francine: threats multiply for emerging markets. falling commodity prices and trade wars showed new signs of slowing down. will send a delegation to washington after talks of broke down. the yuan gains for the first time in seven days. italy's prime minister says he will start the procedure to revoke the licenses of the highway operator after the fatal bridge collapse. atlantia shares opened sharply lower.

good morning, everyone, and welcome to bloomberg surveillance. these are your markets. i'm looking at the stoxx 600, pretty much flat. they were rising a few minutes ago, but overall, the dollar has been falling overnight. u.s. futures are gaining, but the big story is about china. you can see what the offshore yuan is doing. let's take a look at carlsberg shares, we will be speaking to a chief executive in the next hour. they reported earnings, of course, this is an emergent market story. gaining some 3.5%. coming up, our weekly brexit show, we speak to the former conservative party leader and ask him about boris johnson, asked him about what kind of brexit he sees coming up. first, let's get straight to bloomberg first word news. specifiesill do

commerce ministers to the u.s. for trade talks. the chinese delegation will meet with an american group, led by the undersecretary for the department of the treasury. exchangeark the first since negotiations broke down two months ago. chinese comes party newspaper has issued a rare direct witticism of donald trump, saying his policies are hurting his own people. the white house says that new tariffs on turkish goods will stay in place, even as the president receives a financial lifeline that should buy him time. a sign that the conflict is far from over, the white house said tariffs will remain, regardless of whether the american pastor is freed. meanwhile, president erdogan has won a bid to invest in his country, as well as reaching out to angela merkel or support -- for support. donald has revoked former cia director john brenner's security

clearance, accusing him of erratic behavior. he was a 25 year veteran, before leaving under president barack obama. he has been an outspoken critic of trump. i have decided to revoke the security clearance of john brennan, former director of the central intelligence agency. his recent's conduct, characterized by increasingly frenzied commentary, is wholly inconsistent with access to the nation's most closely held secrets. >> italy's prime minister has said he will start the procedure to revoke the license of highway operators in the wake of a fatal bridge class in genoa. to set the content said they cannot wait for the outcome of a probe and subsequent trial. that is after the death toll has risen to 39, amidst fears fatalities could rise further. global news, 24 hours a day on air. powered by more than 2,700 journalists and analysts in more than 120 countries.

this is bloomberg. francine: thanks so much. let's focus on emerging markets. the e.m. msci index has tumbled. headmans of the rising dollar, the u.s. china trade war, and rising commodity prices. with the potential for wider followed from turkey, the outlooks -- outlook looks challenging. so how should investors be positioned? andrew, asset is strategist at morgan stanley. thank you both for joining us. first of all, to the markets. we are seeing a selloff, a selloff possibly meeting that emerging markets are going into bear markets. what will it take to stop the route -- rout?

andrew: it takes two things. we would like to see a sign that the fed is becoming worried. the market would like to see signs that trade tensions are starting to the escalate heard -- because they are exposed to trade and financial conditions. unfortunately, we do not think either de-escalation will happen. it will take more pressure, more stress to get you there. francine: talk to me about the markets. this was an event that started in turkey. wanting domestic event independence from the central bank. then it became a geopolitics. what is freaking out markets? andrew: i think the real issue is the convergence of a couple of factors. and this is about more than any single country. you have seen a deceleration it of growth in china.

measures that would reflect future expectations like equity prices, bond deals, copper price s. these are saying something is shifting. this has the market attention, the fact that you have strong data in the u.s.. that has convinced people be fed it will keep hiking. and you are entering a difficult time for markets. liquidity in august is always weaker seasonally. august and september tend to be weak months. it makes it easier for people to pull back. it makes price action like this easier to come by. francine: we saw a big swing when it comes to chinese offshore yuan. does it mean things are stabilizing? the markets are doing one thing, but at the same time, you see the diplomatic standoff you mentioned escalate. andrew: it is a good aside they are talking to each other.

but i do not think this is a game changer. this will not stop the trend. in some ways, why would they change their strategy? the u.s. data is strong. the u.s. equity market is strong. francine: right, but for how long? andrew: the question is until those things shipped. you could forgive the administration for thinking of their strategy is the right one. telling user people this is dangerous, but so far, it hasn't. we still think those trade tensions escalate until you see a market response. francine: how much longer will the tax cuts have an impact? andrew: this is a big debate amongst economists, far more granular than my expertise. this explains the divide in economic forecasts. at morgan stanley, we think a lot of that benefit is actually behind us, and that will lead to

u.s. growth in the celebrating slowingbrating -- down. there is little precedent for this much spending to be done at this late in a cycle. it is hard to model, but we think it is behind us. francine: let me get to the geopolitics concern for turkey. let's get straight to good from a wolf -- guntram wolf. will the standoff with the u.s. a deep in? -- deepen? can they make up for it? i think it is important for the president to show different alliances to increase his leverage in the negotiations with the u.s. and others. him to a good move for have spoken with angela merkel

and to have secured the 15 billion in investment pledges from qatar. ultimately, if the u.s. is becoming more and more hostile, it might still remain quite difficult for turkey to term external debt. which, after all, amounts to 180 billion per year. it is still quite high. term external but it is a positive for turkey to start building alliances. francine: could turkey become closer to europe? they have a joint fight against the u.s.. i know they are different fights, but they both have grudges to bear with the trump administration. i am not sure that the fallout between europe and the u.s. is the main driver of angela merkel's motivation or

europe's motivation in securing a proper instable turkey. the reason we want a proper and stable turkey is that it is our neighbor and we are immediately affected by political turmoil in turkey. for example, through refugees. is ae remind you that it domestic problem in germany in , after all, 5ere million turks that live in germany have voted for president or one in the last election -- e rdogan it is last election. you want to be seen on the side of helping. having said that, germany also has misgivings. it is a fine line you have to walk. francine: what does qatar help do for turkey?

it does not replace the need for it does not replace the need for policy action to contain double-digit inflation or this massive currency debt. implementhave to capital controls? well, i think capital controls would be foolish and the more you talk about it, the whatyou get a depression you have to do is adjust the macroeconomic policy. you need to raise interest rates, show you are more prudent on the fiscal policy side. investorso convince that you are not sliding down into cronyism. certainly, the recent and central-bank appointments and the finance minister being the son-in-law, all of these are bad signs for international investors. at the end of the day, you have

to show turkey you are not sliding down to become a low developed emerging market economy without proper and strong institutions. ultimately, investors want strong institutions, rule of law, and some assurances that policy decisions are taken based on rationality and not based on family ties. francine: thank you. both stay with us. coming up next, plenty coming up. the operator of the bridge collapsing in jenna what loses a quarter of its value after the government threatens to revoke its toll road concessions. we are live in rome next. later on, we talk u.s. retailers. macy drops the most in years. this is bloomberg. ♪

francine: economics, finance, and politics. this is "bloomberg surveillance." the parent company of the operator of the bridge that collapsed in general has lost 25% of its value. the move has wiped out a quarter of atlantia's value after the italian government began the process of revoking its toll road concession. says its parent company atlantia is preparing an emergency meeting to consider the impact of the disaster. at least 39 people were killed on tuesday. this,re on all of bloomberg's government reporter in europe joins us from rome. how realistic is it that the

government takes away these concessions? >> there are rules about taking away concessions and indemnities they need to pay. likely they are talking about taking away the 3000 kilometers of highway that they run. forget this is a government that has many power centers, lots of competition for attention. they do tend to make a lot of shocking statements. but we do not know what they had in mind. i am not saying this is the case, but we have to be cautious and think that maybe they are talking about taking the concession away, just so they can speed up repairs, rather than taking the entire concession away. francine: what would the company do? is there anything left in atlantia as a company? they are still a major company that runs highways in

other countries. brazil, they also run airports in italy and france. but it would be a major blow. company hasy -- the made clear they will fight in their interests, which i think you could focus -- criticized for focusing on the money and industrial aspects. they put out a statement reminding the government that there are rules to the legal ways you have go about revoking a concession, indemnities you have to pay. so it is clear they will fight. we saw it from the start, matteo some been -- salvini saying it has to do with the austerity. what is the latest with the spat? >> she did not say the eu is responsible for the bridge collapse, but he is certainly using the bridge collapse as a way to target deficit rules.

probably with a view towards negotiations of the budget than any sort of past event. but it is clearly going to be a major part of italy's offensive when discussing the 2019 budget in an attempt to get leeway on spending. in au has struck back statement reminding italy that they have received structural funds for infrastructure. is not theng them it eu that decides how government spends their money within the fiscal constraints. the eu just sets overall targets. it does not say how the money should be spent within that. we are certainly going to see a lively discussion over italy's 2019 budget, that is for sure. clear, he hinted that eu spending limits can put lives at risk. the exact quote say is these risks prevent us from spending and wonders if it makes sense.

he did not blame them, but you must it. -- almost did. thank you very much. let me pick up with you, the populists have called into question eu spending restrictions. is that fair? guntram: i think these statements by italy are dangerous, line the fire. it is a populist statement that could backfire big-time. it is clear that italy, of course, has to run relatively high primary surplus. it has to keep the deficit in check. the prime reason is this high that level. they do not interfere in how , but is being spent

ultimately, it is up to the italian government to ensure that money is going in the right project. if you think about the infrastructure, the u.s. has given a lot of money for infrastructure projects in italy. this, itg the eu for is just a another thing that puts up the heat in the italian debate and can be dangerous. i think it was a bad idea. having said this, we will have very tough negotiations. the september budget will be very closely looked at. ultimately, the key here is not brussels the key is how much financial markets want to fund italy. francine: right. quickly, we have had governments pressing for some type of investment to be excluded. how much does brussels dictate spending on infrastructure?

are you saying a zero, or do they still have an influence on infrastructure spending? guntram: they do not have any direct influence on infrastructure spending. given a lot always of exemptions, actually, for all kind of investment projects. you could say the fiscal stance is too tight and there should be more leeway. ultimately, the primary constraint comes from there is little growth in italy and high debt levels. francine: what do you make, andrew, when you look at this? will we see the euro under pressure? first and foremost, this is a human tragedy. an it was politicized within hour. so what does it mean for the budget and the relationship between italy and the eu? with all of that, it is

too soon to say. i think that we could take a step back and think longer-term. discussion around fiscal spending and what that might mean for the euro, i think we see it differently. to the extent that we see a response or a dynamic where there is more fiscal easing across the european union, i think morgan stanley would see it as euro positive. especially given how cheap the currency is. i would because cautious about being too negative on the euro here. if you were to see a larger theme for whatever reason a fiscal spending from germany, then i think you can see some euro strength. francine: do you feel like certain markets or participants see it as italy trying to pick it fight with europe?

and will we see more? will the next fight be euro negative? andrew: if you take the spending and fiscal stimulus argument aside, you are left with what is still a difficult situation. we will talk about this later, the u.k. over a difficult brexit negotiation. investors looking at the european area will have a number of different moving parts to do with. they are both difficult situations. a lot of the stuff is unresolved and will require compromise. at the moment, it is too soon to tell. francine: just for our viewers, and we will push it out on social media, i have a great chart looking at the euro forecast sliding as we see it come under pressure. what will be the biggest challenge for the eu? we see brussels not caring about brexit. is that fish italy?

guntram: i think of brexit is a big issue for brussels, and it should be a bigger issue now after the increase in tensions with the u.s.. juncker easedat but of the trade tensions, the u.k. as a market is almost as important as the united states as an export market for the european union. , a no deal brexit would be a disaster for the u.k.. it would also be a bad scenario for europe on many dimensions, including the eu budget. day, it isof the time for brussels to come to some compromise and think about what we can do.

ultimately, to negotiate and move towards the u.k., while the u.k. needs to move a couple of hundred meters or miles. francine: do you think of the eu has struck a deal on how to handle refugees in a way that will be sustainable? and is that the biggest question facing europe at the moment? i mean, look, the rest issue is thegee most divisive issue we are facing. refugee numbers have come down quite a bit. much lower than they were last year or in 2015, even. so the issue has become more political. the numbers on the ground have become less. indeed, i think we are in no agreements of how to deal with these issues.

there is an attempt to distribute and relocate refugees across countries, but it is difficult. francine: wasn't do you like in european? equities or bonds? u.k.w: would like that equity market foreign-exchange hedged. francine: thank you both for joining us. andrew stays with us, we'll talk about brexit. up next, our weekly brexit show. the former conservative party leader ian duncan smith joins the program. we asked for his shots and could be the next prime minister -- if a born in john's -- boris johnson could be minister. ♪ this isn't just any moving day.

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retail figures out of the u.k.. if you look at the data, it has not been that bad. let's get back to andrew, he was telling us he likes u.k. assets. the u.k. equity market has some things going for it. if you head out fx risks, we think the pound could weaken. i think a market with relatively high yields, defensive properties, we like. francine: better than expected, july retail sales rising. let me look at whether the pound has had an impact or not. it was kind of hovering in a range, that has been stuck for the last couple of weeks. and there you go, not much of an impact, but we will get more on the politics of brexit as well as the economic forecast. but first, with the brexit bulletin. the uk's foreign secretary says he is worried about talks with the european union may not yield a deal. jeremy hunt added that more eu

nations are realizing how much of a mistake that would be. the pound has been weakening amidst warnings that britain risks crashing out without an agreement. up a plany is drawing to keep key european union rules for longer after brexit in order to break the deadlock. that is as the u.k. is working on options to avoid a hard order with ireland, the issue that has become the biggest obstacle for an orderly divorce. britain has learned that one idea with prolonged large parts of the transition phase that seems to run until the end of 2020. and lenders are raising up mortgage lending in the north of england as property values start to fall. that could be bad news for banks , anhome loan providers industry that is already facing a hit from the with jonathan the eu. it also threatens to hurt the back on as bar was cut

spending amidst rising mortgage payments. . that is your principles and this is bloomberg. boris johnson caused outrage after ridiculing muslim women, saying they look like letterboxes and bank robbers. but that does not seem to have affected his chances. johnson is one of the most widely touted candidates to replace theresa may, and has faced calls to stand down, who accuse her of the train their dream from a clean break. willuestion is if johnson be able to build on the momentum to win a conservative party leadership race. could boris johnson be the next prime minister? let's hear from a former tory leader, you and appeasement. and as always, welcome. mr. duncan smith, how difficult will the next 12 months be? iain: it is impossible to predict.

we are in a unique event. we are leaving the european union. so every single thing you do is done for the first time. that is why you get all this volatility, so nobody knows how it will impact. that was always the case with brexit. i am of the view that the positives are enormous. it gives us a great ability to enhance our trade. not just with the european union, but the world. the issue of no deal, the language used, there is no such thing as a no deal. there's just a different deal. it may not be the deal on the table, but it will be an arrangement. but don't wto rules make the country worse off for a limited number a fierce? iain: -- number of years. francine: that may be the case. iain: but people voted to leave

the european union. the europeanut union as if it was all about trade and finance, it is not. , and a political project where we are now is not where we will be in five years. the european union is ever tighter. francine: but that is backward looking. iain: no, it is forward-looking. my point is that we chose to leave, my question is how do we make the most of it. francine: that is my question to you. do you not want to safeguard financial services? why is it not a priority? iain: it is enormous at the moment. the eu is continuing to regulate in a way that the enormously damaging to london. even the bank of england has come out and said that, outside of the eu, the city of london with thrive. because we can set regulations relevant to the kind of global business that we want. i want to enhance financial services dramatically and make

sure the u.k. is the global center. francine: by doing tax cuts? becoming more singapore-like? also, at the same time, lots of things that were carried out previously. nondominant status and things like that. center, webe global have to start behaving as though we are. francine: would that be more like singapore? iain: it is a different concept. what we are is the u.k., a rules-based organization, one of the best law structures in the world. and we can enhance that, because it is attractive. you have even got courts setting up in the middle east using english law, contract law, to settle disputes. if you want to deliver for the common person that feels like they have not benefited from the eu up north in parts of

the country that voted for brexit, how do you match that taking care of the financial system? is thehat i am saying u.k., who does most of its trade outside of the eu after 40 years, we are more trading in goods outside the eu that we do inside. francine: a big chunk. iain: yeah, but it is a diminishing level. 8% of our companies in the u.k. trade exports to the eu. my point, really, is that we are leaving. so we have to on how we make the most of that. the truth is something we discovered is that the british government has started investing in training and scaling at a level with their competitors. so now we have to cite let's go hard on getting british companies investing. in the u.k., if you start life on entry-level work, only 15% of

those people will go on beyond entry-level for the rest of their lives. that is a shocking indictment of the failure of industry to invest in people. to automate, to bring in technology. i don't know how much this has to do with the eu, but to you believe the next prime minister should be prime brexit? and should boris johnson be your man? iain: he has to be, because that is where we are. francine: theresa may -- iain: theresa may has views on the brexit deal. on checkers. i think it has locked is in on goods. financial services would be in a better position, i'm sure. francine: should boris johnson be in charge? iain: i do not think it is about leadership, it is about the right leadership -- arrangement. also stuff like free trade

arrangements, free trade deals. i am optimistic. when it comes to the crunch, as it always does, there is too much at stake for the eu. too much at stake for the u.k. to not ensure that we end up in a good trading. they have got to put their politics to one side and recognize this is about jobs and likelihood. it is not about the overarching political beliefs of mrs. merkel as to how europe should go. francine: who will give in a more? -- more? is it cherry picking or red lines? isn: i do not think it cherry picking, it is saying what is in the best interest of the two groups, the u.k. and eu. we happen to have a dominant set of financial services. it is in their interests, raising funds and doing trades. it is in their interest to have a thriving city of london. it was not me who said that, the german finance minister said

that early on. he said we have no benefit if we see london diminished. it is that point that we need to get down. that is to have a frictionless trade, and at the same time, good cooperation. but we are outside and will not be coming back. francine: is theresa may doing a good job? if you had a report card, what would you give her? iain: it is a work in process. francine: we don't have that much time left. that i have to tell you the european union came up with this idea that they would settle all the details and then what the overall relationship is. it should have been relationship first and then details. but we are where we are. and the truth is that almost everything arranged in the eu is always arranged at the last minute, because that seems to be the culture of the way they work. thathat is quite clear is the time of him absolutely united front is breaking down.

you have got countries disagreeing with the commission. this tells you you will get into a fractious kind of negotiation. francine: i do not know whether the tory party is that united. let me bring in the markets personal. andrew, what are the questions you would want answered? it seems like it is split on the way we go. how difficult does that make it for investors? andrew: incredibly difficult. struggling with is that every outcome seems to have something associated with it that would excluded as a possibility. even this discussion with the exchequer steel. you compromise software opening position. it seems that moving them closer to the european union's position in dangers some of its support, and moving it further away from the european union also endangers support. so these are things they are struggling with.

it will keep the pound volatile and cause the pound to be weaker. as the market starts to worry about these deadlines. francine: should the tory partner or government have a better discussion with markets about what they want to achieve? there is so much controversy, you look at them and say it is not what they want. iain: i think what markets need is to arrive at a conclusion, and then they can bank that. with respect to the markets, they have been forecasting incorrectly for a long time. if we were to just go on what the markets think, would have made an awful lot of mistakes already. i was of looking at the second quarter data, growth at .4%, this was not forecast seven months ago. the idea of the u.k. would have a declining level of growth is not the case. even the governor of the bank of england got it wrong when he said the u.k. is at the bottom.

my point is that the more you talk about these things is that they are negative, the answer is the u.k. economy is more robust than people give it credit for. and these constant forecasts about the downgrading of the economy, when they keep getting beaten by the fact that the economy grows, their high street sales are infinitely better than forecast. i am not overcooking it, i am simply saying the markets have to be responsible about constantly panicking, jumping, and being jittery. just take a longer look, it will eventually settle. we are leaving, and i think the prospects for the u.k. are remarkable. francine: but you must admit that depending on how you leave, it will make a difference to economic forecast. iain: yes, but it is about the you that eu being sensible and not putting politics in the way of what is a reasonable and frictionless deal. that is what they should aim

for. francine: is checkers being reasonable? iain: i am not in favor of it. for. my point is what we are worried about the eu demands to get half of that field. my point is i would've gone for the original proposal, to have a free-trade deal down on the basis of the trade deals. with some extra bits and pieces like the financial services area. i think we may even be at that point by october. francine: going back to boris johnson, does he need to leave the tory party because of the burger remarks -- burka remarks? against freem not speech. boris johnson was saying that we give people to give choices. he then went on to say he thought they looked funny. that is the way it goes with freedom speech. i battle for your right to be

different. but it does not some you from saying i do not agree. but that is what comes with freedom of speech. francine: would you have expected more? iain: no. he is a backbencher now, free to write what he likes. an awful lot of people agreed that he is quite at liberty, he supports people's right to wear burqas. you saw lots of muslims coming out and saying i do not agree. the reality is that freedom of speech is tolerant in two directions. we tolerate what people want to do that is different, but you also have to tolerate the ability to say things that may, sometimes, not please you. but that is the nature. if we go around banning everything, we are not free, are we, really. francine: i do not see if you see a link between donald trump at things happening here in the u.k.. is there a way of populism that has taken hold? iain: not really, we have taken the opposite line. we do not believe in banning and

stopping things. we believe fundamentally and free trade. americanme in the administration quite well, and i constantly say to them that we should be arguing for greater free-trade. arguing for no restrictions, because that is a great dissolve or of politics. and the absence of jobs. that is a different position for the british government to take. right, iain duncan smith, thanks for joining us. we talk a little bit more about the pound and move on to dollar. up next, clawing back. copper leads to commodity recovers, but can the asset class get out of it right in the longer-term? we talk metals and minors next. this is bloomberg. ♪

francine: economics, finance, and politics. this is "bloomberg surveillance." let's check in on what is trending across bloomberg. on tictoc, the beverage giant behind corona is making a $3.8 billion bet on cannabis. the brand is increasing its stake on the canadian grower to 38%. in business week, southwest england voted in favor of leaving the eu, but now the town, home to 4000 strong a jpmorgan back offices is starting to dreaded brexit. and our most read stories right here. in third place, tesla is set to receive a subpoena on mosques tweets -- musk's tweets. top, commodities have recovered some poise after wednesday's lunch -- plunge.

let's get straight to first word news in new york city. high, francine. italy's prime minister says they will start the procedure to revoke the license of highway operators in the wake of a fatal bridge class in genoa. he said they cannot wait for the outcome of a probe and subsequent trial. that is after the death toll has risen to 39, amidst fears the number of fatalities could rise further. news, 24 hours a day, powered by more than 2700 journalists and analysts in 120 countries. this is bloomberg. francine: thank you so much. commodities are recovering some losses after yesterday's plunge. that comes amidst easing trade tensions and a weaker dollar. candy commodity rebound be sustained? us now is bloomberg's executive editor for energy and commodities.

is the morning's reversal going to continue for the day? stuart: probably for today. making short-term forecasts would be immediately wrong, because that is how it goes. but i think it is about the dollar. it is driving everything you are seeing. for most of the commodities, we are not back to where we started. it looks today on the chart, but taking it into the context, not so great. francine: what does it mean in the long run? stuart: there are two points of view. one is that it depends on what happens if contagion spreads. you really do wet commodities quite badly. on the other hand, in these trade talks, yes they are at a low level, but if they can result some of the issues, then we should see support coming in from china. china is half of demand for commodities in general. francine: of course, not all

commodities are born equal. is there a difference between copper and something else? stuart: looking at the base metals, and i would check iron or into the mix as well. oil is more complex because you have the opec plus agreement heard you solve --. you saw wide disagreement. oil is very uncertain. gold, which look at should be doing fabulously, but it is not. francine: why is that? stuart: a combination of lack of faith. and if you look at gold after the turkish lira, it did exactly what it is supposed to. so that is what might change, the market is bearish. francine: do you like gold? andrew: i think cash is more effective.

the problem gold has is it does not yield anything. whereas u.s. cash does yield something. at some level, that becomes a more attractivethe problem golds not yield thing. it is still defensive, but providing yield. and i think it can provide the defense with reliability. francine: i have a great chart for you which i have surprising the gallery with. this is my favorite chart of the day. as the fed continues on its path, the two year yield to be and german bonds is the whitest. -- widest.est it also suggests that for anybody allocating in a dollars, you have a different allocation decision. you can the risk, put money in something quite safe. that has not been the case for a number of years. , iscine: going back to gold

this a bet that we will not see inflation that central banks are expecting? andrew: the difficult thing about gold is it is unreliable. fromrked in every market 2003-2012, and then it did not work in multiple market environments from 2012 until 2016. the difficulty is -- what investors are struggling with is can they rely on it as an inflation hedge? and there are other ways to position. oil is something we like a lot more as a commodity with better fundamentals. it will go to provide better protection. francine: how will iranian sanctions impact oil? stuart: hard to tell. we started from the position there would be zero tolerance, but that seems to be water down. we had a statement saying india was aiming to cut imports by half. we will not know until november. fundamentally, it will come down

to if treasury and state are going to enforce a hard line on the ancient -- sanctions. francine: what do you worry about the most? china or the u.s.. are we getting china wrong? does it mean more risk in terms of debt? or are we expecting too much out of the u.s. economy. that thehe challenges u.s. economy is strong, but it does not always mean a strong market. it also means tighter financial conditions. commodityppening when markets are saying that commodity growth will decelerate. together are as difficult combination. the world's second-largest economy is slowing, and the world's largest economy tightening. unfortunately, that will be a drumbeat in the back of markets for month. francine: what does the dollar do from here? we do not know if they would enter a currency war or not. stuart: i think the dollar

performance will be diverse. strengthen against the non-japanese asian currencies, but we think the japanese yen will strengthen against the dollar. the japanese yen will strengthen against the dollar. i think the dollar will strengthen against the pound. but maybe not as much against the euro, given the larger account. i think it will be about where are the underlying fundamentals. i think that will have a lot to do, that is how our team is thinking about it. francine: we are also talking about the fact that it is summer, maybe some of the moves are exacerbated. does that help or hinder the commodity market? stuart: i think it hinders it. when you are going up or down, i am not sure you can read much into that. other than volumes, in everyone's way. it is a bit chaotic. francine: andrew, you were saying that the trump administration think their tactics are working. does the rhetoric change after

the midterms? andrew: i am not sure, to be honest. the thing that changes rhetoric is the market changing. is the market going down, is volatility going up. is the administration rating headlines that trade policy is weakening of the market? so far, that is not happening. every day, you read the paper, headed a strong u.s. data. i think it will take more volatility to change the approach. francine: all right, thank you both. bloomberg surveillance continues in the next hour. tom keene adjoins the out of new york and we will be seeking to the carlsberg chief executive. this is bloomberg. ♪ xfinity mobile is a new wireless network

designed to save you money. whether you use your phone to get fit. to find meaningful, thoughtful, slightly-weird gifts. or just to know which way you're facing right now. however you use it, your wireless bill is about to cost a whole lot less. ask how you get xfinity mobile included with your xfinity internet. so you just pay for data -- by the gig or unlimited.

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. ♪ francine: threats multiply for emerging markets. stocks nearing a bear market,

falling commodity prices so signs of slowing. back to negotiating. beijing will send a delegation to washington. yuan gains for the first time in seven days. shares boost carlsberg. good morning. this is "bloomberg surveillance," i'm francine lacqua in london and tom keene is in new york. a lot going on. the market is directionless. populist agenda in europe, brexit, emerging markets. we do not have one clerestory like yesterday. tom: this is the first day -- we do not have one clerestory like yesterday. tom: i want to know if i need suitcases on my next trip to london. you just had a wonderful interview with iain duncan smith. is thoroughly going to 1.19 so i can shop at harris?

-- harrod's. francine: it is clear that sentiment is high. all bets are open. come over and bring the empty suitcase. the bloomberg first word news. shares of the italian company that operated the collapsed bridge are being battered today, suffering the biggest loss in three decades. the government has begun the process of revoking atlantia's concession. 39 people were killed in the disaster. for the first time in two months, u.s. and china will resume negotiations in the trade dispute. it will be at a low level. the chinese delegation will meet with the treasury undersecretary. the nations have appeared to reach an agreement in may but

the president of the u.s. backed away from the deal soon after. an act of retribution against president trump's critics. he revoked the security clearance of john brennan and drew a direct connection between his action and the russia investigation. the u.s. and turkey remain locked in a stalemate that has rocked global markets. new tariffs on turkish goods will stay in place even if turkey frees a detained american pastor. 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: thanks. within the data, equities, commodities, currency, bonds, quiet today but the euro still

pounded under 1.14. oil weaker in the last 24 hours. next screen. equity markets, up, down. more attention yesterday. dollar does not give up much here. there is lira. we will show a chart on the improved turkish lira. the statistic i'm watching -- turkish two-year yields based in u.s. dollars, 9.23, normal. i do not know quite where it is but 6.5%. francine: i like that. you are looking at that -- i have a longer-term chart. dollar falling, european stocks climbing. european stocks were volatile, pretty much flat now they are gaining a quarter of 1%. treasuries dipping. it is a funny old day. i'm sure something will come along to change that. tom: deutsche bank securities,

losing cisco. the turkish chart on the bloomberg. where are we with the lira? under five lira per dollar, the ugliness, the modest panic and hysteria. 1, 2, 3 days in a row, down. i use fancy math to calculate normal. about, about, about 5.25%. we're getting there. francine: i like that chart. nice drawing. i am looking at something different. i changed it at the last minute and as the fed continues on the hiking path, the two-year yield differential between u.s. treasuries and german bunds, the widest since data began. that plays back to ecb policy and italy. it is a nice chart to look at things differently. back to em. from the peak in

late january, headwinds enclosing rising dollar, the u.s.-china trade war and falling commodity prices -- a few signs of slowing down. the potential for wider fallout from the turkish economic crisis and the outlook appears more bleak. anding us now, elsa lignos cristian maggio. when you look at currency moves, how much more pain will there be in em currencies? elsa: good question. we have seen aggressive moves already. particularly when it comes to turkey, with funding over the past week, it has become more expensive to speculate and hold onto shorts. that has brought midterm stability to the currency. long-term issues remain. in the short term, we are seeing stabilization. francine: what comes next?

you see the deal with qatar. fundamentals remain. cristian: that will not change in the short term. they might fix some problems here and there but i cannot tell you where the turkish lira is going to try tomorrow but a year from now it will be higher than current levels. tom: where are the em correlations now? every pro i talked to has full radar up on em. what are the correlation levels? elsa: we are seeing a return to risk on risk off markets across asset correlations in general rise. that means if you looking for true fundamental value, it is better looking at relative value trades in g10 or e.m.. there are trades where you cross one risky currency against another, and you look at the underlying fundamental story rather than the risk off sentiment. tom: moving over to the business world and everyone focused on

the turkish banks -- you mentioned the transmission of this financial gyration to the real world of business in turkey. explain. cristian: there are different ways the turkey crisis can translate globally. one channel is through the real economy, trade. turkey is integrated in the mobile -- global value train and has many trading partners, europe in particular, many others. shrinkage, a bop exporting countries will export less to turkey. the second way is through banks. there are linkages with europe and other banks but they are not unmanageable. finally, the third one, sentiment. markets are concerned with us below -- the spillover of turkey may turn into terminal.

it is a bit overblown but these are the three channels. tom: what is the one story away from turkey that has her attention this morning? -- has your attention this morning? cristian: the news from china. radar.remains on the sanctions in south africa. we have had negative lines in the past few weeks. these are the names we are tracking for the following few days, especially if the lira continues. elsa: we are looking for contrarian trades. there is a skew in the options market. euro-dollar, the higher you can play. there are people positioning for aggressive downside in the short-term. there is value and looking for structures to take it manage.

-- to take advantage. francine: what happens to renminbi? elsa: we still have a target of 7.20 dear. that is room to squeeze out the short positions before he take another leg up. francine: what is your take on china? you look at the commodities market -- it is hinting to the fact that china is slowing down. are you worried they will take too much debt or leverage? it is almost counterproductive? cristian: what they are doing now is in line with our view. we are bearish on the renminbi as well. the economy will continue to slow. -- thated and gradual is what the chinese authorities want to communicate -- that big move in the renminbi in the past eloise and now it is getting less volatile than before. the measures this morning,

say the authorities don't want to see dramatic selloff in the currency. talk,ith all the cm something you are so good at is the fair value of euro. 1.16 is where we came a million years ago. euro, where is your perception of where it should be? elsa: it is a nebulous concept. from a long-term perspective, you could pitch around 1.25 to 1.30, but the u.s. and the euro area are different points in the cycle. we have had a target for euro-dollar lower this year. for year end. given the carry differential, and how the dollar reacts to trade tensions, there may be a further downside, not too dramatic. francine: i hope we get my charts in just a second.

i will post that on social media for radio listeners and good morning to. it is showing the differential between two-year treasuries and the german charts. elsa: a lot of times people are looking at the 10 year yield differential. one matters over the other sometimes. long-term, front end rates matter more for currencies on a consistent basis. the two year yield differential matters when corporate's are thinking about hedging or investors are thinking about shorting. tom: a nice note this morning lacking a narrative. where will the narrative come from? we will keep the story going in august, e.m. crisis on the edge of crisis. is it going to come from brazil? does it come from china? which area brings that story forward? cristian: i think it is difficult to answer this question. we always look for what is

predictable or at most, the known unknowns. the difficulty is to figure what the impact of the known unknowns is. my take is we have to build consistent views of outlook for em based on information we have and what we expect about global economies. if an event happens, we have to manage. turkey is one example although it is already deflating. brazil will become an important issue in the second part of the year, or actually the last quarter. elections are approaching. anything can happen anywhere. we will continue with cristian maggio of td securities and elsa lignos. wonderful to have a sense of quiet today. this is a timely interview.

sprawling emerging-market empire. the real business world feel, including turkey and the middle east. we will do that in a bit. this is bloomberg. good morning. ♪

♪ tom: "bloomberg surveillance," quiet within the markets. first day of stability in four or five trading days. it is good for those in international business. there is nothing more international than the beverage of your choice, beer. former taxio, driver, he joins us in a fancy limousine. good morning. you have -- you have a sprawling

empire, including your turkey beer, that you provided by stew in turkey now. how does the depreciation of the turkish lira and the crisis change your day to day business in turkey and your day-to-day business in em? small.urkey is selling beertner for us and we have a franchise contract. , that manyconcerns other businesses have, we do not have. in general, the turkish situation will not faze us. performance of your stock in the last several months, continued em expansion, side item on focus in cambodia. how are you deploying assets and

capital to asia? we started three years ago, what we call, funding the journey exercise. we need to save money in order to invest in the business. we invested a lot in our asian business, in particular, china. hey grew in the last year, 17%. you see our portfolio improving in asia. stellar growth. stake inse our cambodia. francine: on the back of that -- good morning from london -- given that you have raised ownership, the cambodian brewery, is there any other investment opportunity you would be willing to increase the state or take a stake in, e.m. markets

and what country specifically? cees: none i can talk about. normally, these are confidential. there is a privatization in vietnam going on. [indiscernible] the government is going to privatize, it will be interesting. francine: talk to me about china. which brands we prioritize in the country given that heineken struck a deal with china resources beer? how critical is it you go strong in china? cees: we are very strong in the west, not that strong in the east. we have put a lot of effort in the last couple of quarters to go further in big cities. in total, we grew 15% in volume

in international in china in the last half year, of which 2.8% carlsberg, double-digit as well. in total, we are really putting money in china. a lot of alcohol players are moving into the world of marijuana. do you have a team looking at the space and what impact could it have on beer sales? cees: we have a central marketing team looking at all the firms in the beer world. a lot of that -- [indiscernible] -- we do not have specific brands but we are following the developments. we are very much focused on selling our beer. tom: one more question.

the rage of america. lots of articles including a great effort in business insider recently on the fact that the younger crew is not drinking beer. this is a huge deal for the american beer economy. are you seeing the same thing in carlsberg. ? what are you going to do with millennials that are driving taxicabs like you used to? cees: that is a long time ago. millennials drink less. on the other hand, [indiscernible] we see the growth of [indiscernible] as well as the growth of alcohol free beer.

[indiscernible] well.w double-digit as we are not concerned. we have a very good product. tom: thank you so much. a time of turmoil within the beer business and e.m. as well. cristian maggio and elsa lignos of rbc capital markets. let me bring up this chart, if i could. the mathematics is gorgeous, a beautiful break in extremely well contained, well-managed trend, near two standard deviations. weaker, weaker, weaker huge a persistent chinese yuan. is it a fixed currency managed by the government or is there any sense of floating to renminbi?

elsa: there are clearly market forces trying to push dollar china higher. no one would assume it is a floating currency. there is government intervention and management. it will be used as a tool and what will be a u.s.-china trade war. francine: if we see a currency war, what is the bottom? cristian: they could be used. we do not think it will be used. we do not think it has been used as a tool so far. the fact that it shows incredible stability, depends on the fact that it is now managed against a basket of currencies, rather than against the dollar. the dollar remains the main currency in that basket. stability against the dollar is normal. until recently, renminbi was weakening a lot against the dollar but not as much as other currencies, which means it was

strengthening against the basket. think that came at the time that trade frictions increased and gave the impression it was actively used as a tool by the chinese authorities. francine: do you have a clear idea of what the chinese authorities are doing longer-term? elsa: i agree with the element of stability. they do not want to see aggressive moves. at the same time, there is a path higher for dollar china. it will be part of the effort to tackle the tariffs, and how they react. tom: within the chinese currency are the adjacency to china. i am reading about the japan-chinese dynamic. what do you see their? odd bankrested in the policies of china and japan. elsa: japan is an interesting case.

there is focus on what the boj is doing. from our perspective, it is more important what the fed does. when you think about japan it is a country that has run a surplus for many years, they have enormous stock of overseas assets. it is down to hedging behavior of local investors. what the fed does in terms of raising interest rates and raising the cost of hedging is far more important to the yen. tom: within the japan-china issue, is the idea of japan and the united states. what is your call on dollar-yen? cristian: we think it will be stronger for now, especially as long as the turmoil continues. it seems to be a safe haven however, we had to revise recently, our view, in a bearish direction just because the bank of japan has confirmed they will remain with loose monetary

policy for a longer time. that starts to become an outlier in the g10 world, heading to ecb normalization of policy. francine: i cannot make up my mind whether boj or boe is the most exciting central bank. they both have such big concerns, different concerns. anyone have not had describe the boj is that exciting. the boe has a lot on their plate. iain duncan smith earlier, huge uncertainty. exciting. that is the central bank of turkey right now. francine: 500 basis points? that would be crushing investors. elsa: they have done a bit already in terms of trying to limit liquidity from onshore to offshore markets. the funding squeeze their undertaking is having the intended effect. francine: thank you so much.

elsa lignos and cristian maggio, both staying with us. coming up. york..m. in new they will talk a lot about the turkish president. investors want to know what they will do next. the president moving to shore up alliances in europe and the middle east, with that deal with qatar, easing pressure on lira. the standoff between turkey and the u.s. is steepening. this is bloomberg. ♪ xfinity mobile is a new wireless network

designed to save you money. even when you've got serious binging to do. wherever your phone takes you, your wireless bill is about to cost a whole lot less. use less data with a network that has the most wifi hotspots where you need them and the best 4g lte everywhere else. saving you hundreds of dollars a year. and ask how you get xfinity mobile

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. ♪ francine: this is "bloomberg surveillance," tom and francine from london and new york. let's check in on tictoc. the beverage giant behind corona

beer is making a bet on the u.s. love of cannabis. state in acreasing a canadian grower to 38%. town, home to a jpmorgan back office is starting to dread brexit. we will find out more in the magazine. tesla set to receive a subpoena over a tweet. turkey turmoil. recovering after the wednesday plunge, find out more on that as well. let's get to the first world news. the u.s. and china have agreed on a low-key approach to end the trade war. beijing is sending a delegation to the u.s. they will meet with a team led by the treasury undersecretary. there have not been any talks

for two months. they had reached an agreement in may but president trump backed away soon after. president trump believes his tariffs on imported steel will rescue the industry. people may complain, but they will fall on prices. he says it is essential to national security. the jury in the paul manafort trial begins deliberating today. prosecutors say the former campaign chairman lied to get millions in loans when his income dropped off. his lawyers try to tarnish the credibility of rick gates. in brazil, the jailed former president has filed paperwork to run in october's presidential elections. he is serving a 12 year sentence for money laundering. a candidate convicted of a criminal offense cannot run for

eight years. 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. thank you so much. shares in the parent company of the operator of the bridge that collapsed in italy have lost a quarter of their value this morning. the government provided a plan for revoking concessions. the board is planning emergency meetings to consider the impact of the disaster, not until next week. 39 people were killed when the bridge gave way. let's get to our editor in rome. this is a human tragedy. we cannot forget that. if you look at markets -- down 25% on the license revoking concern. can the government revoked it? with a have to pay damages?

-- would they have to pay damages? reporter: they can revoke it and they do have to pay damages, if there is no penalty reasons that would allow them to revoke it. the deputy prime minister was on the radio this morning. he was making harsh statements about revoking license, saying they will not pay indemnities because the highway company has not done the work it was supposed to do. the company will defend itself. we are still at the point where we do not know exactly what the parameters of what the government is talking about is, but there is no question is, the company will defend its interest. ofncine: the tragic deaths the people, some people have linked it to brussels rules. how is this being taken in italy? the deputy minister has put all his fire against the company, whereas the sovereign

us party has directed the fire at brussels. he will clearly use this as a bargaining chip in discussions over the 2019 budget. he has made all sorts of statements about the eu spending rules putting italians at risk because they prevent maintenance. you can argue whether that is true or not but he is clearly using this as a major bargaining chip for the upcoming budget talks in brussels, no question. tom: you are a great student of europe. for all american viewers, the question is, how old are the bridges of europe? in america, this is a huge issue, particularly in the northeast. is it as big in europe? reporter: it is in the countries that build their infrastructure early, such as germany and italy. italy built mostly in the 50's and 1960's. therance, it wasn't until

90's. it was a major issue in germany. they have not spent on maintenance, in order to make the budget look good. the network is not in great shape. in italy, there is a very old infrastructure. maybe not as old as in the u.s. because it is postwar, but this bridge was 50 years old. the doesn't europe have municipal bond finance system available to fund this? we had a conversation yesterday in america on the easy access to capital within the municipal bond market to build bridges, airports, etc. does that market exist in europe or is it a different path? reporter: there is local bargaining but it tends not to be for infrastructure. infrastructure tends to be at the regional level, even with eu spending.

it is less dependent on municipal markets. you raise an interesting difference. we're talking about a private company. it is private companies that run the highways in italy and france and spain. that is not the case in the u.s. that at the different level of complication in europe that does not exist in the u.s. tolls are quite expensive. thank you. our government editor from rome. going backkets, rbc, to the markets, it feels uneasy talking so soon after the tragedy, about the markets. the markets were concerned that the rhetoric that came out of leadership was ultimately, if the eu is not to blame, it is certainly linked to this disaster. do you think the populists will continue attacking the eu and

will they talk about euro membership at some point? cristian: i do not think they will talk about euro membership. there is very little chance to pull italy out of the eu. they are populists. they use every tool they had to put forward their agenda. they want to negotiate more flexibility with the eu, this is good pretext for that. ado not think this is like, preannounced tragedy. this is an engineering fault. there will be responsibility, posted judiciary but it will take years, given the speed of the judiciary there. this is more for domestic purposes. francine: does this have impact hint atis gives us a what the budget law could look like. that has an impact on euro levels. elsa: some people are very focused on italian budget.

when thinking about the euro, blocking that with concerns with turkey, and european bank exposure, looking for more downside in the euro in short-term -- i am more skeptical. i think euro-dollar will drift lower but it will not be collapsing in the next few weeks. tom: within europe and all the other currencies as well, is there a trade that is particularly attractive? i think of sweden, norway. is there a euro pair that makes sense right now? francine: we have a couple technical difficulties. this happen sometimes on thursdays. he is asking whether you are looking at sweden, norway? elsa: we have been looking at norway against sweden. long norway, short sweden. we had the bank this morning, not much change in the statement, setting us up for a rate hike later this year. they have been

quite rapid when it comes to rate normalization. more room to the upside for the norwegian krona. back-and-forth. i can hear you. i will get the flags out. this happens, folks. sometimes technicals fail us. we have a brilliant crew that will get out the johnson & johnson band-aids to fix the system on a break. the interview of the day, dominic konstantin of deutsche bank. this is bloomberg. ♪

♪ francine: good morning, this is

"bloomberg surveillance," tom and francine from london and new york. we are co-coordinating on thursday. recovering after the plunge, amid easing trade tensions amid china and the u.s. and a weaker dollar. can the commodity rebound be sustained? ofll with us is elsa lignos rbc. i don't know how much this is linked with world growth and china or to the dollar? stuart: there are reasons to be cheerful. francine: always. stuart: it is absolutely clear the industry has not been spending nearly enough on new mines, new processing, knew everything. at some point there will be a supply concern. iron, so forth. eventually that will develop. there are warning signs in the

old market. not today but if we go forward five years, no one has built a major oil play for a while. shale has little pieces but there are no megaprojects. francine: talk to me about gold. gold is not doing what it is supposed to do in these kind of markets. stuart: it depends what currency or holding. emyou are holding currencies, it has done well for you. inflation hedge? not so much. it is fair to say that if you look in speculative category of u.s. trading, it is bearish on gold now. we had this conversation earlier. maybe there are better opportunities out there. gold does not hold interest for the most part unless you are a central bank. versus cash or treasury or whatever, maybe looks less attractive from that point of view. tom: let me bring up the gold chart, one of the most famous.

gold,s inflation adjusted set in $2018. llars.a -- 2018 do it goes through the 1970's, 1980's, the china boom in economies during the 2000's and the collapse. this is not attractive. tot are the ramifications all commodities if gold breaks down under $1100 per ounce? stuart: the ramifications outside the precious metals market is not that great. even within the market, you have silver, platinum, heavy industrial use. you have that driver behind those and they behave differently. gold stands alone as a bizarre commodity. it does have some practical use but in terms of, it could be a bad investment. tom: it has been bizarre and

what we have seen over the last six months. stuart wallace, thank you. with us, elsa lignos. i want to talk about the oddity of swiss franc strength. maybe it is a new flight to quality. bring up the chart. this is really, really important. there is brexit and strong euro, weekak swiss. the central bank is loving. leg down one, leg down strong swiss franc, two. what do they want in this benchmark currency? elsa: it is clear what they want. they want a weaker swiss franc overtime. it is not clear how they can achieve that, given they arty have rates in negative. the swiss franc trades as a safe haven. it trades as a haven when the risk is linked to euro area.

we saw that in may when italy went up and we saw that more recently with the concerns around european bank exposure to turkey. within the swiss national bank and the lessons learned since 2015, what did they learn in their management for the swiss people of two strong -- too strong swiss franc? elsa: they tried the floor in euro swiss, that became on successful -- that became unsustainable. they have been lucky since then. we have not had tense moments for the euro area. there was tension around the french election last year and minor tensions around italy this year. for the most part, they have had to accept the market will drive the swiss franc higher when you see tensions out of the euro area. francine: thank you so much. stuart wallace and elsa lignos,

staying with us. coming up, cisco chief executive, a thing or two to say. 9 a.m. in new york and 2 p.m. in london. do not miss that interview. this is bloomberg. ♪

♪ kailey: this is "bloomberg surveillance," and let's get the bloomberg business flash. cisco appears confident that overhaul will boost corporate demands. bullish forecast for the current quarter beating estimates, posting higher-than-expected quarterly profits and sales rose for th the third quarter. coming up, chuck robbins at 9 a.m. on bloomberg tv. they report that star board has taken a stake in semantic and wants to make changes. they have nominated five directors for the 11 person board. previous deals have done little to boost growth. deutsche bank cashing in on the turmoil in turkey.

made $35n lender million in profit when the crisis led to a slump in assets across em. deutsche bank in the process of overhauling the fixed income business after years of underperformance. that is the bloomberg business flash. francine: thank you. we had breaking news earlier, moved pound a touch, sideways. retail sales in the u.k. rebounding for the month of july. this has to do with the warmer weather but also extended discounts at stores, encouraging shoppers to open their wallets. this is folded into the forecast. boe, what the pound will do and what brexit talks will bring. i spoke with the former u.k. conservative party leader, iain duncan smith and he was very clear. he believes wto rules would not be bad. markets,espect to the

they have been forecasting incorrectly for a long time. if we were to go on what they think the future looks like, we would have made mistakes anyway. day-to-day, second quarter data, growth, this does not forecast even seven months ago. the idea that the u.k. was going to have declining growth, is not the case. francine: still with us, elsa lignos. the the last couple months, probabilities of a crashing out, a second referendum, have all increased. uncertainty has increased. what does it mean for the pound call? elsa: it is difficult to have a long-term call on sterling at the moment. it is difficult for investors to position. people are getting tactical. i don't even want to touch it. when it comes to long-term forecast of sterling, there are

very different scenarios in the binary view. francine: when you think we will get more of an idea on what the view will be? december/ february? october? elsa: it is interesting, expectation for when brexit will happen is not necessarily march, 2019. there are people betting it gets delayed by one year or that it doesn't happen at all. there is uncertainty around outcome and timing. tom: what is your call on sterling? elsa: it is easier to focus short-term. ityou're trying to trade rather than picking a number out of the air for a forecast, at the moment euro-sterling looks interesting. it is on the up trend. we are getting to a stage where there is short-term bad news

priced in, pessimism around the potential outcomes of negotiations, and there could be a downside. tom: are the foreign exchange markets behaving with enough depth in august to make trades effective or do you just have to stand aside until the autumn months? elsa: interesting. august traditionally is thought of as a low-volume month. that is certainly true sometimes but not always. particularly when you see big events, you see more volume go through the markets. for investors that got ahead of september and started positioning with nine months or one year trades, they were right to do so, we have already seen vol move up significantly. a month ago, fairly cheap, not so anymore. francine: you have an interesting call on euro, pound. yen call is 112.

elsa: 125, yen. it is a long-term story. we mentioned it earlier. based around what the fed will do and how rate increases will drive the cost of hedging for japanese investors. getting, that likely, the bank of japan is on hold. it is what banks and the rest of the world are doing that makes the difference. tom: correct me if i'm wrong -- you had a big call on big moves in yen? at dollar-yenook long-term, it is more likely to be driven by capital flows of domestic investors than the swings on risk on, risk off. -- we haven it anythin

you have to be, much more focused on capital flows rather than swings in sentiment. tom: thank you so much, elsa lignos with rbc walking us through the foreign-exchange space and em. coming up, dominic konstam, he has written 1, 2, 3, 4, 5 must reads for august, and getting ready for autumn. germany.onstam on beautiful. ♪

nearthis morning, there is no contagion news. calm.s

we can catch our breath. would he do? we consider the tesla board and their chief executive officer. the brilliant op-ed. good morning, everyone. this is "bloomberg surveillance." london, francine lacqua. fabulousrview was about getting through august. do we have a clue what he thinks will happen september 4? francine: i know what he wants to happen. he wants a brexit.

says it would be under wto rules. september and to more news from theresa may. the other story is the bridge collapse. this is a market story. in the first hours after the italyy, the leaders of linking the collapse to eu spending, then a fight between the italian government and the company that has a highway license. we heard the procedure could be suspended. will not pay too into the contract, but could stop suspending them if it makes a commitment to rebuilding the bridge.

terrible.mages are with your briefing, here is first word news. u.s. and china will resume negotiations in their trade dispute at a low level. chinese delegation will meet with the treasury undersecretary. appeared toons reach an agreement, but president trump backed away from the deal. it is an unprecedented act of retribution. the president revoked the security clearance of john brennan. he true a direct connection between his actions and the investigation, citing brennan as among those he blamed for the probe. the u.s. and turkey are locked in a stalemate. the white house says new tariffs

will stay in place, even if turkey frees an american pastor, and called turkeys retaliation the wrong direction. 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: thanks so much. let's it through the data. -based turkeyar bond in a moment. oil flat. some stability with euro. next screen. .he market more resilient dollar stable. turkish lira for the third day in a row. the u.s. yield on the two-year .urkey we have a long way to go on that important piece of paper. falling, dollar

european stocks climbing, u.s. equity futures gaining. i guess people are putting their hope on these trade tensions easing. treasuries dipping a touch. i have a cool chart, the two-year and treasuries in the u.s. versus germany. tom: very good. a lot to talk about. we are thrilled to bring you our guest from deutsche bank. his career is writing extremely dense, must-read pieces. we copyright all our guests.

>> it is as much about dollar strength as em countries. we are going through strengthening dollar and it is not clear how far that will go. it makes a lot of problems. tom: you say away from strong dollar is weak renminbi. >> china is a potential regime changer. it is a massive trading partner. change ins a regime the sense of a significant depreciation of the renminbi, that will have deep ramifications for emerging markets and global growth. is the appetizer for some of that. francine: we are jumping all

over the place. let me go back to china and renminbi. when you say it would weaken, is this a retaliation from the chinese? or does that automatically weaken given where we are with the chinese economy? >> the first question is what is the nature of the dispute between china and the u.s., trade, the fairness and freeness , theade, or more than that relative economic strength of china? other countries may share that. nott is about that, it is making trade freer, it is about trading relationships that have better economic competition with china. what does china do?

one response would be to depreciate. then they would protect their trading balance in. .- balance in renminbi that is a choice they have to make. it does throw the cat amongst the pigeons if you're facing a different renminbi regime for europe and the rest of the world. francine: how much stimulus do you think they have to put into the gdp does sure not fall off a cliff? >> we did some analysis to show real exchange rate appreciation does boost current account surplus for china. 10% in realciate terms, you can absorb a lot of the stress that might be created by tariffs. is i wouldor china

not blame the chinese. that is what many countries are doing. tom: physics as well. bring up this chart this is a log chart of renminbi weakness. there is almost an owner shall force of renminbi. do you get a level of a junk condition or instability, seven, or something further out? >> it depends on the capital outflows. we know they are doing certain things to limit capital outflows. that if iant thing is

was the chinese authority and new that going forward i would not accumulate reserves in the way i had been before, i would protect reserves that i had already accumulated. fact they don't want to spend reserves to protect the currency. let's talk about tom: white house authorities. should they be respectful and fire of a marginal u.s. paper? the doom crew would say this is a real worry. is it a real worry? , someone will bind those treasuries. if china is not buying them, you can look at foreign holdings of treasuries going down against domestic holdings, so the

endgame is our treasury market becomes more domesticated. the question is at what level do they end up buying those treasuries. with a disorderly depreciation of the renminbi and the delegates strong, there is a reaction function from the federal reserve and they would probably not plow through hiking every single quarter. 10 year treasuries may not move. they may rally. there are lots of things that have to be taken into consideration. tom: we have some audio issues from london. i have one more question. we will come back on mario draghi and ecb. who they pick next after mario draghi. are you on the short list? >> unfortunately not.

northerne will be european likely. tom: you say orthodox. >> that is the word i was looking for. it is important the proms are dealt with while he still is in place. tom: fabulous research by deutsche bank to get you ready for a busy autumn. coming up, charlie o shea on retail. he is with moody's. they are looking at credit quality and equity performance of retail. stay with us. this is bloomberg. ♪

>> this is "bloomberg surveillance."

let's get the bloomberg business flash. shares of the at tying company that operated that collapsed bridge are being battered today, suffering its biggest loss in three decades as the italian government has begun revoking its toll road concession. at least 39 were killed in the disaster. that investigation into elon musk's tweet have reach a more serious stage. the carmaker has received a subpoena from the sec. musk exposed himself to legal risk by saying he had the funding to arrange a buyout. star board has nominated five directors. that is the bloomberg business flash. tom: thank you so much.

with us is deutsche bank. a discussion on the economics and linkage and finance and intots, but now, we link that great american consumption machine known as walmart. us --e l shea is with charlie o shea is with us. i love what you say about walmart taking on amazon. how are they doing? >> they are doing well. walmartare seeing with is the flexing of the muscle of the brick-and-mortar locations. brickt for year that if and mortar retail executed, they could be successful. in walmart's case, they're using the food business is to drive revenue and store business.

grocery,pickup and they are getting people on the product on ordering the website thing going to the store to pick it up, which unleashes the value and the weaponry with the real estate, so we think that model is pretty compelling. tom: within their credit world of moody's, it is about margins on the income statement. are they going to show persistent margins, or is it just assumed margin erosion with the web effort? >> whenever you look at investment, walmart, like amazon, is having investment. you will have to give up some margin. that is where the shareholder comes into play. when walmart started this mission in earnest in 2015 when they made the announcement at an analyst meeting they would be investing over a multiyear perio d in people, price, and

technology, the stock got hammered. the stock came back. investors recognize these were prudent and necessary investments, and the company continues to do that. they are investing in price. i call it the ollie-fraser of retail, fighting over market share and using price to do it comes so you will see some margin compression out of walmart. what will be important is what does the e-commerce tell us about food and online. francine: if you look at procter & gamble, coca-cola, they have had to increase prices. some of that is related to trade tensions. our you telling me walmart will not pass on the higher costs to the consumer? >> that will be an interesting dynamic.

walmart has taken a hard line with suppliers. it will be interesting to see how this plays out over the next couple of quarters. it is early days in that dynamic. that is an interesting point and valid point. it will be interesting to see how this shakes out over the next couple of quarters. francine: do you worry about wage growth and shopping at places like walmart? >> the consumer appears to be in good shape. there are tailwinds for the andumer, unemployment down, the lower and middle class consumer have more money to spend. i think the consumer is in pretty good shape. i think walmart is typically a beneficiary of when that happens, so i think there are

tailwinds on the macro side over the next two quarters. francine: great stuff. thank you so much, charlie o'shea of movies. deutsche bank is staying with us. robbins aboutck pricing and dollar dynamics. that is 9:00 a.m. in new york, 2:00 p.m. in london. this is bloomberg. ♪ is is bloomberg. ♪

tom: "bloomberg surveillance"

quieter markets for the first time in four days. we are less hysterical. we are honored to have deutsche bank with us. just put out his must reading for all. have written on the complexities of productivity. for chairman jerome powell, how mysterious is this technology of america? do we know our part dictated he and the effect of technology -- our productivity and the effect of technology? isknow this cycle disappointing. >> it is very weak because investments have been disappointing relative to labor input. ,s you get more jobs created

the only proper growth is productivity growth. i'm not sure how fully he appreciates the role the fed could play in promoting a better productivity outcome. tom: within that is the history of all this. to a guy madever traditionalwas a statistic. that doesn't work with apple computer, does it? >> i do think there is an issue , but theych companies would rather buy back their .tock i know there is a debate about

how you measures it and how it applies to tech companies versus non-tech companies, but that is a measurement issue. there are massive buybacks going on. you could have a world where you have new investments in the united states, which would raise our productivity growth. i can't believe u.s. productivity growth will be less than 1% or 2% for the rest of our lives. it is absurd it is that low. the question is how can we influence that. let's talk about another measurement issue, when do you think the tax cuts boosted gdp runs out in the u.s.? >> you are seeing some analysis that we have yet to feel the full benefits of tax cuts.

clearly they can still kick in a little bit. maybe they are being offset by concerns around tariffs, etc.. . tom: we are running out of time. we will come back. we will look forward to italy and its affect on the ecb as well. .oming up, walmart earnings before that, the going ons of washington with brookings institute. this is bloomberg. ♪ this is bloomberg. ♪ this isn't just any moving day.

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

this is staying connected with xfinity to make moving... simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. francine: this is "bloomberg surveillance." we are spending a lot of time to understand the implications of the tragedy in italy two days ago. this is the bridge collapse.

the italian populist leaders , linkingn the occasion it to eu budget spending, now part of the government saying they will revoke the license managing that stretch of the highway, saying the victims are the priority, not the concessions. straded auto mcclenny of profits to compensate the victims. very good. stunning images this morning. right now with news. and china have agreed on a low-key approach to trying to end of the trade war. beijing is sending a low level delegation to the u.s. this month and chinese negotiators will meet with the team led by the treasury on's secretary -- treasury undersecretary.

president trump backed away from an agreement in may. meanwhile, president trump believes his tariffs on steel will rescue the industry. he said they will complain prices are more expensive, but will eventually fall. he said protecting the industry is essential to national security. the paul manafort fraud trial begins to liberating today. -- begins deliberating today. manafort more you're trying to tarnish the credibility of the government's star witness, rick gates. brazil, the jailed formal paperwork to filed run in october's election. he is serving a 12 year prison sentence corruption and money laundering. a candidate convicted of a criminal offense cap run for eight years under brazilian law.

the electoral court will decide his fate. 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: thank you so much. for a change, we will be graceful and lighter in the summer of this august of 2018. one person has written a brilliant morning must read .eaturing his golden lab mr. president, a dog has to resent all these attacks and says it is instructive to compare the president's frequent use of the d with a passage by hearingm accustomed to malicious falsehoods about i think i have a right to resent, to object to libelous statements about my dog." we go lighter to date with kevin cirilli.

are there official pets at this white house? >> no, i don't think they do. latest news has sandersah huckabee announcing john brennan security clearance would be pulled. tom: the distractions continue to come on and on. to move to mr. brennan, which was a shock. will others follow? >> there is speculation that there will be. drawnas condemnation from democrats. there is some speculation about the timing of all of this. coming at a point in which to theion with regard

recent news has dominated the flow. we will have to see if that continues. francine: good morning. try and read up on everything going on in washington. are 200 american newspapers that will express their displeasure with donald trump's repeated attacks on the media today. does that change anything? does it have an impact on the midterm election? changes'm not sure it the president. this is something well documented since the campaign. the administration feels this helps them to solidify their base. there is a deep distrust in all institutions in the country right now. the president feels that by attacking the media that he is able to weaken the media and try to bolster his argument.

will tell you these 200 newspapers that are launching these editorials, look , some of them are in the suburbs, swing districts. they also have a voice and they say. it will be up to the american people to decide what they believe. tom: thank you so much. greatly appreciated. with the brookings institution, ofir senior fellow republican-democrat fractious studies. the democrats long ago and far away, the democrats were hugely fractious. when they returned to that with this election season? >> there is a real opportunity democrats retake the house. the biggestyth that problem they face is they don't have this unifying national message to run on in the midterms. when you look back to 2006, the last time the democrats took

congress, they did not have a big national message then either. their message was we are not george w. bush. .t worked in 2006 they are hoping the message will be just as effective. tom: within that is the leadership issue, speaker pelosi representing another generation. what is the likelihood of a generational shift in the democrats? >> the generational shift among democrats is already happening. younger representatives and people elected at all levels of government are bringing not just new faces, but new ideas to the democratic party. ofers are supporting a lot these ideas. at the end of the day, nancy pelosi is an extraordinarily talented political tactician. she was an effective speaker of the house and is raising a lot of money for democrats right now that will reposition her to reclaim the speakership if democrats retake the house and

their margin be large enough. francine: even if the democrats do retake the house, does it have implications for the next presidential election, or his donald trump emu into it? >> donald is immune to a lot of things in american politics, but it is difficult to see where he is immune to a democratic control of the house. it is not just the next two years in congress, but the 20 presidential election as well. able to putll be issues front and center that republicans would prefer to hide from. that is basic congressional politics, immigration reform, not mighticy, these be issues democrats will win on in the congress, but are issues that will force republicans to take votes on. tom: thank you so much. with us is deutsche bank and we will get to ecb and mario draghi

at the end of this hour, but on the american economy and the gdp,tion of nominal everybody wins when nominal gdp is at this point, don't they? did theto some extent question is sustainable growth. the question is whether we will normalize interest rates around 5%, because, 4% or of the loss of long-term liabilities that insurance pension funds have, and we would like to have a more normal structure for interest rates. that cannot be achieved with productivity growth low come and you have to run a high-pressure economy to get productivity higher. many interest rates are you expecting from the

fed? is the risk they hike more or less than expected next year? >> our view is the fed will hike every quarter. that is in line with perhaps how the vice chair williams thinks about it. the context is different. the context would be williams is more worried about inflation rising and feels he needs to push interest rates to be restrictive in order not to rise. fed would be the that locks is down into a lower interest rate scenario. rates,re going to raise i would like to think about applause that refreshes. pause allows higher interest rates later because we do get a recovery in productivity. maybe there are some structural benefits from the tax reform, but fundamentally you get higher productivity by having an investment boom. that is why letting the stock , this do well

high-pressure economy story come up may be good. will fallse things into place and allow more sustainable half for higher interest rates. i think we would all like to see that. it is a much healthier economy to get away from the zero-bound and all these issues we have had to face. savings rates were higher recently. that is really interesting. there was a big issue about whether low interest rates created too much savings. people have to save more to make their savings goals. we can understand why the official data regime was low. it is now higher. it is a good sign for higher growth and sustainable higher interest rates. francine: thank you so much. deutsche bank will be staying with us. remember, pick your favorite charts. precise, elegant

depreciation. we also have the two-year treasury breaking away from two-year german bonds. pigot. -- pick it. this is bloomberg. ♪

>> cisco appears confident that an overhaul of its networking products will keep losing corporate demand. the company gave a bullish forecast that beat estimates for the current quarter. cisco posted higher than expected quarterly profit and sales rose for the third straight quarter. with chuckwe talk robbins that none :00 a.m. new york time on bloomberg tv. amazon may be about to go into

the brick and of the movie industry. the world's largest internet retailer is in the running to buy landmark theaters. film and tv owns a studio. landmark is a chain of 50 theaters backed by mark cuban. more legal problems over herbicide made by monsanto's acquisition. shares fail after a court denied an effort. juryweek, a san francisco awarded a man $289 million on his claim that exposure causes cancer. that is the bloomberg business flash. so much. thanks tesla has received a subpoena from the sec over efforts to take the company private. bloomberg has learned the demand for information followed elon musk's tweet last week saying he was considering taking tesla off the market and had funding secured. it indicates the regulatory

scrutiny of his statements have reached a more serious stage. the sec and tesla declined to comment. analyst now.is an thank you for waking up this early for us. what does this mean for tesla? criminal, or does it impact the funding the tesla could receive? >> it is a very serious and troubling development. the sec has looked into tesla over the solarcity acquisition and how that was handled, this whistleblower from the battery factory in nevada who has raised questions to the sec. sometimes they open a file and keep an eye on things. this one they have acted on very with an intensity they have not seen before. it could be yet another major distraction for this still pretty new automaker. francine: that's it have an impact on tesla's board?

they clarified it had not received a formal proposal from elon musk. does it change the relationship? >> the board has tended to be close. they have all been selected basically by elon musk or each other. it is curious. it is almost like the way the president tweets out what he wants policy to be, then his staff has to figure out how to make it happen. doesn't have as much power as the president. it is very troubling. it does look like the board is pushing back or trying to a general standard level of professionalism about the process. motor and theford idea of one ford. now there is one of mosque, -- musk, except they are different. did thatne thing ford

they could not do at tesla. >> elon musk is running several businesses. there is distraction note normal human could cope with. he has done amazing things. what ford did is go back to and focus onspacex the core brands that could deliver profits. -- go back to basics and focus on the core brands that could deliver profits. so that has been the challenge. if you were to do the same thing at tesla, you would drop all other projects and higher ac 00 to run the company and focus on getting production up. that is not happening and will not happen. tom: exactly. is the best, what

practice tesla needs to do to move forward? >> lean manufacturing and building quality. the toyotao go to playbook that everybody else has been using for the last 20-30 years, get their parts just in time, build it right the first time. their customers are super happy, but they have had to fix them all in the parking lot after the fact, instead of making them right the first time. tom: thank you so much. greatly appreciated. we will come back for an important discussion on global wall street and the future of the ecb. an interesting research note on how italy plays into this. your morning briefing coast-to-coast, bloomberg daybreak on bloomberg radio. please stay with us worldwide. this is bloomberg. ♪

tom: a little lighter today. read bloomberg opinion for brilliance on tesla, tim

o'brien's brilliance on washington, for the outstanding essay today on dogs and presidents. this is the first time we have allowed a photograph of that bill. photo of that is my the day, if not the year. he looks like the godfather with his cute dog. i would call it surveillance, sneaking in. shouldn't name the dog. tom: the dog is celebrating his 10th month birthday yesterday. bloomberg opinion about dogs. i have tweeted it out. i will redo the wonderful essay. let's migrate to the real world. of your five shocks, the tour de -- wait, that is

not the chart. there is the chart. .here is the vix -- euro the deutsche mark over to the left. forget about it. this is about italy and the constraints on the ecb. why doesn't italy's mess constrained mario draghi? >> most of europe warrants higher interest rates. has decided they want to raise rates at some point. in many ways, the sooner the better. italy has thrown a spanner in the works. they don't want primary surpluses. this tragedy on the motor race -- motorways does ram home that point that there is a case for primaryt to run services and spend money.

that raises the issue of how do you normalize or begin a normalization process out of europe. countries would welcome that, but obviously not italy. tom: i go back to one of the waslines of the year which the ecb coming out and saying we will not raise interest rates forever, essentially. how unorthodox was that? that was an original theory, theme, execution. >> it was very unorthodox. we have measures of ecb compared to fed in terms of whether short-term rates are relative to what the economy demands. the fed is 100 basis points ahead of the game, the ecb is 100 basis points behind the game. they have to figure out how to insulate italy from normalization of rates. that is where mario draghi comes

in. better to sell some sort of insulation program for italy to their europeans. what is it? we suggested they could do something very interesting with the reinvestment program, basically twist reinvestment's to buy long-term italian debt, and the italians can lock in these lower interest rates while they can to get themselves a chance. it would not be a problem if the italian government was happy running primary surpluses, but clearly they are not. francine: are they itching for a fight with the eu? trying totch go to get italy out of the euro? >> i have always thought it is not in anyone's interest to eurozone, for italy

to leave. it does not make sense. there are so many problems it creates. it is always credible for a country like italy, a big country, for them to say if you don't look after us, we have an option. it is not like they don't have any options. it would be absurd to go down that road. tom: this has been wonderful. we will continue. we drive for the conversation later this morning. a conversation with dr. el-erian. stay with us. this is bloomberg. ♪

♪ alix: u.s. china-trade talks rescue markets, low level talks

for the first time in two months, boosting risk sentiment. goldilocks and the three bears. the bears out of harvar hibernation. to "bloomberg daybreak" on this thursday. we are waiting for walmart. alix: macy's crushing it, but getting punished. maybe they are spending too much. david: you had to feel sorry for them. alix: a little bit. i guess if you are a long investor with that 65% rise over the next nine months. david: take some off the table. alix: yesterday was a traumatic day. today, futures up 14 points. on the front foot. it is a