month through this week's most anticipated speech. alix: planting a seed for a deal. this progress is made on a final purchase price. jonathan: and shrugging off the brexit effect showing little signs of the fallout. welcome to "bloomberg ." i'm jonathan ferro alongside alix steel. david west on on vacation. we're live from new york with another big speech coming up on friday and the countdown continues but the story in the silence maybe in the market. alix: and you said it earlier with treasuries moving in its smallest range. the vix still a 12. bank of england saying investors are not ready for some kind of sell-off if we see it in the s&p. jonathan: i don't think this is a sign of calm. i think this is a sign of a lack of conviction and we're right for a breakout. what we're going to discuss is in which direction we're going o get that breakout.

alix: and we will be previewing that speech. we're going to speak with the chief global equity strategist in just a moment. but first, checking on the market here's. calm, but overall no, big positions being put on ahead of riday. jonathan: futures doing ok. equity market in europe they can d.a.x. up agassi .8%. ftse up .5%. he story in the f.x. market is weaker. you see in the stronger cable rate, we have a 132 handle very briefly on the pound against the u.s. dollar. in the commodity market, the retracement continues. big week on w.t.i.

we come in at .9% on w.t.i. we trade with 4698. all the focus on treasuries still. 10-year yields higher up two basis points. i will say though another auction, more supply. that's going to be a focus $20 e two-year notes are billion worth. alix: now let's go around the world with check in with more top stories with caroline.

>> could it be a 50% premium on before any of these talks started to be decimated? it's been a roller coaster for monsanto. but it looks like a deal is closer to produce the biggest crop company. it's the largest producer of seed and pesticides. checking into the bloomberg and you see the roller coaster on the man santo price tag. they have twice rebuffed the ongoing persuasions of buyer. back in may, they wanted to offer $122 per share. that was knocked out. and then they had $125 in july. that, too, $55 billion price tag was not enough. financially inadequate is what they called it, alix. now, we understand many analysts feeling it needs to be up by another 8% to the tune of $135 per share if we're going to get

this deal go through. there's still plenty of regulatory hurdle if we're going o see the m.n.a. erry-go-round. there could be a deal in the next two weeks. alix: you brought up the other deals. some are saying china getting the regulatory approval putting the heat on the buyer monsanto deal. what kind of regulatory scrutiny could this type of deal be under? >> plenty. we're seeing such consolidation. this is all because, of course, farmers are tackling low commodity prices. they don't want be paying out for these pesticides and the likes. so it spurs consolidation and the sector. dupont and dell chemical already fighting to show that there wouldn't be a significant lack n competition.

the u.s. national security have given the go ahead for insider -- but you do not want to be late to this party. we're seeing buyers speed things up. we will get a final price tag and how much they will be willing to offer in terms of a termination fee because they don't want to be last to this party. they want to be third in line when it comes to woo the regulators. alix: thank you, caroline, hyde us in berlin. jonathan: some data we need to dig into from the eurozone. the 53.3. steady as she goes was the me. i want to bring in manus from london to dig into the numbers. the brexit effect not seeing anything in the data. >> no. know -- it's immunity without

impunity. the numbers, the composite numbers comes in at 53.3, the highest in seven months. the gap between france and germany is beginning to close. france is strong. services in germany showing a light wobble. you're seeing german serves at the lowest level in almost 15 months on the services side. france is seeing great deal of more rebuffness. they're at a 10-month high. so that's really what we're going to focus on, john. it's a narrowing of the gap. jonathan: the high of the economic tension in the eurozone, these data points would move the euro significantly. the euro no, big price action on that particular cross. i guess the question is has the importance of the data points for the e.c.b. diminished to some extent?

>> i think the e.c.b. will be focused on that. if you look at the employment and inflation numbers, they're not giving any great ruling of the upside. i've got euro starting. and this is the biggest issue at play for the eurozone and that is the bid that the euro has. it's up 12% since the evening of brexit. the food will be this. is this transmission mechanism working more effectively for the e.c.b. in terms of getting cheap money to the real economy than for example it is working in japan or not as the mood may be. the data does very little to inspire one that there is any signs of the whites of the eyes of inflation to eurozone. onathan: thank you, manus. let's keep the central bank story joining from is stan beautiful. -- istanbul. get us up to speed on the decision.

>> you're right. there's been a decision on the turkish central bank. and they've decided as investors and analysts and everyone on bloomberg surveys is expecting they cut the overnight lending rate by 25 basis points. they've kept the other two rates unchanged. if you might remember, interest rates -- so they've cut the top rate. the lira is extending gains. nothing dramatic. jonathan: no drama here but the politicalization of this central bank has come under fire. previously with -- has those kind of commentary around the central bank, have they died down or built up momentum over the last couple of months? >> well, the irony is, of course, when that narrative was welling and the former central

bank governor in april, when that kind of narrative was tight, he was actually holding rates. now they cut the top rates for the sixth consecutive month and that narrative has died down and i think it's because he can afford to cut rates. you look at the rest of the continents across europe is yields nothing, not the 8.25% that the top rate now stands at. so yes, he can afford to, which means that those -- that debate has been put to one side for now. jonathan: thank you for joining this program. in the market, we've got futures firmer. equity solid across the country. alix: best buy up 15% in premarket. this is a blowout quarter any way you look at it. the big number is revenue coming

in at $8.53 billion. up quarter on quarter. analysts have been looking for a decline. would have been a fourth straight quarterly decline. we didn't get that. domestic comp sales was up. the expectation was for to it be lower in negative territory. so another positive. and this really surprised investors because you were looking a lot of cost pressures on tv's. and also a lot of competition as well as not a lot of new products. so this, a huge quarter for best buy. also take a look at mobile i and delphi. they're going to develop a self-driving system. mobile i makes the cameras and delphi makes the softwares. could be in cars by 2019. and volkswagen. the story here is volkswagen is resuming its production of golf and passat cars because their suppliers were holding back

transmission components. slowly, this start-up will happen. let's get an update with what is going on outside of the world. >> donald trump says the f.b.i. and justice department can't be trusted to investigate hillary clinton over the private e-mail controversy. said the republican presidential candidate wants a special prosecutor. donald trump: the justice department is required to appoint an independent special prosecutor because it has proven itself to be really, sadly a political arm of the us who. -- white house. >> the clinton campaign rejected accusations clinton took any action based on donations to the foundation. the f.b.i. has now collected almost 15,000 new e-mails in its investigation of her. president obama today gets a firsthand look at the record flooding that has swamped parts of louisiana. the president's trip comes four

days after donald trump criticized him for staying on vacation during the disaster. louisiana's governor had said the president should not visit until after the first few days of recovery efforts. the flood damage an estimated 40,000 homes. -- the u.n. ions humanitarian chief says aid convoys need to deliver supplies to almost one million people there. syrians won't let them sent of the rebel area in halep. -- aleppo. jonathan: coming up, where is the price action? stocks go nowhere and treasuries trade in the tightly monthly range in 10 years. is it the calm before the yellen storm? sean darby joins us next. this is bloomberg. ♪

jonathan: from new york and our viewers worldwide, this is bloomberg. check out this chart. 10-year treasuries moving in the tightest since 2006 ahead of janet yellen's speech friday. this isn't unique, just the bonds. we've seen this kind of action in stocks as well. alix: we are. if you look at my bloomberg terminal here, i just record the daily 1% swings in the s&p 500. that red line is that 1% move, john. we have not seen a 1% move since the beginning of july yet we made like eight or nine record highs at the same time? jonathan: it's the quietest market in several decades. we want to bring in sean darby.

what do you make of the calm? just just unique for the last couple of weeks but maybe the last year or so? sean: yeah, feels like a forced market but it's all part of this repression that's been going on for the last 18-24 months. and the gain got reinforced and you had the b.o.j. action in january. it's all about these foreign investors and insurance and pension funds buying the long end of these bond markets has kept things suppressed and pushed the equity market into the range trade as well. alix: we don't see the huge flood of retail money, institutional guys coming in and taking big positions. is that era over or did something change for that? sean: a lot of the problem is there's not so much economic indicators that will reflecting any of the moves in the markets at the moment. they've been sort of detached because bond markets have been running on the roads for conviction. so i feel the investors don't seem to have the same sort of

data points to sort of have the conviction to put money into the markets at the moment. jonathan: i was talking to credit suisse about this exact story. what michael sullivan said to me is he thinks this kind of price action points towards a market that's prime for regime change. and we're looking towards the fed shares speech on friday. we've got a pivotal meeting next month at the b.o.j. and the feds. would you subscribe to that that we're right for a regime change in markets and that's where we are? scoip i'm sorried that we've gotten to a regime change. the problem is all of central banks are buying each other's bond markets and helping to reinforce it. and until we either get a really big breakout inflation or growth, i think we're in this type of stalemate and financial asset markets largely range bound. alix: bank of america talking about what the equities are positioned are for saying there is an elevated risk of correction because we're hoping for too much for fiscal

stimulation. jonathan: the question is we're so used to talking about the -- is there a call on the other side? goldman-sachs has talked about this. markets push up. the fed steps in. markets come down, the fed steps back. do we have a call from the central bank now? sean: in part we do because what's really happened is real rates have come into negative territory in the u.s. and if they start to get a big pickup in inflation and low rates go negative, you could see the equity markets going up. it's all about the perception that the feds must allow the economy a lot of room to overheat in one sense to make sure it didn't enter inflation. the fed is the only one that raises rates. just about everyone else is fighting deflation. if you're running it yourself, you think i wouldn't want to take a chance. jonathan: the lesson of every other major bank is guess what? they cut again.

alix: boom. and to that point though, if we do get some kind of inflation, what's the yield on the 10 year going to be that's going to shift the entire dynamic of the market and is it the level or the velocity that we get there? sean: the real bond yield is about .5%. so it hurt the rate for it. that's why you see the e.m. doing quite well. my own view was if you go back to december, january last year, you had real 10-year bonds of over 2%. the world wasn't that nice. and that was the strong dollar, high real bond rates. higher real rates. that was the environment the market didn't like. that was the range we're going through at the moment. jonathan: there's plenty of people who think the world isn't that nice given how the world is right now. alix: coming up, u.s. stocks hovering at record highs and the vix at its lowest average in august since 1994. is more upside outside of the

u.s.? we reveal what markets sean darby said to leave the u.s. for. there it is. do you know what it is? we'll reveal it next. this is bloomberg. ♪

alix: sean darby is still with us. before the break, we showed you this chart where sean says investors should be buying out of the equity and it is the hang seng. this is a really fun call. why? sean: well essentially the good news is that both denominations are u.s. dollar. and yields in hong kong are around about 4% versus two in the s&p. and you get it half the price to book versus the s&p. and we think the reach for yield will push through into hong kong now and a gain the stock market should do quite well. jonathan: beyond that chart, we've had some upside, 5% so far

year-to-date. but your call isn't based on the dividend yield. it's the fact that a lot of the companies have cut cap ex aggressively. sean: so the equity markets has been when companies run for survival, just push cash flow as much as possible, cut cap x, try to protect the differents and we've seen that in some of the chinese companies and that's a pretty good time go back to revisit equity markets. alix: you like broader e.m. as well. so does everybody else. is there a danger of overcrowding? sean: e.m. has had a much better scal and monetary -- and having taken rates up in places like russia and brazil. the good news is the inflation rates have been rolling over. so we've had really good

performance out of indonesia and there's room in russia and brazil. jonathan: here's the story for me. brazil, an impeachment. turkey, a kao. -- coup. take a country. take your pick and i'll give you the political night their that they're experiencing right now. can you divorce the politics way from the pickup of yields? sean: the banks have done a very good job, particularly in russia. and they've made some unpopular decisions and that's been passed through most of the e.m. markets at the tough part of the ommodity cycles. it's given people a lot of confidence about the ability that the central bank is to be divorced from some of the geo political risks that we've seen. alix: it is a question of how much you're going to go down the

risk scale in order get return. that seems to be the question in the market. sean: i'm afraid that long end of the bond market tells you exactly how to sort of run things. and anybody from old school sort of financial analysis has always used that. and that's really what we've been doing over the last 18 months and e.m. markets have always been run by what's happening on real rates in the u.s. jonathan: if you get a billionaire hedge fund manager in new york, it's very easy to find a very bearish one. when you get an asset manager come on a program like this, typically, they're looking for yield pickup and loans. their mandate is to return and give them returns. are we at that kind of point now where people are pushed to be taking excessive risks? sean: that's to some extent is what's happening with the insurance and pension funds. they have a mandate to match assets and liabilities. informative very

meth for their investment. -- method for their investment. there's not much growth in offer. yield has not been too bad of a way of actually judging markets. it does allow you some sort of room for maneuver. the danger, really, is if we go into an overheating phase and rates have to move up much faster than what people expect. alix: sean, such a pleasure to have you in the u.s. 2% is what he said? jonathan: yeah, full circle. coming up on the program, the dollar's longest streak in two weeks comes to an end. this is bloomberg. ♪

alix: this is "bloomberg ." i'm alix steel. it is 7:30 a.m. on wall street. here what is you need to know at this hour. negotiations between buyer monsanto are advancing for the

deal. the companies have made progress on issues regarding the purchase price and termination fee. monsanto berejected the buyers. the euro area economy maintained its momentum from the u.k.'s brexit vote. a composite purchasing rose for a second month to $53.3. eking out a gain. and best buy shares surging after the largest u.s. electronics retailer posted profits that topped analyst estimates and they raised its earnings and revenue guidance. these things become much more important as we have the macrounable to be resolved because the earnings, momentum and growth become the key. jonathan: one word that really defines the market action is silence. futures are a little bit firm for the today's session. a firmer session shaping up in europe with the d.a.x. up. the ftse up.5%.

and all industries positive for the session. and sterling strength and the pound and cable rate up. and the commodity market, big week since march. the retracement continues for a second day with w.t.i. pulling back. we've gat 47 handle on crude. and the bond market fascinating. 10-year yield, the tightest since 2006. just a real lack of conviction in the bond market. two-year note yields climbing 1.6. trading at 0.754%. we've got to talk about what the pros would call asymmetric risk. you've got the risk for the downside and the risk for the upside and the potential move for the upside maybe it's that. the move to the upside, maybe it's that.

we're going to have a discussion about that later. we talked about how we missed the lady herself. she's going to speak on friday, the fed share. the most important meeting is when they actually make a decision on rates and that's what i'm looking forward to the most. alix: went you have the b.o.j. and the fed meeting on the same day, talk about the reality of central bank divergence. jonathan: september 20, and 21. alix: of the big question for fed officials is they leaning towards the stands or challenging conventional wisdom? today's morning must-read is a piece written by janus and the recent comments ahead of the jackson hole symposium. here is a look at the quote. discussion on where the neutral rate lies and how to deal with this decline will inform how high the central bank will be able to raise rates over the longer term. how much is in their toolbox in the extra session?

jonathan: the big question is they've got the journey and the destination. and the big conversation we're having is on both. and i think that's the source of the confusion and that must read speaks to that. the journey is will they? the destination is the lower terminal rate, the lower neutral rate and that's where the academic debate is going on right now. alix: the debate of where the destination is can see how the fed raise rates. how loose monetary policy is right now. >> yeah, absolutely. so the longer term discussion that the fed is having is important right now. they're looking at where the neutral rate lies. that's the rate that neither stokes or slows growth. and it could come down dramatically. if it comes down and that's permanent is they can't raise as much. we might see a move in september or later this year but that terminal rate is going to be lower. alix: i have a chart that

reflects what you're talking about. the purple line is the neutral interest rate through april. the red line -- excuse me, the blue line is the affected fed funds rate now. the red line is where the s.e.p. projections are at 3%. to your point, jenna, if we get to williams, that's one, two hikes maybe? if we get to 3%, that's a huge hike in cycle. >> exactly. what we're hearing from john williams, the san francisco fed president right now is, you know, the neutral rate may have come down dramatically but we need to think about what that means for monetary policy. so we need to consider whether our goals are right, we should be targeting something other than 2% inflation in a world where the neutral rate is lower and we will have less run room in the future. so he is really encourage this longer term discussion but at the same time, he's saying that doesn't mean much about whether we move in september or not because for right now, policy is still easy even if it's just a little bit easy.

and so i think these two views aren't opposed. you can still favor september hike while at the same time saying that we need to reconsider what we're doing in the longer term. jonathan: do you think this short term versus longer term has been the source of a lot of confusion around the federal reserve communication over the last week, particularly? >> yes, absolutely. i think it certainly has. and i told williams that when i saw him on thursday. i think we saw a lot of economist notes and commentary coming out after president williams released this big essay having we need to have a longer term rethink. and the note says that that's dubbish. he's still looking hikes this year. he thinks he thinks the fundamentals are strong and support that. in the longer run, we need to think how we're dealing with the policy. alix: no doubt the debate will rain with the extra session. what do they have if they can talk about guy dance but is that it? jonathan: that's a fantastic case done with rates incredibly

low and what do they do with limited ammunition. it's dollar yen volatility. it captures that data significance of september 21 when we get the b.o.j. decision can the fed decision on either side. we talk about silence. i want to bring in a strategist to talk about what's happening here. we're talking about quiet markets and bonds in equities. things are starting to stir just a little bit in terms of volatility? >> just a little bit. some of those key data starting to get priced in for the bull market but things are starting to get pretty quiet. we came out a little bit confused about fed communication last week. jonathan: everyone did. >> a lot of investors are sitting on the sidelines until it sees jackson hole and probably the september meeting and the bank of japan meeting as well. there's a bit of a waiting game

in the feds market. the way those evens play out are going to be key to determine where it goes finish the remainder of the year. alix: what about the credibility? there will be no monetary intervention. >> we're also not very optimistic in terms of the b.o.j.'s ability to offer further stimulus. we see the possibility of them tapering q.e. alix: why? how? >> coming in, it wouldn't really be tightening but they're running out of assets to buy like some other central banks as well. so that would allow them to buy over a longer period of time but get to the same end point. so that's one element that will be important for the dollar yen. but what we talked about before on the show, it's more about the u.s. side of the equation for dollar yen. it really matters where u.s. rates go, where u.s. equities

markets go and i think that will also be quite important for dollar yen. jonathan: alix and i talked about asymmetric risk and the fact that we've priced in so much dubbishness for a significant period of time. is the break on the potential that much bigger? >> it probably is but we've been saying that for a while. that's been the key for investors. everybody has been awe ware of the possibility that the market could catch up. hasn't happened in a couple of years. as we go into the jackson hole each and the september meeting, there are two areas to focus. when are they going to hike? probably not more than once before the end of the year. but the more important issue is probably what are they going to tell us about the long term path of the terminal fed funds rate? and the way investors are starting to get biased is maybe we get a little bit of a boost to the dollar from this one like this year. but if the longer term picture is relatively benign, this

supports risk sentiments. the e.m. currencies that have done well recently. a lot of people would be looking to jump back into those trades after the september meeting. alix: isn't that their worst nightmare ever? a weaker dollar and higher e.m. currencies? >> it is a problem. i think for the e.c.b., it's less person innocent in terms of the level of the exchange rates. when you look at dollar yen, we're down from 120 to 100 since the start of the year. it is a significant concern, but that brings us to the point that yes, the fed has kind of struggling with this low productivity, low trend growth, lower terminal fed funds rates and other central banks are having the same problem. alix: when you make a call on neutral interest rates you're making a call on g.d.p. you see lower and slower g.d.p. jonathan: productivity, lower potential output damage.

that means a lower terminal rate. for the e.c.b., i spoke to the council member a couple of days after the brexit decision and he said to me that the position and the strength of the currency has diminished in its importance. do you believe that as a participant in the fx market? >> that's a question to what point? can the e.c.b. tolerate the euro raising? -- euro rising? no, i don't think they will be raining alarm bells very loudly. we go over 120, it's a different game. we're all starting -- all the central banks are starting to manage fx as part of the picture. that's what we've learned over the past year. it's a question of extent. alix: so going into the risk for friday, going into the risk for mid september, how do you trade that? what do you do as a currency guy? >> it's been a tough market and i think that's why we're seeing a lot of investors really just

waiting and seeing what comes out, not putting any bets ahead of yellen. at us l tells you wh happening in that event. people really haven't positioned themselves. from our standpoint, we're still sticking with the view that the dollar is a bit cheap. it's cheap against some of the commodity based currencies. the bias is for yellen to be dubbish. there's a risk of a surprise. jonathan: it's great having you on the program to break down what could be a big end to the week. thank you. alix: coming up, fast closer look at the british housing market. shares of the u.k.'s second largest home builder hit a two-month high after seeing a 29% jump in profit. analysts dissect britain's housing market next. this is bloomberg. ♪

alix: this is "bloomberg ." i'm alix steel. here in the hewlett-packard enterprise greenroom. coming up, we have some analysts to talk about investment opportunities. here's your bloomberg business flash. bayer and monsanto moving closer to a deal to create the largest producer of seeds and pesticides. the companies have made progress on the purchase price and termination fees. delta airlines is trying to contract with its pilots union. delta has offered the 13,000

pilot a 27% pay rise over four years. the pilots want 37%. the two didse contract with its deadlocked since the first of the year. volkswagen ended a dispute which caused production to be shut doesn't at six factories. they have agreed to a long-term partnership. parts deliveries will begin as soon as possible. they had to halt assembly of its golf compact. this is bloomberg. john? jonathan: thank you very, emma. i want to turn of the real estate market in shares of the percy harvin. it rose since the brexit vote after a boost in first half profits. it's the number of people reserving homes jumped last month, persimmon c.e.o. spoke with bloomberg television earlier about the impact of brexit on buyer behavior. >> people are still very keen to buy and the lenders are keen to lend. the affordability is there. and if you want to go to the housing letter, it's cheaper to

pie than it is to rent at the moment. fundamentals are still there. the underlying market is very and we've not seen any change in buyer behavior. jonathan: joining us is charlie campbell. great to have you with us on the program. ratherand we've like the econom. the brexit effect not really in the home builders numbers yet. do you expect that to turn around, that story to change? >> yeah, i think the surprising thing from today's figures was the strength of the margins in the first half but also more importantly is what's happened since first of july. so that is now seven weeks since the referendum. and persimmon see nothing change in their customers' behavior at all. still seeing a good jump in sales rate. sales rate is higher this year than last year. cancelation rates lower. and they're very confident ahead of the autumn selling season

based on the level of visitors, the quality of the visitors and their sentiment. persimmon is outside of london but that is telling us that customers outside of london are not changing their behavior yet in the wake of the referendum. jonathan: charlie, demand good from the consumers side of things. the company brought the parts of land and building the homes. the vicinity going forward is limited. just with forward guidance, do you look at their demand for land themselves and would that surprise you that the c.e.o. comes on tv and says he's looking to buy more land in a robust way? >> yeah, the got more land than they need. they're already buying if they see good opportunities from that. but one of the detail that we've got from the numbers today was that their land costs has fallen year on year as a percentage of selling price and that's in no absolute terms.

there are still good land available there and so why not take advantage of good markets and get in there and buy some more? they have said they are more cautious in their land appraisal after the referendum as most of the house builders are. but nonetheless, there's some good opportunity throws and they're making the most of it. i think without a station in the year, we've had all the first half sales now, but there's a good order book coming into the second half, cancelation rates low, orders are good through july and august. and every indication would be that september would be quite good too. so this year is getting to the own where it's in the bag, really, and we can debate about what happens to 2017. i would remain cautious for 2017 and expect house prices to fall a little across the u.k. because we're all expecting the u.k. economy to go more slowly next year as a result of the impact of the referendum. alix: but you still have lower rates from the b.o.e. ere in the u.s. was pretty

fluid and helped this housing demand here after the crisis. what's the pass through to the b.o.e. cutting rates to the consumer on the streets saying i've go buy a house now? >> yeah, what you're finding now us most people are borrowing fixed although fixed for us is between two and five years rather than 30 years for you guys. but those -- the whole sell market rate has dropped pretty quickly. five and three-year swaps have fall an long way and they've fallen ahead of the bank of england fall in the rates. and those rates have been passed through. so even since the referendum, i think five-year fixed rates are down 30 basis points or so. so mortgage mark is definitely open and mortgage rates have fallen since the referendum. jonathan: it's a crude rule of thumb to manage the economy in

the u.k. do one thing. limit the downside in the property market and the general economy will do ok. are you expecting the government to throw even more at cushioning the property market in the u.k. and is that a reason why you've maintained some of the property stocks? >> yes. i've reached my expectation two days after brexit and rather overdue in terms of estimates and price markets and so on. but it seems that people's sentiment hasn't really changed a great deal for that now. may change going forward. a good part of the reason that things have held up much better since the referendum than we all thought is that rates have fallen rather than risen and a new government seems to be more supportive than housing. you wonder how much more help the new housing market needs? there are already a lot of incentives out there that are helping new house builders to

sell houses better than the sec-hand market to help to buy. so even the house -- we don't need a lot more help and the market is pretty strong out there. i would expect that the government will do things to help the housing market even fur from here and that will help the sector even further. jonathan: charlie, great to be here with us. brexit equals higher rates. do you know how ridiculous that looks right? alix: it really does. that wasn't that long ago. jonathan: it was the government talking about that, can was ridiculous looking at what's happening now. alix: coming up, take a look at where mutual fund investors are putting their money. we have three charts you need to see. this is bloomberg. ♪

alix: we keep hearing time and i'm again, sean darby just

saying that this morning. while investors are putting their money where they mouth is. here are three charts that tell the story. this is three month flows into equity mutual funds develop markets and emerging markets. that orange line is emerging markets and white line is developed markets. developed markets are down by about 2 percent. it's this axis right over here whereas emerging markets are now at 0%. emerging markets were down 6% in the beginning of the year and they've recouped their losses and now they're relatively flat. what are people buying? this is the hard currency versus local currency debt. hard currency is dollar denominated debt. you take on less fx risk. and you've seen a huge jump on that hard currency risk to about that 35% whereas local currency debt is lower, about 10%. so the trend is into that safer hard currency debt in emerging markets. and this is yet another way to

tell the similar story. this is the msci shares outstanding. as you have more investor demanding you have to create more shares in order to satisfy that demand. and we've seen a huge move just in the last few weeks for september for those shares outstanding up by about 38% since the lowest hit this year in march. this is obviously well below that peak that we saw back in 2013. but its highest level since the beginning of 2005. so a big rerating. and john, we haven't come nearly close enough to recoup the losses we've seen in emerging markets in the last three years. but nonetheless, it is a huge rerating of how you want to take on risk in this market. jonathan: risk being the fundamental word because question i would ask is we trading on the fundamentals of individual country or are we just trading on the fundamentals of the u.s. bond market and being pushed out of it and into more riskier places? that is the bigger question.

alix: it is and in terms of the risk, it is capital outflow out of china and liquidity and a backup in yields and inflation. you get any one of those things, and you can see a huge shakeout. we were all there for that to happen and being the bigger risk. jonathan: you mean yields could go up? what a strange concept. really? can they? wow. coming up on "," gabriela santos joining us for her outlook on emerging market. this is bloomberg. ♪

alix: treasury is moving at the tightest range and we are anticipating this week's speech. jonathan: monsanto is expecting to be advancing toward a purchase price. the euro zone economy maintained its economy in august showing little sign of brexit fallout. welcome to the second hour of "bloomberg ." happy tuesday. the markets seem a little off this big waiting for the big speech from janet yellen friday. it's grumpy tuesday. jonathan: that's what i do. it's silence in the markets. a one cent move on the s&p 500 since early june and that points to a lack of

conviction is what to do next. bank of america says u.s. equities face elevated risk of a correction. i love this quotation -- being pushed is not dating. stuff a cliffare to reach a yield. alix: we will be looking at the rally and emerging markets. to the distinction but risk we will discuss with gabriela santos. on theake a quick check markets. it seems to be slightly higher across the board but no big positions. futures are positive and equities in europe are slightly up.

all 19 industry groups are coming to solidly on the stoxx 600. the fx market today is a weaker goodr down by 1/3 of 1% the pound is trading at $1.31. crude oil is pulling back a touch. ofhad a bull market and then the -- we had a bear market and then a bull market. flat for wti. we auction your notes today's a look at that, $20 billion worth. wednesday, five-year auction, $34 billion so it will give us a huge read on the market. let's check around the world for all of our top stories.

what is the potential is today for bayer-monsanto? to the tune ofp about 8% more than what has been on the table. this is what has been offered already beenbaye. bayer has offered $55 billion. it seems financially inadequate by men -- by monsanto. they say they will have to opt that by 5-8 percent so we could see 135 dollars offered for monsanto and the ceos happen sitting down in constructive talks and we could get a deal in the next couple of weeks. of breakup will have to go along with this? regulatory hurdles will be huge. 1.5 billion dollars is

the termination fee agreed on and it will probably have to be higher. this is an and in a merry-go-round. farmers are not getting as much for their commodities. they are pushing back. we are seeing dupont and chem on syngenta. dow chemical is already fighting it out with the eu. there is a race to get deals done. wanted to geter this deal done with monsanto. alix: thanks so much. do it now versus six months now because you don't know what risks will be happening. jonathan: if you want to get past the regulator, it makes it

more difficult. we got pmi for the second month in august, 53.3 for the eurozone. the message was steady as she goes. is brexit biting the data? let's go to london. where is the brexit affect? shoulders shrug your because to a certain extent, this is the best reading in seven months. if they contagion is there, it is not felt yet. we have immunity but not impunity. there is a long way to go between now and when article 51 is invoked. one analyst said there is a strong correlation between the pmi and the stock market but no correlation between the pmi and the reality of the economy.

germany has slowed for the first time in 15 months but france has a narrowing gap. andany is edging back france is edging upward and that gap is closing. the numbers would suggest they are heading for a solid q3 in terms of growth. very much.hank you no brexit affect in the data so let's toss it over to matt bosler ahead of an anticipated speech friday by janet yellen. anticipating but maybe the talk is shifting toward a more sensible place? the market ishas, not moving much. i think people are expecting her to send the same upbeat message on the economy like stan fischer

did over the weekend and other fed speakers. she will probably not give as much timing on the next rate hike because they have markets where they want them. they don't really have to do a lot of signaling in terms of getting the market to where they want to be. there is a debate that emerges every time we get a speech. reserve'seral monetary policy very vague or do we know what we can expect friday? >> people are interested to hear what janet yellen has to say. tools do they have? she is likely to repeat things that the new york fed president bill dudley has said like about how we can go back to qe for guidance if we have to. ae will try to send

reassuring message that the fed is not out of ammunition. that's likely what we're going to hear from her. jonathan: thanks so much. markets, futures are firmer and equities are rallying in europe and its more of a positive session for the bulls. alix: especially if you have a buy rating. killer quarter for best buy will raise their third-quarter revenue and earnings guidance. they sold wearables, home theater, appliances and that's why are you seeing gopro and fitbit move higher. ofe-store sales were up 1/10 1% of the downside was mobile phones and gaming falling. unexpected quarter for best buy. brothers,o toll talking about u.s. luxury home builders, it was the fourth straight quarter of revenue rise.

side is the positive orders were up 18% and gross margins were up yet they were softer in the market. division apartment sales fell 13% as the average sale price rose. a little bit of weakness there in urban areas. taking a look at square, rays to buy at about -- raised to buy at about $15. let's get an update on what's making headlines outside the business world. fisa president joe biden is taking a shot at donald trump over foreign policy. heis in latvia where he said does not think he knows -- where he says he does not think donald trump knows what article five is s.

the fbi is notys qualified to investigate hillary clinton so he wants a special prosecutor. >> the justice department is required to an independent special prosecutor because it has proven itself to be really, sadly a political arm of the white house. the clinton campaign has rejected accusations against donationsinton taking for the clinton foundation. the wage cap between men and women increases after childbirth. that's because mothers reduce their hours and miss out on pay raises. global news, 24 hours a day, powered by more than 2000 journalists and 120 alix: countries. this is bloomberg. alix: coming up, we will talk about p/e and the m&a

environment with a veteran firm 130 is invested in over companies valued at more than $150 billion. talk sperling joins us about liquidity and valuations next. this is bloomberg. ♪

alix: this is "bloomberg ." a number of deals have taken place in private equity this year, over 4600. sperlingned by scott from thomas h lee partners and copresident.

raised 22 billion dollars over the years and invested in the 130 companies. a real pleasure to have you here. >> thank you very much. see an increase in private equity moves, what does that do propel you wish >> your world? what drives valuation in our world is the credit markets. when they are robust and that is cheap and available, prices tend to go up. it's similar to the public market but more of a microcosm of that. over the last few years, we have seen that there has been in certain sectors a significant increase in the valuation multiples. sector like the public markets has seen a significant move and many deals are now priced at levels of multiples of their cash flow that are a little bit out of whack with their growth rates. when we look at a business, we are trying to understand the fundamental values that make that business a sustainable

.grower and its industry it's the growth rate that provides that strong underlying fundamental value for a multiple of that company it in certain sectors, we are seeing the multiples are exceeding what the math tell you about the and physical value of the company in jonathan: in the public markets, technology is the only sector were analysts have not been cutting profit forecasts. in the private market, if you are invested and the valuations are top-heavy, how do you connect that? the way are two ways in our business has evolved and i know with our firm but it's also true of others, over the course of the last 10-15 years, we have hands-on andore bring a much more intensive operating a pushed her companies . one thing we have to do in an where values are at

the higher end of the historical range is to really drive significant improvements in the operating performance of our companies. it leads to the math of higher earnings even a constant multiples allows you to drive very strong rates of return in that 2% range we in the private equity industry are looking for as a compound annual return on money we invest. secondly, it leads to higher multiples on the exit. what you have to be careful about is the world is cyclical. if we ever think that somehow the world has changed and we will never see another down have been doing this almost 36 years. i have lived before five recessions and even more cycles and it will happen again. jonathan: you buy at up as and when you get involved in the company.

does it make life more difficult for you? at the valuation, the company says they have another guy and they are offering more. are they listening? >> the people we invest in do listen by definition. it's only about ice and we often cannot -- are in an exclusive negotiation, we often cannot come to agreement on price because of their expectation based on what you just said, that the market will have a comps that would value them differently than we do. we -- we want to partner with management teams that look at the value added we can bring and understand how we create a bigger and better enterprise going forward where

they can make a lot of money on that basis. some we have seen that in pe companies. what about lbo's? themarket was frozen at beginning of the year and it was hard to offload the dad. where is that debt market now? >> the debt markets are once again robust to alix: do you self-report or below? >> it depends on the specific situation. premium for the for example, has really shot up since earlier in the year and that is come back down. the spreads have narrowed significantly. let's not forget that the basic it on -- upon which that spread is added is at all time lows. the cost of debt is significantly lower than it was, for example, in 2007 which is

the last time we saw some of the same kind of value multiples and debt multiples on these companies. era of theu see the big billion dollars leveraged buyout's of the past or do you see smaller, more contained deals? >> the answer is more of the latter. aren'tes not mean there billion-dollar deals or $4 billion deals. we just did a deal with one of our portfolio companies, inventive, which is a major player in the clinical research business and the business of providing a series of other commercial services to big pharma and biotech. a phenomenal growth company and we could take it public at an attractive valuation. deal where wed a sold 50% of it another private equity firm who together with us will continue to build upon the value. at an $8 billion

valuation so it's a reasonably good-sized deal. those deals can get done and they can get done with very attractive financing. we can position the company to have the flexibility because of its strong coverage ratios to and throughally acquisition. that's what we are trying to do is make sure our teams have the flexibility to execute. with us because we want to dig in more. later, the jp morgan global strategist will reveal why there's still room to run and emerging markets. this is bloomberg. ♪

jonathan: from new york, this is bloomberg. where are all the ipo's and exits into public markets? willows still is scott sperling.

where are the ipo's? things picked up after the beginning of this year. traditional exit? >> when you have a strong particularly ones that are in industries that have strong tailwinds, what you are looking at is a set of good alternatives. that alternative may include a public offering or it may be that there is a sale of a company either in whole or in part. a company like inventive where we think there is spectacular growth going forward, we like to own a large chunk of that. we could've done that through an ipo where we would have sold 30% or so to the public and used that for deleveraging or there are certain advantages to keeping a company private tickling when it has such phenomenal growth potential. have company

private, particularly, when it has such phenomenal growth potential. there is a narrative out there and it says you guys are not going public anymore because you won't get the valuation that you would get in private markets. it are talking about a bubble in technology and private markets. are you pushing back against that idea? there is that danger in the technology sector. you are seeing companies where the sustainable growth rates are rapidly in the mid to high single digits or maybe lower that are trading at 17 times either. multiples. -- 17 times either the -- ibidah multiples. i think that sector has its own issues. in other sectors, i am not so sure that the ipo valued dacian would be equal to to the specific value than private

deals. privateyet see the equity bubble. alix: i want to get your take on another company, i heard media. -- i heart media. to talks are starting about cap to bankruptcy and you are buying back that can when you hear things like bankruptcy, , what do you say do things like that? >> we have owned this company with bain capital and a couple going on eight years. the company's management team under bob pittman ms. on it -- has done a spectacular job and they are dramatically larger than anyone else in the industry and have enormous scale and have done a wonderful job of outgrowing everyone else in the industry by enormous amount.

in the business would suggest there is strong core assetseir2 which is the outdoor business. it has phenomenal cash flow characteristics and the comps and int high multiples the core media business where they have transitioned from pure radio to a bigger visual platform, they have seen good growth. we can look at the fundamentals but the market will trade where it trades. jonathan: great to have you with us. will talk emerging markets next. this is bloomberg. ♪

alix: this is "bloomberg ." let's start with monsanto. what will be the price that bayer will come back with two by

monsanto? sanford bernstein says it should be $135 per share. you have a lot of deals being made in this space like a syngenta and chem china which cleared the u.s. regulatory hurdle. we are taking a look at some of the miners on the move. is slightly higher on the potentially good by monsanto but we just don't know the place. bhp billiton and glencore are europe. group in a different story when it comes to jm smuckers. the first quarter earnings beat estimates but the company is leaving its full-year estimates quarterspite the first teaching and lowering its revenue for the whole year to they see it falling about 1%. people are buying less food

further pets and pet food made up 29% of revenue the company. if you have ae pet, you will pay anything to get them the best quality and fanciest food. jonathan: my dog is back in england. that't know contents like to the market. can- i don't know we transit -- i don't know we can translate that to the market. the ftse is up in the dax is up as well. broad-based gains in europe. 19 industry groups have been in positive territory this morning. the cable rate is at $1.31. oil is going back again, $47 on wti.

and of the yield curve and treasuries is in focus with a two-year note yield just up one basis point. the debate over the fed continues but that's month of the story today in supply is coming to the market come at two $6 billion of two-year notes being auctioned off. where and how much will the demand be? let's wrap up the news outside the markets. president obama gets a firsthand look at the flooding from parts of louisiana. his truck comes four days after donald trump criticize him for staying on vacation during the disaster. the louisiana governor said the president should not visit until after the first few days of recovery efforts. the flood damage and estimated 40,000 homes. vice president joe biden go to turkey this week with

anti-americanism on the rise there. the turkish president is angry the u.s. has refused to extradite an islamic cleric who lives in pennsylvania. the attempted last month, the cleric has denied any involvement . the department of transportation says late arrivals are due to mechanical problems and flight where the largest factors for delays. global news, 24 hours a day come up howard berman and 2600 journalists, analysts in more than 120 countries. you very much. let's talk emerging markets. etf investors are diving into emerging markets at the quickest pace in more than a year. let's go back to a quotation

that i referenced earlier from neil grossman. he's talking about the reit yield an emerging market let's bring in gabriela santos. are not looking at fundamentals but just a reach for yields. we can only say that there is higher yield or there is cheaper valuations but that cannot be the whole story. the reason we are starting to get less negative and more positive on em is because domestic fundamentals have started to improve. it's not necessarily across the board but we see inflation come down in certain countries. we are perhaps seeing a bottom in those hard-hit growth areas. alix: on the flip side, if the fed is looking at a lower long-term rate, they seem weaker growth, you don't have growth opportunities outside the u.s. either so at some point, they get emerging market

demand which is supported by their exports. >> that's true, especially in asia or mexico and latin america. they are dependent on that trade cycle where the u.s. has a large role to play. it's a bigger question around what the new growth model is for emerging markets. maybe it does not depend on china so much or does not depend on external variables as much. for asia, is shifting to domestic consumption. that's not just a shift in china but other countries in asia. does politics matter in emerging markets? you had the impeachment in brazil and attempted coup in turkey and major cities being lost in south africa. the politics around those stories, do they matter? matter inve they do

emerging markets. when we talk about politics in the u.s., for example, that's a market where we say we should be focusing on fundamentals and politics should not play a large role. the story is different in emerging markets. brazil is a good example. governmentchange in and entire change and economic model so politics is a role to play on the positive or the negative side. alix: over the last three years, we sell 155 billion dollars of outflows from mutual funds, a huge amount. we have seen that come back by about 10%. do it -- will we get back to beat to 13 level? i think it will depend on how much fundamentals continue to improve. looking atre tepidly this but in order for investors to become overweight or that money to work, i think the to continue seeing fundamentals improve beyond the tepid signs of a past few month. jonathan: we have to talk about

the fed and the rates. we had a series of guests in the last couple of months and bond yields are at record lows in stock market art record highs so where do i diversify? is emerging markets a diversification or is it just one story? given what we are seeing in the right market, isn't that just one story together? aren't these markets moving in the same direction? andhe link between the fed the u.s. and emerging markets is a question of the dollar. if we see the fed coming back to the table later this year and next year, i think that's a an important point. we may see more dollar strength. as a result, we may see more weakness in em but it's not safe to say but the worst impact of the dollar strength we have already seen. alix: why is that? >> it's not just the u.s. story

anymore. tantrum, it was the u.s. normalizing policy and now we have the ecb expected to be easing for years to come and the bank of japan as well. it's not just a fed story. alix: it still comes down to easy monetarily -- monetary policy good for em. can you really have a backup in treasury yields without everything else backing up? really see treasury yields creeping higher and inflation expectations gaining that the ecb and boj just bailing out? >> i believe we may see a backup and treasury yields. there is a much more positive u.s. story. you have that anchor from the ecb and boj you do not have an 2013 during the taper tantrum. to say that it doesn't matter but some factors may be mitigated by central banks. over theu.s. markets

last few weeks, cyclicals have outperformed defensive's. as you go above the zero line, the cyclicals are outperforming and anything below, you have defenses that are outperforming. we are seeing a rotation encyclical so does that continue? >> that is our view for the second half of the year. with the market near all-time highs, the interesting part is not going to be the record highs for the rest of the year but what happens within the market and what are the dynamics. that's what we talk to our clients about is to make sure they are not into the very defensive sectors and making sure they are taking a look at cyclicals because of that positive u.s. economic story we see. what are the defensive's right now? how do i get my downside protection but stay invested in the equity market? cyclicals,talk about

we talk about consumer discretionary and financials. when people think defensive, they think purely utilities. fore is a role to play consumer staples and certain areas of health care. there are other areas beyond utilities and bond proxies. alix: if you have a lower neutral interest rate from the fed, that means lower u.s. growth. how long can that sector rotation really last? if it's lower longer, that will not be a good thing? ,> if we look at valuations defensive's are expensive and cyclicals have gotten less so. alix: it is a value play or risk play? >> i think it is both. we have piled into defenses of -- defenses without taking income to consideration the growth in the u.s. economy. there is more room to go in it comes to cyclicals versus

defensive. jonathan: great to have you with us on the program. risk but atle bit of little bit of safety at the same time. tech stocks are gaining more control over the u.s. markets than any time since the internet bubble. this is close to the what is gap to the next group so is this a reason to be alarmed or doesn't signal strength in the market? we will debate that next. this is bloomberg. ♪

jonathan: "bloomberg this is "bloomberg ." ofing up, the city head

banking north america will preview the big event in jackson hole. emma: shares of best buy rose as much as 16% in the market after second-quarter earnings beat estimates. the largest electronics retailer in the u.s. was helped by rising sales and home theater and wearable technology. turneo has been trying to the chain around after years of sluggish growth and has been cutting costs and selling off their foreign divisions. and monsanto are moving closer to a blockbuster deal. the companies of made progress on the purchase price and the termination fee could last month, monsanto rejected a $55 billion offer. says homein ireland

loans were there slowest growing sector. bank of ireland issued devices many in the u.k. as in ireland. 60% of homes in ireland are brought without a mortgage, up from 25% a decade ago. alix: thank you so much. s&p andcks dominate the it's now the most influential sector in the index, exerting the most control since the internet bubble. microsoft come out and about, amazon and facebook have seen massive multiyear rallies. mark lehman joins us to discuss this. you look at the gap beat tech and banks and the s&p, it's the widest ever. how did we get here? >> we got here a fundamental performance. we got here because the overall economy has changed a great deal and the people leading that economy and leading the change of the companies you just mentioned. i don't see that decelerating

good it shouldn't base and i think that's a topic we will talk about today and for the foreseeable future. alix: does that raise concerns of bubble territory? i think it's an easy thing and it easy headline to mention. looking at fundamentals, it's haderent than 2000 when you companies that had no business model and no earnings prospects leading the charge. today, you look at the kind of gains that facebook and others have made. they are doing it with fundamental earnings and real etc. -- accelerating growth rate and taking market share from traditional media companies and traditional retailers, they are feeling the market share and becoming more efficient and i don't see that changing anytime soon. i see that accelerating. jonathan: many analysts would say tell me something we don't know. estimates, profit

the one sector where they have held up is technology but the valuation story is the multiples. have we gotten to a top range for these companies? right, this is well-traveled territory good looking at facebook for example, our estimates have gone up over 30% for this year's calendar from the start of this year. facebook should earn this year with a thought -- what we thought they would earn next year. as the running estimate has gone up, the stock has gone up commensurately. other companies we mentioned it today, look at the by dollars share of club which was $1 billion for a company created less than five years ago. you question whether unilever can do that. you have a traditional marketing knowsnaut that probably

as much about the consumer as anybody deciding to buy an emerging tech company. it's masquerading as a company that sells razors and shaving cream. dollar shaved club numeral about the consumer i think in what they buy an house much they by then unilever did. that's why they decided to spend $1 billion on that. will notd ofbuys change and there is a multitude of opportunities and examples i can give you where he don't think that will change and why you want to stay with these kind of stocks. alix: the other concern is we are in the late stage of an economic cycle. is there something fundamentally different about technology that can make it in munich we see the credit cycle turn? -- make it it in new immune if we see the credit cycle turn? >> you probably don't want to stretch the multiples.

if we are living in this low and this low rate environment we have been in for so long and pundits have been predicting that rates are inevitably going to three or four and rates are going back to zero -- and growth is going back to zero, i don't see it. if that track continues, you want to be in technology because more people are being efficient and stealing the market share from the traditional retailers and other sectors of the overall market and you want to dissipate. looking at facebook, that is a tech company but they are stealing share from traditional media and accelerated rate. i don't know if you want to be underexposed to facebook. stock. expensive you'll probably get an opportunity at some point in the 90 days where there will be some shock to the economy. pick your spots in on the stocks that are the best in the market

and that has always been a good strategy. anathan: you're expecting bigger ipo calendar this year. how significant is that valuations? >> i think it is significant and will make people pay attention to the best companies. you will talk about snapchat and hoover that will likely go public in the next 18 months. it will drive attention to the other parts of the market you will have great valuation opportunities. deal we werent involved with was twilio. market has done there have been big corrections. they have corrected to the was a and twilio valuation discount and has become the top valuation in the sector. cap spot and find the best companies. that stock is up 291% this

year. thank you very much. this dovetails into what we were talking about what accurately measuring gdp. when you have tech companies coming in and changing the way we run our economy. jonathan: valuations are good. this conversation will continue. coming up, pending hangover tensely for oil bulls and why china is cleaning up its act. from new york, this is bloomberg. ♪

jonathan: this is "bloomberg ." this is battle of the charts. got the power because i

have the only vote. alix: there were two big commodity calls from goldman sachs and citigroup. oil -- uh oh -is we are having technical difficulties so you go first. i want to rip off our last guest talking about how much technology is important for the market right now. white line, i have an index of chip companies. look at how well this is done this past year. this is a rally of about 2%. this is important because a lot of people say that chip companies are sort of a bellwether for the u.s. market. need to have other industries that were more important but now tech is very important. i also have the nasdaq and the s&p 500 trouncing all of these

indexes. highs, we alsoew have seen the chip index surging like it has. alix: all right. now i will take it back because the computer is working. i was talking about the commodity with big calls today. goldman sachs thinks the rally should stall and citigroup says look at supply, the trough is behind us. the white line is oil volatility in the blue line is dollar -- is gold-dollar three-month volatility. ed morris at citi says he expects volatility in oil and gold to pick back up. seen the volatility in gold star to pick up an oil has become recently elevated. they say we have a lot of uncertainty surrounding the election and the timing of rate hike and a lot of news out of opec in terms of how much they have.

libya, nigeria and iraq are overloading the market now. you should see it pick up and volatility in the two commodities going forward. can we call it a draw? no, we only do winners at bloomberg. youel gets it but dani, are not a loser. michael buchanan will join us to talk about the fed and credit and much more. from new york city, this is bloomberg. ♪

avtk"0

alix: we are 30 minutes from the

opening bell in new york city where it is a little bit cool. that's what it feels like in the markets. jonathan: absolute silence with bonds in a trading range. when was the last time we had a 1% move on the s&p 500? alix: july 8. x is at 12. buchanan wille look at his bullish call on credit. but bit theght bullet in february so what is next? citigroup is that with a new note on what the fed's next move will be. we are seeing gains across the board but it's very light. the price action is

pretty steady and has been all morning. in the stoxx 600 have been gaining and the dax is up 9 /10 of 1%. ahead of the janet yellen's page on friday in a dollar index is weaker. you have to reconcile the moves with the fx market. the weaker dollar story is not stimulating the commodity market. we have seen a retracement on copper, brent, and wti which continues in the bond market. it's the tightest since 2006. the front and has been choppy in the last 24 hours. -- the front end has been choppy in the last 24 hours. there is a time of supply coming into the market. five-year notes on

wednesday in seven-year notes later in the week in there was a killer quarter from best buy ofh same-store sales up 8/10 1% would gains in wearables, appliances, and technology. a different story when it comes swiss watch exports. they fell year-over-year in u.s. sales are down, -14%. group which is one to watch. the news at jm smucker, pet food sales were down over 5% which make up 29% of the company's revenue. the sales missed targets and they are cutting its revenue forecast for the whole year, down 1%.

more on what's happening in other markets, abigail doolittle is at the nasdaq. mobile i, it'sh about drop -- driverless cars? eyee have shares of mobile popping higher in the premarket on the news that they are teaming up with delphi to create a self driving car. perhaps this partnership will be enough to change the opinion of some of the bears. gopro shares have been beaten down. they are popping higher in the premarket on that blowout best buy quarter on the wearables. spokeam reached out and to an analyst at longbow research and he said that unless they specifically mentioned action cameras, it's not that meaningful. he said he is on the call and

that this is more of a positive for fitbit. it will provide some read on the the gopro core consumer. if not an overall meaningful read. gopro, the stock is down 68% over the last 12 month. alix: thank you so much. let's go over to london. it seems like the brexit fear was tempered in europe. that from the got u.k. data last week. now we are looking at the eurozone side and this is the composite pmi for the eurozone rising to 53.3 which is the highest reading and seven months. it was driven by an improvement in services and manufacturing activity -- it was driven by an improvement services but manufacturing slipped.

sign of beinge curtailed by the brexit vote. we see gains broad based in europe with the stoxx 600 up of 1%.91/0 in terms of the biggest gains, you look at grr with banks leading the gains, up almost 2% but also commodity producers up 1.9%. they were the biggest drag yesterday and it's a total turnaround today. you are seeing all the industry groups heading higher so it's a good thing day in europe. is one of the best-performing stocks on the stoxx 600 today. thes up five point 8% at moment after this newspaper reported that the head of the state run polish development fund will negotiate the terms of a bank purchase from unicredit.

this fits into the theme of unicredit looking to sell assets to boost capital. analysts are saying the disposal could partially offset their capital needs at unicredit. we see a number of itali ledgers gaining today. thank you very much. in the united states, some people would like to get on a flight to malan but they are not. we are awaiting on the speech by janet yellen on friday. ten-year treasuries are moving in their tightest trading range since 2006 ahead of that speech at jackson hole. for more, mike buchanan joins us now. the silence and markets now and these taking ranges, is that the new regime or is that something that comes before a new trading regime? >> i think if the latter. you have conflicting statements coming out of fed presidents

last week. williams sounded more concern about the longer-term path for monetary policy. dudley came out and questioned or doubting that the bond market is fully embracing the likelihood of rate hikes for the remainder of 2019. the bond market is confused now. to janete are looking yellen to clarify some of that in her speech friday. alix: was the fed speak that confusing? things that short-term, most fed presidents seem to want to see a rate hike but the longer-term dovishness, the lower neutral interest rate coming down that seems to be a prevailing theme among all the presidents. there is an issue of timing for sure where the dudley comments were short-term in nature. it probably built in some of his

view or prospects for growth that will open the second half of 2016. i think a lot of these other comments are dealing with this reality of maybe a lowered new normal. i think that is the source of the conflict right now. is the consensus of the market, if there is one, is there a breakdown communication? if the market does not understand what you are trying to say it, your communication has failed. that seems to what has happened over the past week. people don't get what's going on in the federal reserve at the moment. how do you shape a conviction in the bond market when you don't have a clue as to what the fed will do? >> i think you have to look at fundamentals. when we think of the likelihood of a september hike, we think the fed will pass.

when you look at growth, they cannot have enough conviction that growth will be where they needed to be. i think we have also talked about asymmetric risks with respect to policy. i think they are well aware of that and aware that the downside far outweighs the upside in terms of what they want to do with its going forward. what we also talked about would it mean for the markets if you do see it back up and yield and what that yield would have to be. one analyst said 2%, the markets did not like that on the 10 year. what level do you see? >> if we are talking about the future of rates, we are clearly going higher. what kind of backup do we need to see? >> you probably get to 1.75 or

are the fed, you have to wonder that with the first hike, look at the reaction in the market. that has to be waiting on the minds of committee members. i think they will be very withul and very thoughtful that first hike in 2016. think they will pass in september to wait for more clarity with respect to growth and inflation expectations. you play the steep curve or the continuation of the theme of the last year which was a flatter curve? nowhere, do you play the risk reward? >> we have been fairly tactical about playing the flat and the steep. the flat side is one out. i think a lot of this is conditioned on what we see next week and what we see coming from the fed and the market reaction.

bullish on arly steep and or or a flat in her. thank you buchanan, for sticking with us but let's get you updated outside the business world. obama is taking a firsthand look at the flooding in parts of louisiana. this trip is four days after donald trump besides him for staying on vacation during the disaster. the louisiana governor said the president should not visit until after the first few days of recovery. the flood damage an estimated 40,000 homes. hillary clinton will propose new taxed adoptions for small businesses today. it will eliminate the need to add overhead costs. she will call her quadrupling of the tax deductions for new businesses and some of that would be paid for by her previously announced over all of corporate taxes. -- ireland has bounced

back since the -- for the first time since the financial crisis. they had a 14% increase in population but that number of people living fell 6%. news, to 24 hours a day, powered by more than 2400 journalists in 120 countries. this is bloomberg. coming up, it is the great foreign love affair with risky u.s. credit. it's the promise of high heeled getting foreign investors to take on bigger risks. later, monsanto shares after bayer is moving closer to a deal. this is bloomberg. ♪

alix: overseas investors are becoming more important to the u.s. the plunging investment-grade yields are making investment-grade bonds in the u.s. more appealing to foreign buyers for their also getting into riskier u.s. corporate debt. use buchanan is still with thepeter cheer, the bond guy at green n you guys were both out early in february would loose credit calls. foreignre seeing investors buying risky for debt. what does that make you doubt your calls? >> we have been pulling back a little bit in the high-yield space. i like leveraged loans a little bit more. you see an uptick in libor. you get a pickup and safety.

i think we are cautious with is going on there. jonathan: it seems a move back up the capital structure. >> back in june, we went out with a webcast to our clients and said stay the course in credit. we pounded they, table on corporate credit. the market moved very quickly, quicker than we thought it would and responded in a meaningful way. stay theut and said course because we think the fundamentals are still there. not great and valuations are reasonable in the context of where global fixed income is. like peter, we are shifting things around little bit and -- taking basic down the beta down but we think the right after corporate credit is to remain long. anathan: matt king made headline about credit any it out that the idea that the total

defaults we have seen so far in 2016 already match 2015 and it's only august. does that play into this? >> a lot of this was priced in. it takes a long time default. there was a lot of fear in the energy space last year and these things don't happen overnight. that has been priced in and there is money coming in. with a 6% yield seems to have a lot of demand out of asia so you can find a sweet spot in bonds. i think there is opportunity. isn't that inherent risk? it might be masking underlying fundamental risks so you might get left holding the bag. you have to look to fundamentals. i think fundamentals right now are reasonably solid. default risk like

peter was saying, that was or threein pricing 2 quarters ago. i think the market is realizing now especially when you look at the energy space is that maybe the default risk of were pricing in will not materialize to that extent. there is no doubt you will have defaults and they will continue. what it is leaving is a stronger cohort. you are getting rid of these weaker players and i don't think the default rate be as high as what was priced in originally. the debate over the last two years is that credit and fixed income is not traded on fundamentals. absolute yield for risk assumed, we were talking about high yield. i think there is a risk we

have pushed too far in that space but that's a risk that applies to the equity markets. you have seen that huge inflow into dividend yielding stocks and the safer low volatility of funds in a concerns me because you are giving up a lot of safety. we are a big fan of moving up the capital structure. the spread's might be low but you are protected at the bottom and they are better the further down the capital structure. they say on the debt because of regulation but not the equity stock. what else has that opportunity? >> we have looked at the bonds, anything in the sweet spot of the bmw be because not every investor can go there. you're getting coupons that attract investors. as exciting for

institutional investor but there is opportunity still in bbb or double b's. rbs was $2.6 billion. the demand on the back of this stuff, does it worry you much money is piling into what they put on the table? >> i think you have to be somewhat skeptical when you look at those order books. it could be dictated by pushing terms and the underwriters will use the order book for feedback to get to the right pricing point. at $16 billion, it could be too cheap and they tighten it and you get something closer to parity. what do you like in the capital structure now? >> not to sound like a broken record but i think bank loans are interesting. we have favored high yield it high yield is up 14% year to date and the

incremental yield difference between high-yield and bank loans is probably about 75 basis points. you get a play on rates going higher. about not too worried that right now but going forward, that is something that will come to fruition. i like the idea bank loans and moving up in the capital structure and still being able to take advantage of this fundamental tailwind. that is where we are in emerging markets as well. >> there has been a move to libor shifting hire will no other rate has shifted higher so i think that is exacerbated by spread tightening. we seeing it in some of the structured product. anything that is libor-based i think will attract some money. iss changes how libor calculated. let's get more

forensic. what is driving libor up? trying to respond to pass issues. they are trying to make it a more market-based, much broader group of contributors. they used to be banks trading with each other that contributed. and any are expanding bank trade weather is with money market or insurance company will be included in our calculation. i think that has a tendency to go much higher. it will be more of a real lending rate. over time, when you're bond yields and when you're libor for banks will converge and that's in a slightly higher level than today. life more will be elevated poorly versus fed funds and treasuries. that makes floating rate notes attractive here. alix: the libor when you're out as 1.5%. think people are deciding

what to do with their arms on their home equity loans. alix: if you see an uptick in bank borrowing, where are we in that cycle? with respect to bank borrowing costs, you have to look at the longer-term path. i think there has been so much fundamental repair. while regulation may have hurt the prospects are equity returns, regulation has made bank balance sheets definitively stronger and sounder. i think the longer-term financing costs, even factoring in a slightly higher libor rate, you are still looking at something compelling low yield financing costs for banks. alix: great conversation, thank you very much. always great to see you both.

two smart guys call about buying into credit and now they say we will go up the risk scales would take money off. this is bloomberg. ♪

city,han: from new york we are counting down to the cash open. futures are positive on the dow and the s&p 500 and a day of gains for the second is shaping up in europe. we are counting you down to the cash open. fed chair janet yellen will speak friday. this is bloomberg. ♪

i'm jonathan ferro. from new york city, this is bloomberg. i'm jonathan ferro. about 25 seconds away from the cash open the future positives up. we are up about seven points

ahead of the cash open. in europe, potentially a second day of gains. every single industry group on end 600 up on the day. boards, the dollar story. dollar yen, stronger yen as we create back toward the 100 handle, potentially 99. 131.80. a couple days away from that big speech. let's get to the market open with alix steel. alix: we are seeing upper movement across the major indices, .3%, .4%. we have not seen a 1% move in the s&p since july 8. off by 1%, a big move down in the last few days, so can stocks continue high without the support of energy?

in individual names we are looking at gopro and fit bit. int buy reporting a raise health and wearables. those stocks moving higher in reaction to best buy. also taking a look at toll brothers, the stock is higher, you have some good news and bad news. the company lowered its full-year adjusted gross margin guidance. that was weighing on the stock earlier in the premarket. on the upside, it had four straight quarters of revenue rising and orders up by 18%, that is the best since two years. a little bit of push and pull. bayer andt out with monsanto. bayer needs to hit $135 a share.

they are talking about a breakup fee and a potential price. jonathan: what was that price? alix: 135 at sanford bernstein. jonathan: let's continue this conversation with monsanto and bayer with the jeff mccracken. the step closer, according to sources. how much closer? >> there has been a lot of movement. the guy that got all his moving was hugh grant, the ceo at monsanto. last year he made a run at syngenta but that did not work out. he knew there needs to be more consolidation in the space and now we have can china and syngenta coming together, we have dow and dupont trying to get regulatory approval. so he cannot push back on the strategic concept of bringing two big agricultural companies together.

a year and a half ago he was arguing this is what needed to be done. so now they have made progress on the termination fee. has offered 1.5 in the termination fees, but they will want more with regulatory fees. acquiringave bayer monsanto. they will have to look at that as well. without getting stuck in the weeds, in some ways, the termination fee is the most interesting part of the deal. we know they will have to pay for this company, but consolidation has started, they are behind the curve. if they do not get this deal done quick enough, what is the chance of they are the last over the line and that makes it hard to happen? >> there is a game theory that you see right now where you have

companies trying to do deals, and they are all in front of regulators. if they arefraid the outlier, the last one trying to get through the hurdle, that they will be more likely to be blocked. that is partially what is going on here. knows they will have to bend over backwards to appease regulators, but they are worried if they are too far behind, there is no way to get the deal approved. this is aggressive, a termination fee that can run into multiple billions. >> and it just started in may. seeing onee could be of the biggest foreign takeovers of a german firm, one of the biggest. at what point do investors turn around and say i do not like this? >> if the price gets too high. alix mentioned they needed to get up to 135 a share. the initial offer was 122 and

then they went up to 125. if they can get the deal done, it will be in the low 130's. if they were pushed into the 140's, that is when the shareholders and investors would react. given they have to dispose a number of assets, not often at the party is basf. >> they have been the cautious one. they have not been willing to do $50 billion acquisitions to be a game changer for the company. this is a $55 billion deal or higher for monsanto, and it does not seem like basf will get in the middle of it. more than likely, they will see what assets are sold off by bayer down the road, if a deal is done. jonathan: fascinating story. imagine taking the ceo job in may and then say i'm going after

the biggest takeover in german history. we are going to get this done. now we want to turn to best buy, the largest u.s. electronics retailer reported earnings that boosted confidence after years of sluggish growth. joining us now is our retail analyst. this was a surprise quarter pretty much any way you slice it. what did best buy do right over the last three months? contrary to their expectations, some of the product categories were better than people expected. they called out tablets which did not drop as much, phones were better than expected, and tvs, the price drops got people to buy a few more. consumer electronics and computing and mobile phones, nearly 80% of sales, both of those had positive same-store sales growth. how much have they have to

discount to get those sales up .8%? i do not think they were out of the normal promotional cycle. consumer electronics is a big promotion industry. the gross margin did fall a little bit, but that is more to do with their regular -- we will not bp nonprice position. may wellis also what not selling, wearable technology, not tvs and phones. talk about the products that are for retailers. but think it is wearables, you cannot avoid the tvs and computers. they are the bedrock categories. these other things are the nice bit on top of that. you have some pictures of virtual reality up. they are talking about that as a potential new category that would be exciting.

there has not been a completely new category in consumer electronics for a few years now. alix: you also have these brick-and-mortar stores loosing their online presence. how did they do online? they still have to compete against amazon. up more than 20% online, a bigger proportion of their sales. realize, online is completely embedded in most consumer electronics purchases. online now and then go to the store. what best buy has two increasingly do is make sure when people get in the store, if they price compare, they realize best buy is as good of a deal as anything online. alix: i remember reporting on best buy two years ago when they were starting their store within a store concept. where are they now in their turnaround effort? it is this perpetual motion

thing. you have so many different things going on. matching, they are pretty good. and that has been helped by the fact that amazon collects sales tax in most u.s. states now, so that takes away one of the advantages. cost cutting, they have done a big bounce on that, but that is a perpetual thing. you have to continue to do that. relationships with vendors, this is really important. becauselove stores essentially they get people to trade up, whereas online, you tend to trade down because you are more tempted by the lower price. alix: interesting. thank you, charles allen. jonathan: coming up, a divided federal reserve as you look ahead to a key speech from janet yellen. us.iam lee will be with

this is bloomberg. ♪

jonathan: this is bloomberg . i'm jonathan ferro. coming up later today, the toll brothers ceo. alix: let's get you caught up on where markets are trading right now. the s&p is up by about .4%, the dow up by almost half a percent. i should point out the s&p and nasdaq just talk their record close, still a way from their record high but nonetheless a move today.

abigail doolittle is at the nasdaq. if it were closing now, it would be another record high. another record watching day, points away from an all-time high. as for stocks popping higher on the open, here are some more names on the inclusion to various s&p indexes. chemical financial trading that the the news multibank holding company is --ng added to the s&p 500 400 mid-cap index, excuse me, replacing supervalu. shoe carnival and evil pharmaceuticals trading higher on the news that they will be added to the s&p 600 small-cap index. team thatey told our there are certain fundamental out there that are forced to buy these stocks to provide short-term buying momentum. others say it is really a status symbol of sorts.

it will be interesting to see how long this strength lasts for some of these more obscure names. alix: thank you. will they or won't they hike, and when? reading the janet yellen tea leaves on friday. to me, this is the chart of the week. the red line is the neutral interest-rate projections from the fed. the purple line is john ojection of the interest rate. the blue line is where the fund rate is effectively trading now. how much more room does the fed have to actually hike? joining us now is bill lee of city economics. is there a lot of room for a rate hike right now? the real question is, is this a good god? -- guide? the standard error around that

is about three percentage points, so we don't have a good guide. we have to look at the indicators of how the economy is doing. alix: if they don't have a lot of room to hike, what can janet yellen talk about on friday? william: she can either make good news or bad news. the bad news that we are expecting her to make is if she goes on a tour de force about the academic integrity of our star. it gives us nothing about what monetary policy will do. that leaves the markets in a state of uncertainty. if she takes the leadership that fisher showed, which is to say this is what is dragging the economy down, a lot of the productivity problem is investment, but it is something that monetary policy cannot do something about, so we should be focusing on what we can do, which is removing distortions from the past eight years, and let the macro economy be handled by fiscal policy. if she says monetary policy has

limitations, that would give the market relief and say, we know where market policy is headed. she gives an academic tour de force, that would make the markets more uncertain, and that would be disastrous, given that she has destroyed one of the great tools that the fed has, for guidance. jonathan: i explored this earlier with michael o'sullivan. is the fed to academic, has this become something like a university at the fomc? got to this place where you need an economics phd to understand where these guys are coming from? must admit, my dream job after i got my phd was to be on the board staff and working on the model. for somebody with a phd, the fed is the holy grail. question, should chair yellen and the upper management

of the fomc still be so focused on such academic topics? the answer is yes because they need the radical grounding for what they do, but they also need practical application of what the markets are looking for and give them what they need, which is certainty. theirif they are lowering growth forecast, that would be pretty clear to the markets and what isn't that the markets don't understand? every meeting is supposed to be live, the mythology that the fed insists on perpetuating is something they have to give up. we will move when the following conditions are there, whether it star, inflation indisposition, give us exactly what the playbook is. if you don't know, say you do not know. if they say that, that is where credibility goes out the window. alix: that is very much out of

charles evans' playbook. jonathan: the credibility you raise is important. i caught up with a bullard after he made that regime change and refused to put a long-term turn .ll rate do they have to remove all of that and revisit the summer of economic injections, revisit all of that work that janet yellen did as she headed the subcommittee under ben bernanke, is that were the focus should be? william: absolutely, that is one of the powerful tools that that has, guarding the markets where they are going. given these structural headwinds, they are saying, don't expect a radical ramp-up in rates. that is the message edition. forcing, here are the conditions that let us raise rates. here are the conditions that are straining us. be clear and what you are looking at.

don't just say you are data dependent. .ive us a sense of analytics what are the analytics behind the data dependency and how is it that you are going to move? alix: this brings up what will happen in the next recession. with a largerut asset scale purchase plan with rates still low, we can mitigate any kind of recession risk in most circumstances. is that true? william: the man who wrote the paper, i must say, he is one of the best model drivers out there. what he did was simulate a model conditions,rrent but to wear rates were slightly higher. if we had the room to move, we could help the economy recover. the message here is we do not have the tools in the current positions to do much, and we have to rely on nonconventional tools like balance sheet and forward guidance.

those are the tools that have the least certainty predict the outcome. jonathan: bill lee, thank you. thank you for joining us on this program. coming up next is bloomberg markets. jra: we speak to the director of real-time economics at moody's. he will be reacting to the new home sales data breaking at the top of the hour. he is expecting a worse number than the consensus. says the u.s. economy is falling short of expectations this quarter, so we are going to get his take on the economy and the fed ahead of janet yellen's jackson hole speech. sticking with the economy, shifting to the eurozone, after the pmi data showed some resilience post brexit, we will be talking to james buckley.

we will ask him about the opportunities in europe and his top stock picks post brexit. finally, the controversy surrounding hillary clinton's e-mail as secretary of state just will not go away. last night on tv, she sort of shrugged off the issue, with the fbi saying they discovered 5500 e-mails. the judge now ordering the state department to review them for possible release. for more on how this may affect hillary supporters, we will be joined by the cochair of the transition project . jonathan: thank you so much. coming up, we dig into the markets. equities pushing hard. potentially another day with a record high close. up, a big treasury

auction coming up on the front end of the curve. we will look ahead to that from new york city. this is bloomberg. ♪

alix: this is bloomberg . i'm alix steel. coming up, we get u.s. july new home sales out. how strong the housing market continued to be? be1:00, the treasury will auctioning off $2 billion in notes. -- $26 billion in two-year notes. we have been sensitive to what the fed will or will not do. $26 billion of supply on the front end, a couple of days before a speech that could set up fed policy. alix: we have not seen a lot of volatility in the bond market, nor in stocks.

the s&p is sitting right above the record close, but take a look at this chart of the day for me. this is a look at the daily swings in the s&p. we have not seen a 1% move since july 8 despite having a or not record closes. jonathan: is this complacency or just silence and a market without any conviction? we are seeing that in bonds as well. benchmark 10 year bonds trading at the tightest range since 2006. people don't have a clue what is going on at the federal reserve and they cannot base the treasury curve on what is happening in the u.s., they have to think abroad as well. alix: do you want to sell right now our hold on, making the market more ill liquid? ceo of aig,the going down the curve in terms of who is trading. jonathan: we also saw in the

bank of england operations two weeks ago where they could not get enough of the long and because nobody was selling. will people be buying? that is the question on the two-year auction. we would bring you the results of that later. potentially another day of record highs. the s&p 500 up by point 5%. broad-based gains in europe. the dax up over 100 points. bloomberg markets is coming up next. this is bloomberg. ♪

david: it is 10:00 in new york, 3:00 in london, and 10:00 in hong kong. nejra: i'm nejra cehic.

this is "bloomberg markets." david: we take you from washington to london covering stories from london to germany to turkey. , ramyat the markets desk inocencio has some breaking news on new home sales. --y: the number is 600 623,000. the median survey coming in at 580,000. this also breaks past the prior number from last month. this is meaning we have our highest record in terms of new home sales since the year 2007. let me walk you through more here. i want to show you the function. this