flattest in over a decade. currency halts its decline as the pboc strengthens its fixing rate by more than expected. meanwhile the peso gains. 's investors scoff at the idea of taking tesla public.

anna: good morning, everybody. this is bloomberg daybreak: europe. welcome back after the break. we are here with you again today. let's talk about the asian session. one of our colleagues on the mliv, a boost from the chinese. the msci asia-pacific up by 1.2%. it is to do with china, also the fed. a celebration of a steady fed. a slow and steady fed. some anticipated or feared. the chinese currency flat right now. general strength of the chinese currency is something we talked about friday.

the pboc has reintroduced a tool to make many people think they are moving towards a stronger currency. trade tensions, even though we have achieved little in negotiations, perhaps this sets us up for something more positive that will go down at the white house. aat does this mean about market let economy in china? we also put on a currency note, the u.s. dollar moving against the mexican peso. as we said in are headlines, there is nafta news. a nafta deal between mexico and the united states could come as soon as today. they may bring canada back in as well. back to china. good morning. manus: we had a lovely eid break. is the pboc trying to strengthen the yuan?

the pboc and jay powell both come together to create this. and magnificent correlation coefficient. the 40 day rolling correlation between the yuan and commodities. the yuan and equities. this is the highest level, the highest correlation we have seen since 2005. the pboc drawing a line underneath the yuan is helping the commodities return. it is helping the equity markets. that 40 day rolling correlation between the u.n., the msci, developed market stocks, is what is underpinning the market. the question is, of course, will that hold? what is it the pboc wants to achieve? who are the policy advisers in the white house that are going to drive the next move? what a thing of splendor, correlation coefficients. no, i cannot do the math. anna: this is what we are looking at for the start of the

u.s. trading day. it is a bank holiday here in london. european volumes could be a little bit muted. the rest of europe is busy at their desks. this is the picture for u.s. equities. perhaps being buoyed by what we have seen in asia. some of the powell testimony into the friday session. a quick note on programming today. we're going to be speaking to the former minneapolis fed president, the central banking story from the weekend, really key to what is driving markets at the moment. a lot to talk about. that conversation just after 1 p.m. u.k. time. let's get the bloomberg first word news update. germany's chancellor has vowed to return to the political front line with a call for europe to assert its interests more formally as donald trump punches holes in the world order. in her first national television

interview, angela merkel said europe needs to take on more global responsibility, including on defense. pursues a as trump global trade war while italy clashes with its european union partners over migration. ministereputy prime has said his country will start the process of opposing the european union's next budget after the block sale -- failed to follow through on a deal for handling the flood of migrants. the issueome after was brought to head over the future of 177 migrants on a coast guard vessel. eu member states failed to reach a deal and a meeting called last week to discuss a common approach on migration. u.s. and mexico are poised to resolve their bilateral nafta differences as soon as today. bloomberg has learned significant breakthroughs between the two countries and during the past several days on the contentious issues of energy.

the development creates an opening for canada to rejoin talks covering $1.2 trillion in annual trade. north korea's main newspaper has accused the u.s. of staging military drills to prepare an invasion while at the same time pursuing dialogues with -- citing alleged american troop movements in the region, saying they threatened to derail the dialogue between the two countries. the pentagon called the accusation "far-fetched. that comes after president donald trump on friday ordered mike pompeo to cancel a planned trip to pyongyang. senator john mccain, who died on saturday at the age of 81, will lie in state in the capitol rotunda and receive a full dress funeral service at the washington national cathedral. mccain, who served for two decades in the navy after graduating from the naval academy, and who represented arizona in congress for 35 years

, will also lie in state of the arizona capitol for his burial in annapolis, maryland. day, onews, 24 hours a air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . a great start to the trading week in asia. we have those fresh highs from wall street and jay powell reiterating at jackson hole that the pace of tightening in the u.s. will be slow and gradual. you have hong kong's hang seng leading gains up by 2%. very strong moves coming through in large-cap stocks in china. we have been watching that move in the yuan. the nikkei looking very strong in late trade, up by 1%. let's have a look at stocks we are watching. throughoil giant coming with its first-half numbers, a record. interestingly, the dividend boost has caught analyst attention. it lifted its dividend by 60%

amid gains in refining earnings. after the lunch break, up by almost 5%. good gains from the airlines as well. china's airlines mainly earn their revenue in you on terms. to the downside, we just mentioned mike pompeo's trip to north korea being canceled. you are seeing the so-called peace talks in south korea coming under pressure. these are the companies they thought could get a boost if you started to see more cooperation between south and north korea. manus: thank you very much. there seems to be very little on the horizon. curve flattening in the treasury market as it drops to a new decade low on friday. tens,p between to send the yield strength to 19 basis points. that was the year that marked the last time the curve was inverted. the debate over the significance of the flattening persisted at jackson hole. gathering of central bankers.

>> the treasury curve is very consistent with what we have been saying in our economic outlook and consistent with what the fed has been saying about the past. rates. >> there is no reason to challenge the yield curve at this time. in other circumstances, if inflation was higher, i might say, well, we are taking recession risk, but i'm willing to trade that off because it looks like inflation is out of control. we are not in that situation. inflation is a stable, it is barely up to target. >> that part of the yield curve is not as flat as what we are seeing in the broader market. >> there is reason to think it may not be signaling the same as it has in the past. an inverted yield curve is usually correlated with an economy going into recession. there is reason to -- and that the long and is depressed for other reasons in particular. there is demand for safe assets.

quality into the u.s. treasury. >> this is not our objective, to manage the yield curve. we use that as a signal to say, what does it tell us about our policy path? anna: the fed president speaking late last week at jackson hole in wyoming and over the weekend. london, then perfect voice to comment on these matters. very good to see you this morning. thank you for joining us on this bank holiday. we have had a lot to digest in terms of comments from jackson hole. you served on powell. you is greg his remarks as a perfect balance on rates and inflation arguments. had you see his statements as setting the stage as monetary policy? >> powell's tenure has been extraordinarily good for the

market. a very clear, very concise, unambiguous language. we had a clear message from the fed last week. signaling that the fed is on course to raise rates at least twice more this year. at most, twice more this year. open as the fed left it to what happens after. that is such a good message for the markets. after three months when the markets are -- and there is this concern of higher u.s. rates, tightening financial conditions, widening the growth gap between the u.s. and emerging markets, creating financial volatility and stability at a time when expensive,are inflation is not really a runaway thing, which means a low volatility rate cycle can continue. no panic on 10 year yields means no panic.

that is the best gift powell can give on financial markets. manus: it is almost a symbiotic the process. have a look at this in the gtv library. is it really different this time? there are other forces putting pressure on the 10 year part of the curve. is it really different? word, but said the assumed economic theory. >> you make such an important point here. the 10 year yield now is about where it was 10 years ago. 10 years ago during the global financial crisis, the global economy was in a different place. the fed's balance sheet was much smaller. to the in a position where the fed is shrinking is downstream after three rounds of -- shrinking its balance sheet and is signaling it will hike rates twice more this year, it is

difficult to imagine why 10 year yields are quite so cheap. if they are so cheap, the discount rates falling into multiples has been far too expensive. we have the confirmation. back to the yield curve, the flattening has been driven by cyclical factors, by strength which has been a factor of -- a function of three factors here. one of them, the u.s. tax code reform, which basically credit out -- crowded out. the other one was how the fed is managing bank reserves, which is drawing down the balance sheet well keeping an interest rate on bank reserves, which is providing money markets fuel. the third one of course has been the tax cuts, the frontloading of treasury issues. all of these have technically

frontloaded the scarcity of bank reserves and made the curve artificially flat. i do not expect this to continue. it is easy to see after flattening for so long against it -- the odds, why the markets are concerned. so long as the fed is being very sanguine on inflation, there is no real reason why u.s. 10 year yields should rise. anna: you say the implication is a steeper yield curve. you do not think -- tie in the balance sheet question for me. in the manus last week we have reference to the balance sheet. it did not seem to be getting as much attention at jackson hole as other matters. how is the balance sheet going to meet up against treasury issuance and all these other issues? is this going to cause a headache for the fed? >> the fed has been waiting for the balance sheet to unwind as well as the other technical

factors to have some impact on term premier. they have not. in the short term, if they were to hike rates much faster, this could create a risk -- a short-term technical inversion of the em curve. it is something for them to worry about in terms of how the first order question is, a function of the markets sentiment, and of course, any concern that -- will they be at the transition point of the cycle where we are balancing risk, anything that takes the markets in favor of recession risk could produce a kind of selloff the fed will not be able to contain? let's face it, 2% fed rate is not that high. it is not that much of a hedge against future recession. it is really a hedge against inflation. inflation premium is 2%. manus: thanks very much.

in exuberant form this morning. chief advisor at g plus. coming up, the yuan is steady as she goes after china's central bank signals it is taking action to support the currency. trade talks with the trump administration remain at a standstill. we talked china and trade, that's next. this is bloomberg. ♪

anna: good morning, everybody. 6:19 in london. heading toward the end of the trading day in australia. the australian dollar against the u.s. dollar stable after the events of last week. bloomberg business flash. elon musk has made a dramatic u-turn on his controversial attempt to take

tesla private. in a late-night post he wrote the electric carmaker will remain public after shareholders failed to get behind the move. the wall street journal is reporting that one of the investors elon musk's bankers lined up for the failed go private plan was -- china petroleum and chemical has raised its dividend payout to buy 60% after half-year earnings jumped to a record. the world's biggest refiner by raisety said net income to $6.2 million in the first month. that was fueled by improving refining profits. and oil and glass -- gas exploration unit closer to breaking even. commodity trader noble has suspended in singapore ahead of today's crucial vote on a rescue plan which would strip shareholders of control. the plan would hand power to creditors while diluting shareholder influence.

noble has lost billions in value since 2015. amid questions about its accounting practices from research. china's ride-hailing giant is drawing criticism from state media for its safety practices after his second female customer of its carpooling service was allegedly killed i a driver. didi has halted service to adjust its business model. and driver suspected of killing a passenger in and eastern city has been detained. that is your bloomberg business flash. manus: now to china and the yuan is a stable today after friday's surge. this after the pboc signaled it taking action to support the currency with daily fixing. this comes as there is little sign of progress in the nation's trade standoff with the u.s.. china hawks in washington look to be gaining in ascendancy. managing economist and

director aji plus economics is still with us. at g plus economics is still with us. what do they want to achieve? stability? or do they want to achieve a stronger yuan? do they want what we had in 2015? 6.96.5? do they want that speed? >> this is a very important story. it is a story of two parts. the external side of the china story. , the onesna narrative depreciation has been very welcome, a very convenient tool to resort to. it signals that china is responding to the external shocks of a stronger u.s. dollar by decouplingfs financial conditions from u.s. financial conditions. demand withpositive

quantitative easing over the past decade is now over. emerging markets led by china have prioritized growth of currency stability, which is a signal this devaluation of emerging markets will probably not result in a recession. on the other hand, it is not surprising china wants to create some risk in the currency because the only way pboc can continue to ease domestic policy to chinese banks and domestic credit multipliers is not worry about a runaway exchange rate depreciation the forces it to act in the opposite direction, but to tighten policy holds. on the external side, i am optimistic because this is another signal that through the work of the emerging-market turmoil. anna: this is about two-way risk in part.

i have this chart that shows, this is the bloomberg dollar stock index in the chinese stock market effectively. the point being made is the strengthening in the currency could be positive for chinese stocks. it is certainly being taken is a positive for risk asset. >> it makes sense very much. cycleint of this risk where the risk reward is becoming more balanced, we have extremely favorable emerging-market valuations on classic, whereby the late cycle in emerging markets rates was hijacked through the political noise and the tariffs, a direct detriment to international capital flows. i think this is a long-term story about the end of globalization.

. emerging markets are now an attractive proposition. theill halftime show you is -- threat to the u.s. economy. has the upper hand in trade negotiations? flatlining china. i put it to you. ironically, trump has the upper hand. >> the short-term of course, you are absolutely right. this negotiation is led by the white house objectives, very much driven by the political deadline created by the midterms. it is distraction politics. in terms of fury white house foreign-policy agendas. with respect to the rest of the

world. now, clearly a dialogue is happening in the background. that will probably produce some result by the end of this year. we are probably going to see more of that aggressive narrative over the next month before the news flow. on the other hand, the u.s. is maybe reaching an agreement with mexico, and that creates an opportunity for using that negative news flow that has been emerging markets. anna: thank you. when you are traveling to work, bloomberg radio of course, you will find it on your mobile device. program, italy strikes out at the european union once again after no deal is reached on the handling of migrants. if the -- is the eu budget at

risk? plus. team ishe bloomberg joined from germany at 9:00 a.m.. retail.

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anna: good morning from london. this is bloomberg daybreak in europe. it is 6:30 in london. equity markets are closed in the u.k. for the bank holiday. more moves in the pound against the dollar. investors hoping for a turnaround. the fed faces more turbulence. how -- is going to be the politics in the driving seat. let's take a look at what you should be watching out for this week. theresa may starts her first trip to africa as u.k. prime minister. oneunited states releases

of its first trade updates since the start of the trade war with china. manus: wednesday is the deadline for prosecutors to decide whether to retry paul manafort on 10 on result counts. -- unresolved counts. north korea on the agenda. we round off the week with policy decisions from south korea and the central bank. has will they do as the fed a 60% probability for september? good morning from singapore. juliette: good afternoon from singapore. returns tohancellor the political front line with a call for europe to assert its interest more forcefully as donald trump punches holes in the world order. angela merkel said europe needs to take on more global responsibility, including on defense. that comes as trump attacks germany's economic prowess and

pursues a global trade war while italy clashes with european union partners over migration. the u.s. and mexico are poised to resolve their nafta differences as soon as today. bloomberg has learned that significant breakthroughs between the two countries came during the past several days on the contentious issues of cars and energy. development creates an opportunity for canada to rejoin the discussions. china's central bank has a strength into the yuan's daily toerence rate by 0.29% 6.8508 to the dollar. that is a people's bank of china seek to limit the currency as the fed continues to raise rates. the reference rate has been stronger than expected, on its longest run since bloomberg started publishing its forecast last year. north korea's main newspaper has accused the u.s. of staging

military drills to prepare an invasion while pursuing dialogues with a smile on its face. they said u.s. troop movements threatened to derail the dialogue between the two countries. the pentagon called the accusation far-fetched after president donald trump on friday to cancel a pompeo planned trip to pyongyang. u.s. senator john mccain, who died on saturday at the age of 81, will lie in state in the capitol rotunda and receive a full dress funeral at the washington national cathedral. served for two decades in the navy after graduating from the naval academy, and who represented arizona in congress for 35 years , will lie in state at the arizona capitol before his burial in annapolis, maryland. global news, 24 hours a day on air and at tictoc on twitter, published by more than 2700 journalists in 120 countries. you can find more journalists --

more stories on the bloomberg at top . have a look at all this green. a very solid start to the trading week. led by what you are seeing in china. the csi up. the nikkei former by 1%. even as we see the yen stronger against the dollar. it is based on what you saw on wall street on friday. those record highs coming through from the s&p 500 and of course that calm coming through from fed chair jerome powell's comments. i just want to show you china's seemingly insatiable thirst for crude. we have been focusing of course on sign a text numbers. been risinghina has substantially. this chart shows us despite the move you are seeing in the crude prices, china's demand for crude imports continues to rise. all the way back to 2004. despite fluctuation in volatility in the oil price, you

still seeing strong demand there. soally it is the end of eid, traders going back to work in turkey. could we see a rally in e.m. assets start to unwind? investable the most since 2016, and not only do you have turkish traders returning to work, but you have concerns bubbling underneath. anxiety over elections in brazil and that deterioration in relations between south africa and the u.s. as well. watch that move we had seen a little bit of upside coming through in ems at. that could be -- p.m. assets. -- em assets. anna: italy will start the process of opposing the european union's next budget according to the deputy prime minister. the decision comes after the blocks member states fared -- failed to follow through on a deal for handling the influx of migrants.

a big meeting is set to take place in austrian september on the subject of migration. italian leadership clearly linking the budget and migration conversations. managing director at g plus economics still with us. the latest disagreement between rome and brussels, either over the italian budget for budget contributions. i have a chart you might find interesting. this is yields on greek 10 year, italian 10 year, and spanish 10-year. it does show that since the populist government took over, we have seen italian yields trading closer. where do you think they should be trading in the realm of european union story? lena: you make an important point. the italian curve is towards a financial cataclysm. is it going to happen? i think it is unlikely. i'm going to be contrarian on italy.

italian politics is noisy. when has italian politics not been noisy? we have a near-term deadline approaching. the budget forecasts have to be finalized by the end of september. the italian budget law has to be passed by the middle of october. that means in the next six weeks we are going to get the peak of the negative news cycle. beyond that it is worth bearing in mind that in september have in btp'sturned a buyer because of the way it manages its capital. this is not going to change the long-term game plan for italian investments. given that foreign investors have been aggressive sellers of banks, we havean exhausted that speculative push against italy. look at the valuations. the most important thing for me over the summer was the issue of eu and euro membership was put

to bed. italian polls show no populist support for any conversation. that means for italy to be trading where it is and the cherry on top of the cake is italy remains an idiosyncratic risk. it is a very different environment from what we had during the eurozone crisis. time, can something really change? probably not in the short-term. i love your definition in terms of italian politics. the best explanation of a bunch of italians on the beach in the summer. you talk about an idiosyncratic risk. are we under pricing the fortitude of the ecb to raise rates? is the market underpricing the trajectory for the ecb? is the market underpricing the trajectory. i think this is a very important question.

i do not know. -- my sense isch that when mario draghi's tenure comes to an end, it will probably come with one rate hike under the belt. that rate hike will not -- is not priced into the market now. it is not a hawkish scenario. it will allow president draghi the ability to manage the narrative at the beginning of the tightening cycle that will manage market expectations. it is above the slope of the yield curve. this is where the ecb power is. . yes manus: think you very much. managing director at g plus economics stays with anna and myself. it was the first public appearance since the summer recess. angela merkel has said in german television she expects faster adoption of electric vehicles,

which could limit climate change. she added the eu would do better to meet existing emissions targets rather than set new ones. meanwhile, tesla faces possible bumps in the road after elon musk did an abrupt turn and dumped his plan to go private. let's have a conversation about the tesla story. with our reporter on this story. this is a bizarre and to this saga. late night, take it public, take it private -- we do not know where we are in terms of the mind of this ceo. let's get back to the issue. model three production and liquidity. is that where i focus? or do i focus on tweets? >> it is. it does open up a new chapter here. we have got a situation where we have got -- you know, he is putting this forward. at the same time there's a lot of undercurrents. there are multiple layers.

not only has the upset hole appears -- whole layers of investors, but he has good -- put the company in a position where it is -- its share price is more than it is making. it is a very difficult situation for tesla. anna: good morning to you. the share price very much in focus for the sec. still looming large whether it stays listed or whether it goes private, the sec will -- we understand wants to know more about what's happening at tesla. >> absolutely. , but therestant hope was one hope he would have been able to say, ok, here is where the funding is secured. expected, that did not happen. he has tried to at least get the train moving in the other direction, talking about staying public.

the sec is still going to want to know why he made that initial statement. if he doesn't have a good answer, there is a chance there will be some punishment in order. manus: the shareholders in terms of the company, how to work out whether they want to back him or not. the newading him across york times this morning, tesla investors much -- must realize they have a self-destructive ceo at the helm. no ceo is ever this confused or confusing. where does it leave the investors? to retail and the institutional investors? >> in the past a lot of this activity was seen as excitement. they call it the reality distortion field. it looks like now he might have stepped over the line with investors, in particular, institutional investors. he stepped on a lot of different toes.

people familiar told us he was -- he was upsetting the saudi investors who were involved. and they fought back and pushed back basically against his statements. hi, i can hear you. anna: thanks very much for joining us. remember, you can access all the charts we have been using during the program. .rowse those recent charts manus. up, a rise in dividend payouts. we bring you the latest from hong kong. we're going to talk emerging markets. the turkish lira rips off before rebounding against the dollar. this is bloomberg.

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manus: 9:46 a.m. in dubai. it is 1:46 in hong kong. the hang seng up over 2%. it is the automakers driving demand, driving the market higher. you are just seeing a nice boost from china auto movers. also sinopec giving a boost sentiment in the market. juliette saly standing by with the business flash. good day. juliette: johnson & johnson's blood thinning drug did not present -- prevent clotting in high risk patients. a setback for one of the cup in his best-selling drugs. patients took part in the trial.

salesreported millions in and listed the drugs as one of its key growth products in it's annual report. ismodity trader noble suspended in singapore ahead of today's crucial the on a rescue plan which would strip shareholders of control. the proposal would hand power to creditors while diluting shareholder influence. noble has lost billions in value amid ballooning debts and questions about its accounting practice from iceberg research. didi's ride-hailing giant is drawing criticism from state media for its safety practices after a second female customer was allegedly killed by a driver. has halted service to reassess its business model and remove senior executives. a driver suspected of killing a passenger has been detained.

that is your bloomberg business flash. anna: thank you. sinopec has raised its dividend payout of -- by 60%. that was fueled by refining profits and rebounding crude prices. kong,g us now from hong bloomberg's asia energy reporter. good to have you on the program. what is the most impressive number after sinopec's first-half earnings? you have a few to choose from. >> good morning. i think the most impressive number would be there operating profit for refining. therefining number, 33% in first half, that is at the base of a much higher oil price. in -- traditionally, whatever the oil price gets higher the refining market will go with.

sinopec did a good job in terms of cost control. in terms of fuel great upgrade. friendlythey have very government policy that encourages the burning of higher grade fuel. , share price rising more than 5%, that's the highest since may. investors have a very warm response to their performance in the first half. manus: a very good morning to you. when we look at improvements in the numbers, oil and gas production is still losing money. it's losing a heck of a lot less than it did before. when was -- when will the magic moment to break even come? will it? >> possibly in the second half of this year. if you look at first half earning numbers, they lose about

400 million yuan in business. loss breeds kind of concern in the market. people do not know how high the oil price may go for sinopec to breakeven. closely at the whole portfolio in the sinopec, the have 60% output came from crude oil and 40% for natural gas. their production cost of their crude oil is between 60 barrels to 70 barrels -- $60 to $70 per barrel. they're natural gas production cost is between 40 dollars to $50 per barrel. they have made it clear they want to produce more natural gas , much less expensive to produce, to balance. have a conference, the chairman will be here. i think hopefully we will hear the about their plan in

second half and maybe in 2019. that is where people expect a breakeven future for sinopec. manus: thank you very much. our asia energy reporter with the very latest on sinopec from hong kong. emerging markets, specifically we saw the lira rebound against the dollar, shattering last week's relative calm. markets were essentially shot for the eid holiday. the market slumped 20% in august alone amid a feud with the u.s. and a deepening account deficit. the managing director at g plus economics is still with us. when it comes to tightening by itself, that is a strategy of the turkish bank. is it enough to stop the lira?

turkish vulnerability is not going to and anytime soon. what this crisis has been a lesson for is that the return on risk that investors have had on turkish assets was clearly inadequate with respect tom political risks, both domestically and internationally. that is a tax on financial access -- assets in turkey and on growth prospects. the problem with turkey will not be resolved. what is the problem in the has aterm is that turkey staunch political opposition to taking the right measures that could contain the crisis almost overnight. that is importing credibility and currency reserves from the imf. i do not think the crisis is deep enough to give a deposition . --to pay bit that position

to pivot that position. what it would take for investors to start loving turkey again without that. anna: one of the others we talked about earlier this year was the nafta conversation. mexico and the united states. mostly mexico and the united states have been talking of late. there could be a deal between the two as early as today. i have a chart that shows the peso struggling with that news flow in mind. is this going to tell us something important about the way trade conversations go ahead of this midterm? or do you keep any nafta news flow very specific? lena: it's quite clear the conversation the u.s. has with the rest of the world's not over yet. there does not seem to be any impetus for the de-escalation of that conversation. the fact that the policies by

twitter and the politics of distraction through creating foreign policy noise will because dominate political rewarding seems to be giving the white house and upper hand, showing president trump to be fighting on behalf of those workers that have seen their jobs being exported through globalization to other low-cost jurisdictions. let's not forget the trade conversation is about re-nationalizing low-cost -- low pay production line jobs back to the u.s.. until some dividends can be extracted on the economic front that president trump can tweeted out, we are not going to see the end of that. we have been down five months in a row against the dollar. i have got to make a decision on the pound. is there lower to go? does sterling had south with the political machinations? lena: i'm so glad you raised

this. there are no good scenarios with the pound. the question is as binary as it was the day after the referendum. are we going to have a cohesive or in cohesive? the markets appear to be modeled. the choices are no deal, a bad deal, or a good deal. any expectations, which seemed to be the consensus view based on conjecture. sure enough, every senior policy official have spoken to over the last couple of years has told me, of course there's going to be a deal. it turns out europe is not for sale. access to the market is not going to happen for the u.k.. say that deal in itself is good news, if you look at the u.k. right now, there is not much to be envious of. anna: thank you.

chief economist at g plus economics. speech,is is jay powell cemented expectations for another rate hike in september. ♪

manus: good morning from dubai. this is "bloomberg daybreak: europe." anna: these are today's top stories. manus: the fed holds a slow and steady is the u.s. central bank all but guarantees a september hike. the yield curve at its blackest -- flattest in over a decade. chinese currency hold this decline is the pboc strengthens its fixing rate by more than expected. the peso gains as nafta deals draw near. elon musk dumps his plan to take tesla private. after investors scoff at the idea. but how will the shares react

when trading resumes? manus: welcome daybreak europe. stability is what the pboc is searching for. jay powell has added to that in terms of doing whatever it takes to keep inflation on track. nice numbers coming through from sinopec. you're going to get the trade balance in to united states. civility him across the yuan, the correlation coefficients have not been this high in 18 years. a rise in equities. be worried. -- stocks inverall europe's a $1 billion leave for the 24th week in a row. $40 billion have flowed out of european equity markets since

the start of the year. the question is, do you want to be long u.s. in a rally that keeps giving, or do you want to reallocate to europe? pips. up by 50 the u.k. is on holiday, but there is one woman in london who got up early. it is anna. anna: it's me in london with the tumbleweeds. across the asian equity markets, up. our colleagues are at their desks, not on vacation. blog,g about on the mliv a joyous picture across asian equity market. risk assets getting a boost from the chinese. also a celebration of steady fed policy. also being factored into the asian equity session. a less hawkish powell than some expected. focusing on the chinese

currency, we are stable, but we see strength on friday during the session in currency markets. the pboc seems to be tilting stronger when it comes to the ua and. yuan. it might play nicely with president even if the trade conversations last week did not deliver much. what does it mean for opening up the chinese economy to market forces? this is the mexican peso gaining ground against the u.s. dollar this morning. on the back of these nafta conversations. we understand we could get news about a deal between mexico and the u.s. at least as early as today. take us through the conversation. manus: the bond market focuses on this particular country, which is italy. prices down, yields higher. where within spitting distance of a four-year high on italian government bond yields. we are going to go head-to-head with europe in terms of the eu

budget rule. this is setting up a battle royale between the mediterranean in the swansong of the summer with europe. prices down, yields higher. economics, lena said italian politics is nothing but noise. she is a buyer of btp's. quite a contrarian on trade, but not that much contrarian when you think italian politics are a risk. u.s. treasuries, it's all to do with, will she, watching? to invert or not to invert. a message from jackson hole seems to be the consensus from the views. you see the yield curve at 19 bits. the tightest we have seen for nearly 10 years. it is really different this time. let's get the juliette saly with the first word news. germany's chancellor

has marked her return to the -- ascal front line with donald trump punches holes in the world order. in her first interview after the summer break, i will merkel said the eu needs to take on global responsibility as trump attacks germany's economic prowess and pursues a global trade war while italy clashes with its european union partners over migration. italy's deputy prime minister has said his country will start the process of opposing the european union's next budget after the bloc failed to follow through on a deal for handling the flood of migrants. comments come after the issue was brought to a head over the future of 177 migrant on a coast guard vessel which stopped in sicily a week ago. eu member states fail to reach a deal last week, called to discuss a common approach on

migration. north korea's main newspaper has accused the u.s. of military drills while pursuing a dialogue with a smile on his face. it cited american troop movements and said they threatened to derail the dialogue between the two countries. the pentagon called the accusations, quote, far-fetched. that comes after president ordered secretary of state mike pompeo to cancel a planned trip to pyongyang. senator john mccain, who died on saturday at the age of 81, will lie in state in the capitol rotunda and receive a full dress funeral service at the washington national cathedral. mccain, who served in the navy after graduating from the naval academy, and who represented arizona in congress for 35 years , will also lie in state at the arizona capitol for his burial in annapolis, maryland. 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.

you can find more stories on the bloomberg at top . it's not often we see green colors this bright on the world map function. it is certainly a positive session for asian equities after we saw a record highs on jerome powell maintain that gradual pace of tightening. chinese stocks of 2%. a stronger fix from the pboc in terms of you on movement. japan closing higher by 0.9% despite a tick up in the japanese yen. to aalia's market back little more stability, up by 0.3%. it really has been the focus in hong kong today, particularly sinopec's earnings. sinopec up by 5%. this acted boosted its dividend by 60% means it could be on track to return more to shareholders in the coming reporting season. so-calledevator is a

peace stock in south korea on -- falling on the news mike pompeo is not going to north korea. wilson saying that political instability, the fact it was another prime minister announced for us really on friday, likely to have little dimer effect on the aussie. still holding with a 0.73 handle. anna: the south korean markets, the kospi underperforming on that pompeo story. thank you. there seems to be little on the horizon to derail yield curve flattening in the treasuries market as it drops to a new decade low on friday. the gap between two-year and 10-year gilts shrank. the narrowest risk since 2007. that marked the last time they curve was inverted. jackson hole cemented expectations for a september rate hike. >> the case is compelling. we have an economy growing above trend.

we have inflation at our goal of 2%. >> we ought to be moving toward neutral, which means three or four increases over the next nine to 12 months. at this point, moving in september and december is consistent with that path. >> i agree the economy is doing well. i think two more rate hikes this year could be appropriate. >> from my point of view i would rather not be calling rates accommodative. i think the whole structure of rates is lower. i think we are at neutral or close to neutral right now. >> i think the whole it is for going small is that you want to make sure the economy has latest stand on its own. i think we are there. manus: a cacophony of voices from jackson hole. joining us from paris is the chief economist at bnp. great to have you with us. a host of voices about the

neutral rate and the yield curve. the biggest response from markets was in the dollar. this was the positioning on the dollar. we are still not long. net long. high -- a 19 month high. prevaricating about the death of king dollar. william, good morning. can you hear us there? >> yes. -- i --ight >> sorry. manus: sorry william, the dollar move. this is one of those terrible moments. please go ahead, talk to me about the dollar.

just said on the flattening of the yield curve and the dollar position is very important against the background of a clear message coming from jackson hole about fed tightening. hadink once you have another two or three hikes, the market will say, when will the stock tightening? this is a very important element keep in mind against the background of the position. the flattening of the curve is something which is, i would say, unavoidable to continue. we insomething that previous cycles, we have seen value over time until the economy started to turn down. i do not think we should look at yield curve flattening at something scary at this stage. , howeal concern for me is will markets react when the fed

stops tightening? it means the fed is of the view that the economy is starting to react. anna: it is interesting. when the fed stops tightening it will depend what the reasons are. interesting to see jay powell talking about inflation. no clear signs inflation was accelerating above 2%. how do you interpret his comments? it is kind of the ongoing mystery. less of a mystery following the jackson hole presentation. with which prices are adjusted. a pretty awkward economic environment now in the way it structurally operates compared to previous environments. you have no poaching clauses. you have no compete clauses.

you have swift price adjustments. you have the internet and also you have brick-and-mortar shops. with these three elements, it is far more difficult for an economy, although it is growing fast, to generate a significant pickup in wage growth and inflation. the one thing that is on the move underground equity market, record highs in the s&p 500. we compare the run ups of 1929, the year 2000, in the most recent bull run we have had. our markets getting stretched ahead of the economics in the united states of america, which is your domain of observation? our markets outpacing the ego? a shortening of is showing and that

up in the sensitivity to any news about faster tightening or slower tightening. we also have to answer the fact that the economy is growing strongly, or at least has grown strongly. i think the real questions will come in 2019 from an economic perspective. we expect 2019 growth will slow. this will have an impact on share assessment by analysts. then it will be a chop your environment. choppier year -- environment. that will also mean the willingness of investors to take risks will probably come down because there will be concern that the economy will react increasingly common become sensitive to the fact that interest rates will have moved up. anna: thank you. joining us there with thoughts

on the fed. if you are a bloomberg customer you can watch the show using tv . you also get all of the charts and the functions we were using during the program and the added bonus, you can contact the team that puts together the program. that's dangerous. manus: that is very dangerous on a bank holiday in london. the trade war could be set to turn uglier. china is said to beginning ascendancy. stanley's chief u.s. economist joins the bloomberg team, seven: p.m. u.k. time. this is bloomberg. ♪

anna: this is "bloomberg daybreak: europe." -- berlin, it is not a holiday. let's get a bloomberg business

flash. juliette saly joins us from singapore. juliette: elon musk has made a dramatic u-turn on his controversial attempts to take tesla private. in a late-night blog posts, he wrote the electric carmaker will remain public after shareholders failed to get behind the move. meanwhile, the wall street journal is reporting one of the investors elon musk have lined up for the failed plan was -- china petroleum and chemical has raised its dividend payout by 60% after half-year earnings jumped to a record. the world's biggest refiner by capacity known as the sinopec said income rose 52% in the first six months. that was fueled by improving refining processes in a rebounding crude price as well as -- that brought its exploration unit closer to breaking even. bayer's blood thinning drug did

not reduce clotting in high risk patients. a setback for one of the manufacturer's best-selling drugs. about 12,000 patients had increased risk of blood clotting and took part in the trial. sales and listed the drug as one of its key growth products in its annual report. that is your bloomberg business flash. manus: thank you very much. the u.s. trade war with china could be about to get much uglier after a long hot summer spent weighing the risks and firing warning shots. the hawks in president's administration have gained the upper hand. they look set to unleash an autumn offensive. our international editor has the latest from hong kong. what is it a stance between the u.s. and china on trade right now?

channeling navarro and lighthizer. lighthizer was a contentious gentleman when he came to the japanese negotiation a couple decades ago. greg's mr. navarro and the china hawks are winning, clearly. the talks last week did not yield much. no real agreement. they were the beginning of talking. there was $16ed, billion in tariffs that took effect on both sides. clearly, there is a lot more to go. the hawks want to see not just more access to the china market like for soybeans and commodities, which had been the earlier goal, but also to see some major structural changes in the way china conducted straight. -- conducts its trade. anna: the hawks on the ascendancy, and to what extent

are they dictating policy? does the government remain divided? >> there is still a lot of division. they have the president year. ear.esident's year. -- there are many who are not happy with this change in tone. there was a hearing on capitol hill last week where they had a lot of discussion from the public saying that tariffs are what amounts to six mid -- 6000 products cannot be good for the economy. there is concern about that. including in the farm belt where soybeans have started to take a hit. that could have political effects as the midterm election season comes up. anna: great reporting from jackson hole that suggested everyone is becoming an expert in soybeans right now. thank you for joining us.

bloomberg's senior international editor. groups chief economist is still with us. --anted to ask you about last week we saw very little progress on the trade story. we saw the u.s. and china meeting. very little was a great. -- agreed. what is your timeline? thate concern is of course -- how long this is going to last and what is the ultimate objective? is this really about influencing bilateral trade imbalance? or is this about impacting what china does? to become a really dominating player in terms of technology at this stage, it is not exactly clear. chinese growth is softening. that may mean that some u.s.

hawks as you called them earlier could see an opportunity to push even harder. also the fact that the news coming from the nafta negotiations with mexico seem to be pretty good. there is hope there is going to be an agreement soon. even with canada, there was news about it could go swiftly. making quick progress with europeans. the u.s. is trying to refocus its efforts on china, or wants to have the ability to say, we have agreements with mexico, europe, canada, now it is up with -- up to the chinese. it is background noise. eventually it will create ever bigger voices of concern coming from corporate america as well. it shows you when he decides to accelerate

negotiation, it can be rapid. the one thing we put in our library is the relationship between the yuan. we have seen these moves by the pboc to stabilize. their relationship between the you want and commodities, the yuan and stocks. does it give you hope that perhaps the equity story rolls on in that the markets role higher with this stability emanating from the pboc? >> there is an important point. you addressed to concerns. anyis the u.s. would say impact from tariff increases would be complete of the exchange range -- exchange rate. we are concerned that the weakening of the yuan with fuel capital outflows and would

become an element that would make the dynamics more difficult. having that impact on the market outcome. your points on the correlation is a very important one. thank you so much for being with us. that is our guest host, chief economist at bnp paribas. great to have you back in the seat even though it is a bank holiday monday. the yuan, did they want to stabilize it or ticket higher? do they want to see what we saw on the crowd 2015? i think the mexican peso is reluctantly rallying. according to the resources. -- according to three sources. anna: interesting what you say about china.

our colleague on the mliv blog saying this tilt is positive for imports, could be a good spot for president trump. what does it tell us about opening the chinese economy? that's it for daybreak europe. "bloomberg markets: european open" is next. ♪

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guy: good morning and welcome to bloomberg markets, this is the european open. we are live from the bloomberg headquarters in london. i'm guy johnson in london. matt miller in berlin. matt: i'm here on a regular workday. asian stocks gaining today in a big way and hong kong and china. london has closed for holiday, but the other european markets are going to open and they are going to trade. hard-working markets on a monday, set to open higher. cash trade starts in just about 30 minutes time.