francine: president trump delays tariffs on chinese manufactured consumer goods. markets breathed a sigh of relief. the day after the night before hong kong's airport resumes operations, the government takes steps to keep demonstrators out of the terminal. and europe's engine sputters. the german economy shrinks, piling pressure on angela merkel to provide fiscal stimulus. ♪ francine: welcome to "bloomberg

surveillance." i am francine lacqua in london. here are your markets, you can see the stocks europe 600 is down. but nothing like some of the anxiousness we saw over the last couple of days. there is definitely a de-escalation, so in certain parts of the world, there is relief in the markets. i'm looking at euro-dollar 1 .180. if you are looking at the yen, it is also a little bit off the anxiousness we see out there. this is the picture for the u.s. yield, one of the main metrics we have been following closely. look at the 30 year yield over the rest of the day. coming up, a conversation with mike wells, chief executive of prudential. let's get straight to a -- to bloomberg first word news. >> we begin with the german

economy, shrinking in the second quarter, piling pressure on angela merkel. economyht, she said the was going through a difficult phase. from the previous three months, output fell and exports slumped as the trade war hit manufacturers. the italian prime minister has been called to appear before the senate on august 20 as parliament responds to the political chaos that has gripped the euro areas third-largest economy. it could lead to a confidence vote, but there are other options including resignation or further delays. negative yields in the u.s. would not be that big of a deal, that is the take of alan greenspan. he says he would not be surprised by moves and adds zero has no meaning. of guggenheim says the fed should cut before its next meeting. he says quote let's rip the

band-aid off and move on. facebook has been paying hundreds of outside contractors to transcribe audio clips. we have been told the worker rattled employees. they are not told where the audio was recorded or obtained. facebook has confirmed it has been transcribing audio but says it will no longer do so. in market route -- rout argentina is creating chaos. suffering the largest daily drop since 2008. as of the end of june, this fund had a 12% allocation to argentina. bonds are sovereign raised more than $60 million of rased moree raced -- e than $60 million of value. 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: thank you so much. president trump has bowed to

pressure from corporate america, delaying tariffs on certain products. duties will not be imposed until mid-september. the president acknowledged higher prices would hurt consumers in the run-up to the holiday season. joining us is the head of assets at royal london asset management , with 129 billion pounds under management. they you for joining us on what i guess is a big day. we saw some de-escalation. does it hold? >> we don't know. we have regular strategy meetings, and rarely have they been out of date so quickly. 2:00 that we would stay where we were with equities , but the negativity would continue for the foreseeable future. went back to our desks about suddenly, the market had turned around 2.5% intraday on the escalation we are seeing --

de-escalation we are seeing. we thought trump would keep pressure on china until he extracts a half percent rate cut from the federal reserve. my hunch is that when the next things maynversation go off the rails. francine: this is the concern. markets could be reading everything wrong and the fed could do a policy mistake if they follow the trade deal. trevor: there are two aspects. one is that the fed is cutting because they have had a reading on the inflation mandate. francine: have they, or is it insurance? trevor: i think it is both. the academic fig leaf as they are thinking the average rate of inflation should be 2%, instead of a ceiling. on the other hand, confidence has been sliding around the world.

this is classic midcycle soft landing territory. i'm old enough to have been investing through the 1990's. in 1995, the fed cut interest rates and people thought they would be a recession. there wasn't. the same thing is happening now. , it has this expansion been nine years since the last recession. francine: do you have a yield inversion in 1995? trevor: we did, actually. the bond yield curve was flat or slightly negative for five years. the recession finally came in 2001 after a stock market bubble. i'm not too worried about the yield curve. the important point is that the fed has crossed the rubicon. they want growth to improve and the worst is in the near-term -- the worst is the more it is in the near-term, the more they cut rates. trump knows this, which is why

he is throwing at red tariffs -- out random tariffs. francine: there is a race to the bottom, i don't know if it is a currency war, but when you look at emerging markets, does it automatically force the fed to do more? trevor: i think the fed is forcing them. it is strengthening currencies here and there and putting pressure on other central banks. we have seen a lot of emerging-market interest rate cuts. the ecb does not want a strong euro. there will be more pressure to do further easing in europe. it is a u.s.-led easing. dropping thats got the world economy to resubmit. -- re-accelerate. francine: we did not manage to bring it back to 1995 but i have numbers since 2017.

it is a potential indicator for a recession, but you can head it off at the pass by cutting now. francine: do you infer that president trump talks tough but would actually not hurt the economy? noticed and we have written about is that whenever trump starts tweeting about the stock market being at all time highs, it is maximum danger. usually, he will come out with something very unfriendly afterwards. he thinks there is gas in the tank again. if you can tweak it has gotten to a new all-time high, he thinks his base will say everything is fine. we have got the random 10% tariffs. very much trying to get the fed to cut rates more markets have maybe dropped too much and the chinese are back. we don't know who blinked this time, but the pressure will

continue to be on through these random actions. therefore, setting the scene for a stronger economy next year. this is our question of the day on our markets live blog, how far can stocks rise on the tariff the? -- the light? -- delay? trevor: we track investor sentiment, and yesterday, was triggering a signal. we were not surprised given the news there was a big bounce. but the shelf life of the signals is quite short-lived. i don't think we will see a chairman is followthrough and i still think there is a danger that until we get the meeting kind us, trump won't wanted to seem like mission accomplished. francine: trevor from royal london asset management stays with us. -- calls ont

beijing to respect hong kong's economy. the city is bracing for more unrest. this is bloomberg. ♪

francine: economics, finance, politics, this is "bloomberg surveillance." let's get straight to the bloomberg business flash in new york city. >> cbs agreed to merge with the viacom in a $12 billion transaction. it combines the most-watched broadcast network the parent of paramount pictures and mtv and nickelodeon. the new entity will be called viacom-cbs. steinhoff sees its future as a hands-off holding company.

they say the shift will allow the best parts of the business to grow, isolating them from legal values and bring down debt. we spoke to the chief executive. >> previously, there was a lot of impetus on a vertical d asgration and we realize part of the debt restructuring that that model was not sustainable. the management should solely be on underlying businesses, and from that perspective, we must act sap or shareholder. >> -- purely as a shareholder. ftc is looking into allegations amazon is punishing merchants that offer lower prices elsewhere. the ftc is conducting a broad review of the tech sector but stopped short of confirming a formal probe on amazon. that is the bloomberg business flash, francine. francine: thank you.

in hong kong, the airport is resuming operations after a night of protests. toourt order was obtained demonstrators from obstructing operations. president trump said intelligence agencies showed the military is moving troops to its border with hong kong. joining us is yvonne man. things are a little bit more quiet, do we have any idea of what protesters want to do next? yvonne: at this moment, we are seeing a different scene from yesterday. security is very tight here today. is two hours since the injunction order was imposed outside of the entrances of the airport. we are seeing airport staff block some of the entrances, only allowing passengers with flights out of hong kong inside the building. only if you have a ticket or boarding pass, you can come in.

all people can head out, but coming in, you have to have that identification. airport also reducing the frequency of trains and the purpose of crowd control. they are also telling passengers to come and check in three hours before their flights. as for the protesters, you still see a small handful that are sitting outside. these are the ones that came in early this morning before the injunction was implement. they are telling me they are doing a wait and see game. they have been told by airport officials that we should be leaving the area, heading off to to protest areas they have sectioned off. but they have not moved just yet. airport officials felt they needed to have these measures after that violent night we saw yesterday. francine: on the violence, yvonne, we saw horrific pictures of a man being beaten.

if these tactics become more violent, does it underline -- undermine the support these protesters have? yvonne: you could say that. for the moderates out there watching these graphic pictures and the commotion upstairs, some say they took it too far, that this is ruining the cause. on the other hand, the protesters say they need to show something like this to get the government's attention. but you mentioned the violence involved, this was a standoff four hours or protesters detained and beat two men who they claimed were mainland police officers. except right police, ambulance, and paramedics to escort these men out. but there were still scuttles -- scuffles outside the airport. china is condemning the attacks and called it the bottom line,

no different from terrorists, francine. so the rhetoric certainly getting ramped up. are peopleuickly, expecting a message of support from the u.s.? and because they did not get it yesterday, does that change the dynamic? yvonne: at this point, i think protesters are still hoping for the international community to see what they are doing and china in. -- chime in. you still see protesters holding american flags and walking around, potentially a message to do something and bring this whole issue into the trade talks. , they are notes happy with the international response and what they heard from lawmakers. politiciansing u.s. , the black hand, they call it, are behind what china is calling the writers. -- rioters.

beijing is certainly adding more pressure here. francine: thanks very much, you yvonne man with some great yvonne man- much, with some great reporting. trevor greetham from royal london asset management is still with us. we don't know how this ends, we don't know china's plans, we know it will have an economic impact on hong kong. we are already seeing a lot of weakness in data from things like exports, but the world economy is weak, so it is hard to draw them out. you will start to see more of an impact on economic data quite soon. in most countries, there were be some kind of meeting in the middle. china is not a well-known for meeting in the middle on the sorts of issues. it is concentrated by the fact there is a standoff between the

u.s. and china over trade. i'm not a great expert on geopolitics, but it strikes me that trump is offering a bit of a helping hand to the chinese regime by d escalating the trade talks. de-escalating the trade talks. under theina was spotlight and did not want to give in on two fronts, so he is giving them an easier path. instead of saying the same on both, he is taking both sides. francine: say things were to escalate, this is complete speculation, but if things were to escalate, how would of the markets react? trevor: very negatively. as part of this ongoing the , brexit is part of

deglobalization, if they were feeling people wanted to put sanctions on china or felt uncomfortable with private , iets and joint ventures think it could be taken badly. francine: thank you very much, trevor greetham from royal london asset management. up, data shows europe's biggest economy shrank as factories were hit by the trade war. we talk that next. this is bloomberg. ♪

francine: this is "bloomberg surveillance." on a to germany and the german economy, it shrank in june with trade tensions putting pressure on its export-heavy manufacturing sector. trevor greetham from royal london asset management. is still with us. does this put pressure? germany may be adding fiscal stimulus, which is unusual for them, but not as much as they should be there -- should be. at thise told up manufacture benefiting from lower interest rates and a weaker currency. we are at the lower end of the is the business cycle can turn around, that would relieve some of that pressure. francine: talk to me about negative yields. is this a german problem or a

world problem? if you look at that, it's close to $60 trillion. what is the fallout? the entire yield curve is underwater. 70% of euro-denominated investment grade debt has a negative yield on it and inflation is not negative. you are talking about yields well below inflation, locking in real return when you buy the stuff. people are doing it because they want certainty of income, but it is not a great investment. francine: i'll say. what does it mean, you need to look for riskier assets? does it mean your havens are different? trevor: we have got to think of this as a long-term issue. if you go back to the financial crisis and all of the piled up debt in particular, you have three ways to get debt back down. you can go through defaults,

like greece did come and you can inflate your way out of debt, or you can use financial repression. that is where they keep interest rates lower than inflation forever. gradually am are paying governments to lend to them. i think this will be here for quite some time. we have to kind of get used to it. if we get to a point where the world economy is so strong and wages are rising so much and prices are rising, which feels a long way away, then you have to worry about the bond market. francine: thank you very much. greetham stays with us. coming up, we talk emerging markets and yields. this is bloomberg. ♪

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the day after the night before, operations after a chaotic night of protests. the government takes steps to try to keep demonstrators out of the terminals. and europe sputters. german economy shrinks in the second quarter, with pressure on german debt chancellor angela merkel to provide fiscal stimulus. good morning, everyone. we are getting a little bit of news. cpi -- this is for the u.k.. we will be watching very closely. for the month of july, it is flat. the -01% that we were expecting. at house looking prices, pretty much in line with estimates. i am not sure the pound is moving a lot on the back of it. that is the latest from the inflation report. in the meantime, we are getting earnings from financials. the big news we are waiting for,

i am just looking at the bloomberg terminal to see what we have there the big news we were waiting is to see if there was a spinoff of mng prudential. the demerger is what we were expecting to be completed in the fourth quarter. this is also what we were seeing in the first half of operating profit, up 14%. -- up .14%. we are also hearing from prudential, in big news, which we will quiz the chief executive about, is the d merger being completed. the question is if the market will like it, if there is appetite for these products out there. so we have a lot more news. the chief executive is coming on. the share price is unchanged for the moment. mike wells, the chief executive, gives his first interview of the day. that is shortly, around 10

minutes from now, right here on bloomberg tv. now let's get to first word news with viviana hurtado. viviana: we begin with a delay on some of the new china tariffs until december. this declaration coming from president donald trump, but for september 1, goods, clothing, and footwear remain on the list. big-ticket items, smartphones and children's toys, will not come in until the end of the year. officials do plan -- chinese officials do plan to come to washington for trade talks. rising 4.8%. it signals the world plus second-largest economy is still struggling to stabilize in economic slowdown, as trade tensions are adding the pressure to the case to roll more stimulus. normalflights return to after another night of chaos in hong kong. stillent donald trump

fears a chinese intervention. revelations about the apparent suicide of jailed financier jeffrey epstein. two guards in the unit where he was held reportedly fell asleep and did not check on him for about three hours. according to "the new york times," they falsified records to cover up their mistake during the guards and the warden of the new york jail have been removed from their positions. italian prime minister has been recalled -- has been called to appear before the senate august 20 as parliament responds to the -- the session could lead to a confidence vote, but there are other options, including the prime minister's is a tatian or a further delay. -- hesitation or a further delay. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more i am vivianantries, hurtado. this is bloomberg. francine? francine: thank you so much let's focus on investing in real

estate. my next guest started a company five years ago with a focus on buying distressed property assets. the company has expanded by 12% per year and now claims to be the softest growing group in the region. we are delighted to be joined by the chief executive. thank you so much for joining us. when you look at the next step to boost your company, where do you see value in terms of countries but also types of properties that you look to? note isis important to on business strategy. half of our real estate portfolio is in investment grade africa, which is morocco, botswana, and to expand across these regions. growth africa, where we have seen the growth coming from, garner, some of the east african countries, predominantly kenya,

uganda, and around the indian ocean. the nexthere we see growth coming for for grit. francine: how big do you want to be in 3, 4 years? the assets of the business today is $800 billion. effectively if we are successful in enclosure, we will market our -- we will close our market gap and eventually -- effectively -- effectively we will take that close to $800 million. the ability to take this to a $3 billion fund over the next three years, because of our multi-geography, multi-asset class strategies. we are following across africa and because of the trajectory and looking at the real estate

solutions, we are now involved in corporate accommodation offices, retail, the ability to grow absolutely exists, but we need to be able to control the real estate market from a growth perspective. francine: how much are you worried about the markets that you are investing in, even the frontier markets? the politics can move pretty quickly in a country like argentina, and that you have thatthe u.s. president dictates policy by tweet. the strategy to go multi-geography was quite key. we do not want to be invested long-term in one geography. look at morocco's economic drivers, the multi-geography asset thing solidifies the portfolio and mitigates a lot of the risk of one of the country's dipping.

these emerging markets do go in cycles. not all of these markets will be driven by the same cycles. what we are seeing is that the trajectory of growth and the platform in africa across the sectors and the real estate is sticky reale quite estate solutions. we have seen that in mozambique and we have seen the quality of anadarko, barclays, these guys have been sticking to the macros and continue to operate in these markets. and they basically are the real estate partners. who are your biggest competitors and some of these markets? mentioned and has has been mentioned, grit is really unique. multi-listedly

africa real estate business, so we do see competitors that operate in specific markets, but nothing on the scale of what we are doing, and also on the basis that we are tenant lead. we will have a tenant approach us and we will construct their real estate solutions for them. so from that perspective, the fact that we are not competing with other real estate or property owners, and that we are tenant lead, there is no other real estate is this that sits across eight regions like we are and also across the asset class. francine: thank you for joining us, bronwyn corbett, from grit. greetham joins us. when you look at emerging markets, at the real estate markets and the concerns out

aere, is this a fed play, dollar strength or weakness play, or something else? trevor: generally the best environment for emerging markets as a whole is a weak u.s. dollar and a strong china. we have not got a strong china at the moment. and the dollar, it depends on what currency you look at. .t is a bit of a mix emerging markets, when the stock market is negative, they get hit as well. it is not obvious that there is a roaring recovery here, but i think if we do see enough stimulus to get the world economy is to pick up, and if china-led stimulus, stimulus, the emerging markets will do well. china stimulus is very and looking because we are looking at trade. more inwardch looking. trevor: i mean, there is a case for preemptive stimulus in china

, to cover the worst case scenario with the trade discussions with trump. but so far that stimulus has been quite small, quite piecemeal. we watched the monthly numbers on total social financing and they have not been rising as much as you would expect to see. i suspect if things continue to go in the fairly negative trajectory we we are seeing, at some point there will be a move back to old-style stimulus, which involves capital projects and therefore boosts the emerging markets. that is the other issue. a strong china is not happening, and is stimulus they are applying is not the sort of stimulus in the emerging markets yet. francine: if there is one thing they need to get right, i guess to inflation? theor: where positive on dollar. we think we will see more weakness in the euro and the swiss franc and obviously in sterling. what i am struck by with sterling is in the 10%

euro inion against the may, still only about half of the people in surveys think a no-deal exit is going to happen. i think we are in the game of brinkmanship here. relativelyis looking good, even though we are talking about a 50 point potential rate cut from the fed next month. there,e: trevor greetham from royal london asset management. stay with us. the coming up, including prudential company chief executive. his first interview of the day. that is coming up next, and this is bloomberg. ♪

francine: this is bloomberg surveillance. merger of says the its u.k. asset management division will be completed in the fourth quarter. shares in the business managed more than 320 billion pounds at the end of last year, trading under the name mng. we are to lead to be joined for his first interview of the day, mike wells, the chief executive of prudential. we have a date for the spinoff. mike: we do. what does the timetable look? how do you evaluate it? mike: we want to do this from strength, so operating earnings are up 10. asia had another great broad performance. all of its key metrics up in cashe digits, from

generation, new business profit, operating earnings. this is where we wanted to be for the demerger. work is for the most part complete. now we have a circular and a prospectus, a shareholder vote, and that so's into the fourth quarter of next year with those processes. start of as this the wider breakup? mike: we are going to stay and have stayed an active manager. if we thought one of the markets did not have structural growth or we were not capturing that with our capabilities, we would look at doing something different. it does not matter where that is. we are not wed to any given market. markets in asia, product lines, entire businesses, finance business, all good businesses and somebody ended up with them. so we are being very disciplined about where we deploy capital

and where we are not going to hold. that is not going to change. francine: you are spinning off at what could possibly be a turbulent time in markets. the ipo of reassure had to be postponed because investors were not interested. do you worry that you are spinning off when there is not that much appetite for that kind of asset? mike: know, there are a couple of things to balance. we are not raising equity. energy, assuming retail blend that branded energy, -- branded energy, it is up 6%. it had similar performance to other asset managers in the u.k., but then that was offset by 3.5 billion pounds of flows and with profits products. it has three engines, it is kind of unique. it is a cross cycle business .ycle

in europe it is successful. it is well positioned it does not have an event that it needs a market climate for. francine: how do you decide the standalone value? you do not want to give me a figure, but how do you decide it? mike: the market does, so that is out of our control. there are some firms that are similar. an assets have manager, some firms with an annuity book that give earnings or cross cycle. there is a bit of a unique variable in there that will see other market values, but the results that they are showing and the roadshow coming up, the prospectus, will give value. francine: the starting value is not on the first day, right? mike: you will have some share registry shift. we know people who have liabilities in pounds, there will be pounds -- they will be

effectively dollar-denominated. you will have some portfolios say i want more of a cache centric pound dominated country, and others who want a higher growth, higher return of equity, less cash. francine: what is your biggest headache apart from this and the restructuring? how much focus do you have on negative yields? how do you do business in this kind of environment? mike: we have materially reduced our exposure to interest rates in the products we sell. better than 80% of the premium written this year is recurring, and is not related to any interest rate element. with the business further away from a spread type insurer, that was intentional and strategic and that is what we want to do with the business. of the credit out cycle dependency on product, then it makes longer-term relationships with the consumer. francine: on asset management,

how much focus has been compressed? do you see a revival of that industry? will there be consolidation before you can demand higher fees? energiesthe u.k., maintain competitive levels because they are longer-term asset, they are more private asset classes like real estate. it is pretty hard to do aggressive growth against passive right now and hold your feet. that is not a good business plan. hadsia, east spring tremendous growth. that is getting products consumers who are in cash. the goal there is expand distribution, expand the business footprint, and 45% of their sales in the first half of the year were from products they did not have 12 months ago, so it is about innovation. francine: how much money have

you spent so far in dealing with brexit? are you ready for a no deal brexit? mike: we are. we spent a little under 30 million pounds. luxembourg structure, the sea cap structure, that is all completed. regardless of the structure, we are ready to go. we do not see any dish and all costs from the structure of brexit. kongine: to the hong protests affect your business? the: where watching situation closely. we have a lot of employees there and it is a key market for us, a successful business for us. we have been there since the early 1960's, so we have seen a lot of different issues in hong kong, in its development. what you see in these situations, it tends to elongate the sales processes, but it does not eliminate core needs. retirement, health concerns --

it changes sometimes the length of a process. we saw that in the u.s., we have seen that in the u.k. that is typical with the risk-off products like ours. that is typically the kind of impact we feel, but it is very early days in hong kong and we are watching it. francine: is it a delay of three months or -- mike: it depends on the family, where we were in the decision the hong kong business had an excellent first half of the year. hong kong business was up 45% in the first half of the year. the mainland china business was extremely successful as well, i'll growing all of its competitors in the year. these -- outgrowing all of its competitors in the first half of the year. rates.ention plus this is very healthy if they sold nothing. that is where we wanted to business, not level of resilience. francine: one final question when it comes to life insurance.

in the u.s. it seems to not be living as long as the ones in southern europe. is that affecting your business? how do you explain that? seeing think you are adjustments in mortality tables around the world, and you have a variety of things. in asia you see the emergence of the new digital health app. noncommunicable, diabetes and that kind of illness, coming up very quickly. we are not sure of all of the causes. there are lifestyle elements in a lot of this, so i think it varies by market and by band. income to access to health care. all of these sorts of variables. you have to do it market by market. francine: mike wells, thank you so much for joining us. mike wells, the chief executive of prudential. coming up, wrapping up the -- ramping up the rhetoric, the chinese protesters said to be

"acting like terrorists." we will look at whether the protests have an impact with trade concerns. this is bloomberg. ♪

francine: economics, finance,

politics. this is bloomberg surveillance. these are your markets. we are seeing more stability than what we had yesterday. but we still have some pretty big moves when it comes to some of the yields in treasuries that we are looking for. -- we had some weaker than expected figures from of course germany. that is the one to watch out for. looking at stocks in europe, pretty much on the downside but also not hugely. asian benchmarks rose. president trump was going to take a breather in imposing the terrace. bloomberg surveillance continues. ♪

francine: an early christmas gift. president trump delays some

tariffs. airports resume. and the german economy shrinks and the second quarter. putting pressure on angela merkel to provide fiscal stimulus. good morning, everyone good afternoon if you are watching from asia. francine lacqua in london, tom keene in new york. we had some pretty interesting bond yield movement. germany not great. that may spur a little bit of fiscal spending, not great is what i am talking about in the economy. then you see moves on the back of this, president trump delaying some of the tariffs. tom: yields come in with a vengeance on china off germany, as you mentioned. we are on the inversion watch. that is a historic moment back 12 years. francine: we will have to go back to that and give you all of

the updates historically. let's get straight to first word news in new york city. here is viviana hurtado. viviana: china has stepped up its attack on antigovernment demonstrators in hong kong. beijing accusing them of acting like terrorists and swarming the city airport. today flight operations return to normal. authorities are restricting access to the terminals to prevent further protests. chinese officials still plan to come to washington next month for a face-to-face trade meeting. that is a sign that it is on track after negotiation aiders -- after negotiators spoke by phone. president trump says he things china wants to do something dramatic to end the standoff. more revelations about the apparent suicide of jeffrey epstein. two guards in the unit where he was held reportedly fell asleep and did not check on him for about three hours. then according to "the new york times," they falsified records to cover up their mistake.

the guards and the warden have been removed from their positions. to italy, that is where lawmakers summoned the prime minister to address the political crisis next week. result appearance could in a no-confidence vote, his resignation, or further delays. the deputy premier once a no-confidence vote that could lead to an election. he wants his party to consolidate control of the government. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more i am vivianantries, hurtado. this is bloomberg. tom: thank you so much. equities, bonds, currencies, commodities. absolutely extraordinary with the whiplash over the last 48 hours. futures with a bounce, at 10:00, i think it was. futures -11. that is a stunning number. 0.85. all you need to know if you do not understand it is curve

inversion of the vanilla to sense bread is a huge deal. we will be all -- of the vanilla two-sent spread is a huge deal. the vix is remarkable. off the china announcement, the capitulation of the president. renminbi goes 7.06. 10-year the u.s. yield. the german 10-year yield is a recession statistic. francine: recession statistic. a lot of markets and a lot of market participants around the world will be looking at it. i am looking at a similar data check to yours. i need to stop saying that. i just mean when there is a little bit of fear out there, we look at the same thing. treasuries gaining, european bonds gaining, investors trying to figure out the data from germany and from parts of america.

i am looking at stocks in the u.s. pretty much slipping along this index as well. inflation are we on in yield? all you need to know is it is unprecedented. this could be my chart of the year right now. i brought it up, i really did not think i was going to do it, but here it is. the 10-year yield minus the inflation you face. my favorite there, different from jerome powell, inflation rate, michael mckee talks up the trimmed rate, and all you know is back to the crash of 1987, we have never seen a lower real yield than we have right now. i rarely use the word "never." it is a fictional financial system, for our viewers and listeners, francine. francine: i actually changed my chart last minute, and this is

what i am looking at. negative debt. tom: great chart, yeah. francine: you can see it closer to $16 trillion. now $16 trillion. unreal is the best way to describe it. output july industrial posted the weakest growth in 10 years due to trade tensions. donald trump delaying tariffs has cheered markets. mike gallagher is the director of macro and strategy. -- macro end strategy. when you look at concerns in china, first of all, let's leave trade to one side. thedoes the china -- how is china economy actually doing? it is slowing down. turnnk leadership wants to

china plus economy from export driven to import driven. francine: with donald trump postponed tariffs until december, does it give china a window for trade? >> the general response from beijing would be, donald trump does whatever he wants to do come almost like a roller coaster. how to manage the transition of the economy. abandoning the old model and introducing new models where perhaps we reduce the level of debt addition to the economy. francine: mike, how do markets see all this? can they turn back just as quickly after the reprieve? >> i don't think it is necessarily a reprieve because 50% of the tariffs are introduced on december 1.

the second point is that really the odds of progress in september are quite low between the u.s. and china. this is something that is going thatntinue, and the impact that has on business uncertainty in both tapping export confidence in business investment, is bad and that is persisting. we are in a situation where we had less bad news yesterday because the water thrust is still negative to the global economy as far as the trade position is concerned. were -- i would like you to give us some foresight right now. president trump, july 1, capitulates on huawei. president trump, august yesterday, capitulates on apple. i have an iphone under the christmas tree. how does beijing respond knowing for certain that this is a

president that will always, in every case, capitulate? don't have any krystal ball for the moment. what i perceive so far is china is now really getting accustomed to that strategy, donald trump constantly offering some kind of -- something unusual. what china wants to do now is make sure by the end of september, by october 1, when the country celebrates its anniversary, they will be able to tell a proper economic story to its own population, that china is getting better. that is a big concern for xi jinping. tom: mike gallagher, how do you measure global recession? you got a very nice continuum of working with economics and fixed income. what is your barometer of getting out front of the measurement of negative economic growth?

mike: i think we have to look at consumption picture on a global sort of basis because i think that is the last mainstay for us in this particular cycle. we have already had headwinds for trade and for this investment. you do not have some stand of government spending apart from china on a global basis. you have some moderate physical stimulation in the number of european countries this year. so that is really the focal point. i think the problem that exists sales,s that for auto that is having a difficult time locally. it looks as though we will see a shrinkage of around 2% or 3%. i think we are becoming more concerned. francine: one of the things we have been trying to figure out -- sorry, tom, let me jump in with a good viewer question. we are getting some great viewer

questions. this is a person who says, how successful has beijing been in transitioning to a consumption economy given some of the restrictions of letting more rural citizens going to urban places? yu: that is the key message for the time being. after 40 years of economic reforms, what we realize is that more segments of the population are getting rich themselves, but larger populations have really not enjoyed the fruit of it. essentially it is a question of how are we going to improve the income equality of the country ech? to answer that question of how to make sure the one-party system would work for everyone, not just for a privileged few. tom: thanks to all of you yesterday for your comments, gideon rose joining us from

foreign affairs. ue are thrilled that yo jie could join us. there is much more to report from hong kong, yes, on the idea that can a plane get in, can a plane get out. far more on this historic moment for the hong kong chinese. yvonne man at the airport, enda curran at our offices. this is bloomberg. ♪

francineviviana: this is bloombg surveillance. facebook says it will no longer transcribe audio clips from users of its services. the social network paid hundreds of outside contractors to do

transcribing. contractors were set -- were said to be rattled by the work. checking toors were see if the messages were being correctly interpreted. the u.s. federal trade commission wants to her complaint about amazon from third-party sellers. the issue, whether amazon punishes merchants that offer lower prices on other e-commerce sites. joe simon stopping short of saying the agency had launched an investigation amazon has said sellers have full control over the prices they set. investor mario gabelli is considering label action -- legal action against viacom over the merger with cbs. he says his stock is being bought for less than what he perceived as the market value. cbs and viacom agreed to merge in an all stock deal that is the bloomberg business flash. tom: i am glad you did the mario gabelli story. it is extraordinary to see a

giant in media investment really turning, the dominant shareholder in viacom. it will be interesting to see that story forward. right now we go to hong kong, where you need to show your ticket and passport to get into the airport today. it is a changed hong kong. yvonne man has been giving us wonderful coverage from the airport. i am going to start with the same question i asked yesterday. what is different today versus yesterday? yvonne: where actually seeing a couple dozen protesters still sitting in here for a sixth straight day, but security has certainly been tight. if you are coming into the airport, passengers have been told that only anyone flying out of hong kong in the next 24 hours can get in, and they have to bring the proper documentation -- passports, air tickets, boarding passes -- before anyone can come in.

and airport express is reducing the frequency of trains into and out of the airport, 25 minutes from the original 10. they are doing crowd control, asking passengers to come in three hours earlier today. francine: we saw a pretty horrific beating of a man yesterday during the intense rally at the airport. what is the mood like today? are people still behind the protesters? have they cooled off, the protesters? what is the mood like on the street? there are a lot of questions, especially from the moderates. did they go too far? from the clashes we saw yesterday, something we have not seen in the last couple of days or so at the airport. protesters detained two men who they say were mainland police officers. there was a standoff for about

three hours with one of the men that they drag from the airport's west entrance into a departure hall, and paramedics were trying to get through to escort him out, and they were just inundated by protesters. a second man who they thought was a police officer from china global reporter from china as well. so beijing condemning the act in ,he early couple of hours or so talking about how this behavior is "terrorism" behavior, so ramping up the rhetoric once again. tom: thank you sump -- francine: thank you so much, yvonne man there. jie arelagher and yu still with us. mike, where do we go from here? mike: i think people will be watching closely.

there are two stories. there is the hong kong story itself, which the ongoing protests are creating a huge amount of business uncertainty that is getting us to the cusp of recession in hong kong. that is one sort of story. the second story is, in terms of china's attitude. because this is a special , andmic region of china consequently it depends on what undertakes as any potential move. so far china showed restraint, and that limited the effect took hong kong. -- the effect to hong kong. don't know if -- president trump is giving him a little more time in imposing tariffs. what is he weighing? think the two things are connected. the hong kong issue is obviously very much debatable.

obviously the chinese authority just felt, yes, of course, we officiate that we appreciate peaceful protests, but there is a difference between public vandalism and peaceful protests. i think there has been thiscting, and i think gives the chinese communist to criticizeeason the hong kong protesters. it is less likely for the hong kong protesters to get what they want. yu, thank you so much. also with us, mike gallagher. coming up, we have much more for you. we are watching the markets in germany and also the curve flattening worldwide. on our international relations, linkage to our economy, robert

hormats, the 12:00 hour. this is bloomberg. ♪

tom: bloomberg surveillance, lots going on. international relations and also markets. let's go to the chart right now. disinflation.eld, here is where we were on a real yield and inflation-adjusted yield of the cleveland fed, and we have broken down a historic negative real yield.

michael, i am looking at a global implosion of real yields. how does any given central banker, and particularly, how does chairman powell adapt and adjust to the fiction of these negative real yields? for the at least short-term, it is sort of producing some stimulus effect for potential banks, so i think that is at least some good news. the problem comes when we get into the latter half of this year. the fed will deliver and another couple of cuts, but it is not to the point where it will be to zero in 2020. the ecb is not at the point where it can deliver constant easing. there is going to be disappointment in the bond market. there is going to be disappointment in the equity markets, that the central banks may be are not able to do enough. that will be the autumn. tom: we are not at the zero

bound, we are at the negative pound. i am inventing that phrase now, folks. we will copyright. do we know what the outcomes are of the negative bound? mike: certainly the prime outcome of that eventually is simulated from fiscal policy. when you get to the point where you have -- is stimulated from fiscal policy. you have the opportunity to not only cut interest rates, but if we end up in a recession, to restart qe, but if you are looking at europe, ultimately the answer is coming more toward ive fiscal policy. world of debt negative, does it just go ever higher, and how does it affect investments? mike: i think it will go higher for the moment. it does mean that people have a

bias toward fixed income government bonds within a safe portfolio so that they are willing to sort of accept on the temporary basis negative interest rates. some saferovides haven for investors, it obviously means lower returns longer term, which is not only bad for those investors, but actually for those investment policyholders or consumers. , thank you so much. coming up on bloomberg surveillance, facebook has been paying hundreds of outside usersctors to transcribe of its services. we will discuss that next. ♪

♪ francine: this is bloomberg facebook has." been paying hundreds of outside

clipsctors to transcribe of audio users of its services. confirmed and says it will no longer do so. joining us is alex webb. you think, awful, terrible, invasion of privacy. then you think, someone agreed to have it transcribed and they say they were just checking their transaction -- transcription services, verifying what the humans do. is that fair? alex: almost. facebook says, we usually data and there has been various means. frankly, no one reads those. record a voice message to someone via facebook or make a call, that is the sort of thing they would have in transcribing.

the reason they would be transcribing is to train their audio recognition software which might play into other devices going forward. it is something google did a long time ago and facebook is trying to get back into that space. francine: is it foul play or not? alex: it doesn't look like they broke any rules in terms of the conditions people agreed to. is it in the spirit of what they should be doing? it does not say someone is transcribing your audio if you record audio. it is a little bit misleading for users not knowing what they are signing up for, but by the letter of the law it does not look like breaks it. tom: i have 18 iphones at home and 12 just broke because all the kids need iphone elevens. is that what the president's

capitulation was yesterday, because they need to get the next marginal toy out before christmas? alex: apple has certainly been lobbying hard. they have not ruled out the have but -- tariffs but postponed them. togives apple the window sell those heading into the christmas quarter, the biggest of the year. the u.s. is the most highly capitalized company and you are putting a extra $75 to $100 charge on its flagship product, that has broad implications that perhaps he has listened. tom: everything at home has china on it. what does it say about everyone else who does not have cupertino's power? alex: the power of cupertino, they account for a huge -- they

have a huge waiting in the index , they have huge market cap and revenue. things put together, there are people who make smartphones and import them. it says more about the trump administration that it is not necessarily treating everyone the same. we have seen countless examples where there is an argument that president trump listens to the last argument he heard rather than treating everyone fairly. francine: thank you so much, as always, alex webb. breaking news out of tencent. this is the second quarter results. the conference call is going on at the moment. second quarter online advertising revenue, in line with expectations. gaming advertising, we need to break it down. profit rising some 33% from a

year earlier but it was down 11% from the prior quarter. let's get straight to the bloomberg first word. viviana: china unleashing a torrent of verbal abuse on the protesters who swarmed the hong kong airport, beijing comparing them to terrorists and saying they acute -- committed atrocities. courtities secured a order to restrict demonstrations at the airport. weakeststed the industrial output growth since 2002. retail sales growth slumped. when reason, the ongoing contraction in auto sales. beginning his is campaign to remain president. includes an increase in child

care benefits and tax exemptions for lower in come workers. he is trying to recover from a primary election beat. 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: thank you so much. looking at the bloomberg terminal, a gets evermore august extraordinary -- it gets evermore august extraordinary. i could put up seven data screens. let me put up my second screen, pull back and equities, fixed at 18. renminbi comes off of the president's capitulation yesterday. point, 2-10sis spread, and the german yield speaks volumes. , mikeng volumes

gallagher. we also dragged on set marcus aykroyd -- marcus ashworth. in european banking, are they at that point? the 30 year german went below zero, it is now -12, 13. we are sinking below the waves and the sound of the ecb's expected rate cut is dragging everything down. as far as european banking, i see a lot of people start to get bullish, but there is value certainly. if you are the cfo of a bank, best of luck. sorosot to compare it to in the 1990's but it is a case of the market telling the elites what to do. what is the sum market message?

marcus: panic, i suppose is a quieter. the reality is that you will not get anything from german bonds and anyone in it, few from the start have done exceptionally well. you look at the austria 100 year bond, close to 200. you have doubled your money since 2017. late havehave come in been forced to keep buying bonds to run a short and it has dragged everyone in. if we ever get a bonds selloff, it will bankrupt people. francine: what do you see as a potential selloff catalyst? mike: i think you would need a genuine european recovery, is one thing. that is not around the corner, i'm afraid. you will not see substantive

action from policymakers. the other alternative is you could attend chile get an italian blowup -- potentially get an italian blowup that is italian centric. we will see what develops through august and whether we see an election. francine: what would a blowup look like? what it be matteo salvini's party going after euro? mike: it would have to be that extreme, and i don't think it is his game. his game is a power play in italy. if he ends up in the person calling the shots, the prime minister appointing someone favorable to him as prime minister, then we will see him try to walk a delicate balance through the 2020 budget discussions. tom: i look at the markets and the 2-10 spread. a number of people telling us

the spread in the u.s. is not a recession indicator. why do some people say it is the indicator of slowdown and others say, not this time? is the the old saying yield curve has predicted 10 of the last three recessions. a temporary yield curve inversion is noise, but i can -- protracted -- but a protracted one is telling you the lure of nature has been inverted. that leads to poor economics or -- decision-making in the sense that people would do things they are not ordinary doing. in that sense, it is a worry. the fed have decided they have to catch up with the curve. they are so far behind it it is ridiculous. wheres a panic situation people are running to safety of u.s. treasury bonds, and it has

paid off. people feel much more comfortable being in a huge overvalued asset. how long that continues, who knows? the bond market looks like it is pricing in, and people are putting two and two together and coming up with more than four. thank you so much for being here was short notice. mike gallagher continues. "markets," a gentleman who will pick up the viacom, viacombs ce? this is bloomberg. ♪

tom: it is an extraordinary moment. let me bring up a chart of the bloomberg that the pros are looking at. on the left side, the john major 1992, the challenges of the asian crisis. united kingdom rolls out of it prosperity and a massive decline and flattening to the yield curve down to an inversion. the two year yield is higher than the 10 year yield in the united kingdom. it leans toward the u.s. following shortly. right now with us, mike gallagher of continuum economics. we are thrilled he could be with us this morning. rbc.cole is with us of you are a foreign-exchange guy. how does any currency react to

the vanilla key curve inversion? adam: i think as in most things for sterling, what our currency is trading off is so closely linked to the probability of hard versus soft versus no brexit, and domestic economic fundamentals having almost no bearing. you see that in the data response to today's cpi. sterling is so completely sidelined by the probability of hard brexit or not, that that is really all it is trading off. doing thecurve may be same to some degree. my marquee is all about brexit and very little else. tom: you right piercing, short piercing, short notes on these topics. give me your note on the united kingdom, is it facing recession like germany? mike: potentially it is worse.

we have a 50% chance of a no deal brexit and if you get that, you are pretty much guaranteed a recession. even if you get a managed no deal brexit, which would involve some temporary alignment of regulations with europe and scrapping import tariffs into the u.k., that would be -1% recession in the u.k. you have a difficult situation. the other problem in the u.k. as you are guaranteed you will get a general election in the autumn , so you get a no deal brexit. there is a great incentive for prime minister johnson to call an election and try to win a majority. if we don't get a no deal brexit , it is because parliament have taken control and triggered a no-confidence vote in general election. you might get some good news if there is a continued extension

of the u.k. participation in the e.u., but it will be quite quickly followed by a fractured general election. francine: overall when you look at the probability of a no deal brexit, what is yield pricing in? i have a great curve looking at the fact that the 2-10 u.k. curve is flattening. how much of a no deal is priced into pound dynamics? adam: not enough in my view. as best we can tell from proxy markets and financial asset prices, it looks like the u.k. markets are priced for 40% probability of no deal exit. i would agree that should be closer to 50 or higher. it looks like we are price for a 70% probability of a general election, which i would put near 80% or 90%, both of which cause

sterling negative. materiallys risen over the last three months but i'm not concerned high enough. the risk has risen materially. francine: it is just incredible, looking at the yield curve in the u.k.. where does it go from here? mike: it inverts? the impact -- it inverts. the impact is evident in the u.k. data. when people realize there is a genuine no deal risk, we will see an inversion. there is that. if you get a no deal brexit and recession, the bank of england will cut interest rates and start to consider starting quantitative easing, so that is what the gilt market is starting to anticipate. francine: mike gallagher and adam cole, both stay with us.

the u.k. yield curve inverts for the first time since 2008. we are having a little movement on pound. we had the inflation figures, cpi figures, and a great story on the bloomberg terminal saying the u.k. is gearing up for a brexit driven election that the prime minister cannot actually call. this is bloomberg. ♪

♪ this is bloomberg "surveillance." let's get the business flash. tesla short-sellers are taking the lead in the war between the bulls and bears. shares plunging 30%, making tesla the most profitable short bet in the u.s. bears have seen almost 2.8 billion of mark to market gains. regulatorse safety banning certain apple laptop models on flights. certain mac oaks have batteries that goes -- macbooks have batteries that goes a fire risk. -- pose a fire risk.

astrazeneca says its ovarian cancer drug hit's main goal. that is a finding that could change the way patients are treated. astra saying ovarian tumor growth slowed in patients receiving the drug. that is the bloomberg business flash. francine: this is what we are looking at the markets. stocks are declining as we had disappointing data in germany and china. investors have to weigh up what this weak data from the world's in the economies means de-escalation of the trade war with china. we are back with our guests. the one thing that markets want to get right or investors want to get right is there dollar call. dom that ensues what fed can

, trade can do, emerging markets can do. is the dollar higher from here? adam: that is our core view, which is against the consensus if i look at contributors to your survey. most are calling the dollar broadly lower. one factor i would highlight is the channel through which interest rates drive the market, clearly we have seen a material repricing of fed expectations over the recent months and celebrating in recent weeks. many people expected the dollar to weaken and it hasn't. -- role of the down amec dynamic in interest rates relative to static role in interest rates, and the fact is even if the market gets all the fed cuts at is pricing, at will still leave the dollar as one of the highest yielding developed market currencies.

we are more cautious on the dollar than the consensus. if the markets keep coming back to this hunger for yield, the dollar will still be in most peoples long basket in this carry trade. we have a more constructive you on the dollar. mike: we are looking for the dollar to go lower. it will probably be modest over the next couple of months because you have that yield argument. it is the best g10 yield are. -- yielder. we think we will see risk aversion in global markets. there is a disconnect between optimistic markets versus the economic situation we see globally, and it is not just trade wars. it is a slowdown in the auto -- autoour, smartphone sector, smartphone related headwinds.

that produces a shakeout in global equity markets that hurts the dollar somewhat. tom: what everyone is looking for is leakage of manufacturing and goods over to a service sector slowdown. does continuum see any indication of a service sector slowdown in any domestic economy? mike: there has not been for major economies any material sign, if we look at the picture. german gdp data today, the fact that it did not fall further is due to the fact that services was reasonable in germany. where you perhaps are concerned is limited more towards consumption rather than services. you have got to look at people buying durable goods, washing machines, tv's, cars. cars have got some problems.

other areas have held up quite well in terms of the consumer, but those in the numbers we will be looking out. tom: this has been wonderful, mike gallagher and adam cole. we will continue to move forward. the markets on the move. you see the history making of the united kingdom spread, the difference in yields between two and 10. it inverts. on markets, equities, your courage to participate, and our next our, jonathan golub of credit suisse. this is bloomberg. ♪

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china and germany with graham economic data. the united kingdom spread inverts. the u.s. spread nears that in version point. the negative german yield to record lows. a new day in hong kong. enda curran and hong -- yvonne man report. it is beginning to look a lot like christmas. the president reverses policy. this is bloomberg "surveillance," live from our world headquarters, looking upon u.s. trade policy with wonderment. the curve inversion in the united kingdom, is it a brexit inversion? is that accurate? francine: it is another sign there are worries that there is a global recession. the global economy is headed towards a recession and he lay concerns,that brexit

you can see it as my chart of the day, the u.k. yield curve inverts for the first time since the financial crisis. investor, a data -- you will pay attention. tom: jonathan golub is here. right now, not caring about curve inversion, here is viviana hurtado. viviana: i care very much. stepping up its attack on antigovernment demonstrators in hong kong, accusing them of acting like terrorists. authorities restricted access to the terminal to prevent further protests. chinese officials plan to come to washington next month for a face-to-face trade meeting, a sign talks remain on track despite an escalation in tariff

threats. they u.s. delayed the imposition of new duties. chinaent trump thanks wants to do something dramatic to do the standoff. more information about the apparent suicide of jeffrey epstein. two guards reportedly fell asleep and did not check on him for about three hours. according to "the new york times," they falsify the records to cover up their mistakes. summoned themakers prime minister to address the political prices next week. result in ace could no-confidence vote, his resignation, or an election. 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: it is an extraordinary moment. breaking news of the 30 year yield to a record low. futures at -19. we will get three data check, but if we get a 2-10 spread negative, we will go to our guest, jonathan golub. futurescome in, dow -162. tends, under --10's -- renminbi stronger off the president's capitulation yesterday. two-year, lower yield, greater negative yield. that is an extraordinary german statistic for deutsche bank and commerzbank. francine: it certainly is, and

also for asset classes. european stocks are down. they started the day much better off and people are trying to figure out what the german economy is doing, but inflation is doing in europe, and what the china data means. this took a lot of the good news out that we had with the de-escalation of america's trade war with china. at 6.32.at 7.01, yen at 6.32. tom: i want to show a chart of the negative real yields. this is the 10 year yield minus the inflation americans feel. i use the cleveland statistic. really doesn't matter. we are where we have never been before, back 30 plus years, a

massive negative yield. what do you have? francine: there is only one chart, the inverted yield curve. basically, this happened about 20, 30 minutes ago. the u.k. yield inversion for the first time since the financial crisis is a sign we worry about the global economy. the gap between the two and 10 year yields dropping below zero is because we had inflation rising above the bank of england's target of 2%, and that is definitely a brexit concern. we will have more on the yield curve come on the 30 year in the u.s., and the u.s.-china standoff. delay of president donald trump's next tranche of tariffs is chairing markets -- cheering markets somewhat.

joining us from hong kong is enda curran. great to have you. tom was asking in on the money question, is president trump doing this for tim cook apple? is it because he wants to make sure the iphones arrived or is it overture to china? sebastian: on the u.s. side -- enda: on the u.s. side, they are taking that there would be hit -- be a hit on the consumer side. there is a view china is digging in for the long haul. if you want to call it a concession, will not change their calculations or outlook. they had demands around tariffs being lifted immediately and lifting the curbs on huawei, and views on economic certainty. the view on a lot of people is

the trade war remains on. tom: i want to begin our coverage of the financial markets in the u.s. with you and hong kong. bloomberg "surveillance," has seen the united states curve inversion. how will beijing adapt to these recession indicators? enda: i think it will tell them they will got -- not get much help for their own economy from the rural economy. we have a slowdown in germany and signs of we is in the u.s. -- weakness in the u.s. an ongoing slowdown, retail sales with a big mess. -- miss. all of that means china will have to support its own economy. the world will not rescue us. tom: enda curran in hong kong.

let me go to the chart of what we have seen the last four days. chert --he vanilla chart. we have the perfect guest this morning who can link the greater markets on the stock market given this fixed income indicator, jonathan golub of credit suisse. you have tattooed to your brain the bond market is always ahead of the equity markets. what is the signal to u.s. equity investors? jonathan: i would put up a slightly different chart. the yield curve has been inverted for quite a while. take a look at that green line compared to six months ago. the curve is severely inverted from fed funds, all the way out. this is not a new story. i have been a raging bull, telling investors not to buy

into this. tom: i am going to cut to the choice, and i do not want to take james sweeney's job. is this a moment where the fed -- the bank of england cannot do it -- does the fed have to come in with an emergency rate cut to get in front of the political and financial events? jonathan: i don't think this is a news flow issue because before trump tweeted we had a curve that looked like this. if they look at incoming data, we don't have an inflation problem -- tom: do they get religion and a rate cut for the scheduled meeting? jonathan: they don't. they don't need a meeting. they need to start talk about this and say, we are listening to the market. the fed cannot fight the market and if the curve is inverted up the short end because they are

holding the fed funds rate too high, it is not healthy for stocks and it will not change. francine: if the inverted yield curve continues inverting, is there a worry there is a feedback loop that markets freak out and we have a recession? jonathan: at is even simpler. -- it is even simpler. if you are a bank borrowing money overnight or one month, or borrowing is more expensing -- expensive than lending. why would a bank want to lend at a loss? it in a oneu leave month cd rather than putting it in a muni bond? it drains liquidity out of the market. the animal spirits will not move if the fed does not indicate that will do something different. the futures market is saying the

fed will do something. it is not like a child wanting candy. they realize the only rational thing for the fed is to put the curve in a different place. francine: is there a risk of a race to the bottom? if this picture doesn't change, it will start to basically increase the recessionary risk to the broad system and affect business values and business behavior. tom: don't fight the fed, marty's weick would say don't fight the fed. why does the fed have to fight the markets? jonathan: the market is telling you the fed funds rate is too high. tom: what is the fed afraid of? jonathan: i guess they are afraid that you have a tight

labor market and we are going to wake up tomorrow and inflation will run away and they will stimulate at the wrong end. tom: does james sweeney believe that? jonathan: i don't believe so. if you are simply looking at growth and inflation data and you are the fed, you would do nothing. if you are the curve, you would be jumping all over it. it is a conundrum. francine: treasuries gaining, european bonds gaining. china said it was sticking to september trade talks with the u.s., so talks seem to remain on talk touch on track. -- on track. we have some disappointing data andof germany and china, the u.s. 30 year yield falling to a record low, and an inverted

yield curve in the u.k. this is bloomberg. ♪

♪ this is bloomberg "surveillance." no longerays it will transcribe audio clips from users of its services. a bloomberg group reported the ofial network made hundreds transcriptions. contractors were said to be rattled by the group. they were checking whether artificial intelligence correctly interpreted the messages. the u.s. ftc wants to hear complaints from amazon from third-party sellers on whether

they punish merchants who offer lower prices on other sites. sayingopped short and they have launched an investigation. amazon says sellers have full control over the prices they said. an investor is considering legal action against viacom over the merger with cps -- cbs. his stock is being bought or less what he perceives as the market value. merged viacom agreed to in an all stock deal. tom: jonathan golub with us of credit suisse. nowant to go to washington with futures at -23 and the 30 year bond down to a 2.07. kevin cirilli does not care about the 10 year bond or what libor is doing. he cares about the capitulation

of a president. i want to go to a spectacular news'ion by bloomberg summary of the carnage of yesterday. to pressuret bowed from businesses and concerns over the economic fallout of his trade war. tuesday's move to hit the pause button. the delay has been made "so it won't be relevant to kevin cirilli's christmas shopping season." the president understands the tariffs are hurting american companies and consumers. why would the chinese make difficult decisions if they can wait for trump to fold when the stock market sags? what did larry kudlow do? kevin: there was a consensus within the administration that they needed to signal to american consumers they were

aware of not just the market concerns, but also the consumer concerns. there is growing pressure within the republican party to put pressure on the white house to get them to articulate an angle and soften the blow potentially. they would be tripping over themselves. the president says the economy is so strong. they would be tripping over themselves if they did not split off these tariffs and have laptops, iphones, whatnot tariff during the holiday season. francine: is it a stretch to say the market interpret the president will fight but in no way will he try and hurt the u.s. consumer? kevin: that is a great question and we don't have the answer. most and washington were watching for the announcement of currency manipulator in china, whether the president would engage in the forex markets.

that is not something they would do. then you couple it with the divide of the implementation of tariffs on chinese goods, it is shaping up to be an interesting september when the chinese delegation arrives in washington , and also an interesting end of the year because december 15 is not that far away. we are starting to see new markers and the ongoing u.s.-china talks. tom: kevin cirilli, thank you. we will look at the markets. now.ar bond under a 2.07 markets deteriorate -26. mr. whitaker, we will have on in the 4:00 our. -- hour. this is bloomberg. ♪

♪ tuesday, aoric historic august. an inverted yield curve in the united kingdom and the united states. many say an indicator of recession. let's look at the equity markets. the gloom of yesterday was tangible. up we go, the president with his salvation. we get a moonshot in the equity markets off the trump

capitulation, and this indicates the rollover. this is long term, a three-day chart. guys like you long-term are looking at three-day charts. jonathan: i look at it differently. we are flat for a year on the s&p. tom: what is the signal? jonathan: if you have decelerating global data and following interest rates, stocks cannot go up. until the fed takes some kind of action to indicate they will address the yield curve problem, interest rates will continue to stink and they will pressure the fed. level wheree a corporate behavior changes on use of cash? jonathan: on interest rates? tom: the equity market goes down, let's buy back our shares. jonathan: i don't hear ceo's talking about the value of their

stock. pmi,u look at the ism and pmimajority of the world, is an contraction. that is the story that the economics are showing signs of week and the stock market is reflecting it. francine: let me bring you to my chart looking at negative debt worldwide, over 16 trillion and rising by the day. you cannot find a yield on any of these, where do you go? gold, cash under your mattress? jonathan: what it is going to do is push people back into equity markets. the yield on the s&p is about 2% in a world where you are getting way less than that on a 30 year government bond. the real story, this is a problem for retirees who do not have the interest rates they need to meet their needs.

it forces people to cut back on spending so ultimately this will be hit to spending for people in the u.s., europe, and elsewhere. francine: jonathan golub from credit suisse stays with us. lowu.s. 30 year at a record as the yield curve inverts. the german economy is blurring -- worrying investors, piling on the pressure for more stimulus. they u.k. yield curve inverting. there is a lot of information. this is bloomberg. ♪

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queen victoria street. at queenne lacqua victoria street. a huge move of the 30 year from the 3% level we were watching for months. we have plunged down. 1.99% on the 30 year bond? extraordinary times. we will continue this discussion. unleashing aa torrent of verbal abuse on the protesters who swarmed hong kong's airport, comparing them to terrorists and saying they committed atrocities. the airport resumes normal operations. new economic reports from china adding to the case to rollout more stimulus. they posted the weakest

industrial output growth since 2002. , due to the slumped ongoing contraction in auto sales. donald trump went to western pennsylvania where he boasted about the number of manufacturing jobs he created, but a recession in the sector threatens to hurt his chances and the critical states of pennsylvania, michigan, and ohio. factory output has been declining. -- helping voters struggling with unemployment and inflation, including an increase in child care benefits and assistance to low income workers. 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: in hong kong, the airport is resuming normal operations after a chaotic night of protests. authorities obtained a court order to stop demonstrators from obstructing operations. joining us now from the hong kong airport is yvonne man. she has been at the airport following the developments. yesterday, the scenes were pretty difficult to watch. what will happen in the next couple of days? we understand the situation at hong kong airport is manageable because they have not allowed the protesters to get their, is that right? yvonne: that is right. far less bigger crowd than yesterday, a few

dozen of protesters after the injunction was issued at 2:00 afternoon local time. security has been tight coming into the airport. passengers flying out of hong kong are only allowed in. they are checking passports, tickets, and boarding passes. protesters have been barred from coming in. anyone may be held in contempt of court. the airport express also doing some crowd control, decreasing the frequency of the trains from the city to the airport to 25 minutes. they are telling passengers to come three hours before their flights. francine: some of the official offices were saying the airport violence was almost as terrorism. how does that get interpreted by the protesters?

does it give insight into what china could do next? yvonne: we were speaking to some of these protesters about exactly how they felt about last night's events, wasn't going too far in these violent -- was it going too far in these violent crashes? people protesting peacefully say it is a different situation and are looking at it as separate events. it is hard to view, given the moment that beijing is looking , ramping upation the rhetoric, calling it terrorism behavior. in the last couple of minutes, cathay pacific saying it has terminated two pilots. not sure what is behind that decision. this civil aviation regulators

issued a warning after staff members were allegedly taking part in some of these demonstrations. the airline has been pressured to do something about this. perhaps that is why we are seeing this, but the stock has been pummeled all week. this fresh uncertainty we are seeing surrounding the airline. tom: yvonne man, greatly appreciated, from the hong kong airport. let's speak to someone encyclopedic about the capabilities of china and the speculations of military at the border with hong kong. that can only be george friedman, and we are thrilled he could find an early morning in austin. it is a late tank first displayed by china a year or two ago. will we see tanks rumbled down

the 15 miles from the border into hong kong? george: the chinese hope not. they help these demonstrations will die down on their own and the tanks at the border will scare them. these demonstrators have passed that point where they are going to quietly go away. they have had a sense of power and they will not give it up slightly, and the chinese -- give it up lightly, and the chinese cannot have hong kong in this condition. they are afraid it will spread to the mainland. perhaps are qualified, with the exception of henry kissinger and mr. soros to talk about tanks in the morning. you grew up with a budapest hungary and all of a sudden they are at the doorstep. is the president of the united states naive of the history? jonathan: i don't know that he

is night -- george: i don't know that he is naive. the print -- the problem is that xi is increasingly a failure. worked, thehas not hong kong situation has risen. he has failed on trade and he is under tremendous pressure inside of chai -- china. i am sure there is question in the central committee about whether this guy knows what he is doing. if he attacks hong kong, he will furthero criticism attention it creates. if he does not, people will be thinking, things are not as good as they used to be in china, maybe we are going to rise. francine: you have just laid out the conundrum, which is why it is difficult to see how this ends. given what have -- what you have

said, how should president xi handle this? george: anything he does is bad, but unless you can terrify the possibility of an invasion by the demonstrators, unless they back off he will have to move in. he cannot allow hong kong to behave this way, and that is a big risk because hong kong is a financial hub. it is an interface between china and the rest of the world. it will strengthen the hand of trump in the united states in resisting the chinese. there is a lot of opposition on the trade war. francine: what do you mean by moving in? how much potential does this have to be heavy-handed? be, ifesident xi need to not the backing of president trump, at least no criticism of how he handles the hong kong situation? george: the least of his worries

is trump. it is a central committee that will want to know how he led a peaceful situation get this far out of control, why his intelligence services did not predict and control it. if you are going to put it down, put it down. if it is not going to go away itself, he is going to have to move armored forces in, and that is always ugly. you have an ugly situation. can he survive with that, and can the chinese exist with the threat that hong kong poses for the rest of china as an example of what might happen? tom: george, thank you so much, george friedman of geopolitical futures, their founder and chairman. jonathan golub with us with credit suisse. we do this with data that is extraordinary, any number of data points.

we have an version of the 2-10 spread with the 10 year yields, 1.62%. e.u. banking with new negative yields, futures -26. this is bloomberg. ♪

♪ this is bloomberg "surveillance." tesla short-sellers are taking the lead in the perennial struggle between bulls and bears, plunging 20%, making tesla the most profitable short bet in the u.s. bears have seen almost 2.8 billion of mark to market gains.

u.s. airline safety regulators banning certain apple laptops on flights. some devices have batteries that pose a fire risk. they are 15 inch macbook pros sold between september 2015 and february 2017. astrazeneca says it so vence -- ovarian cancer drug hit its goals, a finding that could change the way patients are treated. ovarian tumor growth slowed in patients that received the drug. that is the bloomberg business flash. day, his special single best chart. how about a double best chart? suisse, golub it credit let's look at the history of the 2-10 spread. look at the rarity of this event, the 1990's, maybe 2001,

the great financial crisis, and we are back here again. 101 on how the investors deal with the 210 and version? if the if -- jonathan: fed needed to clamp down on inflation, that would make sense. the fed is empowered to change this dynamic in the market is saying they have to. tom: i want to bring up francine's chart. it is so cool, double best chart. francine: hillary clark did a great job. this is basically the s&p dividend yields and it has been outstripping the 10 year treasury yield. the concern is a few need yield, if you are searching for yield and equities are undervalued, do

you just go after the stocks that give it back? is there danger they do not reinvest? jonathan: this is what we are talking to our clients about. you can get close to a 2% yield on the s&p 500 and if you add the buybacks come all the capital being returned back to shareholders, you are getting close to a 4% yield on the s&p and you are getting weigh less than 2% on a bond. i hate to say there is no other choice, ultimately anyone who needs a yield is moving to the equity market and what will change this downward spiral in the stock market is flows into the equity markets for the reason this chart lays out. francine: do you have a probability of a recession worldwide in the next 18 months? jonathan: if you look at the yield curve is the only indicator, you are concerned.

if you look at hiring issues, we don't have a problem. if you look at inflation as a threat, not a problem. if you look at corporate profitability, it is weak but not yet contracting. credit spreads are behaving well , people are paying their loans. the chance of a recession is low but the longer this goes on, the greater the risk. tom: what you do is sector analysis. everyone is on board with defensive. define defensive equities and is it a one-way trade? jonathan: there are three buckets in the equity market. secular growers that do not need the economy to force it, and the s&p there are probably 35 of them, a small group. ast bucket, stuff that looks much like a bond that you can get, high dividend yields, low

volatility. those are levitating. , andbucket is cyclical industrial company or mining company. you do not want to touch those until you see the scenario. tom: your call on the u.s. banks? jonathan: they are returning so capital. however, if interest rates go further they do not do well but if they stabilize, the banks are the big winner. francine: all banks? jonathan: u.s. banks, absolutely. if you'd -- if you look at the dividend plus buybacks, banks are yielding close to 10%. compared to european banks, they are generating about half their income from fees, which means they are less susceptible to the gyrations of bond market. they have been de-risked compared to what they are,

holding a ton of capital in their risk portfolios. if we get interest rates to be level up from here, the banks become interesting but until that point, the market will not like them. francine: well we have consolidation? -- well we have consolidation in the u.s.? jonathan: that is a question for the folks who cover the banks and no much better. -- know much better. the day to day move of the banks , they move with the direction of yield curve. at some point in time they will be a brilliant buy. tom: can we show francine's chart again? she has out charted me. i don't think i have got yield growth on the 10 year yield. growthghting of dividend

versus the actual coupon now. jonathan: let's assume you have a 2% dividend yield but next year it is 2.05%. tom: a single digit 24 months. jonathan: it grows with gdp. i think ultimately the stock market as a 17 multiple, we will see a 20 multiple by the end of the cycle not because stocks are brilliant and there is growth, but because interest rates are so low it will force money in. is it time to jump in the trade? probably not, but over the next 12 to 24 months you will see seeuation -- you will evaluation. -- valuation. tom: you have curve inversion in the united kingdom and united states.

u.k. inversion is a worse level. germany,w yields in difficult germany data as well. this is bloomberg. ♪

♪ this is bloomberg "surveillance." we have the yield curve and versions in the u.s. and u.k. -- inversions in the u.s. and u.k. let's go to one of the most definitive and authoritative voices when it comes to bonds. you had a great piece which basically looked at the criteria for defining a bubble and you say bonds met that criteria. what does it mean for the future? john: i suppose it means two things. first of all, we are very much more in a bubble and when the bubble finally bursts, it will hurt that much more. secondly, it is very difficult to ignore such a strong signal from the bond market.

it implies very clearly we are likely to have a recession within a year to 18 months. it is not a good time to be holding stocks once you have an inversion. although you can never be great about timing these things, it would be unwise to ignore the signal that the bond market is sending, even though we are at a historic point where it looks as hasgh the bond market [indiscernible] francine: do you think central banks are behind the curve? john: i don't think that makes sense. at this point, the bond market is betting that the fed and central banks will have to go further than they have done so far. that is plain enough.

i don't think it makes sense to say the central banks need to even more than they are doing already. negative rates are an issue, not a problematic issue. you don't want the central banks to be going there if they can potentially avoid it. francine: if bonds are not above all like you argue, what would be the catalyst for the bubble bursting and what timeframe? john: in terms of what timeframe, that is a great issue. the biggest bubble in most of our memories was the dot com bubble and there was no clear catalyst for that one when it finally did first. you had to many -- burst. you had many months when the fundamentals had been left behind. catalyststed external

that could have an effect, i would say any clear evidence that there really is some inflation in the u.s. this is what everyone was expecting at the beginning of the year, we would get evidence there is a true effect from the china stimulus coming through, that china is managing to grow. perhaps least likely at the moment, some really clear deal on u.s.-china trade, some definitive settlement. i find that unlikely, but it could be a catalyst for bursting the bubble. francine: he is drawn authers, -- john authers. this is bloomberg. ♪

♪ david: risk off, way off.

low 30 year yields a record as to your yields go higher than 10 year yields. are they signals of a recession to come? chinese industrial production in 17 grown this slowly years, and germany's economy contracts for the second time in four quarters. president trump delays new tariffs on chinese electronics, driving stocks higher, led by retail and tech for a temporary respite. welcome to "bloomberg daybreak" 14.his wednesday, august taylor: nothing like ripping up the script and throwing out the playbook as we head into the show. bonds are basically the only thing you need to know today. you had the u.k. yield curve that inverted. 15 minutes later, the u.s. yield curve inverts as the 30 year a record low.