francine: tencent losing more than a quarter of saudi since january. turkey announces new taxes on american imports from cars to alcohol. the lira gets a bid, falling back below six per dollar as a regulator steps in. the death toll rises in genoa. at least 35 died after a bridge collapsed. populists throw blame at eu budget rules.

welcome to bloomberg and i am francine lacqua in london. these are your markets. gaining 0.6% is overall. -- 0.1% overall. currently 6.0261. a little bit of a dip. of the u.s.picture two-year yield at 2.63. futures are edging lower but you can see treasuries climbing. this is the picture overall for markets. you can see turkish lira gets a two-year yield. some of them are still under pressure. maybe there's a little bit of appetite after some of the selloff that we saw in some of the emerging markets.

swiss franc the one we need to look at because it's a nice haven bid. currently unchanged at -0.3%. let's get straight to the bloomberg first world news. >> the turkish lira, as you mentioned, trending higher this morning after rebounding margin a percent yesterday. that is investors announced measures by the central bank aimed at stemming the route. -- the rout. additional duties will be imposed that include 22 items but does not include mobile phones despite the president calling for a boycott of iphones. least 35 people have been killed after a highway bridge collapse in genoa. allies haveand his questioned whether the country should respect eu constraints. he says there can be no

trade-off between fiscal rules and the safety of italians. u.k. police are searching three houses as part of a counterterrorism probe after a car attack on parliament that left the restaurant and cyclists injured. and man was rescued -- arrested after crashing into commuters and striking barriers outside the parliament. citizens tocalls on remain vigilant. chinese have suspended gaming licenses after a government shakeup. they are restructuring power amongst apartments and they have been concerned about violence and gambling. online giant tencent to small developers still await approval. the ministry didn't merely respond to a faqs request. -- didn't immediately respond to a fax request.

there is part of the strategy shift $180 billion into a portfolio. berkshire has moved into apple and other companies. ethereum'shis -- co-founder has said the growth in cryptocurrency was a bubble and the market is stronger for it. it is not unexpected and we do feel it. we feel the exponential increase in activity and it is overwhelming. day onal news 24 hours a air and at tictoc on twitter. this is bloomberg. a big dayit could be for tencent for better or for worse. the chinese tech giant reports

earnings and we could see the biggest stock move since 2015. a first half where the company has lost more than 150 -- one fd -- $150 million in value. is bloomberg's asian text editor. tencent another companies in trouble? >> it happened earlier this week taketencent was forced to a game called monster hunter office download list which sparked a selloff. -- called monster hunter off its download list which sparked a selloff. this coincides with a by thedation of power president. there's been a reluctance to allow games to go out that have graphic violence and other

sensitive topics. that has put the brakes on approvals and once we discovered the cat was out of the bag and we are going to see that reflected in some of the numbers possibly coming out although really the full impact is going to become clearer when we get subsequent earnings results. francine: will we see any financial impact? have we seen it? the fallout, the most immediate fallout was seen in japan where a lot of japanese gaming companies have also been active in china. we saw companies like square enix and capcom decline was 3% today on top of earlier declines this week. shares fells by about 6%.

ist will be really a focus what company executives will say about their projections and estimates going forward because the full scale of this impact is sinking in right now. francine: thanks so much for the update. asian tech editor. sector, jointech us for the hour, julian howard. when you look at the impact of some of the tech stocks, are you worried that this is a pivot point? julian: this is one of those moments where active management is going to be critical. you have to choose very carefully between your tech stocks. we have some stocks in the u.s. that are trading at 100 times forward earnings. others that are more into secular growth and e-commerce.

i think there opportunity continuing the technology sector but you have to be wiry -- wary about what is priced to perfection. a asian: if you are tech? julian: it's been caught off in the larger market selloff. -- caught up in the larger market selloff. up intech has got caught that. it's still in tact a concept but pricing is going to be challenging. the u.s. remains more tractive, suchcularly in those areas as e-commerce growth. while day. and's it, they should ride a secular way for many years to come. we are still seeing the death of bricks and mortar and in the u.k. we saw that. francine: overall, where you see

value? without a huge repricing of emerging-market stocks. to representocks value but they will be volatile. if you look at the msi em over msi world the discount is about 35%. history suggests that these violation levels, the next five years, will give you a compound rate of about 10% return. it is for the brave. if you are ready have the allocations, don't sell them but you have to start looking at an entry point. it will be volatile. the valuations suggest good returns over time. francine: thanks so much. julian howard stays with us. lots coming up including turkey's tariff play. it's on a range of american goods bill -- bringing the two countries to a breaking point. populist/out at

the eu after a deadly bridge collapse in genoa digesting that the spending limits could put lives at risk. this is bloomberg. ♪

francine: economics, finance, politics, this is "bloomberg surveillance." has slapped additional taxes on imports of american goods from rise to alcohol. this comes as the president calls on a boycott for u.s. electronics as he retaliates against the trumpet minister asians efforts to pressure turkey into releasing an american pastor. appreciated more than

7% against the dollar after the banking regulator limited lenders, and swap transactions. yousef.t to this is the latest escalation of the ongoing dispute. what are the measures being taken? get to theill measures in the second. we just had some lines out saying that the turkish court has rejected the application from mr. brunson, the key individual in this dispute between the united states and turkey. the appeals court is going to examine the application so not much progress on that front. rhetorice combative from the turkish president in the last 24 hours and he followed up on it. he said turkey was under siege and being attacked and pointed united states. they are to blame, he said.

not just the tax turkey but on other economies. few hours, we had tariffs imposed. this is an additional 120% on rice,additional 50% on and additional 140% on spirits. tradeot an unimportant relationship. fourth. is turkey's largest trade partner. as his nato alliance begins to get such -- begins to get shaky. later on today, the qatari leadership is going to be having some conversations as well. it's a very tense situation. are looking for further developments on currency and foreign debt that a lot of companies are holding. bloomberg has done some great work crunching the numbers. $16 billion worth of foreign

denominated debt that will come due. the bulk of this is towards 2019 so it's going to be a slow, protracted process to seal the real damage the lira devaluation has done. francine: whatsit like on the ground? do people worry about it? istanbul votes differently than the rest of the country. what could be an outrage and istanbul may be supported by the rest of the country. do they still support the resident? support the -- president? yousef: it's a heated conversation. it's a key talking points, people are worried and see this escalation as carrying enormous risks. that's the main support base that voted for him. not istanbul, as you pointed out. but the people gave them a new -- gave him a new term is the

people rose out of property -- poverty in the mid to thousands and he still has some credibility with them. or so the lira has lost, until that trickles through to inflation, you won't see much of a change in that support base. thank you so much. the anchor of bloomberg markets middle east. let's keep conversation on turkey. joining us now is refet gurkaynak, a professor of economics. how does this and? are we going to see -- how does this in the? -- this ends? of it as markets trying to figure out what is going on in part of it is a real problem. turkey has done a lot in the

last decade in most of it has gone to nontradable's. now is the time of reckoning. the problem we are facing at this current point is that there isn't much of a positive framework that is going to help figure out what might happen. we don't hear much from the central bank and we don't hear much from the fiscal authorities and therefore it is up to the markets to decide what might happen and what government and the central bank will allow and how far the lira might depreciate. that's why we see such huge volatility. this will subside at some point but the real problem is the firms that have borrowed so much on their balance sheets. be dealt with to and until it is, the fiscal implications of that become clear, and there is a fiscal program that shows how isntually socialized debt run down, it's not going to be

lira or ae a strong low volatility here. the question, i guess, is when does it end? is this to do with the economics of what the president has put in place? the independence of the central bank that is not independent or the diplomatic spat with the u.s.? 50-50? refet: the central bank can do some things but this is not a central banking problem alone. of course, raising interest rates here will help some. i don't think any interest rate hike of any size alone is going to help elicits accompanied by something along the lines of whatever take. if markets try to continue to test, we will keep hiking.

is that isue here only a temporary stopgap solution. it's going to prop up the lira but until the real problem, the problem of the debt, is dealt with, which is not a central banking problem, we are not going to be out of the woods completely. francine: you think we'll see capital controls in turkey? i've heard various options. imf involvement and a unique lateral -- any unilateral loan from russia. what would be the most palatable option for the leadership of turkey? refet: the short answer is i don't think we will see that. i'm fairly certain that it's not the right thing to do anyway. which isn't what always guides policy. turkish banking sector is fairly strong. the banks can absorb quite a lot of losses and it's hard to

imagine a case where having capital control is going to be better than not having it. you have monetary policys and fiscal combinations that are credible enough for the next two or three years with or without capital controls, it's going to be a mess. if we have such a policy, we don't need capital controls anyway. it's important to emphasize again that the banks are individually strong and the banking sector as a whole has a lot of capacity to absorb losses and therefore capital controls don't seem to be warranted, to me. also, the turkish problem is not only one of debt but of a continuing deficit. we still have to borrow. touchese, since nobody

a country that has imposed capital controls, it's very hard to imagine a scenario where the capital controls might make sense. so i don't expect to see them. one final question. what do the people of turkey think about all this? do they worry about it? do they think this is something that has been stirred by the west? are the behind the president? will there be an internal backlash? refet: it's a political question that i'm not an expert at. exchange rates matter in this country. very much like people see the stock market as a barometer of how things are working out in the u.s., in turkey, ask anyone on the street and they would know the exchange rate against the dollar to the fourth decimal point.

thus, there is both a real effect. inflation is soaring and it will go further up. there is also a psychological effect. it seen as a clear sign of where the economy is going and the impact of that on risk appetite and general business behavior is very destructive. but the real backlash in these kind of situations comes when unemployment begins to go up and we are going to see that even worse than before, conditional on how bad recession is, we have created a lot of employment in construction. construction is cyclically more sensitive than anything else area -- else. therefore we will see a lot of unemployment created by the sudden stop in construction. unemployment always

creates political pressure. francine: thank you so much. , ais refet gurkaynak professor of economics joining us from istanbul. let's keep the conversation on emerging markets. still with us is julian howard. let's look at our emerging-market stocks. selling markets significantly more because of turkey. you worry about contagion? julian: we've seen some contagion in the indian rupee but overall, e.m. is a compelling investment on a long-term basis. we know the future of growth is in asia and emerging markets so the only question is at what value do you enter? i think it's looking attractive with a 35% price to ratio earnings discount. you are looking at strong

returns going forward based on a history of valuations being this cheap. francine: we saw a significant move yesterday. currencies that are related to turkey but you see anxiousness taking a hold of the market. with a get worse before it gets better? -- will it get worse before it gets better? doian: a lot of it has to with the dollar strength in the strength of the u.s. economy. they are effectively exporting tightening around the world and it's always problematic for emerging markets when you have a strong u.s. economy. and the tax cuts deregulation and the 4.1% gdp we will probably get the fourth rate hike this year but that's tough for emerging markets. we can see the end of that improvement. there is no more that can be done in terms of stimulus.

possibly an infrastructure program but we have to get through the midterms first. i think from now on, most isnomists see that 4% number actually going to start to soften and the fence will hopefully be done after that fourth rate hike area it doesn't need to be on such an aggressive program anyway. maybe that will give a reprieve for emerging markets. closer to the end than the beginning so you have to think about your moment or two start getting back in. is a 20% selloff is something else? it's not a crisis. of the stock all markets are down and there's contagion to western markets. thelira is not at 20 to dollar. that's the level you have to get worried.

it's more of a short-term and near-term volatility rather than an all-out crisis. if you are waiting for things to get worse, you may be disappointed. there's no point getting too cute about your entry point. the valuation is 35% cheaper and that's good enough. waited out the new will prevail over time. francine: thanks so much. julian howard joining us today. the death toll rises in general a with a bridge collapse claiming 35 lives. populists lash out at the eu. we talk about the impact on the eu and italian budgets. this is bloomberg. ♪ .

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executives are suing for at least $2 billion and claimed the owners of a dating app are trying to cheat them out of a stock option. finger atpointing the the eu over the bridge disaster that killed 35 and the deputy prime year hinted eu spending limits lies at risk. has added tohaway its stake in banking and airline industry and china has said licenses among an agency shakeup and turkey has slapped an additional tax on imports for u.s. goods. just getting breaking news coming in from the u.k., this is what we look at, u.k. inflation data, significant and accelerating to 2.5%. not seeing how the move a lot. -- pound move a lot. let's get to the first word news.

>> the turkish lira is trading higher this morning after rebounding 8% against the u.s. dollar yesterday as investors digest measures announced i the central bank aimed at stemming currency. they currency's official gazette has published goods in which additional duties can be imposed. it does not include mobile phones despite the president calling for a boycott of iphones. you carefully searching three houses as part of a counterterrorism probe after a car attack on parliament yesterday that left pedestrians and cyclists injured. a 29-year-old man arrested after crashing into early morning commuters and striking barriers outside the home of the british government. theresa may called the u.k. to come together to remain normal but carry on vigilantly. china approval of licenses amid a government shakeup, restructuring of power among

departments and concerns about violence and gambling. gaming companies from online giant tencent await approval. a spokesperson from tencent declined to comment. hathaway has added to its holding in banking and aviation, recent investment in goldman sachs and southwest last quarter as part of a strategy to ship $180 billion software -- portfolio. they split long-term holdings including ibm are moving into apple and other companies. the surge in the value of a currency is a bubble and the system is stronger. comments as the crypto market comes under increasing pressure. >> this is not unexpected. we feel it. we feel the exponential increase in activity in our ecosystem,

overwhelming what is going on. >> global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am kailey leinz. this is bloomberg. francine: thank you. today's populace has lashed out over the eu over the bridge collapse in italy. they said disaster highlights the importance of investment, hinting that the eu spending limits could put lives at risk. news agency say the death toll is 35. joining us on the phone is a reporter just outside genoa. the infrastructure minister called a manager to resign. what is the latest? >> he mentioned the possible fine up to 150 million euros.

to the company responsible for the maintenance of the bridge. which controls it was not available for comment. we are waiting for them to come back on that. after the tragedy yesterday, the death toll of at least 35 people, an entire night spent by the fire brigade in search of survivors and people trapped in the rubbish. the government is trying to focus on the responsibilities and the actions to take. the populace -- the government eu,da are challenging the particularly regarding the budget limit and deficit targets. the interior minister says they collapse of the bridge shows how important it is to increase rather than reduce spending. this is becoming a huge political issue.

a few weeks ahead of the presentation in september of the 2019 italy budget. how much of we know atlantia -- shares in fell significantly. i note that stretch of road quite well and you pay a lot of money, was it their responsibility to make sure the bridge was sound? >> we have little information about this. they are not coming back with a lot of information. needed in order to maintain the bridge in the proper form, everybody saying they are to blame. they said they did what they could. assess the damages and to try to find out who is responsible.

are sayingfrom genoa this bridge was seen as a danger or a decade at least. everyin the 1960's and time they went on the bridge, they feared for their life. something that needs to be addressed. can i also tell you that the atmosphere is terrible? , a day national holiday dedicated to the families, people go to the beach and spend the day having a big lunch. , particularlyans in the genoa area, you like celebrating today. a time for mourning. time for trying to understand what happened, but

today people are deeply in shock, francine. francine: thank you. i worked reporter usually based in rome. up next, we speak to the founder and chief executive of a streaming service for independent film enthusiasts. we will discuss netflix. this is bloomberg. ♪

francine: let's get to the bloomberg business flash. >> royal bank of scotland has declared a dividend after the state-owned lender will pay to

settle allegations it misled investors over mortgage backed securities in the years leading to the housing crisis. they are accused of misleading investors and underwriting in issue of mortgage backed securities between 20 -- 2005 and 2008. a capital management firm in talks to acquire a stake in a company as a chinese conglomerate ways options for airport luggage handlers. we learned there working to explore possibilities, including the sale of the majority stake in the business. they could beat either $3 billion. -- swiss for could be valued at $3 billion. a week after elon musk said tesla may be a private company evidence is piling up that he tweeted too soon and says goldman sachs has not been formally tapped a advisor and

the bank and private equity firm -- a had not officially spokesman for goldman sachs claim to the comments -- representatives did not respond to request for comment. companies -- a center.y a high pace companies in the index name steve or stephen. next guest is a banker turned entrepreneur, joining netflix and amazon. movie -- online movie service for independent ,nd art house film enthusiasts

showing just 30 films at any one time in each day a new one is selected. 100,000 subscribers at 8 million registered users. is there any room for smaller companies to take on giants? thank you for speaking with us. your business model is different than the big players. how do you see the lengths it -- landscape changing and affecting your business model? >> to survive in this business you need a clear differentiation with netflix and amazon. we see the echoes system -- echoes system, a number of players bringing you all sorts of entertainment. we think there will be five players. will go amazon, apple

in a big way into the business in the next 18 months, google will start getting serious about this, and disney. we think that is it. francine: this is for content? >> scale entertainment. the majority of the households subscribe to at least one of these subscriptions. social will be shorter warm. and specialty feeds. we are a specialty feeds who folk on world summit -- cinema. -- focus on world cinema. definition is not going to be up to satisfy everyone. scale that they are investing. francine: it is curated. generation wants to

have everything available when they want. is that an advantage or this advantage? when you get people everything, they are looking for a way to cut through the noise. that is what we are. we choose only one film per day. we think that is a clear differentiation. know how you- you go to your favorite video store? does not matter if they have 1000 titles, you know -- you go to the guy behind the counter who knows the films and say you are in the mood for a classical comedy, he picks up something and says you never heard about it. you liked it and you go back to the same guy the next day, that is us. francine: you were talking about the fact that in the u.s. people

have multiple subscriptions, what they have yours in addition to others? >> yes, that is why we are growing like crazy, revenue growth was 135%, the reason we are growing, next to these giants, is because people are taking multiple subscriptions to satisfy the needs. more than half of the households in the u.s. today have at least two subscriptions. this is already happening. 20% of them have more than three. we see that this will continue. francine: how do the asians and chinese consume this differently? if you crack that business, you will do better than competitors. >> they are incredibly engaged with mobile. more so with sort of form content. you have to be incredibly vocal in those countries.

local in those countries. malaysia is 40% malaysian at 20% chinese, 10% south indian and their entertainment needs are different from each other. hyper-localized in asia. an exciting place for movies. francine: do you think you will be bought out? you hear about consolidation in the media landscape almost every day. >> when i see that netflix is bennington billion dollars a year on content and we raised $25 million, it is a different scale. we see a lot of room for growth. we are not trying to replace netflix or trying to be as big as they are, we are complementing the netflix experience. as an independent player, we see

tremendous room for growth. francine: in the u.k., will people have less money to spend if we see a downturn? >> people will always spend money on an expensive entertainment. 2008 with the financial crisis, two sectors grew where the other stayed flat or went down, the movie industry and fast food. brexiter what happens, did not have much of an impact in our business, or any downturn that may be coming up, people who continue to watch entertainment in their home for $7.99 per month. francine: a nice blog at the end -- plug at the end. today, 10% ofes the value wiped out in 24 hours and bitcoin has went up. the world's number two digital token has bounced more than 9%

today. erik schatzker sat down with her cofounder and got his take. >> this is something we have seen so many times in the blockchain ecosystem since 2009 when bitcoin was invented. we have seen rises and falls. we have seen what many call bubbles and i would agree. >> what happened last year was a bubble? >> we have seen six big bubbles, each more epic than the previous one. each of these bubbles are astonishing when they are happening. pimples onike little a chart when you look back because the growth has been a financial. --h of these bubbles happy brings attention to the ecosystem and brings entrepreneurs and developers. it brings the prospect of

building fundamental infrastructure and creating more value. what we have noticed is that, with each of these bubbles, we have a tremendous surge of activity and that is for we are seeing now. we had a big bubble from now back to november, december prices, which we thought were incredibly high. since then, we have seen two orders of magnitude increase in developer activity, increase in scalability, technology. going quite well. >> does it worry you that the developers, entrepreneurs, talent, money that enters the crypto ecosystem on the way up exits on the way down? >> we are not seeing that. feel likeder types their fortunes are rising and falling with the price of bitcoin and if price of us, and

these tokens are correlated. it is the trader types moving them around. >> don't you feel it? surely?, shirley -- >> we can look at the price and can make growth plans and projections. we are still on track. this is not unexpected. we do feel it. increasehe exponential , it is overwhelming what is going on in terms of our different product projects and new scalability technologies, developersprojects, entering the ecosystem, new large companies that have gotten comfortable with our ecosystem. francine: we are getting breaking news out of turkey. the lawyer of a pastor, the

person the u.s. -- turkey is refusing to release, the u.s. pastor, and his lawyer says the appeals court has three days to rule and he is expecting the appeals court ruling tomorrow. look at the impact it has had on turkish lira, two stories at once, the fact that the turkish central bank is not seen as independent, the president erdogan is manhandling this closely. this is on the economic side. there is a diplomat spat between turkey and the u.s. with turkey and the turkish court a couple of days ago refusing to release a u.s. pastor and his lawyer says they will rule on it tomorrow. up next, we will break down the hedge fund community and see what it means for warren buffett and the likes. this is bloomberg. ♪

economics, finance, politics, this is "bloomberg surveillance."

i am francine lacqua in london. the u.s. session, we saw filings including from berkshire hathaway's, which stocks are getting attention from the hedge fund industry and we break down the highlights. , usingwarren buffett investments and two of his favorite industries, banks and airlines. southwest,nes and all of these stocks rose in after-hours trading after the filings. he is also increasing his stake in apple. he boosted his stake to more than 5%, adding 12.4 million shares. you can see that this is the share price versus his holdings and how they moved in tandem with each other. this is before apple made the $1 trillion mark. what is 5% of one trillion u.s. dollars, $50 billion. francine: thank you. looking at the various share

prices. i do not know whether you have somebody talking about tesla, that atesla, big stocks lot of hedge funds are looking at on whether to use. one,otify was also a big they have gained 50% since april and george soros was looking at that among other prominent hedge fund managers. a lot of people throwing their weight around oil companies. francine: thank you. we continue in the next hour. tom keene joins me in new york and we bring you the details on tencent earnings. this is bloomberg. ♪ xfinity mobile is a new wireless network

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saving you hundreds of dollars a year. plus, get $300 back when you buy a new smartphone. xfinity mobile. it's simple. easy. awesome. click, call or visit a store today. theyine: turkeys tariffs, announced taxes on american

imports from cars throughout all and bringing ties to the nations closer to the breaking point. the fight is they've all contagion as indonesia races rate for the first time since may. the death toll rises in genoa, 35 people reportedly died after a bridge collapses. good morning. this is "bloomberg surveillance." i am francine lacqua in london and tom keene is in new york. the italy tragedy. i think everyone who has gotten in touch with me because my family is from genoa. this is politicize now. this islace are saying the fault of the eu because the infrastructure is not good enough. budget lawso be the that will be passed in a couple of weeks. atlantia whois is manages this stretch of the highway and it is their

responsibility. in theere was no one english media more qualified to speak about this. tell our audience worldwide what this ridge means to your -- bridge means to your genoa? francine: it is part of a highway, the only way to go to the beach and airport. it is the main highway that links genoa, one of the biggest cities in italy which has crew ships and containers, it is a port and you have a lot of economic activity. the only one that links it to the airport and the rest of the region. this is a huge deal, not only for the human loss of life but one of the most used highways in italy. tom: remarkable. so much other news flow. let's get to the first word news. >> turkey is digging in its heels with the standoff with the

u.s., a court has rejected an appeal for the release of a detained american pastor. another court will review the ruling. president trump has increased tariffs on turkey's aluminum and steel and the turkish government retaliated imposing tariffs on a range of american goods from alcoholic beverages to cars. the turkish lira rallied after regulators moved to deter shortselling. .utting losses to 20% inflation in the u.k. rose in july 21 time in eight months, consumer prices increased at an annual rate of 2.5%. the cost of gasoline and computer games were higher on retail fell. in italy are using the fatal collapse of a bridge to wes and why they should respect you budget constraints, italian news agencies say 35 people were

killed when a section of the bridge gave way after heavy rain and the italian finance minister says there must not be budget restrictions when it comes to capital spending. evidence that elon musk tweeted too soon by proclaiming tesla may become a private company and we learned that if that not formally tapped goldman sachs as a financial advisor when he said he may take the electric carmaker off the market and secure funding. it has drawn scrutiny from regulators. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am kailey leinz. this is bloomberg. tom: thank you. charge, bonds, currencies, commodities. euro is weaker. 113.26. onto the next screen, the chart we are showing is important, lira stronger.

renminbi, going through 6.90. a major story where finally getting a dollar breakout here. francine: european stocks are paring some gains. and yete risk appetite the appetite continues to be tested the recent turkey induced turmoil. dollar rising to the highest in 14 months. .1735.rkish lira 6 tom: i had five charts to show. asia,s the pacific rim, dxy, the shadow of august 1998 and 1997, the collapse of asia. long-term recovery of asia as well. this shows you where we are. here is the low, not all that

distant from the lehman low in terms of tension within em currency and strong dollar. this puts in perspective how far we have to go down to get back to the angst of 1998. not there yet but a strong dollar and weak adxy in the last four days. francine: this is an important chart just like yours we will push out on social media which compares the average violation for the emerging-market index of stocks and world index of developed nations stocks, and ands em stocks are cheapest have become cheaper this month because of negative sentiment around turkey. slapping an additional tax on imports for a broad range of american goods from rice to alcohol and the decision follows the presidents call for a boycott of u.s. electronics including iphones. the battle has led indonesia in

central bank to raise it and smart interest rate for the fourth time since may. good morning. we saw a number of measures taken by regulators, will they be enough? will the turkish lira rise today ? seeing the shadow of the politics play a role. initially, stocks rallied higher and now back in negative territory. the latest series of measures from the turkish government sets the scene for rapid escalation. we heard from the white house spokesperson overnight and they said turkey will do the right fact. after the combative speech yesterday from the president, here is what came out, additional tariffs and not small tariffs but significant additions. rice,n cars and 50% on

140% on spirits. tobacco also involved with the total $1 billion worth of trade. the turkish government says the response is proportional. about the u.s. pastor being held in turkey. the lawyers application has been rejected and the appeals court with three days to get their final say on the matter. francine: even if the pastor gets released, does it change the economic outlook or turkey? what does that mean for investors? >> it is a key point, francine. even if he does get released, an unlikely scenario given where the rhetoric is, you are still looking at the government looking to the east for support and investors. they are labeling the united states responsible for attacking the turkish economy and we are seeing turkish retailers pausing sales of iphones, the largest

telecom in the country is stopping some of the digital advertising to some of the american companies involved. as much as the central bank will be in focus in the next meeting they have scheduled comment terms of whether to respond to the market, you have the politics that will keep a lot of these assets volatile. wellyou know this chart because everyone is living at worldwide. the first date of contagion with indonesia and india. all of the panic going back to the 1980's and what we saw him nearly 2000's, strong dollar, weak dollar, we now have a stronger dollar, which president trump really, really, really does not want. there is the bloomberg dollar index. is erdogan's best friend a strong dollar? because that will force president trump's hand?

>> president erdogan does not see the dollar as a friend. as a tool was labeled for political punishment and yesterday he said they would start converting and are converting the u.s. dollars into local currencies. dollar is a currency to hedge away from and do more trade in local currency. a tertiary -- turkish government spokesperson says they do not want an economic warfare with anybody, saying they expect the improvement to markets to continue. we are waiting for a u.s. response to a lot of the dramatic developments in turkey in the last few hours. last time around, we saw sanctions and tariffs and understand there is a list ready to be fired away, all it is waiting for is a green light on the president. francine: thank you, great job. is marilyn watson,

head of global fundamental fixed income strategy at blackrock and chris turner of ing. foreign exchange market, the turkish regulators are trying to get a little bit of liquidity out and the investors cannot short the currency much. willw bay do more in -- they do more in that? --valley in the turkish lira rally in the turkish lira, shorting the turkish lira but it is one of many issues out there and politics will dominate this week and next week. francine: how much contagion will we get? we have had a lot are ready. >> at the moment, something contagion and further bond markets and other currencies. we have not seen it and develop

markets, per se, and the moves over the past couple of days are not only related to turkish but weaker data in china. we are seeing less synchronization in global growth and the u.s. economy is doing very well and weaker data out of china and the eurozone, elsewhere. it is a confluence of factors and turkey is one of them. but the range of issues contributing to the strength of the dollar and issues elsewhere around the world. tom: the history we have read on this. adult stepsisis, an back into the room and that adult is almost in every case the united states. meetingskrock in your suggest it is different and president trump is not able to lead us towards what the u.s. must do, weaker dollar, to assist the em economies? >> the central bank is independent. the central bank is pursuing the

policy of gradually raising rates this year, next year as well. dollar, whenof the you look at the u.s. economy and what he donald trump administration has done in terms of providing the school stimulus and seen the positive effects of that throughout this year and into next year. then i do not know there is a lot president trump can do, apart from rhetoric. there are fundamental macro issues that are impacting the dollar at the moment. jawbone wednesday, and turkey, headlines from their spokesperson. of headlines, turkey to continue to abide to free market rules, he says improvement trend in turkish market is observed and we can see that with lira over the last 12 hours. doing better.

policy, iseeds there policy substance in the last 12 hours? >> i think investors are looking for progress on three issues, politics, domestic policy, the global environment in general and the dollar environment. it is nervous at the moment. you highlighted with your charts about the dollar-china. i think turkey has a situation it is in a way -- the strong dollar, using the dollar for an economic weapon, which is dominating the environment. tom: fascinating, you encapsulated it nicely. we have so much more to talk about. what you need to know on contagion wednesday. cook of thetephen council of foreign relations.

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this is "bloomberg surveillance." royal bank of scotland has agreed to a record settlement of claims it misled investors over mortgage backed securities. the u.s. justice department said the bank would pay $4.9 billion as of the lisa cholodenko is penalty over a three decade old law. they are not admitting wrongdoing. shares of british department --re chain devon him sword the company owns almost a 30% chance and a formal bid may be forthcoming in the near future. they agreed to buy the

struggling departments for chain. one data point to show you where we are and the tensions with deutsche bank under 10 euros per share. chris turner's world is foreign-exchange, ing. bond market, where everybody turns in a crisis. we have marilyn watson with blackrock who will assist us. here is the turkish bond market and the idea of turkish lira bonds 26%, and far more importantly before in dollar denominated paper spiking near 10% in yield. what are you looking at on your bloomberg in the bond market to gauge contagion? >> we are looking at the performance of the other emerging markets who have large external requirements. we are looking at the corporate bond sector, those in emerging markets and within europe.

in addition, we are looking at the performance at europe and fear of contagion that may be spilling over. any economies that may be similar in nature to turkey. but also corporate bond space. tom: yesterday columbia was mentioned in south america, just as one example. that seems removed from is simple and ankara -- istanbul and ankara, but it is not? >> the spotlight is fully centered on emerging markets and particularly those with issues with external funding, issues with politics, and a range of different issues. if you look at countries from columbia to south africa to any other economy that has external requirements or issues, they are all in the spotlight.

if russia does -- russia does not have those issues that they succumb to a certain contagion. across the board, contagion in emerging markets. not only in the emerging market bond markets but, if you look at italy, you have more widening. potentially on turkey and issues around the upcoming summit and budget in september. there are a range of a different issues coming into play. i think investors are in a risk off environment at the moment. and the bond market and currency market where we have seen buying in yen. swiss franc, buying. that is what you would expect to see. francine: can this turn bigger, chris? what is the breaking point for the contagion? >> thinking about the next couple of months and what is on the schedule, it looks like the

u.s. tariffs in china will be extended to $200 billion, 25%, huge. same time, turkey situation is unresolved. in congress, the senate, a bill against russia which would touch russian sovereign debt and the first time the u.s. has gone anywhere near the russian sovereign debt. in the environment of two further fed rate hikes and the u.s. economy doing well at the moment, there is a confluence of factors making for a difficult environment, dangerous environment for emerging markets. francine: stay with us, marilyn watson of blackrock and chris turner. we will talk about the contagion coming up in about 40 minutes. this is bloomberg. ♪

tom: we say good morning to all of you, worldwide. a most interesting day and part of it contagion. across indonesia, a long-term chart, it looks a little different than some of you may know. 1997,is the meltdown of 1998, another meltdown. chris turner of ing with us with marilyn watson of blackrock. confine contagion -- define contagion.

>> i think what we see at the moment is like deleveraging. at the start of the year, we thought it would be a good year for synchronized global growth, the dollar was contained, chinese growth was looking pretty good. since then, with protectionism and the trade tariffs, and the strong dollar from april forward, that has put a dent and emerging-market investment. currency, itlocal seems like redemptions are taking place at the moment. particularly if the dollar is so strong and the currencies are under pressure at the moment. a difficult environment to think about returning to them for the time being. it is a function, like the u.s. and dollar policy is behind a lot of it, trade policy.

it needs to be solved in washington. tom: i would suggest, reading history, it always comes back to the major development economies. marilyn watson of blackrock with us and we will discuss fixed income. we will not leave her out. a contagion wednesday. let's look at data, a great em data board and we will show that later. the seven6.91, on yuan per dollar watch. stay with us. this is bloomberg and that is a gorgeous august new york. ♪

this is "bloomberg surveillance." i am francine lacqua in london and tom keene is in new york. a deputy premier in italy told reporters that the bridge

disaster highlights the importance of boosting investment and eu spending limits could be putting lives at risk. a news agency quoted firefighters as saying the death toll is at 35. joining us is a reporter in rome. it is not clear to me where the blame lies. this is operated by a private company called atlantia. is it the responsibility of the government, hurt by austerity or a private company that has not been doing its job well? >> it is hard to say at this stage. it will be a matter for the prosecutors. for sure, the latest is that the government called on the manager of atlantia, the operator of the highway, to resign. the licensed that

to operate the highway could be withdrawn with a possible fine to the company. if they are not able to manage our highways, the state -- the transport minister said on facebook, the level of confrontation is serious. francine: what does this mean for the budget? the deputy prime minister heading the euro skeptic league says, if external constraints prevent us from spending to have safe roads and schools, it calls into question whether it makes sense to follow these rules. this is being politicized. does he have the backing of the italian people and what does it mean for the budget law? >> this is very complex. one needs to separate the level of the political rhetoric and the substance of the budget

talks. the government is drafting the budget for 2019. a few minutes ago, the finance minister, considered one of the more moderate figures within the administration, issued an unusually forceful and frank statement in which he appeared theide with a person saying investment in infrastructure is a priority for the current government for which there is no budgetary strains. italy hasending in gone down dramatically in the past few years. in there was no excuse light of the recession and the austerity policies that have been implemented by the previous

governments. he often said that is not an excuse for the dramatic all in for -- fall in infrastructure spending. go on the same side? -- theysay but no doubt see every day the low level and bad state of the country's infrastructure. and the bridge which collapsed in genoa yesterday. francine: thank you to our reporter in rome. let's get back to marilyn watson of blackrock and chris turner of ing. ucd populist -- you see the populist saying this is the fault of the eu, will this play out with the italian population?

asserts as aors, reminder that the italian budget is coming into the september hop on october -- september-october eriod, in march, april, it came back in impacted the euro. in the run-up for september and october, that will play a bigger role going forward. is: part of the discussion our infrastructure is wearing out. the bond market is in every case, that is where it ends up, i do not care what politicians say in italy or the united states after the terrible isnesota bridge accident, it always the same, bonds come to the rescue. is liquidity -- >> there is still plenty of

liquidity. markets over the summer but there is liquidity and demand. a huge demand for yield, particularly when the fed raises will further and the ecb raise rates and investors in europe are still just starved of income and yields. we have seen that in corporate bond space and government on space, underlying demand for those who need to get the yield. tom: this is incredibly important. what she said is the single most important thing on infrastructure i have heard. but we have learned in the united states, if you do targeted bonds for bridges and roads with a proper yield, it gets built instantly. there is a will to do it, nothing more. francine: we need to wait for the prosecutors in italy.

do not know if it is funded by investors but a listed company, atlantia, which should be in charge of collecting the money and do not know if this responsible by the company or private -- or government. you can issue a bond to build infrastructure but if you have a private company, maybe they are also responsible for making sure the bridge is safe. we will let you know. marilyn watson and chris turner, stay with us. that's get to the first word news. >> turkey is taking more steps to profit the lira, the currency rose from record lows after regulators make it harder for banks to short it appeared the government posed higher tariffs on a number of american goods to retaliate for the president trump's decision to put tariffs on turkish steel and aluminum. a presidential spokesperson says the u.s. is at risk for completely losing turkey and

turkey does not want an economic war with anyone. closing arguments set for today and a trial of president trump's former campaign manager paul manafort who decided not to testify in his own defense. the judge in virginia rejected a defense motion to acquit him instead of giving the case to the jury. regulators in china have thrown the roles largest video game market in disarray, we learned that have frozen a game licenses as part of a government shakeup and the regulators have been concerned about violence and gambling in some games. the sector has been rattled from tencent to smaller game developers struggling to survive. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am kailey leinz. this is bloomberg. francine: thank you. it could be a big day for tom keene -- tencent, options

traders suggest we may see a biggest stock move since 2015 after a rocky first half where they lost more than $150 billion in market value since january, the biggest wipeout in that time. is a bloomberg opinion columnist. not with their business model but regulators weighing in. what may we see from tencent? >> there are so many factors going on that it is hard to know where to start. even before we heard about regulatory risk, there has been headwinds facing the company. one thing we have been noticing for six months, eight months, it is more expensive to procure revenue. the amount of money they have to spend on marketing to get every dollar of revenue on to the platform has gone up and up and their growth margins have been squeezed to the lowest in 10 years. we expect to see similar levels

when earnings are released in the next few minutes. that is one of the key themes. and regulatory risk surrounding the games platform. tencent, even though it is well known for the chat app, it is more of a games company. revenue coming from games and a freeze on new game titles. ishout new game titles, it difficult to go back into the market and get revenue from games. people get bored with old titles. the regulatory risk is the key. the great reporting by our colleagues in china and hong kong to ride out if it is across the board tells us it could drag on, a concern for tencent and investors. francine: talk to me about the freeze. bureaucrats have not been taking any new initiatives because they do not understand the bishop and guidance from the top -- the leadership and guidance from the top, when we have clarity? >> that is the key thing, we do

not have clarity. we thought at first it may be a couple of tencent titles that we learned it is across the board. an internal shakeup within the regulatory departments in china, possibly horse trading and reshuffling. that means there is fundamental underlying risks and issues. not like a simple policy tencent has to pass. the fact it is not clear is what people are concerned about. tom: thrilled to have you with us, particularly on the pacific rim watch with increased contagion. taiwanesehis is the dollar and there are few charts like this. this is the best approximation of the tiger miracle i have ever seen. the 1980's strength in taiwanese dollar is unreal. here is the crash of asia in the late 1990's.

and an absolutely remarkable stability and even taiwanese dollar strength over the last 20 years. how is taiwan set for the new contagion? is this time different? thing that has been going on in taiwan for the longest time, they have kept their currency stable. taiwan has one of the world's largest foreign reserves and their central bank of taiwan and china --, called china, denying it interferes, they said they met the currency follow market forces, wink. a lot of foreign reserves to stabilize it and that has been a swing factor for earnings and taiwanese trex company but they have weathered the storm. further contagion -- i am not in expert on what the foreign -- central bank of china will do in taiwan but i think they will weather the storm and the history on the screen gives

evidence at could be the case. francine: thank you so much for the insight. awaiting the tencent earnings. marilyn watson of blackrock and chris turner of ing will stay with us. at 6:30 a.m.rick in new york and 11:30 in london. this is bloomberg. ♪

francine: this is "bloomberg

surveillance." turkey has flat additional taxes on imports on a broad range of american goods on carson alcohol and the european migration problem deepening. is the control risk director and the london school of economics. thank you for joining us. room? the adult in the turkey, europe, the u.s., who wants to be escalate -- de escalate this crisis? >> things are likely to get worse. it is increasingly looking like a david and goliath fight between turkey and the united states as turkey is taking more steps, driven by the national pride and the feeling of national importance, which are

hurting its economy substantially. europe is interested to see the crisis the escalate at -- deesca late this crisis because there relationship with turkey has been complicated. with thisf crises relationship for some time. francine: how does turkey -- the turkey crisis impact europe, we saw euro weakness, does this put europe in more turmoil? >> it will not put europe in turmoil but europe cannot afford at the moment a major economic and political crisis in his neighborhood, particularly in a country like turkey. it is an important economic and trading partner for the european union, and on the other hand, a crucial strategic and geopolitical partner, in particular turkey has been

important in helping to control the inflow of migration into turkey -- into the european union through turkey. the turkey deal that has been signed after the 2015 huge increase in migration flows by turkey has been holding. we have seen, over the past year, the numbers of syrians traveling through turkey increasing. and growing concern within the european union that some of the fighterslamic state that are now trying to find their way back to europe through turkey may be traveling that route. they need important cooperation between the european union and turkey to make sure they stem the flow of those dangerous elements into europe. tom: you are one of the world's experts on the geopolitics of the black sea. what is the price of the president of the united states

having an original agenda with turkey, versus other crisis we have seen? what is the price for turkey and the west given that russia is only distant across the black sea? price, important for everyone, turkey's pain a substantial economic price. geopolitically the west more broadly is also suffering from the crisis. turkey is a very important player within the black sea region, and also more broadly for the european union and for the west in its relationship with syria and the middle east. therefore, if turkey-u.s. relations continue to deescalate -- where i rapper worry about is the potential escalation in conflict in

cyprus. we have seen more bellicose language coming out. constraints may not be there anymore. tom: the headline across the bloomberg yesterday on cyprus, explain to our global audience the linchpin that cyprus is in the rushing that russian-turkey debate -- russian-turkey debate? >> cyprus is important in the west debate and for turkey and the european union, cyprus has been a crucial partner, which has been constraining the relationship for a long time. you have to remember that turkey started negotiations in the european union in 2005 and ciphers has been a major stumbling block for the relationship to advance. developing the energy resources offshore in the eastern mediterranean and turkey

is strongly opposed to the unilateral exploration from their authorities and have threatened several locations, to possibly even use force to prevent that. erdogan is important -- in partnership with the nationalist party which advocates a tougher stand on the issue. the european union is no longer there as a partner to turkey, then the constraints of the policy will not be there. tom: this has been extremely valuable. control risk. marilyn watson and chris turner of ing. do you have a dollar level that is critical? we have seen stronger dollar. you can use euro yen, but are we at a critical point for dollar breakout? >> yes, i think the biggest dollar level out there at the

moment is against the chinese renminbi. ween is a huge level and if -- that will dominate the news. difficult for chum -- chinese authorities to market this even though it is a dollar move, as opposed to renminbi weakness. you some problems in 2015, adjusting the bit -- axing mechanism. and i thinkchanism that is the biggest benchmark and threshold we should be focusing on over the next couple of weeks. francine: how do you see china developing? growth starting to weaken significantly. we see more measures to help stimulate the economy. it gradually deteriorating in terms of economic growth. we are seeing that across into indonesia. china is something we are focusing on.

we think the focus will be strong, seeing deleveraging of the shadow banking sector. china.keeping an eye on divergence in terms of growth between developed markets and emerging markets. francine: chris, do you see china weaponize in the -- yuan?ize the >> perhaps the next move will be a technical measure to try to stabilize renminbi. they could use the countercyclical factor which relates to fixing domestically to the onshore dollar-renminbi. level,uld be the next halloween up what they did in the market when they tighten the reserve requirements. francine: what is a fair value of the yuan? impossible to know or weaker? >> over the last decade, there

is a big push for renminbi revaluation and we got to 6.26, the imf said that is about value. probably about where you are today. you cannot say the renminbi is overvalued. this is more just a cyclical function of dollar strength at the moment. tom: chris turner, thank you. and marilyn watson of blackrock. do a fewut in and minutes on something i try to avoid like the plague. reporter with crypto comments, alastair marsh. you look the part. what is the difference this time in the collapse of bitcoin? what is different this time around? >> if you speak to the bitcoin

diehards, nothing different in the sense that a 7% klein from -- 70% decline from the highs of last year to the 6000 level now, we have seen that kind of volatility before. in any other kind of market, you think that inflows and would be the end -- implosion would be the end and funds would shut down and the end of the world scenarios discussed. but actually you see a consolidation, people say tourists are leaving and it is time for people to get down to work. bitcoin is only on the way up. a number of signals to suggest that is the case with the potential for an etf and the growing institutionalization of the market. francine: there are true believers in bitcoin, do they still believe it or have a turned? that would be psychologically a

big difference. >> my impression is the true believers still believe it, i guess they would not say otherwise but i think they still believe it and they are hanging approved, atf to be sum of market -- moment for the market -- a seminal moment for the market. perhaps the biggest bitcoin bull , says the custody issue, where the main, established and recognized wall street firm to offer custody, there are a couple of firms to work on that, if that comes a point -- comes about, bitcoin could go up and up. a consistence -- consent since in the bitcoin community that says it is not over yet. tom: too short of a visit. i am sure we will see you at 5400 or 4800.

i am kidding, i do not have an .pinion on the bitcoin we say thank you to our report and guess, a fascinating hour. james sweeney of credit suisse will join us, he has been brilliant on price change worldwide and says do not fear deflation and yet where is the inflation? one of the things we will talk about on this day of contagion. liraat 6.91 and turkish under with the dollar stronger. stay with us. this is bloomberg. ♪ xfinity mobile is a new wireless network

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included with your internet. plus, get $300 back when you buy a new smartphone. xfinity mobile. it's simple. easy. awesome. click, call or visit a store today. tom: turkey attempts stability. president erdogan talks. indonesia asked.

they raise rates. the dollar strengthens as the renminbi weekends, near seven to the dollar. the president does not want a strong dollar, higher rates. chairman jay powell and the fed. there are many lessons from wisconsin. good morning. thrilled you are with us. tom keene. francine lacqua in london. the first day of contagion where you see indonesia act. all of it subsumed by this tragedy in italy. the importance of this bridge and the psychological ramifications to italy of this horrific accident. , i wase: first of all

off yesterday, but keeping an eye on the markets. it is a second day of contagion. amazing to see the leaders of italy politicizing this. sayinguty prime minister this is the eu's fault because of underfunding because of austerity. this could have an impact on europe. loss of life,e but if you are politicizing this, it impacts where you spend, how much you spend, and eu rules. this piece of highway, i know it well. it links the city to the airport in the region. atlantia.ated by it is unclear the relationship,

but you paid for this piece of highway. somebody should have made sure the bridge was safe. departmentrotection of italy saying the death toll rising to 39. >> turkey is digging in its heels in the standoff with the u.s.. the court has rejected an appeal for the release of the american pastor. another court will review the ruling. it led to president trump to increase tariffs on steel and aluminum. the turkish government retaliated on a range of american goods from alcoholic beverages to cars. rallied.sh lira that cut losses to about 20%. inflation in the u.k. rose in july for the first time in eight months. consumer prices increased at .1% since june.

retail clothing prices fell. : on thernment in italy manager of atlantia to quit after that bridge collapse. some say the company's license should be withdrawn. 39 people were killed when the bridge crashed after heavy rain. that elonf piling up musk tweeted to send that tesla may be a private company. elon musk had not formally tapped goldman sachs when he said he had secured funding. tweets have drawn lawsuits and scrutiny from regulators. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thanks so much. a busy hour.

jason sweeney of credit suisse in a moment. breakingttening, euro down, oil weaker. second the screen. the equity markets resilient. the turkish lira having a better than good day. here is the contagion. chinese renminbi reaching out to a 6.91. dollar index, the vanilla dollar , a dollar strength breakout this morning. all,ine: we are, first of let me show you my data and bring you up-to-date with tencent. line withncome in analysts. a touch below. 41.2 billion yuan.

net income for online -- i'm wrong. revenue and net income are below estimates. this is what i'm looking at. stocks declining. a lot of caution in the market. ,his has been started by turkey but going on to developing nations, dollar climbing, treasures climbing, and metals down. tom: very good. i gentleman who spent more time --istanbul than james bond we just lost the signal. it goes in and out. let us instead turn to our lead guest, james sweeney of swea credit suisse. james come up with all your

resources, are we at a point of true contagion? markets, we are seeing that. our risk appetite index is in panic. tom: that is a dangerous word. measures the relative performance in risk-adjusted terms. when you see the most volatile asset strongly underperforming the least volatile assets, that can get you into a panic. we were in a panic in early 2016. this time it is emerging-market centric. that famous phrase, this time is different. is the u.s. isnt acting in a completely different way whatever the tone is. how does that political trumpian tone changer economics? >> it means the abandonment of certain policy orthodoxies has

occurred in emerging markets and developed markets. cks on central bank independence, talking about tariffs, things that may work from time to time, but is quite a shift. tom: this word orthodox is used in economics in an important way. day,e telegraph the other "there are rules of the road when you get to this contagion." roserkish inflation sharply. the market expected a 100 basis point hike. they did not hike. it looks politicized. he says real rates in turkey are plummeting. we worry about capital flows,

international investors. basically 101 says you have to be aggressive and tighten monetary and perhaps fiscal policy in response. preview of what can happen anywhere where you see 20 deficit's he coming a problem. francine: let's get to istanbul and our middle east anchor. you have been there for a couple of days. you know the intricacies of the economy. we saw the lyric champ. did it have to do with the curbing of the swap transactions, which means there is liquidity and it forces markets to not go into a short lira. >> several elements. yes, the regulator and central-bank have been active and made limitations in terms of the amount of liquidity, and

when it comes to those swap transactions, you are seeing a contained amount of interest. the is about defending turkish economy before an attack. the other side of this where you after thek a rebound sharp selloff is justified, so not completely out of the question there are some opportunistic investors stepping in, but the liquidity tells a different story. francine: talk me through. expectinghat they are an appeals court, but let's say the standoff is eased between the u.s. and turkey. what happens to the lira then? >> it doesn't resolve everything, but the cascade of measures from the tariffs introduced on american goods, significant tariffs, 120% on

imported u.s. cars, 140% on imported american spirits, jack daniels to everything else that comes from u.s. borders. if you look at the measures taken, that tells you there will be a profound impact on the economy. the political situation is solved, it opens the door for investment, confidence, and direction. is white andeficit loans outstanding in u.s. dollars, the lira still down 30% come aplenty to fix, but let's start with the politics. francine: do the citizens of turkey stand behind the president? moment for thehe most part. this is a divided country. i was covering the elections a couple of months ago where president erdogan was able to get another mandate after being in power for 15 years.

the people who voted for him are the people outside the city centers like istanbul. those people have enjoyed a rise in incomes over those 15 years. they came out of poverty and live better lives. until their lives change in a meaningful way, the support will continue. it has strong religious themes the president has been playing on and is well known for in his as the turkish president. tom: greatly appreciate it. james sweeney, we see the contagion, the dynamics. thing you arengle watching within the international dynamics right now? >> the dollar. tom: thank you. the bloomberg dollar index, are we at a tipping point? where is the level that matters? >> i think we are behind it.

the momentum in this strengthening dollar has become a problem. it is part of what is making countries like turkey at risk, the combination of rising rates in the u.s. and a rising dollar. that makes it hard to hold a marginal emerging-market asset with currency appreciation and rising yields at the moment. francine: thank you so much. we're getting more news from tencent. the top and bottom line miss is not what investors wanted to see. they missed on both sides. if you look at the gaming is this, there are more regulatory hurdles. we are hoping to hear on that from the conference call starting soon. s have grown.ment that is the first time the

number is below 100% growth since the company split the segment out. if you're looking at an investor , itlook at these earnings is quite a big deal if you look at the impact it had on the biggest competitors. we are expecting a bumpy ride when tencent opens tomorrow. plenty more. this is bloomberg. ♪

>> this is "bloomberg surveillance." let's get the business flash. royal bank of scotland agreed to a record settlement over mortgage backed securities.

the u.s. justice department said the bank will pay $4.9 billion. authorities caught the biggest penalty ever imposed. admit wrongdoing. chain -- a store markets.com say a formal bid may be coming in the future. last week, it agreed to buy the house of fraser. that is the bloomberg business flash. for our newick note york audience, the tunnels the late off of jersey transit. a one hour delay for our audience. before 2025.fixed at theirilli looking debris of the first tuesday of wisconsin. lost in minnesota.

let's go to mr. trump's wisconsin. what did we learn? >> this was a surprising victory for president trump. tony evers was chosen to take on scott walker. that was interesting. it will be interesting to see how the president campaigns for him. i see a trend. are picking more progressive candidates and more females. in terms of the right, you're seeing much more conservative candidates echoing president trump. trumpo the democrats want -endorsed candidates to win? >> i think they do. if you look at the races where democrats are looking to put up more

progressive candidates. obviously there is a flip side to that. at other candidates running on a more centrist message. that said, we have 10 primaries ahead of the midterm election. i think democrats and republicans are still saying each race is local. sometimes the political media can get too excited trying to decipher what this means. francine: how popular is the president? on hisave any update approval rating and whether that impacts peoples thinking when it comes to the midterms? >> recent polls this week of the republican party is backing this administration in terms of his criticism of the monochrome. seven in 10 republicans support the president in terms of his attacks. that is the complete opposite of

what democrats feel. stillin 10 republicans disagree with him and is a considerable amount. the base of the republican party is not deserting the president on this. there have been a lot of theatrics. the senate is set to resume later today. , theve judge kavanaugh hearing in the next couple of weeks. a lot of things of substance coming up over the next couple of weeks. francine: thank you so much. james sweeney of credit suisse will be staying with us. also, david kirkpatrick about consolidation at 6:30 a.m. in new york, 11:30 in london. this is bloomberg. ♪

tom: what you have been waiting for with james sweeney of crated siu's -- credit suisse. a fantastic chart. inflation near 3%. everybody's pocketbook knows it. , hockey stick, maybe energy, maybe not, but almost 20 inflations. >> this chart is what? like,lobalization looks

goods inflation negative, services inflation higher, and both rising now. tom: chair yellen had to blink and notice international events. this is a challenge for chairman powell. does he blink and look at international even with that chart? it is acknowledged they are looking at it, but nominal gdp has accelerated and inflation is on target. when services inflation is rising, they need to keep hiking. tom: we saw this yesterday with home depot as a perfect proxy. , we were talking about the u.s. economy overheating. are we still there, or is it a different story? >> i don't think it is necessarily overheating. this is targeted inflation. i think the economy is strong and consistent with the fed raising rates. nominal gdp growth has accelerated. we have an underlying fiscal

stimulus that is potent at the moment. this is where it is appropriate for the fed to continue to hike. we expect them to hike up for all of the next four quarters, and that creates international problems. it is one of the reasons for the dollar strength. francine: what happens when the tax cut relief runs out? >> then you get slightly lower growth. we had gdp growth above 4% in the second quarter. i don't think we will exceed 4% consistently for a while. belows running at 2% and for most of the crisis. if we can come down and see gdp to 2.5%, that% would be pretty good. nsm: what are the inflation doing right now? inflationistas

tend to be companies and people noticing cost pressures and saying that is a broad macroeconomic trend. there is a lot of data points at the bottom up level consistent with rising inflation. the macro people, fixed income and bond market people, yeah, yeah, this thing never moves. tom: that will keep us employed through at least the last week of august. james sweeney with us. gtv , don't leave home without it. you have a meeting with james sweeney of credit suisse tomorrow. pick a chart and steal it. 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. francine: this is "bloomberg surveillance." we are talking about contagion. this goes from the fear of turkey. turkish lira up today i'm a but

this has more to do with regulators trying to limit liquidity so international investors can't short the lira. a contagion affected continuing with the rand weaker more than 2% versus the dollar, the biggest drop amongst emerging market peers. first, let's get to bloomberg first word news. >> more on that contagion. turkey taking more steps to prop up the lira. the currency rose from new record lows after regulators made it harder for banks to short it. governmentrdogan's imposed tariffs on u.s. goods to retaliate for tariffs on steel and aluminum. resident erdogan says the u.s. is at risk of losing turkey and that turkey does not want an economic war. in the tax andts

bank fraud trial of paul manafort. manafort decided not to testify in his own defense. the judge rejected a defense motion to acquit manafort. have thrownn china the largest videogame market into disarray. they have pulled game licenses as part of a shakeup. regulators had been concerned about violence and gambling in games. the whole sector has been rattled. it will be a tough commute for thousands who take the train from new jersey into manhattan. hour delay to a one for trains to and from penn station. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries.

tom: thank you so much. thank you so much. we have been fixated on international economics and the politics of washington. we barely looked at the general economy. the heart and soul is retail sales. isning us from washington our bloomberg opinion columnist on all things retail. i want to talk about contagion, the amazon contagion. there is amazon, and there is contagion from what amazon will do. will report.panies is it right they all have a different response to the amazon affect? >> yes, it is. in the case of macy's, we will look to see how much they are strengthening their stores to be a countermeasure to amazon, making the in store shopping experience vibrant, exciting,

turning it into something fun to do. clearance areas. they say they have been getting stronger spending from those. we will look to see if that continues in the quarter. tom: what is the store-emptiness factor? what we are seeing coast-to-coast is a lot of empty stores. give us that that dynamic. >> a lot of retailers have closed locations. theoretically, that should help other stores be productive. macy's had 700 stores two years ago. that is unsustainable in our digital world. the stores have become more productive. these retailers have to ramp up their online businesses. direct,dded vendor where they are expanding their not caringrtment by

inventory directly, but partnering with other brands to do it. ands a lower risk weight they don't have to consign inventory and they can offer more stuff. francine: talk to me about promotions. how much stuff have they had to put on sale to attract customers old and new? >> that has been an issue that started in the recession as the only way to get shoppers off the wall. they became dependent on it as the only way to drive traffic. this is an area where macy's has made progress. gross margins have improved because it is doing a better job of selling stuff at full price. that comes down to offering compelling merchandise, giving shoppers reason to come to you and a reason to buy something at full price as opposed to waiting for that 20% off coupon. francine: what do americans want to buy? target, best buy, walmart, is it

washing machines, but cars not doing well? >> clothing is a category troubled for some time. inhink we will see it better this quarter in macy's results and target's results. the fashion cycle is changing, moving away from the skinny gene to a wider leg. i think that will create interest in this back-to-school shopping season. tom: that is wonderful, but am i buying higher-waisted pants from amazon or higher-waisted pants from macy's? are people buying clothing off of amazon? >> they are. right now, what they are buying is a lot of basics. tom: exactly. >> amazon is doing a great job of selling socks, underwear, t-shirts. they are not doing a great job

of selling fashion. that is where macy's, nordstrom's, and target see an have brands that have brands that are attractive, aspirational, and inspirational. my producer is saying get out of this conversation as fast as you can. >> why? tom: the next few days will be interesting. change theoing to discussion. james sweeney, how important is retail sales to consumption. >> about 30%. tom: of the 70%. so 21% of the economy. did i do ok? >> well done. tom: what does retail sales mean to you? >> i tend to track industrial production more than gdp. retail sales are about half of the demand for what is manufactured.

that is the other side. half ofe more stable demand. you get the same trend for years and years in a row when you adjust for inflation, so retail sales grow at 4%, 4.5%. the foundation is strong income growth. we have strong income growth and credit growth for the household sector, rising net worth for the household sector. growth, have great wage but retail has strong foundations, therefore industrial production is growing as well as gdp. francine: retail sales have supply chains that are abroad. what kind of impact do these trade tensions have on retail sales? >> it depends on where the tariffs are instituted. in the case of the u.s.-china u.s. is choosing

chinese exports which are not consumer goods. the impact on retail should be small because you want see higher prices or most consumer products. even though there are a lot of goods coming from china. tom: ok. , i look at all this dynamic, and what it comes down to is the fed can change policy. >> i don't think so. i think nominal gdp has accelerated. inflation is on trend. homea guy like you sees depot, that is almost china-like. >> the fed case to not hike because of international developments, think about what the ecb just did. it gave forward guidance for a year and told the market that with strong growth or inflation surprises, they won't be hiking.

that has the same effect of pushing the dollar up and making these international dynamics more troubling. tom: francine. francine: headlines from italy, the minister for economic development and the head of the five-star movement in genoa speaking to reporters. we are hearing him speak, some headlines crossing the terminal saying the government is ready to withdraw the license of e.tostrad collapsed, ahway bridge, 39 people have died. italy yesterday was trying to come to grips with what happened in genoa. the italian government called on managers to resign following the collapse. you have him saying this is a problem of the eu, and it may have an impact on the budget

law. they want to make sure infrastructure is safe. the moment tot understand who is to blame or how to fix it him up but interesting to follow developments because this could happen impact on italian gdp, the budget law, and on euro weakness. tom: we will have to see. they become politicized very quickly. we continue to watch these sad events in genoa and a second day , as francine said, of contagion worldwide. indonesia's central bank raises rates this morning. stay with us. this is bloomberg. ♪ s is bloomberg. ♪

>> this is "bloomberg surveillance." let's get the bloomberg is his flash. berkshire hathaway has added to

its stake in banking and airlines. filings show that in the second quarter, it increased holdings and to airlines. it trimmed its stakes in wells fargo and american airlines. the buying spree in the permian basin has arrived. one company has agreed to buy an oil driller in an all stock deal valued at $8.4 billion. pipeline shortages and other shortages have boosted costs to the permian, and that led to the push for consolidation. in south africa, shares of one company are down the most in some time. it posted a surprise drop in quarterly profits. that is the bloomberg business flash. francine: thank you so much. may have just

announced his plans to take the company private. goldman sachs had not been formally tapped as a financial advisor when he tweeted. the bank and silver lake still had not officially signed on. joins us nowrick on the phone to discuss all of this. thank you for joining us. where does this end? it seems like every day there is s bad news for elon musk. does he now have no choice but to take it private >>? >>i don't know -- take it private? >> i don't know. he has no choice but to put ucks in a row. there is tremendous backpedaling underway. worthing about tesla keeping in mind is that it is a unique business situation.

investors have been essentially betting on this one person's vision all along. even though i think he is a little irrational and unpredictable, and certainly untraditional in his approach, it is buyer beware if you own tesla stock. i certainly could not say whether i think in reality that tesla will go private. i could see the reasons why he would want it to. francine: do you think he can raise the money? is there enough appetite for this company and frontier technology from sovereign funds or elsewhere? >> the answer is probably yes. the question is valuation. one of the key questions is elon musk idea that many shareholders would remain as shareholders in the newly private company, which is an appealing concept, but

given such large holdings from institutions and mutual funds, whether or not those institutions and others could legally hold on to those shares and whether they would want to is an open question. it is structurally very complicated. oneself, why does this guy feel he has to tweet out everything he thinks every five seconds? it is like another person we can think of. tom: you wrote the definitive book on facebook. one of the magic things in your book is a board debate with the young kid out of harvard. the board structure at facebook, that soap opera was extraordinary. what do you assume the board will do going forward? what is the board's plan if they deal with this student from spacex, what ever you want to call him? >> clearly they had no plan when

this started. they did not know squat about this. thank you for your comments. it is great to mention facebook. tom: exactly. >> the thing that makes these two companies similar is how essentially powerless the board seems to be and how clueless the board seems to be. that has been one of the real stories in the facebook case in the last nine months. the board is really exercising oversight. is nota where elon musk have absolute control, the board is involved, but it is in elon musk pocket. it is like silicon valley irresponsibility manifested in both of these companies in the same way, or you could look at it as the difference to the visionary at all cost. tom: this is the heart of the

matter decided in the next few days. selective members from the board are not from silicon valley. what do you presume james murdoch will do in the coming days? does he have to stick this out, or does he say, see you. >> if he resigns come that would be pretty dramatic. resigns, that would be pretty dramatic. i think the times said they are desperately trying to get him to stop tweeting. they are trying to reduce their legal liability. i guess if they thought the situation was out of control and the legal liability was acceptable, a new member of the board like james murdoch might conceivably say i don't want to be part of this. tom: what do the lawyers and consultants to the board going to say to the board? >> you have such great questions. it is happening at such speed.

many advisors and consultants don't know they are advisors and consultants at the time they are announced. i think they will say, could we have a meeting? that is the first thing they will say. this situation is unprecedented. i think we have to keep in mind, like i said at the beginning, if you buy shares of tesla coming you are buying into this kind of situation. it is all about one man's vision, and the guy is a toiness magician and we have admit has always accomplish more than anybody expected him to. i admire him despite his irrationality. i think many shareholders due to and why they are willing to give him such extraordinarily outrageous valuations. tom: thank you very much. the tesla affect out on the news and -- newsstand. we will come back with james

sweeney. gold under $1200 an ounce. on bloomberg radio, our conversation on turkey, the council on foreign relations. ♪

tom: much going on today. thank you for joining us. you have all sorts of data to look at. the single best chart of the moment, the gloom, fear, panic. contagion, stronger dollar. this is the bloomberg dollar index. up it goes with the dollar breakout here. guess what? it is about the strength of global industrial production. james sweeney of credit suisse pushes against the gloom of turkey. we have great industrial production, but -- >> since we have been running global manufacturing, global industrial production well above its long-run averages for the past two and a half years, which is an unusually long time. it is set to continue because of consumers and capex on both

sides of the atlantic, the euro area and the u.s. inre has been a slowdown global industrial production growth this year. we saw it in china. we saw it in europe earlier. the u.s. has been very strong, so keeping the world growing above trend. in the second half of the year, we think this is set to continue. global growth is likely to accelerate from here. we see the mix changing. we will see the u.s. come off a little bit and expect europe and china to rebound. tom: you have aggregate supply model, thenfancy you are going to flunk the exam because you bring dollar dynamics into it. can a strong dollar at the margin to that great industrial production? >> if the strong dollar leads to tight financial conditions and widening credit spread so the

credit gets interrupted, it can't come up but we are not remotely close to that. inhave had a modest widening credit markets on this turkish news, but right now this is an idiosyncratic emerging-market turkey, some contagion, but the backdrop for global growth is good enough that they should go away rather bring global growth down. francine: what could bring global growth to a standstill, china, another part of the world? disputescalating trade with china is something that has the potential. ofterday, we had a range indicators come out, and industrial production growth has been solved in the last three months. investment is slowing in china. china has been tightening credit policy, but now easing within that tightening in a way. if chinese growth were to come off further, then that is the

kind of thing that could derail global growth. it is not what we expect. the expect china to stabilize. tom: thank you very much. a conversation on huge dynamics within the markets. any asset class, any indication of the contagion out there, and the dynamics, of course, against a stronger dollar. we will drive ford this rd on theion -- forwa radio. the dollar near 97. 6.91 yuan to a dollar, ever stronger renminbi. please stay with us. this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. alix: king dollar crushes currencies, euro hits a low,

copper hits a bear market. what other asset can be dragged down by dollar strength? turkey limits swap transactions to limit short-sellers and transactions on u.s. goods. macy's on deck, the latest on consumer spending, third quarter growth, is 4% sustainable? david: welcome to "bloomberg daybreak." i think it is the summer of the tariffs. tariffs and more terrorists. alix: the more we do it, the more immune to the tariffs. alcohol, it feels like $1 billion. david: it is all going to work out, right? alix: right, and don't buy those iphones. markets, the relief rally yesterday.