better investment for dad? in the more skeptical sense that i think european banks are still way behind the of fixing their balance sheet. american banks have done a more aggressive job of doing that. whatever we think of the regulation, it did have the result of u.s. banks improving their capital positions. european banks are better than a couple of years ago but that's not saying a lot. it's all in the comparison. it's a little bit better but way behind in terms of where they should be and where they are relative to their american counterparts. jonathan: the debate we are exploring currently, guest earlier said the banks had collateral damage on the back of monetary policy. -- outrightide

negative with the low rates? >> the low rates are certainly a problem but it's the negative rates that i think of the biggest problem. i think this is an experiment and in the end it will be judged as a failure. negative rates put huge pressure on bank profitability and that's what we're looking at now. it's the negative rates i blame. you look at europe but also japan which has the same kind of problem as europe in terms of bank profitability. that is not the case in the u.s. i blame negative interest rates. profitability issue. but the longer-term applications, we have a chart that tracks european bank stock shares and you can see that as stocks go, lending goes 12

months later. the blue line is the european stocks and the white line is lending. at some point, it will become profitability. >> the willingness to lend and take risk and european banks has improved more than the equities have. you take a look at coincident indicators across europe, you can see that eurozone stocks are probably cheap to the economic environment. you have 3.7% dividend yields, a cost of funding for these companies across the board, every maturity, investment-grade companies are paying less than 1%. there is a risk premium. mind that away from all of that, you had stress tests that perhaps i'm not testing world war iii but solvency is considerably better. it's a little different for european banks versus the

broader european economy. when comparing to japan, at least europe has taken one step that japan has not and that is providing negative yield funding to the banks to offset some of the pressures of negative interest rates. sadly, it's the economy that has to pull you out of negative -- out of negative interest rates. david: you also need bank earnings to get the economy going. it's one thing to say you are solvent but another thing to say you're actively involved in lending. to the bankorward of england tomorrow, to what effectdoes this have an on the banks and their participation in growth in the economy to get the economy going? >> our best guess is they will cut rates from 50 basis points to 25 and everybody agrees on that. the next question is if they resuscitate quantitative easing.

they will buthat clearly, they need to do more to ensure the banks and prevent rather than react in terms of thatng out the banks probably will be hurt by the aftershocks of brexit. jonathan: how come monetary dictates that people cannot say. banks want to decrease leverage and bring down capital. to spend the consumer but if you want the economy to grow, you want the bank to finance the economy. to're getting the consumer leverage up in the bank to bring leverage down, why? >> you can say that if you want to run a saver banking system, you have to have a little bit slower speed limit in terms of the risks you take. by having much higher equity capital buffers and requiring

banks to have higher equity , then youch we have go a long way to mitigating that issue. post-2008, we had great deflationary shocks. people were worried about hyperinflation from the monetary easing. the way we regulated the financial system has been offset to this tightening requirement. they should be countercyclical buffers. raise capital and expect them to finance the economy and the best way to repair the balance she does get economic growth and when times get that her, then increase cap -- increase capital. why are they doing it back to front? >> they may be short on time. those globalnto economic recovery, much more should have been done earlier on.

the macro policy in the united states is a little more procyclical right now. everything could have been done for economic growth and eurozone. unfortunately, monetary policy will not do that. we talk about supplying credit into the economy but is fore a demand for it and corporate investment? is that the principal problem? the problem is, i agree to supply-side policies need to be put in place but nobody is talking about that. we are stuck. monetary policy is about the only tool available. i will not fall for central banks that there are limits to what they can do. very clearly in the sense that we are trying to hit two targets with one tool, you cannot do it. the bank of england me

today and have their announcement tomorrow and they seem to be taking into account the profitability of banks. how does the bank of england walk the fine line of the fiscal side does not catch up? >> one of the things they should not do is move into negative territory. i don't think they will. i think they need to resuscitate quantitative easing of some kind to essentially make sure the system has enough liquidity to prevent any kind of meltdown should a shock even worse than brexit or bad effects of brexit occur. abed: has prime minister started to lead the way in this way? alix: four the 26th time. >> there are mixed signals out of japan. maybe what they

have done is inadequate but may intaking more radical steps terms of the fiscal policy easing which would be monetary finance but you are not sure you have these working in the same direction. isn mario draghi said there a limited future here to limited interest rates. unless money disappears -- literally, stuffing her mattress is a more viable option the negative interest rates. you have very limited future with negative interest rates, probably -1%. you take a look at banks, where are the non-value type of banks? u.s., a little in capital structure, bank referred with relatively high dividends and some will say that would be a monstrously high return. in this cycle, it's an acceptable return in the neighborhood of 6%. david: thank you both very much.

good conversation. from european banks to the other top story -- time warner is topping profits and we will dig into the report and discuss their 10 percentinvestment in hulu next. this is bloomberg.

alix: "bloomberg this is "bloomberg ." coming up tomorrow, bank of america ceo brian moynihan will join us in an exclusive interview. david: time won her second quarter earnings topped analyst estimates.

thecompany also announced 10% stake in the hulu making it a stronger competitor for netflix and amazon. joining us now is the head of media research paul sweeney. this is an interesting move. take us into the mind of the ceo. >> i think he is figuring out that his business is tied to the big cable bundle. he gets paid a lot of money by the cable operators. it also has to recognize that consumer behavior is changing. consuming content in different ways and getting more and more over the internet. he finally said i need to hedge my bed and put some chips on the table and take this stake in the hulu. continues to hulu grow subscribers and services, they need to have a seat at the table. i was working at disney when we joined hulu. it rages -- it raises interesting questions about content.

>> time warner is trying to make the case that they are not going to be exclusive and they will license their content to whoever pays the highest price. we have seen the media companies generally do a good job monetizing their content on different platforms different from what we saw from the music industry 15 years ago when they lost control of content. media companies are saying if netflix wants to pay, we will do business with them. who knows who else will, to the marketplace? the key issues for the media companies is walking the fine line between protecting value of content and recognizing they need to make the content available in different platforms because that's where in summers are going. david: give us a sense of how much content is involved? the time warner company has a lot of different outlets. >> it is one of the largest media companies with a whole

host of networks under the turner brand. of the key things that investors will be focused on is how much of the sports program the turner networks of licensed will be available on the hulu. the sports programming is valuable and expensive returner. they need to make sure they monetize that with their existing ecosystem of cable operators. i think they will be pressure from the hulu owners to say we would like some of that on hulu. hulu was originally nbc and fox that put it together. disney brought in. they wanted cbs. the two big players not in our viacom and cbs. viacom is distracted these days. cbs has valuable content. ishinkles moonves comfortable where he is -- les moonves is more comfortable

where he is. i think he feels very good with his cbs assets but he may want to sit down with the hulu folks. david: thank you so much. bond king bill gross is , favor gold,tors favor real estate, tangible at a discount and forget about bonds and forget about stocks. i feel he wants to go hide somewhere. jonathan: in the investment outlook, sex is a three letter word that rarely appears. you have to go all the way to the bottom of the investment outlook and then get the headline in the market. he likes real assets now. david: maybe he wants a little attention.

is how he usually sets up his investment outlook. he wasa story from when a child and got into financial markets. is if you want to buy gold and real assets, not every investor can do that. you have to do it by a fund which he promotes. david: he happens to have one. they have learned that lesson in the u k but when you want to invest in real assets, it doesn't always work so well. david: he is basically saying sell high. on prices are high and he is saying maybe you should sell them. alix: gold is up 28% this year. you are promoted things that are quite high in the market. how much return can there be? bill gross will be coming up on bloomberg at 3:00 p.m.

we do the payroll report on friday. coming up, how low can the yield go? we will show you the negative yield in japan next. this is bloomberg. ♪

jonathan: from new york, this is "bloomberg ." it's time for the battle of the charts. lisa is taking on alix. people have been speaking about the stock market being overvalued. i wanted to look at the relationship between bonds and stocks. you can see the earnings yield in the s&p 500 which is a measure of dividend payments, regular coupon payments that you get from owning stocks versus

the yield on 10 year treasuries. over time, it seems fairly steady. the s&p 500 stocks are yielding about 3.4 percentage points more than 10 year treasuries and may have for a while. this is why people go to stocks or value and are using them as bonds for income rather than price appreciation. david: that's just yield on the dividends. >> correct. re-rating in the japanese market. this redline is what the yield curve was a week ago. the white line is what the yield curve is now and the blue line is zero. the whole curve was about 15 in negative territory and now it's about 13 years negative so there has been a huge shift in the bond market. there is a big spike in yields especially the two year yield which is approaching the 200 day

moving average. the 10 year yield rose 30 basis points and part of that is shifting from fiscal easing from monetary stimulus from the boj / the efficacy limited and will it change when we see that meeting in september with mr. koroda? alix on will vote with this. jonathan: it's been pretty fascinating. high on g7 yields is nothing to sneeze out. the bank of england rate decision tomorrow and payroll friday from new york. this is bloomberg. ♪

jonathan: from new york city, this is "bloomberg . of 1%. are down 2/10

european banks are actually leading the gains after leading the losses yesterday. the one toate is watch in the next 24 hours. ahead of the bank of england rate decision. wti is south of $40. as yields back up to five year highs, treasuries are up. bonds to stocks, we can you down to the cash open in new york. david: we are just under 30 minutes away from the opening bell in new york. this is "bloomberg ." been talking about

european banks and societe general was up in their earnings but it was because of asia. jonathan: it's a low bar. yesterday andered are snapping back today. i'm interested in the decision from bank of england. it's the divergence between italian banks and everybody else. and others lowered their provisions where unicredit had to raise theirs. back: we will have to come sooner or later. alix: let's go around the world to check in with our reporters. look at what'sl moving at ahead of the open and abigail doolittle is in nasdaq and mark barton is in england. it's like risk stabilizing but not risk off? if you look at the

average forecast of the s&p 500, it's above for the first time since 2014. usually strategists tend to be more optimistic. looking at aig, the shares are moving higher after the company reported earnings and announced a $3 billion buyback funded by the asset sales they have been doing. second quarter operating profit came in ahead of analyst estimates. all of that is helping propel those shares higher this morning. time warner is reporting its numbers. theings a side although numbers beat estimates and they raise their forecast, the companies buying 10% of hulu so joining a lot of other investors in that company. sales of the turner unit are up 6% and hbo sales are up 2%. fiat chrysler is rising on an interesting story. samsung is said to be in talks for a potential by of part or

all of the company. it could be a $3 billion acquisition and it would be the largest samsung buy outside korea. the fiat chrysler shares are higher. let's go to the nasdaq. >> it's all about margins. we are starting off with corvo which is an apple supplier and shares are sharply lower after they missed fiscal first-quarter gross margins by 1.8 percent and guided the fiscal second quarter gross margins below estimates by 3.3%. this is overshadowing a nice first-quarter sales beat. one analyst says the gross margin issue has much to do with outsourcing issues and there will probably be several quarters before they see fit to percent or better growth margin. as for apple, he things it does

not reflect them. he says the sales beat could suggest strong business going into the september quarter. western digital shares are down the premarket. neutrale reduced to a from a cell. there could be a potential oversupply. downsideld be a 15% from a stock that is already down 25% this year. let's see what's happening in europe. stocks are down for a third consecutive day, the longest stretch -- the longest losing stretch since beginning of july. u.k. services contracted the most since the height of the financial crisis. 47.4. down to the last time it was this low,

march, 2009. the bank of england last cut interest rates at that time to the record low levels. hsbc is the biggest rise since april and second-quarter profit missed estimates. it's buying back to $.5 billion of stock before the end of the year. standard chartered is rising as much as 11%, the most since 2010. this shows the big lenders in the u.k. hsbc and standard chartered are sitting on gains of roughly 10% and the others have declined between 20%-20 5%. what to the french lenders have in common? they have beaten earnings estimates. they predominantly focus on consumer businesses. they have been hurt by lower

interest rates but not as much withe likes of credit those securities firms which have been battered by volatile markets. david: we will pick up with european banks. our next guest is portfolio manager and thinks the opportunities for financial light in the debt but not in the equities. welcome back to the program. tell us about european banks and investing in debt there, why is that sensible? >> it's important to state what is not the problem and that is solvency. in the stress test over the weekend, we saw the capital has increased substantially. most of the capital ratios are above 10 or 12% in most cases. the stress test is above a percent. on a solvency basis, there are many reasons for options.

profitability is a concern. today had 45% fall in profitability and you see that in the equities trading substantially below book value. it's important to say we are not seeing a solvency concern the moment. if you look on your terminal, you can see the credit default swaps for european banks. seniorn financial investment grade five your default swaps are not near the level we saw in january or june but what gets us there? when do we turn more into a solvency and repay your debt in five years issue? out withdit was earnings today in the stock has been down 70% over the last year.

their profitability is down 400% and that divergence tells you the market is focused on profitability. thething's capital but other thing that's important as funding. the ecb has made it clear that they are not going to allow a funding crisis to european banks. whatever it takes was backed up so there is no funding problems. banks got into trouble in the past with capital but also funding. taking the funding question off the table which is important. jonathan: even greek banks are affected. it's more than profitability. oftsche bank is trading 1/4 book so it's not just profitability? there is a concern that

profits going forward will not be able to meet the prospects. lowhe return on equity's the equity, you should trade on book value. theirc, they deferred idea they would have a 10% return. are largely in the past and we are looking like 5%. unicredit is below book value. it also reflects the high m pl's-nonperforming loans. there is a large stock of nonperforming loans and many do do something to address that. had a stress capital below zero. even unicredit, their stress capital issue was about 7%. from our perspective, we're focused on higher-quality banks.

even in the italian banks, we which startssa with a capital ratio of almost 13%. we are cognizant of the npl issue and the constraints it can do going forward. you are also more protected from issues. david: trading at substantially less than book is only stable for so long and at some point that does not make sense. why are people willing to invest in stocks of this price if there is such a disparity to book value? >> we are a fixed income only shop so i hate to speak too much about what the stock investors are doing. unicredit,ok at there is a large expectation that they raise capital even after raising tell million dollars. -- raising $10 billion.

we're focused on the bonds. from the bond perspective, i think there is a real case to be made that solvency is less of an issue today. the ecb has backstopped the funding. jonathan: stick with us. about 19 minutes away from the open and futures are marginally negative. let's go outside the business world. an emirates airline jet crash landed in to buy today and everyone escaped. it burst into flames after a flight from southern india and all 300 passengers and crew evacuated safely. it's the worst accident ever for emirates. airport has been shut down. it's payback time for donald trump. the republican presidential candidate is refusing to endorse ,he highest elected republican

house speaker paul ryan. he has a primary election next week in wisconsin. his endorsement from two other republican critics facing primaries, senators john mccain of arizona and kelly ayotte of new hampshire. authorities say a giant wildfire near california upon us big sur was started by an illegal. campfire. they are trying to determine who started it the fire has charred more than 69 square miles and destroyed 57 homes. global news, 20 were hours a day, powered by more than 2600 journalists and asked destin analysts in 120 companies -- countries. prices, $39 and 61, a touch higher today but still in a bear market. ?hat is leading it lower it is not the u.s. dollar. in under one hour, peter hancock from aig will speak on earnings and the future of the company. this is bloomberg. ♪

.lix: as the correlation that no longer makes sense, the dollar versus oil. as the dollar rises, oil falls is the conventional thinking. the white line is the dollar index. that is the typical correlation between the currency in the commodity. it's unusual that you are seeing the dollar fall that you are also seeing oil fall at the same time. goldman sachs pointed this out saying the macro and fundamental factors have not supported the last five dollar move down and oil. what has? joining us now from the cme is a traitor.

if it's not the dollar, what is moving oil? >> there are many different factors at play. start with the fundamentals. we have been down eight of the last nine session but the problem stems back to two months ago where we started topping out at $50. global production has increased. the rig count has increased five of the last five weeks of that's a new trend. that means hedgers are likely taking advantage of the higher price action and edging out reduction in turning those rigs back on so we can expect production to continue to increase. it has increased three of the last three weeks we will find out if that happens again today. in a littley out over an hour and traders will be looking to see what's happening next. alix: goldman sachs pointed out

the what we have seen in last few weeks is a short -- is the short positions of increased in the long positions have not liquidated. is that a positive or is it a negative? i think there could be more of a washout to the downside. we are getting to the tell and of the summer months. it will be interesting to see if things increase. there is worry about demand keeping up in the u.s. we have broken below $40 for the first time since april 18. that's technically significant. the $40 handle, we are wavering there. inventory report could show some relief in the near-term. the relative strength index is at about 29.

anything below 30 indicates we are exhausted to the sell side. i would not be surprised to see ultimately, it because market remains in a bear market. we can retest the lows in the upper 20's. to $44 but it go calls a go to the upper 20's, thank you very much. willg up, alan greenspan talk about stagflation but is that the biggest risk to our economy now?

jonathan: from new york, this is "bloomberg ." u.s. jobs report friday. formal federal reserve chairman alan greenspan is worried about

what will come with inflation? what i'm concerned about mostly is stagflation. that means we are seeing the early signs of inflation getting finally to pick up as the issue of deflation fades. jonathan: this is not 1970. who knows? it might start feeling like the 70's. john bellows is still with us. do you believe that alan greenspan is wrong? >> you always need to be thoughtful on the other side of alan greenspan. the riskharacterize differently. when you look around the world, the forces for low-inflation are still very much in place. china has its 52nd month of producer price deflation. having year-over-year inflation. japan is struggling.

states, youunited get a little bit of optimist but the market is saying that prospects are for it -- are pretty much down beat. that will slow the process and inflation. we would characterize the risk differently and think the risks are too lower inflation rather than higher. let's dig deeper into the alix: numbers. mean stripsd fed out the core cpi and the cpe. cpi stripped out energy is rising, the cleveland data is holding stable. the headliner is holding stable. we are not going down anymore. for a very good reason which is the central bank is pumping money into the system. one thing that alan greenspan points out that for central

banks, our money supply is growing faster than gdp is growing. boardse these different chasing the same outlet. risks tok the inflation or to the downside. the good news is that central bankers are on it. aggressively to con down the debt so the ecb is buying bonds. that is why the fed has not been more aggressive raising rates because they are concerned about inflation profits. we characterize inflation to the downside but the central bankers are responding for -- forcefully with aggressive policy. jonathan: you want to look at inflation in the united states. just keep going down.

>> this is a big deal for the fed. people pay little or intention -- pay little attention as to rate expectations. said this warrants are close attention which is a big deal. for that is when you look around the world, bank of japan, ecb, they are struggling with how to get inflation expectations up and the fed takes it cap -- a cautionary signal from that. i think it worries them and i think that's why they are so accommodative and so concerned. gauge -- howdy you do you gauge inflation expectations? >> many people look at [no audio]

>> i think you use a mosaic approach and put it all together. orn you look at the market inflation expectations, there is not a lot of reason for optimism. the market is saying the risks are to the downside. it's one more reason why they are being sidelined. david: are you concerned about the ballooning of corporate credit? huge bonds we are seeing that are out because the cost of cheap. are you concerned that these companies will start choking on

the debt. a lot of the debt issuance we see is from relatively high-quality company so this is not your bbb company. companyaa or single a that is borrowing and opposes less credit risk. for investors in the corporate the first thing is fundamentals which we think are good and it -- and the second is that yields are still attractive. jonathan: thanks for being with us. from new york, this is bloomberg. ♪

jonathan: this is "bloomberg ." let's get you up to speed with the global financial forecast.

futures are slightly negative. , two,0 futures negative three, potentially a third straight day of losses. gains of the stoxx 600. the one to watch at a tomorrow's bank of england decision, a after the pmi service report comes down in the u.k. showing a week read in the bulk of the u.k. economy. tell her yen, a weaker yen session and yields across the treasury curve coming in a little bit. nice you 10 yield two basis points. crude is stronger on the day. are about 30 seconds into the market open. let's get across to julie. be watching the down particular today. into today, seven

straight sessions that we have seen the dow decline. into eight, that will be the longest losing streak that to 2011 and the whole debt ceiling crisis at that point. the s&p and the nasdaq are very slightly lower this morning. investors are focusing on individual stocks, even as they're also talking once again about global growth concerns. . want to look at aig again we talked about it earlier as the company announces a $3 billion buyback after the profit beating estimates making asset sales. shares are up 6%. company trades going into today, trading 29% discount to its value. we have got a lot of health care news continuing. by jen we watched the stock surge after it was reported that allergan had separately been interested in buying allergan. these were preliminary talks that might not yield anything to

by pulling back a little bit, some analysts are questioning whether either company would be a good fit for biogen. on july 21, the ceo said he would step down from the company. no successor has yet been named. then there is umana. we heard from aetna. these are set to complete a merger that, the shares are up a little bit. revenue rose by 2% and the reiterating today that it will fight to make this happen. community health punching this morning by nearly 10%. its latest earnings report leading some analysts question whether a bankruptcy filing may be in the offing. after the company's earnings fell by 92%, missing the average analyst estimate by ,4%, cutting its forecast

cutting its forecast for earnings per share. you are seeing shares decline as a result. >> thank you. sounds exciting. two or three minutes into the u.s.. the headline for you. analysts are not that bullish. the s&p 500 is outstripping analyst expectations for the first time since 2014. looking forward. looking just walk me through this. it is not typical. why do you think that is? >> i think a lot of it has to do with monetary policy, multiple expansion without any real economic vitality, earnings vitality.

global trade has been lackluster, the recent analysts have become more skittish. in the united states, a forward-looking estimate based off of our estimates of about $118 and earnings, roughly 18, 17 and a half times multiple. >> reraise s&p ratings, you take a look so far the s&p 500 the sales you look at beat, what will it take to justify the high levels? >> the critical word you used was sales eat. sales are flat to down over the last five quarters. earnings flat down in the last five quarters. our group excited, you need to see revenue groups actually incrementally go higher.

and earnings go higher. the problem is you have margins on the decline. globaleve overall growth, the essential point here, is going to be lower than estimated. we believe it is structural and not cyclical. it comes from the slower growth pace in the emerging markets. >> does that keep you away from emerging markets? >> that is a great question and it effectively does. it keeps us underway within the developed markets overseas. it would eliminate emerging markets exposure if you are tactical and asset allocator. when it comes to the commodities , we will see lower and lower not only in oil but broader based commodities that have anything to do with the cyclical and post within the system. >> the other side of that is what would you be lying?

utilities, very high valuations. stand on it? or do you need to look elsewhere to find the real value? >> the reality is now a lot of those companies are quite frothy and if they do not make real financial sense to the buying here. a sector, the health care ,ndustry, companies like aetna you want to start moving up the quality spectrum. circumspect in his high dividend paying stocks. right.ve bill gross is you have to be quite careful. a lot of dividend stocks are with veryalternatives little growth or revenue expectation built into them.

you have to be more careful there. david: we talk about a health insurer. are you worried at all about the political risk of what happens to the health insurance is this? -- business? the next three or five years, the health insurance business will do well regardless .f the actual administration our expectation is rising revenue growth as well as rising margins. lately, oneen down opportunity we could take advantage of. these safe haven stocks. >> where do you find the value in credit, particularly high yields, the potential for them to drag down at it with them.

>> yes. we are the underweight high-yield bond at this point. moving up the quality spectrum when it comes to our duration. stay within a four-year duration. if you are a retail investor, the bond portfolio goes out one to 10 years with equal weight. really predict when interest rates will rise. our expectation is rates will when central banks in accordance with each other start moving rates higher. go inpidly, they can iglesia pace but in so that happens, we think the long and of the yield curve will be stuck between 175 on the 10 year. >> thank you for joining us. coming up, pork for -- for performance earlier this year. off for theve pay

cdl? -- cdo? ♪

anathan: coming up tomorrow, exclusive interview with the bank of america ceo. >> coming upit is bloomberg markets with matt miller today. that could be dangerous. mark: you said it. forward to the aig chief executive. he will chat with betty liu at the top of the hour. the company buying back $3 billion of stock.

half past forward to, three clock london time. deutsche bank strategists will be talking oil with us. the founders of high court will , a selective, members only, luxury wellness club that comes under the category, intelligent leisure. how do i become a member and what is intelligent leisure? i cannot wait for that one. thanks. now we will check out the nasdaq with abigail doolittle. abigail: we have a lot of stocks on the move. starting off with electronic arts shares, reversing a premarket loss, it appears investors are paying attention to the fact that electronic arts

posted a small profit as opposed to the 2% loss that analysts had been estimated. the the revenues by 5%. fact that the full-year sales forecast is slightly below but. is saying he sees room for the upside, 2017 revenues with stocks higher. training lower on the open our shares on pace for the worst day and about eight months. he admits fiscal first-quarter growth margins by 1.8%, the god of second-quarter growth margins below estimate by 3.3%. it bloomberg intelligence analysts says the growth margin issues have more to do with little tog and very do with apple. he thinks the sales beat suggest the company's business related to apple could be ramping nicely into the september quarter.

david corn i want to turn back to bill gross, who has a warning for investors saying global -- th for more, we're joined now. a lot of attention this morning. >> he threw everything at it in order to get attention. i think fundamentally, highlighting a really important concern a lot of people have, which is that it is very hard to justify evaluations of stocks and bonds at these levels. his response is going to real estate and gold assets, you touched on this. liquid.e not you cannot trade these. investors have been going through mutual funds. how it actually are they going to do this? they have to go to a structure, something where they give money

and cannot go back for a certain time, otherwise you increase the liquidity risk. very concerned about the ideas of mutual funds owning a liquid prevent toots to much of that going on. >> investors go in thinking they have liquidity and then it turns out they did not. same with commodities. >> the idea that you think you are holding liquid liquidity because you can get the money back out, but ultimately, it is hard assets and real estate. you do not just sell it because i want to redeem my money. that takes a long time. isn't it their problem, the investor problem? should and they know and be aware when they are putting their money and, they know it is liquid assets. shouldn't the investor just know? it is common sense. >> do you really think politicians and regulators will allow mom-and-pop and their entire 401(k)'s to go down the drain and plunge into oblivion

and not step in and say, look, the warnings were written high up and we were explicit about it. there is a feeling that they do not want people to have mutual fun money without fully being or understanding the financial system. they are supposed to be, put your money in an the in five years. a different change of and essman strategy when we have a risk which the brexit brought on, which no one was predicting. >> your question races an interesting point. emphasis on liquidity and more to an emphasis on a long time and value and a locked up structure, funds have got their own issues, or a kind of private equity fund open to individual investors.

people to put a premium on liquidity. the other thing bill gross comments highlight is a general in certain that people are losing eighth in central bank and as they lose faith, the bond rally will be over. >> it is not an official regulation and they are considering it with a lot of resistance. we will keep on watching that. thanks and at 3:00 in the afternoon, bill gross will be here to talk about his new warning. >> another stock move -- mover in the market, aig shifting away from investment, a strategy that aims to work. second-quarter earnings beat analyst estimates. joining now in virginia, capital market insurance analyst. you had aig reducing bets on events driven longshore strategy backing away from hedge funds. did that help aig earnings in the last quarter?

>> it is funny. in this quarter, hedge fund avid equity returns are better than we ought and that drove a lot of the number. at the same time, they are investments going forward and given the low interest-rate environment, it will be challenging for them and investment goals. we were just talking about bill gross passes call in real estate, how does a big insurance company that needs to maximize returns make money, where do they go in the negative yield rate environment? >> it is tough. the tenure is down 75 basis points year to date. low for longer and how that would affect earnings going forward. corporate bonds and real estate just like everyone else. is to modelanalyst

lower earnings. >> longer-term, how do you model that out in the next 12 months? >> the current yield environment will hit by something like 25 to $.35 on a 450 $25 number. the near-term interest rate impacts are small because lee impacts of portfolio slowly over time. ultimately, it works its way into lower earnings and ultimately lower balance sheet quality because you assume balance sheets are at a certain level particularly for life insurance products. it is a big challenge and we look at a lot on the way fans. >> the big challenge for big-name investors also in the stock is the underperformance of aig to the s&p. at the chart on the bloomberg. normalize aig versus s&p. it really lagged over the last year. trailing,ck keeps

what do they have to do to retain the support of the investors of the world? >> initially the activists wanted them to split up the company and it proved to be too difficult and it most likely they would lose their valuable ofwe think is dollars values. costs -- that is cutting costs. that is buying back stock. i think hancock is doing a great job of managing the things he can manage. it is hard to run a big oval insurance company when interest rates are low and the pricing environment for a lot of you see products is soft.

he has got his work cut out for him. the buyback of around $3 billion per quarter is really one of the best things he could do. >> thank you. make sure to catch bloomberg's interview with peter hancock coming up at the top of the hour. also, donald trump's new plan spendingest rate costs, that at least double the amount hillary clinton is proposing. we dig into the numbers. this is bloomberg. ♪

david corn donald trump took another step away from facebook services them yesterday announcing his post to invest at in new500 billion infrastructure. the proposal doubles the budget for the plan his democratic opponent hillary clinton laid out last year. we are now. take us into this. how much detail did mr. trump

provide particularly on how he would get the money. >> there is not a lot of detail. seems spontaneous when donald trump was asked about it on fox business yesterday. no white paper on this the what he said was he wants to spend at least double of hillary clinton passes $275 billion proposal. on infrastructure, his talked about how roads and bridges are crumbling. 60,000 bridges throughout the bentry are believed to structurally deficient. the u.s. government is expected to spend enjoying dollars less than people believe is needed for infrastructure. convoluted to those things and he was not that pacific on how he would pay for it but he suggested it would be essentially through borrowing. he talks about interest rates being low and he is right that there are historic lows and various experts who believe the united states should borrow

money and it would be a worthwhile investment. the republicans tend not to support this thing but that is what trump is suggesting. >> hillary clinton was talking about it infrastructure bank, something president obama has spoken to. >> it sounded like this is what he was suggesting. he said he would get a fund to pay for it and investors with what money in it and he would finance some of it through bonds. like this is where he is going. there is no specific policy and i am not able to get further details on this and we will keep working on that. david: thank you for joining us from washington. >> a lot more coming up tomorrow. the rate decision out at 7:00 following mark carney's conference at 7:30.

the number you need to know, 100%, the probability of a rate cut. >> the first one since march of 2009. if it does come out that way, an exclusive interview with brian moynihan, the bank of america conference the news that comes 25 or 30 minutes after the decision, which we will have right here on bloomberg. what the impact is and what you pay decisions have on bank. we talk about particularly on europe, we want to get his take. it is what they do. there is a lot more to learn from mark carney. >> that does it for bloomberg . thank you very much. bloomberg markets is coming up next, in new york from our viewers worldwide, this is bloomberg. ♪

matt: live from the town manhattan, i am matt miller. barton.am mark this is bloomberg markets on bloomberg television. ♪ >> nonmanufacturing index, the measure of the services economy coming in at 55.5, about in line with the 55.9 that economists had estimated. this lowdown from june passes reading of 66 and a half. from 56 and ahigh half from prior month. anything above 50 does signal expansion. still seeing an expansion. we are still seeing a mix, little changed market. the dow had been down seven