a stagnant economy. can corrode up -- can governor kuroda -- david: london properties are taking longer to sell this month as the brexit effect spreads to housing. alix: and retail's big on court. target and walmart try to regain confidence in the consumer. jon: i am jonathan ferro, alongside david westin and alix steel from new york city. the bank of japan throws trillions at it. david: japan with a weak start. gdp down .2% growth when they are respected to have .7. alix: you had qe, quantitative tightening, and now you have qs. we have another -- a lot of other data points. fomc is coming out wednesday, and u.k. data is starting to trickle out to get a full effect of how it will be affected by the economy. we expect the number two

pick up as well. negative rates, plus the global bond rally and the outlook for central banks across the world with blackrock's cio rick rieder. that is coming up later in the program. jon, overall you are looking at equities still near the one-year high. positive for the year for the first time since january. you see it on the move today, up about .4%. the ftse up as well, about a quarter of a percentage point. futures in the united states possible -- futures in the united states positive as well, getting back to a record high. euro-sterling, that broke out to an august 2013 high at one point in today's session. better euro strength against that pound weakness. in a commodity market, wti crude closed out last week. positive again today, up .3%.

$44.63. now at friday was all about weak retail sales. two-year note is coming in again, down a basis point. we trade at .698%. the week ahead, all about the fed guides with the minutes coming up, and a treasury market in focus. asx: lots of fed speakers well, how they are looking at that data. let's check in with our bloomberg team for in-depth coverage of all about top stories. can mccallum is in tokyo. guy johnson is in london, on a slew of post brexit economic data. weak look ahead at the fed minutes. ken, talk us through the disappointing numbers today.

ken: the numbers were a lot worse than expected. the main thing was business spending. people were expecting it to rise . some analysts are thinking that this is a result of the yen's rise, which is causing companies to sort of hold off on making investment plans. consumer spending is not very strong. it is growing at about 0.2 percent. still a drop off from last quarter. had gdp coming in at .2%. a weaker yen was not the case. it seems like the boj data was not weak enough. they were not going to do anything right away and what we're looking at now is next month, september. when the board reviews the efficacy of the boj stimulus some far -- of the boj stimulus

so far. the big focus is fiscal spending . the government is probably going to need to spend more to get this economy going, and we are waiting for the details of that right now. alix: thanks so much, ken mccallum, joining us from tokyo. as we get that news out of japan as well as the u.k., on the brexit effect. is: in focus this morning london property prices. i want to bring in guy johnson. low for longer is something we associate with rates and central banks. we are not talking about london property. guy: prices have been dropped and they are staying on the market for a little bit longer. in the summer, people are less inclined to put their properties on the market. but it also me a brexit effect. there was a start of a slowdown already in london property before we had the brexit vote. it is just an exacerbating

factor coming into the mix. we saw the survey out today -- year on year it is positive. it is a month on month, the -1.2% that is catching everyone's attention. the rest of the country is having an effect, but it is by no means the kind of effect we are seeing in london. prices are a little bit softer. london prices are probably -- london properties are probably taking longer to sell. is this the new normal? market,the effects that's in the fx market, the new normal with a slew of data coming throughout the week. it may be that those negotiations in europe are going to take longer than many people thought they would. guy: it depends on which paper you read. times,"ead "the sunday we may still be talking about this in 2019. theresa may indicating that the ministers should get on with it and get the u.k. out of the eu

the tea leaves are certainly being read. not getting much information as to what is going to happen next. that is one story to focus on. as you say, the pound getting hit again, falling against the euro. we get a whole host of data. the big one for me is the retail sales number later on in the week. guy. barbecues, guy, thank you very much. the brexit story right now is the guys in europe wanted to begin. there is no team to put on the field. guys in europe do not have that much leverage over theresa may. we are going to learn a lot more

about the fed because we are going to get some insight on when they are -- on where they are heading. they have minutes coming up from the fed on wednesday. thursday we will hear from the head of the san francisco fed, john williams. suzanne barton, give us a sense of what we are looking at here, and specifically what might surprise us. , the the july statement fed noted that near-term risks to the outlook have been diminished. people will be scrutinizing the minutes to find out what exactly does that mean. was the fed talking about improving economic data since the previous meeting, or was the fed referring to the easing in financial conditions, or a combination of both? that is what people are going to be focused on. the second thing is people will be looking to see how the fed characterizes how the fomc members are -- how they

characterize how the fomc members are relating to a potential fed hike. in the past, the fed has used minutes -- has used words such "some." ," "many," or are they looking for a faster pace of rate hikes or a slower pace? david: one of the raging debates among analysts is who is running monetary policy right now. is it the fed of the markets -- it is it -- is it the fed or the markets? what will be that what will we be looking at? makene: the data does not it easy. friday we got retail sales, and that was unchanged in july. tomorrow we get cpi numbers, and that is not showing a robust growth in inflation. people are focused on this. the market is focused on this. the fed knows it has a little

bit of room because the data is not exactly cooperating. david: thanks so much. barton.susanne alix: we get to see all the big names buying and selling over the last quarter. that leads into our first mover, activision. dan loeb adding position to this stock. activision also added other shops like america prize, citadel. we will get more of these after the bell today. as they trickle out. william hill is looking to be the m&a rejection here. this betting office is rejecting 888 and rank. they had already been four. they had raised the bid 3%, and now william hill is saying they will not accept the second bid, calling it inadequate.

analysts state that the bid will not be raised again. mid-america and post properties -- these two companies are , looking ates synergies of about $20 billion. it comes down to a little over $72.50 a share. it is expected to be a tax-deferred deal, but it is also playing on the rental market. this will have about -- this will have about 105 man -- this will have about 105 multifamily units. to gived trump is going a speech today and he will say if elected, he will give up on nation building favor of a foreign policy that favors destroying islamic state and other terrorist organizations to he is also expected propose a new ideological test

for admission to the u.s. reports of gunfire at jfk two terminals being evacuated. no shots were actually fired. -- as summer in olympics the summer olympics -- hussein his third gold medal. checking the metals scoreboard, the u.s. is on topic china's second with 45. great britain is third with 38. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am an muchtries, andra -- i am emma chandra. jon: the bank of japan, pressure builds as gdp slows. up next, what needs to -- what governor kuroda needs to do next. this is bloomberg.

♪

jon: to tokyo we go, where business is slowing. gdp at 0.2%, less than the economist 0.7% forecast. michael mckee joins us. it is amazing the conversations that you have with guests. it goes from that data point to a conversation about september 21 on the boj. if it has not worked in three years, why will it work after september 21? mike: the biggest problem that japan has is brexit. the yen is strengthened down to 101 this morning, and that is

taking a real hit. -- they bank of japan are in a race to the bottom with other central banks, and they cannot win because everybody else keeps cutting as well. david: how much of this is a confidence issue? japanese businesses are not investing because they do not have confidence in the future. can the japanese government re-instill that kind of confidence? michael: there are a couple of things that economists keep coming back to. the third arrow of abenomics which they have not implemented, allowing more immigration, more efforts to get women into the workplace, and easier labor relations laws so that company's can feel better about hiring and having a better slew of applicants to do it. but there is still a problem with generating inflation. an interesting idea today -- guaranteed higher wages to workers, almost wage and

price controls in reverse, so that people spend more. alix: that is a bright spot of the gdp report. gdp." rength in michael: private consumption is up .2%. it is still not generating a whole lot for the economy. it keeps them sort of neutral, kept the economy from contracting, but it is not enough to generate inflation, which is what they are really trying to get to. jon: michael mckee, thank you. in theversation we had 5:30 meeting was, how do you get companies to spend? if you are the bank of japan, that is a passive whale. we arenow on japan, going to keep going with paul christopher, wells fargo head globalnstitute

market strategist. the firm has $1.6 trillion in assets. welcome to the program. let's pick up on this discussion with the japanese data. how troubled are you by what it says? paul: it is discouraging to see the low number. , a little bit under the consensus. it is ample maddock of the problem in japan and around the world that consumers -- it is emblematic of the problem in japan and around the world that consumers cannot drive the economy themselves. david: let me raise something that has been raised before on this program. that increasedce military spending could help japan at this point? paul: yes. prime minister abe a few weeks ago proposed additional spending, about $250 billion worth. the market was unimpressed principally because there was no real way to fund it. you can use an additional

defense spending, and i think japan is wanting to head in that direction, becoming better prepared defensively. but unless the boj is willing to fund it, it will not get you much progress. market,e boj is in the buying etf. the boj now owns 60% of the nation's etf market. they have so much of certain stocks, it could grow exponentially over the next year if everything is equal. what distortion does that create in the market when it comes to liquidity and keeping some reforms off the table? paul: as you pointed out earlier, the bank of japan is -- part of what japan needs is a lot of corporate reform. you mentioned some of the labor reforms that are needed, and also corporate reforms to get more earnings back into the hands of investors are that will be important going forward. the boj is not the sort of investment that will push for that. the bank can buy securities as a

way to boost wealth and make people feel wealthier and perhaps make them want to spend more, but if they are not feeling confident in the overall economy, they are simply not going to spend. that is the limit of monetary policy. jon: the bottom line is, look at japan as an example. when things get difficult, the increase credit. in japan, you push things aside and buy more etf's, it seems. longer does the story a jumpt, when they reach to that more stimulus is not the answer anymore, and you get a policy mistake? paul: you head to a policy and a political crossroads. you could say an impasse. in to deal with that issue per you cannot stimulate in traditional ways. you need new reforms to

implement it, and his reform simply has not taken hold yet, or in some cases has not really been tried. the next step for japan could be some sort of new political approach. jon: paul christopher is sticking with us. it seems the same story does not go away. we have the same answers to the same problems. nothing changes, and we fast-forward to september 21, and we say what else is governor kuroda going to do? one answers to the boj have -- what answers do the boj have? alix: in terms of the market moving, it is the #dollar now, 1.29, the lowest since july of 2011. s&p has still advanced in six of the past seven weeks. we will debate if you ask equities -- if u.s. equities can continue with the bearish call. this is bloomberg. ♪

." is is "bloomberg paul christopher, wells fargo institute head of global market strategist is still with us. in your most recent note, you 21.90,ned your target, 2290. in alastair looking at revenue declines for the first quarter. -- for the third quarter. paul: investors are looking for growth at this point. an earnings target of around 1.19 is what we're looking at for the end of 2016. but we think investors are looking into 2017 and seeing a number that is perhaps higher than that. we are looking for earnings growth, and that is what drives the markets in the current period. alix: where does that growth

come from? paul: from some combination of revenue gains that we think will be modest. it will also come from energy flattening out. and probably it also comes from further costs squeezing that you may see from some firms around the industry. david: won't cost squeezing come out of wage increases? paul: it will, and it will keep wage growth slower, but that is not necessarily a bad thing for longer-term investors like our clients, since if wages get to that 3%, 3.5% per year growth rate, then you have to worry about margins being eaten into quite a bit. if wage growth can continue to improve but slowly, that is more favorable for the markets in the long-term. david: isn't there a negative feedback here, though? paul: by itself, that would be true. but we are also seeing growth in hours, and growth in jobs. paychecks are still getting

bigger, and more and more people have paychecks. jon: the conversation we have had over the last couple of weeks is, when does this market top out? you have u.s. corporate bond premium the smallest in a year versus treasury. does credit continue to lead equity? paul: we have been watching credit quite closely. we notice for example that short-term credit has started to exceed cash levels that have been very high since the beginning of this recovery. so that is a warning sign that we are maybe beyond the halftime marker of this recovery. we think we are somewhere in the third quarter of the recovery. so credit remains something to be watched, but not all firms have used credit badly. some have used it well, and that is going to remain a positive for firms going forward. alix: what leadership rotation do you expect if we get the $22.90 target? paul: we have seen a lot of

progress out of the yield-oriented sectors like utilities. they have done well this year, but if you look back on the last 20 years, utilities have only done this well 99% of the time. it is very difficult to find a time when utilities did not -- did this well, is what i mean to say. we think utilities will rolloff. we think the cyclical stuff will roll back on. alix: thanks so much. cyclical's -- watch him. coming, janet yellen on hold for another rate hike. betting against another increase in rates this year. from new york, this is bloomberg. ♪

♪ jon: to the city of london with renewed sterling weakness and focus, a 31 year low, the cable rate handled very briefly,. the pound weaker on the t10

space. from london to write here in new york after a very hard weekend, we get back to work. in europe, ftse of a quarter of 1%. for 2016 for the first time since january. in the fx market, we talked about the sterling weakness. stronger euro, weaker pound. in the commodity market, big gains for crude. the biggest week of gains since april. 44 .76.on lower bond market, yields was the story friday after a softer retail stores sprint. treasuryly for the

market last week. 10 year yield dropping the most. it is the fx market moving today we have individual movers. kicking it off with valiant getting a neutral rating and doubling its size target to $25 a share from $11. giving it a less chance for shares to collapse. could see more asset sales and opportunity to renegotiate debt. deals taking a look at more retail, h&m reporting a very solid july. shares hit a three month high over in sweden. july sales up 10% in local currencies. wrapping it up with a potential m&a for this monday. entertainment one, kkr is considering weighing a bid that will start a bidding war.

rejected the one previous deal saying it was inadequate. i spoke to one hedge fund guy in entertainment one who says he would rather see them raise the bid. now for what you need to know outside the world of business, and much andra is here. second night of unrest in milwaukee, wisconsin after police killed a black man. at least one person was shot. police say the man it was killed had fled from a traffic stop and then turned toward an officer while holding a gun. a dramatic scene in southern louisiana where rescuers broke a window of a sinking car to pull out a driver. record flooding has killed at least five people and forced 20,000 from their homes. rivers havestate's

crested, but some are still rising. houses in london are taking longer to sell the naked before the brexit vote. a property -- are taking longer to sell before the brexit vote. global news 24 hours a day, powered by 2400 journalists, in more than 150 news bureaus across the world. this is bloomberg. david: we have been talking a lot about the central banks cutting interest rates, but we don't always focus on the real-world effects like people counting on pensions down the road. storiesing must read about how british millennials are likely to suffer because of the back -- the bank of england's easing. the bank of england clearly believes it affect on our pension system is acceptable. -- youngersay workers will have to save more

or prepare to work longer. it -- ne, they call generational theft. hostages forking future obligations we have. persistencebeen at -- -- and it just grinds and grinds in a chronic way. ared: what do you do if you a pension plan? where you have long-term obligations coming up, and you have to invest now to meet those? tom: just to give you an idea of how bad this is -- they go to alternative investment. there was an article last week about the dallas pension plan. they had an alternative investments in the american idol production company, which we know you greenlighted at nbc.

the idea is how desperate do you idolto be to put american in your pension plan? david: first of all, you have to be fox. [laughter] as recently as four or five years ago, they were praising the dallas police and firemen's fun because they were so diversified. now they have 45% of the assets they need to -- rates comeerest down, this is the thing you have to remember, david. you have to put more money into the plan. companies don't want to do that. dallas public officials don't want to do that it now rates are down to an unimaginable level where they have to put in a lot of money. plus investments don't make that much money. --id: now dallas is saying stating the money and employment people and have a substantial increased. generationals to a

debate. the here and present for you and me and for millennials/younger people, it is a huge conundrum. david: what do insurance companies do? tom: put in more money. monell at boston college studies is better than anyone i know, and everything comes back to one thing, putting more money. it cuts both ways. to put more money away that goes into investment which those -- which boosts -- it cuts both ways. these two articles are really front and center. it is worse now than it was two years ago. david: thank you so much. that is tom keene. tom: you want to tune in

tonight. david: you would be great at "american idol". seen tomd, you never keene playing the guitar? i have seen that. we have to get that on bloomberg television. [laughter] yes we do. we are focusing on retail with expected earnings reports with companies like home depot, target, and walmart. during guess is a research analyst -- joining us is a research analyst. treasuries rallied. consumer strength is gone. your response? hearing worried comments on retail sales figures for more than the last 12 months. they have always been held back from oil and gas prices. the consumer is in great shape

and we must not forget that second quarter brought one of the biggest increases in consumer spending in years, more than 4%, very strong. the july number is a temporary breather. we have seen very strong labor market reports, which is the main driver of consumer spending. you must not forget that retail sales only cover a small portion of total consumer spending. wasink the market reaction well overblown. like aike a walmart, -- does thata support your point of view? >> amazon a second the life out of a lot of brick-and-mortar retail. to 50e services point, 35 for your old at the biggest drivers of the consumption of goods. that number is negative. the millennials are not helping out yet. jon: i always go back to 2015 in the classic trade.

did you see any correlation at all. the struggle for the bricks and mortar is to be consumers to come. we talk a lot about how much retail -- a lot of people would consider going to the grocery store is a chore. it is debatable it going to a mall is a chore. that is the big story here. when you see the companies report this week, someone like targeted struggling with trips. walmart just bought jet.com. that is really the story of retail right now. alix: you have done a lot of work on retail deflation. walmart leading that in where we are in that cycle. talk us through what we have been seeing. >> the lack of demand, that 35 to 54 euros category in those new business models, things like

blue apron, amazon, and thrive that delivers organic food. that is really driving challenges on the traffic. that is causing deflation to come into the markets. walmart is lowering prices in north carolina. albertson's, lori prices. we are seeing -- albertsons, lowering prices. we're seeing deflation might be never seen. jon: you have just laid out the big retailers in the united states struggling with the shift from brick-and-mortar to online. how do you capture that data when the reaction function at the federal reserve is to back away from the hike in the market follows that thinking. you buy treasuries and you see the rally. what is the real story? >> the real story is consumer spending is measured in the gdp report. we talk about it in the green room, the retail sales number --

sometimes a reports do not keep up the pace with development. one point here, retail sales reports are still geared toward brick-and-mortar sales. category one retailers are -- i still have my doubts if they measure everything correctly. they are still underrepresented. that is just my guess. there is a lot of talk about official data is representing the strength of the economy. that is a small problem. that is the reason why retail sales are weaker. david: i wonder if there is an effect on margins. you now can compare thousands of products for the best price with amazon. does that put margin pressure on the retailer? >> that is an incredibly great point. there is so much transparency in the marketplace right now. we do focus groups. we do one in chicago and we were sitting in there with the women

in the moment supercenter and i go to -- and i said go to your amazon account and check the price. two thirds of the prices were cheaper on amazon. you seea transparency throughout the marketplace and it is now coming into consumables. alix: what is the pathways? >> let me make a comment. inflation is no not really that new. we look at the cpi. if you break it down into goods and services and exclude energy, you see that the cpi for goods has not shown any increase the last 10-15 years. walmart did not just discovered china last year. there is all this talk about cutting prices. it is not a new phenomenon. in the real world, when we talk about -- they look at the

headline of the correlation measure including services. it is interesting that good prices don't react to the tightening of the labor market is much. that is driven by china. but it is services that react most to changes in the unemployment rate. we see that already that service prices are rising at a pretty strong case. jon: special thanks. a lot of retail earnings coming out. coming up, we have a slew of fed speakers weighed in on the economy. we will show you what to watch out for. plus it is a big week for british economic data. brexit have an effect on the economic consumer.

♪ david: this is "bloomberg ." i'm david westin. coming up, black rock's chief will join us on the set. alix: the federal reserve is an focuses week and we will hear from several speakers including john williams and robert kaplan on thursday. the minutes released from the july meeting all ahead of janet yellen's speech next week. u.s. economists are still with us. we continue to get overall data that is surprising to the upside of the fed continues to seem more dovish. can you reconcile that for me? [laughter] no. clearre is a very

economic buyer. the one negative ways more than a two stronger ones. there is data-dependency, but is not completely symmetric. jon: how do get from a to b? , that iss probably where some of the data surprises and volatility and lack of inflation have the biggest impact on the longer-term outlook. the fed says we are seeing the improvement, the low unemployment rate, but inflation is not picking up as much as we would like it to. what is going on? first of all, they think it neutral unemployment rate is lower. and because gdp is not as strong as they would like it to see, they conclude that monetary --

room to the fed some keep rates lower for longer. jon: the productivity debate, how does that play into this? we talked about how low productivity damages potential outlook. but it is getting to the lower part. quicker because productivity is lower and inflation pressures are going to build quicker. why isn't the fed having that debate right now? >> i think there are two different --productivity is lower. inflationprescient -- pressure is building up earlier. long,have growth for too too low, full down the potential even further -- it pulls down

the potential even further. and couple of imf papers cannot one or two years ago. leaning toward they want to support the economy to prevent long-term damage on potential growth. alix: that implies that typical models will wind up working. the article shows that inflation expectations are diverging. the models they are looking at might not he telling them that information they need to know to hike rates are not. >> we are questioning all the models. they are moving too slow. but to give them credit, it is a tough environment. we are questioning all of the framework. they think the old models are working, but they want to see more evidence that they indeed do. jon: big week for u.k. data. let's put the calendar of for the audience.

the big one is july, headline, cpi to remain at about one half of 1%. -- you expecting >> not in this week's report. there was an increase in outline fares because of of the u.k. soccer championship. it is the first ring up our data, post-brexit hard data, but it may not be as exciting as it takes time. alix: to be look at the sterling decline and say we can't be as easy as we want to be because of that, or is that not fitting into the debate? >> the answer to question with the policy decision last week. they said they want to look through inflation spikes by sterling and support the economy. alix: great.

great to see you. coming up, stocks moving at record highs. we will unveil the time charges coming up in u.s. equities. this is bloomberg. ♪

♪ alix: this is "bloomberg ." i'm alix steel. u.s. equities trading at all-time highs. barclays out with a report that shows what kind of slows are reading this record rally. toy attributed it mostly declining. s&p at it lowest level in three years. added $16h, it has billion to the market and $26 billion since june alone. really sustained a market rally. with brings us to the second leg

of this rally and that has to do with buybacks. barclays said that net buybacks rising to $500 billion over the last four quarters. for the first time since 2012, more s&p companies are reducing their buybacks versus increasing the size. less than 50% of s&p companies are increasing their buybacks. the question, is this a softening, or a total fallout? saying itarclays is is a softening of buybacks, not a fall down. the other part of this story is who are buying u.s. equities? this orange line is a percentage of foreign ownership of u.s. equities. the white line is household, the retail side. with a point to is about 19% ownership rate for foreign buyers for equities and households, a.k.a. retail. that number stands at 30%. they point out that you have to have foreign inflows and retail

guys come into the market to support the rally, yet no one except for japan wants to buy u.s. equities. john, if you take a look at how we can sustain this record rally, if you don't get me tell in the market, you don't give foreign buyers, what is going to support it is buybacks are starting to soften. jon: we are talking about record highs in the u.s. equity market. it is absolutely phenomenal. that will be the next conversation. go forn post brexit longer in the property market. prices are lower. a big discussion on the u.k. economy suffering post-brexit. futures kicking off a monday. the new beginning of a week of trading.

positive, up 40 points on the dow. positive for 2016 for the first time since january for tens of 1% on the session. rally across the treasury curve after a soft retail. we come in again another basis point. focus, 1.28. sterling, a weak pound session in the fx market. this is bloomberg. ♪

♪ david: japan's slowdown, the bank of japan considers a stagnant economy.

can they find a way to replace the economy? jon: london properties are taking longer to sell. prices are being cut as the brexit effect spreads to housing. alix: bullish betters are hedging of bets against crude. jon: welcome to the second hour of "bloomberg ." jonathan, we were talking about japan, but the pound is down to 1.28. jon: i would describe it as a slow ground, and sterling weakness. six straight day higher. which is a stronger euro and a much weaker pound. thego back to august 2013, last time the euro was the strong against the pound. whether that sterling weakness translates into exports growth. alix: hedge funds are the most bearish ever on sterling which raises the question, if we don't

get disappointment there, we don't get that kind of fiscal stimulus, do you see a snapback? david: several large banks are calling for parity between the euro and the pound. jon: hsbc. discuss are going to this with rich reader coming up in the program. global stocks for a one-year high. jon: kicking off the week on a little bit of a high. the dax getting back to that 2016 high, positive for the year since january of this year when we were all worried about what would happen in china. things have turned around. up a third of 1% on the back of the sterling weakness. the pound down to 1.2895. the overall levels are. you go back to 1985 on a closing

basis to see sterling that weak. in the commodity market, no weakness after a big week of gains on crude. the biggest since april. fairly flat on the day. brent trading around -- in the bond market, yields comment on the two-year on the front end of the curve. two-year coming in on one basis point. alix: we do have breaking news. is private equities firm fine greg medications for $2.25 billion and will pay $1.6 billion for rcn. granted5 billion for medications. rumors that kkr

buying entertainment one. we are starting to see these headlines the yesterday. david: the powder is not quite so dry anymore. let's go around the world and check in with her bloomberg team for in-depth coverage of all of our top stories. stocks start with record highs. guy johnson is in london. oliver, looking at stocks, what stuck out to me most is you have a low volatility stocks. here is a bit of a rally that you may be eager to get behind. s&p has had a pretty impressive rebound off the brexit lows. the thing to remember is up until two weeks ago when earnings started kicking off his offas a rally -- kicking

this rally -- talking about utilities and consumer staples. those are groups that people get super bowl is around. --y do provide their valid those are groups of people don't get super excited around. as we see the sector shift and you see the financials do pretty well, that is an important shift. is is this astion monumental shift in the market, or a slight rotation? >> that is a great question. we did an interesting analysis. it looks at is how many bear markets occurred in about the past year. it is a part of the shift as well. when you think about the cleansing of the market that happened over the last 12 months. when you went from that may high

2015 to getting back to that level in july of this year, you had stocks in the s&p 500 that lost 20% and never got it back. that is the same amount of stock that did the same thing in 2011 and we had a bear market went down 19.5% -- 9.5%. you can make a strong case that we have gone through turnover period and maybe things are starting to look up. you are saying s&p futures up four points. sterling is the story of the day. sterling, the cable rate. if we closed here, potentially the weakness in 31 years. i want to bring in guy johnson. the price action is not huge, but the levels are.

what is driving renewed sterling weakness? >> you have to remember, a lot of europe is on holiday. markets may be open, but a lot of people are not at their desks. we are in this high liquidity story. around.ving sterling it is a big week for the british pound. a big week for data. the bank is in the market at the front end of the curve. tomorrow, we get to the real test. we will see if we get -- as you can see on the timeline for this week, a lot of data coming out. this is contributing back into the negative sterling story. on the euro sterling rate, people are telling us to watch the 19 level. people will watch for this grind to continue. part of it is liquidity and part of it is the ongoing story. morning have had a full

of discussion on the subject. we have a big week on data. we have a real mother and property. what is the better forward guidance and we are seeing from the data we are expecting this week? >> it is very mixed up. the property story isn't lending -- the property story is that london is softening up. the data this week is a hard look at the numbers. johnson. significant moves in the price market. david: there are significant moves -- there aren't significant moves in oil, but there has been. over $45.ittle bit

midou take going back to july, it went down and then came right back up. what is causing the uptick? saudis are responsible for a lot of it. signaling the saudis are rally for some type of action. comments fromsome the oil minister saying that they are ready for action. is key at the moment everything is -- [indiscernible] indication that there is an agreement. the potential is driving the market higher. we have heard this before

where they have said and maybe we'll get to some agreement. i want to raise a point that if you put a cap at record high levels of production, what doesn't do for us? >> you are absolutely right. today, there was a very good saidnt from an analyst who every time we have weakness in because demand comes down, there is a season of opec talking about a freeze. opec is trying to micromanage the market in trying to create an expectation of potential action. you are absolutely right. if opec were to agree to freeze production, what they are doing is to produce as much as what they have done ever. saudi arabia is producing a record high. david: there you have it.

we are going to go to alix steel. alix: they want to talk about m&a monday. mid-america being bought by post properties. will beined market cap $70 billion. $20 billion in synergies. it is really the rental market that has boost the environment and is helping to lead to more mergers. taking a look at earnings, cisco just that with earnings coming and above estimates at $.64 a share. revenue coming in light at $13.6 billion a share. taking a look at best buy. a different story.

the price target was cut about 7%. things are not so great for best buy. the current tb cycle is maturing and that could lead to lower sales. discounters really get into the market. super holiday competition. three not so great things for best buy. for what you need to know outside of the business world, first word news. >> donald trump is to declare an and to nation building in a speech. he will say that if elected, he will get about nation building in favor of a foreign policy that focuses on destroying islamic state and other terrorist organizations. he is also expected to propose an ideological test for admission into the u.s.. operations have resumed at john f. kennedy airport after reports of gunfire led to evacuation. flights were halted. police have determined no shots were actually fired.

they have not said what led to the initial report. germany is urging russia and ukraine to calm tensions. that america can has accused ukraine of killing two rossi and soldiers. ukraine denies it. germany's foreign minister met with this rushing --rossi and counterpart. global news 24 hours a day, powered by 2400 journalists, in more than 150 news bureaus across the world. bloomberg. jon: thank you. coming up, stocks slip from record highs after lackluster data out on friday. what will the recent slip and retail sales mean for the fed? the president and founder of beyond go is coming up next. live from new york city, this is bloomberg

go.his is bloomberg i'm david weston. we hear from the fed. our next guest says the fed has become a captive of the financial markets, which are now setting monetary policy. jim bianco is the president of bianco.go research -- ianc what do we look forward to this week? >> it will be hard without janet yellen doing it. the fed is worried about financial conditions that every time markets wobble, almost a year ago today with china's evaluation by dr. brexit, the minute the markets wobble, they step up. without janet yellen speaking this week, i don't really see

them being able to connect markets that a rate hike is coming. the markets don't have a. rate high-priced and until june of next year. david: the equity markets are doing well. the debt markets are doing well. one of the markets telling her not to raise? >> bad news is good news. when all was said and done, the most bullish thing that happened this summer was brexit. what it cost was a mini panic among central banks. the bank of england did more bond buying. the bank of japan did more bond buying. the fed pushed up a rate hike for a year and markets celebrated. it was the epitome of the bad news is good news story that wall street loves. jon: i can't reconcile that with the domestic banks in the night states. -- in the united states. retail sales were bad. the market reaction was risk off. good news has been good news and

bad news has been bad news if you look at specifically domestic u.s. data. how can you reconcile that with what has happened in the last couple of weeks? >> the data that you have to p.ok at is wir it is 42% in december. on that data cannot move those probabilities of the market role throughout that and saying that the fed is not going to raise rates. so that is good in that seems to be the consistent theme. talk to us about inflation and little bit which must be some of the things that janet yellen and the other members of thinking about. what are patient expectations telling us? >> bloomberg had a good story about models and how the models aren't working. they were centered around inflation expectations. it is really hard to -- it is really hard for the fed to measure that.

the fed wants higher inflation and they would like it to get closer to their 2% goal. it is not happening so far. if they are getting any inflation it is an asset prices. it is not in cpi. the fed will continue to be a little leery about raising rates desire,ey see what they and that is more cpi inflation and less asset inflation. jon:, to the back to the data point. a talks to what you have just talked about. what you think there is is asymmetric reaction to the fed on the data points. if it is negative, they react much more to that than an overwhelmingly positive report. >> i think it started last august when the fed were all set for september 2015 rate hike. then we had the downgrade, or the devaluation in china. then it all went away. in january, the fed said we will push up the rate hike. to forget make in june when they

had an orchestrated talking campaign to raise rates in june. the market did not buy into it. the moment and has shifted in the last year in the markets have decided they are running the asylum. they don't want the fed to raise rates. the fed is too afraid to raise rates and risk a toxic market reaction. in the market does not price it in, it does not happen. that is why the market has been so sanguine. there has been a lot of that talk last week about a rate hike. but nobody seems to be listening because they have decided they are not going to do it. david: talk a lot about the effects on the market. we don't talk as much about the underlying economy. given the gdp numbers out of japan and that situation over in japan. what is the effect of the fed's policy on the underlying economy, if any? >> is -- it is limited.

done an aggressive monetary policy and it is not producing jobs in gdp. it is producing a giant rally and a bond market all the way to negative interest rates. same thing has happened in the united states. that policies has produced record lows in the last month. same thing happened in europe. rallies and risk market and lower yields. i think we found the limits of monetary policy. it helps financial markets and does not help the real economy. david: thank you so much for being on the program. that is jim bianco joining us from chicago. alix: the yen moving higher despite the weaker gdp numbers out of the country. nextll take a look in our checkup. this is bloomberg. ♪.

♪ jon: from new york city, this is

bloomberg. i'm jonathan ferro. japan said spending contracted and exporters struggled. joining us is vincent. great to have you. yen stronger. explain? >> a little bit of a disappointment, but markets are used to being disappointed with japanese data. yen, itin, -- with the is not a doj problem. the market is brushing that aside. the one take away, which is helping the yen, the disappointment was from cap x for the second quarter, but the last number we saw was a proxy for cap x, surged. while it is down, the most

recent data is really positive. that may soften the blow. is centraler point banks have limited control over what they can do when it comes to currency. we saw that last week with new zealand. you have an interesting thesis as to why that happens. reverses carry -- carry. i think i may have finally figured it out. years past, you would have a really big spread. dollars fred was may be 6% or 7%. interest rates are really so close globally. the carry trade earns relatively small by comparison. the real money it is following his capital gains. cutting rates to

negative, what they are saying is you are going to lose $.50 and make one dollar on the trade. with the kiwi, it was double. you get the yield play and the appreciation. they are our most in a catch-22. the more they cut, the more the currency may appreciate. does this translate into a real monetary policy decision? they are about to pull the trigger. the new model is a rush for capital gains. how does that affect them at all in the coming months? >> the central banks have their hands tied. the real driver for this has to come from fiscal policy. policy has completely lost its way. when you get rates down to zero, where else are you going to go?

immediately fiscal policy response. they need to drive investment from foreign investment into japan. that will not be done by the boj. jon: thank you very much for joining us. fascinating discussion -- eight reverse carry trade. of, are yellen and carney changing their guidelines for adjusting rates? we will explain why they may ignore inflationary targets when they decide to move. this is bloomberg. ♪.

alix: this is bloomberg . this is a look at the stocks moving in premarket. valeant is up.

they see less chance for shares to actually collapse. they could renegotiate some better debt deals. also moving higher is american eagle. is pointing out strengthened and him. strength in denim. in a potential deal with apple tv. it would let apple tv stream nfl games on apple tv. twitter is in discussions with the pga and the mls to stream those events on twitter as well. individual movers, it feels risk on unless you are betting long on sterling. jonathan: you can dream bloomberg tv on twitter. i remember which plugs they are.

futures are slightly positive on the session as well. they are up 2/10 of 1%. the dax is up to a 2016 high. market, the sterling is down here. it is weaker by one quarter of 1%. euro sterling is popping higher to. there is a slew of data out of the u.k. this week. the fed minutes are very much in focus. we did have a little bit of a bond market rally. two-year yields were down about a basis point. we have triggered some of that game. we have traded basis points. this is gauging with the fed may or may not do. the long end is where we see a rally, a huge rally on the 30 year yield. that is your big market moves.

let's go over to emma with the news. emma: a dramatic scene in southern louisiana where rescuers bloat -- broke the window of a sinking car. 20,000 people have been forced from their homes. some are still rising. there has been a second night of unrest in milwaukee. there were arrests overnight and one person was shot. saturday'sone of widespread destruction. police say the man who was shot a traffic shot. two of the cabinet members did go to the shrine. he sent a ritual donation. chinaill likely irritate and south korea. news 24 hours a day

powered by more than 2600 journalists and analysts in more than 20 countries. this is bloomberg. check inery day we with major banks to see what they are focused on. from tankelcome jill of america merrill lynch. you have some concerns going forward. why do you have those concerns? jill: i think the consumer they haveary or are, seen their margins improved because they are doing a lot of cost-cutting. thisis concerning to us is earnings season that you are starting to see companies talk about writing -- rising wages. this is going to be a headwind for margins. this is the most labor-intensive sector.

they are going to see higher costs from this. are placing more emphasis on sectors rather than factors. what is causing that? jill: you are seeing some notable trends on the earnings front and on the valuation front within sectors. we think right now you're seeing the dispersion of values at a four-year high, even though the market has elevated evaluations at the moment. you are seeing differentiation within sectors. theopportunity is health-care sector. we have seen solid fundamentals. surprises on the upside for the majority of quarters for the past several years. valuations are at a multi-year low. forhave seen a sentiment health care around the election.

it could be a big buying opportunity. this is our preferred sector. david: what accounts for that failure? we have heard about the upside in health care. you say it is relatively low in value. is it all political risk? jill: i think a lot of it is political risk. you have seen some big diversions is among the sectors. health care versus consumers staples. staples are trading at an all-time high. they are at very different price tags. i think political risk is a big factor. positioning risk is a big factor as well. they have really paired down that positioning. this is flowing out of active funds into passive funds. positioning has been an important factor this year. alix: when you look get estimates for revenue down again for the third quarter for a sticks to straight quarter in a

row, how you get positive on earnings when the dollar is relatively higher and oil is volatile? >> what's important is we are lapping a lot of the big headwinds from the dollar and oil. the impact to your big growth is starting to fade. both earnings and sales growth did grow prior to the quarter. we do think the first quarter of this year marked the trough, the worst of the earnings recession. we will get back to positive growth by the second half. we see global data improve. that a lot of this will be priced into the market. better earnings trends, we are still a little bit cautious on valuations at this point. david: thanks so much. she is from bank of america merrill lynch. alix: we are constantly hearing from earnings strategist. minutes from the

meeting. as the fed has struggled to interpret recent data, one point doesn't make sense. inflation and expectations are not moving together like they used to. this is the spread between the two. expectations are lower than actual inflation. how can a data dependent fed make sense of it. joining us is matthew who wrote a piece. matt, we loved this piece of the weekend. explain why the divergence? matt: there are a number of theories. central banks of become more persuasive since the 1990's. people distrust that, even if inflation goes up and down. overall, they will hit their target eventually. interesting theory i think gets less consideration is

inflation has gotten so low now. it doesn't really factor into people's decisions when they are making business decisions. that link between inflation expectation to actual inflation has become disconnected. -- been so belong long since a folder. we forgot what it was worried about to worry about inflation. people are less worried about it. it brings in the question of what is inflation and what do people think when they answer questions. do they think it's cpi index? i think they think it's cost of living which explains it. it became all the rage. the decades of history has shown that central banks are good at controlling inflation from up here. they are not good at stimulation down here. what does this mean going

forward? matt: that is the major question. weref these frameworks designed to that high inflation environment. that is a time when we clearly had a lot more correlation between actual inflation and expectation. is inflation targeting a relative framework when it's so low? is it the same as getting it up to target? that's the reason why the fed is questioning everything at this point. david: one of the things we learned is one of the person requesting that is janet yellen's husband who has done research. matt: this goes back to a paper he wrote way back in 2000. this was the alternative hypothesis. one of the people who has created this is her husband.

that's an interesting link to the decision-making at the top right now. they are obviously aware of those reasons. alix: how important is the fed behind the curve in terms of inflation? if you look at the target, i can sit back and it's ok. if you believe the actual numbers, we've got to be a little bit ahead of the curve. joshua: traditional inflation is not it. what's happening in financial markets with a zero interest rate policy is changing risk and decision-making. they will focus on the cpi. they will miss the forest for the trees. jonathan: we talked about a missed allocation of capital. low rates have stimulated other capacity. it's push down on inflation. is that a story that goes beyond what's happening in china? joshua: it is.

they are weighing on inflation. the overhang from the credit cycle is still there. we have too much capacity. trying to stimulate inflation is a loser's game. it doesn't happen in terms of price indices. it's markets and things that are more dangerous going forward. david: what does that tell the fed it ought to be doing? what would you do? what would you tell them? joshua: i think they shouldfed ? the normalizing interest rates. we should not be having a conversation about that. i am not on the fed. you have to forecast what they are going to do. they have talked big and done nothing. i think markets view them as the boy who cried wolf at the stage until proven otherwise. they seem to react more dovish lead to negative surprises that hawkish lee to positive surprises.

we're looking for that one data point that makes clarity for them. this point, a lot of people are frustrated. i think the big debate right now is going to be can we afford to let inflation run hot? if there is no causality between inflation and expectations, it won't get away from us on the upside. maybe we continue to take the risk management approach that they have been espousing lately. maybe we let inflation run hot with all these downside risks. that is the stage for the debate we are going to be seen it going forward. david: your mandate is normalized interest rates. what is the negative consequences of them failing to do what you would like to do? figure outing to when things like this might happen is a fool's game. markets are overstretched. people are in riskier and riskier investments because they are reaching for yield, not in

the normal investment world. that eventually comes back to bite you. everybody heads for the door at the same time. who knows when that will be. they will make it worse and worse by keeping interest rates as low as they are. alix: thank you very much. no doubt, we will be debating this over the next year. it's a very long process. up, we won'ting debate that anymore. kkr is considering a bid for a .v distributor we talk about that and a possible honeywell deal as well. from new york, this is bloomberg. ♪

jonathan: this is bloomberg . rick reader joins us on set. david: this is bloomberg . i am david westin. honeywell is set to buy a software company. the deal could be announced today. last month we talked to david cody. is he running out of targets to acquire? i would say we are $40 billion in sale. my guess is we still have room to go. we keep a very active pipeline. have 100 companies in a pipeline we are looking at. for all kinds of stuff. david: joining us on set is

jeff. he found one. jeff: he is an empire builder. in a bit like ge, honeywell has been buying up software companies and will help their clients, especially industrial clients to manage supply chains or what's going on in the warehouse. this deal would make a lot of sense. they've got revenue of $35 billion. a $2 billion deal is a pretty easy acquisition. david: we'll talk with him before. he has a pretty rigorous rubric that he puts these deals through. that. like it doesn't make sense unless he's going to make money off it were and jeff: they looking in a bigger deal with united technologies. they will go as big as need the at honeywell.

they are pretty disciplined and that's why the deal did not get done. a it kkr has emerged with are for entertainment one. how would something like this make sense for kkr? i was talking to a hedge fund manager and he said i don't really know. jeff: kkr wants to do more in media and entertainment. they are hugeone, in london. pushnk this is part of a to explanatory areas where they don't have a lot to they do a little in entertainment. this looks like someone is going to buy it, whether it's a tv were kkr or somebody else. david: they rebuffed itv on price. itv makes money off television advertising. they wanted to get into the content does this.

reported in april before this was public by the company, itv and entertainment one were having talks. they eventually made a bid in late july. it was $1.3 billion. they would probably buy the whole company and take the tv parts and some of the film elements, they are within entertainment one. tv is where the money is to be made. aix: do we see itv rating for third did it? how does that play? it -- in ank it came $1.3 billion. they trade over in london. a lot of that is off our story. we expect it will come back at itv would come back. in most situations, there is not just one bid. we would expect they would come back with a bid.

it's going to have to be over where the company is trading. we will see what happens from there. david: we have seen this. jeff: august is a slow month. you see a steady stream of deals and they have a $2 billion deal. it's another private equity asset. alix: there is power on the sidelines. there are no big huge deals. jeff: i don't think you will see that again. i think you will see the smaller deals a lot. david: alex? alix: it is surprising. it is my chart in battle the charts. this is bloomberg. ♪

david: it is time for international battle of the charts. there have been record highs for the primary indices. it's not so in europe unless you take in the fact that we recouped our post brexit losses. crossingw touching and the 200 day moving average. we've got to be grateful for small mercies. what does history tell us? the last time we crossed the yellow line, it lasted a mere seven days before the white line embarked on a 20% decline in the ensuing two months. what does history tell us? ing and technical analysis says the trend from last year's high is a negative

one, 20% from last year. in coming could fall weeks to the green line, which is the 50 day moving average which means stocks could fall another 4%. by the way, that was a seven-year high. you have to go back to 2000 for the record when 44% followed that record. that is a great chart. he wins for the longest name of an analyst. see if you can compete with that. at medavid is looking like there's no way i can win. i am taking a chart over deutsche bank. this is what is leaving the market rallied. as the line goes up, cyclicals are out performing.

typically, you see these go in line with the 10 year yield. that is the blue line. fall, ite the 10 year will take hold. that is not happening right now. you see cyclicals start to outperform defensive. your seen lower 10 year yields. is they big shift in the market? in the see that rotation cyclicals? is that just kind of a blip? that is the question going forward. what is happening? the rotation is actually happening? david: optimism? alix: it's so true. i lose. jonathan: my vote is going with alix. , theyilities and the bond have gone it so far so quickly.

it makes sense that people think there is a new trend. it's a fascinating chart. david: at some point you go out of the system. alix: as to vote for jonathan: well. alix: no one can beat marks delivery. : coming up, rick reader will be joining us on the global bond market. york, we are 34 minutes away from the market open. this is bloomberg . ♪

avtk"0 alix: we are 30 much from the

opening bell in new york. happy monday. this is bloomberg . i am alix steel. disappointing retail sales numbers on friday, the japanese had week second quarter growth. the dax is positive for the year. the s&p is trading around record highs. david: chinese markets are up. with the exception of japan, the equities are up. the dax is positive for the year after the ecb is pumping right now. the gdp figure coming out of japan. they are running qe. it's similar to the fed. they can't get traction on gdp. that's a huge story. 60% of the market, that is an unbelievable number. david: it distorts the corporate governance a bit. when you're biggest customer is the bank of japan, it's not going to be very activist.

joining us today is rick reider from blackrock. he has been traveling the globe for yield. after struggling last week to fill their qe mandate, will the bank of england find less competition this week in the bond market. of the open, we are 29 minutes away. futures are up. in europe, things are shaping up to be positive as well. we're rolling toward the close. the dax is positive for 2016. the ftse has been dealing with what's in the market. tois down by a third of 1% sterling weakness is the dominant story. euro sterling is a 2013 high. the cable right is a 1985 low. in the commodities, they are having the biggest week since

april on some opec production pretty -- freeze. brent is up three quarters of 1%. in the bond market, there is a big rally across the curve. there was a soft retail number. today we give some of that up. we will give up two basis points on the session. the 30 year is in focus once again on guilds. they are going into the market and they are going to buy bonds. they failed to get what they wanted last week. we've got killed yields giving up. we still have some individual earnings trickling out as well. we are starting off with cisco. earnings came in $.64 a share. revenue was a touch white. theytock is moving because increase the holdings in that

company. it's a flip story when it comes to best buy. the price target was cut by 7%. three things are adding to the pessimist him. the tv cycle is maturing. that could lead to lower sales. you have more price cuts coming for tvs and holiday competition. that is leading to a downward move in best buy. y are adding 6 million shares. alibaba is up for five days in a row. also, softbank is the top shareholder of alibaba. they are up 7% on the news. abigailad over to doolittle who is at the nasdaq. she is watching a few early movers. abigail: happy monday to you.

several 13 f filings came out. activision is higher today. investors of started to initiate positions in the second quarter. this includes third point. we are at citadel and janice. matthew cantor min says there are a number of fundamental catalysts that could attract investors. stabilization of the subscriber base of world aboard cap -- world of warcraft. they say to buy the stock. there is 10% upside for the shares. faring less well are the shells of cyber. they are on a downward slide. rating. cut the they say that a better entry point is probably available lower. the stock is up more than 200% since its ipo.

jonathan: thank you very much. we are 25 minutes away from the open. let's get to the bond market -- market. >> the treasury market has become less attractive because of these lower yields. hedging costs of been up significantly. what this means is you are looking at very low yields across the world. and investors will have to look to other assets other than government bonds. jonathan: they are becoming a less attractive area corporate debt is the smallest in over a year. .his is rick reider we have heard this discussion for a while. the chart tells the story. are we pushing the limits of that trade? rick: from a historic basis for sure.

that being said, my sense is it goes on for a while. the demand from overseas is tremendous. the demand for anything with yield is extraordinarily high. i think default rates will stay pretty low. leverage is growing. debt service is not growing because of where rates are. you don't have many defaults. while i think these levels are historic, think about where companies are financing. there are some high yields with a one handle. that is a pretty incredible number. wrong. these levels are they are. persist, my sense is it will persist. alix: we have seen $245 billion in several weeks. does this bring forward the back half of the year?

rick: we will keep getting more issuance. it's not as dramatic as it has been. qualityredit perspective, that is very positive. as long as you get your issuance, that is great news. m&a is not that high. a lot of what rove issuance over the last couple of years was tremendous m&a. the issuance is robust. it's not dramatically higher than it has been. david: if markets function properly, this is got to come to grief. ,hen you get high yields there's a reason why it's high-yield. the market will keep expanding until you do get the false. what is that point? when we know we are reaching it? rick: that is the $64,000 question. these are unnatural and they are distorted by monetary policy. levels are negative in some

places. pricingalking about everything off the risk ratio. alix: there are no other alternatives. pricing this off the risk free rate. this is going to keep going for another year or two. we will talk about the fed and we will talk about central banks . they have to stop pressing rates lower. they need to start the gradual increase in terms of where the risk-free rate is an where the central banks are keeping interest rates. that's still the way you can soft land a plane from these elevated levels. it's going to take years. point,wo david's insurers have doubled their holdings of defaulted debt. the contagion is there. jonathan: the question you have

to ask, do you go further along the curve? contingent was $2.65 billion. they all look like this. there is demand for that offering. how much longer does that continue? how willing are people to go down the capital structure. it's very risky stuff. rick: there are only two ways to correct the yield. however, if you think about germany or japan, you are still at negative field. out the curve has been eliminated. you only have one alternative. people should be thoughtful. we are big believers in diversifying away from the worst entity. make sure you diversify. we are taking high-yield and moving up into investment grade. it is negligible in some cases.

it is easier to double these. we like upgrading. we like taking less liquidity off the table. jonathan: i want to bring the pension fund into the conversation. the big catalyst last week was an uncovered boe operation. you've got a coupon. it is decent. why don't i want to sell my bond to the bank of england? how difficult will they find it as they go further along the curve? are we going to see more uncovered operations? the u.k. is the most unique because the pension dynamic. it is so extreme. i think the u.k. is a very distinct part of that. through their pensions, they have bought the long end of the yield curve than other places. people don't want to think about it. if you are an insurance company

and you take an asset off the books, you are losing your book yield. if you take those bond in, it is higher than it is today. it will never sell that asset you will literally take it to maturity. this is part of what perpetuates the lack of assets in the world. people don't want to sell what they currently have in their portfolio. the fed is not going to reduce the balance sheet anytime soon. the demand versus supply of assets, even with credits applied been significant, there is not that supply out there. david: we have a lot left to talk about. you are going to stay with us. we are going to get an up date with emma. emma: donald trump is going to declare nationbuilding. in a speech, he will say that if elected he will give up nationbuilding in favor of focusing on destroying islamic

state another terrorist organizations. he will propose a new ideological test for admission it to the united states. rescuers broke the window of a sinking car to pull out the driver. record flooding has killed five people and forced 20,000 from our homes. some are still rising. germany is urging russia and ukraine to cool tensions over crimea. vladimir putin has accused u.k. to killing to russian soldiers in the region. ukraine denies it. germany's foreign minister met with his russian counterpart to try to resolve the crisis. russia and crimea -- annexed crimea two years ago. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 20 countries. this is bloomberg. coming up, negative rates

are mandating some investors look for yields in riskier places. has some pixie thinks are worth the risk. we will have the economic advisor to donald trump. this is bloomberg. ♪

alix: crude is up over 1%. these charts help tell a story. everybody is talking about a potential freeze coming out of opec. this tells us how much oil is being stored in tankers. this is the mediterranean sea. it is up over 7%. typically when you see this, there is an oversupplied market and you have to move storage to the sea.

this is not the case this time around. they are tracking tanker rates between asia and the gulf nations. those prices are at the lowest in almost two years. they are averaging $15,000 per day versus $50,000 just a few months ago. that averages out to $.40. oil is being stored on tankers. tanker rates are so cheap. that is a key distinction in determining the supply and demand dynamic in the oil market. let's turn to the oil trade. joining us is a senior market strategist. when you see this big run-up, what is the resistance? around theis right $44.79 average. we have a big week ahead. is wednesday. the last day to trade december

futures is friday with an expiration on monday. impact, we have to look at the last couple of weeks. the market sold off 15% since july. that is when the expiration at the tape. the markets dropped 15%. record short that's were achieved. perfect storm of news over the last week. explosion,n pipeline ukraine/russia. this was a perfect storm when everyone was so bearish. we saw a relief rally. there is a lot of resistance toward the 45 level. are watching this exploration of the futures and options contract to go ahead and rebalance. it's important to know the commitment of traders. when i mentioned those short

that's, you would imagine those short bets would be relieved of the last week and a half. they were not necessarily relieved to the degree you would imagine. we have seen a big pickup in net long position over the past week. pace on the short position. top out and re-profile for this expiration. alix: it's about long been added. all eyes are looking at a potential opec meeting and a potential freeze. thanks for joining us. jonathan: reason output is at an all-time high. coming up, negative rates are restricting some fund managers forcing them to take risky bets abroad. whatll ask rick rieder developing markets he likes. this is bloomberg.

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david: running short on yields while market bonds rick rieder, of blackrock has a solution. it's called diversification. this is the time to look around the globe for opportunities in emerging markets. not all are created equal. what do you like the best? rick: we like result quite a bit. -- result quite a bit. they have been on their back for quite a fee reasons. there was a significant political problem. we think next year you will hit a positive growth dynamic. we think the political risk is behind. they are working through the dynamics around some of the real risk points. the key point with priscilla is

if you look at real rates, policy will shift. inflation is starting to come down. we think you can shift to an easier policy. we are talking about real rates that are over 6%. the rest of the developed world is at negative. we think it's attractive. brazil talked about being the trade of the year. we just can't figure out which year. we think it is starting to do extremely well. we think there is significant upside in brazil. andhink places like india indonesia are giving significant yield. these are riskier places. they are not as risky as they were. , when they had crises, they were over clever. they were much more commodity oriented.

we don't think it's nearly what it used to be. david: let's take india. they have a strong growth rate, stronger than china at this point in they are benefiting from low oil prices. there is a change which could go any more populist direction. does that give you positive? rick: it gives us some. we're pretty confident that is not going to change thing. the growth is good. they benefit tremendously from these lower fuel prices. demographics may be the most important underlying thing. it happens overlong amounts of time. japan, it's very hard to create organic growth because the population is aging and more people are drawing from the economy. pyramid maygraphic be the best in the world. the persistence is not without

risk. there are things to do around the physical side area -- side. there is a lot of positive. alix: i keep hearing that with oil as well. people keep coming on in talking about the opportunities in emerging markets. at what point does that upside erode as you see yields come down. nonetheless, it is compressing. rick: there are two important points. if you think about it, we have gone through three or four years of outflows out of emerging markets. year, significant outflows and now you are starting to see significant inflows. people are coming in relative to the market. technicalin a tough

position. we think more flows will come back. markets are on point. that is the point you said earlier. about how aggressively tight the yield market is. we are still talking about yields. local rates are 8%. you are still dramatically away from where the other asset class high-yield agency mortgages are tight valuations. it's actually not that expensive today. we think this is going to be more upside. there are places you look at and think this is irrational. we are very far away from that in the end it today. about indonesia, you talk demographics. they don't get a lot of focus. what is going on? rick: we think they have done a very good job around their debt.

what is a more diversified economy? they have a current account dynamic they need to manage. we think indonesia is well-managed in the central bank does a good their debt levels are not that high. it's not a big issue and they are not a big country. we think about how much can you buy. this is one that we think is well-managed and will continue to do well. jonathan: coming up, the opening bell is up next on bloomberg did futures are positive across the board. the open is up next from new york. this is bloomberg. ♪

jonathan: from new york city, this is bloomberg. we are moments away from the open in new york. futures positive 48 points in the dow up 4.5. the dax ferry briefly making si.

switch up thefirstime since jan. quickly ashe board you hit the opening bell in your. new york. the yields are higher now with 1.54%. weakness is the focus on the fx markets. as we approach the open in new york, commodity gaining a bit of ground again. a big week of games last week, the biggest since april we trade . let's cross over the alix steel. alix: another record high for the nasdaq and s&p one point away from the record. nonetheless, record highs for nasdaq.

the s&p one point away from record highs. dig deeper into the individual moves making headlines and i want to start with old tech making headlines to the today. tax, not repatriating old but twitter is in talks to bring streaming sports to apple tv. ibm in a multi-year agreement with cloud use. honeywell buying software for the industry. these big tech names and industrial names making the big headlines. we also have one merger we want to talk about. mid-america and post properties are combining in a $4 billion deal that translates to $72.52 a share. would be 20 value billion dollars in synergies and this is all about the strength of the rental market here in united states.

the individual movers and the record highs that we keep seeing , i just want to point out where we have come from from that february low. up now by almost 20%. barclays had a great note out on what is leading the rally. they save short recovery and buybacks and foreign investors are going to be the tipping point now to see if the rally can continue. there will be the marginal buyers and the marginal sellers. lots of action here keeps grinding higher to record highs. david: later this week, we are going to get a look at the minutes from the fomc july meeting. iwill give us any indication of a rate rise? rick reader is still wee with us. is this enough to justify a rate increase at long last? rick: the minutes we're going to get our pre-the last payroll report. will be interesting to see some of the discussion in the balance

of risk. where is the balance of risk if they have moved away from the global dynamic? number two is how mixed is the discussion of that on the fed board as opposed to a couple that think we can raise rates this year? markets are pricing at about 15% or 70% chance in september. i think that's about right. i think they will keep september open, but they want to keep every meeting live. i think they will try to go in december. i think there is postelection, as long as you can keep reasonable momentum around employment and inflation, i think they will move in december. it is priced at 40% and i think that's a bit low today. i think it's at least 50% that they could go by december. alix: many point to the fact the there is no control at end of the curve and they should go sell treasuries as they hike in order to support the long end.

is that what they're going to have to do at the end of the day? rick: no, i do not think they will let that balance sheet run out. jonathan: there's a difference between selling them and just letting them roll off and roll down. rick: that's what i will happen. it is hard for them to roll down because they are long data treasuries and they do not run down quickly, so they will be on the balance sheet a long-term. the size of the balance sheet belted to gdp, it's not that big of. at all. the fed's balance sheet is not that big. i do not think they have any intention of ever selling it. at some point, you could use it as a tool for policy if the 10 year moves to crazy levels. i think rates in the world today are too low. that being said, treasuries are not risk relative to the world. you could do it if you want to bring down some of the fraud in

the 10 year part of the curve, but i do not think they have any intention today of selling those assets. when you are purchasing or looking to sell, you can influence the back end of this. dynamic. inflation is going to drive the back end of the curve today. when tribes the back end of the curve is not an united states, but it comes from largely overseas buying. alix: the u.s. treasury yield is hedging for the yen. the difference between the two is not that extreme because hedging is a high. this is one of my favorite charts. when do investors stop buying because you are not getting the returning it? you need? rick: this is a very big deal. quite frankly, we have produced some of our target in terms of

where treasuries can get to . we have produced some of our exposure to 10 year treasuries to the back end of the chart. it has become expensive to hedge. buying will continue, but not nearly at the pace it has because of that chart. the cost of hedging has made it negligible in terms of buying treasuries. david: i do not understand this chart. what this really tells me is that is said did real yield on 10 year treasuries is negative, why do people keep running into the market and buying them? rick: not everybody ha hedges. the market is very relevant, but it's not the entire market. partnk the point is that of why we took some of our long and exposure down was this, but the point i made is that you will still see the buying come in. you have big demand coming from life insurance companies.

banks have been big buyers as well. i think you will probably take the hard estimate of how much demand goes away when the chart manifests itself. my guess is that it makes it harder on a quarter to a third, but it does not take demand away. that is why i think the back end of the curve will be risk. said to me, you know how much you have made on the long end of the guilt curve? it is 30%. you made a terrific amount of money this year. it would take some of the demand away, but even if i gone to the market and i'm swimming naked in terms of fx risk, if i'm going to continue to make those kinds of capital returns, why would demand?e th get rid of i would take the negative yield because people are doing that anyway. why wouldn't a foreign buyer to that on treasuries? rick: that's exactly right.

but changes that is if you believe, which i think is right, that you will transition from monetary to fiscal policy, which i think the populism movement is starting to take hold. you saw it in breads it and it's starting to take hold in the u.s. and europe. if you have got some increase in inflation, that would o evil. polve. real growth is ok, but it's just ok. there's not a lot of reason for selling assets. alix: i keep going to what we saw with the japanese curve where we had the potential to more monetary stimulus, but it did not have a ripple effect that we thought we were going to see. david: which was your point that you raise before. the power of the central banks is going down. my question for you is this -- if what is really supporting this is what jonathan says, an expectation of increased underlying value of the bond, that starts to turn when people

believe central banks are going to start raising rates. how far do they have to go to persuade the markets? is a quarter of a point enough or is it going to require more over time? --k: the only central bank yet to develop market central banks and one was the u.k. and that has now gone 180 degrees way. the other i think there's too much importance placed on the toy five basis point movement on the front of the curve. you can move that and you think the curve flattens alongside it. i think it will take a while and i think it's because the rest of the world is going to be outside of the u.s.. there's no central bank tightening anytime soon. i think your point is right. i think pressing further into negative yield, i think we are at the tail end of that. i do not think we're going to be

other way anytime soon. jonathan: i want to wrap up the conversation by talking about volume and liquidity. we talked about the bank of england operation last week. just logically thinking, if you bought a 30 year or 20 year last year and got a 2.5% coupon, you sit on that coupon. 1.5%, but youo still have a 2.5% coupon as the 15th become 10 and those people want to sell. my question is very long-term looking out. the longer this goes on, the volume liquidity problem is going to come further down the curve. at what point does it become a big problem? we could be talking about benchmark 10 years in a couple years time. rick: i think that is right. i think it is even more profound when you look five years and because the curve tends to roll down. a five-year moving down a three-year is a bigger deal coul. it is your reticence towards

putting a coupon on the books. that we are not in a very different economic paradigm, you're right. you keep rolling down the curve and there's the incentive to sell those assets that you put at a higher yield. you are seeing that is exactly playing out in the u.s. and they're are not going to sell those assets for a long time. . so good torieder have you here. we going to ask you to stay a little longer. jonathan: record high, record high. again, the 1999 story with all-time highs on the major indices in the u.s. down, and0, the the nasdaq up across the board. this is bloomberg. ♪

david: business "bloomberg ." i'm david westin in the hewlett-packard an enterprise green. later on bloomberg, the skype cofounder. jonathan: from new york city and our viewers worldwide, this is bloomberg. you can see the picture on the screen. throw the nasdaq and there again, fresh records to speak about. europe is not really a record, but the dax is getting back to positive territory. the effect of a weaker pound has the ftse up a .5% higher. let's cross over to the nasdaq where abigail doolittle is standing by. abigail: another day and another record.

we have an eye on a couple of stocks, starting off with the kc communications. they reported better on friday and closed higher by 41%. some of what could be happening is a high bear shortage. shorts could be covering a bit of a short squeeze. the company went public on may 12 of this year with the stock at $23. it is now above $100 per share, gimme more than 325% in a very 325% -- gaining more than in a very short time. news that the company has received approval for various bodies in china through its partner in satellite . go go will be able to offer those services in october in and

out of china. the stock had a rough time since its ipo. is a pretty high their shortage this year. a tale of two cities this morning. alix: thank you so much, abigail doolittle on the nasdaq. we are back with rick rieder. the second day were you have all three indices of record highs. how long can that continue with bond yields so low? rick: i think there is a function on bloomberg the use where its the s&p 500 actually shows where valuations are in the equity market. the thing that i stare at quite a bit is where you look at dividend yields relative to what we are paying for rates. if you take return on equity and equity market, the metric i like to look a bit is free cash flow . you got the bottom of that middle section.

companies that are paying relative to your cash flow in the equity market. you look at forward dividend yield out a couple of years. you're talking about pretty attractive numbers relative to paying negative rates or the conversation we had earlier about where the high-yield market is. dividend yields are trending higher, which i think is your base case. no doubt you bet the downside risk. what is going to keep pressing and what i think people are underestimating is that you press yields to extreme levels. partly why the fed does this is that he forced equity market higher. equities do not look bad relative to fixed income and that what keeps pushing it. the flows have been generally out of equities. the equity market is pretty good. he could see even a small part of that reverse, which pushes equities higher.

david: what the fed is trying to a, they are accomplishing. there are two things that come out of that -- bubbles and the wealth effect. what are we getting? rick: i think you can take the pressure off the front end of the yield because the fed does not have to keep pressing this dynamic. you widen out the chasm in terms of the wealth effect, which we do not need to do in today's dynamic. as you said, more and more focus should be on financial conditions. what you do is create distorted valuations. we would argue the fed should have moved a while ago. i still think they have the opportunity to move. quite likely i think it is harder for them to move this year than it was two years ago. you're creating to dynamics exactly as you said -- distorted markets and the other is that

you increase the chasm and fiscal policy, but not just in the u.s. and japan and europe. is the only game in town in terms of growth going forward and how you mitigate those dynamics is durable growth through fiscal policy. part of why the populism move ment is a big deal is that you mitigate that chasm of the wealth effect. jonathan: where bond markets are trading right now, fiscal policy is the bigger risk. the actually have been doing what we have asked them to do for a long time. given where duration risk is basistly, back over 50 points over the long and would be pretty ugly for people. rick: the best bet in the economy is that fiscal policy will be slower than you like it to be. [laughter] i do not think we are far from the. things are changing and you are right. that i'm thee

number one cheerleader that fiscal is coming and i think it's coming in u.s.. i think you'll see obviously more in the u k and japan. you are even seeing it in places like italy and spain. i think it is slower than you and i would like it to happen. alix: where do you stand on the clo market and leverage loans? are the goodbyes right now? rick: i think the clo market is great value. there are parts of the market that are troubl aaa's. down, wenkly as you go have more of a barbell approach. we have some of the lower quality clo's. doingrket will keep its job, but it's not that interesting. it's trading at or around par. we would rather own it through younger cls and in more of a structured form. er, thanks soied

much for being with us the entire hour. coming up, it is "bloomberg markets." joining us is erik schatzker. is a billionaire real estate investor and a member of donald trump's economic advisory council along with steve roth and john paulson, of course. we will be talking about tron's economic plan and i've many axkstions for tom barr like how people can focus on the economic plan when donald is accusing the president of founding isis. why is there no entitlement reform given that it is a ticking time bomb? also, how would the trump administration balance the budget with a norma's tax cuts for individuals and businesses and little spelled out in the way of new revenue?

yes, he wants to close the carried interest loophole, but he proposes repatriated profits at a 10% tax rate. neither of them will come close to making up the trillions of dollars in lost revenue. david: to great questions. he has dealt with donald trump before. he is a friend and has done business with them. i wonder whether he knows this is the actual plan with donald trump. mr. trump has been known to change his position from time to time as you said and he has already changed his position on corporate taxes among other things. yes, he wants to reduce them, but to what level? it could change in the months ahead. one think that tom has told me is that nobody can tell donald trump what to do. donald trump will do what he wants to do and it's anybody's guess as to what that might be. tom will have insights, having known the man for four decades. david: thanks for a much for

joining us. more is next. this is bloomberg. ♪

alix: another day, another record high for all three indices. the nasdaq, the s&p, and the dow all sitting at intraday records. this ahead of a very big week in eco-data. a big week in the u.k. as well as here in the u.s.. we will have a lot of said speakers in the u.s., but we will have inflation for july. we will have the july jobless claims here in the u.s. thursday and july retail sales for the u.k. later in the week. we have upcoming fed speakers. how are they interpreting the data? jonathan: we've got equity markets at an all-time high. we spoke to several guests and the data is good with the exception of retail sales.

not good enough for anyone to really calibrate their expectations over what these guys will actually do over at the fed. you have good economic data against the fed that seems to be going nowhere fast. david: not so good that it will raise rates. the real question is for the u.k. and what's going on. jonathan: headline inflation expected to stay stable. retail sales, guy johnson tells us it's been so hot, people one out -- went out spending money on barbecues and there's. booze. minutes into the session come all-time highs as we kick off the trading week in new york. this is bloomberg. ♪

e yorke: is 10:00 and new and 10:00 p.m. in hong kong. rk: i am mark barton and

this is "bloomberg markets on bloomberg television. ♪ vonnie: we are going to take you from los angeles to london and cover stories at a japan in the next hour. here's what we are watching. all took was a few words from opec to encourage oil from climbing higher after its biggest weekly gain since april. they will revise formal talks to state was prices. -- stabilize prices. mark: the first numbers from post brexit british economy coming this week. speculators are most bearish on sterling since records began. vonnie: a week after donald trump unveils his economic plan, we sat down with trump economic advisor tom barrack. and exclusive take on a new protective t