♪ >> turkish turbulence. though the euro continues to drop. we are live in istanbul. -- the lira continues to drop. we are live in istanbul. loses drop after monsanto a $289 million verdict. ♪

nejra: welcome to surveillance. let's check in on the markets. the turkish lira is front and center. the central bank taken language around liquidity in the session. clara traders say whatever. -- lira traders say whatever. we keep hitting record low after record low. we are talking about a currency crisis. will it be a financial crisis? investors, analysts saying that there are steps that need to be taken to stem the weakness in the lira. we see contagion, if you can call it that. the ruble continuing to weaken. we have seen it hit its lowest since 2008. meanwhile, the dollar at its strongest in a year. dollar strength against most of g10. 1.14.ble at

one of the few g10 currencies gaining against the dollar is the yen. equities, weakness, not as much as friday in the stoxx 600. we are still down by .5%. banks are some of the worst performers. 3%. down unicredit and bear -- and b.n.p. paribas weaker in this session. you might expect defensive groups, like health care, to be gaining. health care is the worst performer in the session. bayer seems to have a lot to do with that. in overlunged the most two years after monsanto was socked with $289 million in damages in the first trial over claims that the roundup weed killer causes cancer. let's have a quick check across assets. what is happening to

turkish stocks, down 2.5%. head broad-based. we saw weakness in asia, the hang seng lower by 1.5%. as well, with hit the japanese banks leading losses again the cousin of exposure to turkey. in the fx space, i talked about the lira. the mexican peso has been hit as well. let's look at some of the other markets. i talked about impacting commodities. we see weekends -- weakness in the metals. that could be a knee-jerk reaction for now. in terms of what is happening in fixed income, the 10-year treasury yield fairly steady. some of those cds have been rising as well, right at the end of gmm. in russia, we have seen reaction and in other parts of the market as well. let's get the first word news. these: you mentioned

south african rand has fallen sharply against the u.s. dollar, that is after fall off on the turkish lira. the rumor -- the russian ruble and the mexican peso are affected as well. talks about significant investment in tesla. the public investment fund has built up its stake to almost 5%. it is how you can be involved in taking the credit. the public investment fund did not respond to a request for comment. softbank, which has been touted as a source of capital for tesla, is not planning to participate in such a deal. the japanese conglomerate, which held talks last year about a possible investment, is not interested in revisiting such a plan. haltchina may temporarily produces of u.s. lng through the

winter to avoid potential tariffs amid the trade conflict with america. bloomberg understands, under the plan, the company would boost cargo from other countries or swap your shipments with other nations in asia to avoid tariffs. u.s. president donald trump is "truly a racist and a con when it comes to diversity." that is from amoroso newman in her tell-all book about the first year in the trump administration. she revealed that she made a secret tape of her firing last year. the comments through rebuke from the white house. drew a rebuke from the white house. global news 24 hours a day, on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg.

♪ nejra: the turkish lira on a roller coaster ride this morning as the country's central bank announced a list of measures that will support financial stability and proper fashioning a markets. president erdogan has defended the turkish economy, accusing the united states and others of waging war. joining us now from his tebow is yousef. istanbul is yousef. sun, isthe harsh summer down hardly symbolic of the heat and the contentious debate that is underway when it comes to interest rates. the central bank doing something, but not what the market was hoping for. something is better than nothing. they are freeing up liquidity, $6 billion worth. the banks have to part less capital with the central bank. they hope to get a bit of a boost to the system that is

lacking in terms of liquidity. they also had strong language. they say they will do whatever is necessary to preserve financial stability. but again, not the interest rate that has been an issue for president erdogan, who says it is a tool for exploitation over the weekend. market reaction tells a powerful story as to the insufficiency of this latest move. drip feeding on the issue. fishback also weighed in. they said you have to leave it to basic economics when it comes to interest rates and that turkey is running out of time. this is not the time for words. clear action needs to be taken. described as moving around deck chairs on a seeking ship. this a bit of a distraction to turkey's specific problems.

what is the latest on the u.s.-turkey diplomatic spat? yousef: both sides are digging their heels in. over the weekend, president erdogan wrote an editorial in up of the new york times" and laid out the turkish case over the passion that is being held. he said that turkey is not being treated fairly. the relationship has had its ups and downs. given the importance of turkey and the wider regional stability story, it is not justified, is what they are saying. it is true come over the years, turkey has been an important platform for a lot of geostrategic policymaking in the region on behalf of the united states with the united states,. again, the turkish government sees that have alternatives. . the president has been on the phone with some of his peers in russia and elsewhere, underscoring the argument that he is willing to walk away if

the united states does not back down. the united states, on their part, are not willing to back down either. so a stalemate as it stands. : let's keep the conversation on turkey. joining us is burkart bornholm. a strategic analyst at commerzbank. let's talk about the ethics reaction to the steps the central bank has taken today. what will it take to support the lira at this point? obviously, a of people are talking about interest-rate hikes by the central bank because that seems to be the root of the problem. the fact that investors do not believe in the credibility, the fact that the independence of the turkish central bank anymore. at this point in time, i'm not sure that interest-rate hikes by the central bank will help to

really contain the crisis. at thinking, for example, the emf crisis, where the respect raised just rates by 500 percentage points back then, and that did not help to stem the depreciation trend. point that we are at this with the turkish crisis as well. controls would be the best solution to the crisis. : a good point in that interest-rate hikes at this point minute be enough. people have talked about fiscal and monetary pattern -- tightening, easing the diplomatic spat with the u.s., but ultimately some commitment to central bank independence. would it be all these things at once and perhaps even more that would be all that could stem the crisis for now? >> we are in the middle of a classic period of investor herding, a classic currency

crisis. it is not the first. it will not be the last one. the elephant in the room is the credibility, that could ability the central bank is suffering because an economic problem is being politicized. as long as that is being politicized, as long as we hear and about certain pastors other non-economical affects driving economic policy, this is what they do. we hoped we see a stepping back from those political antagonists and a firm commitment to let the central bank do what it does best, good, credible monetary policy. not even mentioning fiscal policy, is what is needed a reshuffling and a change of the economic team? >> yes. step in thee a

right direction. but as i said before, the question is what kind of interest rate level would be necessary at this point in time to attract investors back into turkey? as i said, probably at this point, a redistrict the -- a ridiculously high amount of interest rates would be necessary. that would net the credible because everyone knows the central bank would be unable to hold the interest rate level at this point without preventing deep recession. as i said, i'm very skeptical whether it would be enough to bring back and credibility. for the central bank. -- credibility for the central bank. the ruble, the euro, is that knee-jerk or sustaining a little bit longer? >> i think the initial reaction

looks to be a knee-jerk. obviously, there are a lot of factors at way. how bigiver would be the exposure of certain banking sectors to turkey are? against this background, some contagion effects may be fundamentally justified. generally, most emerging markets and also the euro, their central banks have credibility in the market. that is important for investors to see this is a homemade crisis in turkey, which cannot be transferred to other emerging markets emma economies, or the -- markets, economies, or the eurozone. nejra: thank you. coming up later in the show, saudi severn -- sovereign wealth could scrutiny of the ceos

comments? this is bloomberg. ♪

♪ economic finance politics, this is numbered surveillance. let's take a check on buyer in the underperforming terms of the stoxx 600. down 13% right now. bayer plunging the most in over two years after monsanto, which was acquired by bayer, was stuck with $289 million in damages in

the first trial over claims that the roundup weedkiller causes cancer. that 13% drop is over two days. but we are seeing bayer slumped significantly today. let's get back to our top story. in emergency room -- an emerging markets, the south african rand plunging the most in a decade, and the mexican peso as well as the turkish lira continues to humble. -- to tumble. we are talking about contagion today. there is a question over whether -- over how much of this is a knee-jerk reaction. is it really an isolated situation? settles, wedust will see that this is an isolated situation. we also have to be cognizant that there is an enormous amount of capital flown into the emerging markets in an undiversified way. it is currently being pulled back in this risk off situation.

that is the flipside to this. this is where new opportunities are being created. nejra: should investors be more cautious of the emerging-market currencies in countries that have similar issues to turkey, for example, a large current account deficit? in emerging markets, only to stand out and they had their beating this year, argentina and turkey. those are the two major emerging-market economies that have relied on foreign currency funding, a very risky game, as we know. the big difference between today and the 1990's emerging market crisis is that, nowadays, if you look at asia, for example, none of those productive, fast-growing asian economies,

instead of relying on foreign funding, the have current account surpluses as opposed to deficits. that is what differentiates today between yesterday. nejra: we were talking about how it is difficult to see an end to this turkey trike -- turkey crisis. what might give you a sign that there is an opportunity to buy in any other turkish assets? some of the moves we have seen by the central banks seem to focus on liquidity. famous quote, he always made most money when there was blood in the street. this is a crude metaphor, of course. but we have not seen that capitulation yet. that is in particular with regards to turkey. we could still see capital export controls. we could still see more political conflict heating this up. and it would take another couple of days, maybe weeks.

we may get there. let's hope we don't. it really has a great deal to do with how political internists behave in this. that is one of the root causes. an economic problem is being politicized. that makes this so particularly dangerous for turkey. nejra: what about the spillover effects to your? we have seen the euro? -- spilloverpe effects to europe? we have seen the euro drop. are you concerned at this point? >> not really. if anything, this is creating buying opportunities. three european banks own equity supposedly well-ron turkish banks. well-runanks -- turkish banks. they hold equity in that, which is being compressed. they don't share the loan losses

that they might in the future and may not incur. the equity compression has been priced into markets. i don't expect any worse to come. the contagion to europe will remain insignificant in the long-term. nejra: interesting. up next, on this day of contingency, we check in with the markets with a special market check. this is bloomberg. ♪

♪ nejra: this is bloomberg surveillance. big moves in markets today. let's kick it off with gm. as the sea of red turmoil in turkey's parking wider concerns of market contagion. emerging markets really down here in equities. the turkish market down 2.7%. indonesia down as well. the uae is down. softbank getting hit. we have turkey. the lira at the top. south african rand, mexican peso also down. the turkish two-year yield, basis points rising 194. the on the sovereign front,

cds market. at one point of friday, it was the highest since the financial crisis. now to look at what is happening with the lira in the yellow. in other emerging markets as well. the lira trading the worst currency now as opposed to the argentine peso. what is hitting hard is the south african rand. we have seen it plunged the most in 10 years. i want to show you this correlation function, really incredible on a day like today, when you can see how much the lira is trading at how much the euro. nejra: this is bloomberg. ♪

nejra: economic finance and politics, this is "bloomberg surveillance." let us check in on what is trending on tictoc in the

bloomberg universe. champagne is bringing new diseases. prices have fallen for the fifth month in a row, the longest losing streak since the financial crisis. and our most read stories on the bloomberg terminal in third place, the sovereign -- the saudi sovereign wealth fund is said to be interested in tesla and monsanto has been hit with $289 -- $289 million in damages. and turkey's crisis continues. the fear of contagion spreading to other markets. get back to contagion concern and turkey's melting meltdown has emerging-market economies feeling the pain, most notably the south african rand. the currency has slumped more than 15% against the dollar this tradingd global

concerns and a more hawkish tone from the fed. bloomberg's economy reporter from johannesburg joins us now. is the south african rand getting caught in the turkish lira crossfire? >> that seems like the story. this is essentially an emerging market story. has not -- the south african rand has not been alone. the turkish lira has tumbled. due to the ongoing standoff between its president and the u.s. administration. we know that there are concerns about the country sliding into a full-blown financial crisis. is aouth african rand liquid currency and would take the brunt of that selloff from traders. investors are concerned about emerging markets particularly in the context of a global trade war that could happen. we know that already puts

pressure on emerging-market currencies but also locally, the south african rand has had some pressure due to the ruling party's uncertainty over the exploitation policy and the land policy. here: i have a great chart showing the ripple effects and the correlation between the lira and the south african rand. is the south african reserve bank likely to hike at the next meeting? historically they tried not to intervene in currency markets too much. >> they try not to intervene but at the last meeting, it made it is a that the rand key risk to inflation outlook and it would not hesitate to take appropriate action to make sure it protects its mandate. if the south african rand persists at this level we could possibly see a rate hike at the

next meeting in september. nejra: that is get the bloomberg first word news. here is katy -- katy lyons in new york. >> you're just discussing the turkish lira which is on a roller coaster ride this morning. the central bank has announced measures to support financial stability and the proper functioning of the markets. said toe, lavrov is visit turkey today to visit his counterpart. the turkish president over the weekend signaled he has no intention to back down in his standoff with the u.s. >> you are going to sacrifice your relationship with 80 million people for a pastor with ties to terrorism. we will do as the law dictates. you cannot make turkey bow down and order us around. a joint statement

was cited from high-level talks today. the meeting will take place in pyongyang. that comes as a south korean -- as north korea and washington appeared to be accusing each other of dragging its feet. -- dragging their feet. petrochina may temporarily stop purchases of u.s. oil. -- toerg understands avoid potential terrorists -- tariffs -- under the plan the company could boost or swap shipments to avoid paying additional tariffs. u.s. president donald trump is "truly a racist and a con when

it comes to diversity." that is according to omarosa days below -- days before the publication of a tell-all book. she also revealed that she made a secret tape of her firing by john kelly last year. her comments drew a rebuke from white house officials. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. nejra: thank you. futuresretary -- u.s. has sparked wider concert of market contagion. europe is on track for another day of losses. what is the outlook for global equities? us take a step back from all of the craziness happening in the markets today. you are still overweight equities. why?

have been in a bull market since april 2009. if my accounting is correct, between then and today including the last couple of days, we have seen 56 what i call panic attacks, corrections in the s&p 500 by more than 5%. some of which lasted a few days and others a month. was this a panic attack to be overcome by new highs? or is this a change in the market environment? the beginning of a long-term bear market? we are rooting for the former because growth is solid. forget that investors are not investing in geopolitics. we are still investing in businesses and they are much less affected right politics than the media suggest. i see look at businesses, good growth, earnings, and

little inflation suggesting this is the place to be picking up equities. nejra: what about corporate leverage though? point and itellent is raised by many. corporate leverage with the sole exception of the financial sector which is the only sector that has the levered -- that has decade.d over the last if you look at interest expenses compared to revenues, ironically, they are at the lowest level since 1981. expenses the interest which can cause companies to stumble. it is not the nominal level. you can have a balloon on your rucksack. it does not matter as long as you can afford it. it has everything to do with cheap money for more than a decade. nejra: if you believe the equity

bull market has longer to run, does that mean you think yields will stay suppressed at current levels? guest: it seems likely. there is so much pressure. the more our societies borrow, the greater the pressure to keep the yield environment low. if you are taking a long-term view. it has led us to a situation which sometimes looks absurd. let me give you the example of the swiss market. the swiss average 10 year investment-grade bond yield nowadays is 25 basis points. a quarter percentage point. you can invert that which is to say you can divide 100 i 0.25 and it backs out the implied earnings of the swiss bond market which is 400 years. by my reasoning, that is a long investment horizon.

market byequity contrast is trading at about 17 times earnings as opposed to 400 times earnings and throwing out a 2% plus dividend yield. you can see the gap between the valuation of bonds and stocks remains the norm is. and this is nothing. premium formmetric the safety of numbers of nominal returns in our reading is the proverbial wall of worry which every single bull market in history has had to climb including this one. nejra: you were talking mainly about u.s. equities. i showed a chart not long ago. even with the many corrections, lows keep getting higher and higher. that is the u.s. what about europe? there have been outflows in terms of etf's. is it time to buy european equities?

one, being a long-term investor, my firm belief is you make money from what you own and not what you trade. i am an investor, not a traitor. having said that, your question is spot on. is this a good time to buy? i would be reluctant. if i had to place my bets in terms of regions versus sectors, it would be on switzerland. because the value and the currency is the most overvalued. ironically, emerging markets in particular asia and was notably china. switzerland and emerging markets including china. up next, says liz board is this week expected to evaluate elon musk's proposal to go private. could saudi arabia play a pivotal role in the deal?

we discussed. this is bloomberg. ♪

privateesla's plans for life may mean elon musk look to the middle east. saudi arabia's sovereign fund is said to be in talks with haslett. already have 5% stake. they will evaluate elon musk's proposal. we are now joined by matthew martin. great to have you with us, matthew. i know you are on a little visit to london. first question, why is pif so keen on investing in tesla? fund has a newn mandate to diversify the economy away from the kingdoms obvious -- the kingdom's obvious

dependence on oil. this is seen as a way to hedge the oil exposure. tesla is a great way to develop that investment and build this case. tesla?wide tesla -- why the shorts would strongly disagree. andhew: they are keen capable of making aggressive bets on nascent technologies. if you want to get into a carmaker that is just electric is the only one really focused on that space. that is why tesla in particular is appealing to the saudi's. already built a small stake in tesla. how much firepower does pif have to put into tesla? >> that is the question on the

lips of investment anchors across the middle east and the world right now. we have seen them put about $45 billion into the softbank fund. that has pulled down the amount of firepower they have but at the same time, they should be selling their stake to saudi aramco in another company which will answer those questions and give them the firepower to be a significant investment -- to be a significant investor in tesla. -- i: i don't know what know you don't want to comment on tesla specifically, but you are positive on u.s. equities. does that include tech? guest: it absolutely does. coming back to your point, the gulf economies are right in

their strategic thrust. i cannot judge that particular company but let me give you an analogy. stone age did not come to an end because the world ran out of stones. the age of fossil fuels upon which the saudi's are particularly dependent will not come to an end because we have run out of fossil fuels. it will come to an end because mankind developed that are technologies. the age of fossil fuels will come to an end because we have developed new technologies to be mobile without burning fossil fuels. and therefor, if your main export is fossil fuel, you must diversify. there is something very disruptive going on around the world and that disruption will every --tailwind for for anyone investing in alternate technology. nejra: which new technologies

would you that on in the next decade? matthew: china has just recently opened its 150 kilometer highway which is paved with solar powered panels that inductively power electronic cars. there is an norm us disruption -- an norm us -- enormous disruption there. nejra: thank you so much for joining us. -- and toartin and matthew martin and burkhard. $289nto has been hit with million in damages. we discuss that next. this is bloomberg. ♪

nejra: you're looking at pictures of turkey's foreign minister speaking. amongst a some of the things he has said is that the u.s. should see it will not gain anything with sanctions and turkey is all

for reconciliation and talks. this is just one part of the story in terms of the lira weakness we continue to see. let us take a look. despite some moves from the central bank today, traders have said, whatever because we have seen it weaken by 6%. the south african rand has been caught up in all of this as well. dropping the most in almost a decade. down 2.9% right now. the ruble -- by the way, the rand, and ruble has been some of the worst currencies this year. here is a bloomberg business flash and here is kaylee. sovereignudi arabia what fun is said to be in talks about a significant investment in tesla as part of elon musk's plan to go private. the fund has built up its stake in the electronic carmaker to

almost 5% in recent weeks and it is exploring how it can be involved in taking it private. they did not respond to requests for comment. there is a potential source of buyer for tesla. not planningany is to participate in such a deal. they say the japanese conglomerate which held talks with elon musk last year is not interested in revisiting such a plan. a softbank spokesperson declined to comment. president donald trump has again taken to twitter to criticize a company he once hailed as a true american icon. harley davidson. owners plan- many to boycott the company if manufacturing moves overseas. great. other companies are moving in our direction including harley davidson competitors. the u.s. will have a level

playing field are better. that is the bloomberg business flash. nejra: thank you so much. most inares plunged the 15 years. investors are weighing the cost of a protracted legal battle. 289anto was hit with million dollars. this on the claim that the weed killer roundup causes cancer. thank you for joining us. our shares falling because and that -- are shares falling because investors expect this to hit the bottom line? >> investors are worried about uncertainty and legal liabilities. they are concerned this could lead to a wave of other lawsuits. and that even if this verdict does not stand that bayer may need to pay settlement costs for other suits. nejra: what is bayer saying about the case? >> bayer has not called me back

but monsanto has repeated what they has said in a times which shownt their studies have that the main ingredient in roundup does not cause cancer and that they believe it did not cause the cancer of the gentleman in this case. nejra: thank you so much. , are you positive on health care costs -- health care stocks? guest: absolutely. they have a lot of tailwinds. it is tricky. sometimes things can go badly wrong for one particular company. if you look at the health care industry, today's elderly have far longer to live than previous generations. they have far more money to spend than previous generations. and they are likely to discover more diseases or other effects

of being unwell courtesy of better diagnostics. multiply that by european and u.s. consumers but also elderly whoets' spend the most on health care and you can see a market ,enefiting from superior growth and which is currently offering relatively speaking of attractive valuations and a lot of operating leverage within companies that are all geared up to consolidate globally. as we see in this case. and to deal with disruption from new technology. nejra: this seems to be more of a long-term effort. rather than a defensive play. both to that and that makes the industry attractive. nejra: in terms of other defensive areas, would you stay away from them because your general tilt is risk on? guest: they play an important

role in our asset allocation. we like the health care sector and we have diversified between big pharma as well as the novel entrance. and there are other defensive bets in today's equity markets that we'd like next to the health care act it. nejra: great to have you with us today. thank you so much. "bloomberg surveillance" continues in the next hour and tom keene will join me out of new york. the timnue to monitor situation in turkey. we are seeing a great deal of spillover affect in european currencies. this is bloomberg. ♪ retail.

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leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. tom: this morning, the turkish lira signals crisis for turkey. more contagion for emerging

markets. the u.s. dollar and japanese yen moved to new strengths. who will assist turkey and european banks? the people of turkey crushed by inflation. there are 80 more days until the midterm elections. visit, heret will but not there. i am tom keene in new york. nejra cehic in london. francine lacqua is off today. i guess turkey, but what is different today is further waiting from president erdogan to just do something. what do you see this morning? nejra: it is extraordinary because we saw some moves from the central bank around liquidity. the lira trade is whatever. we have continued to see if we can. -- it weaken.

the euro continuing its declines from the end of last week. tom: a lot this hour through television and radio on bloomberg surveillance. not just lira, but going beyond that story to the other ramifications for turkey, europe, and the global economy. right now, your turkey briefing with kailey: kailey leinz. more on that top story for you. to central bank is trying lower the amount commercial banks must hold with the regulator. it is also easing concerns for how banks hold their liquidity. the letter resumed falling today. russia is looking to protect its economy from new u.s. sanctions. the first deputy prime minister says moscow will cut u.s. security holdings and reduce its reliance on the dollar.

the threat of more sanctions has sent the ruble to a two-year low. north and south korea have a great to hold their second summit this year, this time in pyongyang. the announcement comes as experts see slow progress in u.s. efforts for north korea to give up its nuclear weapons. a nasa probe is on its way to the sun. it will come within 3.8 million miles of the sun. the closest solar orbit ever. andill study solar winds the magnetic field of the sun. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am kailey leinz. this is bloomberg. tom: thank you so much. let's begin our data check this morning. we will do many of these across television and radio today. features without weight to the tape.

dow futures -79. the curve has not flattened much more. the euro comes in with modest vengeance. willnd turkish lira, we show a chart on that later. 720 is the lira out to something. these should be green on the screen. these are higher turkish lira. the turkish later at 24%. the single most important story is turkish debt and u.s. dollar 7.72. a full stick to those are higher yields, lower bond prices. nejra: even with those high heels on turkish bonds, a lot of people say you would not get compensated enough for the risk

you are taking with turkey. it is hard to see how the country gets out of these dire straits without taking several measures at the same time. they have not done much to stem the route in the lira. we see the rand we getting the most in almost a decade. there are taking a hit. banks seeing european underperforming, particularly those exposed to turkey. i want to show the 10-year. interesting that we are seeing it rise nine basis points with all the risk off in the markets. tom: that really shows some of that knock on contagion. we will show you these charts through the morning. i will do everything to get those out on twitter for all of you that don't have the terminal. you have the terminal, you can move right along from there. here is a normal market that in

2014 with turkish lira debt higher than u.s. denominated turkish debt. the dollar breaks last summer. up we go. this is critical, the slope of through six and the 7% here. this is that tension that can be expressed across the banking system. i know goldman sachs had a killer not at 7.10 is one possible tip point for the financial system. nejra: that is fascinating. we are still seeing the fallout in parts of the banking sector in terms of those stocks declining. unicredit and bnp paribas were flat and of concern of the ecb last week. fallout focusing on the of turkey and on the fx side. this is year-to-date normalized

of the lira and the rain. what is important to remember is that although we have seen outside moves in the last few days, this is a problem people have told me have been boiling under the surface of turkey for a long time, current account deficit, and the concerns around central bank independence and the diplomatic spat with the u.s., it has become a perfect storm. if you look at the rest of em, there was an interesting chart tracking it with the dollar. the question becomes how much spillover effect is there to the rest of emerging markets? as the dollar much more important? tom: i want to bring this up, jason, if you would. we are keeping you abreast of headlines. this is a turkish official. the u.s. should see it will not gain anything with sanctions.

just an example of the stream of headlines in real-time. this is the foreign minister speaking. far more importantly is the response from the president of turkey. mr. erdogan with his 10-year back to 2002 has seen good times and crisis times. here are recent comments. you are going to sacrifice your relationship with 80 million people for a pastor with ties to terrorism. we will do as the law dictates. downannot make turkey bow by ordering us around. tom: we saw two comments sandwiched by his son-in-law, the finance minister on friday. a lot of people looking for some for of request institutions like behind.

you settle the campus. jpmorgan morgan of asset management. i saw the comments about what is the today handle income of somebody to pay. what do the streets look like? and villagesowns like this morning? >> you would be surprised. the backdrop is symbolic of turkey. although it seems calm, there is a sense of anxiety that this latest cratering of the turkish lira has brought. you see that the turkish citizen has to go about their shopping. ? what do you do? you shop. they are getting some great deals. that is why we saw really see

shopping town istanbul. to what extent is it going to fan the inflation this country is already struggling with? the fx market has completely batted away attempts .y the central bank to this >> does that include the streets? -- interest rates. clearly not. the market says it's not enough. the finance ministry is putting plan.er an action it's about the interest

rates. the answer is petroleum says a lot for any economy. oil andturkish lira u.s. denominated oil. all you need to know is things are pretty much normal out to then it all unravels. tell us what this means for the people in northeast turkey. >> it means a lot. the prices have been rising. i spent some time in different parts of a single yesterday. yesterday.bul they are hoping for the best that this gets resolved. they don't have much choice. a lot of people here believe in

faith. it is having a tremendous impact that the value of the lira is going away. it raises a lot of questions over the long term for turkey. nejra: thank you. let's bring in georgia will -- g eorgette boele. i am getting this is that a rate that a ratesense would not stem the slide in the lira. georgette: you have a good point. at the moment, the turkish lira is down so much. it is a crucial point in time. high interest rates would calm

market somewhat, but it needs to be a sizable increase. was0 basis point hike already in markets friday, and they did not deliver. they need to come back with something the rhetoric on the political side be softened. as long as turkish officials will not take good measures to calm this crisis in the currency markets, investors will continue to expect they may not be able to finance their short-term debt. tom: part of all of this is the history of currency boards. stephen hankey johns hopkins university ways in this morning. you know him from his talk of hyperbolic currency depreciation.

morningthe hankey must-read. this is the wall street journal. but notish lira flows, in a sea of tripoli. there is a way. turkey should issue a currency aard convertible on-demand to corey seager currency at a fixed rate of exchange. as you know, 20 years ago the bulgarian lev became a clone of the deutsche mark. is this what we are going to see if mr. erdogan? georgette: we don't see it happening today. i think they will try other measures to call down sentiments and markets reacting. that could be in the future. capital restrictions the possibility that could be a possibility.

turkey needs quite some capital to finance its debt. overall he will be quite crucial what they will be going. for the moment the credibility story is more than anything else. tom: 7.1 there. -- lira. we went through that and came back. where does abn amro set important level where things happen? georgette: we have thewhere doet important current sentiment going on. there will be no measures taken so far. we are currently at the appreciation. pinpointficult to certain levels. downher factors are coming

, which means the dollar uptrend is cooling and rate hikes by the fed are priced in, then there could be some price recovery. it goes down so quick and fast, at the point in time they confuse markets that there will be some credible plan. pinpointy difficult to to go to 8 or 7. the longer this goes, the more difficult it will be. nejra: you mentioned credibility is one of the key things that is needed. how can turkey achieve that without just changing the people that are in charge of the economy? georgette: in a way they need to give the central bank at least a isling that the central bank independent. that is one of the things that is quite crucial.

earlier in pointed the interview, it is not only that. there are far more things going on well turkey is under pressure . -- while turkey is under pressure. emerging markets in general are under pressure. the dollar is up. turkey has very country specific things like a current account deficit. the government has not the loans, or the effective date of the government is not that high. there are factors that are now accelerating the sense that now you have a turkish lira crisis. tom: thank you very much. this has been very valuable. georgette boele of abn amro. there is a lot going on. what does it mean for you? turkey is tiny. comment that fabulous

on twitter saying that turkey is worth something like netflix or amazon. it is small. what does that mean for you and me? john bilton is with us from jpmorgan. i want you to explain to us mere mortals, so what? why do we care? john: good morning. you are right that calibration is ever important in looking at these issues. turkey does have domestic factors that are causing this slide. we should be concerned about contagion channels. we should put them into context. if we look at msci emerging 0.5%ts, turkey is around of emerging markets. an make upchina 50% of that. they are growing stable he.

should we be concerned about emerging markets generally? a little bit, to the extent that the catalyst that brought problems that turkey is the rebound in the u.s. dollar. we have seen a rebound in the greenback. that means that last year we saw an opportunity for all emerging markets and much of the world economy to appreciate and assets to be generally supported. as we see growth slowdown, the dollar regained strength, it is showing off areas there are issues. the current account deficit in turkey has been known about in a while. this is what has been catalyzing the problems we see today. let's calibrate contagion care carefully. this is not on the order of magnitude of the eurozone crisis we saw years ago. tom: we have much more coming up

on turkey and the lira. we have a look at a better than good american economy. stay with us. more on turkey. this is bloomberg. ♪ ♪

kailey: this is "bloomberg surveillance." i'm kailey leinz. er fell theay most in 15 years. the u.s. firm purchased monsanto and was hit with millions in damages after the first trial that the weak dollar roundup causes cancer. there are reports that paul singers elliott management is taking aim at nielsen.

elliott owns more than 8% of nielsen and plans to push the company to sell itself. petrochina wants to stay out of the trade conflict between washington and beijing. bloomberg has learned the company may temporarily stop buying u.s. natural gas cargo to temporarily avoid pain tariffs. that is the bloomberg business flash. nejra: thank you. elon musk may look to the middle east. saudi arabia's sovereign wealth fund could be looking at ways to assist in a buyout. they have built up a 5% stake in the electric carmaker. the board is prepared to meet this week. still with us is john bilton of jpmorgan.

tonderstand the desire diversify away from oil, the why tesla? do thiswe have seen pif year is they built up a stake of just under 5% quietly. i think the idea was to get a bit more experience with tesla and working with elon musk. now that a private transaction is on the cars, i think they are keen on going further in on that trade and getting more exposure to tesla as part of that way of diversifying the saudi economy away from this exposure that they have to hydrocarbons. they are looking at hedging at through investing in electric vehicles. tom: this happens in these stories. there is sourcing. right now, there is a massive demarcation between bloomberg and reuters reporting. is that on purpose?

is saudi or tesla trying to confuse everybody with this story? give our global audience some idea of the two different stories i am hearing. >> i think what i would say, obviously we cannot say too much about the sourcing of this story. tom: of course. >> we have come out with this piece knowing there are contradictory pieces out there. we haven't from sources that are directly involved with direct knowledge of the discussions oing on that the pif is considering this. if you put it into their strategic rational, this makes sense for them to go deeper into the relationship with tesla. they have shown that they want to make very big and bold and on newe grabbing bets

technology and things that will diversify the saudi economy. in that context, it bigger play makes perfect sense for the. -- for the pif. nejra: when is going private and effective choice for companies? >> one thing we have picked up is we have seen a gradual increase in the proportion of returns and the equity markets coming from cash returns, buybacks and dividends, etc.. quarterlynked to the reporting cycle. equity markets have changed the nature some of it companies that are trying to make long-term decisions have a history of going private sometimes. you are making something that is a long-term multiyear investment and will not be able to return that capital to shareholders, which investors increasingly

demand is a regular player. it may be look at -- payout. it may be appropriate to look at the private route. this is not something that should be surprising. we should look at the overall capital spending and investment plans they have overall. nejra: thank you very much. john bilton of jpmorgan asset management will be staying with us. lightner willvis join us to talk tesla. it :00 p.m. in new york. this is bloomberg. ♪

tom: bloomberg surveillance. nejra cehic in london. i am tom keene. we are following much, including the turkish lira. what are we trending?

nejra: let's check in. is climate change coming for your champagne? warmerwinemakers say climates are pushing maturity earlier. prices have fallen for the fifth price -- fifth month in a row. price has been hit hardest. our most read stories, and third place, a sovereign wealth fund is said to be interested in elon musk's deal to take tesla private. monsanto has been hit with 280 -- $289 million in damages over claims roundup causes cancer. let's get first word news. turkey's central bank is trying to contain a currency crisis.

policymakers have announced a series of measures that free up cash. the lira cap falling. there is concern about a trade and diplomatic dispute with the u.s. british prime minister theresa may is running the risk of angering skeptics in her party. may he is drawing up a plan to keep european rules for longer after brexit. it is an attempt to break the deadlock in negotiations. options is working on to resolve how to avoid a hard border with ireland. the white house is rebuking omarosa for making a tape of her firing. she revealed the existence of a tape while talking of her book. she called president trump "truly a racist and a con when it comes to diversity."

the president called her a lowlife. brooks koepka the tiger woods and 13 majors in the last three months. -- won three majors in the last three months. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. nejra: just got some headlines coming through with bayer. dropping after monsanto losing that verdict in the roundup cancer trial. the jury verdict is at odds with evidence, from bayer. this is a response we've not yet had, believing the courts will find it is not to blame. as we take a look at what shares are doing, declining more than

10%. tom: as we look at turkish and lyric, it is not just about falling lyric, it is about -- turkish lira. is not just about the falling lyric, it is about the ramifications. is the distinction here between the south african government. they have got their own problems, a weakening in the rand and such. now this. how does south africa respond to the contagion? >> we know that the south african reserve tank does not like to intervene in the market. -- reserve bank does not like to intervene in the market. what you said about the political part that the government is trying to deal with its issues and we see the slump in the rant going to weigh on the inflation outlook.

does need those portfolio inflows to finance their current account deficit. this will weigh. tom: i'm going to bring up the chart. this is the south african rand. the optimismof over south african and the politics reversing it and here is the spike up with the contagion and you can put it in rand per u.s. dollar. what happens in johannesburg when we migrate toward 17 per dollar? >> that would be a number that would have heavy concern. it would way on the monetary -- committee which

has stated it would not hesitate to take action to keep its mandate within the target rate. it will weigh on investor sentiment at a time when the new president of the country is trying to attract investment. this cloud of uncertainty over emerging markets due to the prospect of a global trade war does not bode well for emerging markets when it comes to sentiment and as we see trade is trying to sell up emerging market securities. nejra: good to see you. are we expecting a rate hike at the next meeting? >> the south african reserve bank monetary policy committee has stated they do foresee a couple of interest rate increases of 25 basis points. whether or not this slump has made them think they might go higher, we will have to wait and

see. we'll be waiting to see what decision they happen the next ,eeting in september particularly if it continues at this level or continues to depreciate. tom: thank you so much. we have got a busy next 20 minutes. john built with us of jpmorgan. ilton with us of jpmorgan. why all of this about turkey affects banking? i get it. explain why turkey's challenges knocks on the european banking? >> there are a couple of issues. exposures which parts of the banking have

directly to turkey. if we see weakening of the turkish lira further, one of the issues turkey have is that there debt is largely price. two thirds of it in hard currency. at something like china, about 10% of their china -- of their debt is hard currency. result, you have got significant exposure out of the immediate control and that is something which sits on the asset side. if you look more broadly, we went through the eurozone crisis , which was linked to issues across the sector which showed they did not have significant capital or controls to deal with the crisis. we have moved on since then. to support coming through in terms of capital and

new regulation to ensure ranks are stable. -- banks are stable. is memoryok but there from that crisis and that is going to take a wild to fade. nejra: the concerned with the european banks is there exposure to turkish banks. credit suisse said turkish banks are better run than european banks. any dips is a buying opportunity. is it? for us to decide it is a buying opportunity generally, it would need another few pieces to come into play. we would need to feel confident the dollar had done its rebounding for the year. to feel confident when we have trading issues, we need to feel the dollar is putting in.

if we begin to see statements out of the turkish central bank, some of the more fragile emerging currencies, you get the sense the market feels it has properly priced this risk. it is it -- is it a buying opportunity? once it is gone through 114, the euro is at the bottom of the trading band. unemployment is down, cpi begins to pick up, the ecb will be talking about -- talking more hawkish lee. if you want to get bullish in europe, let the dust settle in the banks. banks start performing, then equities. tom: i want to show you how this

works at bloomberg. the different stories we're seeing across the headlines. this is hard to see but here is a business in turkey talking about raw material prices and market contraction and down here is the finance effort of the turkish government as they try to sell no interest, and zero-coupon bills short-term paper and at the bottom it says bills to state bodies. that shows you the news flow in real-time. don't forget on bloomberg television and bloomberg radio, your monday briefings on international economics and the pga, what a tournament. this is bloomberg. ♪

tom: nejra cehic in london and i am tom keene in new york where it -- new york. it is about the turkish lira. bonds, 27%? nejra: something like that. earlier butw 25% outside moves. we are been talking about the currencies, the 10 year yield hit a high. tom: we will see what it means for the domestic economy. right now, on this international relations of turkey and the president, john bilton with us from jpmorgan. mitch, thank you so much for being with us on short notice. when i look at turkey, at the domestic politics and the domestic realities that mr.

is the faces, what number one challenge he has this morning away from the finance in currency dynamics? >> thanks for having me. it is about shoring up his relationship with the u.s. but also doing the same with the e.u. the market expectation for a rate hike is clear. beyond that, he has to deescalate this situation with the u.s. and that means some form of commitment and if he does not do that, the rate hike in a vacuum is not going to be enough to placate the market. there needs to be a parallel move with the u.s. to bring this crisis. tom: i saw ian bremmer in korea over the weekend.

if i look at your work, your is the the issue here u.s. comes to the rhetorical rescue, providing support in these times, whether it is indonesia, what ever. how big a vacuum is there because mr. trump does not want to come to the rescue? >> significant but there is a havingve of erdogan overplayed his hand. there was an agreement on an exchange between the u.s. and interpretedrdogan his situation as one of leverage and seeking to extract more concessions from the u.s. of its to the probe violation of sanctions and that has infuriated the u.s. side. the gcc, these guys are not going to backstop turkey.

we have seen dovish remarks from there is aause shortfall in financing, it is to europe that turkey will look. none of these partners are credible. nejra: it is nejra. are goingny hope we to get the monetary and fiscal change needed to placate markets beyond a rate hike with the current establishment in turkey? >> that is a great question. the criticism is a lack of a coherent strategy and the fact the government is so behind the curve. they should have had a plan in place and they do not. a rate hike will have to be complemented by fiscal and structural reform. de-escalation with the u.s.

and therethe pastor are other things they can do. there is a narrative about cabinet changes. erdogan has a hawk's position on interest rates. where heeen situations is opposing interest rates and the central bank will move. there is a precedent for this having taken place. i think we will see action by the central bank but it is unlikely to be enough. nejra: exactly. a lot of people agree with you. what can erdogan say to assure the markets of central bank independence? >> it is having the central bank move. if the central bank does move in a decisive way, 5% or 10

percentage points, erdogan will the bank. that will provide reassurance. the next thing is trying to understand this relationship. a lot of people have been looking to him to see if he can be a more positive influence on erdogan. he is the son-in-law. does he have more influence? at the moment, it seems that is not the case. if the bank were to move and he were able to announce a plan, perhaps it would begin to reassure the markets about that relationship that is so central to policymaking in turkey. tom: mitch, thank you so much for the briefing. mujtaba rahman is with eurasia group. we will continue with asset management.

an important interview on the american political economy, 84 days until the midterm elections. a congressman from new jersey, a republican, the noon hour with david westin. this is bloomberg.

>> this is bloomberg surveillance. i'm kailey leinz. let's get the business flash. president trump is backing harley davidson motorcycle owners will boycott the company when they move production out of the u.s. says the tariffs imposed after the trump administration slept duties on steel and aluminum reduce the price in europe. investors in wells fargo may have their patients tested with details of a new scandal. the justice department is fargog into whether wells colluded with developers of low-cost housing on bids for tax credits. that adds to revelations about investigations of misconduct that of hurt reputations. it was a stunning debut for a

movie about a sharp -- shark. took in $45 million in north america over the weekend. it was produced by a chinese joint venture. that is the bloomberg business flash. nejra: thank you so much. let's turn to the outlook for global trade. petrochina may call purchases of spot u.s. liquefied gas purchases to avoid potential tariffs amid the conflict with america. our guest does not expect the skirmish to develop into a trade war. john bilton of jpmorgan is still with us. you talked about the limited economic impact. why have investors gone from concerned about inflation overshooting? >> trade is part of it.

it is more to the fact that as we came into this year, we were firing on all cylinders in terms of the economy. we were running above trend in all the major economies. recently ispened that we have moderated. we are seeing an economy which is doing well, above trend and that has been supported through assets around the world. the type of things that have hit as this year, the trade disputes, the questions over emerging markets, tensions, we could have been worse. the u.s. equity market has outperformed and is ahead. what we have recognized is that questions over trade and and momentum in manufacturing are getting more traction in acting as headwinds

to markets. we saw inflation concerns eating the threat. -- being the threat. they would clamp down to tightly. we are now in the position where we are worried we could see moderation becoming a self-fulfilling prophecy. it is a risk. is china so big they cannot be effective -- be affected by turkish or whatever contagion? let's look at the facts. china have significant foreign exchange reserves. they are a bigger economy. they are the second biggest economy. fromy matter a great deal sentiment and banking contagion in europe. if you think about it, let's go

back to that data point, turkey of global equity market cap in emerging markets. china accounts for 27%. you cannot say contagion will not matter to china. when you look at the scale we are talking about, it is likely china can brush this out. nejra: thank you so much, john bilton, so great to have you with us. coming up, neil dutta joins us on surveillance. 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. tom: this morning, the turkish lira signals crisis. contagion for emerging markets.

the u.s. dollar and japanese yen moved to new strength. global wall street and madame lagarde await a call for assistance. the people of turkey crushed by inflation. in america, there are 84 days until be midterm election. the president will visit here but not there. good morning, this is "bloomberg surveillance." i am tom and nejra cehic and for francine lacqua. focus, the contagion is not just about south africa. it is about e.u. banking, isn't it? nejra: that is right. you have got certain banks which have fallen in the session. by the ecbighlighted as having exposure and getting

hit. that is one angle. aboutis so much to talk and the question is, can turkey do anything to stem the route in the lira. tom: let's get a turkey update. >> turkey is taking steps to talk -- to stop the slide in the lira. the central bank moved to improve liquidity by lowering the amount commercial lenders must park at the regulator. it is easing rules of how central banks manage liquidity. there was no mention of higher interest rates and the lira resumed falling. russia is looking to protect its economy from new u.s. sanctions. the deputy prime minister said russia will reduce reliance on the dollar. the new sanctions have sent the ruble to a two-year low. the leaders of north and south korea have agreed to hold their third summit of the year. there is no date.

the two sides say it will take place before the end of september. the announcement comes as experts see slow progress in u.s. efforts to get north korea to give up its nuclear weapons. a nasa probe is on its way to the sun. the solar probe will come within 3.8 million miles, the closest approach ever. it will make 24 orbits over seven years and will study solar wind and magnetic fields. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm kailey leinz. this is bloomberg. tom: thank you so much. a data check important. we will do more of those today. futures deteriorate, -10 right now. dow futures, -97. the curve not part of it, the yield not part of it. thengthen the dollar and

yen. 14, migratinger from the 10 crisis -- 10 precrisis. the turkish lira, a tight trading zone. much weaker, 7% off what we have seen. the color is wrong, this should be green. higher yields for the turkish two-year. single number that matters right now whatever you're doing in global wall street. the u.s. dollar denominated turkish two-year was 6.3 and it is now 7.7 over the last trading days. up 1.0 8, 108 basis points. nejra: it is one of those days where there is too much going on to fit onto three boards. european equities, lower by .5%. you are seeing banks

underperforming as we were talking about with the likes of unicredit and bnp paribas declining. contagion, weut are seeing it in the rand today. i know you showed the euro. i wish we would put the yen in as well. yield,n the 10 year btp higher by nine basis points in this session. right now, eight basis points higher. look at a pro chart which is important. if you're going into global wall street, you need to gauge, where are we? this is turkish lira were slope matters and percentage change matters. right there is two standard deviations today. we got out to eight standard

deviations. think ofeed to know is a medical hospital award and it is a soap opera. patients are dying. turkey is bumping up against that crisis positioning. it is not quite there and the turkish lira, i am eyeballing three or four standard deviations out. that is how the pros look at these. nejra: always like to see what the pros are looking at. let's look at the fallout in other parts of em. this is normalized, the turkish lira down. the rand down more than 13%. this is to show it against the broader em fx space. these are outliers. how much affect is there belonged -- be on the first-order?

storych of it is a dollar and that is what is going to be the question beyond this week? turmoil,e look at this we need to go to yousef gamal el-din. let us listen to the president of turkey. you are going to sacrifice your relationship with 80 million people for a pastor with ties to terrorism. we will do as the law dictates. you cannot make turkey bow down by ordering us around. , we had aeality is great photo on twitter. we had people lined up outside the fancy stores buying up all the goods they can, converting out of lira. the abbas for a the background. it is good for tourists.

this crisis crushes. does it benefit or crushed tourism -- crush tourism? >> it makes turkey attractive for foreign tourists. we saw that in the last 24 hours. you can see the lines and the buzz that is happening. have hard currency get more return on their dollars and everything is a good deal especially if you have the kind of move we had on friday. is, whate big question can the central bank and government do to stem the crisis now? the moves they made early today have done nothing to stop the route in the lira. >> we had the central bank come out with a statement bring up liquidity -- freeing up liquidity. the interest rates were kept as

is and that is what the market was looking for. initiallye the move climbing back some of those earlier losses. it goes on to say that the market is looking for more, a boulder move. move.older president erdogan is not willing to consider some of the comments from some oftting the big research houses. time is running out. wells fargo has said they were looking at a to the -- at eight. there needs to be more action for stabilization to occur. tora: thank you so much yousef gamal el-din. is williamnow jackson, capital economics chief emerging markets it. -- markets. even if we were to get a rate

hike right now, that would not be enough to stem the crisis we're in. all the options that could work seem to be unpalatable to the government. where do we go? >> it is difficult. what the markets want to see is a rate hike, measures to confirm credibility will improve, policies to tighten fiscal policies. where do we go? if things continue, the lira is likely to fall further. inflation is going to go higher. that is likely to continue to raise concerns about the health of the banking sector. tom: let me bring up the morning must-read. we have got paul krugman with the new york times writing up the history of 1998.

at some point, the party comes to an end. the crucial thing is that foreign debt has major economy vulnerable to a death spiral. is there any way to short-circuit this? , yes, but it is tricky. you need to reduce the cost of the crisis. runmbination of short heterodoxy and date longer run return to orthodoxy. and a longer run return to orthodoxy. do you see in the imitation of an orthodox conversation within the government? >> not much. what has been the most apparent thing is the silence from the central bank, not from the government. seen messages contrary

to what investors want to see from the present. it may be the finance minister has plans to outline a policy today. given his performance friday, we are skeptical. , thehere is steve hankey legendary expert on currency collapse. this is a wonderful essay on currency boards. turkish lira floats but not on a sea of tranquility. turkey should adopt a currency board. a board issues notes and coins convertible into a foreign currency at a fixed rate of exchange. this seems feasible. what is holding mr. erdogan back from our emerging market crisis 101? >> i'm not sure the currency board would be the best option.

turkey has a high inflation rate at the moment. if you start having a currency managed against the dollar, the lira will lose competitiveness and that may worsen the balance. the move to a floating exchange rate was seen as a strong shift toward orthodoxy and helped booste policymaking and investor confidence. what it needs is higher interest rates and lower inflation to make it work. uniqueit seems this is a circumstance. canhere any precedent we look to in turkey or other markets that can show us a way out? >> i think emerging markets have been through these. nejra: like this? >> the difference we are seeing here is that policy makers not seem to be responding in the way

markets are wanting to see. ist we have seen policymakers have gone to the imf, they have kept interest rates high. nejra: all of which turkey is not doing and has said it will not. >> what causes things to change? some governments have managed to get through without the imf. then, we had some shift toward reform, higher interest rates, a shift toward fiscal tightening. turkey does not seem to be doing that. my concern is there needs to be a deeper crisis. nejra: thank you so much to william jackson, capital economics. next, neil dutta, renaissance macro. we look forward to that. this is bloomberg. ♪

>> this is bloomberg surveillance. i'm kailey leinz. let's get the business flash. shares of bayer fell the most in 15 years. the chemical -- the company it bought was hit with 280 mine million dollars in damages over a trial that it causes cancer. months into will appeal the verdict. baer believes the courts will find the we killer was not to blame. there is a report that billionaire paul singer's -- elliottagement is owns more than a percent of nielsen and plans to push the company to sell itself.

it's team continues to violate how to best position the business. stay out ofnce to the trade conflict between washington and beijing. quitompany may temporarily buying u.s. natural gas cargo is to avoid paying tariffs. china is the third largest buyer of u.s. lng. tom: thank you so much. the german two-year comes in at a greater negative yields this morning. that is one of the vectors we are watching. usually, we talk to neil dutta about optimism on the american economy. this morning, we welcome neil dutta, foreign-exchange strategist. let me go to the chart. get over here to the chart. the big news for me, this bolts into your optimism, this is the dollar index -- this bolts into

your optimism, this is the dollar index. what is the so what? >> president trump has been explicit he wants a weaker dollar to make our export more competitive. the move in the dollar is a function of growth outcomes. the u.s. economy has had a bumper year relative to other economies. if you look at japan or europe. of move has been a function safe haven appetite. global risk off, emerging market turmoil. a heads i win, tails you lose. tom: you guys think i mentioned central-bank dates. he memorizes this in his sleep. the end of the year, is chairman

powell, whether he wants to admit it or not, going to be central banker to em? >> not yet. if we continue to see this kind of price action in the emerging markets and tightening of financial conditions, the fed will have to provide a backstop. they will continue to overheat more than they are and that would be a catalyst for emerging markets if that were to happen. we are getting closer to that point. there is some chance the fed takes a pause in 2019 and that could be a catalyst for emerging markets in terms of risk on trade in em. inflation in the u.s. is not taking off and that is a reason for the fed not to keep

tightening policy. nejra: good to see you. we are focusing on turkey today because of the outside moves. should we be looking more at what the dollar is doing and u.s. rates in terms of the outlook for emerging markets? 2016, right,k to thethat was a period where fed was backing off and emerging markets were in turmoil. what got the turn in the markets going was the fed backing off on rate hikes. to not look at the fed is a mistake and the global economy is in a better place now than a few years ago. if you are extrapolating today's moves out for a few months, i think the fed would have to take a pause. they are not going to be

tightening policy in an environment when conditions are worsening. tom: neil dutta with us on the american economy. we thank him for his foreign-exchange perspective. there will be a political , representative soto will of california. look for that.

nejra: tesla's plans to privatize may mean elon musk look to the middle east. saudi arabia's sovereign wealth

fund is said to be in talks to invest in a bio. shy ofbuilt up a stake 5% in the electric carmaker. tesla is preparing to meet with financial investors to evaluate elon musk's proposal. with this solve tesla's problems if we got this move from the pif? >> it would but it is not the solution elon musk wants. he wants a solution where there is not one or two major shareholders. even if saudi were willing to put up all the cash, it seems unlikely he would want to see that. nejra: he is the one who tweeted about this. why would he not want to see it? >> he does not want to be a minority shareholder. he is a minority shareholder but he is the biggest one. if someone else comes in with 30%, he loses plow. he does not -- loses clout.

he does not want to be a subordinate. that is why the sec is looking at this carefully. it seems unlikely, otherwise we would know about this. we thank you for being with us, alex webb, a great perspective on tesla. too short a time given the news flow. travis lightner is exceptionally qualified not only on securities law but on the pace of washington. he has filed litigation against tesla, an important interview in the 8:00 hour this morning. , dark, andutiful stormy lender. -- london. ♪ two, down and back up.

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we will get to washington in a moment. here is kailey leinz. turkey's central bank is trying to contain a currency crisis. policymakers have announced a series of measures that free up cash. the lira kept falling. there is concern about a trade and diplomatic dispute with the u.s. and with the way the president is handling the economy. british prime minister theresa may is running the risk of angering skeptics in her party. may is drawing up a plan to keep european rules for longer after brexit. it is an attempt to break the deadlock in negotiations. the team is working on options to resolve how to avoid a hard border with ireland. the white house is rebuking omarosa for making a tape of her firing inside a secure area. the reality show villain

revealed the existence of the tape up publicizing her book. she called president trump "truly a racist and a con when it comes to diversity." the president responded by calling her a lowlife. in golf, brooks cap got held off tiger woods to win the pga tournament. he beat woods by two shots. he has won three majors in the last three months. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm kailey leinz. this is "bloomberg." tom: thanks so much. to wander through the weekend with that wonderful exhibition of golf. with to our situation room kevin cirilli, bloomberg chief washington correspondent. i do not want to talk about the other gossip. i want to talk about the

relationship of general kelly with the president. a celldumbfounded by phone in a situation room. i get it. what happens this morning between the general and the president? tape,re's a moment in the i do not want to focus on the gossip, there is a moment in that in which general kelly told her that the staff works for him and not the president. in terms of the original administration and how it was perceived versus the general kelly's leadership. that is how most white houses have been organized. it was an awakening for the trump loyalists pre-the presidency. electionays until the and the president is in

bedminster this week. andas watching the pga watching where to go to assist and where not to go. let's start with the negative, what are the districts that the president will avoid? >> it will be interesting to see. are havingnsultants their eyes on this, whether the president will head to suburban areas because he has been focused on doubling down in terms of the base of his party. he is looking to surrogates to make those type of visits. contrary to that, you also have just what type of democrats will be running and winning in the midterm elections ahead of november. one part of the turkish

crisis we have been talking about is the diplomatic spat with the u.s. is there any sense that when it comes to the u.s. in turkey, we might see president trump, with some sort of concession? >> no. i think the u.s. feels they have the upper hand here in terms of an economy that was already dwindling. the personalities, president erdogan and trump, both rash in rhetoric, both have family ties in their administrations. both playing to their base in terms of seeing tough against another country -- in terms of eating top against another country. turkey, the same day these sanctions were announced, president erdogan called president putin. president trump called emmanuel macron of france. i think this is important.

mr. trump can have his own independent foreign policy. what is the official line of the united states with this government of turkey? , we have notpompeo seen him take any trip to turkey and the relationship of resident erdogan and trump was positive wind trump first took office -- when trump first took office. it has soured. tom: this has been great. kevin cirilli, we have neil dutta with us. the underpinning for the president is a continuation of a 4% plus gdp economy. you nailed that. what do you see in the quarter we are in right now? i do not think we taylor loft.

one of the think -- we tail off. one of the things we learned is that inventory investment remains low demand. inventory represents the potential upside risk for growth. we have been under building inventories and that can turn quickly. there is concern around consumer spending because inflation has picked up. focus on real average hourly earnings is misplaced. that is not the right way to gauge. tom: what is the right way? hours, earnings. was that a good sign for consumer spending? how many people are working? it is important to recognize jobs growth in the private 215,000s running at

this year. we are seeing more jobs growth, more hours work and that means total income is growing. that is going to drive consumer spending. focusing on hourly earnings and deflating it i inflation is misleading. nejra: what does this mean for the yield curve? you were saying we could see the fed pause on rate hikes. does that mean the flattening trend could stop? >> i do not know if it will stop immediately. as we look toward the end of the year, i would be going long the front end of the yield curve. there is not much of a need for the fed to have to accelerate the path of rate hikes. the yield curve has been flattening for some time and we are seeing that again. that is a function of factors outside of the u.s.

when conditions deteriorate in emerging markets, the long end of the yield curve rallies. that has nothing to do with u.s. growth and inflation dynamics. it is, in terms of determining where the growth outlook is going to be, front end inversion matters more. it is still steep. two-year yields relative to the fed funds rate is still a steep slope. i do not know if it is signaling recession. i do think it has flattened because of factors outside the u.s., safe haven appetite, things like that. getting the sense that when we look at the u.s., you do not seem concerned about inflation overshooting or growth undershooting. what are the risks to the economy? the risk to the u.s.

are from outside the u.s. october is shaping up to be an interesting month for capital markets. you do have the italian budget coming up. it looks like they are going to come at a crossroads and bust through the rules. the -- havee brazil. that could keep this problem going. , we have seen some slowing in housing. it is not conclusive. housing,ok at data on it looks like we are hiring more construction workers and real estate agents to build and sell homes. it is one of these weird flukes that do not make sense. the housing market is in recovery. it is hard to see beyond that.

inflation expectations remain anchored. that mitigates the risk of broad-based price increase for underlying inflation that would get the fed concerned. nejra: i got excited when you mentioned italy. been looking at the 10 year yields, above 3%. i have got a chart that shows the two-year yield versus spain and portugal. the chart title says italian bonds are too good to ignore. are they an opportunity? yields are up not for a good reason. it is not like growth is surging in italy. this is a sign of concern more than anything else. dutta, we have a chart of me against nejra cehic. here is the chart i did on

italy. this is a leg up on italy versus germany spread. we are beginning to get there not 1995.ere in 2011, nejra: i love the spread. looking at that, my eyesight is not that great, we are a way off from the 2011 levels. it is about whether you're being compensated for the risk rather than where the yield is now. tom: coming back, we will do a chart i care about. it is a cool chart, italy-germany spread. tworiday, on the watch for erdogan speeches. we are watching for the next erdogan speech. we expect that in this hour into the next hour. stay with us. we continue on the turkish

crisis. this is "bloomberg." ♪

tom: just another conference in august. nejra cehic in london and i am tom keene in new york. waiting common spy erdogan at the ambassador's conference. -- comments from president erdogan at the ambassador's conference. are made more important by what we see in turkey, the turmoil of much higher yields and further lira weakness this morning. the italian peace out. an update on the corporate

world. here is kailey leinz. v.f. corporation plans a tax-free spinoff to shareholders. willest of the company keep the name and will include its apparel and footwear brands such as timber linn. -- timberland. president trump is backing harley davidson motorcycle owners who will boycott the company if it moves production out of the u.s. harley does not sell bikes it makes overseas in america. the company says the tariffs imposed after the trump administration slapped duties on steel and aluminum reduce the price in europe. it was a stunning debut for a movie about a shark. the meg took in $45 million in north america over the weekend. that is almost twice what analysts expected. warnerproduced by a chinese joint venture. -that means there will be a

bigger share of ticket revenue in china. that is the bloomberg business flash. tom: a chill in new york off the heat wave up recently. in august, children begin to turn their summer reading list. is theil dutta, it perfect time for a summer chart review. this gets us into september and this is the u.s. deficit-gdp. the vector is in the wrong direction. what is your timing of where the debt and the deficit matter? is it a back to school issue or do we go further into the quarter? efficient markets are in pricing in information quickly upon announcements. tom: the market has priced in $1 trillion deficit. people know it is coming down the pike and it is reflected in current rates.

it is interesting that despite all of this deficit busting, the , 286ar is sitting at 285 and you look at the options last week went off without a hitch. there is an appetite for u.s. safe haven product. the u.s.risk to treasury market is when the rest of the world is able to status and its aaa that looks like not anytime soon. i am not worried. we enjoy turkey on friday and we continue to enjoy it now. for investors in the united states, do they just pay attention to the news but at the same time, ignore it were do they have fuld it into their it or do they have to

fuld it into their plans? >> this is going to provide a hiccup and we are seeing that. it is about corporate earnings and the outlook for corporate earnings and that remains healthy. it, if to think about you think equities are a function of earnings, rates, and risk premium, the picture is improving. rates are a tailwind because they are not going up anymore. that is going to offset the higher risk premium. that means u.s. equities will continue to grind higher. nejra: if we talk about the 10 year yield, which has been stuck in a range and some might say it should be higher given the theth picture, how well is picking up of the balance sheet off of this? about how was clear

that was going to happen, by announcing caps every few months, that has been preannounce. pre-announced. announced to investors and it is priced in. that should result in some increase in the term premium. it is hard to see why that matters. what is going to drive rates at is apoint in the u.s. relief rally in the global economy, more favorable attitudes around emerging remark it's -- markets. tom: what do we have in turkey? we are seeing president erdogan, we should have pictures here of you -- here for you, addressing the ambassadors'

conference. he is speaking in turkish. we will see if we hear anything having to do with the lira. we have been talking about the diplomatic spat with the u.s. what can happen beyond a lot of measures at the same time to provide support to the lira? juste are saying it is not monetary and fiscal tightening that is needed. it is an easing of the diplomatic spat with the u.s. tom: mr. erdogan, i think i can say looking exhausted from the times i have seen them. part of the u.s. response is a set of sanctions with russia, china. turkey, as well. do sanctions work? >> they are having some impact.

if you look at the places that have been targeted, you have seen currency depreciation across those countries. they have been biting and we saw some of that last week with the tweets from the president. it is having some impact. this is going to exacerbate the problems that exist in those economies. the global economy has been slowing and that has opened up vulnerability to this policy element we are seeing. have seen the situation that turkey is in. what about russia? does its economy have the strength to withstand sanctions from the u.s.? >> if you look at the value of and i want to caution i do not follow this as closely as i should, the value over the last year, the biggest down days

have been on days where you have some significant sanction policy announced out of the u.s., whether that was one week ago or a few months back. ont is going to put pressure russian inflation. this is happening at a time when the u.s. is becoming more of a global player in energy markets and that is keeping downward pressure on global energy prices as the u.s. produces more. a crutch of support for the russian economy. that dynamic is important to keep an eye on. nejra: when all our attention is turned on one part of the world as is happening today with turkey, i start to ask myself, what are we missing in the global economy that we should be focused on? >> i mentioned this earlier.

on,y is something to focus brazil is something to focus on. those things happen in october. i wonder how folks come back from the labor holiday in the u.s. and start to focus on brazil and italy and that keeps risk off trade growing. in terms of upside growth surprises, the u.s. does not get enough suspect -- respect your it -- respect. this was happening before tax cuts were announced. an upside productivity shock in the u.s. is plausible and something that is not appreciated as an upside risk scenario by the global marketplace. if that were to happen, it would extend the u.s. cycle beyond what we're hearing about now. tom: i want to show the turkish lira right now.

we are dealing with a president speaking in a foreign language. don't you think for a moment that every single major shop can hear it in real-time. they have got turkish listeners or interns on the desk. the lira is moving off the speech. those are little moves but the vector of this speech is weaker lira. nejra: erdogan is the person you have to listen to, is in t? -- isn't he? we have got yousef gamal el-din standing by for us in a stable. istanbul. >> the question is going to be whether he is willing to turn a corner a bit and be open to letting the central bank do its work and go about its rate hikes.

this goes to a point tom was making. outside of the borders of the and beyond, the story about how people have improved their livelihoods and that is at stake if the situation is allowed to proceed. with higher inflation, livelihoods go down. whether we are going to see that in this speech that he is , withg to open a new page international investors, with capital markets, is going to be critical. to show oil as the president of turkey speaks. anybody ofuilty of looking at the financing investment in that. up.e is the reality, coming the terminal is a little slow. there is the reality of an oil

chart set in lira. you've got the normal oil price in white. the turkish lira enjoying that major depreciation. comes down to the lessening of domestic income but every little foreign thing becomes impossible to pay for, doesn't it? >> absolutely. petrol prices the get adjusted. the problem is amplified once this drags on. spikes in the currency can be digested. it is not going to trickle down that pass. if this continues to weaken, it -- not justt just institutions but consumers that have to deal with a paycheck

they get some less at the end of the month. nejra: one comment coming through from president erdogan is it the executive president team is best suited for turkey's need. we were talking to william jackson and he was saying the economic crisis needs to get worse before erdogan and authorities do anything. turkey, a sense that his government, are willing to withstand more pain before they take action? >> that is the question. we have seen this government go further than most people would have expected. people would have thought he is going to let the central bank hike rates. he is going to talk to the imf and get measures going. austerity measures would help with the credibility shock, a multipronged approach to win back foreign investors.

we have not seen that. this is a loyal powerbase this has given him a fresh mandate. he is going to look to them and their livelihood. that is what has kept him in power and what is going to keep him in power. that is something he is going to have to consider as he goes about this. nejra: we have talked about the currency crisis and what the lira is doing. what about the turkish banks? we know about the foreign denominated debt. are they in a ok position or should we be concerned? >> that is going to be the achilles heel. the bank stocks, if you look at prices, the blood is being let in financials in the stock exchange. double-digit losses. we heard from the ceo of one of turkey's largest banks and he

said, leave it to the science when it comes to interest rates. the government needs to move fast. no time for words. tom: thank you so much. we would like to continue. the investors conference with the president of turkey speaking. chart,to show the everyone a global wall street is looking at. one day on friday, this dampening function. we open up and wellington, new zealand with the warning, the exchange well above seven and we come down here with movement off of the erdogan speech. we have more coming across bloomberg radio. jon ferro and i will continue this discussion and look for all

istanbul.erage out of we thank you for watching "bloomberg surveillance." ♪ daybreak. >> turkey's action plans. banking regulators step in to stop the lira freefall. a fix or a band-aid? and iran is the biggest casualty -- goldman sachs says the spillover should be eliminated. el-erian warns of tightening global liquidities. he blames stronger late -- stronger rates in a stronger dollar.