francine: the world's biggest miner criticizes the americans protectionist stance. we will bring you our interview. and growth on track, statistics chief from china tells bloomberg they will beat the 6.5% target despite the trade war. welcome to "bloomberg surveillance."

i am francine lacqua in london. the stoxx 600 pretty much flat. a little bit of green. the main story to watch out is the dollar weakening yesterday on the back of president trump's remarks on jay powell. we are looking at trade tensions gearing up. you can see that number of u.s. newsr index, and breaking on the sovereign wealth fund in 1.8% on theturning second quarter because of stock gains. it will be interesting to see what they are disposing of. coming up on "bloomberg surveillance," we will bring our interview with the bhp billiton executive chief. that exclusive conversation is coming up next. morning, president trump

has said he will not make concessions to turkey to secure the freedom of a detained christian evangelical pastor at the center of the diplomatic dispute that has rocked the nato economy. he repeats his claim that china and europe manipulate their currency. he says whether the u.s. but the tariff on chinese goods, beijing artificially lowers the level of the yuan. china's problems with dodgy data are in the past, according to the manning charge of government statistics. in his exclusive interview with bloomberg, he also said the country's growth this year will exceed its annual target of 6.5% despite the trade war with the u.s. 6.8% economica's growth in the first half of this year, domestic consumption contributed 78.5%, while

domestic investment falling accounted for 31%. the exports actually went down. thinking about growth and achieving a target of 6.5%, china is actually not that affected by the fall in exports. microsoft have revealed an advisory on a cyber attack linked to the russian government to target american groups ahead of the u.s. midterm elections. in a blog post, it was said the shadowy group created six web --ains that mimicked microsoft is sifting through the evidence and getting a court order to close the domains. italy's prime minister has called atlantia's offer of 500 million euros modest compared to

profits it has made over the years. speaking to the newspaper, the company should raise it to 2.5 billion euros. the bridge collapsed last week killed 43 people. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. fed.ine: trump versus the president trump has said he expected jerome powell to be a chief money chairman. he complained to republican donors, and the dollar moved lower on the comments. the president nominates the chairman, but he is independent and has historically frustrated residents. let's keep the conversation on central banks and president trump's view on jay powell. now neville hill,

chief european economist, credit ,uisse and nicholas gartside cio, jpmorgan chase. does this tilt the fed into hiking more than they want to? >> i do not think so. the fed has a crystal clear mandate set down in law. in terms of employment and in terms of inflation, and so the fed look at interest rates, the case should be increasing rates more quickly, not more slowly from where we are now. time, if at the same you are jay powell and the new chairman of the fed, you really don't want the president involved. nicholas: no, this marks a change in president from where we have been in the last 25 years. it is more important, but in the short term, the only way the

central bank could deal with this is to do the right thing. that does not mean raising rates more aggressively to show your independence, because that will come back to you further down the line. if you think about the ecb actions in 2008 when they try to show how tough a bank they were, that ended in tears. francine: do we know what the of ministration wants? a weaker dollar, what are they expecting the dollar to do? the dollar is part of the lightning rod in terms of conditions. you probably want a stable dollar. if you have a weaker dollar, it has deflation and inflation consequences. a stable dollar is the best outcome in terms of where we are now. i think trump wants lower interest rates and a weaker dollar. as he has launch this trade war

in the course of the year, the dollar has appreciated in sympathy with that, and in sympathy with a high level of u.s. rates, and you have someone who has allocated a weaker dollar in the past, he is frustrated with that trend. the u.s. what does economy need? if the dollar is too week, you could see a overheating. the dollar has been strong because growth is strong in the u.s.. backdrives currency comes to fundamentals, and this idea that capital goes to the place it will get the highest return. at the moment, that is the u.s. we are in a world of divergence. you got the u.s. economy on fire and the rest of the world were growth is tested and slowing. that is what has driven the dollar. it has reflected strong fundamentals within the u.s. francine: do you worry about a

yield inversion? u.s.le: not really, the economy is growing in nominal terms of 5.5% a year, and you have a substantial stimulus kicking in. in effect, the policy response should be more hawkish over the next year or two. when you have a president starting to publicly and presumably loudly be rate what the fed chair is doing, the risk is the fed chair will eventually pullback from later hikes and start to run the risk of higher inflation down the road. francine: i guess the concern is you have a stimulus thanks to the tax cuts, which at some point will run out. the rate cycle could turn the economy at a point where tax cuts run out. neville: possibly. i think the risk is the fiscal stimulus for continued growth, .nd inflation will drift up

monetary policy should be more tight, and that is the way that the cycle will end with monetary policy getting tighter than it would otherwise need to in response to a stimulated policy. francine: do you believe we are in a currency situation? reflects interest rate differentials. the reality is we have an ecb and bank of japan that is still easing as things stand today read the fed is still tightening. you have this divergence. the lightning rod is typically currencies. francine: when a president wants to influence interest weights, is that not entering -- interest rates, is that not entering an interest war? that money is set by the european central bank or the federal reserve, and that is the delta, the difference in u.s. rates and european rates is a

couple of percent. francine: what happened to trade tensions? whether we want to collect it trade war and whether it will hurt world growth. neville: i'm not sure it will. i am more concerned the trade war will damage profitability than economic growth. there has been generally an emphasis of moves from production to one place to another, so they are investing more. moving production is profoundly bad for corporate earnings, so i suspect it will not be bad for growth, but as businesses shift supply chains out of china, the risk is more to corporate earnings. and also inflationary pressures build. francine: are you worried that before that midterm elections it is done to hurt the u.s.? isholas: what china is doing

a fairly significant easing program. it is trying to stimulate its economy. they reinforce their growth rate. francine: thank you both. nicholas gartside, cio, jpmorgan chase and neville:, chief european economist, credit suisse. francine: the ceo of the biggest miner sees no slowdown. interviewing you the with anja mckenzie. -- andrew mackenzie. this is bloomberg. ♪

francine: economics, finance,

policy. this is "bloomberg surveillance ." the world's largest wealth fund faces growing challenges to its global investment model. decreasedllion fund in exposure to emerging markets in china. despite its aim over the coming months, it was both sectors that fueled the positive returns. .e are joined over the phone great to have you on the program. what drove returns? >> as you said, ironically it is the oil and gas sector which they have proposed to divest. that is something we will learn about later this year from what decision the government will take. it will be interesting what part of this will play in that debate. other than that, it was pretty much the broad gains in the u.s.

stock markets that helped the fund in the second quarter as well as european shares. it suffered large declines in emerging markets, and in china, so that is adjusting it strategy expanding in emerging markets in china. how much do they warn about the consequences of a trade war escalating? >> there are no specific warnings, but i think it is interesting they put it in their stockstatement that gained despite increased fears of rising protectionism. it is a real threat to the fund, because it has a global philosophy to invest across the world. any sort of harmful effects on trade and economic growth will probably force it to rethink its philosophy as it moves forward.

how quickly do they change their portfolio? they are a big shareholder in the u.s. tech stocks. the largest work apple and microsoft. they also own a huge amount of treasuries in the u.s. >> they largely follow indexes, so it is hard for them to escape , and i am sure the large gains we have seen and tech stocks is pushing those up the portfolio letter. it is not necessarily they are investing more, just that those of the stocks rising the most in value, which has made apple, amazon, microsoft and alphabet. largest is the world's government bond market, so it stands to reason that is where large chunk of government bond

holdings are placed as well. much.ne: thank you so let's get straight to the bloomberg business flash. >> the u.s. risks losing out on trade as rival nations including china seek to do more business with each other. andrewliton's ceo mackenzie, the world's largest groundswellcting a among global business leaders against the trade war. >> as we have been reading this week, it will be harder to encourage exporters. and from talking to trade ministers around the world, a lot of countries want to trade more with each other. the u.s. wants to trade less with them. china will walk into that area to find exports with other people. >> trade war's will not have a direct impact on china's steel

output. long periods of protectionism are bad for global growth, .ccording to the ceo of the steel in china is consumed domestically. china is focused on providing additional stimulus. our expectation is the trade war will not have a direct impact on steel production in china. history has demonstrated protracted periods of trade protectionism are not good for global growth. is doublingbank down on a bet that trouble commodities trader noble group will be able to pull off a $3.5 billion reorganization. vote, andolders will to german lender's offering buy the bonds at 45% of face value. the processes will increase

reports of restructuring. that is the bloomberg business flash. francine: china's growth this year will be its annual targets of 6.5%, according to the head of the national bureau of statistics. speaking exclusively to bloomberg, he said a drop in exports will not be hindered. within china's 6.8% economic growth in the first half of this year, domestic consumption contributed 78.5% while domestic investment dispute accounted for 31%. the exports actually went down. thinking about growth and achieving a target of 6.5%, china is actually not that affected by the fall in exports.

how resilient is china's economy? we are joined by nicholas nichos gartside, cio, jpmorgan chase and neville hill, chief european economist, credit suisse. neville: i would worry more about the slowdown. after chinese authorities clamp down on off sheet lending, all of the evidence suggests it has been severe. you see that reflected in other countries exports to china. a lot of the weakness in european growth can be explained by the slowdown in china. the question is, can the stimulus and measures announced in the last couple months be capable of stabilizing chinese growth? we think it will.

do you think they need to do more? nicholas: they have done a fair debt already. they are in a process of fiscal stimulus now. when you look at government bond yields, 40 to 60 basis points lower year to date is significant easing a policy. and a strategy to make the economy more internal. stable?: much more nicholas: much more stable, and you get a higher growth rate. they are in a transition now. francine: how much stimulus could they put in? neville: if you look at what we think is one constraint, of inflation, from the perspective of the broader aim of

deleveraging the economy, really putting on the bank lending spigot strikes me as excessive. it does look as if the policy stimulus is sufficient to write the economy and meet the growth forecast. francine: are they stabilizing the yuan so they appease the u.s., or because it hurts the economy? nicholas: a little bit of depreciation there in the context of broader trade issues has been helpful. versus the dollar. when you look at it on a broader measure of trade, it has not moved relative to something like the euro. francine: what happened six months down the line? is it attract the dollar or internal chinese factors? nicholas: increasingly, it will be internal chinese factors as the economy is reoriented that way. neville: i think that is right.

as the economy stabilizes, the yuan has weakened in response to the weaker economy, and as the economy strengthens, that will get stronger. francine: what is your take on emerging markets? does turkey put fears into the markets because of the huge amount of debt in dollars? neville: i think the big issue is the dollar, and to which emerging markets have had a problem. the dollar has strengthened, we start to see top out, and the euro strengthening in the end of this year. decca could be a market were emerging-market assets francine: it is actually a fed policy? nicholas: you would estimate the

euro-dollar at 1.20, so a little euro strength. a few rate hikes from the u.s., and europe will start to tighten policy at that point. francine: when you look at the concerns surrounding italy? is italy stuck? neville: i do not think it is. if you take a look at the economy, it is growing vigorously, close to 2% at the moment which is more than sufficient to drive down unemployment. we think they can raise rates next year. francine: what you do with germany? it is in the eye of the storm trade tensions in trade wars. nicholas: clearly more domestic demand in germany would be helpful in terms of broader

rebalancing. the other part of that is when you look at european growth, it is a significant driver of it. this is a real success story. and a powerful driver of growth. continue atll it the levels we see? if 2017 was a big year for europe, can 2019 be the downfall of europe? nicholas: downfall is a very strong term. we look at eurozone growth it is above trend now. maybe growth comes back to an trendend level -- at level, which is a good outcome. francine: what do you do with italy? neville: wait and see for the budget in december. budget,y put in that all the news reports suggest it might be a damp squid, but we cannot have much confidence on the. if we get to the budget process,

and the fiscal expansion is not too excessive, market scam stop worrying about italian risks. they probably will not be downgraded for the ecb to stop buying bonds. if the rise in the economy continues to grow, some of these begin to abate, and if not, we are in trouble. francine: nicholas gartside, cio, jpmorgan chase and neville hill, chief european economist, credit suisse. despite the trade war, we bring you more of our interview with bhp billiton andrew mackenzie coming up on bloomberg. ♪

francine: economics, finance, and politics. this is "bloomberg surveillance. " let's check in what is trending.

have the best selling album of all time, their greatest hits from 1971-1975 has surpassed michael jackson's "thriller." it has gone 38 times platinum. a call on the eu to increase sanctions on russia. response to match the after the poisoning of a russian spy earlier this year. apple is set to plan a revamped line of lower-cost macs. president trump complains that powell has not been achieved money fed chair. story.t more on that bloomberg spoke to one of the most outspoken bulls, the ceo of gerber kawasaki. he said tim cook would make a musk. number two for elon

>> tim cook is the perfect person. i think if 10 bought tesla -- i that if tim bought tesla, expertise is what he did for steve jobs. it is like a perfect match. furious absolutely be if anybody tries to get rid of elon musk. .e is a genius of our time this guy is the howard hughes of our time. i want to invest with elon. he needs help. let's get to the first word news. the u.s. president donald trump has said he expected jerome powell to be a cheap money fed chairman. he lamented to wealthy republican donors that his nominee had raised interest rates.

rates have been hiked five times, encoding twice under powell. the fed chair has historically frustrated presidents without regard for politics. president trump has also said he will not make concessions to turkey to secure the freedom of a detained vision pastor at the center of the diplomatic dispute that has rocked the nato ally's economy. he repeated his claim that china and europe manipulate their currency. he said when the u.s. but's on chinese goods, beijing artificially lowers the yuan. microsoft has revealed a new linkedby cyber attackers to the russian government to target american groups ahead of the 2018 midterm election. the shadowy group created six web domains that mimicked organizations such as the republican national institute.

microsoft is sifting through the group's intentions and getting a court order to take over those domains. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: the chief executive of bhp billiton is filling the void left by the u.s. in global trade. we spoke with the chief executive, andrew mackenzie. >> the concerns we have looking forward is that if protectionism takes hold, it will have a dampening effect on the global economy. that ultimately will affect bhp, the we expect china will mitigate some of the impacts it faces. we do not sell just to china.

as we have been reading this week, it will work harder to encourage exporters. tot i learned from talking trade ministers around the world, a lot of countries want .o trade more with each other the u.s. wants to trade less with them. china will absolutely walk into that area and look to find exports with other people. we do not think the impact on china even a trade issues become real is going to be that significant in the short to medium term. we worry about protectionism generally because it is bad for global growth. dividends,lifting and at the same time couldn't -- if you didoney you will be dammed if you did in denver if you don't -- could you use that money more for expanding other parts of your business as well, and i am talking about conventional oil

production? using money to expand our current production. our volumes are up 8% year on year. we have nine significant projects underway. we have a major exploration program. we have told the market we will not spend more than 8 billion for the next year or two. we continue to improve the efficiency of our capital. we are doing everything with our cash. we are investing in the future of our business. we have taken our debt down to the low level of our target range. do not need to put any more on the balance. -- on the balance sheet. there is money left over to grow the company in the future, and there are a lot more to come. we have options for the short,

medium, and long term in all of our commodities. they have to compete for capital, and we have a strong capital allocation framework which keeps us to that discipline. francine: that was the bhp billiton chief executive, andrew mackenzie. let's bring in nicholas gartside , cio, jpmorgan chase and neville hill, chief european economist, credit suisse. they have the difficulties they focus on -- >> they are all dependent on china. similarity ina the reporting this earnings clear, it seems fairly they are losing control. it is not too dramatic, but if you look at the cash costs have gone up, there is a theme coming

through that the dividends are not big enough, but we want more money back please. is there a danger they under invest? stuart: there are no megaprojects we are seeing. there are nine projects on the board, so there are some, but it is not spending at the scale we saw. francine: there are some that so more to china, or are they all the same? it is more dependent on china than others. even selling to another territory, chinese demand will dictate the price i can charge in that territory. --ncine:

it if my would love phone -- it is not a good dream to have. francine: is that a game changer on the impact it would have? stuart: where we are having problems in renewables, is storing the energy. we do not have the battery technology yet. we are getting there. in thee can sort that wind stops blowing or the sun stop shining, what do you do? you have to turn on the fossil fuels. francine: what is your take on commodities? think --

neville: if we see an end to the chinese slowdown, the second factor is the dollar. you only have to look at the price session overnight. ultimately, it boils down to global growth. we have had a slowing in the first half of the year. we can global growth can accelerate modestly into the end of the year, and that is going to cyclically create an environment for commodities. francine: are you optimistic? much so. very the world's hungry for commodities. lightning rod is global growth. it is poised to the upside from where we are now. francine: despite trade tensions, is this your base case scenario that trade tensions go away? nicholas: i don't think trade tensions particularly matter for commodity prices. what it may do is redirect growth into certain other

territories. it does not necessarily lower overall global growth. you could argue it could increase demand for commodities. francine: where to these miners spend all their money? how can they cut costs question mark were looking at deutsche bank, if you are a mining cup, what you do? stuart: more or less your fixed costs are stable. yes, there are variables in fuel costs, but what it comes down to is you take more volume out. if you are a mining company, it has been dropping steadily forever, unless they get really lucky. francine: if you get more stuff out, you can sell it. in the middle space, there is enormous demand for metals. it is all still there.

is still there, demand is still there, it is not going away anytime soon. francine: going back to emerging are they in the producers and exporters of commodities? neville: at the moment, the market is being discriminate between countries like turkey debt,gentina that have but problems and economic policy are less problematic in an environment where commodity producers are against the backdrop of the weakening dollar and rising commodity prices. though should do relatively well. francine: a great expert yesterday said oil is well because of the range r. stuart: i do not know.

there has been troubling changes on that. we are not sure where we are right now. your economic forecast, what do you pick as the magic number? nicholas: it has to be range bound. ,rancine: nicholas gartside cio, jpmorgan chase and neville hill, chief european economist, credit suisse. we will bring you the latest, and inside the economy of norway. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london. forecasts were cut by analysts. did you cable tumble out of the european union without a deal are the concerns. sterling still has its challenges. at $1.40 is forecasted by the fourth quarter. -- optimismis nicholas: what we have learned with these negotiations is they go to the wire and beyond. october is not the real deadline. there will be a later deadline.

before march. in europe, everything goes to the wire. you look at sterling fundamentals, the reality is the currency shall be stronger from where we are now. francine: my concern is we say 24th hour in europe, the concern is i do not know what the tory party wants. sidesls like it is both having times that are difficult and tumultuous. you could end up with any form of brexit. nicholas: the form of brexit you are likely to get is the soft brexit, which means on a 12 month view there a case to be bullish on sterling. the process of getting there has to involve stress in u.k. politics, particularly in the conservative party. it is not obvious the to getentary majority,

further in negotiations, it is not clear the parliamentary majority will allow a no deal brexit to happen. it almost feels like you need stress or shift in u.k. politics over the autumn in a way that may raise fears before you get a resolution. if you look at what the no deal brexit involves, it is very unlikely to happen. francine: do you agree with that? it seems like the chance of a no deal brexit have increased. nicholas: maybe. the reality is it is still a low probability that that is an outcome. if that was the outcome, the costs for both sides would be very significant. there is no interest for that to happen. francine: looking at my sterling prediction chart, do you expect it should have some upside potential? nicholas: absolutely.

i think that is a bit punchy. you've also got the economy growing steadily, it is not shooting the lights out compared to continental europe. the headwinds and adjustments to go to brexit probably mean the upside in terms of what the bank of england can deliver will be limited. we think it can rally, but probably not all the way to 1.40. francine: was mark carney right or wrong to raise interest rates? neville: i think it was unwise. the case was not overwhelming. no real evidence of inflationary pressures. you are entering a decent period of uncertainty. nicholas: he was actually correct to raise rates are read they were at an absurd level, given where economic growth was

slightly above trend. the level of rates were set for emergency. u.k. is not an emergency right now. francine: do you think it will have to be reversed? neville: i do not think they will have to reverse it, but there are risks associated with it. the savings rate is at record lows, and there has been an adjustment in savings in response to brexit, and the risk as rates go up, you will start to see the consumer and trench, and that could be significant, and that might be a point that boe regrets. francine: if you think it was a mistake, where the itching to hike because they told the markets they would hike? neville: i think it was part of that. they wanted to get some ammo in reserve in case of a hard brexit. they missed a window a few years ago to raise rates when the

economy was growing quickly. francine: thank you for joining us. nicholas gartside, cio, jpmorgan chase and neville hill, chief european economist, credit suisse. shares in u.s. airlines, lower fuel prices as carriers extend a rebound. scheduled talks between china and the u.s. have it potential to ease trade tensions. meanwhile, a new report on business travel is a fun read. more than $400 billion around the size of norway, the business traveler spends 50 hours in the air a year. is author of that report head of personal banking, hsbc, becky becky moffatt. economy, the, the

wi-fi, whatever we do up there is worth $400 billion. how has that increased? becky: it has increased enormously. and we are seeing new drivers. and writingre a new as people get more connected as they travel. the travelers on average are doing two hours of work on every flight. it is not just business travelers. arele traveling on leisure also working. in my mind, i relaxed 100%. 50 hours per person per year. how many flights? becky: on average, about 6.5. some are doing 10 or more. we are starting to see a convergence between business and leisure travel. between six and 10 business

lights -- business flights. we are starting to see this conversion that we have not seen in the past. --ncine: becky: spending more time in the air, more people with significant incomes, so on average about $61,000 a year is an average income, so significantly higher than the global average. people with reasonably healthy buying duty-free for themselves and gifts for the others. more options to spend your money , more time in the sky, and attracting a number of travelers with income. francine: we travel a lot, i about my own

travel. 25 average, people spend 2. hours sleeping. 2.25 hours sleeping, and a couple of hours working, and a chunk of time watching films. francine: 10 minutes looking after their personal admin. becky: clearing things out. it is many things people are doing. reading and taking downtime as well. francine: this economy is as big as norway. five years ago we bought less things because it was free. becky: we are seeing purchasing of duty-free goods is a big driver. growing.g of food is

relatively low proportion spent on alcohol given the generous policy in the sky. day, a lot ofks a gin and tonics. people are doing a number of things, and spending and consuming in different ways. francine: do people buy less duty-free than they used to question ? becky: there are more things people can spend on. wi-fi has grown the last couple of years. francine: why do you do this?

this also has to do with getting advice. we have been facilitating international trade and travel for over 150 years. thisderstand more about country in the sky, a 11.9 million people flying every day. a huge country. we want to draw attention to the fact there is a lot going on in fly-land. also, there are a number of things you can do to make travel easier. make sure your bank knows you are traveling overseas. pay in the local currency rather than your own. there are things you can do to make traveling easier for yourself. francine: foreign-currency cuts down on costs? becky: absolutely. francine: thank you very much

becky moffatt, head of personal banking, hsbc. "bloomberg surveillance" continues in the next hour. a lot of talk will be on what president trump did and said. are lower after president trump criticized the federal reserve interest rate hikes. u.s. equity futures higher a touch. we are tracking gains for most asian equities. stoxx 600, this is bloomberg. ♪

francine: the u.s. president this iscomplain that

not the fed chairman he wants. the dollar falls. minerrld's biggest complaints about the u.s. stance. china's fix it chief says that gdp will likely be the 6.5% target despite the trade war. good morning. this is "bloomberg surveilllance." i am francine lacqua in london. tom is back. a lot of the talk will be on emerging markets. i am looking at turkish lira. tom: never-ending flow of fed independence with the presidents comments. john ryding will join us in the next hour. francine: first, let's get straight to bloomberg first word news. here is sebastian salek. accusingent trump is china in the european union of manipulating their currency. he made the comment to an interview with reuters without explaining his comments.

the treasury department stopped short of naming china or the eu a currency manipulator. microsoft has uncovered a new russian effort to crack conservative think groups before the 2018 election. the hackers created web domains that mimic their sites, but microsoft got a court order to take over those domains. has survived a challenge to his leadership. he may be challenged again within days. party leaders are concerned about slumping poll ratings. president nicolas maduro is cutting 50's off of the boulevard after years of hyperinflation. venezuelans may encounter soaring prices today. a 24-hour strike to protest the

devaluation. 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. salek.bastian this is bloomberg. tom: thank you so much. equities, bonds, currencies, commodities. features up, up, up. dow futures getting up to everything but record highs. the curve flattening. the euro weaker. dollar churning this morning. next screen, if you would. down toequity curve 12.36. there is the dow nudging up the last few days. there is weaker yen over the last three or four days. we have a 109 print earlier. i threw in turkish lira to make you happy. francine: thank you.

i also threw in turkish lira. presidentter criticized interest rate hikes by the fed. higher, stocks drifting tracking gains for most of the asian shares. tom: i have shown this many times. ingestedhe inflation short-term rate, the fed funds target rate. this is the crisis in 2007. rising real rates. this is critical. 1, 2, 3, 4, 5, rollover with rising inflation. it is subtle but very important. francine: i really like your chart. my chart is different. i decided to look at the pound. we have interesting calls, and this is why this chart matters. amid forecasts cuts by

analysts as more people are worried the u.k. may tumble out of the eu. not so for bowles. they are calling it at 1.40. we will keep an eye on brexit and the fed, trump versus the fed. president donald trump said he expected jay powell to be a cheap money chairman. the dollar moved lower on the comments, and the president nominates the fed chairman, but it is independent and has historically frustrated presidents by ignoring politics. james athey ofis aberdeen asset management and kallum pickering. has frustrated presidents in the past. >> there is a long list of

presidents who have had things somey and have had physical interactions as well. there was the story of one fed chairman being thrown against the wall by a present. we have to remember the fed is independent within government, not independent of government. we say it is operationally independent. there needs to be democratic accountability and legitimacy. it is fairly standard for the president to have things to say. that doesn't mean it is the wrong thing. the questionuess is, in modern history, i have never seen a president say it openly. does it, at the margins, impact with the fed does? do they want to be seen even more independent because of what the president said? today, it isrkets a little dovish.

the key point is u.s. growth is strong, so they are raising rates. you have fiscal stimulus, supply-sider reform. higher rates reflect slightly stronger growth. on the margins, it probably does have an effect. we probably won't see it now. if the market really thought the president could steer the fed in a major way, but it was not really independent, then you suffer during the downturn and recovery. the reason the fed could commit so much qe during the crisis is it good credibly commit to its inflation target. if the central bank cannot credibly commit, the new struggle in times of need. get kallum pickering, if we rate increases from chairman powell, what happens? kallum: nothing. maybe a little noise on twitter. the market reacts for a day.

we can largely ignore it. my advice is the reason the fed is hiking interest rates is because the us economy is recovering strongly. higher interest rates reflect stronger growth. the key point from the fed is they are not trying to slow down economic growth through interest hikes, they are just matching the improved strength of economic growth. if donald trump's real objective is to engender a strong growth for the u.s. economy, then the fed will keep the cycle growing for longer and keep employment rising for longer. james, the fold over to the markets. if we get to rate increases, what does it mean for global equities? it does not scream bear market. james: it does not. the reason the fed is raising

rates is because the market is requiring higher rates. it is at or near full employment with inflation at or around the target. i have been impressed with part of the policy package of central bank communication these days. the jay powell fed has gone out of its way to sell rate hikes. this is a reason to cheer, not fear. markets are able to react in a positive way. i look elsewhere and see the u.s. is the one place you want to be in equity markets. tom: what this means for whoever is after mr. draghi at the ecb, does this carry over to other banks as they finally raise rates? we don't know. francine: we don't know. we don't know whether the trials interrelations with the turkish central bank is a warning for president trump. should we be more careful in making sure that line is firm,

not just a line in the sand? kallum: the line should be firm. turkey is a credible threat to what happens when a central bank cannot be committed to low inflation credibly. we went through stagflation in the 1970's and 1980's. although it is a small step backwards, it is a step backwards. where rate hikes could cause a problem in markets is if the long end of the u.s. treasury's curve does not pick up. if we get yield curve inversion towards the end of the year, which may happen after two rate hikes, that could cause a problem. i don't see a major reason for the u.s. to have a recession. francine: talk to me about that. a lot of people are saying they don't care. if the market cares, does it become a problem for the fed? does the fed try for that yield curve not to be inverted? it depends on what your

view is. if you think the u.s. can handle higher long-term rates, then you speed up the pace of unwinding your balance sheet. at the moment, any sign the yield curve could be inverting is an expression of the risk on environment. if we get risk on toward the end of the year, and the fed hikes twice, and we get yield curve inversion, that could be self fulfilling. francine: this is the biggest contention point. my chart looking at in the past the u.s. inverted yield curve usually means a recession, but there is some debate now. james: normally it is the market telling you rates have risen as far as they reasonably can count and therefore the yield on short-term and long-term rates are close to one another. it is difficult for me to see a strong recession single. that signal. monetary policy is tightening,

but it is having virtually no impact. we had after member that the fed went out of its way to create a flatter yield curve as a way of stimulating the economy. it seems strange me that this is stimulating and also a recession harbinger at the same time. if the boj was not buying bonds or the ecb, etc., that has crushed yields in those countries and led to the attractive to or 3% in the u.s. looking -- 2% or 3% in the u.s. looking even more attractive. tom: thank you. kallum pickering and james athey with us this morning. coming up on "bloomberg surveillance," this is timely, jeffrey solomon at 2:00 p.m. new york time. stay with us. this is bloomberg. ♪ s is bloomberg. ♪

>> i am sebastian salek. there is a report that some tesla suppliers are concerned about getting paid. according to the wall street journal, they believe the electric car maker is a financial risk to their companies. significantked for cash back according to some. after a bank said the company was unlikely to have its government revoked over that bridge collapse, atlanta's that road had construction contract. ian government said

they should triple their payment. the offer of 500 million euros in the relief funds called modest. the country's sovereign debt could swell by as much as 9.4 billion euros if the government goes ahead with the plan to nationalize toll roads. what could this mean for euros zone debt? i don't know whether the link between the disaster and europe is the funding, nationalization of toll roads, but it does not feel like the relationship between italy and the eu is quite right at the moment. kallum: it is unhealthy. you have a situation where their time government would like to raise spending, stimulate growth the semi-the u.s. is doing, but

it is also looking to undo some of the positive reforms that prime ministers had done before him, which is to raise the italian rate and raise money. we will see fairly gradual steps. this government can probably do enough in terms of higher borrowing and lower potential growth such that during the next crisis italy is penalized for its bad behavior. we'll probably see a little nonsense and get away with it, but in five years, italy becomes a problem. francine: do you agree, james? the markets will not be too freaked out? not really. markets have already shown that they are pretty freaked out. it is pretty one way only. the reality is the time government has a mandate. it has a majority in both

houses, meaning it is able to pass a budget law. whether it comes into conflict with the eu, then you get into the nitty-gritty of this came about the assumptions you make. they could show a deficit of 1.5% with a relic growth assumptions that nobody believes . they could show a 3% deficit, which would be broadly within the rules. that would still freaked out markets. believet difficult to how successful their strategy has been so far, how they are being rewarded domestically for this. the eu is in no position to fight this hard. tom: let's go to the chart. this is the italian-german spread. the smaller italy and the dominant germany. , let me start with you.

this is not confidence holding good it is a big jump up to see the -- say the least. what does this tension indicate? what does the italian-germany spread mean for investors? bondm: it is a signal from markets that we don't like italian policies. that is not a significantly high level that i think the government would be so disincentivize to push on further. i think the bond market matters more per italy's policies than the eu does. there are lots of ways in which the eu could try to penalized italy for not sticking to the rules. they could threaten a fine here and there. what matters more is a prominent german politician saying to markets, we don't like the way it time policy is heading, and he could bring forward the confrontation between the italian government and bond markets.

in a way, the bond market is the big stick for italy. they will focus on the bond market, borrow as much as they can without yields blowing out. spend a little time increasing regulations, stuff that doesn't show up and bond markets, and for a couple of years in what is a still fairly healthy european growth environment, they will get away with it. some years down the line, problems will turn up. tom: let's go to james athey at aberdeen asset management. are you exposed to this? are the vigilantes like you exposed to this or does it come in september after your a week vacation? james: i wish i had an eight week vacation. is that just for you, tom? only tom keene at bloomberg. it does tend to drag in terms of kerry. we have been short since

february because we saw the future as to full, and election with -- to full, election -- no good, election with outcomes. the market will not accept lower price of italian risk than that 90 beid. ecb that for political reasons is having to stop purchases. why would you take on that tie in risk at this level? francine: let's remind yourselves, the coalition is not exactly stable. they disagree on what they don't like, but they don't really agree on what they want to do together. kallum pickering of berenberg, james athey of aberdeen asset management will stay with us.

this is bloomberg. ♪ ♪

tom: good morning. "bloomberg surveilllance." thrilled you are with us this morning. we need to chat on brexit. francine, bring us up to speed. francine: we had mr. liam fox, secretary of state for international trade giving a speech in central london, saying the u.k. is falling short of its full export potential. he believes brexit is a chance

to embrace opportunity in this new global trade story. at the same time, we have some u.k. and eu representatives meeting in brussels. let's get back to kallum pickering and james athey. we have a number of calls from banks saying we will see a cheaper pound and some saying it will be 1.40. this depends on brexit. kallum: the way i see sterling at the moment is it is responding to some function ofweighted brexit outcomes, not economic momentum. if i think there is a 20% chance of hard brexit, 80% chance of soft brexit or better, that is enough to weigh on sterling. is, the lowerxit potential u.k. growth will be in the long term. a big hit to potential growth would be a big hit to fx.

if the you can avoid hard brexit, you will see that distribution of outcomes shift upwards and remove the thing that could weigh the most on u.k. growth. sterling can then shift up. francine: thank you. pickering of berenberg and james athey of aberdeen asset management. both are staying with us. bloomberg users can interact with the charts showing gtv . we have tom's and my chart. tom is that from holiday. choose my chart over his. it is a battle. this is bloomberg. ♪ s bloomberg. ♪

francine: this is "bloomberg surveilllance." tom and francine from london and new york. theeagle officially have

best-selling album of all time. they have actually surpassed michael jackson's thriller. that is according to the riaa, who have certified it 35 times platinum. jeremy hunt will call on the eu to increase sanctions against russia. they want to match the u.s. response to the poisoning of a former russian spy earlier this year. in second place, trump is said to complain that jay powell has not been a cheap money fed chair. a testable says he dreams of tim cook swooping into help out elon musk. let's continue conversation on brexit. we did not get kallum pickering's thoughts on pound. james athey thought he was clear of the pound call. we brought it back just to ignore him. what happens next on pound?

james: i have no idea. i agree with kallum. we try to invest thoughtfully and overlay our own subjective probability on how likely movements are. trying to do that now is difficult. i think it is reasonable, no deal has increased and probability. if we just negotiated with ourselves and went there have been negotiating to our minimum position, i think this is healthy even if it doesn't seem. i am bullish sterling. francine: you expect some sort of soft brexit? james: yes. i am very bullish the dollar. i am short eurosterling, have been for a while. you take a lot of the beater out of that. tom: what is the incentive for europe to cooperate with the united kingdom?

i still get the day-to-day incentive for brussels or germany or other nations to release sit down and cooperate on this. isn't time their best friend? kallum: in a way yes, if you do the analysts trick if you drop the line from now to brexit, you would argue the u.k. has lost its illusions about what it can achieve in negotiations with the eu. the eu has been clear from the start, preserving the integrity of the single market and not making any concessions for the u.k. if there is any cake and eat it, it is on the eu side, not the u.k. side. the u.k. is a big economy, and it would be very good to keep the u.k. friendly from a geopolitical standpoint. as long as the u.k. seeks a deal eu would been the

open to agreement, but anything that violates the single market, the eu will simply reject that. tom: the you have a call on cable or sterling were all of this unravels? is there a level, a to point that matters to you? economically. i think this is incredibly healthy that we have seen sterling weakness. if we cast our minds back to the previous bank of england post crisis, he was constantly talking about the need to rebalance the u.k. economy, to wean us off imports and consumption and towards a more active economy. export driven economy. that does not happen overnight. when we are able to cast our net further afield, the eurozone is

450 million people, that means the rest of the world is 6.5 billion people. there are lots of markets globally for the u.k. to tap into. it is not going to happen overnight. weaker sterling is a healthy adjustment mechanism. as for eurosterling, if we look prior to all of this, it was trading down at 70. i don't look at the structure of the u.k. economy and the eu economy and see something in the eurozone that i want to be involved in. i think the eurozone will be looking at the structural reality of a poorly constructed monetary union. tom: we will continue. kallum pickering and james athey. first word news in london, sebastian salek. >> president trump about is that he will not make concessions to turkey to win the release of the detained american pastor. erdoganthat president

wrote an agreement that would have led to the pastor's release. it will be day four in the trial of paul manafort. jurors are considering 18 counts of fraud and tax aversion. secretaryh foreign will call on the eu to impose new sanctions on russia. jeremy hunt is in washington, where he plans to draw attention to the poisoning. the u.s. has already imposed its own sanctions in the matter. the self-proclaimed will hold wall street has agreed to start repaying victims of this boiler room fraud. pay out $28rd will million for the sequel to his willful wall street book that was turned into a hollywood movie. 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 sebastian salek. this is bloomberg. francine: thank you so much. the chief executive of php sees china filling the growth in u.s. trade. high,s are at a four-year although it missed estimates. >> we are not seeing any slowdown in china. perhaps a little bit in copper. other than that, everything is going well. obviously, the concerns we have looking forward is that if protectionism takes hold, it will have a dampening effect on the global economy, and that .ill ultimately affect bhp mitigate china to

the impact of faces. we don't sell to just china. it will work harder to encourage exporters. from what i learned from talking to trade ministers around the world, a lot of countries around the world want to trade more with each other now that it looks like the u.s. wants to trade less with them. china will walk into that area and look to find exports with other people. you don't think the impact with china even if some of these trade issues become very real is going to be that significant over the short and medium term. we do worry about protectionism because it is bad for the global economy. >> we have seen quite high prices for global commodities. copper is down 19%. how does that affect you? >> we are a big copper producer. we run the largest copper operation in the world. of course, it has an impact on

the top line of those operations. we know we face volatility. that is why we, as a company, costsorked to drive our down. we was have to deal with see aical factors, and we little input inflation. we tried to quench all that by becoming more innovative and technically adept by continuing to advance the culture of our workforce. we have done it successfully. that is why we have the same margins today that we had in 2011 when prices were 17% higher. bloombergthat was andrew mackenzie in melbourne. pickering ofm berenberg and james athey of aberdeen asset management with

edward sterck of bmo capital markets. cost is not easy to control if you are a minor unless you actually get stuff out of the ground. can say you can just produce more in terms of commodities, but at the moment, all the major miners have a mindset of supply discipline in order to try to keep the price of the goods they sell elevated. that is a matter that is also being pushed by shareholders. a little bit of some people suggesting that might be an idea, but there is more growth potential acquisition rather than organic new fields projects. francine: they are exposed to dollar. they are exposed to china. again of the day, they have so much pressure from shareholders to give dividends back. edward: there are a lot of similarities.

there are differences as well. is commodity makes is -- mix different. bhp has their oil and gas division. tom: wonderful to have you with us. two questions in one, i note isr 70% payout ratio for bhp textbook of policy, is there division goingew forward? is your industry going to get religious on capital allocation? edward: they are telling us that they are. bhp launched a new capital allocation framework this year. we are seeing the benefits of that will only come with time.

arguably, you have to see the proof in the pudding in how any strategy is deployed to decide whether it is successful or not. tom: within that is the action. what are you seeing conference call to conference call from mining executives? do they have a new religion? edward: cap the moment, the monster is still the same. tom: dig a hole. edward: well it is trying to reduce costs on a relative basis. it is about maximizing returns to shareholders. they are not talking about growth and deploying more capital in order to deploy production. francine: what is the biggest concern for these mining stocks? visit china? the biggesta is component of the global macro picture. we are seeing an interesting

divergence between commodities with deep liquid financial derivative markets are trading and those that don't have that. , thoselook at manganese commodities are actually at the levels we saw earlier this year or higher, whereas commodities like copper and aluminum have been sold off quite significantly. there is an argument to be made that underlying demand has not changed. what we are seeing in the major selloff based a on speculation. at some point, those factors need to close. we either need to see the arius or speculators the selloff actually come home tours. tom: greatly appreciate that. jonathan ferro's interview with rio tinto here in the recent

days and weeks. coming up, much more to talk about here at bloomberg. don't forget, bloomberg daybreak, your morning briefing coast-to-coast, bob dylan and karen moskow on bloomberg radio. this is bloomberg. ♪ s bloomberg. ♪

tom: "bloomberg surveilllance." day, theaugust doldrums of august. except for francine lacqua, fired up as we get through the month of august. on tesla.s fired up he is a tesla bowl. sharp comments on mr. musk. absolutely be

furious if anyone tries to get rid of elon musk. he is a genius of our time. this guy is the howard hughes of our time. i want to invest with elon. he needs help. i think there is no doubt he needs help. tom: the howard hughes of our time. i can just imagine the fingernails as well. carefully cropped fingernails are had by bloomberg opinions webb.ent as -- there are a few bulls left. alex: he is the extreme. he is one of the most bullish bulls out there. this points to the blinkers on some of these tesla bulls. he was asked who would you like to see as chief operating officer, and he said tim cook. that is mind-boggling to me. i hope he was saying a tim cook type person. it was not immediately clear that is what he meant. tom: almost irresponsibility.

that's go to the bloomberg equity chart. this is the bonds at seven years. up here is par. you are joining this puppy today at 87 on the 100 part. that is not a great chart. that is the lower price. the bond market is voting. alex: yes. this is getting down to the nitty-gritty of operations at tesla. we can forget the noise about whether there is going to be a buyout of some sort. b their ability to deliverull cash flow in the second half of the years, will answer a lot of concerns the debtholders have. if they need to go to the markets and raise more cash, that is the number people will be looking at, the way the debt situation has been developing. francine: do we know if they are looking for a chief operating officer, does it actually go

back to them needing to sign someone that will help elon musk? in sanur colleague francisco, who i imagine is not sleeping at all at the moment, writing extraordinary coverage on this, she reported they are always looking for new executives, that they are not actively looking for a coo. two years ago when i was reporting in san francisco, we were trying to work out who they would hire a coo. they have failed to do so, but it is not clear why. francine: is this because of elon musk, or is it very difficult to be number two to elon musk? alex: yes to both of those things. if you look at the turnover at tesla, a lot of the bears on tesla draw parallels between the at enron.t tesla and if you are a top automotive executive with a great gate at

bmw or gm, why do i want to go work for tesla where elon musk will drive me to the ground and i will potentially be out of a job in a year and a half? francine: thank you very much. gerard cassidy, rbc capital markets director of equity research, and we will be talking about europe versus u.s. banks. this is bloomberg. ♪

>> this is "bloomberg surveilllance." let's get to the bloomberg business flash. they hedge fund manager run by a billionaire allen howard is cutting back. it is shrinking its size of the london headquarters. it is coming backthat was used as a gym and kitchen and meeting area. francine: thank you so much. china says they will not use competitive currency devaluation

or the foreign exchange rate as a tool to cope with trade frictions. with us is kallum pickering and james athey. i don't know what you do with the chinese currency because they are stabilizing at, and stable may mean higher, which is less competitive, but it helps with the economy. >> stability means different things to different people very when the dollar is rallying, it means stability versus the dollar. when the dollar is selling off a man means stability versus the basket. they pick and choose. whether this is what position, i don't know. i don't think this is by accident. they would step in if they did not want to see the weakness we have seen so far. complexs always had economic problems to deal with. the currency is probably one of the easiest things for them to

use as a relief valve. that is why we were short the yu an. that is one of the easiest release files if you see the dollar rally. think probably beyond seven, there is a self-fulfilling prophecy of capital outflows. francine: what is your take? >> any conversion against the dollar, there is always risk off, so the dollar gets stronger. when the economy is the reason the currency is weakened, they are just letting the market decide where the yuan should go. it key problem with china is is a major risk we know will materialize at some point. you have capital misallocation and big debt buildup. unlike capitalist economies that have shown they can manage debt

buildup, we don't know how they will manage this. each time the market panic syllable. -- panics a little. francine: the idea that the president of the u.s. feels china is weakened in their tit-for-tat trade war. do you observed that they are weekend? .> it is not that they are it is that china has more to lose than the u.s. china is a developed economy with lots of political and economic stability. it's economic model is more domestic oriented. china relies on exports and industrial production, largely exporting that. there is a disproportionate risk to china in a trade war with the u.s. from a strategic point of view, the objective of china might be to avoid the middle income trap and a hot conflict with the u.s.

that poses a problem. my other side would be that unlike the eu, trump has to negotiate with one person in china, and that means between the two of them they can probably strike some deal. after noise, i would expect some progress on the trade issue. tom: this is been wonderful. kallum pickering and james athey. ofour next hour, gideon rose foreign affairs magazine, and onn ryding of rdq economics that independence. stay with us. this is bloomberg. ♪ this isn't just any moving day.

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

this is staying connected with xfinity to make moving... simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. tom: this morning, the president news help from the fed it. bonus round, the president says china is manipulating.

in this hour, the federal reserve independence. the yield curve will kill the banks. we look at the resiliency. i've been finished. thank you for watching. gideon rose on your web. good morning, everyone. we're live from world headquarters. with me is francine lacqua. address with gideon rose this idea of cybersecurity and the web. it is tangible in august. francine: it certainly is. i know from it's a personal experience for you. without a doubt, this is the story of the day, the dollar is dropping in treasuries lower after president trump criticized

the federal reserve interest rate hikes. .om: we will talk about that we've got lots to talk about in the cellar. right now, here is sebastian. sebastian: let's stick with president trump, he is accusing china and eu of manipulating their currency. he made the accusation without providing an explanation. this conflicts with the findings of his own administration. microsoft is uncovered a new russian asset to hack groups of for the midterm election. the targets were conservative american think tanks that have broken from president trump. they mimic their sites. microsoft got a quarter to take over those domains. malcolm turnbull has survived challenge to his leadership. ballot party lawmakers. he could be challenged again

within days. they are concerned about the slumping poll ratings. in saudi arabia, 2 million muslims are taking part in the pilgrimage to mecca. they are required to make it at least once in their lives. arabiaily in saudi manages the holiest site. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. tom: thank you so much. data check right now, equity markets are getting up near those record highs. you see it. we will show that in a minute. the curve is flattening and the dollar has some strength over the last three days. ebbre is a bit of an today. we are showing the complacency. attention with the 109 handle. i also note that the chinese

headlines we saw a bit ago on manipulation. francine: they are basically that. they will not use the dollar dropped, treasuries are lower after president trump says he wasn't expecting jay powell to be so interest rate hike savvy. if you look at the movement overnight, shares were higher. if you look back at what people are expecting in the markets, that will have to do with it later. there is a little bit of movement on the turkish lira. it is strengthening the yuan interest rate. wonderful thing. we've got this incredibly important issue from foreign affairs. we will get to that with gideon rose. all of that is pushed aside.

the president's comments in the last 24 hours on fed independence. we are thrilled to bring you john, and expert in the fed with his public service to the bank of england and the federal reserve. how independent is the federal reserve? john: as independent as it was yesterday or last year or four or five years ago. in a similar way to the supreme court, the president can influence the fed by his nominations. his nominations have been strong. it's a next choice for the vice chair. i think his confirmation will go through fairly soon. we all know the president and his tendency to tweet or speak about something or complain about something.

it's the second time he's done this. it's not the normal protocol. i don't think he will influence fed policy. they may be more inclined to take a marginal action to raise rates this year. i think two more rate hikes and we will see by december the policy. mr. the team around him, kudlow and others, do they have a voice to staunch his intentions, whether they see them as good or bad? john: the have a voice. we do have a president who at thingsan lash out or say . there are competing voices in all of this. the biggest area is in trade where you've got navarro on one

side who is very protectionist and larry kudlow is a free market guy. lot, chinahere are a is not a good actor on tariffs and free trade. the president is taking actions against that. francine: for the moment, the president and his administration think they are winning the trade war. will china make them pay for it? will they make them pay for close to the midterm elections. john: nobody wins in a trade war. i think one of the almost universal compositions among are the trades war's and tariffs, it's not that is ank president trump

protectionist, it's that he thinks tariffs because china has a larger exports to the us versus exports to china has more to lose. by taking action and bringing trying toe table, make progress in the same way that we had the start of a dialogue with the eu. it's not just the u.s. that pays. it's china that pays. we have to see how this plays out. i can't stand comfortable with it. china can unilaterally damage the u.s.. it would damage itself in the process. francine: do you think the u.s. cares? everythinggree with except the president not being a texas. when i find fascinating about the situation is i can't

remember a previous era in which we all sat around trying to predict what the government of the united states would do when the president of the united states was at war with his own administration. no real models are precedent for understanding what happens when the deep state does its basic stuff as john was just talking about. then the guy at the top of the system who is running things for the benefit of the country and the world and is coordinating all the stuff goes off on a completely separate path and undermines his own administration. whether it's in the security department or the justice department, we end up doing with john just said, which is discounting the president's words and trying to figure out the policy. we don't know. tom: this is a best issue for them.

right now, i'm going to hold this up, the unrestrained presidency. it can be on economics does well. where is the legislature to push back against this debate on fed independence? gideon: everything has become subject to a partisan lens. the republicans have aligned themselves completely with the president who is the leader of their party. there is no republican party except trump. the question is, where does the president focuses attention? what happens to the rest of the government when they are cleaning up after the elephant? what is the net result? we don't know. tom: we have a lot to talk about. we will do this important segmented just a bit. coming up, the ceo jeffrey

sullivan on the state of wall street. we are live. this is bloomberg. ♪

sebastian: this is bloomberg surveillance. let's get the business flash. some tesla suppliers are worried about getting paid. they believe the carmaker is a financial risk to the company. several suppliers said tesla has to -- tried to stretch out payment. after of atlantia rose 4% they were unlikely to have the contracts revoked over the bridge collapse. concession where

the bridge was located. the italian prime minister said they should quadruple its offer to play -- pay for a relief fund. labor department investigators have concluded that cisco discriminated against american workers. they favored immigrant visa holders for jobs and paid them less than american counterparts. in thelders are paid same way as americans. that is the bloomberg is the/. tom: this was viral last night. david wasserman in the new york times had a report. read this article if you do one thing today. two very different elections are playing out at once. it's mars versus venus. in 2016, donald trump carried 76% of counties with a cracker barrel, but 22% with a whole

foods. on twitter, he followed up by saying 60% of the senate represents just 24% of the population. the fine cuisine of cracker barrel and the isles of whole foods. what is your favorite meal it cracker barrel? prefer pancakes to quinoa. this is an enthusiasm gap we've been focusing on. if you look at the recent special elections, democrats have been having the enthusiasm gap. a lot of republicans concede that point. the issue is going to be if republicans can fire up the steve bannon base of the party. tom: go ahead, francine. francine: you had me at pancake.

what hee care about said about the fed? kevin: our audience cares. i think you make a good point in terms of that won't move any votes. there aren't any independent voters who pay attention. i think it sets an interesting precedent for the financial services class. in president is opining private conversations about the federal reserve. you so much. we look forward to your reporting on the manafort-gates today. times has the fed raised rates? how many times do they raise rates through 2019? john: i think another four times in 2019. two in 2018 and forex year.

you've got a chart on the funds rate if i am looking at your wall correctly. that is still negative. the inflation rate is higher than the short-term interest rate. that's consistent with accommodated conditions. the equity market is within .5% of a record high. anyn't see where we have tightening or reduce accommodation. tom: you would have been the leading voice in market economics on the idea that higher rates is a good signal for the economy. can you say that right now? the deficit is coming on. john: absolutely. hand, you are talking about the yield curve and the flattening of the yield curve. long-term interest rates still remain very low. monetary policy isn't about

conducting interest rate policy to keep the cost of servicing the debt down. makingy policy is about stable prices and full employment. the fed is doing a pretty good job of that. long-term, inflation gets out of hand and interest rates were to go, that would be damaging for funding costs of the debt. francine: do you worry about where the u.s. economy is in the cycle? inre is a huge divergence he what the ecb is doing? worried in more 2016. we saw a profit squeeze in the u.s. of the kind of magnitude that signaled a potential recession. that's more important than the yield curve. aread the tax cuts that

essential for reinvigorating corporate america. now we see profit margins widen. that may be a problem down the road with inflation. rates, they growth way the stock market is it mayng, it looks like be that we had a growth recession in 2015. we may be coming out of that with stronger growth. the problem is the labor market at 3.9% unemployment. i've been surprised at how many people we have drawn in. is bringing economy more marginal people into the labor force. tom: john will return in the next half hour. coming up, gideon rose will talk

-- we will talk about tesla on governance. this is bloomberg. stay with us. ♪

francine: this is bloomberg surveillance. let's talk trade. china says it won't use currency devaluation or the foreign exchange rate as tools to trade

-- do with trade friction. with the chiefke executive andrew mackenzie. he said he sees no slowdown in china and is not concerned about trade tensions. andrew: there are people who want to trade with each other. walk into that area and look to find exports with other people. chiefne: that was the executive it speaking with us earlier. let's get back to gideon rose. china,hen you look at have -- how do they deal with it? growing 7% has been at least in their official numbers. if you project that out on compounded growth rates, that

cannot be sustainable over a multi-decade time. china has to slow eventually to more normal global growth rates. as they run out of the ability to move the population from the agricultural sector into the industrial sector, i think we get too hung up on what they are growing at. to reality is they need reorient the economy to more of a consumer economy. that might end up being a healthier growth rate for the global economy then china simply growing at a faster pace with undertaking the direct investments. francine: how would you view chinese politics right now? how does that impact the

economy? can you hear me? no one can hear me. tom, translate for me. audioe've got some problems going on. i look at china, i'm going to talk to francine across the transatlantic. i'm also hearing myself in dolby stereo. i was talking about chinese politics and how they influence the economy. gideon: it's a great question. what the chinese understand far better than their anglo-american counterparts is the growth rates and the economic dynamism of society and the progress on economic matters is situated within a social context. of what the government is trying to do is not just manage its growth rate and economic policy, but manage the policy of china in order to preserve the

leadership and preserve stability within china and increase chinese power. that broader context is really important. that's the kind of attention not just to economic policy alone, but to the broader context of economics, society, and politics that the west has lost sight of. that produces a system in which there is turmoil and people are getting upset. tom: we are going to have to leave it there. we thank you for being with us. please stay with us, this is bloomberg. ♪ this isn't just any moving day.

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

simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. tom: write to our first word news. sebastian: president trump said he won't make concessions to win

the release of a pastor. brokenkish president agreement that one of led to his release. he said he has had a good relationship with erdogan until now. for of juryay deliberations in the trial of film and import. they are considering 18 counts of bank fraud. the defense is encouraged. the jury gave no indication they are close to a verdict. they will call in the eu for sections on russia. he plans to draw attention to the poisoning of a man in englishtown. miner hass biggest profit rose 23%. they boosted dividends to 42%. said there is no cause

for alarm on the outlook in china. >> we don't see any slowdown in china. copper,a little bit in but other than that, everything is going well. the concerns we have looking forward is if protectionism does take hold, it will have a dampening effect on the global economy. sebastian: global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. tom: thank you so much. for affairs with a new issue out. the september issue is always an important event. never more important than the new issue. me, we are so dumb about the modern internet. the magazine is the world war web. it is absolutely brilliant.

it's on stuff we don't know. with us is gideon rose, the editor. let me get right to it. the internet has lost its promise. sebastian: thank you for your kind words about the issue. think of this is a four at play. governmentt act, the creates the fundamentals of the internet. in act two, the united states pairs and partners with the private sector to develop this, makes the infrastructure public and allows actors to develop applications. this is the golden age of the internet in the 1990's. act iii, the system goes on autopilot. what happens is the tech companies take over large portions of the internet and become an oligopoly. regulators don't get involved.

three, various people start to push back against the problems with the unit. secede ine try to their own sphere. the europeans try to do regulations. the indians try to build a new internet from the ground up. the americans sit around wondering can we control the tech companies? embedded in the view of liberal capitalism in which the government lets the private sector do it stuff that american policy has allowed the internet to create problems. other people are stepping in to fix the problems. tom: who has the power? when you go chapter by chapter, is it china? is it the european regulatory structure? gideon: we don't know who is

going to have the power in act four. what happened was the infrastructure was created and turned over to the private sector. we end up getting a lot of pushback. ,ou have governments like china regional regulators like those in europe, you have private sector companies like big tex, nobody knows who is going to control the commanding heights of the digital economy. data regulation, who will keep in control and monetize the data? tom: you mentioned commanding , there were two wars in the middle of that. what is going to be the warfare of this technology in our society? gideon: it's not going to be geopolitical conflict between the major powers. once going to happen is there

was a common american sponsored liberal open our of the internet. it's parallel to the globalization order. officials move that forward to get all the benefits. they forgot the pushback. people resist. what you see now in china and europe and india is people reacting against an unfettered private sector internet. no one knows how to reestablish control. you don't want kill the goose that lays the golden a. the question of the future of the internet isn't necessarily what it was in the last couple of decades, the united states debating whether or not to allow tech companies to have control. other global players are important in this. appsapple will eliminate to china. they are making the rules.

we are not. asked about china. gideon: it's like the economic nationalism in other areas. globalization races forward and produces lots of wonderful things. it also produces pushback and problems for people in western countries. it wants them to put brakes on the process. the chinese are doing the same thing with the internet. just like american economic populists and places elsewhere economies,e off the the chinese are trying to do the same thing with the internet. francine: we are talking about different things. on the one side, there is cybersecurity and the race on who will have supremacy between china and the u.s. the other is who is in the third

act. it could be regulators. europe is in the forefront on regulation. when it comes to data protection, these are the new people in town. gideon: there are several competitors trying to do the same thing. we don't know which way of controlling the problem is going to win out. the european approaches regulation for the entire system. the chinese approaches see session from the system. the goal is to create a splinter that in which the chinese have their own platforms and their own systems. it will be much more of a chinese dominated internet then an american dominated one. the indians want to engineer everything from the ground up. this is what the indians are doing for internet policy. it may be the most impressive of

all. we don't hear much about it. the united states is wondering what to do. we don't have the conceptual ability to direct companies the way the government wants. the public ones. francine: there is a great article in the latest edition of foreign affairs written by helen dixon. can europe save the internet? gideon: we try to present a fair picture of the debate that's going forward on the future. the lead piece is by adam siegel talking about the transition of power to china. helen dixon talks about the european approach. we can regulate it. indian one.t the we have pieces on specific challenges of cyber security. you should look at the european approach, chinese approach, the indian approaches variances on

the same thing. we unleashed digital technology, how do we keep it going forward in a positive way while controlling the effects of destruction. francine: will these nations ever come together? that's the kind of idea. gideon: the answer would be us because there is an obvious benefit for people to come together in a collective action coordination solution to read the benefits of a coordinated policy with central regulation. a tide inm is we have politics in the united states which is going inward. we are moving toward a net.tered at -- splinter a royalty on that word. this is the new york times.

i've got to make some news with this. gideon: like everybody else, we are constantly attacked by different actors. the russians don't bother me as much. they are like butch cassidy and the sundance kid harassing the railroad. building a will be new railroad. isare worrying about who stealing our safe. the chinese are buying up the land and developing engine technology. 20 years from now, we will be running on chinese trains and wondering how that happened. tom: francine's question about how we get together on this, where is the force given the track to us -- practice politics.

theon: we have pieces in package telling you what the united states should do. i would look to the indian approach of the internet as a public good that may hold the best solution down the road. tim cook's stock options about the public good. gideon: the regulation of capitalism and a way that is beneficial and sustainable socially kobe the question of the mid-21st century. francine: do you think these companies would self regulate for real? gideon: just like martin shkreli will self regulate. we can count on the pharmaceutical companies to provide low-cost medicines for everybody without regard to jacking up things when they have a cash to napoli. francine: perfect. , that's a no. bit why not?

rationale,en to the you either regulate or you don't survive. trust,ke money out of gideon: you make money in the short run. thepresident is ignoring cost of the global trade war to get some short-term minor advantage in trivial issues. that kind of thinking doesn't apply to the president and the republican party. it applies to private sector company managers. we can't rely on them to be responsible for the global community down the road. tom: thank you so much. i really mean this, how dumb i am on the world war web. i can't say enough about it. when we come back, we will dive once more into the and dependence of the central bank. we have an important

conversation. yourll talk about neighborhood bank. ♪

sebastian: let's get the bloomberg business flash. the u.k. a setting out a goal for exports. the trade secretary outlined the strategy during the speech. -- >> we are going to raise exports as a portion of gdp from 30% to 35%, pushing us toward the top of the g7. sebastian: exit offers an opportunity in global trade. the hedge fund manager run by

alan howard is cutting back. they are shrinking the size of the london headquarters. it's cutting back on the kitchen and meeting area. yearsre rebounding from of mediocre concerns. as the bloomberg business flash. tom: we have a quick section on the financial crisis. we are in a boom economy. john is with us. gerard cassidy joins us. they have lived every moment of this crisis. john, let me start with you. when you look at where we are, are we out of the crisis? john: we are out of the crisis. it's a distant memory because it's the way that some of the mistakes we made. difference between now and then is the degree of capital.

the system is much better buffered. ishink the unfortunate thing the new regulation phase. some of the powers of the fed intervene,fed it to some of those abilities has been clipped. on, banks are better capitalize. this is when we make the mistakes to sow the seed for the next problem. tom: now we go to the trenches of securities. do you agree that our banks are stronger and more resilient? . what we have seen as the banking industry has been recapitalized quite romantically. we haven't seen levels of capitals like this in decades. i would point out what the federal reserve did was push the

risk outside the commercial banking system. it's in the shadow of the banking industry. that's where the risk lies. we won't see jpmorgan or bank of america or citigroup have the problems they had last time. i do worry about the hedge funds, the mutual funds, the outside the traditional kircher commercial problems. francine: where do you think the next crisis will come from? will it be away from the financial sector? things, the source of the crisis opposed to what the crisis is becomes financial policy, monetary policy that is to lose. we still have lax monetary policy. that leads to over leverage. classes.s to asset

the system is being tested. what happening in turkey and the global ramifications, we thought emerging markets were going to be overleveraged. i don't see that so much as a systemic issue in the same way it turned out to be in 2010. capital is important buffer to hold back those crises. raising interest rates is the best way to avoid getting into it. tom: thank you so much for being with us today. coming up, a really important chart with gerard cassidy. we will do that next. this is bloomberg. ♪

tom: good morning, the single best chart, the world is coming to an end as we know it. it's just a simple chart with gerard cassidy. .orget about the bull market here is a great malaise.

how does any bank institution avoid a 15 year churn? gerard: this is a phenomenal chart to go back as far as you have. you show the great up legs. you point out this malaise. today, the banks are more focused than ever on shareholder return. during that malaise, it was the recovery coming out of the 1990 downturn. implosion inech 2001. who is the one you that uses technology best? who is the technological leader? identify ourave to top banks, including bank of america, jpmorgan chase, wells fargo. our biggest banks are notably spending the most money, they

are becoming the most tech savvy. they are embracing it. they know digitalization of banking is the future. concerns are there that facebook or amazon will get into banking? gerard: we don't have to worry about that at this time. the reason being is there is a large moat around commercial banking. if you want to take the positive make loans, you have to have a license. i don't believe that facebook, google, or any of these companies wants to be a holding company. you will be regulated by the bank regulators, that leads to lower stock. that is very difficult to cross. francine: we love talking about banks. we talk about capital ratios and all that. gerard: it's interesting. the millennials are a very

important part of the banking system. all the banks are trying to reach out to them. i was with u.s. bancorp yesterday. it was clear to me that this company is reaching out through their payment system to millennials. the firstim mow, it's -- uber, it's their first payments. that's not the way millennials do it. banksg banks, regional are doing a very good job of reaching out to the millennials. tom: when is branch banking throw in the towel? amazing what happening. it truly is. we have some data to show you banking ranch -- branch pete the year the apple

introduced the iphone. we will probably lose one third of the branches. tom: thank you so much. we will continue this conversation on bloomberg radio and moment. this has been a fabulous day. thanks to our team for all the work with gideon rose. how about a foreign-exchange report? let's see now, the euro is manipulated. the turkish lira is manipulated. foreign-exchange manipulated world. this is bloomberg. stick with us. ♪ 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.

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president trump complains that he did not get the fed chair he expected in jay powell, and the dollar falls. gaming the system. the president returns to accusing china and europe of taking advantage of the u.s. the yuan and euro respond accordingly. the largest sovereign wealth fund in the world is investing globalization. it paid the price last quarter. welcome to "bloomberg daybreak." alix steel is still off. that with julie hyman. have: as i sit here, we numbers coming out on the latest department store to report its numbers. it is slightly ahead of estimates. $4.1 billion. that is right in line. the estimate was for a gain of 2.6%. we are seeing a beat. you see the share is moving