francine: the one climbs after china -- the yuan climbs. 30 year treasury yields test record lows. pimco imagines a world where negative yields reach the u.s.. s'sdas is warning -- adida warning, shares drop on a disappointing results -- on disappointing results. ♪ good morning, everyone, and welcome to "bloomberg surveillance." these are your markets. we are looking at the stocks europe 600 gaining.

we also had gains in yuan lifting currencies. you can see the u.s. 10 year yield at 1.72. the fixing at 7.04. we are getting breaking news out of the philippines, another central bank that needs to do something because of the world economy. 4.25, cut the key rate to following india, new zealand, amongst others. coming up, we hear from the chief executive of adidas about trade wars and global demand. now, let's get straight to bloomberg first word news in new york city. >> this morning, oil is rebounding from a seven-month low. looks tos saudi arabia stem the slide and processes -- in prices.

bloomberg learned react will not tolerate continued price weakness as oil has been driven down to the worsening trade work and a surprise increase in stockpiles. pakistan suspended a trade with india and downgraded diplomatic relations after new delhi revoked decades of economy for the disputed region of kashmir. islamabad says they will take the matter to the united nations. india says the issue is an internal matter. time may be up for italy's fraught populist coalition. could pull hinted he the plug if his five-star partners don't yield to his demands. ,e is calling for deep tax cuts even if they fall afoul of european rules. if an agreement is not reached, rome could face early elections. president donald trump endorsed an expansion of background checks after two fatal shootings but says there is quote no political appetite to renew a ban on military style assault

rifles. some political leaders in ohio and texas have said gun safety laws must be considered. china rejected a demand that could help ease tensions in hong kong. an independent inquiry into the unrest is a demand even some beijing sympathizes support and one of the few protest requests with the backing of business leaders. but an establishment lawmaker summed up the position as quote there is no room for any compromise. victoria's secret ceo says jeffrey epstein swindled him out of money, saying it is a tremendous shock that it quote pales in comparison to the unthinkable allegations he faces. you may remember epstein is currently in jail, having pled not guilty to sex trafficking charges. his lawyers have yet to comment.

global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine? francine: the yuan is rising this morning after the bank said fixing stronger than expected. but they still set for the reference rate at weaker than seven per dollar. well the yuan is up against the dollar and a basket of peers, it has hit the lowest level since 2015. joining us for more is our reporter on the ground, selina wang. great to have you on "surveillance." what signals is the pboc trying to send? : they are clearly china to prevent panic and send a calling signal. what is important is not the fact that it is weaker for the first time since 2008, what is

important is it was set stronger than expected. they are trying to balance market flex ability and left the markets play a bigger role while avoiding destabilizing impacts and capital flight. that is more important than trying to weaken the currency. at the same time, he wants to make life not so difficult for corporate in china who have a massive pile of growing debt. that some see this as a key line being crossed, showing that china has more room to weaken further. some also view the yuan as overvalued and predict it will reach 7.5. francine: what did we learn from china's recent fx reserves and trade balance data? selina: on the trade balance front, it came in a better than expected. exports rebounded, imports shrank, so it is a bright spot after a rough first half.

commodities in soybeans, in particular. but the economists view the outlook is still decidedly negative. we saw the pmi contract significantly. the trade war is only escalating. this does provide proof the pboc will tolerate a weaker yuan moving forward. and on the latest fx reserves data, foreign reserves balances did not change much, showing china is pretty comfortable with where the yuan is now. francine: thank you so much. anding us now, simon french ralph from merrill lynch. let me take off with you. when you look at some of the things going on in china, how much worse is this going to get? simon: a lot of that will be

determined in washington, they have been doing their own stimulus program designed to repeat the successes in 2015. but that was against the backdrop of nonspecific targeting. whetherthe problem is the attempts they have in terms of macro stimulus will be effective at offsetting additional tariffs. weakening the yuan is direct support for exports, but if you start seeing nontariff barriers, how much worse can it get? much harder to use the yuan as a defensive is a. -- mechanism. francine: what does this mean for yields? ralph: the market is telling you quite clearly, lower. francine: we're talking negative yields in the u.s.. ralph: there are some out there highlighting those risks.

and i have made this point before, the problem is we have lost our anchors. we are not reacting to anything we see in the data today. what we are being forced to do is being forced to way up very extreme risk scenarios -- weigh up very extreme risk scenarios. you could easily construct a scenario where front end rates and up at a zero -- at zero. if they do not work, there is nothing to stop the u.s. administration from escalating trade tensions. then they don't work, fed might be forced to cut all the way to zero. either way, you can construct bullish scenarios. you would not want to make it the central scenario, but the rate market is clearly telling you that the weighting of those extreme scenarios has gone up materially. francine: if you look at the inverted yield curve, it is an

impending slowdown. simon: if the value of an inverted yield curve is repeated. i would be slightly cautious around assuming we have the same response function. the nominal and real yields at play are much lower. termsore, the economy in of financing for corporate's and households are less draconian compared to previous inversions. i was doing work on what room fed has here to run monetary policy hot and lower front and yields. they have not got a phillips curve of note. that classic relationship between inflation and employment. so it does not seem the inflationary bite you would normally worry about with the fed cutting early on does not

appear as the data suggests. francine: thank you, we'll get back to simon and ralph and talk about market action. simon french from panmure gordon and ralph from merrill lynch. next, flirting with record lows as treasury yields dip lower and lower. we discuss what is next. this is bloomberg. ♪

francine: economics, finance, politics, this is "bloomberg surveillance." let's get straight to the bloomberg business flash. >> hedge funds have turned the most bearish since 2016.

they are intensifying bets against the markets and limiting long positions. the ratio of hedge funds long short positions sank to its lowest level in 3.5 years, according to morgan stanley. a vote to strike and a pay dispute by ryanair pilots as the chief executive struggles to keep a lid on wage claims. , after agreeing to the wage reduction of unions. pilots that belong to the group will walk out for two days, followed by three days of action in september. the elevator industrial giant is selling some of its units. as germany's economic slowdown starts to hit home come it cut profit outlooks for the year. uppthe last month, thyssenkr

shares are down. although they are distorted by the week automotive industry and the problems in steel, you see that in elevators we improved margins. ahead clearly looking that we can fulfill our guidance for the full year. that is the bloomberg business flash, francine. francine: thank you so much. the 30 year u.s. treasury yields approached a record low before giving back some of the gains. -- aroundncerns of global growth intensified. pimco warns that yield may eventually go negative, adding to a pool of debt surpassing $15 trillion. >> what will it take for negative yields to happen? it is probably not around the corner, but what it would take is a serious downturn in the economy, a recession in which

the fed would take rates all the way down to zero and restart qe. at that stage, we may well see negative yields as we are seeing in many parts of the world. francine: thank you so much. we will have plenty more on that. andn from panmure gordon ralph from merrill lynch are still with us. to haveld it take negative yields in the u.s., and what would be the consequence of that? ralph: i hear what my colleague said a minute ago. to get to negative yields without the fed cutting rates would be somewhat difficult. but you can easily envision a scenario in which yields go below 1% in the recessionary outlook that mr. phelps was describing. would into negative rates require a very, very aggressive fed.

the fed, unlike other central banks, continues to push back against the notion of negative rates. simon: part of this near-term picture has to be determined by what happens on inflation. clearly, tariffs and the pass-through from tariffs through to producer margins and corporate margins and to the consumer will dictate a large part of the forward path for inflation. wethe room before the break, spoke about the room for the fed to move. there is a profit market here as well, and the degree to which a protectionist trade policy, once ,e start broadening the basket you start to see inflationary impulses and stagnated conditions. it will be difficult to be aggressive at the front end. francine: yesterday, we have new zealand, india, indonesia, today

the philippines, does the fed need to cut rates to deal with the rest of the world? simon: we spoke about this on the 2019 preview show about the fact that the u.s. economy was trying to decouple from the rest of the world. i noted throughout fed minutes more references to international markets and factors. we pose the question, the fed is the world central banker. -- is the fed of the world's central banker? what you are seeing is the u.s. yield curve coming back in real terms in line with the rest of the world. it was decoupled to the upside. francine: do you agree? ralph: i do to some extent, i would rephrase it differently. is tryingf the world to buy insurance against what the u.s. is up to and the chinese policy response. europe is an easy case in point.

the devaluation is a way for china to externalize tariff pain. as a fort myers -- as a global central bank, you have to take insurance. it is arguably a commodity complex. i am not at all surprised we are seeing the rate cuts we are seeing from outside. so then make the argument the fed ought to be cutting more aggressively is putting the cart before the horse. the whole thing originates in the u.s. and the white house. francine: i have one million questions. all, you can see the spread has gone from 27 basis points to 12 in just the last four weeks. what happens to that? ,nd my more pressing question instead of calling it a currency work, are we in a monetary policy war? ralph: we are reacting to a

global manufacturing crunch, so every bank is doing what is perfect the -- perfectly rational. i would not necessarily call it a currency war. from the u.s. perspective, it might feel like it. but if you think about the asset implications, which asset is safest to buy, you want to be exposed to relatively less globally exposed equity markets and the u.s. is a prime example. again, it is a chicken and at issue. -- and egg issue. the dollar strength we have seen we would not have seen about the trade war. in terms of the question about , clearly a lot of the renewed flattening pressures we've had is to do with the fact the market believes the fed is somewhat find the curve -- behind the curve.

from thead no attempts fed to clean up the communication which, let's call it awkward. have more coming up, a bit of a tabula rasa, from their perspective. but it is clearly at risk. francine: the awkward vindication from the fed, there is speculation that jay powell is succumbing to political pressure. how does communication get on track? simon: i agree with ralph. the point at which they communicate has to be very clear on what its priorities are. that is one way it removes the suggestion it is politically dependent rather than data dependent. if you are pricing in three or four more rate cuts, you are assuming there is widespread

politicization. but if you move the message to this is hownts, they are still understanding what the pass-through of the trade war is. if you start to clarify the data points, you get more clarity in the market. not so much the fed would be perceived as being up with asnts, but a message that the data comes in, you get a better indication on what that means for policy. francine: thank you both, simon french from panmure gordon and ralph from merrill lynch both stay with us. up next, we talked the future of asset managers as passive shift towards active. -- shifts towards active. this is bloomberg. ♪

francine: this is "bloomberg surveillance." still with us simon french from panmure gordon and ralph from merrill lynch. we were talking a lot about negative yields and what it means for qe and the race to the bottom when comes to currency manipulation. if you are looking at the possibly of a recession, is the real risk that, because of these negative headlines co-chief executives don't reinvest and a recession comes just from a lack of investment? ralph: that is the most important point. spreadle, will that now

to developed sectors and will that spillover lead to the downturn? the problem with spending is there are a lot of the structural changes from tangible to intangible investment. associated with that is a productivity problem. it is quite difficult for economists to be certain whether we are seeing a plateau because of structural changes or because of concerns over the outlook. francine: simon french from pam your gordon -- panmure gordon and ralph from merrill lynch stay with us. we see the worst drop in german industrial production since 2009. we focus on the outlook for europe's biggest economy. this is bloomberg. ♪

♪ yuan climbs as china sets it daily fixing

stronger than expected. no yield is too low. 30 year treasury loads test record lows and pimco imagines a world where negative yields reach the u.s.. adidas is warning that the weaker chinese currency will hurt all regions in all countries. shares drop on disappointing results. good morning, everyone. good afternoon if you are watching from asia. this is "bloomberg surveillance." i'm francine lacqua here in london. let's check on what's moving your markets. >> sbm offshore to the upside come up more than 7%. this company deals with oil and gas services. they raised their 2019 outlook. the ceo says they are going through a time of significant growth. licht down more than 6.5%. this is allianz's biggest shareholder. it has decided to go against one of the private equity bids for that company.

alianza set the price was a knock-down price and the company should have never accepted. tod's reported a first-half loss. it was yet another set of results that were poor and there is no buyers out there. let's check the boards. i want to show you something else i am watching. i am looking at brent. it is trading $57.41. that green we see up 2% this morning has to do with a few phone calls the kingdom of saudi arabia is making to other producers. they are looking at options to stem the weakness we have seen in prices. we still have brent trading under $60 per barrel. one clear and obvious solution would be of opec and its friends were to cut production more and before 2020 when the iea says we have this oversupply of market. someone from rbc says they will not be complacent about these prices. she was saying you can imagine the phone because you are seeing between the secretary-general,

russia's novak, and getting probably quite ferocious. francine: certainly is, ferocious big edward. some of -- a good word. some of your market moves and what's happening with oil. let's get to the bloomberg first word news in new york city. after yuan is rising china's central bank says it's daily fixing is stronger-than-expected. the pboc still set the reference rate at weaker than seven per dollar. u.s. treasury yields may eventually go negative. that's according to pimco. the fixed income giant says it is no longer an absurd notion. at least 11 countries now have -10 year yields, adding to the pool of assets that has recently topped $15 trillion. president donald trump endorsed an expansion of background checks after two fatal shootings over the weekend. he says there is no political appetite to renew a ban on military style assault rifles.

some political leaders in ohio and texas have set new gun safety laws must be considered following these mass shootings. pakistan is suspending trade with india and downgraded diplomatic relations after new delhi revoked seven decades of autonomy for the region of ir -- kashmir.sm india says the issue is an internal matter. billionaire lex lee wexner -- leslie wexner says jeffrey epstein swindled him out of vast sums of money. he says this clearly pales in comparison to the unthinkable allegations epstein now faces. he pleaded not guilty to sex trafficking charges. his lawyers have yet to comment on wexner's allegations. global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg.

francine? francine: thank you so much. asset managers are facing an existential crisis. for years, investors have been shifting their money into passive funds. -- lower,as pushed and forced large-scale consolidation. the industry is on the brink of a shakeout and only the strongest will survive. joining us now is bloomberg's european hedge fund reporter, who wrote a great piece titled "asset managers." i encourage everyone to go to our website or bloomberg terminal to read this. congratulations on a great piece. it took a lot of investigation, i know a lot of your time. what surprises did you find in your research? >> the industry is really struggling. they have been pushed to a tipping point. asset managers have been charging too much for subpar returns for too long. investors are voting with their feet and pouring money out of passive funds for some time, which serve a fraction of the

cost of asset managers and in some cases have outperformed. decompression, thousands of job cuts at the asset managers, and industrywide consolidation. those trends will continue. francine: apart from consolidation, is there anything else they have done or can do? >> consolidation is truly the biggest -- really, the only answer a lot of these guys are viewing. -- size is seen as the only way to combat these issues. that has been the trend for some time. if you are an asset manager and 500 million or less in assets and don't have a specialty, you will struggle to compete with blackrock -- 500 billion or less in assets, you will struggle -- assets and don't have a specialty, you will struggle to compete with blackrock, vanguard. larger managers can offer active and passive. francine: if you are not big or

niche, how do you survive? >> you may not. the future, we are very much looking at this. consolidation is going to continue. the smaller players will -- by some of the larger competitors and some may disappear. ultimately, they may have to cut costs. some of the issues they are grappling with our modernizing their operating models with data and technology, which will also lead to some cutting some underperforming business lines. yeah. francine: i think we have a viewer question. this is a great question. follow bloomberg surveillance, he is writing, how much will technology, so ai, big data, continue to push investors away from the classical active manager? >> it is something we looked into. it is still at the forefront. i mean, when you think about

alibaba already offering mutual funds on their platform. how long is it before your facebook or google coming in as well with the information they have and the technology? i think that is an important thing asset managers need to keep an eye out for. you have got your traditional players but then you have got these huge technology giants wouldyou know, majors play a lot of money when it comes to the information they have. technology and ai will very much continue to be used at the forefront. francine: thank you so much. suzy with this great story. it is something we have been starting to do more and more on bloomberg terminal. you go on the website and can have interactive, you look at vanguard and you kind of see the market cap and what they are worth and investing in. it is a really cool function. you can actually understand the whole industry a lot better. bloomberg's european hedge fund reporter. let's focus on europe's biggest economy on the global trade

storm. battering manufacturing in germany is about to reach the country's labor market. unemployment is no longer falling. workers endure the country's factory slump. it is the worst annual drop since 2009 in factory data. thyssenkrupp cut its factory outlook and says it is considering assets aisles -- asset sales. how much do you worry about the german economy, but also german economy and these kind of yields? we are seeing negative rates. that is not easy for banks. >> it is not easy for banks, no. there is a lot of things to touch on. suzy of all, to the point was making, i was looking at the weighted average yield and the european benchmark, it is three basis points. what is the average fee for a european government bond benchmark product? the asset managers are under pressure.

we worry about the german economy a lot. we worry about the spillovers out of manufacturing into the german domestic economy and therefore into the rest of europe. if you look at the exposure of germany, the to exposure to germany's domestic economy is about four times as large as the exposure to german exports. when we start to see the cracks we see right now, it sets off alarm bells for the outlook. , thinking about the banks is a chicken and egg problem. if the economy is not doing well, banks will be struggling because the loan demand will not be there, the loan quality will deteriorate, a respective of where the level of yields is -- irrespective of where the level of yields is. to the question of what we can actually do, with german 30 year yields now negative, digging

holes and filling them up again would actually do a lot. to the point about lack of investment by the private sector, while the private sector will not become triple investing in this condition -- will not be comfortable investing in this condition but someone will be. francine: there was a lot of questions about when christine lagarde took over about what she can do for government spending from the eu. will that work if it was limited? >> yes, it would. christine lagarde does not run the -- the problem is, at the moment, there is deficit fetishism in the german economy that seems reluctant to use fiscal policy as a way against the slowing on the manufacturing side. the question the investors have to ask themselves is, the degree of tolerance german politicians will have if they start to see the spillovers from the manufacturing sector, which is

25% of the german economy, into the broader services sector, 75% of the german economy. if you start to see that, i suspect that fetishism will start to be challenged and you will see pressure from the ecb and domestically to open the spending taps. >> lagarde is going to be achieving this great rebalancing between monetary and fiscal policy that draghi had no luck in doing himself. i am not sure why she ought to be more successful in doing that the draghi was. if you wanted her to do that, you should have given her the commission job and not the ecb job. the commission actually has some fiscal authority, the ecb does not. to the deficit fetish, i think it is a great word. the problem for investors is one of sequencing. you made that point quite clearly. it is a question of how big of a deterioration you are willing to tolerate before things change. from an investor perspective, you still have to trade that further deterioration before you

can start thinking about what the ultimate policy response is going to be a year down the line. the german finance minister was quite clear. he argued that at this point additional stimulus would be under helpful because it would only need to inflation. apart from the fact that we need inflation, it is a nonsensical statement. francine: both, thank you. strong words from both. simon french from panera gordon and our guest from merrill lynch stays with us. us. with after the fed's first rate cut in a decade, no fewer than three of asia's central banks have delivered more easing than expected this week. we will focus on emerging markets next. when will the ride-hailing companies turn a profit? yftwill discuss uber and l coming up shortly. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." i'm francine lacqua here in london. let's focus on central bank policy and what it means for investors in emerging markets. after the fed's first rate cut in a decade, no fewer than three of asia's central banks have delivered more easing than expected this week. india and new zealand both caught in a forecast for thailand defying expectations for holds. the philippines has joined in the action, cutting its key rate to 4.25%. still with us is simon french and our guest from merrill lynch. how difficult is it for the southeast asian economies to deal with the trade war and what's happening in terms of monetary policy? >> the dependence on the trade part of gdp is key here. u.s. and china are two of the least exposed in terms of a portion of gdp to trade.

i have said this throughout the trade conflict, which is an risk of becoming an economic old work, -- cold war, it is actually the third-party party countries not directly involved due to the spillover of sentiment, the rerouting of supply chains, that is the area where you see the largest amount of pain. a very rational amount of responses from central banks. francine: doesn't mean this will continue -- does it mean this will continue? who is most at risk in general, in terms of currencies or economies? >> in terms of whether it is a reend that will continue, the seems no prospect of an inflationary penalty. yes, you can see sustained path of interest rate decreases across a wide basket of central banks.

i think in terms of which country is the most exposed, i don't particularly like the idea of an emerging market basket. there is a series of idiosyncratic issues in particular economies. the one area i would highlight is, if this moves and i set at the top of the show, from one of barriers, non-tariffs and you start to see the relationships china and the u.s. have with other countries, if those start to be disrupted, those are the economies i would be most concerned about. you think about sri lanka, pakistan, areas that have perhaps got into bed with china in the last for years and u.s. tried to recalibrate that relationship -- the u.s. will try to recalibrate that relationship. francine: some people think setting monetary policy and the u.k. is not like doing it for emerging markets. what happens to gilts from now and the u.k., given it is -- in

the u.k., given it is bifurcation? i guess there are three options on the table left. again, you are faced with this extremely -- distribution of potential outcomes and you are exposed to everything else happening in the world. you have got that u.k. reacting very strongly to what's been happening in the rest of the world. i guest where we take a slightly different view is to argue that it is difficult to see how the aslt curve can slam as much other records -- rate curves. foresee it difficult to sustained easing. simon mentioned supply shocks earlier. brexit is obsolete not in the --

obviously not in the short run, but in the long run a massive supply shock. where the u.k. really stands out and a cross-country comparison is inflation expectations. it is the one economy where inflation expectations have d anchored to the upside. for that reason, i am not sure whether the bank of england will stimulate thether u.k. economy as much as the market is currently pricing in. we believe the guilt curve -- gilt curve will ultimately be made quite a lot steeper. francine: do you agree with that? >> absolutely spot on. economies,veloped they would love that inflation rate. it means consumer and business expectations are above 3%. there is a reason the mpc last week cap its hiking bias against itsctations -- kept hiking bias against expectations.

>> we use to keep worrying about the deficit implications of a corbyn government. given these spending pledges boards johnson is currently making -- boris johnson is currently making, maybe we should worry about the implications of a tory government. francine: we will have two hours on brexit with ralph and simon. ralph and simon french stay with us. lyft signals its price war with uber might be easing. we will get the latest on the battle of the ride-hailing apps, as uber is poised to post a huge loss. this is bloomberg. ♪

♪ francine: economics, finance, politics, this is "bloomberg surveillance." i'm francine lacqua here in london. the ride-hailing app lyft rallied in post market trading, reporting earnings that beat estimates. uber also got a bump after the better-than-expected bump. uber strategists are questioning whether it's numbers will be met with the same enthusiasm. lyft's loss for the quarter was less than expected. that gets to the core question, can they burn rates start to

fall as they start to raise prices? lyft set the burn rate people last year. for the third quarter, analyst see operating profit loss of ,77 million dollars for lyft and for uber, nearly $5 billion. fundamental questions about the business model. for that reason, we are seeing options pricing in fireworks for the trading session after these companies report earnings. options are pricing in an 11% swing for uber and lyft. for the average russell 1000 company, it is 7.8. definitely a rich premium priced in their for the pop -- there for the volatility of prices. ratio. uber's put call in the green means there are more bearish options open

interest than bullish once. we get a lot of hedging going on. it is remarkable how you see it pick up just as they are starting to head into the report today. it really shows us that today's report from uber, eliza -- a lot is riding on this. francine: dani burger with everything you need to know. the name of the chart, buckle up. let's get more with simon french. this has a director read across into all of your research and the way we measure things -- direct read across into all of your research and the way we measure things. >> great piece. what the evolution going on here with those business models is we have been focusing on customer growth throughout the ipo phase and in the last 12 months. we are going to start to focus in, we must start focusing on consumer stickiness. what price elasticity is there in these business models? is there a scenario where the

expectation of price increases will see fickle customers that will move to different platforms. the margins you are hoping will help stem losses and moved to profitability. there is a lot of skepticism. one a platform starts to increase its margins, customers are incredibly -- when a platform starts to increase its margins, customers are incredibly promiscuous. francine: simon french, chief economist at pan year gordon -- panmure gordon. we will be talking to the chief executive of rio tenter later on -- rio tinto later on. this is bloomberg. ♪

♪ francine: fixing it. climbs as china sets

its daily fixing stronger-than-expected. no yield is too low. 30 year treasury yields test record lows and pimco imagines a world where negative yields reach the u.s. -- warninging of a that the sportswear giant -- adidas warning. the sportswear giant says the trade war will hurt all. good morning if you are watching from asia. this is "bloomberg surveillance." yields, yields, yields is all anything is watching -- anyone is watching. tom: i think you are dead on about it is a yield morning. it is thursday and almost a normal day. we are on the edge of stability here and actually talking other stories. there is still this huge yield shock. even the austrian 100 year bond has given a pause in its price appreciation. francine: we will spend a lot of time looking at that.

you are looking at the u.s. 30 year. switzerland is one we spent a little bit of time on. let's get straight to the bloomberg first word news in new york city. >> there are signs of recovery in chinese trade just-in-time for new tariffs from the u.s.. last month, export growth rebounded, import growth shrink. the trade surplus with the u.s. rising 11%. president donald trump says next month, the u.s. will impose a new 10% tariff on an extra $300 billion of chinese exports. china rejecting the one demanded that could ease protests in hong kong. beijing refused an independent inquiry into the unrest. that is one of the few protester requests with support from business leaders and others, who usually back the government. saudi arabia is looking at ways to stop the seven month long slide in oil prices. a saudi official says the kingdom called other oil producers to discuss options.

the saudi's have already cut production more than required under the deal between opec and its allies. there is a potentially big deal as the cybersecurity industry -- at the cybersecurity industry. broadcom is near agreement to buy a unit of symantec's, which serves large corporate customers. the price? largely -- roughly $10 billion in cash. broadcom's attempt to buy all of symantec failing. global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine, tom? tom: thank you so much. equities bonds, currencies, commodities, let's get right to it. interesting charts framing where we are on a tumultuous week. futures continue to advance. who knows where that will be. curve steepening, 8, 9 basis points, seven basis points yesterday. we have some steepening in the 2s/10s.

[audio drop] tom: -- a little bit higher yield. bi, 0.74.r and renim francine: i have a similar data check to yours. i will get to italian bonds in a second. we have not showed it yet, with salvini same time is running out on the italian government. european stocks edging up a little bit. gold fluctuating to a six-year high. i want to show the vix index. 7.0422. was fixed at tom: i saw this in my head and said, what's it really look like? this is the best mathematics on the dollar. it is the bloomberg dollar

index. it is an exclusive like to do. what is stunning here is the dollar right now, even with the recent rally, this is what the president has been screaming about, guess what? we are back to 2015. the dollar is incredibly range bound over the last four years. i did not know that. francine: it is a great chart. we were looking at it yesterday before i went home. it is a great chart that you brought on air. i have a more vanilla chart, tom. vanilla chart is one people are watching to see whether the 2s/10s curve really means something. if you look at the recent deflationary trade, one from 21 in justints to 12 the last four weeks. we will have plenty on that. 30 year treasury yield in the u.s. approaching a record low. this is fixed income giant says

it u.s. treasury yields may eventually go negative. we are talking about pimco. at least 11 countries now have a -10 year yields. negative -- have a negative 10 year yields. joining us is nicola mai. what would it take for the u.s. to see negative yields? what would be the ripple effects? i think negative yields are possible, as we have been mentioning. it would take a recession. if we go into recession, the federal respond by hitting rates -- cutting rates and hitting the zero lower bound. the lack of inflation and nominal growth in the long-term means -- and the unconventional measures like quantity of easing and so on -- quantitative easing and someone could lead to a 10 year yield that is zero or negative. tom: very important discussion

and a number of different takes from jp morgan, from hsbc, and from pimco. let's listen to your colleague. here he is yesterday. >> what would it take for negative yields to happen in the u.s.? probably not around the corner, but i think what it would take is a serious downturn in the economy, a recession, in which the fed will take the rates all the way down to zero. we will restart q. week. q.e.ink at that -- at that stage, we would see negative yields in the u.s.. tom: there is always nuance and what he writes -- in what he writes. he talks about central banks. aswill allude to the ecb a villains or victims. there are technological shifts and demographic shifts these banks have to do with. as president lagarde a villain -- is president lagarde a

villain or will she be a victim? >> i think she will very much represent continuation. she has a mindset that is oriented towards easing. all the comments she made while being head of the imf were along the lines of need for policy accommodation to support growth and inflation. technology,oned, globalization are factors that are here to stay. they are factors that are raising the desire to save. as a result, they are depressing the equilibrium level of interest rates. i think easing is the name of the game. francine: what, when you look at the 2s/10s price, some of the inverted yield curve, in general, is it impending recession or impending something ugly? or do you not believe that? nicola: we don't place excessive emphasis on the yield curve as a sign of recession possibility at this point. it has been very rival in the

past -- very reliable in the past, so we should not dismiss it. there are reasons to think that this time is different. the quantitative easing, forward guidance, liquidity operations of the central banks have led to term premium becoming particularly compressed. the risk of recession is rising. francine: the risk of recession is rising because people are not investing? is that the real concern, apart from trade and the more mechanical consequence? isn't that people stopped investing? -- is it that people stopped investing? nicola: to be fair, the traditional recession drivers, which have been excessive inflation are not really present in the u.s. i would say that actually the main risk is geopolitical and manufacturing. if you look at the u.s. numbers, they are generally speaking ok. 10% of the economy which is manufacturing is in recessionary

territory. the issue is that the longer this stays in recessionary territory, the higher the risk that this broadens into the economy. you are seeing some signs of the labor market starting to reflect that. tom: a question i can ask you because represent an asset management company and not a bank. what do the banks do with this new yield structure, particularly, what do the banks of europe do? nicola: well, i think this is a challenge for bank stability. bank's profitability. part of the central bank intention is to push banks to take more risk, so taking on more in terms of risk assets, carry trades. in the case of european banks, to purchase more sovereign bonds which have more spread. that is all part of the game plan of the banks. the other part of the game plan is obviously to do more lending to households and corporates.

i think that has happened but to a more limited extent, partly because of the risks the banks feel when it comes to lending in an economy that looks fairly fragile. tom: there a good. let us continue -- very good. let us continue this morning. we have much more to talk about. some markets is -- some market stability here, even though the filipina central bank cut interest rates. they want to be preemptive. the cohead of global bonds at janice anderson in the 8:00 our. -- hour. ♪

♪ tom: "bloomberg surveillance." good morning, everyone. francine lacqua in london. i am tom keene new york.

let's drive forward the conversation. with us, as well as nicola mai of pimco. thrilled you are with us. i want to cut right to the chase. we had a dollar index chart of the blended dollar not moving all that much over the last couple days. nowt an opportunistic time to be speculated in foreign-exchange? >> depends on what you are speculating against, i would think. regarding the dollar itself, probably not. we have got a couple of weeks until it becomes clear what donald trump is or is not going to do. markets are in the position of -- basically with the chinese latest moves, markets are betting the fed will cut rates in september. i think that's probably a reasonable probability. probably looking forward than to another rate cut in december thereabouts. what we have got to see now is a -- data from the

u.s. side, whether we see a deterioration in data as we see everywhere else. tom: as a strategist, how do you take the em rate cuts we have? stephanie flanders joining us in the next hour. in philippines, thailand with their rate cuts? peter: the fed has given it a lot of the emerging markets the green light to cut rates. you have had india, turkey and number of weeks ago. central bank -- a number of weeks ago. central bank likely to cut again. what you are likely to see is the emerging markets cut rates trying to get ahead of the curve. it is a very broad and nearly quarter need monetary global coordinatede --

monetary global easing. the fed is going to get there. francine: if you have this global easing, the fed was kind of on the fence. the communication was left to be desired. peter: the communication has been weird, certainly when you saw powell speaking in the press conference. backtracking from certain things he said. it warrants further rate cuts from the fed. you have on inverted yield curve. manufacturing sector is basically flat. there are good reasons for the fed to cut rates further. nicola: i would say we expect another cut by the fed in september and possibly more afterwards. commentsay powell's reflect a desire to keep his options open and partly a divided board, in that some people probably want zero in terms of cuts and some people wanted 50 basis points.

he tried to balance this out. in light of the recent trade tensions resuming, i think it is very likely the fed will cut in september. francine: cuts, but cut with conviction or cut because everyone else's easing -- else is using? -- easing? nicola: i think some of it is insurance. growth remains ok for now but it is slowing. manufacturing is in recession. in the labor market, if you look at hours worked on a six month annualized basis, they are not following. that is -- falling. that is a development you have only seen in recessions in the past. there are several risks looming. i think the fed wants to get ahead of them. tom: i want to bring up a chart which has been tangential to the discussion but i think we can full it in right here. i showed this chart yesterday. i want to zoom in on the real bloomberg commodity index, which is an absolute train wreck worldwide.

dennis gartman today in his morning note goes directly to the united states trade affliction and his criticism of the president's anti-free trade. can you do that? can you link the commodity slowdown directly back to trump mercantilist policy? nicola: i think you can to some extent, and that i think the weakness in oil and other commodities is due to the global slowdown. you have weak global demand, particularly week chinese demand. i think it is hard to say that the manufacturing slowdown we are having is not related to the trade war. in fact, i would say the start of the trade war is one the manufacturing cycle started to turn south. i think you could link it, yes. tom: very good. we will continue this discussion. calm now.st too francine: is it? if you have yields going like

this, i don't know that it is calm. tom: at is calm in our land of negative interest rates. much more coming. and a lot of great conversation on surveillance and on bloomberg today. it is london. it is beautiful. ♪

♪ francine: this is -- >> this is "bloomberg surveillance." let's get the bloomberg business flash. hedge funds are the most bearish 2016.

according to morgan stanley, they are stepping up bets against the markets, limiting long positions to a shrinking group of companies. software and biotech shares are the most common and financial stocks are liked the least. the syncrude cutting its -- thyssenkrupp cutting its profit outlook. nicole dahmer it -- the conglomerate is deeper in a crisis. shares have fallen in half in the last year. samsung unveiled its latest challenger to the iphone. 2e galaxy note 10 comes in sizes and is equipped with a stylus. they hope it will help it maintain its lead over apple. samsung is hoping to ward off china's huawei, which has been cutting into market share. that is the bloomberg business flash. francine: second-quarter results expected,etter than but the company still forecasting a net loss this year. it says higher fares may help it from the shortfall. uber will be releasing earnings

later today. both companies seeing a bump in premarket trading. joining us as the bloomberg intelligence senior media and technology analyst. still with us is nicola mai from pimco and peter kinsella from union bancaire privee. i guess the concern is that the ride-hailing apps are losing money. to stop losing money, they have to hide fares, but then they are not -- hike fares, but then they are not attractive anymore. >> in most markets, particularly u.s., it is -- really. i think they are both pushing fares up. we saw an intense composition between -- competition between the two. that has eased. they have both -- if they both push prices up, there are not so many options for customers to take. it can help both of them. francine: what are we expecting from uber? if we look at uber and lyft, who

is doing better? >> lyft is just a u.s. business while uber is broader. it is hard to compare. people are looking at a similar kind of evolution from uber. they are both heavily lossmaking. uber has a negative contribution margin. people are looking to make some money from the business model. tom: let's look at the dance of the unicorns. what aow, uber and lyft, joy this has been. color down from 72 south and uber with a recent rollover. as you mentioned, profitability, they will enjoy 18 months out some sort of ebitda loss modeled at 4.1 billion u.s. dollars. on a ride basis, every ride they are losing money, right? >> that's right. some of that is driven by then

chasing drivers and customers -- them chasing drivers and customers. i see a more rational market environment to make some money. francine: i would say -- tom: i would say anecdotally, a cheap ride in new york is cheaper than a new york city taxicab with the taxes and all in new york city. what do they do here? are they going to finally move price higher? is it a vector out 5, 6, 7 years where they become like comcast and make money? what is the grand plan to develop the first dollar of profit? >> i think the grand plan is certainly moving pricing up. i think they need to remain competitive in the eyes of the customer. for uber, it is about leveraging the platform beyond just ridesharing into uber eats. they are both pushing into scooters and bikes, and freight. it is really leveraging that platform across a much broader range of services so you get

that leverage which allows you to make some profit. francine: there you go. matthew, thank you so much. we will be back with nicola mai from pimco and peter kinsella from union bancaire privee. lyft has not arrived in the u.k. yet. i don't know if that is a barrier to entry are anything like that. tom: we will see. you really don't know where this is heading. it has become an addiction, certainly here in new york. coming up, bloomberg daybreak on the equity markets and an update from someone from goldman sachs. worldwide, this is bloomberg. ♪ from the couldn't be prouders

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i get a lot of voices in my head. this is not about the markets, though we need to spend time on the markets and talk about brexit. tom: spectacular thunder and lightning last night from washington through new york. it was tremendous, the amount of thunder last night. in london, all is calm. gethe idea that labour will in a taxicab and see her majesty queen elizabeth when boris is thrown out of the government, is this just august? what is going on in london and brexit? francine: usually in august, people take time off. parliament is not sitting. boris johnson is zigzagging the

country to talk about some of the things he has implemented, extra money for nhs and things like that. a lot of speculation he is in campaign mode. quicklyying to get in so people see what he has done in the two to three weeks he has been in power. the main question is whether he calls an election before or after brexit. tom: peter kinsella with us. help me with sterling. it is not taking part in the madness of the last three days. should we look for ever weaker sterling? peter: the madness and sterling for the last number of months, it just took a break. regarding where we are going, it is likely we are going to move to a general election.

i would imagine it happens after rather than before brexit. there is more pain for sterling. for cable, we can get the levels to 1.18, 1.17. we will have to see how the results are. weeks, next four to five no reason to buy the pound. tom: is the debt in the united kingdom an opportunity, a higher yield than on the continent? nicola: a lot of bad news is priced in, so why would expect an election -- i would expect an election to take place. i think a chaotic exit on the 31st of october will be avoided. i think there will be an extension and we end up with a hard brexit the path ahead is pretty volatile. i would say gilt is pricing in a lot of this news. francine: the concern i keep on

hearing inventory headquarters is if they do not deliver brexit , boris johnson has a bigger chance of not elected. nicola: boris johnson has taken an aggressive stance. he said out october 31 no matter what and we need to change the withdrawal agreement. i do not see the e.u. caving anytime soon. voterough a no-confidence or his deliberate action, we will go to elections as we approach the cliff edge time. francine: nicola mai and peter kinsella, thank you. viviana: the trump administration is rushing to of 300 billionst dollars of chinese products facing new tariffs. american companies are making last ditch appeals to scrap the

tariffs or drop items they import. the national rifle association warning president trump against expanded background checks for gun purchasers. the cf -- the ceo calling the president after the mass shootings. an members comprise important part of his political base. --italy, matteo cell vini as theini is ratcheting up pressure on his coalition partners. dissolve thede to partnership. billionaire leslie wexner says epstein. by jeffrey he accuses epstein of misappropriating vast sums of money from him and his family.

epstein is facing charges of sex trafficking. wexner says he was in the dark about the alleged wrongdoing. 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 viviana hurtado. this is bloomberg. francine: let's go back to one of our top stories, the yuan is rising after set higher than expected. the reference rate was set at weaker than seven per dollar, the first time since 2008. it is hitting the lowest level since 2015. enda curran joins us. the market seems to be a little more comfortable about what we have seen so far. is it just because they think pboc is looking for stability and so it does not matter the level as long as pboc is sitting for?

enda: that seems to be the takeaway. cost the seven threshold -- past the seven threshold and reinforces the idea that china's currency is weakening. the key takeaway was that the fix was not as weak as some anticipated, and that is the signal the markets are taking. at a gradual but and steady pace, that is the message officials have been preaching over recent weeks. they are not actively devaluing this. the question becomes how far they will allow it to weaken. watching are we over the yuan fixing level or is that scene is a firing shot? enda: it was a key level.

after that, you got into the different camps. it is a psychological level, a decade low. economic who argue fundamentals merit a weaker currency and china is allowing the market to push the currency where they wanted to go. others say it is an opening warning shot and what will become something of a currency war with the u.s. we will not know for the yuan iss where going to go and it depends on how the trade talks go. tom: what is the power that washington and beijing have right now? what is their power? enda: pretty powerful. it is a controlled economy and society and there has been

consolidation of power, including economic management. the government has a tight grip on the currency and capital controls. these are levers they will not let go of in a hurry so there is a degree of uncertainty how far they can let the currency to weaken. tom: with the doom and gloom now, can they turn off this picket of exports -- the spigot of exports and designate that the country has to move manufacturing to vietnam? do they have a domestic power to shift the dialogue? enda: they have control over their domestic economy, no doubt about it. absolutely they can take orders. some of the biggest variables facing china's economy are the external ones, how the u.s. chooses to play the trade war,

the rest of the global economy which is a driver of demand for china's exports. domestically, they are in control but there are plenty of variables outside of their control that are external. francine: thank you, enda curran. we are getting breaking news out of carlsberg, raising their 2019 earnings outlook. they see that outlook is a high single digit percentage growth in terms of organic operating profit. that is leading off the gains of some of their rivals. we will have plenty more on what that could mean for the world economy. makers sometimes used as a bellwether for growth. this is bloomberg. ♪

♪ viviana: this is bloomberg "surveillance." lyft is signaling and easing in the price war with uber. higher fares will help shrink losses for the year. second quarter revenue was better than expected. tiffanyry jewelry chain is teaming up with asia's venture 20 to form a stores in new delhi and mumbai. that is the bloomberg business flash. tom: i will pick it up. we have an em insight. francine and i were talking about what to do. can you bring up that wall we

made in london? this is great. em, but a mix of asia banks adapting and adjusting. the philippines this morning with a huge success to the philippine economy over the year. a chart giving you em. with us, nicole my and peter kinsella. -- nicola mai and peter kinsella. em.s oblivious to is that ok or does he need to focus on what we see from the banks? nicola: president is focused on his political strategy and -- president trump is focused on his political strategy and trade war.

he is looking for political support from the republicans. the side effects of the, he is willing to tolerate. -- that, he is willing to tolerate. tom: this is the jp morgan emerging-market index. em currencies have rolled over to last year's weakness. do we care about is subcategory of em fx or do we need to look at the majors? peter: you look at the majors. the em index will trade is a derivative of the majors. it is not something i have been looking at closely. the philippines does not matter in the greater scheme. what india is doing with the rate cutting cycle and the other em's, we are likely to see a bit more rupee weakness. in a broad sense, we are seeing

more em weakness but it is rather gradual, not massive like in 2013 and 2014. francine: we have a great story on the terminal that says trump keeps obstinately -- accidentally igniting the trade war. does he have to choose? nicola: not necessarily. trade war creates a risk off environment which the dollar tends to benefit, which is partly why he is pressuring the fed to keep cutting. at the moment, i don't think he has to make such a clear choice. the central bank that has the most room to cut remains the fed in terms of space to cut. if he pushes the trade war come up the economy will remain weak, the risks well be high -- will

be high. francine: tom had a great chart. who is going to have the toughest time to defend itself in that region, in southeast asia? say probably the indians because the real rate profile will not be high enough if we see a risk off environment, that they have done enough cushion to whether an em -- weather em storm. the base case would be for gradual em weakness in southeast asia. tom: go back to the map. as we go to break, the great untold story is what is not on that map, the em economy of japan and speculation of what level the japanese intervene into the economy with their

stronger japanese yen, sort of part of this do. -- the stew. i love the graphics. in new york, we use crayola. in london, it is gorgeous. this is bloomberg. ♪

♪ "surveillance," francine lacqua on queen victoria street, tom keene on lexington and fifth in new york. a bombshell at the dalit he months ago about -- fidelity months ago about -- we have a jewel in the bloomberg. if you are part of global wall street or buy side, this is the most read of august. wait joins us. definitiveions on a -- to this disaster. templeton,, sir john

and bill miller. then you have bill gross at these these -- pimco, guys are fossils. the heart of the matter is will dan off in the middle of your asset outflows, that is a state of asset and, isn't it? >> it is. -- asset management, isn't it? >> it is. the days of active management are under pressure and may have a time limit. active managers have been charging too much for subpar performance for too long and the shift into passive has been going on for some time. tom: one does the great roll up occur?

you are european buy side, this article is more important for you. when do we see the great roll up? >> that is the trillion dollar question. i think it is ongoing. we will see more consolidation and smaller players will be absorbed by larger competitors, and some will not survive. it is becoming darwinism. francine: shout out for the graphics. it takes a certain vintage. maybe millennials appreciate more than others of a different generation. it is good to look at how much they manage their market cap and how much it has changed. whatur niche is working, happens to the ones in between? >> they are taking a hard look at their options. if you are an active manager

with 500 billion or less in assets and do not have a specialty, it is going to be hard to compete with like rock and vanguard. -- blackrock and vanguard. talks with ubs broke down, and henderson andanus standard life aberdeen. francine: will people go under? our firm's not going to survive this? suzy: this is very much the survival of the fittest and not everyone can survive. if you are under a certain level of asset, you need to take a hard look at your options. tom: go back, if you would -- i get it, the graphics are great, not as good as the em wall we

just did but i will give it a five. act of wall and index wall -- active wall and index wall, you can see the difference. we will speak with nicola mai. speak for theo butor management of pimco, speak from a cfa standpoint about the idea that active is waiting for a great fair market -- bear market to justify their performance given passive. active cannot wait for the great bear market to right size these lows, can they? nicola: no, but i would say something about active management and fixed income. we have done studied -- studies and analysis, and in fixed income a lot of investors make decisions that are not purely economic but based on

regulation, internal risk management. i am talking about insurance companies and pension funds. you can use those inefficiencies to systematically make money. time that thever offer has been excessive fees. tom: the distinction between fixed income active and equity active, i remember when equity active went to a less diversified approach. will we see bond portfolios move to a less diversified, more focused approach? nicola: i think in terms of bonds, it is important to diversify at this stage. it is important to invest in the traditional core fixed income,

and also alternative investments in more illiquid products should be an option. francine: we need to talk about a lan technology. to nicola mai and peter kinsella. and then next hour, we speak with steven wieting. calmarkets, a more of a landscape compared to yesterday after the yuan fixing. we will talk china and italy, with yields on the move. this is bloomberg. ♪

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♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. ♪ tom: this morning, there are elements of stability within the market.

yield and em central-bank rate cuts signal economic slowdown. we consider the 20 of european banking. tit-for-tat. beijing,dent awaits president xi, awaits washington. surprise, lyft lifts. profits are somewhere out there beneath the pale moonlight. good morning, everyone, this is bloomberg "surveillance." in london,now lyft do you? francine: i don't. i am not sure if your story -- your voice was breaking or you were going to break down into dance and song. i wonder if it will ever come to london, lyft, but there are

questions about pricing. they will have to hike prices and that is compared to the old taxis. tom: fund that we are talking about something besides market hysteria -- fun that we are talking about something besides market hysteria. francine: we will get back to yields. tom: here is viviana hurtado. viviana: signs of recovery in chinese trade just in time for new tariffs from the u.s. export growth rebounded. the trade surplus with the u.s. rising 11%. imposesays the u.s. will a 10% tariff on 300 billion dollars of chinese exports. china rejecting the one demand that could ease protests in hong kong, refusing an independent inquiry into the unrest.

saudi arabia is looking at ways to halt the seven-month long slide in oil prices. the kingdom phoned other oil producers to discuss oil production. the saudis have cut production more than required under its deal with opec and allies. broadcom is near agreement to buy a symantec unit that serves corporate customers. the price, nearly $10 billion in cash. 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 viviana hurtado. this is bloomberg. tom: quickly through the data, monday,teria than tuesday, wednesday, futures up 10, curve steepening. a little bit of a more rational

vanilla curve. , oil with a bounce. 14.vix playing and not renminbi because francine made me do it. francine: i am so glad we are doing it twice because that is probably the only thing people want to know. the stability on the market after china's daily fixing of its currency, that eased fears of a worsening trade conflict. vix isn stocks up in the down 1.3%. tom: i ran chart out this morning. i did not expect how the dollar has not moved. this is the bloomberg dollar index, up we go 2014.

it is amazing how on a blended basis, how dollar has been remarkably stable for four years. francine: i love the fact that we have a little bit of sound when we have a bloomberg break-s clusive. -- recentsent deflationary trade. tom: he is head of investment strategy at citi private bank. economics, and he is absolutely definitive in looking at profit and corporate performance into the greater scheme of economics and what it means for putting capital, steven wieting joins us today. how the earnings season looks, up the income statement, how is profit?

steven: the second quarter is backward looking. it did everything we expected it to do. at will come in at a 3% year-to-year decline. low until weays be -- tom: go forward 90 days. steven: it embedded large eps declines in the commodity sector for the first half of the year. the oil price has been dropping since april and that will not be a good year for commodities. we willnd that drag, have modest eps growth. the question is if we have big trade shock. if it is status quo, we will grow earnings. tom: we will do central banks with stephanie flanders later in the hour. i have got to go right now to the parlor game of gaming your

economics after we cem currencies cut rates. does that change the citigroup view of what jerome powell will do? steven: it is a consequence of what jerome powell has done. what the u.s. has not counted on as if the federal reserve uses monetary policy, it becomes easier for policy to ease monetary policy, and easier for ems around the world. covering how much the stock market has declined, 7% drop from the claw -- top, but the decline in bond yields has been impressive. some have had a price jump in a month. ems, all else constant. the question is how much this is forward-looking deterioration in

economic activity and that depends on the trade war. francine: how does president trump view dollar strength? we know he does not want dollar strength, but if he escalated the trade war the dollar becomes a haven. steven: that is not necessarily the bad thing. again,u have heard is lots of dissatisfaction with u.s. dollar strength. if you are going to some way or the other cut the american trade deficit, if that is what happens , and there is less requirement for savings inflows from the rest of the world, that policy strengthens the u.s. dollar. francine: what does that mean for the fed? steven: it depends on what their goal is. francine: does the fed cut more on the back of it? steven: you heard from jerome powell that they are takers when

it comes to trade policy, if there is a greater uncertainty and the outlook for financial markets, then we will see more rate cuts. tom: what do your clients say? what is the level of sweat? steven: a good deal of investors, private investors at the beginning of the year -- tom: your minimum account is what, $1000? steven: more than that. there was a lot of caution throughout the year. a lot of people did not take the opportunity to buy equities when we were off 20% in the fourth quarter. we raised our allocations to equities and credit markets and started to err on the side of caution early. tom: is this december? steven: this is not december.

the level of vulnerability in financial markets is less. the relative value of bonds is falling on these tremendous yield declines in the relative value of stocks is improving. there are significant risks. we have erred on the side of caution, underweight equities .nd overweight u.s. bonds tom: we will continue that dialogue. davidwestin dragging in kostin of goldman sachs. tokostin wieting across equity markets. this is bloomberg. ♪

viviana: this is bloomberg "surveillance." these in group cut -- decent group cutting its outlook. germany slowdown pushing the industrial conglomerate deeper into a crisis. they will go ahead with plans to list their elevator unit. shares have fallen in have last year. uber responding to ray crack -- theydutch crackdown created a $1.6 billion dutch tax deduction to help the company reduce its global tax bill for years to come. that will be a cushion should uber ever turn a profit. much.hank you so dayive in on a more quiet

with steven wieting of citigroup, with ira jersey of bloomberg intelligence. you are looking at all this esoteric stuff i don't understand. explain to me what you observe in the esoteric short-term market now. ira: we put out a piece yesterday looking at libor. one of the things that has gone on as even though short-term interest rates have come down, the market expectations for the spreadto cut, the between the fed funds expectation market and libor, usually we look at your dollar futures, that has widened. people who have used the euro-dollar futures market to bet the fed would lower rates for to five times are right, except the spread widened because of rising concerns over particularly of the

banks in london that set libor. tom: it means economic contraction and slowdown is filtering in. spread, thehe 2-10 difference between the two-year and the 10 year. we were down here 24 hours ago and we bounced up a little bit, but there has been a curve flattening in the last number of days. any number of guests tell us this is not a good indicator of recession. do you agree? ira: at is not a good indicator, but it has to worry the fed and market disappearance. it is telling you the market inks interest rates will remain at these levels for an extended time, and a sign of increased uncertainty. the last time we were near these levels was december when the markets were down a lot,

equities were slipping sharply, and we priced out federal reserve hikes. now we are pricing in additional fed cuts and interest rates to remain low for a decade, that is what the 2-10 spread is telling us. francine: if this is not a good indication, what is? the absolute level of 10 year yields is telling you that the market is expecting global lower to be significantly than what the economist consensus expectation is. rate is al lower better indicator than the 2-10 spread. ,uring the next easing cycle you will not get the type of normal steepening of the yield curve. the reason is as we approach the

lower bound, the threat of the federal reserve doing large-scale asset purchases will increase. it will be hard for the long end of the treasury curve to selloff significantly, even with easier monetary policy. francine: what do you look at? steven: a lot of things have been covered. quantitative easing during the last cycle, when we did large-scale asset purchases of treasuries and bonds, the yield curve did steepen. it was transmitted through easier financial conditions in other asset classes. last year you saw as the fed , and we did see treasury yields rise and other risk assets fall. that is one of the rare cases where yields could rise amid

weaker asset prices. the thing we see in the 2-year note is the federal reserve is reactive. the long end of the yield curve, i hate saying it is the rest of the world because this is a legitimate concern, but -60 basis points. tom: was any of this in the textbooks? steven: negative interest rates, not inhuman in's debt history -- not in human history. eagerly jersey, we await your next home on libor. thank you so much. killing it on fed day. coming up, we drive forward the conversation, what do you do in the markets? this is bloomberg. stay with us. ♪

♪ the much bigger impact the current economic war has is the fluctuation of the fomc and the chinese currency. the moment you start having a weaker rmb, this will hurt all regions and countries and it is an illusion to think this will be a win lose scenario. when you look upon the macros, the currency war is much more severe with bigger consequences

than the tariffs. francine: that was the adidas chief executive after their profit estimates, squeezed by lower pricing and trade costs. with more, steven wieting from citi private bank is still with us. there are some things they cannot control but they can control the supply chain to soften the blow. how many companies will try and move around their supply chain? steven: the fact that we are collecting a much higher tariff level, when you look at customs duties in the united states, shows how difficult it is to resource things that are not commodities, that are not highly simple types of products that are easily moved from place to place. there is some supply-chain flexibility and a good deal of it is moving from asia to other

countries in the region, but there is not short-term flexibility in terms of supply chains. if there are export bands, there can be -- bans, there can be huge disruptions. francine: where you find value, is there a worry they focus too much about giving back to investors instead of reinvesting? will that be a problem? steven: what we have seen in the united states is domestic investment accelerated sharp way on tax -- sharply on tax cuts. after the trade war that has been slowing. it has been slowing with the drop in business confidence we have been seeing, linked to the trade war. tom: we talk about adidas. i love my sneakers.

commodities, you mentioned it earlier, commodities ourselves. is it -- our south. -- are self. -- south. steven: you can have a risk off trade and everything in the world moves. you can surgically look at particular companies, u.s. firms that have 20% revenue earned in china, have this supply-chain issue, but the turmoil around this has such pervasive effects across financial markets, interest rates, currencies, commodities. commodities are being used as macro tools by investors in that divorces them some. tom: the critical question -- is it a leveraged macro tool? we got in trouble in 2006 and 2007 from leverage.

as the commodities space a leveraged space? steven: this is difficult to measure in terms of things like the options. the amount of actual leverage related to commodity investments , i don't think you would easily measure that is a big problem. we can talk about leverage in certain areas but that would not be on the top of my list. tom: who is running these graphics today? futures to four digits, this is going to bring tears to my eyes. the bloomberg commodity index which has been cratering, what have we got, a bunch of interns who know what they are doing? francine: tom is so emotional. are we going to see a correction? steven: and the commodities markets? francine: in general. steven: what is important is you

have seen this move in the chinese currency. interestingly enough, it has moved about 12% lower against the u.s. dollar while the is equal aboutd 12% of chinese exports. this has been more or less in lockstep. we have had the move weaker in the chinese currency and the markets are thinking of it in 2015 style. we have caution in equity markets and we could see some more. francine: we will be back. we will have an exclusive interview on asset allocation. ♪

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have seen before. trumpa: the administration is rushing to find allies a list of 300 billion dollars -- finalize a list of $300 billion in products that will receive tariffs. american companies are seeking to scrap the tariffs or drop items they import from the list. the national rifle association morning president trump against expanded backup trucks -- checks. -- over tont calling it away where the deputy prime minister is ratcheting up the pressure on the coalition government. he wants his five-star partners to yield to his policy demands, or he could dissolve the power-sharing agreement with the league party.

they want deep tax cuts and more investment. wexleraire jeffrey accuses jeffrey epstein of misappropriating vast sums of money from him and his family. epstein is in jail. wexner says he was in the dark about epstein's alleged wrongdoing. 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 viviana hurtado. this is bloomberg. francine: thank you so much. let's get back to one of our top stories, but tit-for-tat trade largesteen the two economies. joining us is derek wallbank. i don't know if he did this to get jay powell to move or if he wants to strike a

better deal with china, but he is going for a trade war and the dollar is strengthening at the margins. how does he match those up? derek: that is a really interesting dilemma, because this trade war is something he has seen as a real priority for long time. you have heard all that noise in recent days about the way too strong dollar in the president's mind. there was some thought the president might officially put the dollar on a weakening sense. there is this idea that the president cannot have it both ways, and now we do not know which he would like more. one of the problems he is facing is economies around the world, to deal with the trade war, are taking actions weakening their currencies and you see the

dollar quite strong. no matter what the president does, it seems the strong dollar is very resilient. francine: do we know whether the trump administration still wants to sit down with china to de-escalate this or are they happy with the status quo? derek: verbally, yes, they would like to sit down. we still hear those noises, happy talk is still around. it is hard to see where this offramp is, where these ideas where you can start removing tensions. there is none of those venues necessarily available. this president has not been going through the usual motion. intro, the in the white house aides are scrambling to put together a list of what these 300 billion dollars worth

of products will be. it is not drawn up now. the universe for this stuff is kind of defined, so the real question is not what is going to be on, but what is going to be off that list, but will get excluded. september 1 is coming and that is the time when these tariffs are supposed to escalate. tom: thank you so much. this is an exceptional tweet. truly wieting with us, one of our best at financial economics. he is joined by stephanie flanders, bloomberg head of economics. i am so tempted to do and all brexit block because the labour two thell take the cap queen and we cannot go there

because we have fascinating central bank dynamics. em em wagging that to -- is wagging the tail? stephanie: we are still in a world where the fed has had a pretty significant route change over the last fear months. expectations for the year have changed the prediction as is money -- for as many as three more cuts. it is interesting what the r.b.i. did yesterday. they went further than people expected. probably only australia feels it has already had a few cuts this year and does not have to follow in lockstep with the fed, but others need to be on the safe side. tom: i first met you at j.p. morgan.

you have a storied career in british journalism and then off to j.p. morgan asset management. what are they doing behind those doors now? what you do with this bond market if you are an asset and intimate or commercial -- management or commercial banking? stephanie: at got worse and worse, looking at march tricks -- markets by any metrics. any time we had this conversation about the bond arc market,ould not say -- we would not say this is a market to get your grandmother into and yet she may make money. there is calls for how the extreme levels that the 30 year and others have gone to, and the negative yields all over the world, you see it like could this be the turning point?

bet against that in the last few years have lost money. francine: don't bring in italian grandmother's because they know a thing or two about central banks. from centraleeing banks, what we see a plaza accord or some sort of stimulus? on their own they will not be powerful enough. stephanie: all the years after the crisis we were predicting a currency war and it never got to the extreme. countries were counting too much on depreciation. weakcb was counting on currency to do its work. importing demand from the rest of the world and trying to import inflation, we cannot win that game. the environment is different now because you are not just battling low-inflation.

you are battling concerns around the trade war and the weaponization of trade. i don't think that lends itself to easy exchange rate agreements , even if they were possible. tom: francine brought up something in the zeitgeist which is moving forward from the plaza accord of ages ago. everyone is too young to remember the plaza accord, its failure, and then the louvre accord. people are talking about a mar-a-lago accord. how far are we from currency war? steven: that is not cooperation. this is not the cooperative whenonment, and a crisis coordination of policy across countries was aimed to boost global growth at no one's expense. this is not cooperation. central bankers are not in the same seat on that issue.

getting agreement across these countries to make their currencies stronger and hours weaker, that will not happen. tom: asia citigroup published a brief note on japanese non-coordinated intervention in the market where the u.s. would intervene and go after japan, singapore, et cetera. to me that is science-fiction. stephanie: someone is being a little bit too clever. chinae are looking at is not wanting to do lots of favors for the president, but wanting to take the panic out of the market. arrangements,ted in a world in which the u.s. president does not seem to understand the implications of depreciation or anything else, china is paying the price of the tariffs.

he calls for that and then complains about appreciation. -- depreciation. tom: i go back to the level of panic in the market. i have not sensed equity panic in the market except a little bit of monday, within the cacophony of politics. steven: this is panic. it was good to see this see ny above seven. tom: the end of the world as we know it. steven: there is not a true panic, but what you have seen in the bond and rates markets in europe going down 100 basis points for 10 years in switzerland, these things imply a remarkable outlook for a decade to come. tom: you just changed the script. francine: we have a viewer question looking at u.s. yields. think will drive u.s.

yields lower from here? stephanie: one thing we have seen, i think consistently over the last years, this is an intensification of that, equity markets are focusing on the real growth picture of the world, which looks ok. in the u.s., and underlying weaker but perhaps returning to trend picture. on nominal's, what will happen to rates around the world, that on some level is what has helped bring this market higher -- bond market higher and yields lower. to some extent, the market is leading the fed. until we have clarity on their reaction function for the rest of the cycle, i am not sure we have a clear mark -- driver. the market is responding to every presidential tweet. francine: steve, we will come

back to you. steven wieting and stephanie flanders both stay with us. don't miss our exclusive interview with the philippine central bank governor tonight at 9:00 p.m. in new york. this is after the central bank cut interest rates after the economy slowed. this is bloomberg. ♪

♪ "surveillance," we are thrilled you were with us. we have to go greek letters with steven wieting, quant guy from citigroup, and stephanie flanders darkens the door with

bloomberg economics. i want to go to acceleration or convexity or gamma as it is called. we have showed this chart eight times this week and it gets uglier and uglier. i cannot show rate of change of the 10 year yield. i have massive gamma going on right now. when does the party end? steven: if they took currency out of circulation and made it possible for a currency to depreciate, then you could create an electronic yield and make it disappear. pretty soon, you might want to create a paper currency etf. tom: i feel like i am on the edge of robert mondale. it is not normal in europe. he mentioned a currency adjustment and they cannot do

that. stephanie: it is not going to change the dynamic. a good point made earlier this week, the way we think about time preference. you have to put away that something in the future is worth less to you. maybe now it is worth more to us and we have a longer time span in terms of age. the structural dynamics, that is one of them that drives demand for asset. you lay on top of that concern for global trade and global growth. steven: on rates, you are looking in europe at 3.5% dividend yields across the board. many companies with sustainable payout ratios above 4% yield and the u.k., 5%.

they might go down in price but at a certain point you have to say that even if we have a cycle, you will say these relative values in equity income versus negative yield fixed income, at some point it makes no sense to be stuffing it into those bonds. francine: i was going to ask about the ecb and the incoming president. is there anything she can do differently to spur fiscal policy? if we have fiscal policy from a lot of the countries, how much easier does it make it for monetary policy to work? stephanie: the ecb has been talking about this a lot. the chief economist will be there throughout this transition. christine lagarde shares a lot of the same views as mario draghi. the german government and olaf

schultz, the finance minister, is a little more flexible on this, has some sense of where you might be loose on fiscal across the euro zone and potentially in germany, but we are not talking about a major shift in policy. i am not sure that will come to the rescue unless you have a severe weakening, when you get automatic stabilization but does the fiscal loosening for you. tom: stephanie flanders and steven wieting. markets are a little bit calm today.ay -- calmer this is bloomberg. futures up nine. ♪

♪ viviana: this is bloomberg "surveillance." tiffanyry jewelry chain is teaming up with asia's richest man to form a joint venture to open stores in new

delhi and mumbai next year. they are targeting the second largest gold market. hedge funds the most bearish since 2016. bear stearns is stepping up demands. software and biotech shares are the most popular and commodities are liked the least. and signaling and easing the price war with uber. higher fares will help it shrink losses for the year. second quarter revenue was better than expected. it's net loss declined. francine: sticking with the ride sharing industry, uber to report later today, strategists questioning whether it's numbers will be met with the same enthusiasm. there are so many skeptics about uber and lyft.

did the numbers win over the skeptics? mandeep: i think so. the data around supply demand and the differentiated level of service they can offer with respect to uber can help them drive the pricing. they were able to raise prices, focus more on segment where they are able to command a higher price and that reflected in the results. margin,still a high low-volume different -- business so there is only so far you can go. this is one quarter of them doing that. francine: what will uber do differently to lyft? mandeep: uber has done the right thing by expanding their services to food delivery. the way i spit -- i think the space will evolve as they will

keep adding services. tencent has added services from payment to shopping, and that is how i think uber and lyft should play out in this market. they have to keep adding services, so the fact that uber has been able to ramp their food delivery business, that is the most attractive part of their business. tom: you sound like a unicorn manager. ebitda,brings $.30 to these guys goose egg. where is the profitability out, runny -- 2040, 2045? mandeep: if they become profitable, it will become does it will come from bundling -- it will come from bundling. tom: what about lyft? mandeep: they have a tough road.

now that they are focused on margins they are unlikely to expand geographically. tom: are they an acquisition candidate? mandeep: i think so. tom: who? mandeep: anyone who is doing economist right now would be interested in lyft. tom: not of my drivers have been autonomous. mandeep: you still need a driver. there will be a hybrid phase. the rollout of a driverless car will happen through these platforms. fifth avenue avenue onto 25th street, you need a mack truck to be autonomous. on in a most interesting industry that a lot of us use. here is what you need to know.

calmeds combed down -- down with renminbi over seven per dollar. the 30 year bond comes in a basis point. lots to talk about, including howard mark. we will do that with jon ferro. this is bloomberg. stay with us today. much more coming up. david westin on politics at 12:00. ♪

♪ alix: china calms the market.

better exports in july and not as bad yuan fixing. the s&p continuing one of its strongest reversals since the bull market began in 2009. how to chase the rally. ti says oil prices could fall to $50 or $45, but when the rebound comes, it will be fast and furious. david: welcome to "bloomberg daybreak" on this thursday, august 8. we spent a you -- lot of yesterday thinking the markets were awful, and then it turned around. alix: this morning it is hard to believe anything you are going to see on your screen because of the action we saw yesterday. let's take a brief look at where we are in the markets. s&p futures are pretty much flat. up by seven, so a little bit of follow-through buying, but nothing to write home about. a little bit of buying in the long end. selling