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. they expected two

dissents. this was more bullish than people had expected. they are now starting to forecast what's coming up. they see the key rate at 1.1% in three years. projecting what they think it's going to be in three years at 1.1%. they also say the slack in the economy is very limited. the labor market is tightening. rising 1.75% to and they say the long-term neutral , bloomberg economics is expecting 1.5%. double that on the high-end. it is so hard to make these decisions when you have the uncertainty of brexit as well. david: it's a question of what it is worth. we bring in stephanie flanders, bloomberg economics senior executive editor. i can't imagine who better to have here. what do you make of it? it seems more aggressive. >> it will be interesting to

hear how they think about the neutral rate. we know this wasn't a rate they were supposed to get to tomorrow. it's a rate which would be over several years. there's a relatively hawkish tinge to a lot of this. the fact that it's a unanimous vote. the fact that we are talking about higher rates than many people were expecting for that neutral rate. if they say we are going to take our time to get there that suggests you are not expecting to get there anytime soon. so perhaps they are still wanting to give some to the market on that. is the one g7. economy did actually is slowing gdp growth. everyone else is accelerating. >> you have to take this in the context. it's the rate that would be just --ht if your actual capacity if you are at full capacity. there's not a lot of spare capacity in the u.k. economy right now. we have had a recovery that's almost as long as the u.s.

have had a slowdown since the brexit vote causing uncertainty. it could be that there isn't an enormous amount left for the u.k. economy. they do have to start moving back even if they have the brexit uncertainty and even as they are reducing the potential growth rate. alix: the bank of england raises rates 25 basis points. the long-term neutral rate on the high-end is going to be 3%. on the next three years the neutral rate coming in at one point 1%. when i try and gauge the frequency of rate hikes with that neutral rate short-term and long-term, are we at a one and done? are we at a gradual? they haven't pushed back from the market pricing which has one rate hike a year. very different from what we are looking at in the u.s. one rate hike a year. very different from what we are lookingthis would be broadly cot with that. still a very slow pace even though they have the expectation that rates are going up and they have done some research with

suggests the rate is going up for a gradually around the world after many years were structural forces were bringing it down. didd: it's interesting they not apparently change their cpi forecast. --en the relatively hawkish i thought maybe they would say it's going a little bit faster than we thought. what it says according to bloomberg headlines as they are not changing the forecast. already had it back at target around 2020. are seeing new gdp forecast. we weren't expecting them to see a big change. it will be interesting to see how they are thinking about next year is potentially the year are you have much more clarity. and that has to offset your outlook going forward. we also wondered seeing the pound retracing any kind of losses. it raises the question of what has been priced in. you did see a huge spike in

the bond yields. they have come back down. people were looking at the headlines. parsingple are probably now is more that inflation target and the fact that it didn't really change and now you are seeing that reflected not only in the pound and the gilts right now but it's not getting any love to equity markets. get to aing to marketon now where the is really going to start the question whether the boe is going to stick by it and they want to market is really going to start the question whether the see what tc targets are going to look like and if they are going to meet them. the things i find interesting is they specifically refer to trade as a headwind. i don't see any reference to brexit. it's like a really large gorilla in the corner of the room isn't it? >> they have made an assumption about how it affects the potential economy. to be less engaged with europe. we have to have less open

markets with respect to europe. markore immediate question which i discussed with mark ago, how mucheeks is the uncertainty around trade moves feed into delays of investment reduce business confidence? he said he thought those initial estimates for the impact of a trade war when you look at the tariff fx go double, maybe three times that affect if you start to get confident. weber u.k. is a very open -- are very vulnerable to what's going on in the global economy. as much as any emerging market. so it matters. that really harkens to the point when you look at the cable rate, you have to compare it sometimes. is it now emerging market currency? >> it has pretty much performed that way. you've got the biggest short that's of any major currency right now tied up in the pound.

you see this reflected also going through the gilts. you're talking about a market when you look at the ftse 100 and the all shares, it's trailing basically every developed economy right now. this is a market overall that most people feel is going to go down. that's not because of what carney and friends are doing today but it's really because brexit is still the shadow and it's not going away. don't care how you split it. at the end of the day brexit is what matters. that's what people are trading on. when you look at the short curve it is still down. you are really not seeing anyone come off the floor here. people still think this is a currency that's going down. this is a market that's going down. alix: carney and friends. i really like that. you very much and stephanie flanders will be sticking with us. they did as expected raise rates

25 basis points. the statement appeared to be more hawkish than expected because there were no dissents. kind of real move in the yield as well as in sterling may be capped by that short-term neutral rate coming in at 1.1% and not moving their inflation target. in the broader market it feels like a risk off kind of day as global bond yields continue to grind their way higher so s&p futures are down by 17 points. euro-dollar also down. it's a stronger dollar story. stronger global yield story. the curve here in the u.s. after the fed did not a lot of at 30 basis points and crude getting hit not only on the stronger dollar but also on supply from saudi arabia and russia. david: we have earnings out from kfc and pizza hut. what waswere basically expected and they are showing in the same source deals around the globe. they're down 1% over china. we will keep watching this

because it tells us something about how china is doing in retail sales. coming up, the u.k. bank outperforms on all its key metrics. bloomberg first take. that's coming up right away. this is bloomberg. ♪

alix: with that central bankers on the move. finally qe worries and china fighting back. emerging markets feeling the pain. we are joined by stephanie flanders and gina martin adams. we heard the boa just hikes 25 -- boe just typed by 25 basis points.

by 20 five basis points. this was the range we were at before the boj announced more flexibility in the yield curve. what is the significance of that rewriting of the yield curve control and traders starting to really push? expectationsot of around the boj change at the beginning of this week. now they have that wider margin. traders are trying to work out how serious they are. are they allowing the yield curve's to steepen the be more -- a bit more? there is still a lot of bonds they wanted to sell. there is quite a lot of appetite taking those out of the market and the boj has to say are we really committed to this continued extraordinarily loose policy? david: what struck me was how much globally bond yields moved

in response to this relatively modest move by the boj. they didn't change their policy. around the world bond yields went up much more in response to the fed for example. >> the boj was sort of the last line of defense. you are starting to see incremental tightening everywhere else in the developed world. emerging markets are completely different story. the boj was always that consistent source of support for the market. that is really coming under some degree of question. change on either side. it seems really small. it is having pretty strong impact. what i think is interesting about this is it is coming right at the time when tech stocks are starting to show some weakness and there's a tremendously strong and underappreciated correlation between the yen and tech stocks worldwide. it's adding pressure to the tech story which really started with

facebook and has gone around the world to include chinese shares and global tech stocks in general and the yen is not helping matters. alix: tech stocks selloff and the yen is lower? >> yes. it's really bizarre. alix: we have a risk off day today. needs torecalibration happen in the market to account for global bond yields starting to have a trajectory that is higher? >> some of it depends on the broader context. we still have japan. they're pulling down the long and around the world still. certainly the kind of environment you have in terms of which i these are going to do well in a steeper yield curve environment, we may be moving into that story a bit more. if you want more monetary policy conversation tune in

later. francine lacqua will interview mark carney. apparently they did that all the time after a hike. we just forgot about it. it's the subject backing off of the loosening around the world. this is what he had to say more globally about central-bank policy. >> i think the biggest downside is the majorof us central banks are beginning to move out of the quantitative the monetary policy they've had since the financial crisis. on the one hand that's the biggest risk. on the other hand he's concerned about net interest margins. if anything he might like it to go a little faster. >> you want to get back to the more normal environment. it's the banks. if you are in the eurozone and you have been dealing with a negative rate all this time and

you have been screaming at the ecb to get rid of that negative rates they are making more money now. you don't hear them screaming quite so much. they would like to go to a more normal yield curve because they want to be able to look and price assets without having this extraordinary environment to post on the top. how much of this -- what is happened in the market in the last few years, how much of it will go away particularly on the bond market side has to be a question for every major bank. at the same time they did well in their investment bank. particularly equities. did better than u.s. banks. >> unfortunately it's all very backward looking. i talk about july maybe not quite as strong as it was in the second quarter. going forward can't count on this to continue. the market is really playing on. it's consistent with what has happened throughout this earnings season. you can be forgiven for an earnings miss as long as you guide for things to get that her.

beat earnings and guide for it to go sour going forward and you are going to get punished in the market. the market is looking for consistency. call theythe earnings said we are not sure about selling rooms going forward. obviously the macro backdrop is important. pushingchina overnight back on the u.s. saying china has made full preparation for the u.s. to escalate the trade war and will have to retaliate to defend national pride and people's interest. risk off board we are seeing. the dax is down. s&p futures down. the dollar stronger. is that trade? is that central bank? how can you explain the emerging markets? >> a lot of it is trade. a lot of it is fear. you have seen china among all emerging markets. with deteriorates fastest the exception of turkey are obviously all policy waivers are in play.

it on thereally taken chin relative to the rest of the global equity markets. the u.s. is perceived as a relative safe haven in times of distress in general and i think that's what's playing out in global stocks right now. better not are doing necessarily because growth is that much stronger but because trade risks are less impactful in an environment where risk off is the story. david: she said the magic word. turkey. know, the states are going to impose sanctions against turkey because of this reverence. you can see what has happened. there are up over five now in the ratio to the dollar. it has continued to weaken and weaken. they were already doing so well. it's interesting because we have this environment. the question mark has always been to the emerging markets benefit from -- the cycle a more

glowing -- global converging growth or do they get punished by the rising cost of money globally. on the growthwell and just be looking at the trade youation but be punished if borrow a lot from markets and you're not in control of inflation and turkey is not in control of inflation. and it is incredibly dependent on global markets. so it is a case of a country likely to have emerging markets as a problem. other emerging markets are in much stronger shape. you are rotating out of turkey with different emerging markets are into technology has global yields climb and there's more pain with the dollar, where do you go. is ae thing we have noted very big shift in yield curve in emerging markets over the last year. if you go back a your go emerging-market yield curves in general are flat or inverted.

conclude there was going to be a deterioration at least in equity markets over the coming year. now emerging markets have actually gone a long way to steepening yield curves through the reduction in rates. brazil has gone a long way to improving us economic situation and got certainly sidelined with a massive trucker strike earlier this year. it has an upward sloping yield curve and improving outlook for economic conditions. you pick your spots carefully. is oneld curve for me key as markets grapple with tighter policy elsewhere. can the continued inflation concerns continue to inflate economic growth without having out-of-control inflation is a big question mark. there are opportunities emerging that have seen and massive correction. alix: china is going to make every effort to expand consumption. does that mean stimulus?

david: we are big enough to go without you. we don't need you. whether it's right or not is a different question. stephanie flanders and gina martin adams, thank you for being with us today. you can find all of the charts we just used by running the tv on your funeral -- on your terminal. time for bloomberg business flash. here's emma chandra. shares -- begin trading higher today on the nasdaq after an underwhelming initial public offering. the company finds shares below the market range and raised $208 million. back of the market value of 1.5 billion. in april the company was hoping for a valuation twice that size. that makes the german automaker an outlier among companies that have touched financial targets.

china has imposed retaliatory calories -- tariffs. shares of tesla are higher in premarket trading. the electric carmaker burned theugh less cash than second quarter. tesla has ramped up production of its model three sedan and elon musk apologized to the analysts he scorned three months earlier for asking what he boneheaded questions on the earnings call. is your bloomberg business flash. -- that's your bloomberg business flash. alix: coming up, we will talk about the impact of trade on all commodities and their corresponding companies. lots of warnings on conference calls from caterpillar to u.s. steel. and more reaction to central-bank action. we will be joined by steven englander. this is bloomberg.

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alix: the fed set the stage for

a september hike. since then received fomc met in june indicates the labor market has continued to strengthen and economic activity has been rising at a strong rate. joining us now is steven englander. great to see you. >> my pleasure. alix: what have we learned from the fed in terms of trajectory yesterday. >> we didn't learn much relative to what's priced into the market. 42 basis points priced in for the year. the market thinks they're going to do two hikes. just about anything less i think would have been construed as dovish or hesitant in some sense of the word. backdrop is what they were going to learn about the yield curve in the context of

global bond yields continuing to rise. now we are at 30 basis points from the 210. what's the trajectory? >> i think they global bond yields continuing to rise. now we are are less concerned about the yield curve than the market. they keep talking about the fact that their heavy risk premium at the wrong end are artificially keeping long rates down relative to short rates and what they have suggested is people look at the slope of the fed funds curve which says the market expects policy rates to keep going up and flatten around 280. david: is there any reason not to do two hikes other than the yield curve? got really low employment. all the factors seem to be pointing to yes you can hike. anytime the president puts pressure on them they have to show their independence. i think that's what he meant in his phrasing. two hikes are kind of in the bag. next year the hikes become much more discretionary and

conditioned on whether the economy is actually matching what they have in the projections. alix: where are we with central banks? we have the boj change in control at the margin. we in central-bank conversions or divergence now? >> i think it ends up the divergence because the boj has a real problem. they would love to push up yields at the long end. they don't want to raise real interest rates but inflation has been going the wrong way for the boj so they are really limited in what they can do at the long end. i think if you have the boe and ecb there are sort of maxed out. there nowhere to go on the downside. the u.s. is the only economy for from strengthg and we do expect them to continue hiking next year. from strength

and we do expect them to continue hiking next year. david: steven englander will be staying with us. tune in later today for francine lacqua is interview with mark carney at 11:00 eastern. now we will go over to nejra cehic with live outside the bank of england because we are two minutes away from mark carney's news conference. we have seen the statement. what are we looking for him to say? for thee looking forward guidance as always. what was surprising about today's decision was not the rate rise. that was fully priced in by margins -- all nine policymakers voted for that rate rise. we did see a little bit of a lift in the market. i think that affects stages a little bit. investors are really not convinced the boe will be able to stay hawkish and have more rates further down the line. one of the big questions mark carney is likely to face is the kind of had to raise today given the expectations. but what is the right decision? and we are going into the huge uncertainty of brexit and a potential downturn. that is a question that would

come up. a question as well is this one and done? markets will be looking for guidance as to whether this is one and done and what the forward curve is going to like because the other thing we got today was the first r-star estimate. the markets have seen that as hawkish as well because the boe estimated as bad as 2% to 3%. a lot of economists were expecting a range of 1.5% to 2%. alix: 30 seconds, what would be your one question? >> my question would be why is the tech so hawkish? talking about how tight the u.k. economy is and your forecast is only one hike. alix: you're talking really hawkish but you are only moving ones. in the markets we are having a risk off day. the dow jones futures off by 141. in other asset classes it is a global bond yield higher story.

just maybe not today. buying across the board. yields down two basis points. as the dollar picks up speed continuing to get stronger and crude off by .8%. story and also the dollar story. the question the bank of england is going to have to answer is how do you possibly factor in brexit into any kind of assessment of your neutral rate? my question. how do you have an r-star at all when you have brexit there? alix: shorter-term 1.1%. you are seeing mark carney sitting down getting ready for the statement as well as to answer questions where you no doubt know that brexit will be front and center for the committee. >> good afternoon everyone and welcome to the bank inflation press conference. on my left is dave ramsden, deputy governor.

-- on my right immediate right is mark carney. >> good afternoon everyone. if a week is a long time in politics, two years as an eternity. the mpc instituted a conference of package of measures including cutting bank rate to historic low of quarter percent and purchasing an additional 70 billion pounds of assets. today the mpc is raising bank rate by a quarter of a percent, three quarters percent. the u.k. economy had substantial spare capacity and domestically generated inflation was low. business confidence had fallen sharply to levels last seen in the wake of the financial crisis. inflation was expected to overshoot its target because of the sharp drop in sterling which is self reflected the view of financial markets that brexit would bring a large negative shot -- shock to relative income.

the npc really supposed -- chose to support jobs in activities atle it extended horizon which inflation returned to target. there is very limited spare capacity in the economy. real wages are picking up and external price pressures are declining. with domestically generated inflation building and the process of excess demand in the economy emerging a modest tightening monetary policy is now appropriate to return inflation to its 2% target and keep it there. in the second quarter is estimated to have rebounded as expected consistent with judgment that the slowdown in the first quarter primarily reflected the weather and not the economic climate. construction output rose in may at its strongest rate in two years. retail sales grew their fastest pace in three years. broader survey indicators of output growth have been in line with expectations.

the latest expectations conditioned on the gently rising path for interest rates implied by the market yield curve. u.k. demand is expected to grow at around its current pace. household consumption is expected to grow at a modest rate broadly in line with real incomes. with continued support from external demand limited spare capacity, the relatively high rates of return on capital and the low cost of finance business investment is expected to expand at an annual rate of 3.5% over .he forecast period subdued pace reflecting the drag from brexit related uncertainties. although trade tensions have increased in global growth has become more uneven global growth is still projected to remain above trend supporting u.k. fewvity over the next years. u.k. exporters remain in a sweet spot with sterling down 17% in anticipation of a brexit that has not yet happened. overall demand growth is likely to average 1.75%.

just above the new subdued rate of supply growth. that's more than sufficient to absorb the very limited degree of spare capacity that currently remains in the economy and to move the economy into excess demand by late 2019. cpiing to inflation, inflation has fallen back towards the mpc's 2% target since the start of 2018. reaching 2.4% in june. above target inflation continues to reflect the effects of sterling's past depreciation as well as higher energy prices. the committee's latest inflation projection is a little higher than in may. reflecting the effect of recent rises in energy prices and the 2.5% recent depreciation of sterling. such external factors could inject some volatility into the path for inflation in the near term. the bigger picture remains one of external cost pressures easing with the peak impact on

inflation from the referendum related fall in sterling now behind us and domestic inflationary pressures continuing to build is slack is absorbed. labor market is strong. unemployment is at a 42 year low and is projected to fall a little further below the mpc's estimate of its equilibrium rate. both the employment rate in the number of vacancies are at record highs and job to job flows are back around precrisis levels. pay growth has picked up in recent years as the labor market has tightened and companies have found it harder to recruit and retain staff. across the economy as a whole growth in average wages excluding bonuses has risen from during 2010 toar 15 to around 2.5% in 2016 and that is expected to pick up around to around 2.75%

the middle of this year. the picture of strengthening peg is corroborated by a range of indicators. the median pay settlement recorded in the bank settlement database has risen to around two .5% this year after having been steady at around 2% for each of the past three years. survey evidence from our agents suggest that pay settlements with rise for this year. direct pay indices remain well above historical averages for permanent and temporary employees. ofhough the current rates pay growth are lower since precrisis averages this largely reflects weak productivity growth. as a result of domestic inflationary pressures are rising with whole economy unit labor cost growth increasing from half a percent on average during 2010 to 15 to 1.75% in 2016. to above 2% most recently. unit labor cost growth is expected to average 2.25% over

the forecast which is consistent with inflation being at target. environment and ongoing limited and gradual tightening of monetary policy is likely to be required in order to return inflation sustainably to its target the conventional horizon. projectionral condition on the market path for bank rate that incorporates three rate rises over the next inflation remains above target of the conventional two-year horizon. if bank rate were to remain at its new level of 75 basis points inflation would be expected to remain above 2% throughout the next three years. two issues will have a particularly important influence on the set of monetary policy going forward. which isuess the first brexit. it's on the front of the papers and top of the news most days. for someen the case time, the mpc's forecast is

conditioned on the assumption of a relatively smooth transition to an average of a range of outcomes. but as not a prediction simple height assumption which broadly reflects how u.k. businesses and households are behaving. the committee recognizes that the economic outlook could be influenced significantly by the response of those businesses and households and financial markets to developments related to the process of eu withdrawal. those negotiations are now entering a critical period with the eu and u.k. both seeking an agreement by the end of the year. although the range of potential outcomes is wide what matters for monetary policy is how people react to these two elements and how these reactions affect the balance of supply, demand and the exchange rate. thus far british households have been resilient but not indifferent to brexit news. consumer confidence has been little changed in recent months.

below its pre-referendum levels but around its longer-term average. household spending has been increasing broadly in line with real incomes. household borrowing for major purchases has slowed and the housing market is dude. -- subdued. sterling march down the uk's relative prospects quickly and sharply. sterling march down the uk's relativerisk premium on sterlins have increased somewhat in recent weeks. business investment has picked up but as nurses have invested much less aggressively than usual in response to an otherwise favorable environment. there are signs that business sentiment is softening again with references to uncertainty in their conversation with bank and policymakers spiking sharply and concerns about the exit reported in surveys such as the deloitte cfo survey now at

their highest level since the referendum. the second issue that able influence monetary policy setting equilibrium interest rate orsharply and concerns aboe exit reported in r-star is as os brexit is prominent. the librium agreement interest rate is the interest rate that if the economy starts from a andtion with no output gap inflation target what sustain output that potential and keep inflation at target. guide ton't a direct setting monetary policy. it's a way to think about the forces acting on the economy and whether policy as a whole is stimulative or contractionary. the appropriate level of bank rate depends not only on the level of r-star but also on the need to close any output gap that might exist. the mpc published today its assessment of the factors influencing r-star or the blueprint interest rate. that talkssages of

-- box or that the level of bank rate consistent with potential inflation target has fallen consistently from precrisis levels. by both been caused structural forces such as productivity and demographics and shorter-term forces such as uncertainty and private and public deleveraging. that talks even though bank rate has been policy inonetary recent years has been mildly rather than wildly accommodative. the fact that today the economy is near full employment and core cpi tells us that the combination and core cpi is at 1.9% tells us that the combination of historically low rates and asset purchases to years ago was about right. tighter policy then would have led to worst outcomes now.

it also provides context to our long-held guidance that rate rises are expected to be limited and gradual. limited because we think those structural factors that have pushed down on the equilibrium interest rate are likely to persist. and gradual because we think the domestic shorter-term factors particularly those headwinds from uncertainty and fiscal drag will fade slowly. as a result r-star can be expected to rise gradually. and policy needs to walk, not run to stand still. conclude, in recent years the u.k. has faced a series of supply shocks and regime shifts that have created a set of difficult trade-offs for monetary policy. brexit is the most recent and potentially the most important example. if the economy were to continue to develop broadly in line with these inflation report projections the mpc judges that an ongoing tightening of monetary policy over the

forecast horizon would be appropriate to return inflation sustainably to its 2% target. as was the case before, that judgment relies on the economic data in broadly consistent with the mpc's projections. and it relies on households and businesses and financial markets how they respond as brexit progresses. that any further increases in bank rate are likely to be at a gradual pace and to a limited extent. the bank is well prepared for whatever path the economy takes including a wide range of potential brexit outcomes. the u.k. banking system has sufficient capital to continue lending even through a disorderly cliff edge brexit, however unlikely that might be. institutions -- the bank of england is working with her majesty's treasury to find solutions. where those issues are crossed border, the bank is working with ecb to manage them. to any mpc will respond

consistent changes in the outlook to bring inflation sustainably back to target while supporting jobs and activity. that's how we set policy two years ago. that's how we are sitting at today and that's how we will do so in the future. i'm pleased to take your questions. if you could give us your name and the organization you represent. please stick to one question on the first go around. >> ed conway from sky news. you have spent the last five years or so trying to prepare households and businesses for this moment when we are going to move out of crisis era rates to something that is getting towards normality. do you think people, businesses are ready for this? i kind of would draw your attention to something you have seen which is the nms talking about the fact that households have become net borrowers across the economy that there might be

pockets of households at the lower end of the income spectrum that large amounts of debt fortunately. -- proportionally. are you concerned about the impact this is going to have? >> there's a couple ways to answer that. the first thing i want to say is we spend a tremendous amount of time as the mpc also as the fpc various cohorts .f households highly indebted households who have cleaner balance households in different regions with a lot of floating-rate exposure and a lot of assets and try to determine if it's the fpc where the pockets of risk are and what if be done about them and it's mpc what is the aggregate impact of any change in monetary policy on spending decisions on the economy. and we make the point very carefully as an mpc is what we are looking to do is return inflation not just to target but sustainably to target.

are looking to take into account those feedbacks from the change in interest rates. is part of our on in fact the first purpose of our guidance on interest rates which has been twofold -- expect interest rates to go up. to go up atect them a gradual pace and to a limited extent. give households first and foremost, also businesses some financial context to the type of changes we think are necessary to that sustainable path for the economy. situation -- the run-up to this rate increase about three quarters of households have expected that rates would go up over the course of the next year and in fact higher proportion to businesses. similar expectations. financial markets its very

precisely calibrated to certain points in time. what we do to go back to the first point is look very forfully at the ability various households to shoulder interest rate increases. and of course the benefit of interest rate increases to those households who carry significant savings. it is detailed in this monetary policy report some of the , ilysis that we look at think the important thing to is british households have worked very hard to put themselves in a better financial position. that has been difficult because as we all know real income growth has been quite slow. have paid downy a lot of debt and actually their ability to service that debt has improved quite markedly. there's two snapshots on this

that are detailed in the report. if you look at the average debt service ratio of households is currently well below historic averages and certainly below the peak going into the crisis. it would take another 100 basis point increase in interest rates. a 1% increase in interest rates into and seamlessly -- instantaneously to bring that burden back to the historic average. of course that's a calculation that is done without any increase in household income. it would be a pretty curious set of circumstances that an mpc were to raise interest rates substantially without some corresponding growth in household income. that gives you a sense of it. another calculation is when you look at those households who are more burdened

by heavy debt, those who have debt service ratios above 35%, 40%. to get that proportion of households back to the historic average. but theprecrisis peak, historic average would take 200 basis points of rate increases again without any corresponding increase in wages. capacity.s a lot more her the hard work of u.k. households they have created to service debt. the last one to talk about overall balance sheets is andgnized that one thing the mpc is very cognizant of this, one thing the fpc did a few years ago which is to put in place a mortgage affordability test. as anyone here has taken a mortgage out in the last three years with no you have to be up to service that mortgage not at on a 75 ltv2% rate

two-year fixed. but at 7%. ok? we just raised interest rates by .25%. it all fits together. the question is important that we have to look at it in the aggregate. >> i just wanted to talk a little bit about this financial balance of households. just to remind people about potential revisions to that number. household saving has a financial bit, what are they adding to assets less what are they adding to debt and then it has a sort of physical bit. new housing mostly. it's true that if you look at the latest data 2017 is the for three for many

decades in which that was negative. it is certainly not the first year in which the initial estimate was negative. if 17 years were up until 2016 the initial estimate was negative on 13 occasions. in every single year the latest .stimate is above in the average revision is pretty big. quid.ike 50 billion fallen in thes last two years since the referendum and that is likely to be a feature of the data even when they do settle down. thing one should probably wait until their settled down to conclude that it is definitely negative. it remains to be seen i think. >> you've been talking about

average household debt levels. the concern among debt charities in particular is those on lower .ncomes julio and s suggests are the most overextended. the wider economy can cope with higher interest rates but it doesn't mean individual households can. how many individual households do you think will struggle to absorb this interest rate rise? >> a couple things. to qualify my answer -- i'm qualifying your question. i went into detail. i didn't just talk about the aggregate. and by going into those vulnerable households which experience consistent experience , it happens to correspond with other economies whether on the constant or north america is where households actually get into real trouble in terms of servicing their dead

is when the debt service ratio gets to around 35% and than 40%. an mpc but even more so as the fpc which talks all the time to the mpc, a lot of time looking at those key points. so we do look at exactly this issue. the other thing we do is look at not just aggregated data by cohorts that we look at survey evidence in terms of ability to handle rate increases and what will individuals have to do intentionally to adjust to these rate increases. issues is whether the cohort -- what's the debt burden of the poorest households, was the nature of the debt burden of the poorest households. and what's the impact of that. mortgage debt, quite often

credit card debt unfortunately or overdraft debt to that's relatively rate insensitive. it's relatively high cost debt and it's very difficult position to be in. pass-through of a 25 basis point change on amid the ish team credit card bill relatively minor. in many cases it is not passed on by the credit card company. ,o go to the specific question 2.5% ofmate is around households. this is through the energy survey. something we run on a twice he or basis to assess precisely these issues. about 2.5% of households would have to take quite significant action in order to adjust to a rate increase. i will finish on this which is to pull it back up.

policy like financial stability policy for the economy as a whole. and one of the reasons why that is the case is that the pressures ultimately on inflation and the forces that determine whether the economy can get to and remain in full employment have to be addressed on the economy as a whole. and the households that are most affected by hyper volatile inflation and most likely to be out of work unfortunately are the poorest households. so the best thing we have to do is to make sure we keeping inflation sustainably at target and keep this economy on track. >> james from the mail. i just wanted to ask about savers. i think the last time you raised rates only about half of the

3200 savings rate in the country actually saw an increase. what would your message be to ofks in terms of passing rate increase on to savings and what can the bank do to ensure that happens? important other side of the coin. savers have suffered over the course of the last decade with very low interest rates. absolutely necessary levels of interest rates for this economy and i think they're are pleased that we're in a position where we now have people in work than ever before. context ands of then where this goes. when interesthat rates went down to historic lows the difference between where bank rate was and where banks deposit rates were became compressed. so the banks were squeezed because they couldn't lower deposit rates to the same

extent. the captain positive. -- they kept them positive. even though what happened when we have the first rate increase the pass-through of that rate increase was broadly consistent with historic average. that compression of the spread for banks was still there. every time we raise increase rates that becomes an issue. the second context is that what banks pay or more your readers more importantly in terms of returns for the depends on how much it costs them to borrow in international markets. and that has been very low. at the time of the last rate increase. what has happened from then costs of is that those borrowing international market for international banks have

gone up. reinforce the pass-through of this. we in a different side of the house of the bank of england have a secondary competition objective for the pra. we watch closely with the fca which has primary responsibility for this and watch this very to make sure this market competitively and that if your readers shop around they can get the best possible rate. as rates move up one should expect more of them to be passed along. competitively and the only bit of caution i would add to all of that is the other half of our message which is rates rising to a limited extent and at a gradual pace and i think everybody whether you are a borrower or a saver it to keep that in mind.

>> i think what i would add on kind of underneath the context the governor has given kind of underneath the context the governor has given -- alix: you have been listening to mark carney. continue to listen to his news conference on live go and we will bring you the headlines throughout the next half hour. market reaction is so interesting. as we are in this press conference it is losing a lot of its steam. david: he's not as bullish as we might have thought. he clearly thinks things are going well with that we have to walk, not run. he talks about three hikes over three years. central-banknot convergence. that's a substantial differential. david: he said this is the big issue.

there's not one projection we can make. there's a range we have to average of month. the main thing i heard was it's affecting business confidence and investment. he is business investment lower than he should see because he believes businesses are hesitating. more markets coming up next. this is bloomberg. central bankers next move. raisesk of england rates. barclays is back. revenue grew beating the average from u.s. banks. front ofck in investors. in china rates retaliate. global bond yields and a tripler dollar equal a

whammy for as turkish markets plunge. david: welcome. it is a central bank day. >> it is. in the statement as well. it is hawkish, they are raising the neutral rate. as they get more details this is a slow grind. not because they necessarily want to. determinethat doesn't monetary policy, whatever it is, it is lower than it was before the crisis. the short-term neutral reid -- neutral rate is 1.1%. down. dow down.

permeating as well from the equity market selloff in asia and europe. , the curve is flattening. crude off by a tenths of 1%. part of that is a supply issue and the dollar yields wreaking havoc. now we get the morning brief. this is still what is coming up today. the jobless claims. at 10:00 durable goods for the month of june. will postbell cvs their earnings. will be on the call. we can imagine what the questions will be. not --t some point he is the questions are going to be what is going to happen. david: either i did nothing

wrong or right now we are talking about earnings. eric, walk us through what we have learned. >> you were talking about how interesting the market has been. rates see a pop in the market. the fact it was a unanimous vote. all nine policymakers voted for it. that came as a surprise. that was seen as hawkish as well. mark carney saying external pressures might be easing but he was optimistic on domestic ,nflation rate pressures particularly wage growth. why is sterling following? there were two things that were key to monetary policy going

forward. one is brexit. the second thing of course he thing toout, the key note, the neutral right is lower than it was before the recession. policy needs to walk not run to stand still. the market seems to be not convinced the bank of england go more from here. that is coming up at 11:00 a.m. eastern time. like i mentioned apparently they do this. they hike, they talk to the press. that is so novel. a --: bank of england has has unanimously voted to raise the interest rate since the

highest since 2009. further hikes will be needed to rein in inflation. g10 strategy,f let's talk about how the pound has reacted to this. >> the initial reaction to the decision was positive. 72.market was going for subsequent to that we have seen a pullback in sterling. i don't think the carnage call men's -- comments were dovish. on sterlingl risk is likely the dominant factor. we are taking small steps and policy tightening. therefore the one thing the market can anchor its views on

is the brexit negotiations. that the thinks depreciation in the pound is largely behind us. was he separating what happens as opposed to the actual brexit? >> i think so. it was a big sea change in the way market trade sterling. it was premised on the view post referendum in farm would be less conducive to growth. in terms of what it means for the post-brexit outlook committee issue is everything rests on what the withdrawal agreement looks like. is there going to be a transition. hard brexit -- the idea of a hard brexit will go

down to the 110 area. we have had the initial phases push higher in terms of the referendum moving cable but further uncertainties lay ahead over the next year or so. a catalystu expect for this can is this quite be a slow grind or emerging-market shakeout? >> that is depending on what your base case of you is of whether the u.k. and eu can agree and set the basis for an 18 month transition agreement. if they don't, if the uptick about the potential for a hard brexit cliff edge -- that move is a possibility. a similar move to a we saw following the brexit referendum the 130 levels. the backdrop is global

bond yields are rising. we are coming off those levels. if you come in a bloomberg, the bloomberg barclays aggregate treasuries yields. it shows the increase we have seen. income normalization, what is your base case for the pressure the fields will put on the market? >> in terms of the rising bond yields, the flexibility around the bank of japan approach to policy has split opinion as to what it means. we think it is dovish. it keeps the bank of japan longer than the market anticipated. the market is trying to feel where the bank of japan comfort term is settling. it has been 11 basis points.

overnight it has been 14 basis points. in terms of where we are in broader bond yields cycles, the major drive has been the u.s. macroeconomic recovery but even in the strong u.s. economic data this is not really a sustainable rise. non-u.s. bond yields, those can be more significant. the japanese issue is the one that is paramount at the moment. the key will be whether those sufficient enough for japanese investors to reverse allocations that we have seen significant buying of foreign bonds in recent weeks. alix: great point. i have a pie chart, what japanese investors have been buying. a lot of u.s. debt. they are buying a lot from

france and the u.k.. to your point, if we wind up seeing any kind of slight rise in japan will that be enough to suck money out and deal with a stronger yen environment? what is your base case for that? japanthink the bank of will shift sufficiently control of the japanese yield curve to prevent inflows. at the moment the case for ,uying european bonds particularly if you take into effect hedging. i don't think there is urgency for investors to reverse their decision. the yen will continue to weaken. a dollarpeak around 15. david: thank you. he is point to stay with us. news crossing the terminal, president trump is ready to announce his new auto efficiency

fuel standards. this is something the obama administration put into place. they knew they were going to relax them. there was delayed because the epa officials were concerned they might be subject to a legal challenge. he is about to announce a plan that would lock in the 2020 targets through 2026. basically offramp the increase the obama administration put into place. california has more restrictive rules for the treatment administration says they want california to come down to the federal standards. california has said they will sue. i am not sure what that means but we are about to get those standards. it will be a significant loosening of what the obama administration put into place. it was telegraphed last week this might be the case. it raised the question of what

the impact for autos will actually be. what are you going to do? keep going in the direction of fuel efficiency based on global production and demand or do you wind up paring back because of the decision? david: it is not clear at all. if you are gm and ford were you sell so many cars in california, let's go to the more restrictive approach of california. trump administration wants to take that on full on. if you are trying to make decisions it is hard to know what is going to happen. alix: the knockoff effect, the trump administration says it auld add 500 barrels of oil day in terms of demand because of gasoline. is that significant? what does that do? is that just an over projection? the trump administration

is going to be announcing their fuel efficiency standards today. it comes together. our two favorite things together. emerging markets feeling the burn as trade tensions heat. this is bloomberg.

david: we have some breaking news from the l.a. times. the cbs board knew about the allegations involving les moonves in advance. that is according to the l.a. times on the eve of their earnings call. if this proves true it makes it more complicated and difficult.

the question is what did they do when they found out. why didn't they get outside counsel going? alix: that is so diplomatic. the stock off 8% in the last days heading into earnings. david: the broader issue, ceos, behaving days heading into earn. badly, where were the boards? report aboutific the weinstein clause. people are requiring companies, representation and warranty that there were no allegations of sexual misconduct. if we find out after the fact that you were not straight with us on this. this is a broader issue. if they knew about it they

don't care. it doesn't matter. david: did sherry redstone know about it? if this report is true. alix: the call coming later today, we will be speaking more on cbs later through the hour. trade tensions are heating up. equities feeling the burn. , with morearma today. china responding this is what china had to say. china has made full preparations to the u.s. threats and will have to retaliate. what do you do as an fx trader? territoryin uncharted . i can't remember in my time in the city where we had so much concentrated trade war risk. is assue for markets

separation between where the pressure points are for currencies and where the natural beneficiaries are. if you take a look at the price issue, there is a clear delineation. the dollar performance is strong across the board. dollar china has moved higher. the one resilient currency through this has been the yen. tosuggests, you stick currencies with external fundamentals that are now in the eye of the storm as far as the u.s. and administration are concerned and are relatively immune. having said that the dollar has picked up against sterling and the euro. in this environment the dollar does seem to be the currency of choice for many foreign exchange investors.

alix: chinese companies are borrowing increasingly in dollars. our companies like that pursuing larger risks? which may be more expensive. it is not is the case reflected in any official concerns about the currency. we will get to know more about china's intentions towards its currency and whether this is one chineseeglect or some foreign-exchange reserve numbers. i think that is going to be an important driver for the markets into next week. alix: bank of england, mark carney still speaking. vulnerable thew u.k. would be. he said last night's tweet is not in the forecast with the newest assessment to include the latest trade measures. they say there is evidence of

tariffs having an impact on trade flows. there is confusion about the uncertainty in what it means for the dollar. it is aersation is that safe haven trade. where do you stand on it? >> as it stands the tariffs we have seen impose by the u.s. administration are light. having said that, if you look at details of the i.s. them the u.k. pmi, numbers, there are emerging signs there are concerns about a protracted trade. as it stands we don't think the global economy and the outlook for growth is significantly impaired. escalation takes this to another level but through yesterday's fed minutes and official

commentary from the bank of england, trade wars are not a central theme. that will depend on where we take this from here. it is a risk rather than a central sonority oh for monetary policy function. stay with us. we will turn out to turkey. turkish assets were rattled by sanctions imposed yesterday with respect to this american pastor imprisoned. it is an all-time low, the standard deviations two standard moretions that has weekend than two standard deviations. bond yields have hit a record high. joining us, it is not like the turkish economy was just humming along beautifully. why does president are the one want to pick this fight with this possibility of sanctions?

>> it is going to put pressure on his economy. the lira is hitting a record low . bond yields are at record highs. more than 2.5%. this is the first step and there we more sanctions to come. what the u.s. wants is the u.s. pastor to be released. but he is refusing to do so. what more is there to come? the turkish economy was already feeling the heat. we have inflation that has tripled the central-bank target rate. have the inflation reports out for july. it is expected to accelerate to 16%.than investors are concerned about the central bank independence. they are not doing enough to rein in inflation. now they have the worries of sanctions as well and turkey's current account deficit is among the highest in the g20.

there is a lot of uncertainty and this is what investors hate. alix: thank you. not helping when you have an emerging market rally to begin with. what does it say about their outlook? this is bloomberg.

david: berkeley shares are down despite second-quarter earnings results that beat estimates. here is the past quarter's performance. >> this is what of the first quarters where we are clear of the legacy issues. there is no more restructuring and no more major legacy issue hanging over the bank. the bank is running free. one point 4 billion pounds plus an after-tax earnings. a strong double-digit return. it feels good. david: they beat on equity

trading. the investment bank did well. he was not as clear about costs going forward. they have a net interest margin issue. there were some questions about it. overall they did better in their equity trading. it does raid the question -- raise the question. this was his strategy and it seems to be paying off. alix: fair point. the latest read head of the july jobs report. this is bloomberg.

ofid: the u.s. department transportation has issued their ruling about fuel efficiency standards. up to 50 going to go miles per gallon by 2027.

they have taken that down to 37 miles per gallon. they have weakened the standards the obama administration had in place and they are revoking the california waiver for co2 emissions. californiahare of car sales have risen. 17% in just three years. it is that -- is that based on president obama or was that rotation going to happen anyway? what state support do you need to transition? david: how much is the market taking over and the numbers are ruling? >> the conversation is not market driven yet. there will be questions as to what vehicle we will see as well as gasoline demand.

you have jobless claims coming in at 218,000. all of this percolating in a stronger jobs market. how many more jobs can we add? percolatinge things into jobs friday. david: thus far we can keep adding them. we have not seen the ceiling yet. i will remember if i work hard enough. welcome. good to have you here. jobless claims telling us anything? >> the labor market remains healthy. it doesn't matter very much. companies are not laying off people. the data point that we have suggests companies need all the employees they can get.

david: they are paying more for them. >> there is the rub. thewere just mentioning jobs report. it is not the jobs report, it is the earnings report. nobody cares how many jobs are created. goingemployment rate is down. why aren't wages going up? they're looking for a faster acceleration. whether we see some sort of wage pressure. so far it is not coming true. >> to what extent is it driven by the perception as reflected in job creation and wage growth? news, as yourntal colleague highlights, that is the golden goose now for markets in recalibrating expectations. end of the three

rate hikes into next year with another two for this year, we have gotten used to this narrative the labor market continues to perform well. a breakdown of u.s. data shows this is positive. on a relative basis the u.s. economy continues to outperform its peers. we are waiting for this pickup in european activity. which up to now has been modest and is facing headwinds from trade wars. the dollar remains king. looking for 112 versus the euro toward the end of september into q3. >> following on that there is another number. the trade balance. it is forecast to widen significantly.

report it was boosted by purchases of soybeans. do we see that start to reverse in the june numbers? that could have an impact as well. we got how the fed is doing things through the statement. there wasn't a lot of change. received since june indicates the labor market has continued to strengthen. anythinging to learn that is going to change that statement? >> unless there is a huge surprise in the jobless report. the economy has been strong in the most recent quarter. they gave it a minor tweak. we don't see anything on the horizon now that is going to change our policy.

the fed kind of is telling people steady as she goes for now while we watch to see what happened. as we look at the progress of interest rates, we have to hear and the bank of japan pushing down on rates. how much of a cross wind is the yield curve? we have had a lot of talk about it. we expect the fomc had discussions? >> we will watch to see what the discussion was. no doubt they are going to be talking about it. to don't know what is going pay that over into that. , canse of these crosswinds they make a policy mistake, yes.

does that argue for more caution? does it get them to stop earlier , that is the real question. understand theu yield curve that could continue to flatten? at the moment we are not treating it as a serious recessionary risk. bright as many times as it is wrong predicting recessions. u.s. economy will continue to grow, looking on the horizon as to places in the u.s. economy you could flatten. the negative data we are seeing from the u.s. economy, that may be a supply specific phenomena in. mortgages are moving higher. affordability will be an issue.

that has to be at the back of the fed's mind. if that momentum is weaker, housing data continues. >> is there a tipping point with 10-year rates? at which point it becomes more restrictive on the economy? focus on theink we 10-year rates. we focus on broad to financial conditions. that has been the restriction. effectwe see a spillover of higher u.s. yields, widening credit spreads, ultimately the fed will be relatively relaxed. i think it is about the broader picture. thank you very much. on whatto get an update is making headlines outside of the business world.

>> rolling back obama era rules, federal targets at 37 miles per gallon. the rules call for the standard to rise to 50 miles per gallon by 2025. administration officials say that would have added to the average cost of a car. retaliate against the u.s. threat to raise tariffs. the trip administration has concerns it is considering to raise $200 billion of chinese goods 10% to 25%. beijing will have to retaliate to defend national pride and the people's interest. markets in turkey plunged after the u.s. imposed sanctions because of the detention of an american pastor. the stock index is down 3%. he is accused of being involved in the 2016 coup attempt.

global news 24 hours a day. powered by 2700 journalists and analysts in 120 countries. this is bloomberg. alix: risk off continuing to develop. s&p off by 14. the selloff started in asia but spread to europe. the dax is the hardest hit. in other asset classes you want to buy the safe havens. you're buying the yen and the back end. the 10-year down by two basis points. sterling dropping like a stone down 7/10 of 1%. 3%, not happening as we trade

lower than that today. everything is a dovish hike or hawkish hold. alix: to that point, the markets are set up for one thing. andmake any kind of tweak that has significant repercussions. >> more on the trump administration proposal to ease auto emissions rules. elon musk apologizes. tesla shares rise. we will discuss with colin langdon. this is bloomberg. ♪

>> this is bloomberg daybreak. i'm in the tron. -- ng up, patrick

this is bloomberg. david: the trump administration has fuel efficiency rules for automobiles. knew knew now, we president trump wanted to cut back on these standards. what did he do? >> he froze them in place so they don't, so they don't at the obama administration proposed. the most controversial is in the freezing of the levels. it is taking on the state of california and their ability to set these levels. alix: president trump says we don't want to give you that waiver anymore. you have to be in line with what we are doing federally. is it is notnt is

legal, giving california the ability to do that is it legal. it is fighting words now. you will see this in court. does it have an impact? .hey are almost 8% will that trend sustain without the subsidies? or will we see it return to gasoline demand? >> there will be some return. refiners will love this. there is a plus down the line. david: when this was first proposed they were saying if we are going to get in this fight, what are we going to do? we don't know how to invest our money anymore. >> the question of not being sure is still out there. decided, if it is decided on the side of the trump

administration, it is a plus. david: how long could that take? >> it could take years. david: exactly. usual beforeons as you change your factory model. >> i suppose. until you are told otherwise. >> modeling takes years. changing things over will take years. this will have a longer-term impact. >> thank you. we are going to talk about this later. join me for commodities as we break this down. in earnings we are three quarters of the way through the season. more companies reporting this morning. >> 379 s&p 500 companies reporting. functionhe ea

just under 10%. earnings growth better. looking at the moving this morning. , it beatt cigna estimates and raised its guidance. the $54 billion takeover will add value countering a claim by carl icahn that says that it won't. down in premarket. , pizzas a surprise fall hut bringing their results down. , it a look at way fair plunged earlier. it is still down 4% in the premarket. it was greater than expected. wafer has never reported positive net income for any quarter. a company that reported earnings after the bell yesterday, tesla.

tesla said it burned through less cash than wall street analysts had been expecting. the company ramped up production of its model three sedan. on the earnings call c line -- ceo elon musk says that is sustainable. he apologized to analysts he accused of asking boneheaded questions in the first quarter call. for would like to apologize for bad't have excuse manners in that regard. no sleeve, working 10 hour, 20 hour weeks. that made him say sound more like a ceo than his more recent distracting

behavior. if that apology had come a few days after the last call, it took him a quarter when he could have been on twitter apologizing. i don't know. i want to apologize to all the things i have said to you and not said to you because of my lack of sleep. alix: we are kind of nice to each other. bring inm going to carl langdon. he has a cell rating -- sell rating on tesla. they didn't lose as much money. they didn't use up as much money. is this good news? still burn $750 in cash. we think to be a temporary blip. the cash burn will continue again. we remain cautious. he was bullish on two

things. he is going to get to 6000 a week as i understand it. do you believe him? guidance implies an average of 4000. i think these levels are achievable. taken a long time to get there. i had no doubt they would eventually got there. as you're doing this ramp, what is the quality of this going to be? some of the early deliveries of you look online, large gaps in the doors.

there he glitch he. initial quality has been weak. do you want a tesla made in california? he said teslas $51 billion market cap rests overwhelmingly on ambitious growth with the story has been dominated by so much that seems like a short-term goal or fix. the working capital deficit. if you take a look at that dynamic looking at the equity versus the debt of tesla how does that shakeout? short-termlong-term -- short-term qe could have product -- profit because of pricing. they can't make money on the car , or meaningful money, it is going to be hard to justify its evaluation.

i don't know there is a big difference. going to needot to go to the capital markets to raise money. do you believe him? >> i don't. he is planning a plant in china. each of those could be over 3 billion each. i don't think they will be able to generate enough business to cover that. add in the need for more superchargers as you have more model threes on the road. people are waiting a long time to get vehicles repaired. $50,000 forng over these vehicles. that is not a good thing. david: cbs is set to report earnings after today after they were rocked $50,000 for these vehicles. by sexual harassment charges against its chairman and ceo. bloomberg users check out

g tv . you can look at the charts we talked about over the last two hours. we like the global yield chart. this is bloomberg. ♪

david: this is what i will be watching. cbs reporting second-quarter earnings. they'll be on the call. we will be doing the investigation, and the cbs board actually knew about this in advance. now, he has a buy rating on cbs with a price target of $60. doore we get to the call, you need to know more than you know now about how this will play out to know the long-term future of cbs with this merger

looming? i think we will know what we can know when they are done with this investigation. is important but the bigger question is how is it going to be positioned in a consolidating industry? the best answer for cbs and viacom is probably become part of a larger ecosystem following in the footsteps of fox or time warner. i think that is one of the big attractions of this equity. the rest of this is more noise. david: the question is then how does it become larger? the markets told us they thought this difficulty made it more likely to merge with viacom. is that good or bad?

>> the best outcome is they become part of larger entities. telecom companies, internet giants. disney fox is maybe not even large enough to compete in this era. i would think of a cbs viacom merger as not the best outcome. it is better they stay separate. the best outcome is to move quicker to be part of different outcomes. david: coming up. open, don'trket miss that. this is bloomberg. ♪

>> 30 minutes until the start of trading. this is the countdown to the open.

coming up, president trump looking to back china into a corner with higher tariffs. china is ready to retaliate. u.s. slapping sanctions on turkey. the lira tumbling to a record low. some stormy weather in short bill. tesla rallying. better numbers. seemingly musk. up as follows. down 14. up half of 1%. at 298.down at 3% dollar strength story across the bulk with the exception of the japanese yen. euro-dollar down to one 1625. president trump threatened to increase tariffs on chinese imports. china vowing to retaliate. wall street waiting in on the increasing trade tensions. >> the terror situation, it is very serious. >> we are trading off headlines at the moment. >>