silence.breaks his his hand may be forced today. and aeuropean markets five-month high ahead of the -- the costhe data of borrowing in hong kong at a seven-year high and speculation of central bank intervention. ♪ >> welcome to the pulse. life from bloomberg in london.

the markets, overall, a lot of movement. i will show you the index because we have not seen much of --vix., certain -- fix this is the 6.67 level. you canur top stories, see european stocks are practically in chains. waiting for some indication from mario draghi, what he can do. crude, 46.42. >> apple has announced an update to the iphone and apple watch. camera upgrades, a faster processor, longer battery life, and new water resistant design. it has ditched the headphone socket for other features.

it has been called the best iphone he ever created, but others are not so enthusiastic. the cost of borrowing yuan in hong kong surged a seven-month high. speculation that china's central bank is intervening to discard -- discourage a harris effect. post-brexit's rate climbed to 5.54 percent. japan's economy showing signs of life. in the second% quarter, more than the governments reading of 0.2%. this gives the boj something to think about. at the meeting, policymakers will release their review of potential strategy and decide whether to increase stimulus. the u.k. housing market in august after the shocking confidence from the brexit book. gaugeuse price gaze --

rose as opposed to july as more agents reported depreciated prices. negative,ned maintaining them. john malone's t media has agreed to take control over motor racing. four $.4 billion for an 18.7% stake in the parent company and will take full ownership later. the british entrepreneur how -- you found formula one will remained ceo. news 24 hours a day, powered by more than 26 journalists in more than 120 countries, this is bloomberg. printing? francine: thank you. mario draghi and his governing council today. survey by bloomberg expects some sort of action. as inflation grows, to evade

european central bank's, the question is what can mario do? he likely has explaining to do. let's get straight to caroline who is in front of the ecb in frankfurt. great to speak to you. what can he do? what can he do? what can he do to spur inflation? what can he do in terms of growth projections? what he can do, update projections after brexit. italian banking crisis, will we see a retracting of 2017 outlook to growth. that is what most economists are expecting. down to 1.5 percent growth in 2017. more clarity in projections. in terms of stimulus, we know he could extend, he could -- has already hinted at that, adding

to the 1.7 trillion euros he has committed himself to. lastly, can he make their life easier in terms of buying 80 billion euros worth of bonds month. so much is ineligible. they are not allowed to buy at the current deposit rate. they are not allowed to buy. on top of that, they are not able to buy more than 30% each individual issue. they could change those rules, allow themselves a little more each issue. with each change, comes concern. particularly, from the likes of germany. the ecb is a little too powerful as a buyer. thank you very much. we will be breaking that decision and go live different for. let's bring in our guest host for the first half an hour. investment officer

where he helps manage $460 billion of assets. thank you for joining us. first of all, a quick question. they can justify because they have a mandate to bring back inflation to 50%. limited tools available and i think they have to stick to what they have been doing so far. francine: so far it has not worked. yourself, have to ask what would it stop doing. you may immediately see -- immediately see a negative reaction. what we think is the biggest negative -- benefit. that has been the key benefit. francine: you are in the markets. d worry about distortions? when you look at me the changes what you are looking at. >> it changes global markets.

we do worry about that. we worry about distortion in corporal markets. what that means for interest rates globally, pension fund deficits, company profits. what it means to evaluations. the key things we focus on. francine: good or bad thing? as long as everyone is aware of what is happening, it will unravel when they stop doing this? >> certainly, we would expect to see bonds rise. if they were not doing qe, given the prime levels of debt, the financial system, the weakness of the banking system, particularly in europe. we would be in a worse place if we were intervening in the markets this way. certainly, distorting the evaluation of assets. francine: this is what mark is saying and central banks are saying, is there a point where the central banks realize they

cannot do much more without going to a fictitious line where it is difficult to go back and what will happen then? >> i think we are getting close to the world. avoiding -- it is clear they need more help from the countries, what can make do next? think monitoring finance investment plan would be more useful than what we see so far. we have seen that the cbs ties in incentive to what they can do. we think it is impossible. in europe, we see limits between what is feasible politically and what could help the economy. francine: where is the next step? countries have had to operate with morgan strengthen other countries. rising,world, bonds

equities rising as well? >> think we're the point where the teacher is more damaging in terms of what is going on in the bond market. the ballooning of pension fund, what that means for corporate profits and what signals that sends to the economy about confidence. i think where interest rates are today is arguable that this is providing a positive spin to the economy. the next stage has to be some form of fiscal measure. francine: what are you buying? >> we are reluctant owners of equities in credit in each market. there is nowhere else to go. francine: but how you pick those? equity, for example question --k -- >> certainly come of the yield is something we pay close attention to. where equities yielding between 2-4%. where bond markets are and where the credit is.

we have elections in germany, france, and have a clear idea of what it does, the various candidates do to cost of gdp. >> this is the key issue. we have talked over the summer, the main concern. we are heading to a referendum, many elections, it becomes difficult to come together with a plan to move forward. that is the key concern. we can muddle through, that we are increasingly seeing it is not sustainable politically because of the level of them -- unemployment, poverty, key concerns we're concerned with. francine: what is your main concern? is it the italian debt, the italian banks, brexit? >> certainly, the banking system remains fragile, we still need

to see injection of capital. fragileas led to a more gop union and reduced political power. that must introduce a degree of andrtainty about the eu uncertainty that we would worry about. the blanket of zero interest rates is supporting everybody, but underneath that --francine: thank you. both, stay with us. we will bring you this decision. later, you can watch mario draghi's news conference life. all of that. the first, anxious about the

trump-clinton race? is this is our worry about the outcome of the color election. will this make or break the 2016-. in opec, one of the largest oil traders, energy -- our energy producers losing credibility? at the ecb meets, we speak to a former member of the board. do and hown draghi much is it down to european government question mark that is all up in this hour. ♪

francine: this is the pulse, i am in london. but get straight to bloomberg. >> hewlett-packard enterprise sector is merging some non-core software assets. the micro focus international is valued at $8.2 billion. it includes areas such as application delivery management, data, and enterprise delivery. it is an effort to slim down the company's operation. shares in nintendo have soared in tokyo trade. super mario is finally coming to the iphone. nintendo will release the game featuring the character in the store in september. it will be the first time the franchise has appeared on a smart phone. sony has released a new supercharged version of the playstation 4. the playstation 4 pro is designed to run virtual reality

games. the company also announced a new slimmer version of the original playstation 4. the move followed the upgrade of xbox, marked a shift in strategy, hoping gamers will buy a new consul more than twice a decade. that is the bloomberg business flash. francine: thanks. the fed says witnesses are increasingly anxious about the presidential -- businesses are increasingly anxious about the election. risk that takes a hike this month off the table? on the global central bank outlook, the global head of activities, with us. thank you both for staying with us. mark, we were talking about the political race and the fact that this is the biggest risk on the markets.

you have the presidential election and you are almost ready to go in september. but they are two months away. you hold back? i think you hold back for two reasons. one, it is hard to see. unemployment continues to be low. we are not seeing wage come through yet. secondly, the global bid markets where we have negative interest rate. no doubt the qe in europe and japan is leading domestic investment in those economies to treasuries. your yield is anchored for that reason. whatever happens in your domestic economy, your interest rate stay low because the world duration starts. thecine: if you look at risks of staying lower longer in the u.s.. one is that you keep companies alive. the other is that if you are too late to the game and the 27 -- 2000 think -- 27 -- 2017 hikes

quickly. >> is difficult to see inflation coming through. that is inherently deflationary. growth is modest. unemployment is very high. i don't think inflation is a risk. francine: inflation is no urgency. which is crazy. why is it so difficult to get inflation? >> difficult because the world has changed. every time you look, you think about sweden, very strong, prices booming, yet no inflation. the labor market has changed. that makes it more difficult to make increase. i agree with mark, the fed is not just about politics. even when they threaten to move, the dollar does not jump for them. they are stuck. point, are weour

measuring things wrong? do we need to look at inflation differently or is the new normal lower inflation and means we can bloat -- survive with lower inflation as long as the people in power look at it differently? >> there is an argument for that. if you are the first bank in the country to inflation hard. there is an argument becoming increasingly difficult to generate certain levels in where it in the 90's, set out. we need to think about things in a different way. all we are worried about is that we are saving too much. look at what is happening with the negative rate. people are saving more. the tools we are using now are not helping in terms of doing what we should be doing francine:. should we change mandates? we were discussing a paper by one of the fed presidents saying

maybe we should target 5% inflation so we are more aggressive in bank policy and get somewhere, due to present. that seems crazy. mark: it wouldn't surprise me if they were thinking about that behind the scenes. high levels of debt, inflation is probably the only way out. francine: thank you so much. up next, the cost of borrowing yuan in hong kong is at an 18 month high. we talked china next. this is bloomberg. ♪

francine: the cost of borrowing yuan in hong kong as reached a high. circulation that china central bank is encouraging -- discouraging spread. overnight yuanhe high board. this is not based in london, but hong kong. that is why we call it the high court. the offshore yuan is the blue line. this is showing us we're seeing a lot of bearish increase. the global head of equities at as hbc, ore, as well

both with us. when you look at this chart, what do you learn about china, the attention -- intention of regulators, right after we had a volatility dizziness in january, in you interpret it? >> january, market was concerned. even then, there were a lot of tools that china could dispose of in terms of stealing the economy. we are talking interest rates, inflation, we still think a lot of these tools are still there. the fiscal stimulus, when you look at it, has been week. maybe a little more will come through. we don't think the exchange rate itself can do the job in terms of lifting growth in china. transition of the economy from consumptiond to driven, that transition has to be helped. francine: this is a huge

transition, it is changing 180 agrees, are we going to see lot on the way? mark: it is very complex, very dimensional, it will take a very long time for this to come through. it is going to be a difficult process for china to implement. it is a radical change for them. , itconomy the size of china is not going to be easy for them. francine: will we see the kind of panic that we saw in markets in january? or are they better at dealing with? mark: they're better with dealing with it. i also think the eurozone is conscious of it. aggressive rate cycles in the u.s. because that was upward pressure on the dollar and that would be damaging for chinese economy. i am very conscious of that. periods of heightens

worry about the chinese economy. in volatility we got back january. francine: you are not expecting a hard landing? >> certainly not. we are expecting more stimulus that should help achieve those rates. i am going to ask you a crazy question. i read about this. a chance that chinese policy becomes like the u.s.. they are going to have interest rates your euro. is that possible? >> that is not our expectation. we are a long way from their and we think for a country -- when you look at the public sector, that is actually quite low. how dos the question of you crowding private investment. the private has been a little weaker than the public.

to us, fiscally is more the way rather than risen rates. francine: thank you so much, copying and mark. this is bloomberg.

francine: welcome to "the pulse" live from bloomberg's european headquarters in london. we are getting some breaking news, or some headlines from mr. donald tusk, the european council president. he is due to meet with theresa may waiter on -- later on this morning in downing street. it is the first time theresa may is meeting the european council president since becoming prime minister. they will be talking brexit. what we understand from sources inside downing street is the

prime minister will say the u.k. will continue to play a full role in the u.k. undulate leaves. mr. tusk on twitter saying that it is in everybody's best interest to start brexit talks asap. this we understand is not what prime minister may wants. we will get more on brexit and on this meeting later on. first let's get to the bloomberg first word news with nejra cehic. nejra: apple has announced updates to the iphone in the watch. the line includes camera upgrades, a faster processor, longer battery life, and water distant -- water resistant design. ceo tim cook called it the best iphone ever created, but others weren't so enthused, with shares rising less than 1%. the cost of borrowing yuan in hong kong has surged to a seven-month high on the speculation that china central bank is intervening.

the overnight hong kong interbank offered rate climbed 3.88 percentage points, the most expensive since february. japan's economy is showing signs of life. 0.7% inby an annualized the second quarter, more than the initial reading of 0.2%. this gives the boj something to think about. at the meeting, policymakers will release their review of the central bank strategy and decide whether to increase stimulus. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm nejra cehic. francine: thank you so much. oil rising after industry data showed u.s. crude inventories declined, but investors are still pondering the potential for opec to freeze production, with many doubting that its investors will be able to stabilize prices. let's get more with bloomberg's

executive editor, tracy alloway in abu dhabi. there has been skepticism because they've disappointed in the past. what are traders thinking out there? there has been this skepticism. one example is david fife at one of the biggest oil trading houses in the world. he is saying we are unlikely to get a freeze due to the interests of opec members. but he says they all keep talking about it because it essentially lifts oil prices and there's nothing really to lose. the only risk is that eventually investors get oversaturated with opec speak, to put it one way, and the statements have less impact than in the past. this isn't the only one to express pessimism. in other dobby, we have ed bell saying that now might be a good time for opec to increase

production to attempt to grab market share. say, i think that would be a bearish thing for oil prices at this moment in time given that opec production is already running at a record. francine: what i find crazy is that if you look at the oil price over the last 2.5 weeks, it moved by $10 only on opec talk. would they ever move if russia cut production or other non-opec members? tracy: that is a really good point. the focus has all been on opec. if we get to that meeting and we don't have a production freeze, then i think we're probably going to get back to where we were a few months ago, when the market is really focused on swing producers like u.s. shale. that might be one reason that oil appears to be moving off the back of that stockpile, and more

attention paid to non-opec countries such as russia. russia has been stealing a march on opec producers. they've been increasing production and their exports to countries like china and the european union. generally, we don't get that production freeze, then we can say it is gloomy times for oil markets. we don't have any sort of catalyst to spur them higher. speaking with some of my colleagues at the singapore conference, they painted a very bearish picture. rule, one oftophe the biggest sovereign wealth funds in the world, saying that he expects oil prices to remain at the current levels for as long as two years. not much cheer for oil watchers at the moment. francine: thank you so much, tracy alloway in abu dhabi. we are back with our guests, mark burgess, global head of

equities at columbia threadneedle, and folio balboni. there's been a lot of speculation about saudi arabia. quick question. this is on the back of oil. they are not systemic in any way, right? we're not worried about the middle eastern countries taking the rest of the world down with them? certainly we have seen this rise in fiscal deficit because the oil price is a concern. they are withdrawing some wealth. all these are issues that are of a concern. we don't think there's systemic implications. francine: mark, when you look at equities around the world, do you see any value? anything in the middle east or does it just looked too risky? mark: the market is very small. it is not an area we focus on. japan, despite the

fact that we are worried about negative rates, market say they don't believe in abenomics, they probably don't believe in governor kuroda being able to get yen a little lower, you are still a buyer of japanese equities. mark: we are. clearly of economics is fighting 20 years -- abenomics is fighting 20 years of deflation. the level of stimulus to the economy is gargantuan. that is the first thing. i think that is having an impact. we've seen some recent data suggesting that. both japanese equities relative to global equities look better value we think and there appears to be a corporate governance reform being undertaken in japan which has a potential to significantly increase return on equity. the companies we speak to seem to be implementing western-style economics to their business

models and focusing on the shareholder and improving returns. this is my chart of the decade. this looks at japan a little differently. this is the unemployment rate at about 3.2%, which is amazing. most of our countries are so jealous of that. and yet this is the balance sheet. is there something structurally that they can do? place willey put in take decades. are we thinking that it will be too soon? mark: it will take decades, but i think that chart highlights my point, which is that japanese companies are over invested in their businesses. they've not focused on cash flow. were they to run their companies in a western-style fashion, there is upside. we are seeing some signs that companies are starting to think that way. francine: savio, when you look

at this chart, i don't know how often you get it, is there a danger that europe he comes like japan? fabio: there is a danger. we've seen a lot of similarities. after labor market reform in japan, you some much more temperate of creation. similar things were seen in europe. i think that chart strikes a very important difference. unemployment is 3% in japan and we are just above 10% in the eurozone. if we get stuck in the same situation, the consequences will be very different. francine: is there something mario draghi can do to try and get us out of the japanese situation, or a counterargument that says in japan you don't live badly? fabio: one lesson from japan is, clean the balance sheet. that is something that in the eurozone has happened to some

extent. there are still problems with nonperforming loans. that needs to be tackled more aggressively. as we said before, investment plan. this is the issue with the eurozone and this is what needs to happen. francine: thank you so much. folio balboni and mark burgess. coming up, we have plenty more. one trillion euros and counting. toer mario could be forced extend his line of credits to the markets. this is bloomberg. ♪

francine: mario draghi take center stage in frankfurt today. he is due to announce monetary policy for the euro area economy. will we see more stimulus? gertrude joins us on the phone. she has just been appointed a high level independent financial evaluator by the european stability mechanism. thank you so much for joining us. congratulations on your new appointment. you give theuld european economy right now? are you disappointed where inflation is going? gertrude: inflation still rather low. it is not astonishing. we had a kind of negative impact from the brexit vote on

expectations. much a wait-and-see attitude at the moment. companies are reflecting whether they should invest or not. what is important i think is to get more certainty from the political side also on the way forward. what we need is a clear signal also from policymakers that they are ready to give stimulus, to support investment, to support infrastructure investment, to address the problem of youth unemployment. i think companies need reassurance from the political side. stay.ation is here to more can be done in various areas. it is important there is not reliance on ecb action. francine: does that mean you are worried about brexit if it drags on for too long, if negotiations

don't start straightaway, more ceo's will be uncertain about their future and won't spend their cash? gertrude: i think you should try to address it as open, as quickly as possible. organizations are getting ready to start negotiations. it is important we get the brexit negotiations also done as soon as possible. francine: how much do you worry about the banking industry? there are so many challenges, negative rates, low growth. a lot of the italian sector is under pressure. how much do you worry about that and what is the prescription to fix it? gertrude: the challenge for the banking industry, macroeconomic challenges, but i also see the challenge from the technology. i think banks have a lot to do in the field of changing their

business channels to the public, to the customers. this is the challenge for the next years to come. who does it better will succeed in the market. --t we need is [indiscernible] francine: savio balboni also has a question for you. fabio: you mentioned the issue for more policy stimulus. every time we see the ecb stressing the need for countries to continue to comply with european fiscal rules. do you think the ecb should be a little more aggressive in terms of telling countries to use that fiscal space where it is available? gertrude: it is important that the countries which are more advanced in the fiscal rebalancing useeither for infrastructure investment or for

further investment into education, qualification, or for tax reforms. there are many ways to support the recovery, i think. mark also as a question for you. isk: the european economy one that requires credit formation from the banking system. it is much more dependent on its banking industry. credit formation has been relatively anemic. at the same time, the current policy of negative rates is pretty prohibitive. it strikes me that the backdrop that the ecb is overseeing is one that is going to restrict credit formation. how do you square that circle with the objective the ecb is trying to get to? gertrude: the ecb is clearly trying to stimulate aggregate demand by its interest rate policy, but also its asset purchase program and the

liquidity probation. of course banks might see this as a contradiction because at the same time they see also more capital requirements, tighter rules than before on their lending policies. but what i hear from banks is, they would like to lend more. it is very much on the side of demand for credit, demand for loans, and this has to do with uncertainty, but we need the confidence in the real sector also that companies and consumers are getting ready to take out loans. francine: thank you so much for your time, gertrude. mark burgess from columbia threadneedle, far below balboni from hsbc, stay with us. coming up next, british airways and brexit. the company warns over profits.

ceo willie walsh tells us how the airline is faring now. this is bloomberg. ♪

francine: let's head straight to the bloomberg with nejra cehic for your asset check. nejra: notch much movement on the stoxx 600. pretty flat ahead of the ecb policy decision later.

not expecting any change in interest rates. we could see some signal of further stimulus. i wanted to show you the volatility on the euro stoxx 50. this is year to date. volatility has not been this low since the days preceding the ecb launching qe. we know that global volatility in stocks is low. in the u.s., we are looking at close to historically low volatility. this is something to focus on. i wanted to show you the dax. what we saw yesterday was basically it erasing its annual decline, rebounding 23% since this february low, the lowest since october 2014. the first among major eurozone benchmarks to erase its annual decline. weng the stocks, even though are not seeing huge movement on the benchmarks, micro focus up

16% right now. it has risen as much as 23%, risen the most ever as well after hewlett-packard enterprise send it is combining some assets with micro focus international in a deal valued at about $8.8 billion. micro focus is one of britain's largest technology companies. this is the biggest deal of its kind since brexit. inis replacing arm holdings the ftse 100 index. i just want to show you a quick check on what is happening in the currency markets. you can see a lot of higher-yielding currencies rallying against the greenback, the aussie dollar, the south african rand. euro higher against the dollar ahead of the ecb meeting. pretty much unchanged on dollar-yen and on sterling.

worst performer is the taiwanese dollar. we night at -- might not be seeing much volatility in equity markets. doubledvolatility has since the end of july. that is wti crude 10-day volatility in white. we are seeing a higher crude price today. this on signs that the u.s. cannot is easing -- glut is easing. francine: let's get some final thoughts with mark burgess and fabiola boney. lboni.io ba what is the one killer question you would ask? fabio: i would certainly ask if they are aware that they are reaching the end in terms of what they can do. how can they extend qe in the future? francine: to maximize, right, but they are trying to do?

that is anything but clear. fabio: we know there's a lot of uncertainty in the council. think this issue is largely ignored in the july meeting. i think there will be increasing questions about, yes, you have to expand qe. there is no choice. it might at the latest happen in december. how can you make that announcement credible? francine: just running out of tools? mark: i think the question is what conversations are you having behind the scenes? nowrly the extent of qe is pretty much at the end of the road. it is almosthere as bad as the illness. now it is about what they do from a fiscal perspective. francine: you would need basically the german backing for that, right? the german blessing? mark: i think that is right.

we've seen a reduction in german influence in europe given the aftermath of brexit. it is becoming quite clear that quantitative easing is stopping having the impact they are looking for. francine: thank you so much for being with us for the hour. mark burgess, global head of equities at columbia threadneedle, and found the obama me. alboni.o b we will bring you that rate decision and mario draghi's news conference life in the full. bloomberg customers can follow all of that on live go. "surveillance" is next. i will be joined by michael mckee. there is not much going on in the markets. they are expecting or hoping to have more of an idea of what kind of program is coming from mario draghi. we do have a great china story. hibor, thek at yuan,

fact that liberty media has agreed to acquire formula one. we will be talking apple, banks, italian banks. all of that and much more coming up. this is bloomberg. ♪

francine: can druggie afford to delay the ecb president? he breaks his summer of silence with the stimulus extension. his hand may be forced. and european stocks settle near five-month high as the dax erases a 2015 decline. market. and the the cost of borrowing in hong kong it's a seven-year high amid speculation of central bank intervention. this is "surveillance." michael mckee is in new york; ke