>> big day for the bank of england. they are posed for a hike despite the risks of brexit. turning point. throws after-hours trading and elon musk apologizes for his bad manners and trumps tariff threat. concerns it is weighing increasing duties on $200 billion of chinese goods. global stocks head lower. good morning, and welcome. these are your markets.

, if wethe world map of zoom in to look at exactly what is happening in europe, we are seeing a bit of a down day. it is concerns over trade putting a dampener on things. , commodities are down as well. we saw a selloff in asian stocks spilling over. u.s. futures are also down because of the latest threats. bonds are a little bit mixed. let's meet zoom in to see exactly what is going on in the u.k.. the ftse is down. and then, we look at pound as we await the boe decision. coming up, we will be heading to the bank of england. you can catch that interview from 12 p.m. london time. but first, let's get to first word news. the fed a decision to

leave interest rates unchanged has rated the on for a rate hike in september. activity ist says rising at a strong race and that unemployment remains low. it repeated language about further rate increases, consistent with a strong labor market and inflation here it's target. the turkish lira has plunged to a record low as the u.s. imposes over the detention of an american cleric. the treasury department says turkey's justice and interior ministers have played leading roles in the arrest and detention. president erdogan says he will not bow to what he calls an evangelist mentality in the u.s.. the trump administration has confirmed they are deciding whether to increase tariffs on $200 billion of chinese goods.

donald trump asked trade representatives to consider hiking in the duties which could be implemented as early as next month. the move to more than doubled the tariffs may inflame already heightened tension. second-quarter net income rose as% from a year earlier their investment bank is showing signs. resilienton posted earnings as income from financing deals unexpectedly aimbed it weathered challenging environment in frome while benefiting demand for prime services and volatility in rates and commodities worried --. trends.e similar something dynamic in the u.s.. in europe, a little better.

in the contrary, in the u.s. it is larger. contrasting environments. taylor: facebook's stop security executive is leaving the company, just one day after a new coordinated attempt to sell division. yahoo!ined facebook from in 2015 and will now teach full-time and carry out cybersecurity research at stanford university. their tenure is defined by how and to what extent russia used facebook to influence the election. and in zimbabwe's capital descended into chaos yesterday as hundreds of opposition supporters staged protests. with soldiers firing live rounds to disperse them. the demonstrations were concentrated around the international conference center where the election tallies are being collected.

global news, 24 hours a day on air. powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. this is bloomberg --. barclays chief to pursues efforts his own strategy were boosted by earnings. second-quarter trading revenue at the london-based lender drew 11%. they spoke to bloomberg earlier about the results. >> one of the best quarters we have had in many years to generate a 12.3% return on equity's. , over 1.4 billion pounds. but it was across the board. our consumer business did well, and international business to dwell, and the investment bank. >> you know there is a lot of

attention on the fixed income side. they look to be in line with estimates, a little weaker than some of the reports of by wall street peers. does that hurt, or is it not what you are worried about? revenue,erall market on dollar terms, was up 15%. that is one of the best performances of an investment bank. so we feel very good about that. we were led by our equities group. 1%,other revenues were up pretty good given the nature of the quarter. overall, we are gaining market share. importantly, the return on equity in the market business with this performance is double digits. that is important to give in our strategy. the currency clearly matters

in terms of when you described these numbers. can i ask you if this is a business that is now running free? some say that is the future. free from the legacy issues, and we can see what this business cantilever. is this running free already? >> this is a barclays running free. you bring up a good point. this is one of the first quarters where we are clear of the legacy issues. no more restructuring, no more cost to achieve, no more major legacy issues. the bank is, as you said, running free. we have a strong double-digit return. it feels good. francine: that was just staley. -- jes staley. burn through cash and

sent shares soaring. when he apologized to the analysts for asking questions. for would like to apologize being impolite. there is no excuse for bad manners. the reason for it, and it is no excuse, is that i have got no sleep and have been working hard. nonetheless, that is no excuse. my apologized -- apologies. francine: for more, let's get to the equity research analyst for u.s. and european autos at jefferies. what did you learn yesterday? is this a difference or one that was told to apologize? it was a tamer call, which is

critical to reestablishing business confidence. but that is a side issue compared to the numbers which are showing negatives. and a number of indicators that things were not as bad. and indicators which suggested that the ambitions were possible. next to an attractive level, but steps in the right direction. so become a nation of better indicators and a civilized conference call should be taken well. francine: what do you want to know from tesla? there is this china play which would help them counter any escalation of a trade war. is this at the make or break a deal for elon musk? them is nice to see trending toward the possibility of generating cash.

but you are still looking at a business which will need to raise capital in the next few quarters. willood news is he probably not have to do it under duress. but if they continue to operate under the same model, it will be cash,r return, low free and unable to fund the growth that is critical to their case. point, to bottle there -- make their model y or their truck, they will need fresh capital. but it will certainly be on better terms. francine: where do you think they will raise fresh capital? is elon musk doing everything he needs to? he has been keen on keeping as much control as possible. and he did not particularly want to share ownership.

government ine china has lifted the requirements to have joint venture partners, we can expect willany capital raised ensure better control of the technology. francine: if you were in devising him at the moment, would you tell him to lower prices? i don't know if that needs to be in china. -- can heeven do that do that? >> it is not an option. the only way they are progressing towards profitability is because they have, it definitely, this idea of the $35,000 car. and they cannot get a decent return on that price point. so they are forced into remaining at the premium end of the pricing scale.

and that is fine to progress towards profits, but an unresolved issue is still the amount of underlying demand. the risk we had in autos is at into ay high end you get competitive, overcrowded situation. jaguar, bmw, mercedes, body -- audi. and nobody has been able to launch an attractive $35,000 car. some of the cars at that price point are not attractive. it is possible the first affordable electric cars might be coming from volkswagen. of questions a lot around the strength of underlying demand for the view -- vehicles. francine: thanks very much. next, we focus on the central

banks ahead of the boe decision. i will be speaking to them later on. this is bloomberg. ♪

francine: economics, finance, and politics. this is "bloomberg surveillance." it is time for our stocks spotlight. .oday we focus in on gam the have suspended after suspension of their manager. investment pools are now considering all future steps, including liquidation. a look at the shares over the past five days. down nearly 5% -- 12%.

the bank of england as they are expected to raise interest rates. the likely hike would, despite brexit uncertainty. our reporter joins us now outside the bank of england. first of all, there is always the chance we do not get a rate hike today what is the biggest uncertainty? hike, as terms of that you say, fully priced in. if we get anything else, that is a huge surprise. economists are expecting it as vote 7-2ecting them to to go ahead with the hike. some of the data says to go. we have signs the economy has picked up. if you look at things like retail sales and inflation, it is reasons to hike.

of course, the big? is a brexit. they are wondering if they are tightening policy going into a downturn. the question is whether it is in their last chance to hike. and it is important the guidance mark carney gets as well. you could say there will be more needed than just a hike today, given such high expectations. cable is hitting a two-week low ahead of the meeting. and on that core guidance, you mentioned a neutral rate. we expected them to give their first assessment of the new full rate, which would tell markets where rates are likely to end up. the new phone rate, a level that is not too hot or too cold. but the risk for mark carney is that he does not want to be seen in getting a promise that could be broken. francine: thank you so much.

i will be speaking to the boe governor mark carney later today. joining us to talk about the carneynd governor mark is our guest. thank you both for joining us. all, what is the underlying justification for the lifting of every? i think they were clear that things have not moved as expected and they were looking for data to come in line with their expectations. that is what they have done. we have heard from mtc members signals they are ready to hike. francine: but brexit. does it not make more sense to wait? >> maybe you have that opportunity.

a window where you can raise rates. since may, we have had a weaker pound, so that combined with the sector, inflation could pick up. but what is more interesting is we are on a case of one and done. the market is only pricing in one. francine: if they do not hike, what happens to the pound? [laughter] elsa: he loses all credibility. one of our traders said if he does not hike, he may as well markets have been wrongfooted sony times by mark carney. at least in may, they made an effort to talk it down. they can't not hike today. francine: have you look at the are star? does it need to be in a range? iain: i think it does.

most are thinking 1.5% or so. that, to me, is what will get intention today. maybe there are numbers dissenters. see people against it. but most will be focusing on the neutral rate. francine: it has kind of worked for the fed. will it work for them? how will they not take it as a target and doesn't lock in his excessive -- successor? a lot of us anticipate the fed to get there and stop. typically, the fed overshoots. it is not necessarily a target, just a target, just guidance for neutral, like they say. it does not mean you cannot go above. francine: market interpretation, i guess.

what kind of range would you be looking at for the bank of england? elsa: we are also looking for 1.5%. they are clear that that is the record that they try to reduce the stock of assets to. it is also interesting how political uncertainty cycles in your it is not a regular cycle. i do not think anybody thinks it will be a smooth path. francine: what is your take? let me bring you over to my chart. by most estimates, it is that the output gap is closing and the boe says inflation will return to its target. does that suggest they should get back just to keep the economy from overheating? iain: i think you are exactly right. but it could be a long time away. looking at money market curves, we are not pricing for a long period. about, it does come

is a long-term objective. and the likelihood is you can overshoot it. i think there will be attention, but not a near-term impact. francine: so, what is the purpose? the actual benefit to the bank of england and markets? iain: i think it is to give a form of forward guidance. boethere is the problem the has not had forward guidance work particularly well as we flip-flopped back and forth. so maybe another way of them trying to get a view of where rates and up -- end up. francine: do you agree? elsa: it signals another thing, that the neutral rate has come down. i think having a number gives credence to that. francine: given where inflation is and interest rates, the u.k.

is affectively negative. elsa: writes, but we also have political uncertainty. the wage data is not picking up particularly fast. uncertainty, it will be in no hurry. francine: talk to me about the fed. iain: i do not think we learned a great deal. we changed some wording. it looks like they are on case to go in september and december. the data would point in that direction. trade and tariffs are the one thing that could not them off course. but they want to portray that it will be a slow, gradual hike. francine: and what is your call on dollar? elsa: a lot has changed since i was on. relative to our forecast, we are not as bullish. but certainly still looking for the dollar. francine: what is moving the

dollar? than the fed or future expectations that could change? doesn't the figure change expectations for rate hikes? elsa: a lot of questions. the gdp, one positive thing was the savings ratio. i think it gives a lot of confidence for the sustainability of the recovery. at the same time, you ask me what is moving dollar, i have to tell you that some dollar pairs have had their tightest range in more than 18 years -- 15 years. so nothing is moving. g10 affects, i should say. an escalating trade war is inflationary or deflationary for the world? iain: over longer-term, probably inflationary. you probably get a near-term drawdown.

i think it will be a real challenge as we continue this year. monday, we hear good news that talks are restarted. yesterday, we hear news it is not 10%, it is 25%. so we are trading headlines at the moment. and if it is a bargaining tool from the administration, my base case is that it is still some form of agreement coming together. but the conviction level around that has to come down. francine: when you look at the trump administration, trump talking about the fed and yet they should not raise rates, does it tilt the fed buys towards hiking more or not make any difference? elsa: i think the jay powell is levelheaded. he has been a very consistent in his or rhetoric. i cannot imagine him hiking more or less. i think he will the focus on the u.s. economy. francine: thank you so much for

joining us. both stay with us. up next, we talk about the health of the italian banking sector. we talk about the former italian economy minister. later, we will be speaking to the boe governor mark carney. that is at 4 p.m. u.k. time. in the meantime, this is what markets are doing. stocks sliding. trade fears returned to the market. ♪

francine: economics, finance, and politics. this is "bloomberg surveillance." let's check in on what is trending across bloomberg. elon musk has apologized to analysts for his behavior.

throughe, tesla burned less cash than wall street feared, sending shares higher. and on bloomberg.com, the boe's is expected to raise rates today. and our most read stories on the terminal. of money isre reshaping of lives across the new silk road. gam withdrawals some of its funds. top, the federal reserve keeps a september rate hike in focus amidst a strong u.s. economy. some of breaking news out of the u.k., this is the pmi. seems to much in line with estimates, even a little better. forecasts have 52.8, we are getting 55.8. the pound is kind of moving sideways.

the big thing today will be the bank of england, at 12. and i will be interviewing the governor a little later on. let's get straight to our first word news. u.s., the fed decision to leave interest rates unchanged has rated the odds for a hike. the statement says activity is rising at a strong rates and that unemployment remains low. it repeated language about further rate increases, consistent with a strong labor markets and with inflation near its 2% target. the turkish lira has plunged to a record low as the u.s. imposes sanctions on to ministers over the attention of an american cleric. the treasury department says turkey's it justice and interior ministers have played eating roles in the arrest and detention of the pastor. the president says he will not bow to what he calls an

evangelist and zionist mentality in the u.s.. the trump administration confirms it is deciding whether to increase tariffs on $200 billion of chinese goods. president donald trump asked trade representatives to consider hiking the duties, which could be implemented next month. the move to more than double the tariffs may inflame already heightened tensions. news, 24 hours a day on air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine. francine: let's get back to business. has posted better than expected second-quarter earnings as income from finance deals climb.

our correspondent spoke with the chief executive in an exclusive interview. >> we are in a strange environment. -- economic entire environment looks pretty strong. even in a slowdown, we tend to think the next few months should remain strong. at the same time, there are elements of risk, not so easy to calibrate. you mentioned geopolitical risk. even at the end of the day, it seems like agreements are effectively demand. but also, think about brexit. we know there are risks, and that is why we cannot be that far from the cycle, so that is why we remain pretty disciplined and conservative in our risk-taking. it is actually reflected in a risk which is very low across the board. what is the number one risk for the second half?

>> probably market risk, which could be triggered by different elements. confidence issues in one country. >> a trade war -- >> inflation. will it go back? there are elements which will trigger correction of the market. fundamentally, that is why we remain disciplined. >> in france, the retail banking revenues are still slightly down. down 2%. expecting, between the decline, when can we expect a real turnaround of french retail? early 2019? mid-2019? or perhaps we see some moves from the ecb? >> we see good credit volume and activity.

good.tivity, overall, is , we remain lowe great. -- rate. no increase. what we see is still an increase of the net interest margin. despite good volumes of the imposition credit. and a good pickup of commission which grows at 2.5%. we keep, also, a good acceleration of credit. i do not want to see such low mortgages at such rates. overall, we maintain resilient profitability. and yes, it will pick up with a , ofalization, in particular monetary policy by the ecb. >> it seems like we have a better guidance from mario draghi and when we could see a potential hike. how much of a boost will this

be? >> very positive, by definition. it is an additional revenue with no cost. beyond that elements, which is which might come from the pickup of inflation and growth, what is very fundamental is the success in the transformation of our business model. we are investing today because we know the way our clients will accept banking services is changing. francine: that was bloomberg's reporter speaking with the societe general president. let's keep our focus on the banks. our next guest is from a financial service from italy. the company announced is creating a new, fully digital bank. a man with an extensive background in business and politics. he was previously the italian economy minister.

welcome to the program. >> thanks for inviting. francine: talk to me about facts. in january. >> it was just an idea. francine: now it is a reality. how much did you raise? >> roughly 600 million. we hired a dream team. we started warming up on the markets. so everything is there. a shareholders meeting, and then we will be a specialized bank. francine: why did investors give you the money? why did they tell you that they wanted to be a part of this? >> they realize that interest is

totally reshaping itself. the new winners in the industry will be specialized banks. technology,of using but putting together key experience and being focused on specific segments. we chose three of them. very large, very growing and profitable. sort of ideal. francine: regulators have said in the past that italy is too crowded for small lenders. why is this different? corrado: it is specialist. it will serve as an ease that are -- sme's. and corporate lpl's. and traditional banks tend to throw these activities outside. so there is a whole to be filled. and a specialized bank will fill the whole. -- hole.

we have gone through the stress test. and they were happy about the kind of resilience we gave after the stress test given the solidity of our plan. francine: when are you expecting it? --n is the first actual >> beginning of september. we will be operational and launched the new system that will make it the first bank to be fully digital. easy to say, but not to do. you have to build up a system, to have no legacies. to be state-of-the-art in the front end, the database. but it is there, everything is planned. by the end of next year, it will be fully digital. but from september, we will be able to buy utp's, npl's, and stuart crossover activity with companies that have potential.

by are not fully appreciated traditional banks. francine: is it too soon to talk about acquisitions? or is your dream acquisitions? >> the only dream was a little bank getting the license. but from now on, it will be a startup from scratch. we want to be totally new, no legacy. francine: how big are you expecting to be? >> in 2020, we will be a 4 billion euro assets bank. and by the end, we will be a 7 billion euro bank. by that time, we will have a net profit around 300 million. and that comes from clear, competitive advantages in these large segments. will be not only no legacy, but fully digital. with clear cost advantages.

because we will have incomes below 30%, our competitors are well beyond. we will have much lower cost to funds. francine: fully digital, is that a concern? just because italy has been a bit behind the germany and britain of the world heard --. >> yes and no. challenger banks are very good. there are a number of think tanks, but not full-fledged banks. we will be fully digital, but also a bank. with all of the credit and products. not only produced by ourselves, but channeled through leaders in the market. we need to be fully digital to keep costs down. technology is not enough, we will have some of the best people coming from industry. we will be a bank with lenders that will come from industries. cfos, ceos from industries.

we will have both the experience of the banks and the industry. francine: all of this in italy. , i guess, thebeen most smooth political transition. corrado: [laughter] francine: do you worry about the budget loss? corrado: no. the kind of of objectives and goals the two parties make in the coalition and have risen in their contracts are clearly too much to be implementable. but i expect them to move gradually in that direction with moves that are consistent with our european and italian candidates. francine: is this of the main risk? if you look at the next six months or the year, what is your biggest concern that you cannot control? corrado: the biggest concern is probably the political disorder

the for the european elections heard and that will be manageable, but will create some disorder in terms of expectations. but as far as the budget low, i expect it to be reasonable. francine: thank you. the founder of spax. will be listening to the bank of england governor mark carney after we find out if they raise rates. we are also expecting the introduction. it will be interesting to see how markets interpret that. that is at 4 p.m. u.k. time. this is bloomberg. ♪

francine: welcome to our weekly brexit show. let's get straight to our brexit bulletin. britain's prime minister was given fresh hope of striking a pose of brexit from outside the u.k.. rights afar might -- far minister says they will back them in negotiations. in the interview with the newspaper, he urged theresa may to take a tougher stance. the u.k. minister told bloomberg he's as half his time preparing for the exit. mark carney said that it takes 50% of his time. we spent a fair amount of time contingency planning but it certainly does crowd out other things.

you can read that full interview in the latest edition of bloomberg markets. markets and consumers remained subdued as the boa prepares to raise rates. they report that firm confidence was unchanged. a separate index of consumer confidence fell to the lowest since february. widely expected to rise by a quarter of a point while concerns grow over the impact of a note deal brings it. so what does the increasing uncertainty around brexit mean? joining us now is a professor of economics in london. what do you worry about interest rate hikes? we have no idea what kind of economy we will have. >> that is right, and that is why i not -- would not personally raise rates, but i do

not think it is a huge deal either. it will not make much of a difference, frankly. the big issue is what happens with brexit. not just over the next year, but the next few months. do we had closer to what the foreign secretary described as a in no deal brexit? which is agreed to be a disastrous outcome or could we muddle our way through to some sort of withdrawal agreement your--. francine: following all of these departures, are we now closer to a crashing out? have the states and been raised? jonathan: we are much closer to a crashing out. is thatg we have seen while the electorate voted, a majority voted, there is no majority amongst of the electorate or, more importantly,

in parliament for any specific type of brexit. so there is not a majority to reverse or remain, but no majority for any particular exit that means there is no obvious way through. to muddlell manage through, but the risks have become much greater. aancine: does it depend on different proposal to the u.k. side? proposal was welcomed, quite rightly in my view, by the eu side. a sign a they were getting serious and being moderately realistic. but actually, it is irrelevant. the crashed to avoid is not an agreement on trade. will signhat the eu up to checkers raising in the next few months is fantasy.

the question is can we agree on a withdrawal agreement? that resolves critically the issue of the border and other novembersues before december so we can get an agreement. the stuff about future relationships can largely be postponed until the next phase in negotiations. francine: what are the chances of that? >> my estimate is the chance of a no deal is 30-40%. a chance of something else unpredictable happening is not huge, but by no means zero. francine: what happens if they crash out? what happens into the markets? and what happens to the economy? >> for the markets, they are forward-looking. francine: they try to be.

[laughter] as soon as it becomes clear that there is a large chance of no deal, i imagine the main impact is on sterling. the pound will slide. i am slightly more sanguine that there will be other forms of chaos or panic. i do not think rates will spike. sterling will fall, and that will obviously impact prices. what actually happens physically depends on what happens. seems certainthat is there will be large bottleneck shortages resulting from delays. that is our single biggest artery and physically, is not going to be ready. issues.e other we hope that contingency measures would be put in place.

we were joking we were all worried about medicine, but also french biscuits. as something that they need to be imported well before. quo?it be status are we talking about the u.k. not having enough medicine? jonathan: you can stockpile of medicine. you cannot stockpile tomatoes. i suspect there would be some emergency measures put in place, but i do not think it gets around that, for lots of items like fresh food and other supplies, prices would go up. and there would be severe disruptions. that is the minimum. the possibility to serious disruptions for air traffic is not certain, but certainly enough zero. francine: how do you do your classes?

there is no history, no reference to this. is it game theory, probabilities? jonathan: looking at negotiations, it is a game theory. and remember, there are not two theories. you have a eu commission and behind them the 27 member. here in the u.k., you have a government completely split. a conservative party that is split. a labour party which can only unite behind an incoherent policy. so a multitude of players before you even get to the negotiating table. in terms of modeling the quantitative aspects, it is almost impossible. from myome good work former employer on the economic impact of different sort of brexit's. but they did not try to model the impact of simply crashing out. you cannot model the impact of chaos. francine: at the 11th hour,

december or november, does angela merkel weigh in and say let's do it this way. does it go to the heads of state at some point? and is it cooler heads prevailing? jonathan: it is likely. and certainly, they want a deal. nobody wants no deal. but equally, eu 20 17 saint look, this is the proposal, it is up to you to sign it. the u.k. will not agree to sign a negotiated deal. there is relatively little we can do. and we will certainly not accept the checkers plan. gameine: since we are in there, does theresa may have to say i will resign unless do it my way. and what that get them in line? >> she has already implicitly done that a few weeks ago. , not clearvely said

if it was credible, but i will be resign or there will be an election. it just got them over the line. whether that will work when it comes to the vote in the crucial withdrawal agreement is, at this point, anybody's guess. francine: difficult question: who is the next prime minister? jonathan: [laughter] is, is a reason why the eu understandably, quite reluctant. it could be jeremy corbyn, boris johnson. the eu side,e on you sort of think that given this range, we need to be very cautious. there is a possibility of them going, from our perspective, slightly road -- rogue. francine: always great to have you. professor of economics and

public policy at king's college in london. let's check in on gam. the swiss asset manager is continuing to file, sending its climb to over 20%. they have suspended receptions as all of these clients look to pull out money after their managers suspended. we continue in the next hour. tom keene joins me out of new york. later today, we have the bank of england rate decision. see whether we get a range for r-star. an then you can get interview with mark carney at 4 p.m. u.k. time. this is bloomberg. ♪

francine: a big day for the bank of england. a hike despite the risk of

brexit on the horizon. a turning point for company stores in after hours trading as slows, and elon musk apologizes for bad manners on the last earnings call. goods ation in chinese 25%. global stocks are lower. this is "bloomberg surveillance." i am francine lacqua, tom keene is in new york. tom: it will be an interesting meeting. i am more interested in what we saw at the fed. we had a great show with important conversation. boes round: we get a great show. what are you going to talk to governor carney about? i don't know the

questions until i know the decision. ratesy focus on the hike there is concern his successor is tied to it. be interesting. mark later with francine. francine: here is taylor riggs. administrationmp stepping up pressure on china to change trade practices. the u.s. confirmed it is considering whether to raise the proposed tariffs on 200 billion dollars of chinese goods from 20% to 25%. by warning the u.s. against blackmail. markets in turkey plunged after the u.s. imposed sanctions because of the detention of an american pastor, down almost 3%. turkey'sblamed

interior minister. he is accused of being involved in the 2016 coup attempt against president erdogan. the trump administration jeff upner -- is stepping pressure on china to change trade practices. they're considering whether to raise the proposed tariffs on $200 billion of chinese goods from 20% to 25%. china responded by warning the u.s. against blackmail. a turnaround strategy paying off for the barclay ceo. the british lender posted better-than-expected earnings. second quarter trading revenue grew faster than the average pace achieved by american banks. >> are the best order to generate a 12 point 3% return on tangible equities. a great result. 1.4 billion pounds of after-tax

earnings. across the board, barclays u.k. businesses did quite well. the asset bank did well, particularly the investment banking side. taylor: sales in tesla are higher in the second quarter. tesla has ramped up reduction of its model three sedan. ceo you london mosque said he analysts her the 2 scorned months earlier for asking what he called bonehead questions. >> i would buy to apologize. honestly i think there is no excuse for bad manners. it.ve no reason for i got no sleep and was working 120 hour weeks. 24 hours abal news

day on air and on tictoc on twitter powered by 2700 journalists and analysts in 120 countries. i am taylor riggs. this is bloomberg. bonehead dataa check. -13, dow futures -21. the euro comes weaker, the dollar stronger, oil maturity, a mixed read. we have three currency is describing a moment. i let with the em disaster, five is way different than 5.08. with theconstancy three central banks reporting. sterling have put up for francine and her interview with mr. carney. what do you have? a little bitkets concerned about the trade fear and what the trump

administration's next move is. dollar up, bonds a little mixed. a lot will have to do with what mark carney has to say. i am looking at 10 year jgb yields. turkey, there is the turkish dominated lira rate in the dollar rate. let's look at both. here is normal. 2014-2015, the u.s. yield is the lower, better, cheaper yield. then it falls apart. this is the headline of a higher interest rate up to 20%. what is so important is we are beginning to see the unraveling of the dollar denominated turkish debt. that needs to be watched carefully to see if that gets out under 6% and on to 7% or 8% yield. chacine: i did the boe

rt. but most estimates the output gap in the u.k. is closed and inflation will return to 2% target next year. be our star quite important today. may vucevic joins us outside the bank. about the hike. how many questions will they get itut what it means, what targets, or if it is just >> the rate hike is fully priced in by market. it would be a surprise if we didn't get that from the bank of

england. the question will be how did mark carney guide the market in the news conference? is it one and done? there's a question if they are hiking into a possible downturn going into a possible brexit. will it be slow and gradual? it will be the first time we get what is normal from the bank of england. is that mark carney and the bank of england don't want to tie themselves into what the markets interpret as a promise they might not stick to. economists estimating the new tool rates for the u.k. economy now to stand at 1.i percent to 2.5%. currently.rk is 0.5% will we get range from the? and what will mark carney say about the forward guidance to guide the future path for money in the money market? -- are they

raising rates at a time wages?tive real is it still negative real wages within the nine at kingdom? is the key question. is this the right time to raise rates? some of the data says ago. we have had signs the economy has picked up from the first quarter slow down. the economy is the lowest since the 1970's, retail sales have picked up. there is the question over whether wages have picked up and at the same momentum for wage price growth. there's the question over brexit and what comes from that. questions be many about that in the news conference. we will see how mark carney guides the markets from here. a lot of people say this is one and done, and in a lot of ways it is the last time for the boe to hike before we go into the uncertainty from brexit.

francine: inflation is running north of 2% real interest. what our markets -- what our markets expecting? daniel morris, and bnp paribas asset manager, and dean turner, ubs private inking. what is the case for mark carney wanting to raise interest rates apart from the fact that he is fully priced dan and if he doesn't deliver it will be a credibility problem? >> expectations are clearly for a hike. the case for the rate hike is clear. the uk's almost closed. that signals inflationary pressures could be building down the line. i would be cautious. the possibility that the bank of england could hold off again like they did in the may meeting. they hold off this

is probably the last chance they have to raise interest rates. for the poundean and boe credibility? dean: in terms of what it means for the pound, if we get a negative surprise for a dovish segment of the company announcement, that could put pressure on the pound in the short term. in terms of the credibility argument, you have to take a step that. i mentioned the outlook gap in the u.k.. it is almost closed. that would warrant higher rates. the data in the u.k. has only been ok. not as good as some people are writing up. there is a lot of survey data that we are seeing at the moment as well. tom: what is the effect of the next rate increase. today, ine presumed really don't care. what i'm interested in is the

next rate increase. how tell for that decision be? e we discuss tim the next rate increase, we will have hurtles out of the way, the .ig one being brexit the bank of england is not taking a view on that. they take the brexit of view as given that the u.k. will move on to a transition deal. any movement beyond that will influence the decision. we are talking at least 12 months down the line before we start to see talk further. tom: what is the separateness from the u.k. from the rest of europe? how discreet and apart are the two? it has been growing. typically you would think with the economy, the u.k. would be better than that. that is not the case.

it is, along with italy, at the bottom of the rankings for expected growth rates for 2018. that is an unfortunate development over the past year. more particular to the u.k. is how sensitive the equity market has become to sterling, less so in continental europe. you have to change investment strategy for the u.k. into europe. u.k. is becoming more distinctive, and we have to think about that. francine: overall, the interest rate hike, it is a quarter percentage point, does it hurt the u.k. economy in anyway? sterling is driving equity prices. if you get support for sterlite and, that is going to be on the margin for negative equities, because we had the negative correlation that a stronger sterling has been bad for the u.k.. at this point, it shouldn't be

too much on the assumption the bank of england is seeing the potential inflationary pressures , putting the hike in and letting it percolate. in the short-term, not too significant. it is what happens next with the negotiations. francine: thank you. both stay with us. we will listen to the bank of england governor mark carney it 11:00 a.m. in new york. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs. soagain trading on

nasdaq after an underwhelming initial public offering. market value is 1.8 billion. they were hoping for evaluation twice that size. your's biggest engineering company will shrink the number of operating divisions from five to three. we spoke with the ceo. set out in 2014, merely a consolidating mostly cleaner restructuring. it is completely different. it is about growing the company further. 200 basis points over the current, which is quite a massive promise to the market and shareholder. bmw is sticking with its

forecast by being caught in the middle of the u.s.-china trade fight. it makes it an outlier among auto companies that have cut their target. that is your bloomberg business flash. elon musk apologized to the analysts see said asked bonehead questions. >> there is no excuse for bad manners. the reason for it is i had a and was working

.20-hour weeks it is my fault for not being polite on the call. chris, first of all, we have never seen anything like it. insultingize for analysts and your share prices s oar. chris: he struck the tone that analysts wanted to hear. what is going on with tesla in terms of the cash burn rate, it was a concern for investors is muscat the message he had to deliver. to be elon musk, they had to see results on the bottom line, especially the cash burn rate. it has declined. the bad news is they are still burning quite a bit of cash. is crucial to

elon musk's strategy? is it fund-raising in china? where would it come from? the callmentioned on they wanted to take out a loan to finance construction of a new factory. they still have to prove if they s lined up in china to do that, that will be interesting. he has to show tesla has operations in place to generate cash. there is still a lot of faith in cashto make the company positive. he said he would start paying back loans and improving their balance sheets. you have to believe that or it is a way dan c game. -- wait and see game. me about the financial controls. out of this conference call, the

last conference call, the next haverence call -- do we confidence in their financial controls as a manufacturing company? chris: the controls at tesla are the big question mark. on the one hand they did better on the cash burn rate than expected, but they are still burning cash. the other side of the controls is the operation. can tesla make cars profitably? they are producing a lot of cars in fremont, california. that is not a real car company. can they build a factory in china? manufacturinget a operation in place before they can do a greenfield site someplace else. that is what they have to prove that the next six months. if they can get the cash burn down and make cars profitably. if they can get the quality up.

the mainstream auto market is a different animal than the model s. francine: thank you so much. matt millerh autos, chiefwith the vw executive on trade and production. happy about the signals we are receiving from the negotiation parties. our industry is prone, we would suffer a lot. our investments are usually for 40 years to set up car plants. they have to be protected for 30 or 40 years. to adopt to new trade policies, a new manufacturing footprint for us, is costly. i would be happy if trade and tariffs could remain on the same level. thankful the negotiation

parties are looking for a solution. >> there are other countries where trade is a huge barrier. are you thinking about moving production to local areas? i have been to your volkswagen factory in chattanooga. could you see making porsches or audis in the u.s. as well? >> the scv has been in production for over year and having huge market success. there will be a second model being launched shortly. suv, same size. there is more investment into chattanooga and ramping up our chattanooga facilities. we are mostly localized in regions. we have huge production

facilities in latin america. in china we are really big. we have facilities in south africa. of thed you see some premium or superpremium brands being produced? >> as we are growing in the market, audi is hugely successful. there will be a step in time when it makes sense to produce cars in america. chiefne: that was the vw executive speaking with matt miller. emissions story and trade story. there will be huge shifts and transformation? daniel: still cautiously optimistic we aren't going to

get to that point that we had such a dramatic shift in the outlook between trade and u.s. and china. if we think about south korea ,nd the model there with trump he got the deal and moved on. we hope in the end you actually see lower trade barriers, lower n we currently have. germane: is it the carmakers that make you worry? when you look at your portfolio, how do you position your self? what that means coupled with this trade barrier? daniel: on the one hand, if you look at the growth for the u.s. in the second quarter, over 4%, the and the annualized growth in europe, 1.2%. you see more significant demand out of the u.s. than europe. it is as much of a trade growthn as a

question. can the u.s. sustain that? probably not. outlook, asin the it tends to be, but cyclically auto ship reform. to 25%, i would suggest it hasn't gotten enough headway. when bnp paribas looks at that, how critical is it? daniel: you can assume if we and the yuan depreciation from the dollar, around 6%, if you had a 10% tariff on chinese imports, a lot of that has been offset. it is difficult to imagine the chinese government to allow deteriorate 25%. it is difficult to offset the impact on chinese growth. if they allowed such a big

depreciation, you would wonder about capital flight. it is a significantly bigger step than the 10%. we can adjust to that. 25%? not so much. more to talkmuch about. central banks and the bank of england as well. brian up, we talk to johnson from barclays as we look at tesla and the automobile economy. stay with us. this is bloomberg. ♪ ♪ this isn't just any moving day.

this is moving day with the best in-home wifi experience and millions of wifi hotspots to help you stay connected. and this is moving day with reliable service appointments in a two-hour window so you're up and running in no time. show me decorating shows. this is staying connected with xfinity to make moving...

simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. tom: good morning. francine lacqua in london, i am tom keene in new york. in turkey this sanctions

yesterday from the trump administration moving the market, but it was a market that was already moving. what this this mean for the people of turkey? forget about the elites, madame lagarde, mr. erdogan. what does it mean for the people of turkey? >> if you want to find out what it means for the people of turkey, we should be looking no further than what is happening in turkish financial markets. the lira is extending its losses today. why it has done so is not only what happened yesterday when the u.s. imposed sanctions, it is because investors and traders are betting what happened yesterday in the risean end in tensions, but my signaled the beginning of further problems between the countries whose

relationship is under strain. can the international monetary fund assist turkey? can they assist mr. erdogan? i suppose any potential assistance in the future would depend on a request from the turkish government. as far as we know, there is no such a request and no pressing need for such assistance. turkey does have external from their ability -- external but it is ay, funding gap not a funding shortage as we speak. back to square one because of inflation, undoing rate hikes. how does the president look at this? does he care? the president's view on

inflation is quite well known in the sense that he has an economic view that goes against orthodox ideas about where interest rates should be in relation to that. if there's a runoff in inflation as we and markets expect, i don't expect president erdogan will be pushing for more rate hikes, to say the least. was it has been h melcher 2-3 weeks -- it has been h mulch tumultuous 2-3 weeks. -- >> he has been out of a job and has been succeeded by the former energy minister. i think he is still trying to get comfortable in his new position. it is a huge change fran. to be honest, we have yet to see much in terms of public

comments. thank you. great work on the ground. bloomberg economic reporter joining us from istanbul. away from turkey, this is a dollar strength story. are you a constructive on emerging markets at the moment? daniel: we are it, but watching closely. it is not just dollar strength. the reason it has been particularly difficult for em is it has been dollar strength with rising u.s. rates. we had periods when the dollar went up significantly against the yen, but nothing like current raising rates. it is the combination that is proving to be quite challenging. certainly among emerging markets with the exposure like turkey

does, and so on. for those markets, it is something that needs a lot of attention. francine: emerging markets better directly impacted by trade war and those that aren't? there are a lot of vulnerabilities, trade and commodities, with chinese growth, and there is the debt story that is a matrix of all those things. it is still a good growth story in em, but concerns around the edges. francine: let's get straight to the bloomberg first word news. taylor: the u.s. and mexico will try to resolve one of the biggest sticking points in the north american free trade agreement. their close for rules for cars sold under nafta. delegation has arrived in washington for talks with robert lighthizer. a warning for american farmers. says they cannot

expect soybean demand from other countries to fill the gap from china. they willsays continue to use soybeans from brazil unless there's resolution from the u.s. president trump says he is looking forward to seeing kim jong-un soon. on twitter, he thanked kim percent in home the remains of americans killed in the korean i am not at all surprised that you took this kind action." oil supplyc offset disruptions in the world. the increased crude production to levels not seen since they joined with the cartel to cut output two years ago. russiasays last month's production was just below the record set in 2016. global news, 24 hours a day on-air and on tic toc on

twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. i am taylor riggs. this is bloomberg. francine: let's focus on financials. earnings season is in full swing. we have seen executives from europe's biggest banks. >> this is one of the first quarters where we are clear of the legacy issue. there is no more restructuring, legacy issue hanging over the bank. the bank is running free. we delivered 1.4 billion pounds plus in after-tax earnings, a strong double-digit return. it feels good. >> there are elements that could trigger a correction of the market. fundamentally, that is why we remain -- >> i am positive about our developments. that the confident rest of the year is going to be ok. >> the core of our performance

is driven by wealth management which is much more stable and predict double and growing nicely. up the capital, we bring it back to the business, and with the client franchise we have and process we have, i am confident we will see growing revenue in that business going forward. francine: breaking news out of china. this has to do with tariffs and trade. we knew this was weighing on the minds of investors with the stocks down in asia. china now saying it is ready to retaliate after the latest u.s. tariffs threat. this is the headline crossing the bloomberg terminal. i'm not seeing any further news on what that retaliation could look like. im looking at the renminbi, think actually volume is quite thin.

if you retaliate, do they retaliate in kind? step the mark, go after financial stocks, technology stocks? this is what we are trying to figure out in the meantime. tom: this is the three-day spx futures. a further legwas down on the tariffs headline. terminal, thehe 10-year yield hasn't moved off the news, but i would watch it closely. this is just breaking now. you look aten china, and we are trying -- we don't know what this looks like. china saying they are ready to retaliate. as a portfolio manager, what you do with this? i look for opportunities. you are seeing a significant selloff in chinese equities over the last week.

the performance of equities, it has been positive. it has been localized, either because you think the trade tensions are there, and because the reflation story where the be leverage story, whatever you have in china, is there. it is separating the 2 and seeing where there is the overreaction. sebastian, welcome to the program. if you look at these escalating and trade war a concerns, two days ago we were talking about finding a solution and the u.s. and china. what is it mean for european stocks overall? sebastian: this is a clear major downside risk to growth. the sharp deceleration and growth. if you look at the domestic drivers, currency strength and

the inventory cycle, all of the domestic signs of growth are improving. the drag from the strong euro is starting to finish. we have upgraded the number of cyclical plates that have underperformed, banks, growth froms, we have taken this underweight to binge stock. the trade stories the major threat to the upgrades of these more cyclical plates. tom: tell me about the dividend in europe. it is really competitive for american investors. are we going to see a flow of u.s. funds to europe to capture the dividend? sebastian: on our models there are two things that determine the performance. u.s. equities, it is the relative growth momentum and on the other hand it is the currency. given that we expect stabilization of the growth momentum but not a strong rebound, it won't be enough for job performance.

there is a consensus that europe has underperformed. our model suggests this has further to go. fund flows are not a strong determinants of offset of that. at 1.94%.end i don't want to get daniel morris in trouble, that bnp paribas is killing it with a 5.8% yield. daniel, you can take the rest of the month off. growth isnd extraordinary. how do i turn down 5.6%? sebastian, you answer. not daniel. sebastian: i think the safest method for investing is what are the reliable drivers and the

reliable drivers of performance in the past. if you have a relationship that held for 20 or 15 years, i would not want to ignore that. for relative trade, it is clear it is the relative direction of growth momentum, it is the currency. it is not giving us a green light. one thingfor us, the one things changed significantly from the end of last year is the valuation between the u.s. and europe is closed. difference is going to be monetary policy. from the fed where clearly the ecb will be established as possible. dovish as possible. d to then: we see an en asset purchases in the fourth quarter. it makes us confident you have

20-30 basis points on the 10-year in europe and the u.s., and we expect the first rate hike in the middle of 2019. tom: is cash an asset? daniel: is giving you more than it used to, but in europe you are facing low interest rates. you still want the incentive that the ecb is pushing for people to move it out of cash into other financial assets. it is not particularly attractive in europe. that is driving a lot of asset allocation decisions. tom: maybe it will be a greater asset and a number of minutes as carney speaks with the bank of england. don't forget francine's conversation with him. greatly appreciate the equity conversation. this is a terrific asset on

global wall street. you can take the charts over to your terminal, including u.s. dollar and turkish lira. turkish lira chart. also something on the japanese 10-year yield. gtv. stay with us. this is bloomberg. ♪

francine: this is "bloomberg surveillance." tom and francine from london and new york. client started to pull money following the ascension of haywood over his risk management procedures and record keeping. sebastian, when you look at , financials are

under pressure. sebastian: at the beginning of the year, financials were the overweight. everyone on the investment side was optimistic that strong growth in europe and the prospect for stronger bond yields. we said growth momentum would roll over in europe meeting financials to underperform. they have underperformed by 15% from the peak in january. we are seeing upside because we think the change in growth momentum has troughed. we are seeing the drag from the strong euro from last year diminishing. will rebounds slightly, and 10% upside for european banks from here, just as european investors have given up on financials. francine: you make a difference between u.k. bank, the french bank, does cross-border consolidation come soon? sebastian: underperformance has

been pretty homogeneous across the board. fx will effectively the perform by 10% relative to the market without going into stock detail. the confluence of news flow. a quasi-to in real trouble. of the scaleend you have fidelity giving it away for free. they has a new strategy on august 1 of giving away fidelity products for free. this is about chronic low rates, dan, and managing bonds for total return,? isn't it there is no yield to pay the managers, right? daniel: on the revenue side, fee

compression is likely to continue. tot will make it difficult generate revenue on the side of the asset managers. on the other hand, competition and regulation is increasing. have a one hand if you slightly better outlook with higher rates and a chance for banks to make net interest income, on the other hand it will be challenging in terms of revenue, expenses, and competition. tom: this is a huge story. m llenges of asset management. we had david branch flower on surveillance from dartmouth. you know his feelings, don't raise rates. we have adam posen as well. adam posen on the president, tariffs, and taxes.

this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs.

bloomberg has learned that carl cigna'sans to oppose $50 billion takeover of express scripts. he has built up a stake in the health insurance and is concerned amazon's entrance into prescription drugs could scriptn prescription business. steve declines in revenue and profit at the original casino in macau. high rollers didn't gamble as much. winds lashat vegas casinos are down 6% -- wynn's las vegas casinos are down 6%. things in controlling the united states, at least that is how it is perceived. englanda of the bank of coming up with francine's conversation with the governor. the bank of japan is assassinating economic financial

experience. table on this the original experiment. how does japan extricate themselves from this given their demographics and culture? daniel: i think it is not something they are too worried about at this point. they are thinking how to expand, how to get liquidity into the economy and system to keep inflation up and support economic growth. in contrast to the u.s. and europe, you have had slowing economic growth in japan and disappointments. for them, that is a problem for day.er it is trying to come up with as many tools as they can to give more life to qe to keep this going for longer, even if you are tightening in the u.s. and eventually tightening in europe. tom: it is about the embedded debt within their society. how do they clear that market?

daniel: that is a question we have been asking about japan for a long time. with the level of debt to gdp at japan, how can they sustain it? you come back to 2 answers. number one, the debt is held domestically. even if you have concerns about the size, the government is taking money from its own citizens and paying money to its own citizens, which allows it to be more sustainable. and the other is japan is a wealthy country. their assets in relative to the dead are not as imbalanced as they might seem at first. if itne: what happens does not go above 2%? a japan problem or a world problem? we talk about every quarter real gdp, not nominal gdp. thee is an of session on

deflation in japan and if it was warranted. it is not that inflation is not higher, it is the fact that the growth rate isn't higher because you didn't have the reforms that abe promised. tom: we will be talking to the bank of england governor, mark carney. 11:00 a.m. in new york. before that we find out about interest rates, we found out about r-star, how markets interpret that. priced hake is fully into the market. we will look at your pound reaction. this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. the bank ofrning, england is not the fed. mark carney has to deal with brexit.

raise rates?ld he we hear the announcement at a press conference, then governor carney in conversation with francine lacqua. turkey unravels the lira. rates in the vicinity of 20%. mr. erdogan, maybe dial one 800 1 ---800-madame lagarde. good morning. this is bloomberg surveillance. we are live from our world headquarters in new york. francine, governor carney today with an important set of decisions. he has to move on to next year and brexit. how brexit-influenced blue your conversation be today? will your conversation be

today? francine: but we want to focus on is the r-star on the mutual rates, how markets will interpret it. i will try to get news out of brexit. theresa may doesn't know how to deal with brexit, i'm not sure governor carney will be able to give us that much more insight. just breaking in the last half-hour, china said it is ready to retaliate against the latest. u.s. threats to raise tariffs the trump administration has confirmed they are considering whether to raise tariffs from 10% to 25%. ministry saiderce they will retaliate to defend national pride and the people's interest. markets in turkey plunged after the u.s. imposed sanctions over the detention of a u.s. pastor. u.s. blamed the turkey justice

and interior minister for the arrest of the preacher upamed in the attempted co against president erdogan. british lender posted better than expected earnings. barclay second quarter training estimates grew faster than the second quarter pace achieved by american banks. >> one of the best quarters we have had to generate a 12 point 3% return on tangible equities. a great result. 1.4 billion pounds of after-tax earnings. barclays u.k. consumer business did well, the international car business did quite well, corporate and assets bank did quite well. taylor: shares of tesla are higher in premarket trading.

they burned through less cash in the market feared in the second quarter. tesla has ramped up production of the model 3 sedan, and elon apologized to the analysts he's going for asking what he called buckhead questions. >> i think there is no excuse for bad manners. i violated my own rule in that regard. the reason for it is i had workingo sleep and been 120-hour weeks. this one, is my fault for not being polite on the call. taylor: global news, 24 hours a day on-air and on tic toc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. tom: let me do a data check.

equities, bonds, currencies, commodities. futures, down -17. curve flattening. i want to talk about that with adam posen. the euro substantially off the 117 level. next screen. worser over the last few minutes. sterling 137 as well. of thee: i'm thinking bonehead questions we have been asking the last couple of years. china willt retaliate. the dollar climbing. highentral bank policy is on the agenda. if you look at germany and equity in europe, automakers are down leading regional declines. i'm looking at the pound falling ahead of the bank of england rate decision. i want to get to adam posen

in a moment. the turkish lira. lira yield turkish in turkey. boy, have we spread out to a 20% level on turkish debt. even the u.s.-dollar debt is creeping up to a lofty 6%. that is not a banana republic, but it is getting there rapidly. francine: i'm looking at another way of looking at the boe cover the u.k. outlook gap. is closing and the boe says inflation will return to the 2% target, which suggests the interest rate should be raised. tom: there's lots to talk about with adam posen with the bank of england.

a new book on productivity and tariffs and trade. a lot to talk about, including central banking. , i want to rip up the script. the wall street journal has a column, the cash call on tax reform. we have a 63% increase in debt issued this year by the federal government. we are doing that on 7% less tax increases in july. are we had a tipping point where rates surge because of the legislative process? you are absolutely right to flagged this, as was the journal. less moneyve taken coming you should spend less unless it is a temporary thing. the tax spending, which is what it is, and the spending bill are not based on reasonable revenue

projection. we are starting to see the gap widen. it is not the turkey chart, but they are talking turkey on the rates. tom: we will do turkey later. one more question and then we will get back to governor carney. postposen, the washington wrote a fabulous book a few years ago on the fear of walter heller inflation of the 1960's. or some terminal rates ok, is there a fear we go back to a heller-mike inflation of the 1960's? the fear is there, but it is not justified in my opinion. it is not the relevant book for now. everybody, including governor carney, is seeing inflation ghosts everywhere. the last 35 years have shown us it is wages, innovation, and trade driving inflation, not

monetary factors the way people think. i'm not worried about the inflection point. i would worry more about real interest rates in the u.s. where we are spending more than we are taking in at the government. francine: on boe, what is the rationale for hiking rates today? adam: you put it in your chart. the rationale is a lot of faith in their estimates of the output and additionally the rationale seems to be they have a lot of faith in their forecast on wages. blanchflower has been pointing out, starting back when ble has beenhe wrong consistently assuming .ages would pick up in the u.k. you should learn the lesson and not worry about something that is not happening. isncine: but the schism

among the tory party there is a greater possibility of the u.k. crashing out of the eu. this was not a central basis in the bank of england. why wait? adam: that was my point. i try to explain the rationale, but i disagree with it. the case harder. why would you raise rates if you have to cut them, unless they feel like this is raising rates are you can cut them later, which is always a stupid idea. francine: do think there's a credibility problem because we were promised a march rate hike that was fully priced into the market? do you think they have to deliver or it will hurt their credibility, or is it a rubbish idea? adam: it is not a rubbish idea, but it is not a great idea. , theyhey get it right should worry about that rather than contradicting what the

markets had a couple of runs ago. the paintedur self in that corner. you should never try to wrongfooted the market, but the market should in care that much as long as you are tacking onto reality. thethere is no reason for the k of england to raise now. tom: i am fascinated by wage growth. we talked about the shout out to rbc capital markets yesterday. what is the history of central banks raising rates in the negative real wage growth? how do they turn out when they do that? adam: generally poorly. there was an argument that you possibly could have done that in the 1970's, going back to the walter heller example you were giving. you talk about the glory days of

indexing and italy, argentina, brazil, or even the u.k. when unions were strong and wage movements happen quickly and automatically. -- you about that today could argue central banks have to catch up for undershooting and workersrgets have to catch up for their loss of the share of the economy. about raising rates when you don't have strong evidence of wage increases, that to me is a losing policy. francine: adam posen from the peterson institute stays with us. mark, we will speak with carney after the rate decision. don't miss that interview 4:00 u.k. time, 11:00 a.m. in new york. we will ask about the pound. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." the bloomberg business flash. sonos began trading on nasdaq after an underwhelming initial public offering. $208 million gives them a market value of $1.5 billion. in april they were hoping for evaluation twice that size. is navigating large scale technology disruptions. europe's biggest engineering will shank the number of operating from five to three. >> but we set out in 2014 was

consolidating, cleaner restructuring. it is completely different. it is about growing the company altering -- which i think is quite a massive promise to the markets and our shareholders. p.m. w sticking with the annual forecast, despite being caught in the middle of the u.s.-china trade battle. bmw an outlier. mw's made inhe b south carolina. francine: thank you. the tesla chief executive burned through less cash sending shares apologizedn he

to the analysts he made fun of last quarter for asking bonehead questions. >> honestly, i think there is no excuse for bad manners. i was violating my own rule in that regard. and had 120-hour weeks, but nevertheless, there is no excuse. posen is still with us. brian, if you look at concerns on tesla, looking to its priceal, is it the china yesterday with the factory that trade, or tesla being able to lower their prices? brian: we think that the key

thing is delivering on his of proving profitable by lowering costs. we think it is possible for one quarter. actually, he will have to raise the price. the are counting on that in increase in the more expensive model 3's. if they have enough credits, make the claim that they could be profitable for one quarter. more plausible. francine: had you get around the trade and tariff issues? they are already burning cash. brian: it is the one thing that makes us skeptical. china has been running 17% of their income in revenue.

with the tariffs on u.s.-made cars, that will be at risk. the model 3 is not going to china yet, so it is less critical. we agree that a chinese factories needed for them, just like for every global automaker, to get around wherever tariffs wind up in china. tom: i want to congratulate you on your research published overnight by barclays. the fabulous sentence, re-justifying the money coming in to salvage tesla. positive free cash flow from an inflow of cash from nonrecourse financing. translate that for us. brian: it gets opaque because of solarcity, but they get nonrecourse financing coming in from the solarcity lease deals, which is very difficult.

it is pledging future cash flows from solar systems to investors. we will see when we get the queue, you have cash coming in mn a legitimate way fro automobile loans. tom: it feels like a cfa level one exercise. how transparent are the flow of funds? capitalioned a reduced flow expenditure. how many gimmicks are getting done here to get mr. musk into 2019? brian: we think there's a fair q3.nt in you could always stretch payables. there have been debates around that. somerobably what one

suppliers would like to have on their resume showing they are up on technology. they didn't sell any debt credits this quarter. if the past four quarters they sold 80 million a quarter. ales in california increased dramatically with the model 3. tom: thank you. i am smarter on tesla because of you. so much cfa and accounting. adam posen in washington with peterson institute was taking notes on the flow of funds. a banana like republic, or at least an emerging market economy. tell me about the relationship with any troubled economy, like turkey, with the international monetary fund. do the right thing

for turkey if and when they are called? adam: the imf can do the right thing for turkey. the right thing is finding bridge financing. -- a like a bank reps h bankruptcy recounting. they figure out what is the actual state of the books, then they give them a loan, conditional, on restructuring the business. in this case the business is a nation's economy, particularly the fiscal situation. in turkey it is upsets of e -- you have a dictator. mr. erdogan. the markets are now reacting. just theions thing is trigger. the turkish situation has been waiting to blow up for some. tom: we have seen this before.

redley fischer's little book was written out of the financial crisis of 1998. what professor fisher learned from that crisis. these are idiosyncratic, and then they are not. how not are we right now? what are we going to be doing in late august of 2018? of 20 years ago? not 20 years ago because there are emerging markets in better shape in fiscal and growth terms. of trickyncrasies matter because there is less sense of contagion. stan fischer's reviews are relevant. you are seeing the problems that if you promise to much and lien on the central bank to be easy, and pay no attention to markets, you end up overextending, especially if you are a populist

pandering to a nativist group. you turn on the nationalist world costing you in foreign business. and good you are seeing echoes of what is going on in a smaller scale in the u.s., by the way. francine: i want to specifically look at the yuan and the impact of the renminbi. they said they were ready to retaliate. china advocates solving trade issues with dialogue, but the u.s. approach won't work for china. what happens to the renminbi for now? adam: the renminbi depreciates. it will be an orderly and slow depreciation. were discussing before i came on, they are not in a position where they want a 25% decline, but the economic

fundamentals are as we see with mexico. in the u.s. gets in a trade war the opposite country's currency goes down one for one with the tariffs. china will be tapping the brakes in a mostly-domestic economy so it won't be one for one, but it will go down. the book of manipulation from the peterson institute which became the script for the currency monitoring say it is not manipulation. the administration is wrong. it is not manipulation, it is the market. china is reacting rationally to the u.s. attacking the economy. it is like trump saying i am going to invade belgium. oh, my god, they are fighting back so i am going to tear down their buildings.

people are about to fight back. in the case of the currency this isn't even the government fighting back. manipulation requires activity by the government to buy or sell. the record of thepulation in 2008-2009, u.s. government should have stood up to them then. now the chinese government is acting as it should and it is not manipulation. be a market strategist. do you ever call on the dollar? stronger? adam: the dollar is going to go reasons.ree the first is what we were just talking about. tariffs, ande tarifauto escalation with china, the dollar strengthens against those 2 major

currencies. dollar up because of the fiscal blowout we were talking about in the previous bloc means higher interest rates in the u.s. at the same time that others are not having to raise rates as much. third, the growth effect of the code.t from the tax there are things that are deregulatory, and you get the higher rates. thank you. adam posen of the peterson institute is staying with us. later, mark carney after his interest rate decision. 4:00 p.m. u.k. time, 11:00 a.m. in new york. this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. francine: this is bloomberg surveillance. the chinese foreign minister is giving a briefing at the asian foreign ministers meeting today

in singapore. we are just listening and to figure out whether he is talking about trade. china retaliating was the breaking news an hour ago. here's taylor riggs. and mexico will try to resolve one of the biggest sticking points left in overhauling nafta. besides are close. -- the sides are close. president trump says he looks forward to seeing kim jong-un soon. thanked him for starting to send home the remains of americans killed in the korean war. he tweeted, i am not at all surprised that you took this kind action. russia is helping opec offset oil supply disruptions in the

rest of the world. it has increased its production levels. russia says last month oil production was just below the post-soviet record set in 2016. global news 24 hours a day on air and at tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries. i'm taylor riggs. this is bloomberg. tom: we like to do what we think is best at bloomberg surveillance which is put together a couple of good minds to talk about the topic of the moment. governor kearney today with francine. tariffs is front and center. posen of the adam peterson posen of the peterson institute with an exceptionally important foreign affairs article published days ago. terry haines wired into the policy future of wall street. pratt froms chris

the gateway of the ozarks. this is a fabulous reality of tariffs. malek for the largest manufacturer in the united states. we are on the brink of extinction. in twoders dropped 70% weeks and our work for strength from 500 employees to 370. our competitors pay no tariffs on their finished nails. after the briggs & stratton plant midcontinent is the largest employer in the gateway to the ozarks. time is running out. ofbring in kevin cirilli washington right now. op-edrepublican has that tattooed to their brain. why doesn't the president? >> what's interesting is yesterday i interviewed a republican senator, rob portman of ohio, who said they have

concerns about how the president is negotiating on these trade deals. president for his part has not heard those concerns because he's looking at the polling and the polling suggests the base of the party has not left him. that's why he has continued to double down. big meetings today. the mexico delegation is here. got ongoing trade disputes escalating with china. the president from their perspective is trying to look at the european market is a new entryway to get leverage against mexico. around the corner from midterms. the republicans are concerned. tom: i would suggest lawrence -- would agreeth with the gentleman from the gateway to the ozarks. who is suggesting to the president the mailman in the ozarks has to go under? steven mnuchin definitely.

you've got the division among the likes of peter navarros of the world. the escalating tensions and the pressure the president is under not just on trade but on the issue of russian sections. new legislation to be introduced stay on that front. i'm going to interview marco rubio. he has concerns. all of these issues at up in terms of the granular to escalate in the sense of we don't like what you are doing in terms of tariffs but we also have concerns in terms of sanctions. does the u.s. administration really think they have the upper hand with china? >> yes. they absolutely feel they have the upper hand with china 1000%. look no further than the doubling down we saw from the administration last week in the rose garden on the news of that 4.1% gdp growth report from the second quarter.

they feel that is fueled by economic confidence as well as consumer spending. they look at the numbers coming out of china. they feel they are going to be able to pressure them. in that 24-hour period earlier this week you had a report that they were talking and then you have a doubling down where they said they were going to double the sanctions. francine: is there anything the chinese can do today and tomorrow to actually hurt the u.s. to make them change their mind? >> yes. francine: we are getting the news from china that this carrot and stick approach is not working for them. >> they can hurt the president specifically by targeting red state republicans. the more that red state republicans are targeted particularly in the heartland, the base of the political coalition, that is a political light more for the trump administration. they can target aggressively on that front.

tom: you look great in that ostrich coat. >> tom keene style. tom: adam posen and the peterson institute. , to go with your foreign affairs article on the long-term cost of economic nationalism. is investment going to move from the gateway to the sorts over to china -- ozarks over to china? >> yes. thank you for citing my article. it's a very simple point. we have seen the collapse in foreign direct investment into the u.s. over the last two years and particularly in the last few quarters. this collapse came even though the tax code and the other changes republicans in congress passed with the president should be pushing this way up. what that tells you is that companies making long-term business decisions about the competitiveness of the u.s. as a place to produce are opting out.

everything kevin just said is totally beside the point and nonsense. because -- the president gets to go forward because this is what he believes. he's not listening to mnuchin. navarro is there because the president believes this anti-china stuff. he wants to be anti-trade. congress is being cowardly. my fear is they can do as much pain as they want on red states and we will get thoughts and prayers from the congress rather than response. tom: we have a reporter in the zeitgeist at capitol hill. we have a leading academic in dr. pozen. you have to face congressman that have to be reelected. doesthis conversation to what is it, 96 days? link all of this discussion to the reality of washington and there's only one reality right now. we've got to get reelected. >> that's true. i do think there's a real thinkingf people are that was going to happen is that the president is going to have to back off because of the midterms.

he's got to remember that not only are mostly democrats up for reelection in the senate -- there's three to one democrats over republicans there. generally speaking they have decided that this is worthy of pushing through. and they've got some specific beefs with the chinese and they are going to deal with those regardless of the consequences. are waiting for a midterms standdown are going to disappointed. francine: what do you think the president cares about? popularity, the stock market? what's his measure of success? >> his measure of success at least in the area of economics is causing as much harm to mexico and china economically as he can in hopes they will capitulate. and as i have written before he doesn't have a clear victory

condition. as you are asking right before, what is in the chinese could offer that would make the president satisfied? it's not clear what it could be. i completely agree with terry haines's point. the president wants to go ahead with this. the midterms are not a binding constraint on him. this is going to go forward. francine: you could also argue the president's measure of success is actually delivering on his campaign promises. is that it? delivering on campaign promises but also very specifically. i think the administration has been transparent about what it wants. particularly with china. what they want to deal with with is they want intellectual property from the united states worlde rest of the respected. they want to deal with technology transfer issues and they care very much about the overcapacity and the trans-shipping of metals. those are the three things they care about. my view has been that the

administration will engage the moment that china actually wants to engage in real-time and substantively on those issues. i think the president's famous tweet last week about tariffs are great really made that point. you can either have higher tariffs or you can negotiate lower ones. >> this is not right. because the chinese actually offered a lot on steel and aluminum overcapacity and year ago. there was a deal that ross and mnuchin signed off on and the president walked away from. also on the intellectual property i agree. there's real issues between the u.s. and china. the stick approach is going to get you there. there's no clear thing? the chinese are going to throw up their hands and say yes, we have stolen everything and now we are going to stop mr. trump because we respect your power? not going to happen. tom: we have adam posen drenched in the academic look and terry haines in the willard hotel in washington.

the people of the gateway to the ozarks don't care. i'm hearing this in every single interview i do. every single interview david westin does. we are seeing an immediate effect of these tariffs. and these politicians have to get to october. i have to get to november and beyond. -- they have to get to november and beyond. when does this break? isthe thing about the hill it is an pretty solid agreement with the president on what needs to be done. on a bipartisan basis. which is one reason why the midterms don't matter. democrats are a strong or stronger about wanting to something about china. they are disagreeing on taxes. some of that is politics. -- they are disagreeing on tactics. some of that is politics. some of that israel. is real.ome of that

tom: i think too many people in america don't understand that's the price. we're actually going to take fixed investment and marginal fixed investment and move it abroad. that's the price. >> absolutely. the auto companies can't say they are going to do that but at most if you break up nafta you will get a short blip upwards and all the stuff that was being built for export in the u.s. moves abroad. tom: adam posen will continue. terry haines with ever core isi, thank you. this is not the interview of the day. the interview of the day is francine lacqua with governor carney in a close second place. from florida, marco rubio. look for that in the 10:00 hour. worldwide in london and new york, stay with us. this is bloomberg.

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>> this is. i'm taylor riggs. bloomberg has learned that carl icahn plans to oppose cigna's takeover of express scripts. stake in thea health insurer and is concerned that amazon's entrance into the prescription drug industry could threaten express scripts business. bloomberg has learned that walmart is deadlocked with the u.s. over settling international bribery allegations. it has set aside almost $300 million for a possible fine. the problem isn't about money. aboutt is bulking

prosecutors demand that it meant to certain misconduct as part of the deal. the company says it is continuing discussions. 's warning that trade tensions will present a great challenge to the world's largest automaker. the ceo is concerned about president trump's threats to impose a 25% tariff on imported cars. he spoke to bloomberg. adopt new trade policies and new manufacturing footprints for us is usually -- i would really be very happy if trade and tariffs could remain on the same level and i'm really thankful that those negotiation parties are really looking for a solution now. >> that's your bloomberg business flash. let's focus on financials. cap holding has frozen withdrawals at its bond funds after clients told their money

following the suspension of manager tim heywood over his risk management procedures. we also talked about barclays. gam lost 20%. >> the potential repercussions over the funds, it seems the concerns are contained. still have towe know really what happened in terms of what were these risk management procedures that weren't followed. the company has said clearly that no honesty is under question here. it's early days. we don't have the details and we will have to see how these funds returned to investors. what kind of hit investors have to take. the underlying assets the funds are sitting on. francine: every case is very different. what do we know about outflows?

our clients going to be rushing to get their money out? the last time we saw anything similar in europe would have been when the property funds suffered similar withdrawal requests in the after months of brexit. there were concerns a would have spillover effects and they were very much contained. we will have to see. tom: i think you need to do a public service here. throughout all the media and no fault of the media there is a is.usion over what gam they are nontraditional asset management company. and mi right they are not a play hedge fund? what exactly are they? >> they are a multi-strategy fund. they have been growing by acquisitions and one of these acquisitions very recently led them to take a charge. volatility there are seeing in making someis

clients withdraw funds. we have to learn a little bit about what that means. i agree. the lack of transparency particularly for a u.s. audience is absolutely remarkable within these funds. like an unconstrained absolute return fund whatever that marketing phrase means. do you know as a reporter what's in those funds? >> we know a little bit. we understand that recently the investments have gone into trade finance for example. we have to get a little bit more clarity as to what these assets are and how liquid or a liquid they might be. francine: we also had barclays. the chief executive was saying that's it for legacy issues. they are kind of turning a page. do we believe him? >> certainly these numbers reinforced his strategy in terms of putting more risk if the parts of the investment bank is paying off. i think investors want to see more consistency.

is also a little bit cautious on the outlook. bank costs remain -- the outlook remains unchanged. investors will want to see more consistency over the next few quarters. thank you so much. this story is just starting. look to our bloomberg finance team for coverage on gam. it is a joy to do a single best chart with adam posen. this is the first time we are showing this and this is inflation-adjusted tax receipts back to dwight eisenhower. back to the 1950's. and the constant stream of tax receipts. the vietnam war here. shortfall.am, the obama recovery and receipts. and we roll over again. what happens when we see shortfalls? >> rates go up, tom.

interest rates go up. credibility goes down. with the space to deal next recession goes down. that's what happens. great chart. tom: it's econ 101. do you have in your head a to point on -- tip point on deficit to gdp? or is it 5%? >> it's going to get worse. next recession goes down. that's what happens. great chart. tom:we are looking at 4.5% soon. 5% to we're talking about tax -- 2.0.point out we've got deficits as far as the eye can see. irresponsible is the title. that's exactly right. with governor carney today i would suggest this is uniquely american and you don't have irresponsible with kuroda,

draghi or your conversation with the governor. francine: we will see whether it is a responsible or not in years to come. we talk about one and done. from dnc current paribas.nc >> this hike is not as costly as some of the mistakes ecb and bank of england made in the past. this is not a justified hike. they're going to have to reverse it. francine: what are you expecting pound to do? popping up now. the only reason they would have -- if anything pound is overvalued given brexit and the trade problems. pound is going to overshoot. who the hell knows what happens

in the next few weeks. it is going to be a lot lower than it is now six months from now. 7-2 vote forhave a high -- hike, you think it's a mistake. >> i think it's a mistake. by yournot bound mistakes or how you voted last time. each meeting is a fresh life meeting. -- live meeting. i'll think anybody should use that as a prediction for when they will or will not reverse. francine: let me ask you about the r-star. is it a useful tool? or just muddled the waters even more? it's a useful tool.

you can either get r-star as the remnants, the remainder of what happens when you estimate bunch of stuff or you can get it by arguing how it fits the data at this moment and either way it's not much of a guide. know r-star is lower now. the central banks should not be hiking as high a terminal rate as they used to. we had a great terrorist discussion. the peterson institute as a great china watch. what's your summary of what we are doing with china? what's the summary of the international relations of america and china as we go into next year? >> there's a difference between for things china problematicuinely

and blowing up the system. growing up the system just advantages china because then all kinds of people make deals and all kinds of unprotected countries outside the system get fully by china more effectively. china has a whole bunch of problematic tactics on a whole bunch of resilience that the u.s. doesn't because it's not a democracy. in the long run that hurts them. in things like conflict over trade that's going to make them much more resilient. tom: i will treat out some links to your work at the peterson .nstitute very exciting. the idea of the announcement from the doe with some real substance to it and then a beforepress conference we get to your scintillating interview with the governor. francine: i'm tactics on a whole

bunch actually looking forward to the press conference. it's never boring. there will be a couple questions on whether they are one and done. some of the questions on brexit -- so many questions on brexit. you ask the governor about mr. tavarez moving the toronto maple leafs? just go governor, tavarez. ice hockey. francine: and we both get fired. tom: francine lacqua and the governor of the bank of england. look for it. stay with us. this is bloomberg. ♪ phones have made our lives effortless.

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which could save you hundreds of dollars a year. plus, get $150 dollars when you bring in your own phone. its a new kind of network designed to save you money. click, call or visit a store today. alix: central bankers next move.

the bank of england set to raise rates in moments. investors expecting a cautious hike. defends the yield curve. and barclays is back. the u.k. bank said trading revenue grew 11% last quarter. in china ready to retaliate. persistent trade battles. global bond yields and a stronger dollar equals triple whammy for emerging markets. we have the central bank decision from the boe out. they increased rates by 25 basis points. they deliver that 25 basis point increase hike that we had been expecting. it was unanimous and they agreed that more rate hikes will be needed. very interesting statement considering the fact that they wind up having growth overall g10 markets and there's a brexit debate. david: